CHINA STATE CONSTRUCTION DEVELOPMENT HOLDINGS LIMITED - Proxy Solicitation & Information Statement 2002

THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this document 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 all your shares in Universal Appliances Limited, you should at once hand this document and the accompanying form of proxy to the purchaser or to the bank, stockbroker or other agent through whom the sale was effected for transmission to the purchaser.

The Stock Exchange of Hong Kong Limited and Hong Kong Securities Clearing Company Limited take no responsibility for the contents of this document, 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 document.

Recommended proposal for

UNIVERSAL APPLIANCES LIMITED 友利電訊工業有限公司

(incorporated in Hong Kong under the Companies Ordinance with limited liability)

to become a wholly-owned subsidiary of

UNIVERSAL HOLDINGS LIMITED 友利控股有限公司

(a new holding company incorporated in the Cayman Islands with limited liability and the shares of which are proposed to be listed on The Stock Exchange of Hong Kong Limited by way of introduction)

pursuant to a

SCHEME OF ARRANGEMENT

(under section 166 of the Companies Ordinance, Chapter 32 of the Laws of Hong Kong)

PROPOSED ADOPTION OF HOLDINGS SHARE OPTION SCHEME GENERAL MANDATES TO REPURCHASE HOLDINGS ORDINARY SHARES AND TO ISSUE NEW HOLDINGS ORDINARY SHARES

Financial Adviser and Sponsor

Ernst & Young Corporate Finance Limited

Notices of the Court Meetings (as defined herein) and the Extraordinary General Meetings (as defined herein) are set out on pages 181 to 191.

The actions to be taken by you are set out on page 34. Whether or not you propose to attend any of the meetings, you are requested to complete and return the relevant form(s) of proxy accompanying this document in accordance with the instructions printed thereon as soon as possible.

Subject to the granting of listing of, and permission to deal in, the shares of Holdings (as defined herein) on The Stock Exchange of Hong Kong Limited and compliance with the stock admission requirements of the Hong Kong Securities Clearing Company Limited, those shares will be accepted as eligible securities by Hong Kong Securities Clearing Company Limited for deposit, clearance and settlement in the Central Clearing and Settlement System (“CCASS”) with effect from the commencement date of dealings in such shares or such other date as determined by Hong Kong Securities Clearing Company Limited. All activities under CCASS are subject to the General Rules of CCASS and CCASS Operational Procedures in effect from time to time.

31st July, 2002

	Page
Definitions ........................................................................................................................................	1
Responsibility statement ...............................................................................................................	6
Summary ..........................................................................................................................................	7
Expected timetable.........................................................................................................................	10
Letter from the Board ...................................................................................................................	12
Explanatory Statement..................................................................................................................	20
Appendix I — Information relating to Holdings............................................................	35
Appendix II — Information relating to the Group..........................................................	62
Appendix III — Financial information................................................................................	69
Appendix IV — Property valuation .....................................................................................	111
Appendix V — Additional information..............................................................................	137
Appendix VI — Summary of the differences of certain provisions
between Companies Ordinance and Companies Law ....................	142
Appendix VII — Summary of the constitution of Holdings
and material differences with the constitution
of the Company.......................................................................................	148
Scheme of Arrangement................................................................................................................	174
Notice of Ordinary Court Meeting .............................................................................................	181
Notice of Preference Court Meeting...........................................................................................	183
Notice of Ordinary EGM..............................................................................................................	185
Notice of Preference EGM............................................................................................................	190

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DEFINITIONS

In this document (other than in the Scheme, the notices of the Court Meetings and the notices of the Extraordinary General Meetings), unless the context otherwise requires, the following expressions have the following meanings:

“Associated Company” a company, not being a subsidiary, in which Holdings directly or indirectly holds not less than 20 per cent. of its issued share capital or the voting power at general meetings or in which an equity interest is held by Holdings directly or indirectly for long term purpose and a significant influence is exercised over its management
“Board” the board of Directors “Business Day” a day (other than Saturday) on which banks in Hong Kong are open to conduct business
“CCASS” the Central Clearing and Settlement System established and operated by HKSCC
“Companies Law” the Companies Law, Cap. 22 (Laws of 1961, as consolidated and revised) of the Cayman Islands
“Companies Ordinance” the Companies Ordinance, Chapter 32 of the Laws of Hong Kong “Company” Universal Appliances Limited(友利電訊工業有限公司 ), a company incorporated in Hong Kong under the Companies Ordinance with limited liability and whose Ordinary Shares are listed on the Stock Exchange
“Conversion Date” in relation to any Holdings Preference Share, the close of business on any Business Day falling on which any of the Conversion Right attaching to such Holdings Preference Share is duly exercised by delivery of a duly completed Conversion Notice, duly executed instrument of transfer and the share certificate in respect thereof to Holdings
“Conversion Notice” the notice of exercise of the Conversion Rights attaching to any Holdings Preference Share
“Conversion Rights” the rights attached to the Holdings Preference Shares to convert the same into the Converted Shares
“Converted Shares” 240,760,000 (subject to adjustments) Holdings Ordinary Shares which will fall to be issued upon exercise of the Conversion Rights

— 1 —

DEFINITIONS

“Court”	the High Court of Hong Kong of First Instance
“Court Meetings”	collectively, the Ordinary Court Meeting and the Preference Court
	Meeting
“Deemed Conversion Price”	the deemed conversion price referred to and calculated in
	accordance with the formula set out in sub-paragraph headed
	“Conversion” in Appendix I to this document (subject to
	adjustments referred to therein)
“Directors(s)”	the director(s) of the Company
“Effective Date”	the date upon which the Scheme, if approved, becomes effective,
	which is expected to be 18th September, 2002
“Executive”	the Executive Director of the Corporate Finance Division of the
	SFC and any delegate of the Executive Director
“Existing Share Option	the existing employee share option scheme of the Company adopted
Scheme”	on 4th August, 1999
“Extraordinary General	collectively, the Ordinary EGM and Preference EGM
Meetings”
“EYCFL”	Ernst & Young Corporate Finance Limited, a registered dealer
	and investment adviser under the Securities Ordinance (Chapter
	333 of the Laws of Hong Kong), which acts as the financial adviser
	to the Company and as sponsor to Holdings
“First Conversion Period”	the time period commencing from the Business Day immediately
	following the first anniversary of the Issue Date and ending on
	the Business Day immediately preceding the second anniversary
	of the Issue Date
“Group”	the Company and its subsidiaries and, upon the Scheme becoming
	effective, Holdings and its subsidiaries (which will include the
	Company and its subsidiaries)
“HKSCC”	Hong Kong Securities Clearing Company Limited
“Hong Kong”	the Hong Kong Special Administrative Region of the PRC

— 2 —

DEFINITIONS

“Holdings”	Universal Holdings Limited(友利控股有限公司),a company
	incorporated in the Cayman Islands under the Companies Law
	with limited liability and whose ordinary shares are proposed to
	be listed on the Stock Exchange by way of introduction
“Holdings Group”	Holdings and its subsidiaries upon the Scheme becoming effective
	(which will include the Company and its subsidiaries)
“Holdings Ordinary Share(s)”	ordinary share(s) of $0.01 each in the share capital of Holdings
“Holdings Preference Share(s)”	non-voting convertible preference share(s) of $0.01 each in the
	capital of Holdings, details of the terms and conditions of which
	are set out in Appendix I to this document
“Holdings Share	the share option scheme proposed to be adopted on a conditional
Option Scheme”	basis by Holdings prior to the Effective Date, the principal terms
	of which are summarised in the paragraph headed “Holdings Share
	Option Scheme” in Appendix I to this document
“Holdings Shares”	the Holdings Ordinary Shares and the Holdings Preference Shares
“Holdings Shareholders”	the holders of the Holdings Ordinary Shares and the holder(s) of
	the Holdings Preference Shares
“Issue Date”	the day of allotment and issue of the Preference Shares (that is
	6th August, 1999)
“Latest Practicable Date”	29th July, 2002, being the latest practicable date prior to the
	printing of this document for ascertaining certain information for
	inclusion in this document
“Listing Rules”	the Rules Governing the Listing of Securities on the Stock
	Exchange
“Meetings”	the Court Meetings and the Extraordinary General Meetings
“Mr. Ko”	Ko Chun Shun, Johnson being a Director and the Chairman of the
	Company and Holdings
“Ordinary Court Meeting”	the meeting of the Ordinary Shareholders to be held on 23rd
	August, 2002 which is convened at the direction of the Court,
	notice of which is set out on pages 181 and 182 of this document,
	and any adjournment thereof

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DEFINITIONS

“Ordinary EGM”	the extraordinary general meeting of the Ordinary Shareholders to
	be held on 23rd August, 2002, notice of which is set out on pages
	185 to 189 of this document, and any adjournment thereof
“Ordinary Share(s)”	ordinary share(s) of $0.18 each in the share capital of the Company
“Ordinary Shareholder(s)”	holder(s) of the Ordinary Share(s)
“PRC”	the People’s Republic of China which, for the purpose of this
	document only, excludes Hong Kong, Macau and Taiwan
“Preference Court Meeting”	the meeting of the Preference Shareholder(s) to be held on 23rd
	August, 2002 which is convened at the direction of the Court,
	notice of which is set out on pages 183 to 184 of this document,
	and any adjournment thereof
“Preference EGM”	the extraordinary general meeting of the Preference Shareholder(s)
	to be held on 23rd August, 2002, notice of which is set out on
	pages 190 and 191 of this document, and any adjournment thereof
“Preference Share(s)”	non-voting convertible preference share(s) of $0.18 each in the
	capital of the Company, details of the terms and conditions of
	which are set out in the Company’s circular dated 12th July, 1999
“Preference Shareholder(s)”	the holder(s) of the Preference Shares being, as at the Latest
	Practicable Date, Blue World Investments Limited which was the
	sole holder of the Preference Shares and has been (together with
	its ultimate beneficial owner) independent and not connected with
	the directors, chief executive or substantial shareholders of the
	Company or any of its subsidiaries and their respective associates
	(as defined in the Listing Rules)
“Record Time”	4:00 p.m. Hong Kong time on the Business Day immediately
	preceding the Effective Date
“Scheme”	the scheme of arrangement under Section 166 of the Companies
	Ordinance between the Company and the holders of Scheme Shares
	set out on pages 174 to 180 of this document with or subject to
	any modification thereof or addition thereto or condition(s)
	approved or imposed by the Court

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DEFINITIONS

“Scheme Ordinary Shares”	the 2,774,293,157 Ordinary Shares in issue as at the Latest
	Practicable Date together with any further Ordinary Shares which
	may be issued prior to the Effective Date
“Scheme Preference Shares”	the 240,760,000 Preference Shares in issue as at the Latest
	Practicable Date or such lesser amount as may be resulted from
	the exercise of the conversion rights attaching to such Preference
	Shares prior to the Effective Date
“Scheme Shares”	the Scheme Ordinary Shares and/or the Scheme Preference Shares,
	as the case may be
“Second Conversion Period”	the time period commencing from the Business Day immediately
	following the second anniversary of the Issue Day and ending on
	Business Day immediately preceding the third anniversary of the
	Issue Day
“SFC”	the Securities and Futures Commission
“Shareholders”	the Ordinary Shareholders and the Preference Shareholder(s)
“Shares”	the Ordinary Shares and the Preference Shares
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Takeovers Code”	the Hong Kong Code on Takeovers and Mergers
“Third Conversion Period”	the time period commencing from the Business Day immediately
	following the third anniversary of the Issue Date and continuing
	onwards
“$” and “cents”	Hong Kong dollars and cents, respectively, the lawful currency of
	Hong Kong
“%”	per cent.

— 5 —

RESPONSIBILITY STATEMENT

This document includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to Holdings and the Group. The respective directors of the Company and Holdings collectively and individually accept full responsibility for the accuracy of the information contained in this document pertaining to Holdings and the Group 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.

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SUMMARY

PROPOSAL

It is proposed that the structure of the Group be reorganised by way of the Scheme described in this document pursuant to which Holdings, a company incorporated in the Cayman Islands with limited liability, will become the new holding company of the Group and the Shareholders will become the Holdings Shareholders.

The Group is principally engaged in the design, integration and installation of platforms for digital broadcasting systems and development of related media software and products, retail and distribution of home audio and video equipment, provision of international financial market information and selective consumer data, and provision of internet protocol telephony and related services.

The proposed reorganisation will not, except in respect of the expenses relating thereto which is estimated to be approximately $2,500,000, alter the business, management, financial position, underlying assets or liabilities of the Group.

EFFECTS

Ordinary Shares

As stated in the Explanatory Statement, it is proposed that Holdings will acquire, by means of the Scheme, the Ordinary Shareholders’ investments in the Company. Holders of Scheme Ordinary Shares will receive one Holdings Ordinary Share for every Scheme Ordinary Share held by them as at the Record Time.

Upon implementation of the Scheme, the Company will become a wholly-owned subsidiary of Holdings and the Ordinary Shareholders will become holders of Holdings Ordinary Shares. As a result, all existing subsidiaries of the Company will become indirect subsidiaries of Holdings and Holdings will be the holding company of the Group. Upon the Scheme becoming effective, the Holdings Ordinary Shares will be listed on the Stock Exchange by way of introduction and the listing of the Ordinary Shares on the Stock Exchange will be withdrawn.

Save and except for the material differences as set out in Appendix VII to this document headed “Summary of the constitution of Holdings and material differences with the constitution of the Company” (in particular the paragraphs headed “Variation of rights of existing shares or classes of shares”, “Voting rights (generally and on a poll) and right to demand a poll”, “Proxies”, and “Inspection of register of members” on pages 159 to 170 of this document) and Appendix VI to this document headed “Summary of the differences of certain provisions between Companies Ordinance and Companies Law” (in particular the paragraph headed “Protection of minority shareholders” on page 147 of this document), the Holdings Ordinary Shares shall give the holders thereof substantially the same rights and obligations as attaching to the Ordinary Shares.

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SUMMARY

Preference Shares

It is proposed that Holdings will also acquire, by means of the Scheme, the Preference Shareholder’s(s’) investments in the Company. The holder(s) of Scheme Preference Shares will receive one Holdings Preference Share for every Scheme Preference Share held by him/her/it/them as at the Record Time. Terms of the Preference Shares and the Holdings Preference Shares are basically the same. Holdings Preference Shares shall give the holders thereof substantially the same rights and obligations as attaching to the Preference Shares save and except for the material differences as set out in Appendix VII to this document headed “Summary of the constitution of Holdings and material differences with the constitution of the Company” (in particular the paragraphs headed “Variation of rights of existing shares or classes of shares”, “Voting rights (generally and on a poll) and right to demand a poll”, “Proxies”, and “Inspection of register of members” on pages 159 to 170 of this document) and Appendix VI to this document headed “Summary of the differences of certain provisions between Companies Ordinance and Companies Law” (in particular the paragraph headed “Protection of minority shareholders” on page 147 of this document). Details of the terms and conditions of the Holdings Preference Shares are set out on pages 46 to 51 in Appendix I to this document.

Nominal value and ownership

The par values of the Ordinary Shares and of the Holdings Ordinary Shares are $0.18 and $0.01 respectively. The par values of the Preference Shares and the Holdings Preference Shares are $0.18 and $0.01 respectively. The lower par value of the Holdings Ordinary Shares and the Holdings Preference Shares will not affect the proportion of the net assets of Holdings attributable to each of the Ordinary Shareholders and the Preference Shareholder(s) who will become the holders of the Holdings Ordinary Shares and the holder(s) of the Holdings Preference Shares when the Scheme becomes effective.

The proportionate interests of the holders of the Holdings Ordinary Shares and the holder(s) of the Holdings Preference Shares in Holdings will be the same as the existing proportionate interests of the Ordinary Shareholders and the Preference Shareholder(s) in the Company respectively.

Reserve

— 8 —

SUMMARY

account in the books of Holdings upon the Scheme becoming effective is estimated to be approximately $185,599,900, which represents the difference between the audited consolidated net asset value of the Company as at 31st December, 2001 (approximately $215,751,000) and the aggregate nominal value of the Holdings Shares to be allotted and issued, credited as fully paid at par, pursuant to the Scheme (approximately $30,151,000) less the amount of $100 required to pay up the 10,000 existing nil paid Holdings Ordinary Shares in issue. The actual amount to be credited to the share premium account of Holdings will be determined with references to the actual consolidated net asset value of the Company as at the Effective Date and the actual number of shares to be allotted and issued by Holdings to the Holdings Shareholders pursuant to the Scheme.

Any amount standing in such share premium account so created can only be distributable subject to the provisions of the Companies Law and the constitutional documents of Holdings, including but not limited to, the ability of Holdings to pay its liabilities as they fall due in the ordinary course of business.

SHAREHOLDERS’ APPROVAL

The implementation of the Scheme is conditional on, among other things, the approval of the Scheme by the Ordinary Shareholders and the Preference Shareholder(s) and the sanction of the Scheme by the Court.

— 9 —

EXPECTED TIMETABLE

2002

Latest time for lodging forms of proxy in respect of:

Ordinary Court Meeting (Note 1) .............................................................. 10:00 a.m. on 21st August Preference Court Meeting (Note 1) ........................................................... 10:30 a.m. on 21st August Ordinary EGM (Note 1) .............................................................................. 11:00 a.m. on 21st August Preference EGM (Note 1) ........................................................................... 11:30 a.m. on 21st August

Ordinary Court Meeting ................................................................................ 10:00 a.m. on 23rd August

Preference Court Meeting.............. 10:30 a.m. on 23rd August or as soon thereafter as the Ordinary Court Meeting shall have been concluded or adjourned

Ordinary EGM ............................. 11:00 a.m. on 23rd August or as soon thereafter as the Preference Court Meeting shall have been concluded or adjourned

Preference EGM ............................. 11:30 a.m. on 23rd August or as soon thereafter as the Ordinary EGM shall have been concluded or adjourned

Court hearing of petition to sanction the Scheme ......................................................... 17th September

Record Time ................................................................................................ 4:00 p.m. on 17th September Last day of dealings in the Ordinary Shares ........................................... 4:00 p.m. on 17th September Withdrawl of listing of the Ordinary Shares ............................. close of business on 17th September Effective Date (Note 2) ..................................................................................................... 18th September

First day of dealings in the Holdings Ordinary Shares on the

Stock Exchange in board lots of 50,000 shares .................................. 9:30 a.m. on 18th September

First day for exchange of existing certificates for the Ordinary Shares and the Preference Shares for new certificates for the Holdings Ordinary

Shares and the Holdings Preference Shares respectively free of charge ................ 18th September

First day for DBS Vickers (Hong Kong) Limited to stand in the market

to purchase and sell odd lots of the Holdings Ordinary Shares .............................. 18th September

Last day for DBS Vickers (Hong Kong) Limited to stand in the market

to purchase and sell odd lots of the Holdings Ordinary Shares ................................... 17th October

Last day for exchange of existing certificates for the Ordinary Shares and the Preference Shares for new certificates for the Holdings Ordinary

Shares and the Holdings Preference Shares respectively free of charge ..................... 17th October

— 10 —

EXPECTED TIMETABLE

Notes:

Forms of proxy should be returned to the Company’s share registrar, Tengis Limited, 4th Floor, Hutchison House, 10 Harcourt Road, Central, Hong Kong by the time mentioned above; in the case of the yellow form of proxy for the Ordinary Court Meeting, and the pink form of proxy for the Preference Court Meeting, they may also be handed to the chairman of the relevant Court Meetings at the relevant Court Meetings. Completion and return of a form of proxy for a Court Meeting or an Extraordinary General Meeting will not preclude a Shareholder from attending and voting in person at the relevant meeting. In the event that a Shareholder attends a meeting, his/her form of proxy for that meeting will be deemed to have been revoked.
The Scheme will become effective when it is sanctioned (with or without modification) by the Court, the reduction of capital of the Company involved therein is confirmed by the Court and an office copy of the Court order and the minutes as approved by the Court containing the particulars required by Section 61 of the Companies Ordinance are delivered to and registered by the Registrar of Companies in Hong Kong, which is expected to take place before 9:30 a.m. on 18th September, 2002.
All certificates for the Ordinary Shares and the Preference Shares in issue immediately before the Scheme becomes effective will, as from the Effective Date, be deemed respectively to be certificates for the same number of the Holdings Ordinary Shares and the Holdings Preference Shares issued and allotted or transferred under the Scheme, and will continue to be effective as documents of title after the last day of the free exchange period for the Holdings Ordinary Shares and the Holdings Preference Shares on the basis of one Ordinary Share for one Holdings Ordinary Share and one Preference Share for one Holdings Preference Share. However, certificates for the Ordinary Shares will cease to be marketable after the last day of the free exchange period for share certificates.

No closure of books will be built in the expected timetable.

— 11 —

LETTER FROM THE BOARD

UNIVERSAL APPLIANCES LIMITED 友利電訊工業有限公司

(incorporated in Hong Kong under the Companies Ordinance with limited liability)

Directors: Mr. Ko Chun Shun, Johnson (Chairman) Mr. Lui Pan, Terry Mr. Cheong Chow Yin* Mr. Wilton Timothy Carr Ingram[#] Dr. Wong Yau Kar, David[#]

Registered Office: Room 6301-06 The Center 99 Queen’s Road Central Central Hong Kong

Non-executive Director

# Independent non-executive Directors

31st July, 2002

To the Ordinary Shareholders and the Preference Shareholder

Dear Sir or Madam,

REDOMICILE PROPOSAL PROPOSED ADOPTION OF HOLDINGS SHARE OPTION SCHEME GENERAL MANDATES TO REPURCHASE HOLDINGS ORDINARY SHARES AND TO ISSUE NEW HOLDINGS ORDINARY SHARES

INTRODUCTION

On 22nd May, 2002 and 4th July, 2002, the Directors announced a reorganisation proposal whereby the Company would become a wholly-owned subsidiary of Holdings with a view to changing the domicile of the listed vehicle of the Group from Hong Kong to the Cayman Islands. A hearing of Originating Summons of the Court was held on 2nd July, 2002 and it was ordered by the Court that the Company be at liberty to convene the Court Meetings which are expected to be held on 23rd August, 2002. It is currently proposed that a Court hearing of the petition to sanction the Scheme will be held on 17th September, 2002 subject to the results of the Court Meetings and the Extraordinary General Meetings. The purpose of this document is to provide you with details of and reasons for the proposed reorganisation.

The reorganisation is intended to be implemented by means of the Scheme pursuant to which the Ordinary Shareholders and the Preference Shareholder(s) will, respectively, receive one Holdings Ordinary Share for every Ordinary Share held and one Holdings Preference Share for

— 12 —

LETTER FROM THE BOARD

every Preference Share held on the Effective Date. The listing of the Ordinary Shares on the Stock Exchange will be withdrawn and the Holdings Ordinary Shares will be listed on the Stock Exchange in their place.

Further details of the Scheme are contained in the Explanatory Statement which follows this letter. Conditions of the Scheme are set out on pages 24 and 25 of this document. Notices of the requisite Meetings to approve and implement the Scheme are set out on pages 181 to 191 of this document.

REASONS FOR THE SCHEME

In arriving at the recommendation to the Ordinary Shareholders and the Preference Shareholder that the Scheme is in the best interest of the Company, the Ordinary Shareholders and the Preference Shareholder as a whole and that the Ordinary Shareholders and the Preference Shareholder should vote in favour of the Scheme at the Court Meetings, the Directors have given due consideration to the commercial and legal advantages and disadvantages (principally in relation to the expenses of approximately $2,500,000 incurred therefor) of having the holding company of the Group incorporated overseas and, for that purpose, in particular the Cayman Islands. To enable the Ordinary Shareholders and the Preference Shareholder to make an informed judgment for the purposes of exercising their votes at the Court Meetings, set out below are the principal reasons for the Scheme which were considered by the Directors.

The Directors have considered the following factors in their decision to propose the Scheme to the Ordinary Shareholders and the Preference Shareholder:

1. The redomicile will facilitate more flexible business development strategies

The Group carries out its businesses in a number of countries and regions, including Hong Kong, the PRC, the United States and certain Southeast Asian countries. Currently, the majority of the Group’s revenue is derived from its business operations in Hong Kong and the PRC, accounting for about 89 per cent. of the Group’s revenue for the year ended 31st December, 2001. The remaining 11 per cent. of the Group’s revenue for the year ended 31st December, 2001 was in respect of the provision of internet protocol telephony and related services and the provision of international financial market information and selective consumer data outside of Hong Kong and the PRC.

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LETTER FROM THE BOARD

The Group will continue to develop its overseas businesses and will actively seek out and explore attractive new overseas business and/or investment opportunities. The Directors believe that having a new holding company incorporated overseas in the Cayman Islands will allow the Group to enjoy greater flexibility in formulating and carrying out the Group’s future expansion plans outside of Hong Kong and the PRC.

The establishment of a new overseas holding company enables the Group to set up companies directly under the new holding company to exploit any possible future overseas business development opportunities separate from the existing PRC-Hong Kong business structure of the Group in a tax efficient manner. This will enable the Group to organise its operations along geographic lines with separate reporting lines and responsibilities for the separate businesses of the Group. The Directors believe this will increase the effectiveness of the management of the separate businesses and will enable the Group’s management to evaluate the performance of such separate businesses more efficiently.

The Group wishes to develop its business around the world. An overseas holding company will allow the Group to project a more international image to customers and business partners and will assist in transforming the Group from being perceived as a local group to being seen as an international group.

2. Enhance future equity fund raising

In order for the Group to embark on its future expansion plans, including diversifying its revenue base and capitalising on its unique position as a digital media and telecommunication integrator, the Group needs to strengthen its capital base and liquidity to remain competitive in tougher environment and much larger geographic areas. However, the fund raising capability of the Company in the capital markets has been restricted for some time as the Ordinary Shares have traded below par for more than a year. Subject to the Scheme becoming effective, listing of the Ordinary Shares on the Stock Exchange will be withdrawn and the Holdings Ordinary Shares will then become listed on the Stock Exchange. A lower par value of $0.01 of the Holdings Ordinary Shares will facilitate the Group’s raising of new equity capital from the market to further develop its business and to pursue expansion opportunities.

3. Appropriate place of incorporation

The Directors have chosen the Cayman Islands as the jurisdiction as the place of incorporation of Holdings, the new holding company. The Cayman Islands is one of the few jurisdictions expressly recognised by the Listing Rules as an acceptable place of incorporation for overseas issuers. The Cayman Islands has been chosen as the place of incorporation of the Group’s intended holding company in view of its political stability, common law legal system and growing importance as an international centre with an increasing number of international companies incorporated there. The standards of shareholders’ protection as afforded in the Cayman Islands are at least comparable to those provided in Hong Kong.

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LETTER FROM THE BOARD

4. Development of efficient structure

In view of the Group’s intention to expand its business abroad to diversify its revenue base, the redomicile will enable the Group to take advantage of tax efficient structures in pursuing overseas business opportunities. The establishment of a new holding company will enable the Group to delineate its reporting lines geographically and provide flexibility and autonomy in the formulation and application of different corporate policies and strategies in line with the individual regulatory, accounting and operational environment in each jurisdiction. The Scheme, once effective, will facilitate Holdings to raise new equity capital from the market, which the Company has been restricted from doing for some time as the Ordinary Shares have been trading below par, to further develop its business and to pursue expansion opportunities. In addition, the Directors believe that, as in the case of many Hong Kong listed companies, an offshore legal domicile of the holding company of the Group in jurisdiction familiar to international investors will enhance the international standing of the Group, and help attract new potential investors.

Taking into account all of the above factors, the Directors considered that a holding company incorporated in the Cayman Islands would be the best solution for the reorganisation of the corporate structure of the Group. Accordingly, it is proposed that the listing status of the Company be replaced by a new holding company, which will be Holdings, by way of the Scheme. The Company will, on the implementation of the Scheme, become a wholly-owned subsidiary of Holdings.

SHAREHOLDING INFORMATION

Based on the number of the Ordinary Shares and the Preference Shares in issue as at the Latest Practicable Date and assuming there is no issue or repurchase of any Ordinary Share and conversion of any Preference Share from the Latest Practicable Date to the Effective Date, 2,774,293,157 Holdings Ordinary Shares and 240,760,000 Holdings Preference Shares will be in issue upon the Scheme becoming effective. Based on the above, upon full conversion of the Holding Preference Shares, 240,760,000 Holdings Ordinary Shares, representing approximately 8.7 per cent. of the issued ordinary share capital of Holdings as at the Effective Date and approximately 8.0 per cent. of the then enlarged issued ordinary share capital of Holdings, will be issued by Holdings.

As at the Latest Practicable Date, 10,000 Holdings Ordinary Shares have been issued nil paid at par with voting rights and are registered in the name of and beneficially owned by Mr. Ko. Upon the Scheme becoming effective, all of these Holdings Ordinary Shares will be credited as fully paid at par in consideration of the allotment and issue of new Ordinary Shares to Holdings by the Company under the Scheme. On or not later than fourteen days from the Effective Date, the Company will procure Mr. Ko to, and Mr. Ko will, transfer at the expense of the Company the existing 10,000 Holdings Ordinary Shares, credited as fully paid at par, to the holders of the Scheme Ordinary Shares (as appearing in the register of the members of the Company at the Record Time) which will take effect as of the Effective Date in accordance with the Scheme in the proportion of one Holdings Ordinary Share for every Scheme Ordinary Share held. Mr. Ko will not obtain any benefit as a result of such transfer.

— 15 —

LETTER FROM THE BOARD

WAIVER FROM THE SFC

As, technically, one of the effects of the Scheme is that the Company will be privatised, the Scheme is subject to Rule 2.10 of the Takeovers Code, which imposes additional voting requirements above those imposed by law. The Company has obtained a waiver from the Executive from strict compliance with the requirements under Rule 2.10 of the Takeovers Code on the basis that the economic interests of all Ordinary Shareholders and Preference Shareholder will not be affected as a result of the Scheme.

STOCK EXCHANGE LISTING AND DEALINGS

An application has been made to the Listing Committee of the Stock Exchange for the granting of listing of, and permission to deal in, (i) the Holdings Ordinary Shares in issue (being the 10,000 Holdings Ordinary Shares currently held by Mr. Ko) and to be issued pursuant to the Scheme; (ii) the Holdings Ordinary Shares which may fall to be issued upon exercise of options which may be granted under the Holdings Share Option Scheme (not exceeding 10 per cent. of the issued ordinary share capital of Holdings as at the date upon listing of the Holdings Ordinary Shares on the Stock Exchange); and (iii) the Holdings Ordinary Shares to be issued upon exercise of the conversion rights attaching to the Holdings Preference Shares. Upon the Scheme becoming effective, Holdings Ordinary Shares will be listed on the Stock Exchange and the listing of the Ordinary Shares will be withdrawn on the same date.

No action will be taken for implementing the Scheme unless and until the Directors are satisfied that the Scheme has been duly approved by the Shareholders and the Scheme will become effective only upon compliance with the relevant registration requirements and the approval for the listing of, and permission to deal in, the Holdings Ordinary Shares (as described above) having been granted by the Listing Committee of the Stock Exchange.

Subject to the approval for the listing of, and permission to deal in, the Holdings Ordinary Shares on the Stock Exchange being granted as well as the compliance with the stock admission requirements of HKSCC, the Holdings Ordinary 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 Holdings Ordinary Shares 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.

All certificates for the Ordinary Shares and the Preference Shares in issue immediately before the Schemes becomes effective will, as from the Effective Date, be deemed respectively to be certificates for the same number of the Holdings Ordinary Shares and the Holdings Preference Shares issued and allotted or transferred under the Scheme, and will continue to be effective as documents of title after the last day of the free exchange period for the Holdings Ordinary Shares and the Holdings Preference Shares on the basis of one Ordinary Share for one Holdings Ordinary

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LETTER FROM THE BOARD

Share and one Preference Share for one Holdings Preference Share. However, certificates for the Ordinary Shares will cease to be marketable after the last day of the free exchange period for share certificates. (Please refer to the paragraph headed “Share certificates” on pages 30 to 31 of the Explanatory Statement for further details.)

Dealings in the Holdings Ordinary Shares will be subject to the payment of stamp duty in Hong Kong.

All necessary arrangements have been made to enable the securities of Holdings to be admitted into CCASS.

DETAILS AND EFFECTS OF THE SCHEME

As stated in the Explanatory Statement, it is proposed that Holdings will acquire, by way of the Scheme, all the outstanding Shares. Holders of the Ordinary Shares will receive the Holdings Ordinary Shares and the holder of the Preference Shares will receive the Holdings Preference Shares on the basis of one Holdings Ordinary Share for every Ordinary Share held and one Holdings Preference Share for every Preference Share held. The proportionate interests of the holders of Holdings Ordinary Shares and the holder(s) of Holdings Preference Shares in Holdings will be the same as the existing proportionate interests of the Ordinary Shareholders and the Preference Shareholder(s) in the Company respectively.

Your attention is drawn to the paragraph headed “Effects of the Scheme” in the Explanatory Statement on pages 22 to 24 of this document which contains further details of the effects of the Scheme.

CHANGE IN BOARD LOT SIZE

Currently, the Ordinary Shares are traded in board lots of 1,000 shares. Upon the Scheme becoming effective, the Holdings Ordinary Shares will be traded on board lots of 50,000 shares. The Directors believe that the change in board lot size will reduce the holding costs of the Holdings Ordinary Shares without materially affecting the trading liquidity of the shares.

In order to alleviate the difficulties arising from the existence of odd lots of the Holdings Ordinary Shares, an agent will be arranged to match the sales and purchases of odd lots of the Holdings Ordinary Shares to the holders of the Holdings Ordinary Shares who become holders of odd lots as a direct consequence of the change in board lot size. Holders of the Holdings Ordinary Shares who wish to take advantage of this facility should contact Mr. Leung Yut Chiu of DBS Vickers (Hong Kong) Limited at telephone number: 2820 4911 from 18th September, 2002 to 17th October, 2002 (both days inclusive).

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LETTER FROM THE BOARD

purchase additional shares in the market if they so wish. However, this mechanism does not guarantee that holders of odd lots shares can successfully dispose of their odd lots shares in the market or acquire further odd lots shares in the market with a view to topping up their odd lots holdings to a whole board lot.

Shareholders should pay attention to the trading arrangement as set out in the estimated timetable on pages 10 and 11 of this document in relation to the proposed change in board lot size.

GENERAL MANDATES

Resolutions have been passed by Mr. Ko as the sole existing shareholder of Holdings authorising the directors of Holdings to allot, issue and deal with the Holdings Ordinary Shares not exceeding 20 per cent. of the aggregate nominal value of the Holdings Ordinary Shares in issue as at the date upon listing of the Holdings Ordinary Shares and to repurchase the Holdings Ordinary Shares not exceeding 10 per cent. of the aggregate nominal value of the Holdings Ordinary Shares in issue as at the date upon listing of the Holdings Ordinary Shares, each to be made conditional on the Scheme becoming effective and subject to the approval of the Ordinary Shareholders at the Ordinary EGM.

Please refer to the paragraph headed “Share capital” in Appendix I to this document which contains, amongst others, the details of terms of these general mandates.

SHARE OPTION SCHEME

In view of the proposed delisting of the Ordinary Shares, the Directors propose, subject to the Scheme becoming effective, to terminate the Existing Share Option Scheme and to adopt the Holdings Share Option Scheme. Mr. Ko, as the existing sole shareholder of Holdings, has approved the adoption of the Holdings Share Option Scheme on a conditional basis. The Holdings Share Option Scheme is conditional upon (i) the approval of the Ordinary Shareholders at the Ordinary EGM; (ii) the Listing Committee of the Stock Exchange granting approval for the listing of, and permission to deal in, the Holdings Ordinary Shares (including such to be issued pursuant to the exercise of the subscription rights attaching to any option which may be granted under the Holdings Share Option Scheme, not exceeding 10 per cent. of the issued ordinary share capital of Holdings as at the date upon listing of the Holdings Ordinary Shares); and (iii) the Scheme becoming effective . Your attention is drawn to the paragraph headed “Holdings Share Option Scheme” on pages 52 to 60 of this document in which the principal terms of the Holdings Share Option Scheme are set out.

RECOMMENDATION

The Directors consider that the Scheme (including the proposed withdrawal of the listing of the Ordinary Shares), the adoption of the new Articles of Association and the Holdings Share Option Scheme by Holdings, the termination of the Existing Share Option Scheme and the granting

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LETTER FROM THE BOARD

of general mandates to issue and to repurchase Holdings Ordinary Shares are in the interests of the Company, the Ordinary Shareholders and the Preference Shareholder as a whole and unanimously recommend the Ordinary Shareholders and the Preference Shareholder to vote in favour of the resolutions to be proposed at the requisite Meetings to approve and implement the Scheme (including the proposed withdrawal of the listing of the Ordinary Shares), and to approve the adoption of the new Articles of Association and the Holdings Share Option Scheme by Holdings, the termination of the Existing Share Option Scheme and the grant of general mandates to issue and to repurchase Holdings Ordinary Shares by Holdings to its directors.

ADDITIONAL INFORMATION

Your attention is drawn to the Explanatory Statement set out on pages 20 to 34 of and the Appendices to this document.

Yours faithfully, For and on behalf of the Board Universal Appliances Limited Ko Chun Shun, Johnson Chairman

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EXPLANATORY STATEMENT

(in compliance with Section 166A of the Companies Ordinance)

PROPOSED GROUP REORGANISATION

INTRODUCTION

It was announced on 22nd May, 2002 and 4th July, 2002, and further explained in the accompanying letter from the Board, the Directors intended to submit to the Ordinary Shareholders and the Preference Shareholder a proposal in respect of a reorganisation of the Group involving the establishment of a new holding company in the Cayman Islands. This reorganisation is intended to be implemented by means of a scheme of arrangement under Section 166 of the Companies Ordinance.

The purpose of this statement is to explain the effects of and the steps required to implement the Scheme. Your attention is drawn in particular to the letter from the Board which gives the reasons for the Scheme and recommends the Ordinary Shareholders and the Preference Shareholder to vote in favour of the resolutions to be proposed at the relevant meetings referred to below.

The table below shows the authorised and issued share capital of the Company as at the Latest Practicable Date and the authorised and issued share capital of Holdings at the Effective Date (assuming there are no changes to the issued share capital of the Company between the Latest Practicable Date and the Effective Date).

As at the Latest Practicable Date As at the Effective Date

Authorised:	$	Authorised:	$
3,409,240,000 Ordinary Shares	613,663,200	5,000,000,000 Holdings	50,000,000
		Ordinary Shares
240,760,000 Preference Shares	43,336,800	240,760,000 Holdings	2,407,600
		Preference Shares
Issued and credited as fully paid:		Issued and credited as fully paid:
2,774,293,157 Ordinary Shares	499,372,768.26	2,774,293,157 Holdings	27,742,931.57
		Ordinary Shares
240,760,000 Preference Shares	43,336,800	240,760,000 Holdings	2,407,600
		Preference Shares

Based on the shareholding structure of the Company as at the Latest Practicable Date set out above, upon full conversion of the Holdings Preference Shares, 240,760,000 Holdings Ordinary Shares, representing approximately 8.7 per cent. of the issued ordinary share capital of Holdings as at the Effective Date and approximately 8.0 per cent. of the then enlarged issued ordinary share capital of Holdings, will be issued by Holdings.

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EXPLANATORY STATEMENT

SUMMARY OF THE SCHEME

The Scheme involves the following principal steps, all of which will occur as at the Effective Date:

(i) the share capital of the Company will be reduced by cancelling and extinguishing the Scheme Ordinary Shares and the Scheme Preference Shares;
(ii) subject to and forthwith upon such reduction of capital taking effect, the authorised share capital of the Company will be increased to its former amount (being $657,000,000 based on the authorised share capital of the Company as at the Latest Practicable Date, or such other amount representing the authorised share capital of the Company as at the Record Time) by the creation of such number of new Ordinary Shares as is equal to the aggregate number of the Scheme Ordinary Shares and Scheme Preference Shares cancelled as aforesaid;
(iii) the Company shall apply the credit (being $542,709,568 based on the issued share capital of the Company as at the Latest Practicable Date, or such other amount representing the issued share capital of the Company as at the Record Time) arising in its books of account as a result of the reduction of its share capital in paying up in full at par for new Ordinary Shares (being 3,015,053,157 shares (with a total nominal value of $542,709,568) based on the issued share capital of the Company stated above) to be allotted and issued, credited as fully paid, to Holdings and its nominees; and
(iv) in consideration for the cancellation and extinguishment of their holdings of the Scheme Ordinary Shares and the Scheme Preference Shares, the Ordinary Shareholders and the Preference Shareholder(s) will respectively receive Holdings Ordinary Shares (ranking pari passu) and Holdings Preference Shares (ranking pari passu), credited as fully paid, at the Record Time, on the following basis:
for every Scheme Ordinary Share held at the Record Time .................................. one Holdings Ordinary Share
for every Scheme Preference Share
- held at the Record Time ................................ one Holdings Preference Share

Accordingly, as a result of the implementation of the Scheme, the Company will become a wholly-owned subsidiary of Holdings. The Ordinary Shareholders will become holders of the Holdings Ordinary Shares. The Preference Shareholder(s) will become the holder(s) of the Holdings Preference Shares.

Upon the Scheme becoming effective, the existing listing of the Ordinary Shares on the Stock Exchange will be withdrawn and the Holding Ordinary Shares will be listed on the Stock Exchange.

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EXPLANATORY STATEMENT

EFFECTS OF THE SCHEME

(a) Business

The business of the Group will not be changed by the implementation of the Scheme. Holdings will be the new holding company of the Group.

(b) Ownership and voting control

Upon implementation of the Scheme, ownership of the Group will remain as at present. The Ordinary Shareholders will become holders of Holdings Ordinary Shares and will receive a number of Holdings Ordinary Shares identical to the number of Ordinary Shares which they hold at the Record Time. The Company will become a whollyowned subsidiary of Holdings and the ownership of the Company’s subsidiaries and associated companies will not be affected by the implementation of the Scheme.

Save and except for the material differences as set out in Appendix VII to this document headed “Summary of the constitution of Holdings and material differences with the constitution of the Company” (in particular the paragraphs headed “Variation of rights of existing shares or classes of shares”, “Voting rights (generally and on a poll) and right to demand a poll”, “Proxies” , and “Inspection of register of members” on pages 159 to 170 of this document) and Appendix VI to this document headed “Summary of the differences of certain provisions between Companies Ordinance and Companies Law” (in particular the paragraph headed “Protection of minority shareholders” on page 147 of this document), the Holdings Ordinary Shares shall give the holders thereof substantially the same rights and obligations as attaching to the Ordinary Shares.

The proportionate interests of the holders of Holdings Ordinary Shares in Holdings will be the same as the existing proportionate interests of the Ordinary Shareholders in the Company.

(c) Preference Shares

Upon implementation of the Scheme, the Preference Shareholder(s) will receive a number of Holdings Preference Shares identical to the number of Preference Shares which it/they hold(s) at the Record Time. Such Holdings Preference Shares shall give the holder(s) thereof substantially the same rights and obligations as attaching to the Preference Shares save and except for the material differences as set out in Appendix VII to this document headed “Summary of the constitution of Holdings and material differences with the constitution of the Company” (in particular the paragraphs headed “Variation of rights of existing shares or classes of shares”, “Voting rights (generally and on a poll) and right to demand a poll”, “Proxies”, and “Inspection of register of members” on pages 159 to 170 of this document) and Appendix VI to this document headed “Summary of the differences of certain provisions between Companies

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EXPLANATORY STATEMENT

Ordinance and Companies Law” (in particular the paragraph headed “Protection of minority shareholders” on page 147 of this document). Details of the terms and conditions in respect of the Holdings Preference Shares are set out on pages 46 to 51 of Appendix I to this document.

The proportionate interest of the holder(s) of Preference Shares in Holdings will be the same as the existing proportionate interests of the Preference Shareholder(s) in the Company.

(d) Reserve

An amount equals to the difference between the consolidated net asset value of the Company as at the Effective Date and the aggregate nominal value of all the shares to be allotted and issued by Holdings to the Holdings Shareholders pursuant to the Scheme less the amount of $100 required to pay up the 10,000 existing nil paid Holdings Ordinary Shares in issue will be credited to the share premium account in the books of Holdings. Assuming that there is no change in the consolidated net asset value of the Company during the period between 31st December, 2001 and the Effective Date, and that the issued share capital of the Company as at the Latest Practicable Date remains unchanged up to the Effective Date, the amount to be credited to the share premium account in the books of Holdings upon the Scheme becoming effective is estimated to be approximately $185,599,000, which represents the difference between the audited consolidated net asset value of the Company as at 31st December, 2001 (approximately $215,751,000) and the aggregate nominal value of the Holdings Shares to be allotted and issued, credited as fully paid at par, pursuant to the Scheme (approximately $30,151,000) less the amount of $100 required to pay up the 10,000 existing nil paid Holdings Ordinary Shares in issue. The actual amount to be credited to the share premium account of Holdings will be determined with references to the actual consolidated net asset value of the Company as at the Effective Date and the actual number of shares to be allotted and issued by Holdings to the Holdings Shareholders pursuant to the Scheme.

Any amount standing in the share premium account of Holdings so created can only be distributable subject to the provisions of the Companies Law and the constitutional documents of Holdings, including but not limited to, the ability of Holdings to pay its liabilities as they fall due in the ordinary course of business.

(e) Assets and liabilities and financial position

The implementation of the Scheme will not, of itself, other than by way of payment of the expenses relating to the Scheme, alter the underlying net assets or the financial position of the Group. The consolidated assets and liabilities of Holdings upon implementation of the Scheme will be the same as those of the Company immediately prior to the implementation of the Scheme, subject to the payment of related expenses (please refer to the paragraph headed “Miscellaneous” in Appendix V to this document

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EXPLANATORY STATEMENT

for details), and Shareholders’ proportionate interests in Holdings will be the same as their existing proportionate interests in the Company. The audited consolidated balance sheet of the Group as at 31st December, 2001 is set out in Appendix III to this document.

(f) Directors and employees

The directors of Holdings comprise the present Directors. There are no agreements or arrangements under which the emoluments or terms of service of any of the Directors will vary as a result of the implementation of the Scheme, nor will the terms of service of any employee of the Group be varied as a result of the implementation of the Scheme.

(g) Dividends

It is intended that the financial year end of Holdings will be on 31st December, same as that of the Company. It is also intended that dividends on the Holdings Shares will, as for the Shares, be paid in Hong Kong dollars. As is the case at present in relation to Shares, dividends paid on the Holdings Shares will, under the current Cayman Islands legislation, be free of any withholding tax.

CONDITIONS OF THE SCHEME

The Scheme will become effective and binding on all holders of Scheme Shares if the following conditions are satisfied on or before the Effective Date:

(a) the Scheme being approved by a majority in number, representing three-fourths in value, of the Ordinary Shareholders present and voting in person or by proxy at the Ordinary Court Meeting;
(b) the Scheme being approved by a majority in number, representing three-fourths in value, of the Preference Shareholder(s) present and voting in person or by proxy at the Preference Court Meeting;
(c) the passing of a special resolution by the Ordinary Shareholders at the Ordinary EGM to approve and implement the Scheme (including the reduction of ordinary and preference share capital of the Company contained therein);
(d) the passing of a special resolution by the Preference Shareholder(s) at the Preference EGM to approve and implement the Scheme (including the reduction of the ordinary and preference share capital of the Company contained therein);
(e) The Court sanctioning the Scheme, with or without modification, and an office copy of the order of the Court and the minutes containing the particulars required by Section 61 of the Companies Ordinance are delivered to and registered by the Registrar of Companies in Hong Kong;

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EXPLANATORY STATEMENT

(f) the Listing Committee of the Stock Exchange granting approval for the listing of, and permission to deal in, the Holdings Ordinary Shares in issue (being the 10,000 Holdings Ordinary Shares currently held by Mr. Ko) and to be issued pursuant to: (i) the Scheme; (ii) exercise of conversion rights attaching to the Holdings Preference Shares; and (iii) exercise of the subscription rights attaching to the options which may be granted under the Holdings Share Option Scheme (not exceeding 10 per cent. of the issued ordinary share capital of Holdings as at the date upon listing of the Holdings Ordinary Shares on the Stock Exchange); and
(g) the obtaining of all other necessary consents or authorisations which may be required under any existing contractual arrangements or regulatory requirements.

It is expected that the Scheme will become effective on 18th September, 2002. However, if the Scheme will not become effective on or before 31st October, 2002 (or such later date as the Court may allow), it will lapse. Shareholders will be advised by press announcement of the exact date upon which the Scheme becomes effective.

WAIVER FROM THE SFC

CHANGE IN BOARD LOT SIZE

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EXPLANATORY STATEMENT

The purpose of this arrangement is to provide a mechanism whereby holders of odd lots of the Holdings Ordinary Shares, after the effective date of the change in board lot size, can round up or dispose of their odd lot holdings. Holders of the odd lots of the Holdings Ordinary Shares may purchase additional shares in the market if they so wish. However, this mechanism does not guarantee that holders of odd lots shares can successfully dispose of their odd lots shares in the market or acqiure further odd lots shares in the market with a view to topping up their odd lots holdings to a whole board lot.

Shareholders should pay attention to the trading arrangement as set out in the estimated timetable on pages 10 and 11 of this document in relation to the proposed change in board lot size.

GENERAL MANDATES

Resolutions have been passed by Mr. Ko as the sole existing shareholder of Holdings granting to the directors of Holdings a general mandate to allot, issue and deal with the Holdings Ordinary Shares not exceeding 20 per cent. of the aggregate nominal value of the Holdings Ordinary Shares in issue as at the date upon listing of Holdings Ordinary Shares and a general mandate to repurchase the Holdings Ordinary Shares not exceeding 10 per cent. of the aggregate nominal value of the Holdings Ordinary Shares in issue as at the date upon listing of Holdings Ordinary Shares, each to be made conditional on the Scheme becoming effective and subject to the approval of the Ordinary Shareholders at the Ordinary EGM. Details of these mandates are set out in Appendix I to this document.

MEMORANDUM AND ARTICLES OF ASSOCIATION OF HOLDINGS

As a normal practice in the Cayman Islands, the objects of Holdings, as contained in its Memorandum of Association, are unrestricted and Holdings shall have the power and authority to carry out any object not prohibited by any law as provided by Section 7(4) of the Companies Law. Holdings will however, as an exempted company, be restricted by its Memorandum of Association from trading in the Cayman Islands with any person, firm or corporation except in furtherance of the business of Holdings carried on outside the Cayman Islands.

Holdings has adopted a new Articles of Association on a conditional basis which will replace the Articles of Association adopted by Holdings on incorporation. Mr. Ko, as the sole shareholder of Holdings, approved the adoption of the new Articles of Association on 30th July, 2002. Adoption of the new Articles of Association by Holdings is conditional upon the Scheme becoming effective and the approval by the Shareholders.

A summary of the proposed new Articles of Association of Holdings and a comparison thereof with the Articles of Association of the Company are set out in Appendix VII to this document.

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EXPLANATORY STATEMENT

A copy of the proposed new Articles of Association and a letter of advice summarizing certain aspects of Cayman Islands company law issued by Conyers Dill & Pearman, Cayman, the legal advisers on Cayman Islands law to Holdings will be available for inspection as referred to in Appendix V to this document.

SHARE OPTION SCHEME

Under the Existing Share Option Scheme, the Directors have power to grant options to subscribe for up to 277,429,315 Ordinary Shares. As at the Latest Practicable Date, there are no outstanding options under the Existing Share Option Scheme as the options previously granted thereunder were either exercised, lapsed or cancelled in accordance with the terms of grant and the provisions of the Existing Share Option Scheme or otherwise. As at the Latest Practicable Date, the Directors have no intention to grant further options under the Existing Share Option Scheme. Subject to the Scheme becoming effective, the Existing Share Option Scheme will be terminated. The Directors therefore propose that the Holdings Share Option Scheme, the rules of which will be in compliance with the newly amended Chapter 17 of the Listing Rules, be adopted by Holdings upon the Scheme becoming effective.

The participants of the Holdings Share Option Scheme may or may not be employees or directors of any member of the Holdings Group. The Directors believe that the Holdings Share Option Scheme could provide the Holdings Group with greater flexibility to attract and retain expertise, which is the key to business success of the Holdings Group.

Mr. Ko, as the existing sole shareholder of Holdings, has approved the adoption of the Holdings Share Option Scheme on a conditional basis. The Holdings Share Option Scheme is conditional on (i) the approval of the Ordinary Shareholders at the Ordinary EGM; (ii) the Listing Committee of the Stock Exchange granting approval for the listing of, and permission to deal in, the Holdings Ordinary Shares (including such to be issued pursuant to the exercise of the subscription rights attaching to any option which may be granted under the Holdings Share Option Scheme, not exceeding 10 per cent. of the issued ordinary share capital of Holdings as at the date upon listing of the Holdings Ordinary Shares); and (iii) the Scheme becoming effective.

Subject to the Scheme becoming effective, the approval of the Ordinary Shareholders at the Ordinary EGM and the Stock Exchange granting approval for the listing of, and permission to deal in, the Holdings Ordinary Shares (including such to be issued pursuant to the exercise of any option to be granted under the Holdings Share Option Scheme, not exceeding 10 per cent. of the issued ordinary share capital of Holdings as at the date upon listing of the Holdings Ordinary Shares), the Holdings Share Option Scheme will allow the grant of options to qualified participants to subscribe for a total of up to 277,429,315 Holdings Ordinary Shares (based on 2,774,293,157 Holdings Ordinary Shares in issue as at the date upon listing of Holdings Ordinary Shares, which is computed by reference to the number of Ordinary Shares in issue as at the Latest Practicable Date and assuming that there is no change in the Ordinary Shares in issue from the Latest Practicable Date to the Effective Date).

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EXPLANATORY STATEMENT

The directors of Holdings and the Directors consider it inappropriate to value the options that can be granted under the Holdings Share Option Scheme on the assumption that they had been granted at the Latest Practicable Date, as various determining factors, such as, among other things, the exercise price of the relevant option and the underlying market share price, the timing of the grant of any such options, the period during which the relevant options may be exercised and volatility, which are crucial for the calculation of such value cannot be reasonably ascertained at this stage. Given a scheme life of ten years, the directors of Holdings and the Directors believe it would be premature to state whether or not option will be granted under the Holdings Share Option Scheme and if so, the number of options and likely exercise prices. It would not be meaningful, and to certain extent would be misleading to the Shareholders, if the value of the options were to be attempted to be calculated based on a set of speculated assumptions.

A summary of the principal terms of the Holdings Share Option Scheme is set out in Appendix I to this document and a draft of the rules of the Holdings Share Option Scheme is available for inspection as mentioned in Appendix V to this document.

MEETINGS

In accordance with the direction of the Court, the Court Meetings will be convened for the purpose of considering and, if thought fit, approving the Scheme. The Extraordinary General Meetings to be held immediately following the Court Meetings are for the purpose of considering and, if thought fit, passing, among other things, the special resolutions necessary to approve and implement the Scheme (including the reduction of capital and withdrawal of listing of the Ordinary Shares).

The Court Meetings and the Extraordinary General Meetings will be held at Harmony Room I, the Hong Kong Bankers Club, 43/F, Gloucester Tower, The Landmark, Central, Hong Kong on 23rd August, 2002. Notices of the Meetings are set out on pages 181 to 191 of this document.

LEGAL CONSIDERATIONS

The Company was incorporated in Hong Kong whereas Holdings was incorporated in the Cayman Islands. The laws of the Cayman Islands, including the Companies Law, will therefore apply to Holdings. As long as Holdings has a place of business in Hong Kong or the Holdings Ordinary Shares are listed on the Stock Exchange, certain laws of Hong Kong, particularly those governing overseas companies, and the Listing Rules as well as the Takeovers Code will also be applicable to Holdings.

The differences between the laws of Hong Kong and those of the Cayman Islands may result in the differences in the practicality and cost to the Holdings Shareholders of enforcing their rights between the two jurisdictions if such steps become necessary. On the whole, however, with the exception of the remedy under Section 168A of the Companies Ordinance relating to the unfair prejudicial effect of the management of the affairs of a company on the interest of a shareholder,

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EXPLANATORY STATEMENT

the other remedies for shareholders' protection such as the winding up of a company on the just and equitable ground or the institution of a derivative action may be commenced in Hong Kong against a company such as Holdings. Nevertheless, the Holdings Shareholders should be aware of the application of Cayman Islands law to Holdings and of the fact that, however remote, circumstances may arise in which Holdings may cease to be subject to the laws of Hong Kong or to the Listing Rules if the Holdings Ordinary Shares are de-listed from the Stock Exchange.

By the rules applicable to conflict of laws in Hong Kong, the capacity of a corporation to enter into any legal transaction is governed both by the constitution of the corporation and by the law of the country which governs the transaction. In addition, all matters concerning the constitution of a company, which include its internal management involving the exercise of powers by its officers, are also governed by the law of its place of incorporation. Due to the application of English common law principles in the Cayman Islands and the substantial similarities between the Companies Law and the Companies Ordinance, the Board has been advised that in general, that part of Cayman Islands law applicable to these issues are not dissimilar to that in Hong Kong.

Generally, under conflict of laws principles in Hong Kong, the law applicable to the fixed assets of a company will be that of the country in which they are situated. The law applicable to business contracts is subject to a number of different factors, including any agreement between the parties as to the applicable law. For commercial purposes, there can be advantages or disadvantages according to the applicable law in respect of any given asset or contract. When causing Holdings to enter into such contracts, as required by Cayman Islands law, the directors of Holdings will have to act in good faith in the interests of Holdings and the Holdings Shareholders as a whole. Please refer to Appendix VI to this document for a summary of a differences of certain provisions between the Companies Ordinance and the Companies Law.

The Shareholders are advised to consult their own legal advisers if they are in any doubt as to the effect of Cayman Islands corporate law on their rights in the light of circumstances peculiar to them.

LISTING AND DEALINGS

An application has been made to the Listing Committee of the Stock Exchange seeking approval for the listing of, and permission to deal in, the Holdings Ordinary Shares in issue and to be issued pursuant to: (i) the Scheme; (ii) the exercise of the subscription rights attaching to the options which may be granted under the Holdings Share Option Scheme (not exceeding 10 per cent. of the issued ordinary share capital of Holdings as at the date upon listing of the Holdings Ordinary Shares on the Stock Exchange); and (iii) the exercise of the conversion rights attaching to the Holdings Preference Shares. Upon the Shareholders having approved the Scheme, an application will be made to the Listing Committee of the Stock Exchange for the withdrawal of listing of the Ordinary Shares, subject to the Scheme becoming effective.

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EXPLANATORY STATEMENT

Upon the Scheme becoming effective, the listing of the Ordinary Shares on the Stock Exchange will be withdrawn and the Holdings Ordinary Shares in issue and to be issued under the Scheme will be listed on the Stock Exchange. Dealings in the Holdings Ordinary Shares are expected to commence on 18th September, 2002 and the last day of dealings in the Ordinary Shares is expected to be 17th September, 2002.

No action will be taken for implementing the Scheme unless and until the Directors are satisfied that the Scheme has been duly approved by the Shareholders and the Scheme will become effective only upon compliance with the relevant registration requirements and the approval of the Listing Committee of the Stock Exchange for the listing of, and permission to deal in, the Holdings Ordinary Shares having been obtained.

Subject to the approval for the listing of, and permission to deal in, the Holdings Ordinary Shares on the Stock Exchange being granted as well as compliance with the stock admission requirements of HKSCC, the Holdings Ordinary 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 Holdings Ordinary 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.

All necessary arrangements have been made to enable the securities of Holdings to be admitted into CCASS.

Dealings in Holdings Ordinary Shares will be subject to the payment of stamp duty in Hong Kong.

SHARE CERTIFICATES

All certificates for Ordinary Shares and Preference Shares in issue immediately before the Scheme becomes effective will, as from the Effective Date, be deemed respectively to be certificates for the same number of Holdings Ordinary Shares and Holdings Preference Shares issued and allotted or transferred under the Scheme, and will continue to be effective as documents of title after the last day of the free exchange period for the Holdings Ordinary Shares and the Holdings Preference Shares on the basis of one Ordinary Share for one Holdings Ordinary Share and one Preference Share for one Holdings Preference Share. However, certificates for the Ordinary Shares will cease to be marketable after the last day of the free exchange period for share certificates.

On and after the Effective Date, share certificates issued following the registration of transfers will be issued in the name of Holdings in respect of Holdings Ordinary Shares and Holdings Preference Shares. The Ordinary Shareholders and the Preference Shareholder(s) may respectively,

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EXPLANATORY STATEMENT

for a period of one month after the Effective Date, submit to the share registrar of Holdings in Hong Kong their certificates in respect of Ordinary Shares and Preference Shares for exchange, at the expense of Holdings, for certificates in the name of Holdings in respect of the same number of Holdings Ordinary Shares and Holdings Preference Shares.

After one month from the Effective Date, Shareholders submitting share certificates in the name of the Company to be exchanged for share certificates in the name of Holdings will have to bear the cost of the issue of new certificates in the name of Holdings, which is presently $2.5 per certificate. Unless otherwise requested by the relevant holder, certificates in respect of Holdings Ordinary Shares will, so far as practicable, be issued in board lots of 50,000 Holdings Ordinary Shares whereas certificates in respect of Holdings Preference Shares will be issued in the number requested by the relevant holder.

Certificates for Holdings Ordinary Shares will be blue in colour in order to distinguish them from the certificates for Ordinary Shares which are yellow in colour. Certificates for Holdings Preference Shares will be purple in colour in order to distinguish them from the certificates for Preference Shares which are orange in colour.

The Shareholders are recommended to consult their professional advisers if they are in any doubt as to the above procedures.

REGISTRATION PROCEDURES

Under the Companies Law, Holdings, as an exempted company, may maintain its principal register of members and any branch registers at such locations, whether within or outside the Cayman Islands, as its directors may, from time to time, think fit. There is no requirement under the Companies Law for an exempted company to make any returns of members to the Registrar of Companies in the Cayman Islands. A register of members of Holdings will be maintained in Hong Kong by Tengis Limited. Unless the directors of Holdings otherwise agree, all transfers of and other documents of title to Holdings Ordinary Shares must be lodged for registration with, and registered by, Holdings’ share registrar in Hong Kong.

A valid instrument of transfer relating to a transfer of Ordinary Shares and Preference Shares effected before the Effective Date which is not registered in the register of members of the Company before that date will be deemed to be a valid instrument of transfer in respect of the corresponding number of Holdings Ordinary Shares and Holdings Preference Shares on or after the Effective Date.

Shareholders are recommended to consult their professional advisers if they are in any doubt as to the above procedures.

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EXPLANATORY STATEMENT

TAXATION, STAMP DUTY AND EXCHANGE CONTROL IN THE CAYMAN ISLANDS

Holdings

(i) Taxation

Pursuant to Section 6 of the Tax Concessions Law (1999 Revision) of the Cayman Islands, Holdings has obtained an undertaking from the Governor-in-Council:

(1) that no law which is enacted in the Cayman Islands imposing any tax to be levied on profits or income or gains or appreciation shall apply to Holdings or its operations; and
(2) in addition, that no tax to be levied on profits, income gains or appreciations or which is in the nature of estate duty or inheritance tax shall be payable by Holdings,
(i) on or in respect of the shares, debentures or other obligations of Holdings; or
(ii) by way of withholding in whole or in part of any relevant payment as defined in Section 6(3) of the Tax Concessions Law (1999 Revision).

The undertaking is for a period of twenty years from 11th June, 2002.

The Cayman Islands currently levy no taxes on individuals or corporations based upon profits, income, gains or appreciations and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to Holdings levied by the Government of the Cayman Islands save for certain stamp duties which may be applicable, from time to time, on certain instruments executed in or brought within the jurisdiction of the Cayman Islands. The Cayman Islands are not party to any double tax treaties.

The Directors have been advised that implementation of the Scheme will not, of itself, result in Holdings or the Group incurring a greater liability for tax than would have been incurred by the Group had the Scheme not been implemented. It is emphasised that the taxation implications of the Scheme are a matter for the Shareholders themselves and not for the Company, Holdings, their respective directors or any other parties involved in the Scheme, none of whom accepts any responsibility for any taxation effect on or liabilities of the Shareholders arising from the implementation of the Scheme, other than in respect of the annual government fee payable to the the Cayman Islands government by Holdings.

(ii) Stamp Duty

No stamp duty is payable in the Cayman Islands on transfers of shares of Cayman Islands companies except those which hold interests in land in the Cayman Islands.

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EXPLANATORY STATEMENT

(iii) Exchange Control

There are no exchange control regulations or currency restrictions in the Cayman Islands.

Shareholders

(i) The Cayman Islands

The implementation of the Scheme will not, of itself, have any Cayman Islands tax consequences. Dealings in the Holdings Ordinary Shares or the Holdings Preference Shares will not be subject to Cayman Islands stamp duty.

(ii) Hong Kong

The Directors have been advised that, under current legislation, implementation of the Scheme is not expected, of itself, to have any adverse Hong Kong tax consequences except that those persons who are classified for tax purposes as securities dealers may be subject to profits tax in respect of any deemed gain resulting from the substitution of the Holdings Ordinary Shares and the Holdings Preference Shares respectively for the Ordinary Shares and the Preference Shares pursuant to the Scheme.

Dealings in the Holdings Shares registered on Holdings’ Hong Kong register of members will be subject to Hong Kong stamp duty.

(iii) General

The Ordinary Shareholders and the Preference Shareholder, whether in Hong Kong or in other jurisdictions, are recommended to consult their professional advisers if they are in any doubts as to the taxation implications of the Scheme and, in particular, whether the substitution and the receipt of the Holdings Ordinary Shares for the Ordinary Shares and/or the Holdings Preference Shares for the Preference Shares would make such Ordinary Shareholders and/or Preference Shareholder liable to taxation in Hong Kong or in other jurisdictions, as the case may be. It is emphasized that none of the Company, Holdings, any of their respective directors and any other person or party involved in the Scheme accepts responsibility for any tax effects on, or liabilities of, the Ordinary Shareholders and/or the Preference Shareholder in connection with the Scheme in Hong Kong or any other jurisdiction.

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EXPLANATORY STATEMENT

RECOMMENDATION

Having taken into account the reasons for the Scheme as set out in the letter from the Board, the Directors consider that the Scheme (including the withdrawal of the listing of the Ordinary Shares) is in the best interest of the Company, the Shareholders as a whole and unanimously recommend the Shareholders to vote in favour of the resolutions to be proposed at the Court Meetings and at the Extraordinary General Meetings to approve and implement the Scheme (including the withdrawal of the listing of the Ordinary Shares), and to approve the adoption of the new Articles of Association and the Holdings Share Option Scheme by Holdings, termination of the Existing Share Option Scheme and the grant of general mandates to issue and to repurchase Holdings Ordinary Shares by Holdings to its directors.

ADDITIONAL INFORMATION

Your attention is drawn to the Appendices which form part of this Explanatory Statement.

ACTIONS TO BE TAKEN

Different forms of proxy for use at the Court Meetings and the Extraordinary General Meetings are enclosed. The yellow form is for use at the Ordinary Court Meeting, the pink form is for use at the Preference Court Meeting, the green form is for the Ordinary EGM and the blue form is for the Preference EGM.

The Ordinary Shareholders are requested to complete and return the yellow and green forms of proxy and the Preference Shareholder(s) is/are requested to complete and return the pink and blue forms of proxy, in each case in accordance with the instructions printed thereon, whether or not they propose to attend the relevant Meetings in person. It is requested that forms of proxy be returned to the Company’s share registrar, Tengis Limited, 4th Floor, Hutchison House, 10 Harcourt Road, Central, Hong Kong, as soon as possible and in any event not less than 48 hours before the time appointed for the relevant Meetings. The yellow and pink forms of proxy for the Court Meetings may alternatively be handed to the chairman at the relevant Meetings.

The lodging of forms of proxy will not prevent the Shareholders from attending and voting in person at the relevant Meetings should they so desire. In the event that a Shareholder who has lodged a form of proxy attends a Meeting, his/her form of proxy for the Meeting will be deemed to have been revoked.

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INFORMATION RELATING TO HOLDINGS

APPENDIX I

INTRODUCTION

Holdings was incorporated on 27th May, 2002 as an exempted company under the Companies Law. Holdings has not carried on any business since the date of incorporation. Upon the implementation of the Scheme, Holdings will be the holding company of the Company and will continue to carry on the present business activities of the Company.

DIRECTORS

The directors of Holdings are as follows:

Name	Address	Nationality
Executive directors
Ko Chun Shun, Johnson	Room 4, 6th Floor	Chinese
	Kin Fat Industrial Center
	13 Kin Fat Street
	Tuen Mun
	New Territories
	Hong Kong
Lui Pan, Terry	Room 4, 6th Floor	Chinese
	Kin Fat Industrial Center
	13 Kin Fat Street
	Tuen Mun
	New Territories
	Hong Kong
Non-executive director
Cheong Chow Yin	Room 4, 6th Floor	Singaporean
	Kin Fat Industrial Center
	13 Kin Fat Street
	Tuen Mun
	New Territories
	Hong Kong
Independent non-executive directors
Wilton Timothy Carr Ingram	Room 4, 6th Floor	Australian
	Kin Fat Industrial Center
	13 Kin Fat Street
	Tuen Mun
	New Territories
	Hong Kong

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INFORMATION RELATING TO HOLDINGS

APPENDIX I

Name	Address	Nationality
Wong Yau Kar, David	Room 4, 6th Floor	Chinese
	Kin Fat Industrial Center
	13 Kin Fat Street
	Tuen Mun
	New Territories
	Hong Kong

Brief biographical details

Executive directors

Mr. Ko Chun Shun, Johnson , aged 50, has been Chairman of the Company since 1994. Mr. Ko has been actively involved for over 7 years in the high-tech sector, in particular in the development of digital media broadcasting, electronic payment systems and the internet telephony. Mr. Ko has extensive experience in international tradings, direct investments, financial services and manufacturing. Mr. Ko is the Chairman of Holdings.

Mr. Lui Pan, Terry , aged 47, has been serving the Company since 1999. Mr. Lui is also the Chief Executive Officer of DVN (Holdings) Limited, a subsidiary of the Company which is also listed in Hong Kong. Mr. Lui holds a bachelor’s and a master’s degree in electrical and electronics engineering from the Zhejiang University and an MBA degree from the Chinese University of Hong Kong. Mr. Lui has received numerous technology awards including the Best Design of Consumer Product by the Hong Kong Government in 1998.

Non-executive director

Mr. Cheong Chow Yin , aged 46, has been non-executive director of the Company since 2000. Prior to joining the Group, Mr. Cheong had been working with a Nasdaq listed company and has extensive experience in manufacturing of consumer electronics products and management.

Independent non-executive directors

Mr. Wilton Timothy Carr Ingram , aged 54, has been independent non-executive director of the Company since 1996. Mr. Ingram has extensive experience in direct investments and financial services. He is also a director of a venture capital company in Australia.

Dr. Wong Yau Kar, David , aged 44, has been independent non-executive director of the Company since 2000. Dr. Wong holds a doctorate degree in economics from University of Chicago. Dr. Wong has extensive experience in direct investments and corporate finance.

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INFORMATION RELATING TO HOLDINGS

APPENDIX I

CORPORATE INFORMATION AND PARTIES INVOLVED IN THE SCHEME

Company Secretary

Ho Te Hwai, Cecil

Authorised representatives

Ko Chun Shun, Johnson Ho Te Hwai, Cecil

Registered office

Century Yard Cricket Square Hutchins Drive P.O. Box 2681 GT Geogre Town Grand Cayman British West Indies

Principal office in Hong Kong

Room 4, 6th Floor Kin Fat Industrial Center 13 Kin Fat Street Tuen Mun New Territories Hong Kong

Financial adviser and sponsor

Ernst & Young Corporate Finance Limited 16th Floor, Hutchison House 10 Harcourt Road Central Hong Kong

Auditors

PricewaterhouseCoopers

Certified Public Accountants 22nd Floor Prince’s Building Hong Kong

Legal advisers on Hong Kong law

Koo and Partners

in association with Paul, Hastings, Janosky & Walker LLP 21st-22nd Floors Bank of China Tower 1 Garden Road Central Hong Kong

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INFORMATION RELATING TO HOLDINGS

APPENDIX I

Legal advisers on Cayman Conyers Dill & Pearman, Cayman Islands law Century Yard Cricket Square Hutchins Drive P.O. Box 2681 GT Geogre Town Grand Cayman British West Indies Legal advisers on PRC law Jingtian & Gongcheng 15th Floor, The Union Plaza 20 Chao Yang Men Wai Street Beijing 100020 PRC Valuer Chesterton Petty Limited 10th Floor, CITIC Tower 1 Tim Mei Avenue Hong Kong Share registrar and Tengis Limited transfer office in Hong Kong 4th Floor Hutchison House 10 Harcourt Road Central Hong Kong Principal banker Hang Seng Bank Limited

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INFORMATION RELATING TO HOLDINGS

APPENDIX I

SHARE CAPITAL

(a) Authorised and issued share capital

Holdings was incorporated in the Cayman Islands as an exempted company under the Companies Law on 27th May, 2002 with an authorised share capital of $100,000 divided into 10,000,000 Holdings Ordinary Shares of $0.01 each, of which 10,000 Holdings Ordinary Shares have been issued nil paid at par with voting rights and are registered in the name of and beneficially owned by Mr. Ko. Upon the Scheme becoming effective, all of these Holdings Ordinary Shares will be credited as fully paid at par in consideration of the allotment and issue of new Ordinary Shares to Holdings by the Company under the Scheme. On or not later than fourteen days from the Effective Date, the Company will procure Mr. Ko to, and Mr. Ko will, transfer at the expense of the Company the existing 10,000 Holdings Ordinary Shares, credited as fully paid at par, to the holders of Scheme Ordinary Shares (as appearing in the register of members of the Company at the Record Time) which will take effect as of the Effective Date in accordance with the Scheme in the proportion of one Holdings Ordinary Share for every Scheme Ordinary Share held. Mr. Ko will not obtain any benefit as a result of such transfer.

It is proposed that prior to the implementation of the Scheme, the authorised share capital of Holdings will be increased to $52,407,600 divided into 5,240,760,000 Holdings Ordinary Shares of $0.01 each. As part of the reorganisation, Mr. Ko, being the sole shareholder of Holdings for the time being, will pass resolutions to convert such authorised share capital into two classes of shares consisting of 5,000,000,000 Holdings Ordinary Shares and 240,760,000 Holdings Preference Shares.

In consideration of the allotment and issue of new Ordinary Shares to Holdings by the Company, it is proposed that Holdings will, on the Effective Date, allot and issue new Holdings Ordinary Shares and new Holdings Preference Shares, credited as fully paid, respectively to the holders of Scheme Ordinary Shares and the holder of Scheme Preference Shares as appearing in the register of members of the Company at the Record Time in the proportion of one Holdings Ordinary Share for every Scheme Ordinary Share held and one Holdings Preference Share for every Scheme Preference Share held. Such issue and allotment of new Holdings Shares by Holdings will give rise to a share premium account in the books of Holdings, details of which are set out in the sub-paragraph headed “Reserve” under the paragraph headed “Effects of the Scheme” in the section headed “Explanatory Statement”.

Upon the Scheme becoming effective and based on the number of Ordinary Shares and Preference Shares in issue as at the Latest Practicable Date, the authorised and issued share capital of Holdings will be as follows:

Authorised: 5,000,000,000 Holdings Ordinary Shares 240,760,000 Holdings Preference Shares Issued and fully paid or credited as fully paid: 2,774,293,157 Holdings Ordinary Shares 240,760,000 Holdings Preference Shares	$ 50,000,000

	2,407,600

	27,742,931.57

	2,407,600

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INFORMATION RELATING TO HOLDINGS

APPENDIX I

Mr. Ko, as the sole existing shareholder of Holdings, has approved granting of general mandates to the directors of Holdings, conditional on the Scheme becoming effective, and the approval of the Ordinary Shareholders at the Ordinary EGM:

(i) to allot, issue and deal with additional Holdings Ordinary Shares, otherwise than by way of rights to shareholders or options issued under the Holdings Share Option Scheme or any scrip dividend or other similar scheme implemented in accordance with the Articles of Association of Holdings, up to a maximum of 20 per cent. of the aggregate nominal amount of the issued ordinary share capital of Holdings in issue as at the date upon listing of the Holdings Ordinary Shares;
(ii) to repurchase issued Holdings Ordinary Shares subject to a maximum as shall represent 10 per cent. of the ordinary share capital of Holdings in issue as at the date upon listing of the Holdings Ordinary Shares; and
(iii) to extend the general mandate to be granted to the directors of Holdings to allot, issue and deal with Holdings Ordinary Shares referred to in sub-paragraph (i) above by the addition to the aggregate nominal amount of the ordinary share capital of Holdings which may be allotted, issued or dealt with by the directors of Holdings pursuant to such general mandate of an amount representing the aggregate nominal amount of Holdings Ordinary Shares repurchased by Holdings pursuant to the mandate to repurchase Holdings Ordinary Shares referred to in subparagraph (ii) above.

The general mandates referred to in sub-paragraphs (i) and (ii) above will be effective until the earliest of the next annual general meeting of Holdings, the expiration of the period within which the next annual general meeting of Holdings is required by its Articles of Association or any applicable law of the Cayman Islands to be held and the variation or revocation of such authority by ordinary resolution of Holdings.

A summary of the regulations governing securities repurchased by companies incorporated in the Cayman Islands and maintaining a primary listing on the Stock Exchange is set out in this Appendix.

All Holdings Ordinary Shares in issue and immediately after the Scheme becomes effective will rank pari passu in all respects including as regards voting, dividends and return of capital.

Save as disclosed in this document, no share or loan capital of Holdings or any of its subsidiaries has been issued or agreed to be issued or is proposed to be issued fully or partly paid either for cash or for a consideration other than cash. As at the Latest Practicable Date, none of the unissued share or loan capital of Holdings or any of its subsidiaries is under option or agreed conditionally or unconditionally to be put under option.

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INFORMATION RELATING TO HOLDINGS

APPENDIX I

No commission, discounts, brokerages or other special terms have been granted by Holdings and neither Holdings nor any of its subsidiaries has agreed to pay or grant any such commission, discount, brokerage or other special terms.

(b) Listing

An application has been made to the Listing Committee of the Stock Exchange for the granting of listing of, and permission to deal in, the Holdings Ordinary Shares in issue or to be issued pursuant to the Scheme and the Holdings Ordinary Shares which may fall to be issued upon exercise of the subscription rights attaching to the options which may be granted under the Holdings Share Option Scheme (not exceeding 10 per cent. of the issued ordinary share capital of Holdings as at the date upon listing of the Holdings Ordinary Shares on the Stock Exchange) and upon exercise of the conversion rights attaching to the Holdings Preference Shares.

SHARE REPURCHASE MANDATE

(a) The Listing Rules

This section includes information required by the Stock Exchange to be included in this document concerning the proposed securities repurchase mandate to be granted to the Holdings’ directors.

The Listing Rules permit companies with a primary listing on the Stock Exchange to repurchase their securities on the Stock Exchange subject to certain restrictions, the most important of which are summarised below:

(i) Shareholders’ approval

The Listing Rules provide that all proposed repurchases of securities by a company with a primary listing on the Stock Exchange must be approved in advance by an ordinary resolution of its shareholders in general meeting, either by way of general mandate or by specific approval of a particular transaction.

(ii) Source of funds

Repurchases must be funded out of funds legally available for the purpose under Cayman Islands law and the constitutional documents of the company.

(iii) Trading restrictions

Under the repurchase mandate, a maximum of 10 per cent. of the fully paid-up issued share capital of a company as at the date of the resolution granting the general mandate may be repurchased on the Stock Exchange. A company may not issue or announce an issue of new securities for a period of 30 days immediately following a repurchase (other than an issue of securities pursuant to an exercise for warrants,

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INFORMATION RELATING TO HOLDINGS

APPENDIX I

share options or similar instruments requiring the company to issue securities which were outstanding prior to such repurchase). In addition, all repurchase of shares on the Stock Exchange in any calendar month are limited to a maximum of 25 per cent. of the trading volume of such securities on the Stock Exchange in the immediately preceding calendar month. The Listing Rules also prohibit a company from repurchasing its securities on the Stock Exchange if the result of the repurchase will result in the number of listed securities which are in the hands of the public falling below the relevant prescribed minimum percentage (currently applicable percentage to the Company is 25 per cent.) as required by the Stock Exchange.

The Listing Rules also prohibit a company from purchasing its own shares on the Stock Exchange for a consideration other than cash or for settlement otherwise than in accordance with the trading rules of the Stock Exchange in effect from time to time.

A company shall procure that any broker appointed by the company to effect the purchase of shares shall provide to the Stock Exchange such information with respect to purchase, made on behalf of the Company as the Stock Exchange may request.

(iv) Status of repurchased securities

The Listing Rules provide that all repurchased securities must be automatically cancelled and the certificates for the securities must be cancelled and destroyed. Under Cayman Islands law, a company’s repurchased share will be cancelled.

(v) Suspension of repurchase

The Listing Rules prohibit any repurchase of securities at any time after the directors have made any decision in respect of a price sensitive development until the price sensitive information has been publicly announced. In addition, the Stock Exchange may prohibit repurchase of securities on the Stock Exchange if a company has breached the Listing Rules.

(vi) Reporting requirements

Under the Listing Rules, repurchase of shares on the Stock Exchange or otherwise must be reported to the Stock Exchange not later than 30 minutes before the earlier of the commencement of the morning trading session or any pre-opening session on the following business day. In addition, the company is required to disclose in its annual reports and accounts details regarding share repurchases made during the financial year/period, including a monthly breakdown of repurchase of shares, the number of shares repurchased, the purchase price per share and the highest and lowest price paid for all such repurchases, where relevant, and the aggregate prices paid.

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INFORMATION RELATING TO HOLDINGS

APPENDIX I

(vii) Connected parties

The Listing Rules prohibit a company from knowingly repurchasing shares on the Stock Exchange from a connected person (as defined in the Listing Rules) and a connected person is prohibited from knowingly selling his shares to the company.

(b) Share capital

As at the Latest Practicable Date, the total ordinary issued share capital of the Company comprised 2,774,293,157 Ordinary Shares. If no further Ordinary Shares are issued or repurchased between the Latest Practicable Date and the Record Time, then the total number of the Holdings Ordinary Shares will be 2,774,293,157 upon the Scheme becoming effective and the maximum number that can be repurchased by the directors of Holdings will be 277,429,315 Holdings Ordinary Shares.

(c) Reasons for repurchases

The directors of Holdings believe that it is in the best interest of Holdings and its shareholders as a whole to have a general authority from its shareholders to enable the directors of Holdings to repurchase Holdings Ordinary Shares in the market upon the listing of the Holdings Ordinary Shares on the Stock Exchange. Such repurchases may, depending on market conditions and funding arrangements at the time, lead to an enhancement of the consolidated net asset value or consolidated earnings of Holdings per Holdings Ordinary Share or both and will only be made when the directors of Holdings believe that such repurchases will benefit Holdings and its shareholders as a whole.

(d) Funding of repurchases

In repurchasing Holdings Ordinary Shares, Holdings may only apply funds legally available for such purpose in accordance with its Articles of Association and the laws of the Cayman Islands.

The directors of Holdings do not propose to exercise the repurchase mandate to such extent as would, in the circumstances, have a material adverse effect on the working capital or the gearing level of Holdings and/or the Holdings Group which in the opinion of its directors are from time to time appropriate for Holdings and/or the Holdings Group.

(e) Directors’ dealings

None of the directors of Holdings nor, to the best of their knowledge and having made all reasonable enquiries, any of their respective associates (as defined in the Listing Rules) has any present intention to sell any Holdings Ordinary Share to which they will be entitled in consideration of and in exchange for the cancellation and extinguishment of their Scheme Ordinary Shares to Holdings or its subsidiaries upon the Scheme becoming effective.

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INFORMATION RELATING TO HOLDINGS

APPENDIX I

(f) Share prices

The highest and lowest prices at which the Ordinary Shares have traded on the Stock Exchange during each of the previous 12 months preceding the Latest Practicable Date were as follows:

	Highest	Lowest
	$	$
2001
July	0.096	0.071
August	0.080	0.060
September	0.062	0.040
October	0.064	0.043
November	0.064	0.050
December	0.075	0.056
2002
January	0.065	0.052
February	0.057	0.048
March	0.057	0.050
April	0.075	0.054
May	0.103	0.069
June	0.075	0.060
July_(up to the Latest Practicable Date)_	0.073	0.037

(g) General

The board of directors of Holdings has undertaken to the Stock Exchange that they will exercise the repurchase mandate in accordance with the Listing Rules and the applicable laws of the Cayman Islands so far as the same may be applicable.

If, as a result of a share repurchase by Holdings, a shareholder’s proportionate interest in the voting rights of Holdings increases, such increase will be treated as an acquisition for the purpose of the Takeovers Code. Accordingly, a shareholder, or a group of shareholders acting in concert, may become obliged to make a mandatory general offer in accordance with Rule 26 of the Takeovers Code.

As at the Latest Practicable Date, to the best knowledge of the directors of Holdings, based on the existing shareholding structure of the Company and assuming that there will be no change in the issued share capital of the Company from the Latest Practicable Date to the Record Time, immediately upon the Scheme becoming effective Mr. Ko and his concert parties, who together held 1,019,077,150 Ordinary Shares as at the Latest Practicable Date, will hold 1,019,077,150 Holdings Ordinary Shares representing approximately 36.73 per cent. of the then issued share capital of Holdings. In the event that the directors of Holdings exercise in full the power to

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INFORMATION RELATING TO HOLDINGS

APPENDIX I

repurchase the Holdings Ordinary Shares in accordance with the terms of the repurchase mandate (assuming Holdings has the same shareholding structure as the Company), the aggregate shareholding interests of Mr. Ko and his concert parties in Holdings would increase from approximately 36.73 per cent. to approximately 40.81 per cent., exceeding the 2 per cent. creeper under the Takeovers Code. The directors of Holdings consider that such an increase may give rise to an obligation on Mr. Ko and his concert parties to make a mandatory general offer for Holdings under Rule 26 of the Takeovers Code. The board of directors of Holdings has no present intention to exercise the repurchase mandate in part or in full which may lead to any shareholder of Holdings triggering a mandatory general offer obligation for Holdings under the Takeovers Code.

Save as disclosed above, the directors of Holdings are not aware of any obligations which may arise under the Takeovers Code as a result of any repurchase made pursuant to the repurchase mandate.

No connected person, as defined in the Listing Rules, has notified Holdings that he/she has a present intention to sell any Holdings Ordinary Shares to which he/she will be entitled in consideration of and in exchange for the cancellation and extinguishment of his/her Scheme Ordinary Shares to Holdings or its subsidiaries, or has undertaken not to do so.

The Company did not purchase any of its Ordinary Shares (whether on the Stock Exchange or otherwise) in the six months preceding the Latest Practicable Date.

ESTATE DUTY

No adverse material liability for estate duty would be likely to fall upon any member of the Group in relation to the implementation of the Scheme within the meaning of the Estate Duty Ordinance, Chapter 111 of the Laws of Hong Kong.

MEMORANDUM AND ARTICLES OF ASSOCIATION OF HOLDINGS AND CAYMAN ISLANDS LAW

Holdings is a company incorporated in the Cayman Islands and, therefore, operates under Cayman Islands law.

The constitution of Holdings consists of a Memorandum and Articles of Association.

Mr. Ko, as the sole existing shareholder of Holdings, approved the adoption of the new Articles of Association on 30th July, 2002 on a conditional basis. Adoption of the new Articles of Association by Holdings is conditional upon the Scheme becoming effective and the approval by the Shareholders.

A summary of the proposed new Articles of Association of Holdings and a comparison thereof with the Articles of Association of the Company are set out in the Appendix VII to this document.

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INFORMATION RELATING TO HOLDINGS

APPENDIX I

A copy of the proposed new Articles of Association and a letter of advice summarizing certain aspects of the Companies Law issued by Conyers Dill & Pearman, Cayman, the legal advisers on Cayman Islands law to Holdings will be available for inspection as referred to in Appendix V to this document.

Any person wishing to have a more detailed summary of the Companies Law or advice on the difference between it and the laws of any jurisdiction with which he/she is more familiar is recommended to seek independent legal advice.

HOLDINGS PREFERENCE SHARES

Terms of the Holdings Preference Shares are the same as that of the Preference Shares. Rights and obligations attaching to the Holdings Preference Shares are substantially the same as those attaching to the Preference Shares. Subject to the applicable laws and regulations of the Cayman Islands, the Holdings Preference Shares shall carry equal rights and rank pari passu with one another, and each Holdings Preference Share shall have the following rights and privileges:

Income

1 The Holdings Preference Shares confer upon the holders of Holdings Preference Shares the right to receive, out of funds lawfully available for dividend distribution, a non-cumulative cash dividend in Hong Kong dollars at the same rate as any dividend declared by Holdings in respect of the Holdings Ordinary Shares.
2 Dividends on the Holdings Preference Shares shall be paid at the same time as dividends on the Holdings Ordinary Shares are paid. In a scrip dividend scheme, where holders of Holdings Ordinary Shares are entitled to the right to opt between the payment of cash dividends and the issue of scrip dividends at a certain rate, the holders of Holdings Preference Shares shall be entitled to the same right and at the same rate.

Capital

3 On a return of capital on liquidation or otherwise (but not on conversion of Holdings Preference Shares or any repurchase by Holdings of Holdings Preference Shares or any other class of shares of Holdings) the assets of the Holdings available for distribution among the members of the Holdings shall be applied as follows:
(a) first, in paying to the holders of Holdings Preference Shares (pro rata to the aggregate of the nominal amounts of the Holdings Preference Shares held by each such holder), pari passu as between themselves and the holder of any other shares in the capital of Holdings ranking pari passu with the Holdings Preference Shares as regards repayment of amounts paid up or credited as paid up on such shares, an amount equals to the product of $0.18 multplied by the total number of all the Holdings Preference Shares and the amounts paid up or credited as paid up on any other such shares; and

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INFORMATION RELATING TO HOLDINGS

APPENDIX I

(b) secondly, the balance of such assets shall belong to and be distributed among the holders of any class of shares in the capital of Holdings, other than the Holdings Preference Shares and any other shares not entitled to participate in such assets in accordance with the respective right attaching thereto. The Holdings Preference Shares shall not confer on the holders thereof the right to participate in such surplus assets.

Conversion

4 (a) Holders of the Holdings Preference Shares shall have the right, subject to the provisions mentioned below and in accordance with the timetable set out in paragraph 4(b) below, to convert their Holdings Preference Shares into such number of Holdings Ordinary Shares as calculated by applying the formula set out in paragraph 4(c) below, by delivering a duly completed and signed Conversion Notice together with (i) a duly executed instrument of transfer in favour of Holdings in respect of the Holdings Preference Shares to be converted and (ii) the share certificate(s) for such Holdings Preference Shares to the registered office of Holdings. A Conversion Notice once given may not be withdrawn without the consent in writing of Holdings.
(b) The timetable for conversion of the Holdings Preference Shares is as follows:

Maximum number of Holdings Preference Shares that can be converted Time period in a time period First Conversion Period 82,654,000 [Note 1] Second Conversion Period 82,654,000 [Note 2] Third Conversion Period 75,452,000 [Note 3]

Note 1 If part or all of this maximum number of Holdings Preference Shares are not converted within the First Conversion Period, such number of Holdings Preference shares may be converted in the Second Conversion Period and the maximum number of Holdings Preference Shares that can be converted in the Second Conversion Period shall be increased accordingly.
Note 2 If part or all of this maximum number of Holdings Preference Shares (subject to increase pursuant to Note 1 above) are not converted within the Second Conversion Period, such number of Holdings Preference Shares (subject to increase pursuant to Note 1 above) may be converted in the Third Conversion Period and the maximum number of Holdings Preference Shares that can be converted in the Third Conversion Period shall be increased accordingly.
Note 3 This maximum number of Holdings Preference Shares is subject to increase pursuant to Note 1 and Note 2 above.

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(c) The number of Holdings Ordinary Shares into which a Holdings Preference Share can be converted pursuant to the exercise of the Conversion Rights shall be:
$102,000,000 ÷ 323,414,000 ÷ Deemed Conversion Price

where the “Deemed Conversion Price” shall be equal to

$102,000,000 ÷ 323,414,000

and the “Deemed Conversion Price” shall be subject to adjustment in the circumstances set out in paragraph (5) below and in the manner provided therein.

(d) The Holdings Ordinary Shares to which the holders of Holdings Preference Shares shall become entitled in consequence of exercising its right to convert together with certificate(s) in respect thereof shall be issued in board lots and not later than 10 Business Days after the relevant Conversion Date.
(e) No fraction of a Holdings Ordinary Share will be issued on conversion. In the event of any fraction of a Holdings Ordinary Share arising on conversion, such fraction shall be rounded down to the nearest whole number of the Holdings Ordinary Share. All Holdings Ordinary Shares so allotted shall rank pari passu in all respects with the fully paid Holdings Ordinary Shares in issue on the relevant Conversion Date and be entitled to all dividends and other distributions the record date of which falls on a date on or after the date of the relevant Conversion Date.

Adjustments

5 (a) Subject as hereinafter provided, the Deemed Conversion Price shall from time to time be adjusted in accordance with the following relevant provisions and so that if the event giving rise to any such adjustment shall be such as would be capable of falling within more than one of sub-paragraphs (i) and (ii) of this paragraph 5(a) it shall fall within the first of the applicable sub-paragraphs to the exclusion of the remaining sub-paragraph:
(i) If and whenever the Holdings Ordinary Shares by reason of any consolidation or sub-division become of a different nominal amount, the Deemed Conversion Price in force immediately prior thereto shall be adjusted by multiplying it by the revised nominal amount and dividing the result by the former nominal amount. Each such adjustment shall be effective from the close of business in Hong Kong on the day immediately preceding the date on which the consolidation or sub-division becomes effective.

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(ii) If and whenever Holdings shall offer to holders of Holdings Ordinary Shares new Holdings Ordinary Shares for subscription by way of rights at a price which is less than 90 per cent. of the market price at the date of the announcement of the terms of the offer, the Deemed Conversion Price shall be adjusted by multiplying the Deemed Conversion Price in force immediately before the date of the announcement of such offer by a fraction of which the numerator is the number of Holdings Ordinary Shares in issue immediately before the date of such announcement plus the number of Holdings Ordinary Shares which the aggregate of the amount (if any) payable for the rights and of the amount payable for the total number of new Holdings Ordinary Shares comprised therein would purchase at such market price and the denominator is the number of Holdings Ordinary Shares in issue immediately before the date of such announcement plus the aggregate number of Holdings Ordinary Shares offered for subscription (such adjustment to become effective (if appropriate retroactively) from the commencement of the day next following the record date for the offer).
(b) For the purposes of this paragraph 5:

“announcement” shall include the release of an announcement to the press or the delivery or transmission by telephone, telex or otherwise of an announcement to the Stock Exchange and “date of announcement” shall mean the date on which the announcement is first so released, delivered or transmitted;

“approved merchant bank” means a merchant bank of repute in Hong Kong selected by Holdings;

“market price” means the average of the closing prices of the Holdings Ordinary Shares (or the equivalent Ordinary Shares) on the Stock Exchange for each of the last five Stock Exchange dealing days on which dealings in the Holdings Ordinary Shares (or the equivalent Ordinary Shares) on the Stock Exchange took place ending on the last such dealing day preceding the day on or as of which the market price is to be ascertained;

“rights” includes rights in whatsoever form issued; and

“Holdings Ordinary Shares” include ordinary Holdings shares comprised in any issue and allotment pursuant to sub-paragraph (ii) of paragraph 5(a) and any such ordinary Holdings shares of Holdings as, when fully paid, will be Holdings Ordinary Shares;

(c) Any adjustment to the Deemed Conversion Price shall be made to the nearest one cent so that any amount under half a cent shall be rounded down and any amount of half a cent or more shall be rounded up and in no event shall any adjustment (otherwise than upon the consolidation of Holdings Ordinary Shares into shares of a larger

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nominal amount) involve an increase in the Deemed Conversion Price. In addition to any determination which may be made by the board of Holdings every adjustment to the Deemed Conversion Price shall be certified either (at the option of Holdings) by the auditors of Holdings for the time being or by an approved merchant bank.

(d) Notwithstanding anything contained herein, no adjustment shall be made to the Deemed Conversion Price in any case in which the amount by which the same would be reduced in accordance with the foregoing provisions of this paragraph would be less than one cent and any adjustment that would otherwise be required then to be made shall not be carried forward.
(e) Whenever the Deemed Conversion Price is adjusted as herein provided, Holdings shall give notice to the holders of Holdings Preference Shares that the Deemed Conversion Price has been adjusted (setting forth the event giving rise to the adjustment, the Deemed Conversion Price in effect prior to such adjustment, the adjusted Deemed Conversion Price and the effective date thereof) and shall at all times thereafter so long as any of the Holdings Preference Shares remains outstanding make available for inspection at its registered office a signed copy of the said certificate of the auditors of Holdings or (as the case may be) of the relevant approved merchant bank and a certificate signed by a director of Holdings setting forth brief particulars of the event giving rise to the adjustment, the Deemed Conversion Price in effect prior to such adjustment, the adjusted Deemed Conversion Price and the effective date thereof and shall, on request, send a copy thereof to the holders of Holdings Preference Shares.
(f) If application of any of the provisions of this paragraph 5 would but for this subparagraph (f) result in the Deemed Conversion Price being reduced so that on conversion Holdings Ordinary Shares shall fall to be issued at a discount to their nominal value, then the Deemed Conversion Price shall be adjusted to an amount equal to the nominal value of one Holdings Ordinary Share.
(g) For the avoidance of doubt, nothing in this paragraph 5 shall operate to require an adjustment to the Deemed Conversion Price other than as expressly provided for herein.

Bonus issue of securities

6 In a bonus issue by Holdings of Holdings Ordinary Shares or securities convertible into Holdings Ordinary Shares, the holders of Holdings Preference Share shall be entitled to the same rights to the issue as those to which the holders of Holdings Ordinary Shares are entitled, and the holders of Holdings Preference Shares shall participate in the issue as if they held such number of Holdings Ordinary Shares as that into which the Holdings Preference Shares they actually hold may be converted.

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Meetings and voting

7 (a) The Holdings Preference Shares shall not confer on the holders thereof the right to receive notice of, or to attend and vote at, a general meeting of Holdings, unless a resolution is to be proposed at a general meeting for winding-up Holdings or a resolution is to be proposed which if passed would (subject to any consents required for such purpose being obtained) vary or abrogate the rights or privileges of the holders of Holdings Preference Shares, in which event the Holdings Preference Shares shall confer on the holders thereof the right to receive notice of, and to attend and vote at, that general meeting, save that such holders may not vote upon any business dealt with at such general meeting except the election of a chairman, any motion for adjournment and the resolution for winding-up or the resolution which if passed would (subject to any consents required for such purpose being obtained) so vary or abrogate the rights and privileges of the holders of Holdings Preference Shares.
(b) Where holders of Holdings Preference Shares are entitled to vote on any resolution, then at the relevant general meeting or class meeting, on a show of hands every holder of Holdings Preference Shares who is present in person or by proxy or (being a corporation) by a representative duly authorised shall have one vote, and on a poll every holder of Holdings Preference Shares who is present in person or by proxy or (being a corporation) by a representative duly authorised shall have one vote for each Holdings Preference Share held.

Transfers and register

8 (a) The Holdings Preference Shares shall not be transferable.
(b) Beneficial ownership of the holders of Holdings Preference Shares shall not be transferred save with the prior written consent of the board of directors of Holdings and subject to any additional restrictions/conditions as may be imposed by the Stock Exchange.
(c) The register of holders of Holdings Preference Shares may be closed from time to time, subject to the same restrictions, mutatis mutandis, as applied to the closure of the register of holders of Holdings Ordinary Shares. Any exercise of conversion rights pursuant to paragraph 4 above during the period for which the register of holders of Holdings Preference Shares is closed shall be deemed to be and shall be effective upon the first day upon which such register reopens and such date shall be deemed to be the relevant Conversion Date for all purposes in respect of such exercise of Conversion Rights.

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HOLDINGS SHARE OPTION SCHEME

The following is a summary of the principal terms of the Holdings Share Option Scheme:

(a) Who may join

The board of the directors of the Holdings (the “Holdings Board”) may at its discretion grant options to (i) any part-time or full time employee or officer of any member of the Holdings Group or of any Associated Company (collectively, the “Employee”); (ii) the chief executive or director (executive or non-executive or independent non-executive) of any member of the Holdings Group or of any Associated Company; (iii) any supplier, agent, customer, distributor, business associate or partner, professional or other adviser of, or consultant or contractor to, any member of the Holdings Group or any Associated Company; (iv) any shareholder of any member of the Holdings Group or of any Associated Company who, in the opinion of the Holdings Board, has made or will make contributions which are or may be beneficial to the Holdings Group as a whole. (collectively, “Qualified Persons”).

(b) The purpose of the Holdings Share Option Scheme

The Holdings Share Option Scheme seeks to recognise and acknowledge the contributions or potential contributions made or to be made by the Qualified Persons to the Holdings Group, to motivate the Qualified Persons to optimise their performance and efficiency for the benefit of the Holdings Group, and to maintain or attract business relationship with the Qualified Persons whose contributions are or may be beneficial to the growth of the Holdings Group.

(c) Subscription Price

The subscription price (“Subscription Price”) in relation to each option under the Holdings Share Option Scheme shall be a price notified by the Holdings Board to the respective Qualified Person. Such price shall not be less than the higher of (i) the closing price of the Holdings Ordinary Shares as stated in the Stock Exchange’s daily quotation sheets on the date on which the option is offered to the relevant Qualified Person (“Offer Date”); (ii) the average of the closing prices of the Holdings Ordinary Shares (or the equivalent Ordinary Shares) as stated in the Stock Exchange’s daily quotation sheets for the 5 trading days immediately preceding the Offer Date; or (iii) the nominal value of the Holdings Ordinary Share.

(d) Grant of Option

An offer of the grant of an option shall be made to a Qualified Person by letter (“Offer Letter”) in such form as the Holdings Board may from time to time determine specifying the terms and subject to the conditions on which the option is to be granted. Subject to the terms of the Offer Letter, there shall be no general performance target to or minimum holding period for the vesting or exercise of options.

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An option shall be deemed to have been granted and accepted and to have taken effect when the duplicate Offer Letter comprising acceptance of the option duly signed by the option-holder together with a remittance in favour of Holdings of $1.00 by way of consideration for the grant thereof shall have been received by Holdings on or before the last day for acceptance as set out in the Offer Letter.

(e) Maximum number of Holdings Ordinary Shares

(i) General Mandate

The maximum number of Holdings Ordinary Shares in respect of which options may be granted under the Holdings Share Option Scheme and any other share option schemes of Holdings must not in aggregate exceed 10 per cent. (“General Mandate”) of the issued ordinary share capital of Holdings as at the date upon listing of the Holding Ordinary Share. For the purpose of calculating the General Mandate, options which have been lapsed in accordance with the terms of the Holdings Share Option Scheme shall not be counted.

(ii) Refreshment of the General Mandate

Holdings may seek approval by its ordinary shareholders in general meeting for refreshing the General Mandate provided that the total number of Holdings Ordinary Shares in respect of which options may be granted under the Holdings Share Option Scheme and any other share option schemes of Holdings under the General Mandate as being refreshed must not in aggregate exceed 10 per cent. of the total number of Holdings Ordinary Shares in issue as at the date when such refreshment of the General Mandate is approved by the ordinary shareholders of Holdings. For the purpose of calculating the General Mandate as refreshed, options previously granted under the Holdings Share Option Scheme and any other share option schemes of Holdings, whether outstanding, cancelled, lapsed in accordance with its applicable rules or already exercised, will not be counted.

(iii) Grant of options to specifically identified Qualified Persons

Holdings may seek separate approval by its ordinary shareholders in general meeting for granting options beyond the General Mandate provided the options in excess of the General Mandate are granted only to Qualified Persons specifically identified before such approval is sought. A circular will be sent by Holdings to its shareholders in accordance with the Listing Rules in such circumstance.

(iv) Overriding Limit

Notwithstanding any provisions to the contrary, the limit on the number of Holdings Ordinary Shares which may be issued upon exercise of all outstanding options granted and yet to be exercised under the Holdings Share Option Scheme and any other share option

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schemes of Holdings must not exceed such number of Holdings Ordinary Shares as shall represent 30 per cent. of the Holdings Ordinary Shares in issue from time to time. No options may be granted under the Holdings Share Option Scheme and any other share option schemes of Holdings if such grant will result in the aforesaid limit being exceeded.

(v) Maximum entitlement of each Qualified Person

Unless separately approved by shareholders in general meeting in the manner as prescribed in the Listing Rules, the total number of Holdings Ordinary Shares issued and to be issued upon exercise of options granted to each Qualified Person (including both exercised, cancelled and outstanding options) under the Holdings Share Option Scheme and any other share option schemes of Holdings in any 12-month period must not exceed 1 per cent. of the Holdings Ordinary Shares then in issue.

(f) Timing for exercise options

The period during which an option may be exercised in accordance with the terms of the Holdings Share Option Scheme (“Option Period”) shall be the period set out in the Offer Letter provided that such period shall commence on the date upon which such option is deemed to be accepted in accordance with the terms of the Holdings Share Option Scheme and must expire no later than the tenth anniversary of the Offer Date.

(g) Rights personal to option-holder

An option shall not be sold, transferred, charged, mortgaged, encumbered or created with any interest (legal or beneficial) in favour of any third party or assigned and shall be personal to the option-holder (save that the option-holder may nominate a nominee to hold the Holdings Ordinary Shares to be issued pursuant to the exercise of options granted under the Holdings Share Option Scheme on trust for the sole benefit of such option-holder provided that evidence of such trust arrangement between the option-holder and the nominee shall be provided to the satisfaction of Holdings).

(h) Rights on ceasing employment

If the option-holder being an Employee ceases to be a Qualified Person for any reason other than his or her death or termination of his or her employment or appointment on one or more of the grounds specified in sub-paragraph (v) of paragraph (p) below or retirement in accordance with the terms of his or her contract of employment or appointment or by virtue of any statutory requirement, such option-holder may exercise the option up to his or her entitlement at the date of cessation (to the extent not already exercised) within the period of 1 month following the date of such cessation, which date shall be the last actual working day with Holdings or its relevant subsidiary or its relevant Associated Company (as the case may be) whether salary is paid in lieu of notice or not.

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(i) Rights on death

If the option-holder (being an individual) ceases to be a Qualified Person by reason of death (and, in the case of such option-holder is an Employee, none of the events which would be a ground for termination of his or her employment or appointment as specified in sub-paragraph (v) of paragraph (p) below has arisen), the legal personal representative(s) of the option-holder shall be entitled within a period of 12 months from the date of death (or such other period as the Holdings Board may determine) to exercise the option in full (to the extent not already exercised).

(j) Rights on retirement

If the option-holder being an Employee ceases to be a Qualified Person by reason of retirement in accordance with the terms of his or her contract of employment or appointment or by virtue of any statutory requirement and none of the events which would be a ground for termination of his or her employment as specified in sub-paragraph (v) of paragraph (p) below has arisen, the optionholder shall be entitled within a period of 12 months from the date of retirement (or such other period as the Holdings Board may determine) to exercise the option up to his or her entitlement (to the extent not already exercised).

(k) Rights on termination of business relation

If the option-holder being a non-Employee in the absolute opinion of the Holdings Board ceases to be qualified as a Qualified Person by reason of termination of its business relation with the relevant member of the Holdings Group or the Associated Company (as the case may be) or otherwise, any outstanding options then held by such option-holder shall lapse with effect from the date on which the Holdings Board notifies such option-holder in writing of the relevant termination.

(l) Rights on a compromise or arrangement

In the event of a compromise or arrangement between Holdings and its shareholders or creditors being proposed in connection with a scheme for the reconstruction or amalgamation of Holdings, Holdings shall give notice thereof to the option-holder (or his or her legal representative(s)) on the same day as it gives notice of the meeting to its shareholders or creditors to consider such a compromise or arrangement and the options (to the extent not already exercised) shall become exercisable on such date and the option-holder may at any time thereafter until the earlier of (i) two calendar months after that date or (ii) the date on which such compromise or arrangement is sanctioned by court, exercise any of the option whether in full or in part, but the exercise of an option as aforesaid shall be conditional upon such compromise or arrangement being sanctioned by the court and becoming effective. Upon such compromise or arrangement becoming effective, all options shall lapse except insofar as previously exercised under the Holdings Share Option Scheme. Holdings may require the option-holder (or his or her personal representative(s)) to transfer or otherwise deal with the Holdings Ordinary Shares issued as a result of the exercise of

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options in these circumstances so as to place the option-holder in the same position as nearly as would have been the case had such Holdings Ordinary Shares been subject to such compromise or arrangement.

(m) Effect of capital alteration

In the event of any alteration in the capital structure of Holdings whilst any option remains exercisable, whether by way of capitalisation issue, rights issue, share consolidation, share subdivision or reduction of the share capital of Holdings (other than an issue of Holdings Ordinary Shares as consideration in respect of a transaction to which Holdings is a party), the Holdings Board shall make (and shall notify to the option-holder) such corresponding alterations (if any) in:

(i) the number or nominal amount of Holdings Ordinary Shares subject to any option so far as such option remains unexercised; and/or
(ii) the Subscription Price;

as the auditors shall certify in writing to the Holdings Board to be in their opinion fair and reasonable, provided that any alteration shall be made on the basis that the proportion of the issued share capital of Holdings to which a option-holder is entitled after such alteration shall remain the same as that to which he was entitled before such alteration, but so that no such alteration shall be made the effect of which would be to enable any Holdings Ordinary Share to be issued at less than its nominal value.

(n) Rights on voluntary winding up

In the event a notice is given by Holdings to its shareholders to convene a shareholders’ meeting for the purpose of considering and, if thought fit, approving a resolution to wind up Holdings voluntarily, Holdings shall on the same date as or promptly after it despatches such notice to each shareholder of Holdings gives notice thereof to the option-holder, and thereupon the option-holder (or his or her personal representative(s)) shall be entitled to exercise all or any of the option at any time no later than four Business Days prior to the proposed shareholders’ meeting of Holdings by giving notice in writing to Holdings, accompanied by a remittance for the full amount of the aggregate Subscription Price for the Holdings Ordinary Shares in respect of which the notice is given, whereupon Holdings shall as soon as practicable as the circumstances allow but in any event no later than the business day immediately before the proposed shareholders’ meeting, allot the relevant Holdings Ordinary Shares to the option-holder credited as full paid.

(o) Rights on general offer

If a general offer is made to all the holders of Holdings Ordinary Shares (or all such holders other than the offeror and/or any person controlled by the offeror and/or any person acting in concert with the offeror) and such offer subsequently becomes or is declared unconditional, the

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option-holder (or his or her legal personal representative(s)) shall be entitled to exercise the option then outstanding in full at any time within fourteen days after the date on which the offer becomes or is declared unconditional notwithstanding the Option Period of the relevant option may not have commenced.

(p) Lapse of options

An option shall lapse automatically (to the extent not already exercised) on the earliest of:

(i) the expiry of the Option Period;
(ii) the expiry of the periods referred to in paragraphs (h), (i), (j), or (o);
(iii) the date of the commencement of the winding-up of Holdings in respect of the situation contemplated in paragraph (n);
(iv) subject to the scheme of arrangement or compromise becoming effective, the expiry of the periods referred to in paragraph (l);
(v) the date on which the option-holder being an Employee ceases to be a Qualified Person by reason of the termination of his or her employment or appointment on any one or more of the grounds that he or she has been guilty of misconduct, or has committed an act of bankruptcy or has become insolvent or 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 at common law or pursuant to any applicable laws or under the option-holder’s service contract with Holdings or its relevant subsidiary or its relevant Associated Company (as the case may be);
(vi) the date on which the option-holder commits a breach of paragraph (g);
(vii) if an option was granted subject to certain conditions, restrictions or limitations, the date on which the Holdings Board resolves that the option-holder has failed to satisfy or comply with such conditions, restrictions or limitations;
(viii) in respect of the option-holder being a consultant or adviser (whether individual or corporation), the date on which the Holdings Board resolves that the consultant or adviser fails to comply with any provisions of the relevant contract, or breaches its fiduciary duty under the common law; or
(ix) the occurrence of such event or expiry of such period as may have been specifically provided for in the Offer Letter, if any.

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(q) Ranking of Holdings Ordinary Shares

The Holdings Ordinary Shares to be allotted upon the exercise of an option will be subject to all provisions of the Memorandum of Association and Articles of Association of Holdings for the time being in force and will rank pari passu in all respects with the fully paid Holdings Ordinary Shares in issue on the date of allotment and accordingly will entitle the holders to participate in all dividends or other distributions paid or made on or after the date of allotment other than any dividends or other distributions previously declared or recommended or resolved to be paid or made if the record date therefor shall be before the date of allotment.

(r) Life of the Holdings Share Option Scheme

The Holdings Share Option Scheme shall be valid and effective for a period of ten years commencing from the date on which the Holdings Share Option Scheme is deemed to take effect in accordance with its terms, after which period no further options will be granted but the provisions of the Holdings Share Option Scheme shall remain in full force and effect in all other respects.

(s) Alterations of the Holdings Share Option Scheme

The Holdings Share Option Scheme may be altered by the Holdings Board except that any material alteration to its terms and conditions or any change to the terms of options granted (except where such alterations take effect automatically under the existing terms of the Holdings Share Option Scheme) shall first be approved by the ordinary shareholders of Holdings in general meeting and the provisions of the Holdings 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 the option-holders except with the prior sanction of a resolution of Holdings in general meeting. Any amended terms of the Holdings Share Option Scheme shall comply with Chapter 17 of the Listing Rules.

(t) Administration

The Holdings Share Option Scheme shall be subject to the administration of the Holdings Board or a duly authorised committee thereof whose decision as to all matters relating to the Holdings Share Option Scheme or its interpretation or effect (save as otherwise provided) shall be final and binding on all parties affected thereby.

Without prejudice to any of the provisions of the Holdings Share Option Scheme, the Holdings Board may from time to time adopt such operational rules as it may deem fit for the purpose of giving effect to or implementing the Holdings Share Option Scheme including without limitation rules which may restrict the exercise of the options granted or to be granted in any way or otherwise impose restrictions whatsoever on the part of the option-holder provided always that such operational rules shall not contravene the applicable provisions of the Listing Rules.

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Any change to the authority of the Holdings Board or the administrators of the Holdings Share Option Scheme in relation to any alteration of the terms of the Holdings Share Option Scheme shall be approved by the ordinary shareholders of Holdings in general meeting.

(u) Options to Related Persons

(i) Any grant of options to a director, chief executive or substantial shareholder of Holdings or any of their respective associates (“Related Person”) must be approved by the independent non-executive directors of Holdings (excluding independent nonexecutive director who is the option-holder of such options).
(ii) Any grant of options to a substantial shareholder or an independent non-executive director of Holdings or any of their respective associates shall comply with paragraph (iii) below if such proposed grant of options, when aggregated with all options (whether exercised, cancelled or outstanding) already granted to that Related Person under the Holdings Share Option Scheme and any other share option schemes of Holdings during the 12-month period up to and including the date of such grant of options, would (a) entitle him or her to receive more than 0.1 per cent. of the total issued Holdings Ordinary Shares for the time being; and (b) represent an aggregate value in excess of $5,000,000 (or such other amount as shall be permissible under the Listing Rules from time to time) based on the closing price of the Holdings Ordinary Shares on the Stock Exchange at the date of each grant.
(iii) Any grant of options referred to in paragraph (ii) must, in addition to obtaining the approval of the independent non-executive directors of Holdings pursuant to paragraph (i), be approved by the ordinary shareholders of Holdings in general meeting where all connected persons of Holdings must abstain from voting save and except any connected person may vote against the proposed grant in the general meeting provided that his intention so to do has been stated in a circular to be despatched to the ordinary shareholders of Holdings in accordance with the Listing Rules.
(iv) Any vote taken at such general meeting to approve the grant of such options must be taken on a poll.

(v) Restrictions on grant of options

No grant of options shall be made after a price sensitive event has occurred or a price sensitive matter has been the subject of a decision, until such price sensitive information has been announced pursuant to the requirements of the Listing Rules. Without prejudice to the foregoing, no option shall be granted during any period specified in the Listing Rules as being a period during which no option may be granted.

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(w) Cancellation of options

Subject to the consent from the relevant option-holder, the Holdings Board may in its discretion cancel options previously granted to, and yet to be exercised by, such option-holder; provided that if such cancellation of options is made for the purpose of re-issuing new options to such option-holder, there must be sufficient available unissued options (excluding such cancelled options) for such re-issuance under the General Mandate.

(x) Termination

Holdings by resolution in general meeting or the Holdings Board may at any time terminate the operation of the Holdings Share Option Scheme and in such event no further options will be offered but the provisions of the Holdings Share Option Scheme shall remain in force in all other respects.

Present status of the Holdings Share Option Scheme

Mr. Ko, as the existing sole shareholder of Holdings, approved the adoption of the Holdings Share Option Scheme on 30th July, 2002 on a conditional basis. The Holdings Share Option Scheme is conditional upon (i) the approval of the Ordinary Shareholders at the Ordinary EGM; (ii) the Listing Committee of the Stock Exchange granting approval for the listing of, and permission to deal in, the Holdings Ordinary Shares (including such to be issued pursuant to the exercise of any options in accordance with the terms and conditions of the Holdings Share Option Scheme, not exceeding 10 per cent. of the issued ordinary share capital of Holdings as at the date upon listing of the Holdings Ordinary Shares); and (iii) the Scheme taking effect in accordance with its terms. An application has been made to the Listing Committee of the Stock Exchange for obtaining the approval abovementioned.

As at the date of this document, no options have been granted or agreed to be granted under the Holdings Share Option Scheme.

GENERAL

(a) Holdings has applied to be registered in Hong Kong under the provisions of Part XI of the Companies Ordinance. Mr. Ho Te Hwai, Cecil, the company secretary of Holdings, will be authorised to accept service of process and notices on behalf of Holdings in Hong Kong.
(b) Save as disclosed in the section headed “Material contracts” in Appendix II to this document, the only material contract (not being a contract in the ordinary course of business) entered into by the Holdings Group is an undertaking dated 30th July, 2002 pursuant to which Holdings acknowledged the Preference Shareholder’s consent to the terms of the Scheme.

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(c) Holdings has not carried out any business since its incorporation and has not entered into any material contracts or agreements (save for the material contract set out in (b) above).
(d) As at the Latest Practicable Date, Holdings had no outstanding mortgages, charges, debentures or other loan capital, bank overdrafts, loans or other similar indebtedness or any hire purchase commitments or any guarantees or other contingent liabilities. Please refer to the paragraphs headed “Indebtedness” and “Liquidity, financial resources and capital structure” for the financial information of the Group as at 30th April, 2002.
(e) As at the Latest Practicable Date, none of the directors of Holdings had any existing or proposed service contract with any member of the Holdings Group, (excluding contracts expiring or determinable by the relevant employers within one year without payment of compensation (other than statutory compensation)). Holdings presently has no employee.
(f) As at the Latest Practicable Date, Holdings was not engaged in any litigation or arbitration, and no litigation or claim is known to the directors of Holdings to be pending or threatened against Holdings. Please refer to the section headed “Pending litigation” in Appendix III to this document on page 106 for the information regarding any litigation or arbitration or claim is known to the directors of Holdings to be pending or threatened against the Group.
(g) Since Holdings is not a company incorporated in Hong Kong, the Holdings Ordinary Shares and the Holdings Preference Shares do not fall within the categories of investments specified in the Second Schedule to the Trustee Ordinance, Chapter 29 of the Laws of Hong Kong, as authorised by such Ordinance for investment by trustees whose investment powers are limited to those specified therein.
(h) Assuming the implementation of the Scheme and based on the arrangements presently in force, the aggregate of the remuneration payable by the Holdings Group to the directors of Holdings in respect of the year ending 31st December, 2002 is expected to be approximately $6 million.
(i) The directors of Holdings have been advised that the implementation of the Scheme is not expected to expose the Holdings Group to any material adverse liability to Hong Kong estate duty.

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INFORMATION RELATING TO THE GROUP

APPENDIX II

SHARE CAPITAL

(A) Authorised and issued capital

(i) As at the Latest Practicable Date, the authorised and issued share capital of the Company were as follows:

Authorised: 3,409,240,000 Ordinary Shares 240,760,000 Preference Shares Issued and fully paid or credited as fully paid: 2,774,293,157 Ordinary Shares 240,760,000 Preference Shares	$ 613,663,200.00

	43,336,800.00

	499,372,768.26

	43,336,800.00

All Ordinary Shares in issue rank pari passu in all respects including as regards voting, dividends and return of capital.

(ii) Save disclosed herein and except for the following:
(a) 47,876,966 ordinary shares which were issued and allotted by DVN (Holdings) Limited (“DVN”) upon the conversion of 46,919,829 convertible preference shares in the capital of DVN; and
(b) the 200,000 ordinary shares which were issued and allotted by DVN as a result of the exercise of options granted by DVN to employees,

there has been no alteration in the share capital of any member of the Group within two years preceding the Latest Practicable Date.

(iii) As at the Latest Practicable Date, there is no outstanding share option granted by the Company to any employee of the Group.

As at the Latest Practicable Date, the following options had been granted by a subsidiary of the Company, DVN to certain employees of the Group and remained outstanding:

(a) Date of share options granted 10th September, 1999

Exercise price $2.25

Exercise period 1st January, 2000 - 31st December, 2002

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INFORMATION RELATING TO THE GROUP

APPENDIX II

Outstanding options as at the Latest Practicable Date

Held by directors: Mr. Ko 2,450,000 Mr. Lui Pan, Terry 2,750,000 Held by employees 5,134,000 Total 10,334,000

(b) Date of share options granted 1st September, 2000 Exercise price $2.62 Exercise period 1st January, 2001 - 31st December, 2003

Outstanding options as at the Latest Practicable Date

— Held by directors Held by employees 2,300,000 Total 2,300,000

(c) Date of share options granted 2nd November, 2000 Exercise price $1.50 Exercise period 1st January, 2001 - 31st December, 2003

Outstanding options as at the Latest Practicable Date

— Held by directors Held by employees 5,900,000 Total 5,900,000 (d) Date of share option granted 23rd July, 2002 Exercise price $1.47 Exercise period 24th July, 2002 - 23rd July, 2005

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INFORMATION RELATING TO THE GROUP

APPENDIX II

Outstanding options as at the Latest Practicable Date

Held by directors: Mr. Ko Mr. Lui Pan, Terry Ms. Patty Chan_(note)_ Held by employees	3,000,000 3,000,000 1,000,000 7,575,000
	14,575,000

Note: Ms. Patty Chan is an employee of the Group and the spouse of Mr. Lui Pan, Terry.

Save as disclosed herein, neither the Company nor any of its subsidiaries have any share or loan capital under option or agreed conditionally or unconditionally to be put under option, nor have any warrants or conversion rights affecting shares in any such companies been issued or granted or agreed conditionally or unconditionally to be issued or granted by any of such companies.

(iv) Save as disclosed herein, within the two years preceding the date of this document no commissions, discounts, brokerages or other special terms have been granted by the Company or any of its subsidiaries in connection with the issue or sale of any capital of any member of the Group.

(B) Listing

All the existing Ordinary Shares in issue are listed on the Stock Exchange, no part of the securities of the Company is listed on or dealt in nor is any listing of, or permission to deal in, the securities of the Company being or proposed to be sought on any other stock exchange.

FINANCIAL INFORMATION

The respective audited financial information of the Group for the three years ended 31st December, 2001 are set out in Appendix III to this document.

INDEBTEDNESS

As at the close of business on 30th April, 2002, being the Latest Practicable Date for the purpose of this indebtedness statement prior to the printing of this document, the Group had outstanding bank borrowings of approximately $38,911,000, comprising secured bank loans of approximately $37,422,000 and unsecured bank loans of approximately $1,489,000. The secured bank loan was secured by certain of the Group’s bank deposits.

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INFORMATION RELATING TO THE GROUP

APPENDIX II

Save as aforesaid and apart from intra-group liabilities, at the close of business on 30th April, 2002, the Group did not have any outstanding bank overdrafts, loans, or other similar indebtedness, debentures or other loan capital, mortgages, charges, finance leases or hire purchase commitments, guarantees or other material contingent liabilities.

LIQUIDITY, FINANCIAL RESOURCES AND CAPITAL STRUCTURE

Net current assets

As at 30th April, 2002, the Group had unaudited net current assets of approximately $122,568,000. Unaudited current assets comprised cash and bank balances of approximately $95,265,000, trade and bill receivables of approximately $57,218,000, inventories and work in progress of approximately $64,484,000, prepayments, deposits and other receivables of approximately $45,338,000 and short-term investment of approximately $8,019,000. Unaudited current liabilities comprised trade and bill payable of approximately $25,103,000, tax payable of approximately $2,081,000, amounts due to fellow subsidiaries of approximately $31,708,000, bank loans of approximately $38,911,000 and other payables and accruals of approximately $49,953,000.

Borrowings and banking facilities

The Group generally finances its operations with internally generated cash flow and by banking facilities.

As at 30th April, 2002, the Group had aggregate banking facilities of approximately $42,422,000 provided by various banks. The banking facilities were secured by the following:

(a) corporate guarantees to the extent of $10,000,000 executed by the Company; and
(b) pledges of the Group’s bank deposits aggregating US$4,855,000 (equivalent to approximately $37,870,000).

As at 30th April, 2002, the Group had utilised a total of $38,911,000 of the aforesaid banking facilities and which borrowing was repayable within one year.

Commitments and contingent liabilities

As at 30th April, 2002, the Group had financial commitments in relation to capital contributions to two subsidiaries of approximately $46,445,000. Save as disclosed above and in the section headed “Pending litigation” in Appendix III to this document on page 106, the Directors confirm that the Group does not have any other material commitments or any material contingent liabilities as at 30th April, 2002.

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INFORMATION RELATING TO THE GROUP

APPENDIX II

Working capital

Taking into account the banking facilities, internal resources, other loan arrangements of the Group and barring any unforeseen circumstances, the Directors are of the opinion that the Group and the directors of Holdings are of the opinion that the Holdings Group has sufficient working capital to satisfy its present requirements.

MAJOR SUPPLIERS AND CUSTOMERS

For the year ended 31st December, 2001 the percentages of purchases and sales for the year attributable to the Group’s major suppliers and major customers are as follows:

	per cent.
Purchases
— the largest supplier	16.59
— five largest suppliers combined	40.04
Sales
— the largest customer	30.59
— five largest customers combined	37.77

As far as the directors are aware, none of the directors, their associates or any shareholders (which to the knowledge of the directors, own more than 5 per cent. of the Company’s issued share capital) had any beneficial interests in the major suppliers or major customers noted above.

BUSINESS OUTLOOK

In year 2000, the Group divested from its manufacturing operations to refocusing on the digital broadcasting and telecommunications. During year 2000, the Group recorded a consolidated turnover of approximately $119.3 million as compared to approximately $727.7 million for year 1999, and the net loss attributable to shareholders of approximately $493.7 million (restated) as compared to the net profit attributable to shareholders of approximately $69.6 million (restated) for year 1999. The decrease in turnover was mainly due to the discontinuation of the manufacturing businesses and the net loss for the year was mainly attributable to the provision for the unrealised holding loss of approximately $294 million on the short-term investments, provision for impairment of goodwill assets of approximately $94.9 million and loss from discontinuing the Group’s manufacturing businesses of approximately $40 million.

During year 2001, the Group recorded a consolidated turnover of approximately $128.9 million and the net loss attributable to shareholders of approximately $138.4 million. The net loss was mainly due to the net bad and doubtful debts provision and the write-off of approximately $39.1 million, the provision made in listed investment securities of approximately $23 million, the unrealised loss of a short-term listed investment of approximately $8.1 million and the write-off of fixed assets of approximately $5.7 million.

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INFORMATION RELATING TO THE GROUP

APPENDIX II

Over the past three years, the Group has successfully metamorphosed from a low technology original equipment manufacturing company to a sophisticated technology and multi-media platform provider. The Directors believe that such transformation strategically places the Group to capture the future growth opportunities and could improve operating margins and the return to the Shareholders. The revenue of the Group’s continuing operations grew satisfactorily from approximately $32 million as at 31st December, 1999 to approximately $129 million as at 31st December, 2001 representing an average compounded annual growth rate of approximately 100 per cent..

The Directors expect that current sluggish economic situation will persist for a while in the foreseeable future. In response to such unfavourable market conditions, the Group has already taken effective measures to trim costs and to dispose of or close loss-making operations which substantially rationalised the Group’s trading performance. The Directors believe that the performance of the focused business portfolio of the Group in the PRC will benefit from the accession of the PRC into the World Trade Organisation. The Group will continue to expand in its digital broadcasting business with a view to leverage the Group’s position as digital media and telecommunication integrators in the PRC.

In order to diversify the revenue base, the Group will also continue to explore investment and acquisition opportunities in other developed and developing countries worldwide. The Directors consider that there are no interruptions in the businesses of the Group which have material impact on the financial position of the Group in the past twelve months.

EMPLOYEES

As at the Latest Practicable Date, the Group had 405 full-time employees. An analysis of the Group’s employees by function as at the Latest Practicable Date is as follows:

Design, integration and installation of digital broadcasting equipment

Design, integration and installation of digital broadcasting equipment
and development of related software and products	303
Provision of international financial market information and selective consumer data	36
Provision of IP telephony and related services	50
Retail and distribution of home audio and video equipment	4
General	12
Total	405

LITIGATION

As at the Latest Practicable Date, save as disclosed in the section headed “Pending litigation” in Appendix III to this document, no member of the Group was engaged in any litigation or arbitration of material importance and no litigation or claim of material importance was known to the Directors to be pending or threatened by or against any member of the Group.

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INFORMATION RELATING TO THE GROUP

APPENDIX II

MATERIAL CONTRACTS

The following contracts, not being contracts in the ordinary course of business, were entered into by the Company or its subsidiaries within the two years preceding the date of this document and are or may be material:

(a) A share swap agreement dated 27th December, 2000 pursuant to which Victory Beat Limited, an indirect subsidiary of the Company, agreed to swap 1,600,000 issued shares of $1.00 each of HiTV Limited with the 990 issued shares of US$1.00 each in the capital of Board Communication Company Limited on terms and conditions therein contained.
(b) A subscription agreement dated 15th June, 2001 pursuant to which Victory Beat Limited agreed to subscribe for, and Board Communication Company Limited agreed to issue and allot 2,600,000 redeemable convertible preference shares at an aggregate cash consideration of $20,280,000 and subject to the other terms therein contained.
(c) An agreement dated 28th September, 2001 pursuant to which Prime Pacific International Limited, an indirect subsidiary of the Company, agreed to subscribe for, and DVN agreed to issue and allot, an aggregate of 38,900,000 new shares at $2.00 per share on and subject to other conditions and terms contained therein.
(d) An agreement dated 18th March, 2002 pursuant to which DVN, an indirect subsidiary of the Company, agreed to issue and allot, and Zoran Corporation agreed to subscribe for, an aggregate of 18,571,429 new shares at $2.10 per share on and subject to other terms conditions set out therein.
(e) A joint-venture agreement dated 18th April, 2002 between 江蘇宏圖高科技股份有限公司 (Jiangsu Hongtu High Technology Co., Ltd.) and DVN in relation to the setting up of a joint-venture enterprise of 江蘇宏天寬頻視訊有限公司 (Jiangsu Hongtian Board Communication Co., Ltd.).

MATERIAL ADVERSE CHANGE

There has been no material adverse change in the financial or trading position of the Group since 31st December, 2001, being the date to which its last audited financial statements were made up.

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FINANCIAL INFORMATION

APPENDIX III

Set out below are summaries of the audited consolidated profit and loss accounts, the audited consolidated cash flow statements and the consolidated statement of recognised gains and losses of the Group for the three years ended 31st December, 2001 and the audited consolidated balance sheets of the Group as at 31st December, 2001, 31st December, 2000 and 31st December, 1999, (together with the notes to the audited financial statements of the Group as of 2001 and 2000), extracted from the audited accounts of the Group for the three years ended 31st December, 2001, 2000 and 1999 respectively (restated as a result of the adoption of new accounting policy with respect to the treatment for development costs in accordance with Statement of Standard Accounting Practice 29 on intangible assets, which became effective in year 2001).

The consolidated accounts of the Group for the year ended 31st December, 2001 were audited by PricewaterhouseCoopers, Certified Public Accountants and those for the years ended 31st December, 2000 and 1999 were audited by Ernst & Young, Certified Public Accountants.

(a) Consolidated Profit and Loss Accounts

Notes TURNOVER 3 Continuing operations Discontinued operations 2 Cost of sales Gross profit/(loss) Other revenues 3 Selling and distribution costs Administrative expenses Net other operating (expenses)/income Net loss on disposal of discontinued operations OPERATING LOSS 5 Continuing operations Discontinued operations Finance costs 6 Share of losses of: A jointly controlled entity An associated company LOSS BEFORE TAXATION Taxation 7 LOSS AFTER TAXATION Minority interests (LOSS)/PROFIT ATTRIBUTABLE TO SHAREHOLDERS 8 & 26 (LOSS)/EARNINGS PER SHARE Basic 9 Diluted	2001 $’000 128,875 — 128,875 (72,842) 56,033 3,765 (17,903) (127,179) (70,053) — (155,337) — (155,337) (3,443) (6,930) — (165,710) — (165,710) 27,306 (138,404) cents (5.0) N/A	2000 $’000 (Restated) 89,753 29,522 119,275 (129,936) (10,661) 9,809 (10,134) (129,370) (381,214) (40,149) (482,336) (79,383) (561,719) (7,077) (3,628) (15,032) (587,456) 645 (586,811) 93,081 (493,730) cents (18.2) N/A	1999 $’000 (Restated) 32,451 695,275 727,726 (888,619) (160,893) 3,719 (21,170) (138,918) 220,247 101,319 4,304 (8,191) (3,887) (9,623) 2,041 9 (11,460) 1,164 (10,296) 79,873 69,577 cents 3.3 N/A

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FINANCIAL INFORMATION

APPENDIX III

(b) Consolidated Balance Sheets

Notes Fixed assets 11 Intangible assets 12 Interest in an associate Interest in a jointly controlled entity 14 Investment securities 15 Other assets 16 Current assets Promissory note receivable Inventories 17 Work in progress Trade and bills receivables 18 Prepayments, deposits and other receivables 19 Pledged bank deposits 22 Short-term investments Cash and bank balances Current liabilities Trade and bills payables 20 Tax payable Other payables and accrued liabilities 21 Short-term borrowings 22 Net current assets Total assets less current liabilities Financed by: Share capital 25 Reserves 26 Shareholders’ funds Minority interests Non-current liabilities Amount due to a shareholder of a subsidiary Amount due to a fellow subsidiary 24 Finance lease payables 23	2001 $’000 83,520 59,453 — 10,901 55,662 64,353 273,889 ---------------- — 43,768 14,270 62,901 49,932 51,321 12,487 69,501 304,180 ---------------- 23,137 2,082 110,838 54,794 190,851 ---------------- 113,329 ---------------- 387,218 542,710 (326,959) 215,751 120,752 336,503 ---------------- — 50,715 — 50,715 ---------------- 387,218	2000 $’000 (Restated) 43,213 64,606 — 26,155 58,414 66,987 259,375 ---------------- — 61,550 17,281 43,902 106,659 10,337 38,966 63,841 342,536 ---------------- 10,625 2,082 71,002 12,160 95,869 ---------------- 246,667 ---------------- 506,042 542,710 (189,608) 353,102 107,821 460,923 ---------------- 3,989 40,947 183 45,119 ---------------- 506,042	1999 $’000 (Restated) 69,597 126,791 3,609 16,250 32,055 76,955
			325,257 ---------------- 87,724 32,696 18,339 6,847 72,653 12,186 482,881 23,688
			737,014 ---------------- 29,476 2,607 161,763 44,740
			238,586 ----------------
			498,428 ----------------
			823,685

			471,529 146,390
			617,919 205,010
			822,929 ---------------- — — 756
			756 ----------------
			823,685

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FINANCIAL INFORMATION

APPENDIX III

(c) Consolidated Cash Flow Statements

Notes Net cash (outflow)/inflow from operating activities 27(a) Return on investments and servicing of finance Interest received Interest paid Interest element of finance lease payments Net cash (outflow)/inflow from returns on investments and servicing of finance Taxation Hong Kong profits tax refunded Investing activities Purchases of fixed assets Acquisition of Subsidiaries Acquisition of additional interest in a subsidiary Proceeds from disposal of fixed assets Decrease in long term deposits Payment for deferred development expenditures Refund of deferred development costs Additions to film rights Additional investment in an associated company Proceeds from disposal of an associated company Disposal of subsidiaries Purchase of an associate Purchases of preference shares of a subsidiary Purchases of club debentures Advances to an investee company Repayment of advances to an investee company Deferred consideration received from disposal of subsidiaries Repayment of promissory note receivable Purchases of investment securities	2001 $’000 (64,845) ---------------- 2,951 (3,391) (52) (492) ---------------- — ---------------- (12,840) — (4,741) 41 — (12,221) 312 — — — (213) — — — — — — — —	2000 $’000 (Restated) 31,452 ---------------- 7,213 (6,997) (80) 136 ---------------- 120 ---------------- (65,252) — — 2,479 1,888 (4,068) — (15,168) 5,000 (120,000) 496 — (151,853) — (23,000) 3,000 — 87,724 (23,414)	1999 $’000 (Restated) (259,782) ---------------- 3,719 (11,053) (176) (7,510) ---------------- 57 ---------------- (98,995) (13,026) (2,996) 1,741 (49,750) (23,168) — — — — (28,984) (3,600) — (1,825) — — 101,319 — —

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FINANCIAL INFORMATION

APPENDIX III

Notes Net cash outflow from investing activities Net cash outflow before financing activities Financing activities 27(b) New bank loans Repayment of bank loans Repayment of other loans Repayment of loan from a shareholder Conversion of share options Conversion of share options by minority shareholders (Increase)/decrease in pledge of bank deposits Increase in amounts due to fellow subsidiaries Repayment of advance from a fellow subsidiary Repayment of advance from a former minority shareholder Contributions from minority shareholders Advance from a related company (Repayment)/advance from a minority shareholder of a subsidiary Repayment of finance lease obligations Proceeds from issue of shares Share issue expenses Net cash inflow from financing activities Increase in cash and cash equivalents Cash and cash equivalents at 1st January Effect of foreign exchange rate changes, net Cash and cash equivalents at 31st December Analysis of balances of cash and cash equivalents Bank balances and cash Bank overdrafts, unsecured Trust receipt loans of original maturity of less than three months	2001 $’000 (29,662) ---------------- (94,999) ---------------- 54,001 (9,479) — — — — (40,984) 50,832 — — 48,650 — (3,989) (573) — — 98,458 ---------------- 3,459 61,747 281 65,487 69,501 — (4,014) 65,487	2000 $’000 (Restated) (302,168) ---------------- (270,460) ---------------- 13,832 (20,187) — (11,833) 1,417 5,241 1,849 8,325 — (2,480) 109,781 — 3,989 (605) 234,000 (5,992) 337,337 ---------------- 66,877 (5,044) (86) 61,747 63,841 — (2,094) 61,747	1999 $’000 (Restated) (119,284) ---------------- (386,519) ---------------- 49,813 (3,738) (2,804) — — — (12,186) 20,961 (7,069) — 167,976 70 — (1,595) 100,000 (2,440) 308,988 ---------------- (77,531) 72,487 — (5,044) 23,688 (3,276) (25,456) (5,044)

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FINANCIAL INFORMATION

APPENDIX III

(d) Consolidated Statements of Recognised Gains and Losses

Notes Exchange difference on translation of the accounts of foreign subsidiaries 26 Exchange difference arising on acquisition of additional interest in a subsidiary 26 Revaluation surplus released upon disposal of a property 26 Net loss for the year attributable to shareholders Total recognised gains and losses Cumulative effect of changes in accounting policy adopted 1st January 2001 Accumulated losses 1st January Effect of adopting SSAP 29 1(e)(ii)	2001 $’000 899 (56) — (138,404) (137,561) (1,843)	2000 $’000 (Restated) (86) — (426) (493,730) (494,242) (982)	1999 $’000 (Restated) — — — 69,577
			69,577

			—

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FINANCIAL INFORMATION

APPENDIX III

Notes to the Accounts

1 PRINCIPAL ACCOUNTING POLICIES

The principal accounting policies adopted in the preparation of these accounts are set out below:

(a) Basis of preparation

These accounts have been prepared in accordance with accounting principles generally accepted in Hong Kong and comply with accounting standards issued by the Hong Kong Society of Accountants (“HKSA”). They have been prepared under the historical cost convention, except for short-term investment, as further explained below.

In the current year, the Group adopted the following Statements of Standard Accounting Practice (“SSAP”) issued by the HKSA which are effective for accounting periods commencing on or after 1st January 2001:

SSAP 9 (revised) : Events after the balance sheet date SSAP 14 (revised) : Leases SSAP 26 : Segment reporting SSAP 28 : Provisions, contingent liabilities and contingent assets SSAP 29 : Intangible assets SSAP 30 : Business combinations SSAP 31 : Impairment of assets SSAP 32 : Consolidated financial statements and accounting for investments in subsidiaries

The effect of adopting these new standards is set out in the accounting policies below.

(b) Group accounting

(i) Consolidation

The consolidated accounts include the accounts of the Company and its subsidiaries made up to 31st December. Subsidiaries are those entities that are controlled by the Group.

The results of subsidiaries acquired or disposed of during the year are included in the consolidated profit and loss account from the effective date of acquisition or up to the effective date of disposal, as appropriate.

All significant intercompany transactions and balances within the Group are eliminated on consolidation.

The gain or loss on the disposal of a subsidiary represents the difference between the proceeds of the sale and the Group’s share of its net assets together with any unamortised goodwill or negative goodwill or goodwill/negative goodwill, and exchange difference taken to reserves and which was not previously charged or recognised in the consolidated profit and loss account.

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FINANCIAL INFORMATION

APPENDIX III

Minority interests represent the interests of outside shareholders in the operating results and net assets of subsidiaries.

In the Company’s balance sheet the investments in subsidiaries are stated at cost less provision for impairment losses. The results of subsidiaries are accounted for by the Company on the basis of dividends received and receivable.

(ii) Jointly controlled entity

A jointly controlled entity is a contractual arrangement whereby the Group and other parties undertake an economic activity which is subject to joint control and none of the participating parties has unilateral control over the economic activity.

The consolidated profit and loss account includes the Group’s share of the results of jointly controlled entities for the year. Where the profit sharing ratio is different to the Group’s equity interest, the share of post acquisition results of the jointly controlled entity is determined based on the agreed profit sharing ratio. The consolidated balance sheet includes the Group’s share of the net assets of the jointly controlled entities and goodwill (net of accumulated amortisation) on acquisition under the equity method of accounting less any provision for diminution in value other than that considered to be temporary in nature deemed necessary by the directors.

(c) Fixed assets

(i) Fixed assets

Fixed assets are stated at cost less accumulated depreciation and accumulated impairment losses.

Fixed assets are depreciated on the straight-line basis to write off their cost or valuation of each asset less accumulated impairment losses over their estimated useful lives as follows:

Long-term leasehold land and 25 to 50 years or over the lease terms, buildings outside Hong Kong whichever is shorter Network equipment and toolings, plant, equipment and other assets 2 to15 years

The cost of the network comprises assets and equipment of the digital broadcasting system purchased at cost, together with direct payroll and overhead attributable to the cost of construction and installation of the system. Depreciation of the network commenced from the date of commencement of the network.

No depreciation is provided for that part of the network under construction, including equipment therein.

Improvements are capitalised and depreciated over their expected useful lives to the Group.

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FINANCIAL INFORMATION

APPENDIX III

(ii) Impairment and gain or loss on sale

At each balance sheet date, both internal and external sources of information are considered to assess whether there is any indication that assets included in fixed assets are impaired. If any such indication exists, the recoverable amount of the asset is estimated and where relevant, an impairment loss is recognised to reduce the asset to its recoverable amount. Such impairment losses are recognised in the profit and loss account.

The gain or loss on disposal of a fixed asset is the difference between the net sales proceeds and the carrying amount of the relevant asset, and is recognised in the profit and loss account.

(d) Assets under leases

(i) Finance leases

Leases that substantially transfer to the Group all the risks and rewards of ownership of assets are accounted for as finance leases. Finance leases are capitalised at the inception of the leases at the lower of the fair value of the leased assets or the present value of the minimum lease payments. Each lease payment is allocated between the capital and finance charges so as to achieve a constant rate on the capital balances outstanding. The corresponding rental obligations, net of finance charges, are included in long-term liabilities. The finance charges are charged to the profit and loss account over the lease periods.

Assets held under finance leases are depreciated over the shorter of their estimated useful lives or the lease periods.

(ii) Operating leases

Leases where substantially all the risks and rewards of ownership of assets remain with the leasing company are accounted for as operating leases. Payments made under operating leases net of any incentives received from the leasing company are charged to the profit and loss account on a straight-line basis over the lease periods.

(e) Intangibles

(i) Goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net assets of the acquired subsidiary at the date of acquisition and is amortised on a straight-line basis over the useful life of 10 to 20 years.

The gain or loss on disposal of an entity includes the unamortised balance of goodwill relating to the entity disposed of.

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FINANCIAL INFORMATION

APPENDIX III

(ii) Research and development costs

Research costs are expensed as incurred. On the adoption of SSAP 29, costs incurred on development projects are recognised as an intangible asset where the technical feasibility and intention of completing the product under development has been demonstrated and the resources are available to do so, costs are identifiable and there is an ability to sell or use the asset that will generate probable future economic benefits. Such development costs are recognised as an asset and amortised on a straight-line basis over a period of not more than 5 years to reflect the pattern in which the related economic benefits are recognised. Development costs that do not meet the above criteria are expensed as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period.

With effect from 1st January, 2001, the Group changed its accounting policy with respect to the accounting treatment for development costs in accordance with SSAP 29, the Group previously capitalised and amortised all deferred development expenditure. In accordance with the transitional provision of SSAP 29, those development costs which do not meet the recognition criteria have been derecognised so that the 2000 comparatives presented have been restated to conform to the changed policy.

As a result, the Group’s loss attributable to ordinary shareholders for the year ended 31st December, 2000 was increased by $861,000 and the accumulated losses brought forward as at 1st January, 2000 was increased by $982,000. Accordingly the accumulated losses brought forward as at 1st January, 2001 was increased by $1,843,000.

(iii) Film rights

Expenditure incurred for the acquisition of film rights is capitalised. The film rights is included in intangible assets and is amortised using the sum-of-digit method over the terms of the licencing period.

(iv) Impairment of intangible assets

Where an indication of impairment exists, the carrying amount of any intangible asset, including goodwill previously written off against reserves, is assessed and written down immediately to its recoverable amount.

(f) Investments

(i) Investments securities

Investment securities, represent investments in listed and unlisted equity securities which are intended to be held for a continuing strategic or long-term purposes, are stated at cost less any provision for impairment losses.

The carrying amounts of individual investments are reviewed at each balance sheet date to assess whether the fair values have declined below the carrying amounts. When a decline other than temporary has occurred, the carrying amount of such securities will be reduced to its fair value. The impairment loss is recognised as an expense in the profit and loss account. This impairment loss is written back to the profit and loss account when the circumstances and events that led to the write-downs or write-offs cease to exist and there is persuasive evidence that the new circumstances and events will persist for the foreseeable future.

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FINANCIAL INFORMATION

APPENDIX III

(ii) Short-term investments

Short-term investments are carried at their values as at the balance sheet date. Unrealised gains or losses arising from the changes in fair values of these investments are recognised in the profit and loss account for the period in which they arise. Profits or losses on disposal of short-term investments, representing the differences between the net sales proceeds and the carrying amounts, are recognised in the profit and loss account as they arise.

(g) Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is calculated on the firstin, first-out basis. Net realisable value is determined on the basis of anticipated sales proceeds less estimated selling expenses.

(h) Work in progress

Work in progress is recorded at the amount of cost incurred to date plus attributable profit less foreseeable loss and progress billing.

(i) Translation of foreign currencies

Transactions in foreign currencies are translated at exchange rates ruling at the transaction dates. Monetary assets and liabilities expressed in foreign currencies at the balance sheet date are translated at rates of exchange ruling at the balance sheet date. Exchange differences arising in these cases are dealt with in the profit and loss account.

The balance sheet of subsidiaries, jointly controlled entities and associated companies expressed in foreign currencies are translated at the rates of exchange ruling at the balance sheet date whilst the profit and loss is translated at an average rate. Exchange differences are dealt with as a movement in reserves. Upon disposal of a foreign entity, the related cumulative exchange difference is include in the profit and loss account as part of the gain or loss on disposal.

(j) Trade receivables

Provision is made against trade receivables to the extent they are considered to be doubtful. Trade receivables in the balance sheet are stated net of such provision.

(k) Cash and cash equivalents

Cash and cash equivalents are carried in the balance sheet at cost. For the purposes of the cash flow statement, cash and cash equivalents comprise cash on hand, deposits held at call with banks and bank overdrafts, and short-term highly liquid investments which are readily convertible into known amounts of cash and which were within three months of maturity when acquired, less advances from banks repayable within three months from the date of the advances.

(l) Provisions

Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made.

— 78 —

FINANCIAL INFORMATION

APPENDIX III

(m) Contingent liabilities and contingent assets

A contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group. It can also be a present obligation arising from past events that is not recognised because it is not probable that outflow of economic resources will be required or the amount of obligation cannot be measured reliably.

A contingent liability is not recognised but is disclosed in the notes to the accounts. When a change in the probability of an outflow occurs so that outflow is probable, it will then be recognised as a provision.

A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain events not wholly within the control of the Group.

Contingent assets are not recognised but are disclosed in the notes to the accounts when an inflow of economic benefits is probable. When inflow is virtually certain, an asset is recognised.

(n) Deferred taxation

Deferred taxation is accounted for at the current taxation rate in respect of timing differences between profit as computed for taxation purposes and profit as stated in the accounts to the extent that a liability or an asset is expected to be payable or recoverable in the foreseeable future.

(o) Revenue recognition

Revenue from the sale of goods is recognised on the transfer of risks and rewards of ownership, which generally coincides with the time when the goods are delivered to customers and title has passed.

Revenue from the design, integration and installation of platforms for digital broadcasting systems is recognised upon the satisfactory completion of each installation and acceptance by customers.

Service fee income for provision of international market information and selective consumer data is recognised on a straight-line basis over the period of the service contracts.

Revenue from leasing of digital broadcasting network equipment and technical know-how and related software is recognised on an agreed proportion of net subscription income received from ultimate customers of the leasee in accordance with the respective agreements.

Management fee income is recognised on an accrual basis.

Interest income is recognised on a time proportion basis, taking into account the principal amounts outstanding and the interest rates applicable.

Dividend income is recognised when the right to receive payment is established.

— 79 —

FINANCIAL INFORMATION

APPENDIX III

(p) Retirement benefit costs

The Group operates a defined contribution retirement benefits scheme (the “Scheme”) under the Mandatory Provident Fund Schemes Ordinance, for all those employees who are eligible to participate in the Scheme. The Scheme became effective on 1st December, 2000. Contributions are made based on a percentage of the employees’ basic salaries and are charged to the profit and loss account as they became payable in accordance with the rules of the Scheme. The assets of the Scheme are held separately from those of the Group in an independent administered fund. The Group’s employer contributions vest fully with the employees when contributed into the Scheme except for the Group’s employer voluntary contributions, which are refunded to the Group when the employee leaves employment prior to the contributions vesting fully, in accordance with the rules of the Scheme.

The Company’s subsidiaries in Mainland China are members of the state-managed retirement benefits scheme operated by the government of Mainland China. The retirement scheme contributions, which are based on a certain percentage of the salaries of the subsidiaries’ employees, are charged to the profit and loss account in the period to which they relate and represent the amount of contributions payable by these subsidiaries to the scheme.

(q) Borrowing costs

Borrowing costs that are directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of that asset.

All other borrowing costs are charged to the profit and loss account in the year in which they are incurred.

(r) Segment reporting

In accordance with the Group’s internal financial reporting the Group has determined that business segments be presented as the primary reporting format and geographical as the secondary reporting format.

Unallocated costs represent corporate expenses. Segment assets consist primarily of intangible assets, fixed assets, inventories, receivables and operating cash, and mainly exclude investments in securities. Segment liabilities comprise operating liabilities. Capital expenditure comprises additions to fixed assets (note 11) and intangible assets (note 12).

In respect of geographical segment reporting, sales are based on the country in which the customer is located. Total assets and capital expenditure are where the assets are located.

(s) Comparative figures

Certain comparative figures have been reclassified to conform with the current year’s presentation as a result of the adoption of the new SSAPs which became effective in the current year.

2 DISCONTINUED OPERATIONS

The Group discontinued its business of the manufacture and distribution of telecommunication and videomedia products, and the trading of computer monitors and related products during the year ended 31st December, 2000.

— 80 —

FINANCIAL INFORMATION

APPENDIX III

3 TURNOVER AND REVENUES

The Group is principally engaged in the design, integration and installation of digital broadcasting equipment and development of related software and products, retail and distribution of home audio and video equipment, provision of international financial market information and selective consumer data, and provision of IP telephony and related services. Revenues recognised during the year are as follows:

Continuing operations Sales of goods Leasing income Provisions of services Discontinued operations Sales of goods Turnover Other revenues Dividend income from preference shares of a listed company Interest income Management fee income from fellow subsidiaries Miscellaneous Total revenues	Group 2001 2000 $’000 $’000 (Restated) 100,325 73,974 670 — 27,880 15,779 128,875 89,753 — 29,522 128,875 119,275 ---------------- ---------------- — 1,609 2,951 7,213 280 — 534 987 3,765 9,809 ---------------- ---------------- 132,640 129,084	Group 2001 2000 $’000 $’000 (Restated) 100,325 73,974 670 — 27,880 15,779 128,875 89,753 — 29,522 128,875 119,275 ---------------- ---------------- — 1,609 2,951 7,213 280 — 534 987 3,765 9,809 ---------------- ---------------- 132,640 129,084
		89,753 29,522
		119,275 ---------------- 1,609 7,213 — 987
		9,809 ----------------
		129,084

4 SEGMENT INFORMATION

The Group is organised into four main business segments:

(i) design, integration and installation of digital broadcasting equipment and development of related software and products,
(ii) retail and distribution of home audio and video equipment,
(iii) provision of international financial market information and selective consumer data, and (iv) provision of IP telephony and related services.

There are no sales between the business segments.

— 81 —

FINANCIAL INFORMATION

APPENDIX III

Primary reporting format — business segments

Design, integration and installation of digital broadcasting equipment and development of related software and products $’000 Turnover 50,270 Segment results (33,554) Net provision for bad and doubtful debts Provision for impairment of investment securities Unrealised loss on short-term investments Operating loss Finance costs Share of loss of a jointly controlled entity Loss before taxation Taxation Loss after taxation Minority interests Loss attributable to shareholders Segment assets 424,136 Investment in a jointly controlled entity Unallocated assets Total assets Segment liabilities 144,091 Unallocated liabilities Total liabilities Capital expenditure 18,287 Depreciation 9,389 Amortisation 8,574 Impairment charge — Other non-cash expenses 2,567			2001		Total $’000 128,875 (98,781) (25,390) (23,032) (8,134) (155,337) (3,443) (6,930) (165,710) — (165,710) 27,306 (138,404) 461,246 10,901 105,922 578,069 164,776 76,790 241,566 25,061 15,670 11,550 23,032 8,533
		Retail and distribution of home audio and video equipment $’000 50,725 (12,239) 18,535 4,655 266 1,675 332 — 301	Provision of international financial market information and selective consumer data $’000 14,778 (26,359) 2,991 11,707 1,739 1,089 2,544 — 2	Provision of IP telephony and related services $’000 13,102 (26,629) 15,584 4,323 4,769 3,517 100 — 5,663

— 82 —

FINANCIAL INFORMATION

APPENDIX III

2000 (Restated)

Design, integration and installation of digital broadcasting equipment and Telephone development manufacturing of related (Discontinued software and operation) products $’000 $’000 Turnover 29,522 27,936 Segment results (79,383) (79,841) Loss on disposal of a business unit Net unrealised loss of short-term investments Gain on conversion/ disposal of preference shares Unallocated costs Operating loss Finance costs Share of loss of an associated company Share of loss of a jointly controlled entity Loss before taxation Taxation Loss after taxation Minority interests Loss attributable to shareholders Segment assets 17,951 339,778 Investment in a jointly controlled entity Unallocated assets Total assets Segment liabilities 34,190 73,502 Unallocated liabilities Total liabilities Capital expenditure 11,003 59,102 Depreciation 6,960 3,506 Amortisation — 9,164 Impairment charge — 2,835 Other non-cash expenses 52,999 48,060	Retail and distribution of home audio and video equipment $’000 28,459 (27,495) 30,652 10,800 3,129 1,029 378 — 6,673	Provision of international financial market information and selective consumer data $’000 15,779 (35,005) 12,153 11,004 2,755 1,625 4,365 92,027 —	Provision of IP telephony and related services $’000 17,579 (33,988) 23,636 5,070 13,538 2,141 — — —	Total $’000 119,275

				(255,712) (40,149) (294,132) 67,945 (39,671)
				(561,719) (7,077) (15,032) (3,628)
				(587,456) 645
				(586,811) 93,081
				(493,730)

				424,170 26,155 151,586
				601,911

				134,566 6,422
				140,988

				89,527 15,261 13,907 94,862 107,732

— 83 —

FINANCIAL INFORMATION

APPENDIX III

Secondary reporting format — geographical segments

The Group’s four business segments operate in four main geographical areas:

(i) Hong Kong — Provision of international financial market information and selective consumer data, and retail and distribution of home audio and video equipment
(ii) Mainland China — Design, integration and installation of digital broadcasting equipment and development of related software and products
(iii) United States — Provision of IP telephony and related services
(iv) Other Southeast Asia countries — Provision of international financial market information and selective consumer data.

There are no sales between the geographical segments.

Secondary reporting format — geographical segments

Hong Kong Mainland China United States Other Southeast Asian countries		2001	2001
	Turnover $’000 63,285 51,665 11,631 2,294 128,875	Segment results $’000 (115,511) (38,163) (733) (930) (155,337)	Total assets $’000 312,735 262,269 2,509 556 578,069	Capital expenditure $’000 15,769 8,708 570 14
				25,061

Hong Kong Mainland China United States Europe Other Southeast Asian countries		2000	2000
	Turnover $’000 31,521 65,736 11,359 6,326 4,333 119,275	Segment results $’000 (386,458) (168,027) (7,525) (166) 457 (561,719)	Total assets $’000 368,747 230,740 1,645 27 752 601,911	Capital expenditure $’000 25,232 62,816 1,096 — 383
				89,527

— 84 —

FINANCIAL INFORMATION

APPENDIX III

5 OPERATING LOSS

Operating loss is stated after crediting and charging the following:

Crediting
Net other operating expenses including:
Net gain on dilution of interest in subsidiaries
Write-back of provision against doubtful debts
Gain on conversion of investment in preference shares
Net gain on disposal of investment in preference shares
Net gain on disposal of subsidiaries
Net gain on disposal of fixed assets
Gain on disposal of an associated company
Gain on disposal of short-term investments
Charging
Cost of inventories sold
Cost of services provided
Depreciation:
Owned assets
Assets held under finance leases
Auditors’ remuneration
Staff costs (excluding directors’ remuneration, note 10 (a))
Wages and salaries
Contributions to defined contribution Mandatory Provident Fund
Less: Forfeited contributions
Operating lease rentals:
Land and buildings
Equipment

Group
2001
2000
$’000
$’000
(Restated)
6,338
—
8,228
—
—
27,200
—
40,745
—
10,876
—
496
—
7,679
353
—
62,844
121,593
9,998
8,343
15,670
14,761
—
500
15,670
15,261
1,500
2,700
44,746
52,773
1,994
146
(506)
(1,023)
1,488
(877)
17,162
16,143
286
1,137
17,448
17,280

— 85 —

FINANCIAL INFORMATION

APPENDIX III

Net other operating expenses including: Amortisation of intangibles: Film rights Goodwill Development costs Research and development costs: Current year expenditure Write-off of deferred development costs Provision for impairment of goodwill Write-off of fixed assets Provision against inventories Write-off of inventories Provision for bad and doubtful debts Write-off of bad and doubtful debts Net unrealised loss of short-term investments Loss on disposal of short-term investments Net loss on disposal of subsidiaries Net loss on dilution of interests in subsidiaries Net loss on disposal of fixed assets Provision for impairment loss on investment securities Exchange losses, net Loss on discontinued operations: Net loss on disposal of subsidiaries Write-off of fixed assets, inventories and development costs Loss on disposal of scrap inventories	Group 2001 2000 $’000 $’000 (Restated) 5,985 7,372 2,598 3,340 2,967 3,195 — 3,313 — 1,582 — 94,862 5,663 3,950 1,251 1,878 — 3,437 34,554 44,230 4,568 — 8,134 294,132 — 8,821 1,171 — — 3,922 112 — 23,032 — 202 3,981 — 14,177 — 7,084 — 18,888 — 40,149	Group 2001 2000 $’000 $’000 (Restated) 5,985 7,372 2,598 3,340 2,967 3,195 — 3,313 — 1,582 — 94,862 5,663 3,950 1,251 1,878 — 3,437 34,554 44,230 4,568 — 8,134 294,132 — 8,821 1,171 — — 3,922 112 — 23,032 — 202 3,981 — 14,177 — 7,084 — 18,888 — 40,149
		40,149

6 FINANCE COSTS

Interest expenses on: Bank loans and overdrafts Other loans wholly repayable within five years Finance lease expenses Amount due to a fellow subsidiary Amounts due to related companies	Group 2001 2000 $’000 $’000 2,008 1,161 — 3,810 52 80 1,383 1,379 — 647 3,443 7,077	Group 2001 2000 $’000 $’000 2,008 1,161 — 3,810 52 80 1,383 1,379 — 647 3,443 7,077
		7,077

— 86 —

FINANCIAL INFORMATION

APPENDIX III

7 TAXATION

No provision for Hong Kong and overseas profits tax has been made in the accounts as the Group did not have any assessable profit for the year (2000: Nil, the tax credit represents over provision of Hong Kong profits tax in prior years).

No provision for deferred tax has been made in the accounts as the crystallisation of the net deferred tax asset in the foreseeable future is uncertain.

The principal components of deferred tax assets/(liabilities) of the Group and the Company not provided for at the balance sheet date were as follows:

Accelerated depreciation allowances Tax losses carried forward At 31st December Tax losses carried forward	Group 2001 2000 $’000 $’000 — (982) 30,193 83,611 30,193 82,629 Company 2001 2000 $’000 $’000 22,239 21,762

8 LOSS ATTRIBUTABLE TO ORDINARY SHAREHOLDERS

The loss attributable to ordinary shareholders is dealt with in the accounts of the Company to the extent of $13,949,000 (2000: $273,305,000).

9 LOSS PER SHARE

The calculation of the basic loss per share is based on the Group’s loss attributable to ordinary shareholders of $138,404,000 (2000: $493,730,000 (restated)) and on the weighted average number of 2,774,293,000 (2000: 2,710,537,000) ordinary shares in issue during the year.

No diluted loss per share is shown for the two years ended 31st December, 2001 and 2000 as the share options and convertible preference shares outstanding had an anti-dilutive effect on the basic loss per share for both years.

— 87 —

FINANCIAL INFORMATION

APPENDIX III

10 DIRECTORS’ AND SENIOR MANAGEMENT’S EMOLUMENTS

(a) Directors’ emoluments

The aggregate amounts of emoluments payable to directors of the Company during the year are as follows:

Fees: Non-executive directors Other emoluments: Executive directors Basic salaries, housing benefits, other allowances and benefits in kind Pension contributions	2001 $’000 288 5,147 137 5,572	2000 $’000 141 5,678 —
		5,819

During the year, no share options (2000: 2,500,000) to subscribe for ordinary shares in the Company or its listed subsidiary, DVN, were granted to any directors (2000: one) of the Company.

The emoluments of the directors fell within the following bands:

Nil - HK$1,000,000 HK$1,500,001 - HK$2,000,000 HK$3,000,001 - HK$4,000,000	Number 2001 3 1 1 5	of directors 2000 6 1 1
		8

There was no arrangement under which a director waived or agreed to waive any remuneration during the year.

No emoluments were paid by the Group to the directors as on inducements to join or upon joining the Group, or as compensation for loss of office.

— 88 —

FINANCIAL INFORMATION

APPENDIX III

(b) Five highest paid individuals

The five individuals whose emoluments were the highest in the Group for the year include two (2000: two) directors whose emoluments are reflected in the analysis presented above. The emoluments payable to the remaining three (2000: three) individuals during the year are as follows:

Basic salaries, housing benefits, other allowances and benefits in kind Pension contributions	2001 $’000 4,172 195 4,367	2000 $’000 3,392 1
		3,393

The emoluments fell within the following bands:

$1,000,000 - $1,500,000 $1,500,001 - $2,000,000	Number of individuals 2001 2000 2 3 1 — 3 3	Number of individuals 2001 2000 2 3 1 — 3 3
		3

No share options (2000: 1,500,000) to subscribe for ordinary shares in the Company were granted to any highest paid, non-director employees (2000: one) during the year.

— 89 —

FINANCIAL INFORMATION

APPENDIX III

11 FIXED ASSETS

Cost At 1st January, 2001 Additions Transfer Disposals Disposal of subsidiaries Write-offs Translation difference At 31st December, 2001 Accumulated depreciation At 1st January, 2001 Charge for the year Disposals Disposal of subsidiaries Write-offs Translation difference At 31st December, 2001 Net book value: At 31st December, 2001 At 31st December, 2000			Group		Total $’000 69,998 60,945 2,411 (3,204) (3,205) (9,078) 128 117,995 -------------- 26,785 15,670 (3,051) (1,531) (3,415) 17 34,475 -------------- 83,520 43,213
	Long-term leasehold land and building outside Hong Kong $’000 2,907 — — — — — — 2,907 -------------- 348 116 — — — — 464 -------------- 2,443 2,559	Network under construction $’000 — 30,300 1,666 — — — — 31,966 -------------- — — — — — — — -------------- 31,966 —	Network equipment and toolings $’000 12,564 19,156 745 — — — — 32,465 -------------- 974 3,539 — — — — 4,513 -------------- 27,952 11,590	Plant, equipment and other assets $’000 54,527 11,489 — (3,204) (3,205) (9,078) 128 50,657 -------------- 25,463 12,015 (3,051) (1,531) (3,415) 17 29,498 -------------- 21,159 29,064

— 90 —

FINANCIAL INFORMATION

APPENDIX III

12 INTANGIBLE ASSETS

At 1st January, 2001 As previously reported Effect of adopting SSAP 29_(note 1(e)(ii)) As restated Exchange difference Intangibles recognised as an asset Amortisation charge(note 5)_ Reversal on dilution of interest in a subsidiary Transfer/disposal At 31st December, 2001 At 31st December, 2001 Cost Accumulated amortisation Net book value At 31st December, 2000 Cost, as previously reported Effect of adopting SSAP 29 As restated Accumulated amortisation and impairment losses, as previously reported Effect of adopting SSAP 29 As restated Net book value		Group	Group	Total $’000 69,657 (5,051) 64,606 111 18,933 (11,550) (958) (11,689) 59,453 90,326 (30,873) 59,453 86,478 (5,651) 80,827 ---------------- (16,821) 600 (16,221) ---------------- 64,606
	Goodwill $’000 46,161 — 46,161 — 3,564 (2,598) (958) (6,299) 39,870 46,982 (7,112) 39,870 51,432 — 51,432 ---------------- (5,271) — (5,271) ---------------- 46,161	Development costs $’000 15,700 (5,051) 10,649 — 12,843 (2,967) — (5,390) 15,135 25,539 (10,404) 15,135 19,878 (5,651) 14,227 ---------------- (4,178) 600 (3,578) ---------------- 10,649	Film rights $’000 7,796 — 7,796 111 2,526 (5,985) — — 4,448 17,805 (13,357) 4,448 15,168 — 15,168 ---------------- (7,372) — (7,372) ---------------- 7,796

— 91 —

FINANCIAL INFORMATION

APPENDIX III

13 INVESTMENTS IN SUBSIDIARIES

Investments at cost Listed shares in Hong Kong Unlisted shares Provision for diminution in value Amounts due from subsidiaries Amounts due to subsidiaries Provision for amounts due from subsidiaries Market value of listed shares	Company 2001 2000 $’000 $’000 117,440 117,440 116,034 116,435 (116,034) (116,435 117,440 117,440 1,031,374 1,021,384 (37,913) (26,000 (775,527) (775,126 335,374 337,698 76,030 60,824	Company 2001 2000 $’000 $’000 117,440 117,440 116,034 116,435 (116,034) (116,435 117,440 117,440 1,031,374 1,021,384 (37,913) (26,000 (775,527) (775,126 335,374 337,698 76,030 60,824
		117,440 1,021,384 (26,000 (775,126
		337,698

		60,824

The balances with subsidiaries are unsecured, interest-free and have no fixed terms of repayment.

Particulars of the principal operating subsidiaries are set out in note 35 to the accounts.

14 INTEREST IN A JOINTLY CONTROLLED ENTITY

Share of net (liabilities)/assets Amount due from the jointly controlled entity	Group 2001 2000 $’000 $’000 (195) 6,735 11,096 19,420 10,901 26,155	Group 2001 2000 $’000 $’000 (195) 6,735 11,096 19,420 10,901 26,155
		26,155

The amount due from the jointly controlled entity is unsecured, interest-free and has no fixed terms of repayment.

— 92 —

FINANCIAL INFORMATION

APPENDIX III

Particulars of the jointly controlled entity are as follows:

Place of registration Business and Name structure operations Beijing Jiya Corporate People’s Telecommunication Republic of Engineering Co. Ltd. China (“PRC”)	Percentage of Ownership Voting Profit Principal interest power sharing activity (Note) 57% (Note) Provision of telecommunication programming services

The interest in a jointly controlled entity is indirectly held by the Company.

Note:

Under the terms of the original joint venture agreement, the Group is entitled to 70% of the results of the jointly controlled entity for the first five years from the date of the issuance of business licence on 26th November, 1994, and 51% of the results for the remaining tenure of the joint venture. The tenure of the joint venture is 30 years. During this period, in case of dissolution, the Group is entitled to share the net assets of the jointly controlled entity in accordance with the above-mentioned prevailing profit sharing ratio. Upon the expiry of the tenure of the joint venture, all the fixed assets and 49% of the net current assets of the joint venture will be vested on the PRC joint venture partner and the Group will only be entitled to 51% of the net current assets.

On 6th September, 1996, a supplementary agreement was entered into between a subsidiary of the Company and the PRC joint venture partner whereby the profit sharing ratio between the Group and the PRC joint venture partner was amended. In accordance with the supplementary agreement, the Group is entitled to 80% of the results of the jointly controlled entity up to and until the full recovery of the capital contributed by the Group to the jointly controlled entity, and thereafter 70% of the results of the jointly controlled entity until the end of its tenure.

According to the joint venture agreement, the board of directors of the jointly controlled entity consists of seven directors, of which four were nominated by the Group. The joint venture agreement stipulates that certain major operating and financing decisions require the approval of at least two thirds of the directors in a board meeting. As the Group does not have unilateral control on the financial and operating policies of the jointly controlled entity, the jointly controlled entity has not been accounted for as a subsidiary and is equity accounted for in accordance with SSAP 21 “Accounting for interests in joint ventures”.

— 93 —

FINANCIAL INFORMATION

APPENDIX III

15 INVESTMENT SECURITIES

Listed shares, at cost — outside Hong Kong_(note a) Unlisted shares, at cost — in Hong Kong(note b) — outside Hong Kong(note c) Ordinary shares Preference shares Less: Provision for impairment in value Market value of listed investment(note a)_	Group 2001 2000 $’000 $’000 23,414 23,414 — 6,884 35,000 35,000 20,280 — 78,694 65,298 (23,032) (6,884 55,662 58,414 34,875 34,875	Group 2001 2000 $’000 $’000 23,414 23,414 — 6,884 35,000 35,000 20,280 — 78,694 65,298 (23,032) (6,884 55,662 58,414 34,875 34,875
		65,298 (6,884
		58,414

		34,875

Notes:

(a) The listed equity investment outside Hong Kong represents the holding of 1,500,000 shares (representing 6.8% of the common stock) in a company which was incorporated in the the United States of America and was listed on the National Association of Securities Dealer Over-TheCounter Bulletin Board (“OTCBB”). The investee company has been temporarily delisted on OTCBB since 3rd October, 1998. The market value of the investment was based on US$3 per share as at 3rd October 1998, the date on which the investee company was delisted on the OTCBB.
(b) The investment represents the equity shares of an investee company in which the percentage of equity attributable to the Group amounted to over 20%. The investment, however, has not been equity accounted for in accordance with SSAP 10 “Accounting for Investments in Associates” as the Group has no significant influence on that investee company. In addition, the Group neither intends to provide further financial support to the investee company, nor has any further guarantees or obligations in respect of the investee company.

The particulars of the investee company are as follows:

			Percentage
			of equity
	Place of	Issued	attributable	Principal
Name	incorporation	share capital	to the Company	activity
Beijing United	BVI	HK$12,500,000	40%	Investment
International Limited				holding

As the investee company has ceased operation for some time and based on its existing financial position, its continuity is in doubt. The directors considered that the impairment in value of the investment would be permanent in nature and wrote off the investment accordingly during the year.

— 94 —

FINANCIAL INFORMATION

APPENDIX III

(c) As at 31st December, 2001, the Group held 990 ordinary shares, representing approximately 9.9% equity interest in the investee company and 2,000,000 convertible preference shares of the investee company.

Particulars of the investee company are as follows:

		Nominal	value of issued
	Place of	Ordinary	Preference	Principal
Name	incorporation	shares	shares	activities
Broad Communication	BVI	US$10,000	US$2,600,000	Trading of
Company Limited				digital
				broadcasting
				equipment and
				related products

The convertible non-voting preference shares are convertible into ordinary shares of the investee company at any time during the two-year period commencing from 21st September, 2001.

In the opinion of the directors, the Group did not have any significant influence over the investee company’s operations.

16 OTHER ASSETS

Deposits for purchasing of film rights Deposit for film distribution rights Deposit for films library Club debentures	Group 2001 2000 $’000 $’000 35,228 37,862 10,000 10,000 17,060 17,060 2,065 2,065 64,353 66,987	Group 2001 2000 $’000 $’000 35,228 37,862 10,000 10,000 17,060 17,060 2,065 2,065 64,353 66,987
		66,987

17 INVENTORIES

Raw materials Finished goods	Group 2001 2000 $’000 $’000 (Restated) 1,488 11,990 42,280 49,560 43,768 61,550	Group 2001 2000 $’000 $’000 (Restated) 1,488 11,990 42,280 49,560 43,768 61,550
		61,550

At 31st December, 2001, the carrying amount of inventories that are stated at net realised value amounted to $23,669,000 (2000: $12,325,000)

— 95 —

FINANCIAL INFORMATION

APPENDIX III

18 TRADE AND BILLS RECEIVABLES

At 31st December, 2001, the aging analysis of the trade and bills receivables is as follows:

0 - 3 months 4 - 6 months Over 6 months	Group 2001 2000 $’000 $’000 25,525 39,481 213 3,586 37,163 835 62,901 43,902	Group 2001 2000 $’000 $’000 25,525 39,481 213 3,586 37,163 835 62,901 43,902
		43,902

The majority of the Group’s sales are on credit with credit terms of 30-90 days, except for the sales of digital broadcasting systems and related products to an investee company details of which are set out in note 29(d)(iii) to the accounts.

19 PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES

The Group’s prepayments, deposits and other receivables as at 31st December, 2001 include a receivable of $18,345,000 arising from the expiry of the convertible cumulative non-voting preference shares of Leaptek Limited (formerly known as netalone.com Limited), which should be due for redemption on 22nd October, 2001 and has not yet been repaid up to the date of the report. Full provision was then made after considering its existing financial position and situation.

20 TRADE AND BILLS PAYABLES

The aging analysis of trade and bills payables is as follows:

0 - 3 months 4 - 6 months Over 6 months	Group 2001 2000 $’000 $’000 2,513 6,580 459 1,069 20,165 2,976 23,137 10,625	Group 2001 2000 $’000 $’000 2,513 6,580 459 1,069 20,165 2,976 23,137 10,625
		10,625

— 96 —

FINANCIAL INFORMATION

APPENDIX III

21 OTHER PAYABLES AND ACCRUED LIABILITIES

Deposits received, accrued charges and other payables Amount due to a former minority shareholder of a subsidiary Amount due to a fellow subsidiary Provision for legal fees	Group 2001 2000 $’000 $’000 48,932 49,189 — 2,480 42,179 1,115 19,727 18,218 110,838 71,002	Company 2001 2000 $’000 $’000 132 2,537 — — 5,144 1,115 — — 5,276 3,652	Company 2001 2000 $’000 $’000 132 2,537 — — 5,144 1,115 — — 5,276 3,652
			3,652

The amount due to a fellow subsidiary bears interest at Hong Kong dollar prime lending rate plus 2.5% per annum. The balance is unsecured and has no fixed terms of repayment.

22 SHORT-TERM BORROWINGS

Short-term bank loans Trust receipt loans, secured Current portion of finance lease payables_(note 23)_	Group 2001 2000 $’000 $’000 50,597 6,075 4,014 5,512 183 573 54,794 12,160	Group 2001 2000 $’000 $’000 50,597 6,075 4,014 5,512 183 573 54,794 12,160
		12,160

At 31st December 2001, the Group’s bank loans were secured by a bank deposit amounting to US$6,490,000 (equivalent to $51,321,000) (2000: $10,337,000).

23 FINANCE LEASE PAYABLES

There are non-cancellable commitments under finance lease at the balance sheet date as set out below:

Amounts payable: Within one year In the second to fifth years, inclusive Total minimum lease payments Future finance charges Total net finance lease payables Portion classified as current liabilities_(note 22)_ Long-term portion of finance lease payables	Group 2001 2000 $’000 $’000 186 616 — 186 186 802 (3) (46 183 756 (183) (573 — 183	Group 2001 2000 $’000 $’000 186 616 — 186 186 802 (3) (46 183 756 (183) (573 — 183
		802 (46
		756 (573
		183

— 97 —

FINANCIAL INFORMATION

APPENDIX III

24 AMOUNT DUE TO A FELLOW SUBSIDIARY

The balance due to a fellow subsidiary is unsecured, interest-free and is repayable beyond one year.

25 SHARE CAPITAL

At 31st December, 2001 and 31st December, 2000 At 1st January, 2000 Issue of shares Exercise of share options At 31st December, 2000 At 1st January, 2001 and 31st December, 2001	Authorised Preference shares Ordinary shares of of $0.18 each $0.18 each No. of No. of shares shares ’000 $’000 ’000 $’000 240,760 43,337 3,409,240 613,663 Issued and fully paid Preference shares Ordinary shares of of $0.18 each $0.18 each No. of No. of shares shares ’000 $’000 ’000 $’000 240,760 43,337 2,378,843 428,192 — — 390,000 70,200 — — 5,450 981 240,760 43,337 2,774,293 499,373 240,760 43,337 2,774,293 499,373	*Total* $’000 657,000

		*Total* $’000 471,529 70,200 981
		542,710

		542,710

Preference shares

The preference shares were issued on 4th August, 1999. Preference shareholders are entitled to convert a specific number of their preference shares into ordinary shares of the Company on a one-for-one basis (subject to adjustments) during the specified periods. The preference shareholders are also entitled to receive a non-cumulative cash dividend which will be paid at the same rate and at the same time as any dividend declared by the Company in respect of the ordinary shares. Detailed terms are set out in the circular dated 12th July, 1999 issued by the Company to its shareholders.

— 98 —

FINANCIAL INFORMATION

APPENDIX III

Share options

Pursuant to a share option scheme adopted on 4th August, 1999, the board of directors of the Company may grant options to eligible employees of the Group, including executive directors, to subscribe for shares in the Company.

The exercise in full of the share options pursuant to the share option scheme of the Company would result in issue of an additional 96,200,000 (2000:145,500,000) ordinary shares in the Company under its capital structure.

	Number	Number	Number	Number of
	of shares	of share	of share	share options
	outstanding	options	options	outstanding		Exercise
Date of share	as at	exercised	lapsed	as at		price per
options	1st January,	during	during	31st December,	Exercise	share
granted	2001	the year	the year	2001	period	$
2nd October, 1999	120,500,000	—	(49,300,000)	71,200,000	1/1/2000 to	0.26
					31/12/2002
6th March, 2000	25,000,000	—	—	25,000,000	7/3/2000 to	0.31
					6/3/2003

— 99 —

FINANCIAL INFORMATION

APPENDIX III

26 RESERVES

Group

Cost At 1st January, 2000 As previously reported Prior year adjustments (note 1(e)(ii)) As restated Issue of shares Issue of share expenses Release upon disposal of property Arising on exercise of options Exchange difference Loss for the year At 31st December, 2000 At 1st January 2001 As previously reported Prior year adjustments (note 1(e)(ii)) As restated Release of exchange reserve on disposal of a subsidiary Acquisition of additional interest in a subsidiary Exchange difference Net loss for the year At 31st December, 2001 Reserves retained by: Company and subsidiaries Jointly controlled entity At 31st December, 2001 Company and subsidiaries Jointly controlled entity At 31st December, 2000	Share premium $’000 352,626 — 352,626 163,800 (5,992) — 436 — — 510,870 -------------- 510,870 — 510,870 — — — — 510,870 510,870 — 510,870 510,870 — 510,870	Revaluation reserve $’000 426 — 426 — — (426) — — — — -------------- — — — — — — — — — — — — — —	Currency translation reserve $’000 188 — 188 — — — — (86) — 102 -------------- 102 — 102 210 (56) 899 — 1,155 1,155 — 1,155 102 — 102	Accumulated losses $’000 (Restated) (205,868) (982) (206,850) — — — — — (493,730) (700,580) -------------- (698,737) (1,843) (700,580) — — — (138,404) (838,984) (830,467) (8,517) (838,984) (698,993) (1,587) (700,580)	Total $’000 147,372 (982) 146,390 163,800 (5,992) (426) 436 (86) (493,730) (189,608) -------------- (187,765) (1,843) (189,608) 210 (56) 899 (138,404) (326,959) (318,442) (8,517) (326,959) (188,021) (1,587) (189,608)

— 100 —

FINANCIAL INFORMATION

APPENDIX III

Company At 1st January, 2000 Issue of shares Issue of shares expenses Arising on exercise of options Release on sale of property Loss for the year At 31st December, 2000 and 1st January, 2001 Loss for the year At 31st December, 2001	Share premium $’000 352,626 163,800 (5,992) 436 — — 510,870 — 510,870	Revaluation reserve $’000 426 — — — (426) — — — —	Accumulated losses $’000 (425,974) — — — — (273,305) (699,279) (13,949) (713,228)	Total $’000 (72,922) 163,800 (5,992) 436 (426) (273,305) (188,409) (13,949) (202,358)

27 NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT
(a) Reconciliation of operating loss from ordinary activities to net cash (outflow)/inflow from operating activities

Operating loss Interest income Depreciation Amortisation of intangible assets Write-off of deferred development costs Provisions for impairment of goodwill Gain on disposal of an associated company Write-off of fixed assets Net loss/(gain) on disposal of fixed assets Net loss on disposal of subsidiaries Net (gain)/loss on dilution of interest in subsidiaries Decrease in short-term investments Reimbursement of costs of construction work Decrease/(increase) in an amount due to a jointly-controlled entity Increase in inventories and work in progress Decrease in trade receivables, prepayments deposits and other receivables Increase in trade and bills payables, accrued liabilities and other payables (Increase)/decrease in trust receipt loans Gain on disposal of investment in preference shares Gain on conversion of preference shares Provision for investment securities Exchange difference	2001 $’000 (155,337) (2,951) 15,670 11,550 184 — — 5,663 112 1,171 (6,338) 8,134 — 8,324 (39,331) 24,915 43,268 (3,418) — — 23,032 507 (64,845)	2000 $’000 (Restated) (561,719) (7,213) 15,261 13,907 1,582 94,862 (7,679) 3,950 (496) 1,591 3,922 504,804 2,648 (13,533) (21,225) 37,263 31,027 445 (40,745) (27,200) — — 31,452

— 101 —

FINANCIAL INFORMATION

APPENDIX III

(b) Analysis of changes in financing during the year

Share capital Finance and share lease premium obligations Bank loans $’000 $’000 $’000 At 1st January, 2000 824,155 1,361 12,430 Net cash inflow/ (outflow) from financing 229,425 (605) (6,355) Share of net loss for the year — — — Issue of preference shares of a subsidiary — — — Capital contribution on exercise of share options — — — Arising on dilution of interests in subsidiaries — — — Arising on disposals of subsidiaries — — — Transfer to advance from fellow subsidiaries — — — At 31st December, 2000 1,053,580 756 6,075 Share capital Finance and share lease premium obligations $’000 $’000 At 1st January, 2001 1,053,580 756 Net cash inflow/(outflow) — (573) Share of net loss for the year — — Arising on dilution of interest in a subsidiary — — Arising on addition of interest in a subsidiary — — At 31st December, 2001 1,053,580 183	Loan from a shareholder of a subsidiary $’000 — 3,989 — — — — — — 3,989 Bank loans $’000 6,075 44,522 — — —	Advance from Pledged Loan fellow Minority bank from a subsidiaries interests deposits shareholder $’000 $’000 $’000 $’000 (Restated) 20,961 206,679 (12,186) 11,833 8,325 108,111 1,849 (11,833) — (93,081) — — — (116,250) — — — 5,241 — — — (2,751) — — — (128) — — 12,776 — — — 42,062 107,821 (10,337) — Loan from a Advance shareholder from of a fellow Minority subsidiary subsidiaries interests $’000 $’000 $’000 3,989 42,062 107,821 (3,989) 50,832 48,650 — — (27,306) — — (7,296) — — (1,117) — 92,894 120,752	Advance from Pledged Loan fellow Minority bank from a subsidiaries interests deposits shareholder $’000 $’000 $’000 $’000 (Restated) 20,961 206,679 (12,186) 11,833 8,325 108,111 1,849 (11,833) — (93,081) — — — (116,250) — — — 5,241 — — — (2,751) — — — (128) — — 12,776 — — — 42,062 107,821 (10,337) — Loan from a Advance shareholder from of a fellow Minority subsidiary subsidiaries interests $’000 $’000 $’000 3,989 42,062 107,821 (3,989) 50,832 48,650 — — (27,306) — — (7,296) — — (1,117) — 92,894 120,752	Loan from a minority shareholder of a subsidiary $’000 12,776 — — — — — (12,776)
				—

				Pledged bank deposits $’000 (10,337) (40,984) — — —
	50,597			(51,321)

— 102 —

FINANCIAL INFORMATION

APPENDIX III

(c) Sale of subsidiaries

Details of disposal of subsidiaries:

Net assets disposal of: Fixed assets Inventories Trade and bills receivable Deposits, prepayments and other receivables Cash and bank balances Trade and bills payable Accrued liabilities and other payables Minority interests Goodwill Currency translation reserve released on disposal Loss on disposal Represented by: Cash consideration Other receivable Analysis of net cash (outflow)/inflow of cash and cash equivalents in respect of the disposal of subsidiaries: Cash consideration received Cash and cash equivalents of disposed subsidiaries Net (outflow)/inflow of cash and cash equivalents	2001 $’000 1,674 14,503 1,311 8,945 213 (13,170) (18,814) — (5,338) 6,299 210 (1,171) — — — — 2001 $’000 — (213) (213)	2000 $’000 29,479 2,021 738 4,242 159 (5,611) (24,601) (128) 6,299 — — (1,591) 4,708 655 4,053 4,708 2000 $’000 655 (159) 496

Loss on subsidiaries disposed of during the year and attributable to the Group amounted to $4,372,000 (2000: $46,511,000).

(d) Major non-cash transactions

During the year, an amount due from an investee company of $20,280,000 has been converted to 2,600,000 convertible non-voting preference shares of US$1 each in that investee company (note 15(c)) .

— 103 —

FINANCIAL INFORMATION

APPENDIX III

28 COMMITMENTS

(a) Commitments under operating leases

At 31st December, 2001, the Group had future aggregate minimum lease payments under noncancellable operating leases as follows:

Land and buildings: Not later than one year Later than one year and not later than five years Equipment: Not later than one year Later than one year and not later than five years (b) Capital commitment for property, plant and equipment: Contracted for Authorised, but not contracted for	2001 $’000 6,437 2,141 8,578 416 1,175 1,591 1,306 — 1,306	2000 $’000 (Restated) 11,842 9,111
		20,953

		387 1,328
		1,715

		4,188 6,820
		11,008

(c) At 31st December 2001, the Group had outstanding financial commitments of RMB3,426,000 (approximately $3,209,000) (2000: RMB3,338,000 (approximately $3,119,000)) in respect of capital contributions to be made to two PRC subsidiaries. Included in the related capital contributions to the subsidiaries, RMB4,000,000 (approximately $3,791,000) (2000: RMB13,905,000 (approximately $12,996,000)) was paid before the balance sheet date but the related capital verification process has not been completed as of that date.
(d) The Company had no significant capital commitments at 31st December, 2001 (2000: Nil).

29 RELATED PARTY TRANSACTIONS

(a) During the year, a wholly-owned subsidiary of Kwan Wing made advances to the maximum amount of approximately $42 million (2000: $28 million) to the Group (note 21).

The balance due to the above-mentioned fellow subsidiary is unsecured, bears interest at Hong Kong dollar prime lending rate plus 2.5% per annum and has no fixed terms of repayment. The total interest paid on the advances during the year amounted to $1,383,000 (2000: $1,379,000).

(b) During the year, the Group received advances amounting to $10 million (2000: $28 million) in aggregate from a fellow subsidiary. The balance is unsecured, interest-free and repayable beyond one year (note 24).

— 104 —

FINANCIAL INFORMATION

APPENDIX III

(c) During the year, a compensation fee of $11,912,000 (2000: Nil) was paid to DVN in relation to the sale of a former subsidiary to DVN. Details of the transaction have been set out in the Company’s Circular of “Discloseable and Connected Transactions” dated 12th July, 1999.
(d) During the year, the Group entered into the following material transactions with an investee company:

		2001	2000
	Note	$’000	$’000
Loan to an investee company	(i)	—	23,000
Interest income from loan to an investee company	(i)	937	1,718
Sales of digital broadcasting equipment and
related products to an investee company	(ii)	39,465	8,233

(i) During the year ended 31st December, 2000, the Group advanced $23,000,000 to an investee company. Out of the total loan advance of $23,000,000, $3,000,000 was unsecured, bearing interest at 9.5% per annum and was repaid by the investee during the year. The remaining balance of HK$20,000,000 was secured, bearing interest at 1.5% above Hong Kong dollar prime lending rate per annum. On 15th June, 2001, the Group converted $20,280,000 advances to 2,600,000 redeemable convertible preference shares at US$1.00 each in that investee company. Interest income of $937,000 (2000:$1,718,000) was earned by the Group during the year.
(ii) During the year ended 31st December 2001, the Group sold digital broadcasting systems and related products to the investee company amounting to $39,465,000. The price and conditions in relation to the sales were made under the same terms as it trades with other non-related customers.
(iii) At 31st December, 2001, the Group had trade receivables due from the investee company amounted to $48,111,000. Subsequent to the balance sheet date, a repayment schedule was agreed whereby the investee company will repay not less than $8,500,000 by 31st December, 2002 and to repay the balance of the amount on or before 3lst March, 2004. Notwithstanding the above, the repayment policy does not preclude the total amount to be repaid on demand by the Group.

30 CONTINGENT LIABILITIES

	Company	Company
	2001	2000
	$’000	$’000
Guarantees for banking facilities
utilised by a subsidiary	4,014	5,512

— 105 —

FINANCIAL INFORMATION

APPENDIX III

31 PENDING LITIGATION

(a) On 24th August, 1997, Smoothline Limited (“Smoothline”), a wholly-owned subsidiary of the Company, received a Demand for Arbitration from a customer (the “Customer”) for resolution of dispute which relates to the sale of certain cordless telephones by certain suppliers (collectively referred to as the “Suppliers”) to the Customer under an agreement dated 31st March, 1993 in which Smoothline had certain secondary obligations as one of the guarantors for the Suppliers’ performance.

As the dispute at issue is primarily between the Customer and the Suppliers, a finding of liability on the part of Smoothline is necessarily dependent upon a prior finding of liability on the part of the Suppliers’ and, further, upon the failure of the Suppliers to satisfy such a judgement.

Counsel for both parties have agreed to wait for the outcome of other issues mentioned in paragraph (c) below before proceeding to arbitration. The directors believe that the Group has substantial legal and factual defences against the claim and hence consider that provision for the claim is not necessary.

(b) On 9th September, 1998, Smoothline was notified that the Customer and a party holding certain patents had agreed to settle a patent infringement dispute relating to the distribution of certain products, including certain cordless telephones manufactured by Smoothline, by payment by the Customer of US$1.25 million (equivalent to approximately $9.7 million) and the granting by such party to the Customer and its suppliers (including Smoothline) of a licence for such products. Smoothline has been requested by the Customer to contribute a portion of the above costs of approximately US$800,000 (equivalent to approximately $6.2 million). The directors believe that the Group has valid defences against the claim and consider that a provision for the claim is not necessary as this matter has been dormant for over three years.
(c) On 21st December, 1999, in relation to the Customer referred to in note 31 (a) above, two subsidiaries of the Group sought to clarify their obligations relating to the Customer through proceedings in The Princely District Court of Liechtenstein against both the Customer and FHA Handelsanstalt (“FHA”). On 14th March, 2000, in connection with Liechtenstein proceedings the two subsidiaries petitioned The District Court of The Southern District of New York for a discovery order pursuant to 28 U.S. C. 1782 against the Customer. The petition has been opposed by the Customer who also seeks to refer some of the matters raised in the Liechtenstein action to arbitration under AAA in New York.

On 7th May, 2001, the United States Court of Appeals for the second Circuit reversed a 21st July, 2000, District Court decision denying the Customer’s arbitration demand. Pursuant to this, Smoothline must arbitrate its disputes with the Customer. A decision regarding the obligation of another subsidiary of the Group in this respect is pending. In the Liechtenstein proceedings the two subsidiaries claimed damages of US$14.78 million and the directors believe that there exist valid and substantial defences against any potential counter claims. Accordingly, the directors do not consider any provisions necessary.

(d) On 12th October, 1999, Cybiotronics Limited (“Cybiotronics”), a Hong Kong company commenced litigation in the United States District Court, Central District of California, claiming that, inter alia, Smoothline had infringed certain patents relating to telephones and consequential damages, and injunctive relief. On 12th February, 2001, Smoothline obtained a summary judgement against Cybiotronics on the claim for patent infringement. On 30th January, 2002, The Federal Circuit dismissed a Cybiotronics appeal, closing the case.

— 106 —

FINANCIAL INFORMATION

APPENDIX III

32 BANKING FACILITIES

As at 31st December, 2001, the Group’s banking facilities were secured by the following:

(a) corporate guarantees to the extent of $10,000,000 (2000: $178,000,000) executed by the Company in respect of banking facilities utilised by a subsidiary amounting to $4,014,000 (2000: $5,512,000); and
(b) pledges of Group’s bank deposits aggregating US$6,490,000 (equivalent to $51,321,000) (2000: $10,337,000).

33 SUBSEQUENT EVENTS

(i) On 18th March, 2002, DVN and Zoran Corporation (“Zoran”), an independent third party which is not connected to the Company, entered into the subscription agreement in which Zoran agreed to subscribe for 18,571,429 new ordinary shares of $0.10 each in DVN at $2.10 per share. The net proceeds of approximately $39 million received from the subscription are intended to be used for DVN’s general working capital purposes.
(ii) On 18th April, 2002, DVN and Jiangsu Hongtu High Technology Co., Limited (“Hongtu”), an independent third party company incorporated in the PRC and listed on the Shanghai Stock Exchange, entered into a joint venture agreement (“JV Agreement”) to establish a joint venture (“JV”) in the PRC. Pursuant to the JV Agreement, the total registered capital of the JV will be RMB90 million (approximately HK$85.3 million) and each party holds a 50% interest and profit sharing. Each of the Group and Hongtu will contribute RMB45 million (approximately $42.7 million) into the JV. The JV has a 15-year term and will focus on developing the digital broadcasting and related businesses in the PRC.

34 ULTIMATE HOLDING COMPANY

The directors regard Kwan Wing Holdings Limited, a company incorporated in the British Virgin Islands, as the ultimate holding company.

— 107 —

FINANCIAL INFORMATION

APPENDIX III

35 PARTICULARS OF PRINCIPAL SUBSIDIARIES

The table below lists out the subsidiaries of the Company as at 31st December, 2001 which, in the opinion of the directors, principally affected the results of the year or formed a substantial portion of the net assets of the Group. To give details of other subsidiaries would, in the opinion of the directors, result in particulars of excessive length.

		Nominal
	Place of	value of issued
	incorporation	ordinary share/	Interest	Principal activities
Name	and legal entity	registered capital	held	and place of operation
Beijing E-Pay Net	PRC	US$2,680,000	70%	Provision of
Technology Co. Ltd.				communication services
Campus.Net Technology	Hong Kong	$2	36.5%	Investment holding
Company Limited
Cyber Cinema Technology	Hong Kong	$2	36.5%	Investment holding
Company Limited
DVB Technology (Suzhou)	PRC	RMB100,000,000	25.6%	Trading of digital and
Company Ltd				broadcasting equipment
				and related products
				in PRC
Digital Video Networks	PRC	US$7,000,000	36.5%	Design, integration and
Company Limited				installation of digital
				broadcasting equipment
				and sales of related
				software and
				products in PRC
DVN (Group) Limited	BVI	US$10 ordinary	36.5%	Investment holding
		US$15,000,000	100%
		preference
DVN (Holdings) Limited	Bermuda	$31,051,051	* 9.9%	Investment holding
		Ordinary	& 26.6%
		$70,674,137
		Preference
DVN (Management)	Hong Kong	$2	36.5%	Provision of
Limited				administrative services
				in Hong Kong

— 108 —

FINANCIAL INFORMATION

APPENDIX III

	Place of	Nominal
	incorporation	value of issued
	and kind of	ordinary share/	Interest	Principal activities
Name	legal entity	registered capital	held	and place of operation
DVN Technology Limited	Hong Kong	$2	36.5%	Design, integration and
				installation of digital
				broadcasting equipment
				and sales of related
				software and
				products in Hong Kong
Dynamic Network Limited	BVI	US$1	36.5%	Investment holding
Entertainment Soundview	Hong Kong	$10,000	100%	Marketing and sales of
Limited				home audio/video
				products
Greatsino Electronic Limited	BVI	US$1	100%	Design, manufacturing and
				marketing of consumer
				electronics products
				— inactive
Million Way Enterprises	BVI	US$1	100%	Investment holding
Limited
Prime Pacific International	BVI	US$50,000	67%	Investment holding
Limited
Show Case International	BVI	US$1	36.5%	Holding of film rights in
Limited				PRC
Smart Asia Limited	Hong Kong	$10,000	*100%	Investment holding
Smoothline Limited	Hong Kong	$7,500,000	100%	Design, manufacturing and
				marketing of
				telecommunication
				products — inactive
Super China Development	BVI	US$1	*100%	Investment holding
Limited
Systems Asia Limited	Hong Kong	$10,000	*100%	Investment holding

— 109 —

APPENDIX III

FINANCIAL INFORMATION

	Place of	Nominal
	incorporation	value of issued
	and kind of	ordinary share/	Interest	Principal activities
Name	legal entity	registered capital	held	and place of operation
Systems Asia Technology	BVI	US$100	*100%	Investment holding
BVI Limited
Telequote Data International	Hong Kong	$10,000	36.5%	Provision of international
Limited				financial market
				information and
				selective consumer
				data services
Telequote Network	Singapore	SGD2	36.5%	Provision of
(Singapore) Pte. Limited				international financial
				market information and
				selective consumer data
				in Singapore
Victory Beat Limited	BVI	US$1	36.5%	Investment holding
Webway Communications	Hong Kong	$2,000,000	78%	Provision of integrated
(ETS) Limited				communication services
Webway Communications	Hong Kong	$6,000,000	78%	Provision of marketing
(HK) Limited				services
Webway Communication	BVI	$15,340,000	78%	Investment holding
Holding Inc.
Webway Communications	USA	US$300,000	78%	Provision of communication
LLC				services
Whizz Kid Limited	BVI	US$1	36.5%	Investment holding

Shares held directly by the Company.

— 110 —

PROPERTY VALUATION

APPENDIX IV

The following is the text of the letter, summary of values, and valuation certificate received from Chesterton Petty Limited, an independent valuer, prepared for the purpose of inclusion in this document, in connection with their valuation of the property interests held by the Group as at 30th April, 2002.

==> picture [41 x 43] intentionally omitted <==

International Property Consultants

Chesterton Petty Limited 16th Floor, CITIC Tower 1 Tim Mei Avenue Central Hong Kong

31st July, 2002

The Directors Universal Appliances Limited Unit 6301-6306

The Center 99 Queen’s Road Central Central Hong Kong

Dear Sirs

In accordance with your instructions for us to value various properties held by Universal Appliances Limited (the “Company”) and its subsidiaries (hereinafter together known as the “Group”) in the People’s Republic of China (the “PRC”), Hong Kong, Singapore and Malaysia, we confirm that we have made relevant enquiries and searches and obtained such further information as we consider necessary for the purpose of providing you with our opinion of the open market values of these properties as at 30th April, 2002.

Our valuation is our opinion of the open market value which we would define as intended to mean “the best price at which the sale of an interest in a property would have been completed unconditionally for cash consideration on the date of valuation assuming:—

(a) a willing seller;

— 111 —

PROPERTY VALUATION

APPENDIX IV

(b) that, prior to the date of valuation, there had been a reasonable period (having regard to the nature of the property and the state of the market) for the proper marketing of the interest, for the agreement of price and terms and for the completion of the sale;
(c) that the state of the market, level of values and other circumstances were, on any earlier assumed date of exchange of contracts, the same as on the date of valuation;
(d) that no account is taken of any additional bid by a prospective purchaser with a special interest; and
(e) that both parties to the transaction had acted knowledgeably, prudently and without compulsion”.

Our valuation has been made on the assumption that the owner sells the properties on the open market without the benefit of a deferred term contract, leaseback, joint venture, management agreement or any similar arrangement which would serve to increase the values of the properties. In addition, no account has been taken of any option or right of pre-emption concerning or affecting the sale of the properties and no forced sale situation in any manner is assumed in our valuation.

Property in Group I which is held by the Group in the PRC has no commercial value due to the lack of necessary title proof and the Group may not has the rights to legally and validly transfer, assign, or mortgage the property. Property interests in Groups II, III, IV and V which are leased by the Group in the PRC, Hong Kong, Singapore and Malaysia respectively, have no commercial value due to the prohibition against assignment or sub-letting and the lack of substantial profit rent.

We have been provided with copies of extracts of title documents relating to the properties, however, we have not inspected the original documents to verify ownership or to verify any amendments which may not appear on the copies handed to us. In valuing the property interests, we have also relied on the advice given by the Group and its legal advisers, Jingtian & Gongcheng Attorneys at Law regarding the titles, legality of lease agreements and other legal matters relating to property interests in the PRC.

We have relied to a very considerable extent on information given by the Group for the properties. We have no reason to doubt the truth and accuracy of the information provided to us by the Group which is material to the valuations. We have accepted advice given to us on such matters as planning approvals or statutory notices, easements, tenure, ownership, lettings, particulars of occupancy, identification of the properties, site and floor areas and all other relevant matters. Dimensions, measurements and areas included in the valuation certificate are based on information contained in the documents provided to us and are therefore only approximations. No on-site measurements have been made.

— 112 —

PROPERTY VALUATION

APPENDIX IV

We have inspected the exterior and, where possible the interior of the properties but no structural survey has been made. We are not able to report that these properties are free from rot, infestation or any other structural defect. No tests were carried out to any of the services.

In the course of our valuation, we have regard to the requirements contained in Chapter 5 and Practice Note 12 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

No allowance has been made in our valuation for any charge, mortgage or amount owing on any property nor for any expense or taxation which may be incurred in effecting a sale. Unless otherwise stated, it is assumed that these properties are free from encumbrances, restrictions and outgoings of an onerous nature which could affect their values.

Unless otherwise stated, all money amounts stated are in Hong Kong dollars. The exchange rates adopted for conversion are approximately US$1=$7.80, $1=RMB1.06, SGD1=$4.31 and MYR1=$2.04, which were approximately the prevailing exchange rates as at the date of valuation, and there has been no significant fluctuation in the exchange rates between that date and the date of this letter.

Our summary of values and valuation certificate are attached.

Yours faithfully For and on behalf of Chesterton Petty Limited Charles C K Chan MSc FRICS FHKIS MCIArb RPS(GP) Executive Director

Notes: Charles C K Chan, MSc, FRICS, FHKIS, MCIArb, RPS(GP), has been a qualified valuer with Chesterton Petty Limited since June 1987 and has about 17 years’ experience in the valuation of properties in Hong Kong and extensive experience in the valuation of properties in the PRC and also has experience in the valuation of properties in Singapore and Malaysia.

— 113 —

PROPERTY VALUATION

APPENDIX IV

SUMMARY OF VALUES

		Open market value
		in existing state
	Property	as at 30th April, 2002
	Group I — Property interest held by the Group in the PRC
1.	House Nos. 5 and 6	No commercial value
	Chung Shan Hot Spring Golf Club Member’s Village
	Sanxian Town
	Zhongshan
	Guangdong Province
	The PRC
	Group II — Property interests rented by the Group in the PRC
2.	Portion on Level 6	No commercial value
	Zhifang Building
	114 Jinshi Road
	Lixia District
	Jinan
	Shandong Province
	The PRC
3.	Portion on Level 38	No commercial value
	Nanzheng Building
	580 Nanjing West Road
	Jinan District
	Shanghai
	The PRC
4.	Unit 906, Block C	No commercial value
	Heqiao Building
	Guanhua Road
	Chaoyang District
	Beijing
	The PRC

— 114 —

PROPERTY VALUATION

APPENDIX IV

Property

Portion of Levels 1 and 2 Suxin Building 88 Jinjihu Road Suzhou Gongyeyuan District Suzhou Jiangsu Province The PRC 6. Portion on Level 4 Yuhua Building 455 Yuhua East Road Changan District Shijiazhuang Hebei Province The PRC 7. Unit No. 101 Block No. 10 Shiji Garden Changan District Shijiazhuang Hebei Province The PRC 8. Unit 101 Block No. 59 Qinhuang Estate Haigan District Qinhuangdao Hebei Province The PRC 9. Room 201, Unit 1 Block No. 1 Xinguang Estate Gaokai District Baoding City Hebei Province The PRC

Open market value in existing state as at 30th April, 2002

No commercial value

— 115 —

PROPERTY VALUATION

APPENDIX IV

Property

Unit No. A1701 Chuangxin Technology Square Futian District Shenzhen Guangdong Province The PRC 11. Unit 12E Block 2 Hongling Buidling Futian District Shenzhen Guangdong Province The PRC
Unit 2A Sengen International Commercial Park District 5 Laiguangying West Road Chaoyang District Beijing The PRC 13. A unit on Level 21 Aulujingdian Chaoyang District Beijing The PRC

Open market value in existing state as at 30th April, 2002

No commercial value

— 116 —

PROPERTY VALUATION

APPENDIX IV

Open market value in existing state Property as at 30th April, 2002

	Group III — Property interests rented by the Group in Hong Kong	Group III — Property interests rented by the Group in Hong Kong
14.	Room No. 125	No commercial value
	12th Floor
	Telecom House
	Wanchai
	Hong Kong
15.	Whole of 2nd floor	No commercial value
	Capital Building
	6-10 Sun Wui Road
	Causeway Bay
	Hong Kong
16.	Unit Nos. 6301-6303	No commercial value
	And 6305-6306
	63rd floor
	The Center
	Central
	Hong Kong
	Group IV — Property interest rented by the Group in Singapore
17.	48A Circular Road	No commercial value
	Singapore O494a
	Group V — Property interest rented by the Group in Malaysia
18.	Portion on Level 2	No commercial value
	Wlama Telekom Semarak
	South Wing (East End)
	Jalan Raja
	Muda
	ABDUL AZIZ
	Town of Kuala Lumpur
	Federal Territory
	Malaysia

Grand Total :

No commercial value

— 117 —

PROPERTY VALUATION

APPENDIX IV

VALUATION CERTIFICATE

Group I — Property interest held by the Group in the PRC

Property

Description and tenure

Open market value Particulars in existing state of occupancy as at 30th April, 2002

House Nos. 5 and 6 The property comprises two 2- Chung Shan Hot storey detached villa with a total Spring Golf Club gross floor area of approximately Member’s Village 596.36 sq. m. (6,419 sq. ft.) Sanxian Town completed in 1990’s. Zhongshan Guangdong The land use rights of the property Province is held for a term of 70 years from The PRC 1st February, 1993 to 31st January, 2063.

The property is No commercial value currently occupied as staff quarters.

Notes:—

(1) According to the Building Ownership Certificate No. 4369670 dated 18th February, 1995, the ownership of a twostorey villa with gross floor area of 308.36 sq. m. situated at Sanxian Town, Zhongshan is held by Mr. Ko Chun Shun Johnson. The said certificate does not mention the unit no. of the two-storey villa. As confirmed by the Group, the application procedure for the said certificate is completed by Scanlon Company Limited (the “Developer”) for the Group and the Developer has notified the Group that the Building Ownership Certificate No. 4369670 is the relevant title document of house no. 5 of the property.
(2) According to the information provided, the net book value of the property as at 31st December, 2001 is $2,443,000.
(3) We have been provided with legal opinion on the title to the property issued by the Group’s legal advisers on PRC law, which contains, inter alia, the following information:
(i) According to a set of Deed of Covenant entered into between Scanlon Company Limited (the “Developer”) an independent third party and Mr. Ko Chun Shun Johnson (the “Trustee”), both parties agreed that the Trustee shall have sole and exclusive right and privilege to use, occupy and enjoy House No. 5 of the property. The Developer also agreeds to use its endeavours to procure the relevant authority to issue the relevant Certificate for Use of House No. 5 of State-owned Land and the Building Ownership Certificate in respect of the property in favor of the Trustee.
(ii) According to another set of Deed of Convenant entered into between the developer and the Trustee, the Trustee requested the Developer to allow him to construct and erect resort house on Lot No.6 Property of the Chung Shan Hot Spring Golf Club Member’s Village, Sanxian Town, Chung Shan City, Guangdong Province, the PRC (that is House No. 6 of the property). It was thereby agreed that the Developer shall use its endeavour to procure the relevant authority to issue a Certificate for Use of State-owned Land and a Building Ownership Certificate in respect of House No. 6 of the property in favor of the Trustee to secure the Trustee’s right to exclusive possession of House No. 6 of the property.
(iii) The Trustee has obtained the Building Ownership Certificate No. 4369670 for House No. 5 of the property. However, the applications for the relevant Certificate for Use of State-owned Land for House No. 5 of the property and the relevant Building Ownership Certificate and Certificate for Use of State-owned Land for House No. 6 are still pending.

— 118 —

PROPERTY VALUATION

APPENDIX IV

(iv) According to 2 sets of Declaration of Trust both made between the Trustee and Systems Asia Limited (the “Beneficiary”), a wholly-owned subsidiary of the Group, the Trustee holds the title of the property and all the legal and beneficial interests, right, title ownership, and claim therein and thereto on the trust for the Beneficiary and the Trustee agrees to transfer and deal with the said interest and the rights in such manners as the Beneficiary shall from time to time direct in writing; and the beneficiary has covenanted with the Trustee that the Beneficiary shall indemnify the Trustee against all payments (including interest, costs and charges). The applicable laws, regulations, and rules of the PRC as currently effective have no prohibition, restriction, or limitation on the trust arrangement contemplated in the said 2 sets of Declaration of Trust. The trust arrangement contemplated thereunder may or may not be enforceable in the PRC Courts as there is no settled Chinese Laws for the governing of the same.
(v) According to the PRC law, the Trustee may not legally and validly transfer, assign, or mortgage the property unless the Trustee has went through all the legal procedures and the formalities, and obtained relevant Building Ownership Certificate and Certificate of Use of State-owned Land.

— 119 —

PROPERTY VALUATION

APPENDIX IV

Group II — Property interests rented by the Group in the PRC

Property Description and tenure 2. Portion on Level 6 The property comprises a portion on Zhifang Building the 6th level of a 6-storey 114 Jinshi Road commercial building with gross Lixia District floor area of approximately 214.00 Jinan sq. m. (2,303 sq. ft.) completed in Shandong Province 1999. The PRC The property is currently subject to a lease agreement for a term of 1 year from 1st November, 2001 to 31st October, 2002 at an annual rental of RMB171,842, exclusive of other charges.

Particulars of occupancy

The property is currently occupied by the Group as an office.

Open market value in existing state as at 30th April, 2002

No commercial value

— 120 —

PROPERTY VALUATION

APPENDIX IV

Description and tenure

Property

Portion on Level 38 The property comprises an unit on Nanzheng Building the 9th level of a 47-storey 580 Nanjing West commercial building with gross Road floor area of approximately 265.95 Jinan District sq. m. (2,863 sq. ft.) completed in Shanghai 1990’s. The PRC

Particulars of occupancy

The property is currently occupied by the Group as an office.

Open market value in existing state as at 30th April, 2002

No commercial value

The property is currently subject to a lease agreement for a term expiring on 30th June, 2003 at an monthly rental of US$3,324.38 exclusive of other charges.

— 121 —

PROPERTY VALUATION

APPENDIX IV

Description and tenure

Property

Unit 906, Block C The property comprises a portion on Heqiao Building the 6th Level of a 20-storey Guanhua Road commercial building with gross Chaoyang District floor area of approximately 214.00 Beijing sq. m. (2,303 sq. ft.) completed in The PRC 2001.

Particulars of occupancy

The property is currently occupied by the Group as an office.

Open market value in existing state as at 30th April, 2002

No commercial value

The property is currently subject to a lease agreement for a term of 1 year from 1st November, 2001 to 31st October, 2002 at an annual rental of RMB171,842, exclusive of other charges.

— 122 —

PROPERTY VALUATION

APPENDIX IV

Description and tenure

Property

Portion of Levels 1 The property comprises portions on and 2 the 1st and 2nd Level of a 3-storey Suxin Building commercial building with total 88 Jinjihu Road gross floor area of approximately Suzhou 820.00 sq. m. (8,826 sq. ft.) Gongyeyuan completed in 1990’s. District Suzhou The property is currently subject to Jiangsu Province a lease agreement for a term of 3 The PRC years from 1st July, 1999 to 30th June, 2002 at a monthly rental of RMB20,000, exclusive of other charges.

Particulars of occupancy

The property is currently occupied by the Group as an office.

Open market value in existing state as at 30th April, 2002

No commercial value

— 123 —

PROPERTY VALUATION

APPENDIX IV

Description and tenure

Property

Portion on Level 4 The property comprises portions of Yuhua Building the 4th level of a 4-storey 455 Yuhua East commercial building with gross Road floor area of approximately 418.00 Changan District sq. m. (4,499 sq. ft.) completed in Shijiazhuang 1990’s. Hebei Province The PRC The property is currently subject to a lease agreement for a term of 5 years from 1st April, 2001 to 31st March, 2006 at an annual rental of RMB125,400, exclusive of other charges.

Particulars of occupancy

The property is currently occupied by the Group as an office.

Open market value in existing state as at 30th April, 2002

No commercial value

— 124 —

PROPERTY VALUATION

APPENDIX IV

Description and tenure

Property

Unit No. 101 The property comprises an unit on Block No. 10 the 1st level of a 6-storey Shiji Garden residential building with gross floor Changan District area of approximately 150.00 sq. m. Shijiazhuang (1,615 sq. ft.) completed in 2000. Hebei Province The PRC The property is currently subject to a lease agreement for a term of 1 year from 30th May, 2001 to 29th May, 2002 at a monthly rental of RMB3,100, exclusive of other charges.

Particulars of occupancy

The property is currently occupied by the Group as a staff quarters.

Open market value in existing state as at 30th April, 2002

No commercial value

— 125 —

PROPERTY VALUATION

APPENDIX IV

Description and tenure

Property

Unit 101 The property comprises an unit on Block No. 59 the 1st level of a 6-storey Qinhuang Estate residential building with gross floor Haigan District area of approximately 126.00 sq. m. Qinhuangdao (1,356 sq. ft.) completed in 1990’s. Hebei Province The PRC The property is currently subject to a lease agreement for a term expiring on 23rd July, 2003 at an annual rental of RMB23,000, exclusive of other charges.

Particulars of occupancy

The property is currently occupied by the Group as a staff quarters.

Open market value in existing state as at 30th April, 2002

No commercial value

— 126 —

PROPERTY VALUATION

APPENDIX IV

Description and tenure

Property

Room 201, Unit 1 The property comprises an unit on Block No. 1 the 2nd level of a 5-storey Xinguang Estate residential building with gross floor Gaokai District area of approximately 120.00 sq. m. Baoding City (1,292 sq. ft.) completed in 1990’s. Hebei Province The PRC The property is currently subject to a lease agreement for a term expiring on 1st July, 2002 at a monthly rental of RMB1,100 exclusive of other charges.

Particulars of occupancy

The property is currently occupied by the Group as a staff quarters.

Open market value in existing state as at 30th April, 2002

No commercial value

— 127 —

PROPERTY VALUATION

APPENDIX IV

Description and tenure

Property

Unit No. A1701 The property comprises an unit on Chuangxin the 17th level of a 19-storey Technology Square commercial building with gross Futian District floor are of approximately 549.63 Shenzhen sq. m. (5,916 sq. ft.) completed in Guangdong 2001. Province The PRC The property is currently subject to a lease agreement for a term of 2 years from 1st December, 2001 to 30th November, 2003 at a monthly rental of RMB28,000 exclusive of other charges.

Particulars of occupancy

The property is currently occupied by the Group as an office.

Open market value in existing state as at 30th April, 2002

No commercial value

— 128 —

PROPERTY VALUATION

APPENDIX IV

Description and tenure

Property

Unit 12E The property comprises an unit on Block 2 the 12th level of a 27-storey Hongling Buidling commercial building with gross Futian District floor area of approximately 83.00 Shenzhen sq. m. (893 sq. ft.) completed in Guangdong 1990’s. Province The PRC The property is currently subject to a lease agreement for a term of 1 year expiring on 31st December, 2002 at a monthly rental of RMB2,600 exclusive of other charges.

Particulars of occupancy

The property is currently occupied by the Group as a staff quarters.

Open market value in existing state as at 30th April, 2002

No commercial value

— 129 —

PROPERTY VALUATION

APPENDIX IV

Description and tenure

Property

Unit 2A The property comprises an unit on Sengen the 1st to 2nd level of a 4-storey International commercial building with gross Commercial Park floor area of approximately 281.80 District sq. m. (3,033 sq. ft.) completed in 5 Laiguangying 2001. West Road Chaoyang District The property is currently subject to Beijing a lease agreement for a term of 5 The PRC years from 1st March, 2002 to 28th February, 2007 at a monthly rental of RMB80,438 exclusive of other charges.

Particulars of occupancy

The property is currently occupied by the Group as an office.

Open market value in existing state as at 30th April, 2002

No commercial value

— 130 —

PROPERTY VALUATION

APPENDIX IV

Description and tenure

Property

An unit The property comprises an unit on on Level 21 the 21st level of a 24-storey Aulujingdian residential building with gross floor Chaoyang District area of approximately 110.00 sq. m. Beijing (1,184 sq. ft.) completed in 2000. The PRC

Particulars of occupancy

The property is currently occupied by the Group as staff quarters.

Open market value in existing state as at 30th April, 2002

No commercial value

The property is currently subject to a lease agreement for term of 2 years commencing from 5th January, 2001 at a monthly rental of US$6,000 exclusive of other charges.

— 131 —

PROPERTY VALUATION

APPENDIX IV

Group III — Property interests rented by the Group in Hong Kong

Open market value in existing state as at 30th April, 2002

Particulars Property Description and tenure of occupancy 14. Room No. 125 The property comprises an unit on The property is 12th Floor the 12th level of a 20-storey Telecom House commercial building with gross Wanchai floor area of approximately 450 sq. Hong Kong m. (4,844 sq. ft.) completed in 1972.

The property is No commercial value currently occupied by the Group as an office.

The property is currently subject to a lease agreement for a term of 2 years from 10th May, 2001 at a monthly rental of $20,335 exclusive of rates and other charges.

— 132 —

PROPERTY VALUATION

APPENDIX IV

Property

Whole of 2nd floor Capital Building 6-10 Sun Wui Road Causeway Bay Hong Kong

Description and tenure

The property comprises the whole of the 2nd floor of a 20-storey commercial building with gross floor area of approximately 309 sq. m. (3,326 sq. ft.) completed in 1977.

Particulars of occupancy

The property is currently occupied by the Group as an office.

Open market value in existing state as at 30th April, 2002

No commercial value

The property is currently subject to a lease agreement for a term of 1 year from 16th June, 2001 to 15th June, 2002 at a monthly rental of $35,244.00 exclusive of other charges.

As advised by the Group, the lease has not been renewed after the expiry of the lease term.

— 133 —

PROPERTY VALUATION

APPENDIX IV

Description and tenure

Property

Unit Nos. 6301The property comprises 5 office 6303 units on the 63rd floor of a 59and 6305-6306 storey commercial building with a 63rd floor floor area of approximately 606.14 The Center sq. m. (6,524 sq. ft.) completed in Central 1998 Hong Kong

Particulars of occupancy

The property is currently occupied by the Group as an office.

Open market value in existing state as at 30th April, 2002

No commercial value

The property is currently subject to a lease agreement for a term of 3 years from 1st April, 2000 to 31st March, 2003 at a monthly rental of HK$368,235 exclusive of other charges.

— 134 —

PROPERTY VALUATION

APPENDIX IV

Group IV — Property interest rented by the Group in Singapore

			Open market value
		Particulars	in existing state
Property	Description and tenure	of occupancy	as at 30th April, 2002
17. 48A Circular Road	The property comprises the 2nd	The property is	No commercial value
Singapore	level of a 3-storey commercial	currently occupled by
O494a	building with a gross floor area of	the Group as an office.
	approximately 100.33 sq.m. (1,080
	sq.ft.) completed in 1949.
	The property is currently subject to
	a lease agreement for a term of 2
	years from 18th May, 2002 to 18th
	May, 2004 at an annual rental of
	SGD$2,300, exclusive of service
	charges.

— 135 —

PROPERTY VALUATION

APPENDIX IV

Group V — Property interest rented by the Group in Malaysia

Property	Description and tenure
18. Portion on Level 2	The property comprises a portion
Wlama Telekom	on the 2nd level of a 22-storey
Semarak	commercial building with gross
South Wing	floor area of approximately 174.28
(East End)	sq. m. (1,876 sq. ft.) completed in
Jalan Raja	2000.
Muda
ABDUL AZIZ	The property is currently subject to
Town of Kuala	a lease agreement for a term of 3
Lumpur	years from 1st August, 2000 to 31st
Federal Territory	July, 2003 at an annual rental of
Malaysia	MYR7,504, exclusive of service
	charges.

Open market value Particulars in existing state of occupancy as at 30th April, 2002

The property is currently occupied by the Group as an office.

No commercial value

— 136 —

ADDITIONAL INFORMATION

APPENDIX V

DISCLOSURE OF INTERESTS

(a) As at the Latest Practicable Date, the interests of the Directors in the share capital of the Company or any of its associated corporations (within the meaning of the Securities (Disclosure of Interests) Ordinance, Chapter 396 of the Laws of Hong Kong (the “SDI Ordinance”)), which have been notified to the Company pursuant to the Model Code for Securities Transactions by Directors of Listed Companies in the Listing Rules or section 28 of the SDI Ordinance (including interests in which a Director is deemed or taken to have under section 31 or Part I of the Schedule to the SDI Ordinance) or which are required, pursuant to section 29 of the SDI Ordinance, to be entered in the register referred to therein were as follows:

(A) Interests in shares

(i) Ordinary shares of $0.18 each in the Company

		Number of shares	Number of shares
		Personal	Family	Corporate
Name	Notes	interests	interests	interests
Mr. Ko	(i)	18,640,000	— 1,000,437,150

(ii) Ordinary shares of $0.10 each in DVN, a subsidiary of the Company

		Number of shares	Number of shares
		Personal	Family	Corporate
Name	Notes	interests	interests	interests
Mr. Ko	(ii)	343,000	2,040,816	158,357,940
Mr. Lui Pan, Terry		198,000	—	—
Notes:

(i) Kwan Wing Holdings Limited (“Kwan Wing”), a company incorporated in the British Virgin Islands and is wholly-owned by Mr. Ko and Techral Holdings Limited (“Techral”) beneficially owned 360,399,000 and 640,038,150 ordinary shares in the Company, respectively. Kwan Wing has a 96% beneficial interest in Techral.
(ii) 118,403,418 ordinary shares in DVN are directly held by Prime Pacific International Limited, which is owned as to 67% and 33% by Gold Pagoda Incorporated (“Gold Pagoda”) and Prime Gold International Limited (“Prime Gold”), respectively.

Prime Gold is owned as to 82.45% by Kwan Wing.

— 137 —

ADDITIONAL INFORMATION

APPENDIX V

Gold Pagoda is a wholly-owned subsidiary of the Company which in turn is controlled by Mr. Ko.

31,032,522 ordinary shares in DVN are held directly by the Company.

2,956,000 ordinary shares in DVN are held by All Mark Limited, which is whollyowned by the Company.

1,600,000 ordinary shares in DVN are held by Peninsula Resources Limited, which is wholly-owned by Mr. Ko.

3,144,000 ordinary shares in DVN are held by Kwan Wing.

1,222,000 ordinary shares in DVN are held by First Gain International Limited, which is wholly-owned by Mr. Ko.

2,040,816 ordinary shares in DVN are held by the spouse of Mr. Ko.
(iii) Million Way Enterprises Limited, a wholly-owned subsidiary of the Company, also holds US$15,000,000 preference shares issued by DVN (Group) Limited, a wholly-owned subsidiary of DVN. These preference shares are exchangeable to approximately 24,786,780 ordinary shares of DVN upon conversion and are subject to adjustments.

(B) Interests in share options

DVN

(i) Date of share options granted 10th September, 1999 Exercise price $2.25 Exercise period 1st January, 2000 - 31st December, 2002

			Outstanding options as at
			the Latest Practicable Date
	Mr. Ko	2,450,000
	Mr. Lui Pan, Terry	2,750,000
(ii)	Date of share options granted	23rd July,	2002
	Exercise price	$1.47
	Exercise period	24th July,	2002 - 23rd July, 2005

— 138 —

ADDITIONAL INFORMATION

APPENDIX V

Outstanding options as at the Latest Practicable Date

Held by directors:
Mr. Ko	3,000,000
Mr. Lui Pan, Terry	3,000,000
Ms. Patty Chan_(note)_	1,000,000
Note: Ms. Patty Chan is an employee of the Group and the spouse of Mr. Lui Pan, Terry.

(b) All Directors are directors of Holdings. Upon the Scheme becoming effective, the Company will become a wholly-owned subsidiary of Holdings. Such that the Directors’ interests in the Company set out in paragraph (a)(A) above shall be an exact duplication of the interests of the directors of Holdings.
(c) Save as disclosed herein, as at the Latest Practicable Date and so far as was known to the Directors, there was no person who, directly or indirectly, held or was interested in shares or options in respect of shares representing 10 per cent. or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of the Company or any of its subsidiaries.
(d) As at the Latest Practicable Date, none of the Directors has entered into any service contracts with the Company or any member of the Group (excluding contracts expiring or determinable by the relevant employers within one year without payment of compensation (other than statutory compensation)).
(e) The aggregate Directors’ fees and the aggregate Directors’ basic salaries, housing allowances, other allowances, benefits in kind, bonuses and pensions paid by the Group for the year ended 31st December, 2001 were approximately $5,435,000.

During the year ended 31st December, 2001, no Ordinary Shares were issued to the Directors pursuant to their exercise of certain options granted to them under the Existing Share Option Scheme.

In addition, during the year ended 31st December, 2001, no options were granted to the Directors under the Existing Share Option Scheme.

(f) The aggregate amount of Directors’ remuneration payable by the Group for the year ending 31st December, 2002 is estimated to be approximately $6 million.
(g) None of the Directors has or has had any interest, direct or indirect, in any assets acquired or disposed of by or leased to, or proposed to be acquired or disposed of by or leased to, Holdings or any member of the Group, or in the promotion of any of such assets, within 2 years before the date of this document.

— 139 —

ADDITIONAL INFORMATION

APPENDIX V

(h) No Director has a material personal interest, direct or indirect, in any contract or arrangement subsisting at the date hereof and entered into by Holdings, the Company or any of its subsidiaries which is significant in relation to the business of the Group taken as a whole.
(i) None of EYCFL, PricewaterhouseCoopers, Chesterton Petty Limited, Conyers Dill & Pearman, Cayman and Jingtian & Gongcheng has or has had any direct or indirect interest in any assets which have been acquired, disposed of by or leased to the Group or which are proposed to be acquired, disposed of by or leased to Holdings or the Group, or in the promotion of any of such assets, within 2 years before the date of this document.
(j) As at the Latest Practicable Date, none of EYCFL, PricewaterhouseCoopers, Chesterton Petty Limited, Conyers Dill & Pearman, Cayman and Jingtian & Gongcheng had any shareholding in Holdings or any member of the Group or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in Holdings or any member of the Group.

SPONSOR

EYCFL has made an application on behalf of Holdings to the Listing Committee of the Stock Exchange for the listing of, and permission to deal in, the Holdings Ordinary Shares in issue and to be issued as mentioned herein and any Holdings Ordinary Shares (i) in issue and to be issued pursuant to the Scheme; (ii) to be issued upon the exercise of the subscription rights attaching to any options which may be granted under the Holdings Share Option Scheme (not exceeding 10 per cent. of the issued ordinary share capital of Holdings as at the date upon listing of the Holdings Ordinary Shares); and (iii) to be issued upon the exercise of the conversion rights attaching to the Holdings Preference Shares.

CONSENTS

EYCFL, PricewaterhouseCoopers, Chesterton Petty Limited, Conyers Dill & Pearman, Cayman and Jingtian & Gongcheng have given and have not withdrawn their written consents to the issue of this document with the inclusion therein of their letters and reports, as the case may be, and references to their names in the form and context in which they respectively appear.

The following are the qualifications of the professional advisers who have given opinions or advice which are contained in this document:

Names	Qualifications
EYCFL	Registered dealer and investment adviser
PricewaterhouseCoopers	Certified Public Accountants
Chesterton Petty Limited	Property valuer
Conyers Dill & Pearman, Cayman	Cayman Islands attorneys-at-law
Jingtian & Gongcheng	Qualified PRC lawyers

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ADDITIONAL INFORMATION

APPENDIX V

MISCELLANEOUS

(a) The estimated preliminary expenses of Holdings are approximately $21,000 and are payable by Holdings.
(b) All expenses of the Scheme incurred or to be incurred by the Group, including legal, accounting and other advisory fees, printing costs, listing fees and other expenses, have been or will be borne by the Group and are estimated to amount to approximately $2,500,000.
(c) Mr. Ho Te Hwai, Cecil is the company secretary of the Company and Holdings, who is a member of the Canadian Institute of Chartered Accountants and an associate member of the Hong Kong Society of Accountants.
(d) The English text of this document and the proxy forms shall prevail over the Chinese text.

DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection at the office of the solicitors of the Company, Messrs, Koo and Partners in association with Paul, Hastings, Janosky & Walker LLP, at 21st-22nd Floor, Bank of China Tower, No.1 Garden Road, Hong Kong, during normal business hours on any day until the day on which the Scheme becomes effective, is withdrawn or lapses:

(a) the Memorandum and Articles of Association of the Company;
(b) the Memorandum of Association of Holdings and the proposed new Articles of Association to be adopted by Holdings;
(c) the annual reports of the Company for each of the three years ended 31st December, 1999, 2000 and 2001;
(d) the Companies Ordinance;
(e)
the Companies Law;
(f) the letter of advice from Conyers Dill & Pearman, Cayman summarizing certain aspects of the Companies Law; a summary of the constitution to be adopted by Holdings and a comparison between such constitution and the Articles of Association of the Company;
(g) the material contracts referred to in Appendices I and II to this document;
(h) a draft, subject to minor amendment, of the Holdings Share Option Scheme, a summary of the terms of which is set out in Appendix I to this document;
(i) the letter and certificate from Chesterton Petty Limited the text of both of which are set out in Appendix IV to this document; and
(j) the letters of consent referred to in this Appendix.

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APPENDIX VI SUMMARY OF THE DIFFERENCES OF CERTAIN PROVISIONS BETWEEN COMPANIES ORDINANCE AND COMPANIES LAW

Set out below is a summary on the differences of certain provisions under the Companies Ordinance in Hong Kong and the Companies Law in the Cayman Islands concerning a listed company:

	Hong Kong	the Cayman Islands
Alteration of memorandum and articles of association	A company may not alter the o b j e c t c l a u s e s i n i t s memorandum except by way of a special resolution of which not less than 21 clear days’ notice has been given to all its members and which has been passed by not less than three fourths of the votes cast by members entitled to vote and vote at the general meeting. A c o m p a ny m a y a l t e r provisions in its articles of association by a special resolution unless such alteration is inconsistent with the special rights attached to a class of shares.	A company may by special r e s o l u t i o n a l t e r i t s memorandum of association with respect to any objects, powers or other matters specified therein. Subject to the conditions c o n t a i n e d i n i t s memorandum of association, a company may by special resolution alter or add to its articles of association.
Issue of shares	Unless with approval of the shareholders, the directors of a company may only allot and issue shares to the subscribers of the memorandum of association or under a pro rata offer of shares by such company to its shareholders.	There is no requirement for the directors of a company to obtain the approval of its shareholders for the issue of shares on a non pro rata basis. Such power to issue shares of the company, however, will be determined in accordance with the company’s articles of associations.

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Hong Kong the Cayman Islands Share premium When a company issues shares When a company issues at a premium, the amount of shares at a premium, the the premium will be transferred premium will be transferred to the share premium account. to the share premium account. The money in the share Subject to the provisions of premium account may be the company’s memorandum applied (i) in paying up and articles of association, the unissued shares of the company share premium account may to be issued to its members as be applied in such manner as fully paid bonus shares; (ii) in the company may from time writing off preliminary to time determine including expenses of the company or the paying distribution or expenses of issuing shares; and dividends to members (iii) as premium payable on the (subject to a solvency test), redemption of redeemable paying up unissued shares of preference shares. the company to be issued to members as fully paid bonus shares, in writing off the preliminary expenses of the company or the expenses of issuing shares and providing for the premium payable on redemption or purchase of any shares or debentures of the company.

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APPENDIX VI SUMMARY OF THE DIFFERENCES OF CERTAIN PROVISIONS BETWEEN COMPANIES ORDINANCE AND COMPANIES LAW

Hong Kong the Cayman Islands Financial assistance In general, it is not permissible There is no statutory for a company to give financial restriction in the Cayman assistance for the purpose of Islands on the provision of enabling a person to acquire financial assistance by a the company’s shares unless company to another person the principal purpose in giving the assistance is not for the for the purchase of, or acquisition of the shares and subscription for, its own or its the assistance is given in good holding company’s shares. faith in the interests of the Accordingly, a company may company. There are only a few provide financial assistance if exceptions to the prohibition of the directors of the company, providing financial assistance, which include, among other in discharging their duties of things, (i) distribution of care and acting in good faith, dividend; (ii) distribution of for a proper purpose and in assets in winding up; (iii) the the interests of the company, allotment of bonus shares; (iv) determine that such assistance reduction of capital confirmed can properly be given. by the court; (v) anything done in pursuance of an order of the court under Section 166 of the Companies Ordinance in respect of a compromise or scheme of arrangement between a company and its members or creditors; (vi) where the ordinary business of the company is lending money; and (vii) the company makes a loan to its employees (other than the non-salaries directors) employed in good faith by the company with a view to enabling them to purchase fully paid shares in the company or its holding company. In the case of a listed company giving financial assistance under (vi) or (vii) above, its net assets must not be thereby reduced or, to the extent that those thereby reduced, if the assistance is provided out of distributable profits.

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Hong Kong the Cayman Islands Subsidiary’s membership of A subsidiary is prohibited from Under Cayman Islands law, a holding company holding the shares of its subsidiary may hold shares in holding company, except in its holding company and may certain circumstance as set out acquire such shares. in the Companies Ordinance Share repurchase A company in general may not A company may, if authorised purchase its own shares, except to do so by its articles of (i) where the redemption of association, purchase its own shares which is in effect a shares, including any purchase by the company of redeemable shares. However, those shares, is permitted; (ii) if the articles of association a reduction of capital; (iii) do not authorise the manner ordered by the court to or purchase, a company purchase the shares of cannot purchase any of its dissentients; (iv) the purchase own shares unless the manner is authorised by its articles of of purchase has first been association provided that after authorised by an ordinary the buy-back, it does not result resolution of the company. At in the company’s capital no time may a company comprising only redeemable redeem or purchase its shares shares. In general, a purchase unless they are fully paid. A may only be funded out of the company may not redeem or distributable profits of a purchase any of its shares if, company or the proceeds of a as a result of the redemption fresh issue of shares made for or purchase, there would no the purpose. longer be any member of the company holding shares. A A listed company may payment out of capital by a purchase its shares under a company for the redemption general offer or on recognised or purchase of its own shares stock exchange or otherwise i s n o t l aw f u l u n l e s s approved by special resolution immediately following the in general meeting. In the case date on which the payment is of a purchase on a stock proposed to be made, the exchange, the purchase must company shall be able to pay b e a u t h o r i s e d b y t h e its debts as they fall due in company’s shareholders in the ordinary course of general meeting. business.

A listed company may purchase its shares in order to (i) settle or compromise a debt or claim; (ii) eliminate fractional shares; (iii) fulfill an employee share scheme agreement; or (iv) comply with certain court orders.

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APPENDIX VI SUMMARY OF THE DIFFERENCES OF CERTAIN PROVISIONS BETWEEN COMPANIES ORDINANCE AND COMPANIES LAW

	Hong Kong	the Cayman Islands
Capital reduction	A company may, if so authorised by its articles of association, by a special resolution reduce its capital in any way and the court confirms the reduction. If the court is satisfied, with respect to every creditor who is entitled to object to the reduction that either his consent to the reduction has been obtained or his debt or claim has been discharged or has determined, or has been secured, it may make an order confirming the reduction on such terms and conditions as it thinks fit.	T h e p r o c e d u r e s a n d requirements for a capital reduction are substantially similar to those in Hong Kong.
Dividends and distribution	A company shall not make a distribution except out of profits available for the purpose. A listed company may only make a distribution if, at the time of distribution and after the distribution, the value of its net assets is not less than the total of its called up share capital and undistributable reserves.	A company shall not make a distribution except out of profits available for the purpose or, subject to a solvency test, out of the company’s share premium account.

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	Hong Kong	the Cayman Islands
Protection of minority shareholders	Any member of a company incorporated in Hong Kong may apply for relief under S e c t i o n 1 6 8 A o f t h e Companies Ordinance on the ground that the affairs of the company are being or have been conducted in a manner which is unfairly prejudicial to the interests of the members generally or of some part of the members (including himself). The court may make any order as it thinks appropriate, including, among other things, (i) an order regulating the affairs of the company in the future; (ii) an order providing for the other members of the company or for the company itself to buy the shares of any member; or (iii) an order altering the company’s memorandum and articles of association. The court may also wind up a company, whether incorporated in Hong Kong or elsewhere, if the court considers that it is just and equitable that the company should be wound up.	A Cayman Islands company may be wound up by the court if the court is of the opinion that it is just and equitable that the company should be wound up. A complaint by a shareholder that the affairs of the company are being conducted or have been conducted in a manner oppressive or unfairly prejudicial to the interests of some part of the members would be considered one of the just and equitable grounds.

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SUMMARY OF THE CONSTITUTION OF HOLDINGS AND MATERIAL DIFFERENCES WITH THE CONSTITUTION OF THE COMPANY

APPENDIX VII

Set out below is a summary of certain provisions of the memorandum of association (the “Memorandum”) and articles of association (“Articles”) of Holdings. Material differences between the Articles and the articles of association of the Company (“UAL Articles”) are also noted.

Adoption of the Articles has been approved by Mr. Ko, being the existing sole shareholder of Holdings and is conditional upon approval by the Ordinary Shareholders and the Scheme becoming effective.

1. MEMORANDUM OF ASSOCIATION

(a) The Memorandum states, inter alia, that the liability of members of Holdings is limited to the amount, if any, for the time being unpaid on the Holdings Shares respectively held by them and that the objects for which Holdings is established are unrestricted (including acting as an investment company), and that Holdings shall have and be capable of exercising any and all of the powers at any time or from time to time exercisable by a natural person of full capacity irrespective of any question of corporate benefit, as provided in section 27(2) of the Companies Law and in view of the fact that Holdings is an exempted company that Holdings will not trade in the Cayman Islands with any person, firm or corporation except in furtherance of the business of Holdings carried on outside the Cayman Islands.
(b) Holdings may by special resolution alter its Memorandum with respect to any objects, powers or other matters specified therein.

2. ARTICLES OF ASSOCIATION

The Articles has been adopted by Holdings on 30 July, 2002 conditional upon the Scheme becoming effective and approval of the Shareholders. The following is a summary of certain provisions of the Articles:

(a) Directors

(i) Power to allot and issue shares and warrants

Summary

Subject to the provisions of the Companies Law and the Memorandum and Articles and to any special rights conferred on the holders of any shares or class of shares, any share may be issued with or have attached thereto such rights, or such restrictions, whether with regard to dividend, voting, return of capital, or otherwise, as Holdings may by ordinary resolution determine (or, in the absence of any such determination or so far as the same may not make specific provision, as the board of directors of directors of Holdings may

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determine). Subject to the Companies Law, the rules of any Designated Stock Exchange (as defined in the Articles) and the Memorandum and Articles, any share may be issued on terms that, at the option of Holdings or the holder thereof, they are liable to be redeemed.

The board of directors of Holdings may issue warrants conferring the right upon the holders thereof to subscribe for any class of shares or securities in the capital of Holdings on such terms as it may from time to time determine.

Subject to the provisions of the Companies Law and the Articles and, where applicable, the rules of any Designated Stock Exchange (as defined in the Articles) and without prejudice to any special rights or restrictions for the time being attached to any shares or any class of shares, all unissued shares in Holdings shall be at the disposal of the board of directors of Holdings, which may offer, allot, grant options over or otherwise dispose of them to such persons, at such times, for such consideration and on such terms and conditions as it in its absolute discretion thinks fit, but so that no shares shall be issued at a discount.

Neither Holdings nor the board of directors of Holdings shall be obliged, when making or granting any allotment of, offer of, option over or disposal of shares, to make, or make available, any such allotment, offer, option or shares to members or others with registered addresses in any particular territory or territories being a territory or territories where, in the absence of a registration statement or other special formalities, this would or might, in the opinion of the board of directors of Holdings, be unlawful or impracticable. Members affected as a result of the foregoing sentence shall not be, or be deemed to be, a separate class of members for any purpose whatsoever.

Differences

The corresponding provisions in the UAL Articles are substantially the same.

(ii) Power to dispose of the assets of Holdings or any of its subsidiaries

Summary

There are no specific provisions in the Articles relating to the disposal of the assets of Holdings or any of its subsidiaries. The directors may, however, exercise all powers and do all acts and things which may be exercised or done or approved by Holdings and which are not required by the Articles or the Companies Law to be exercised or done by Holdings in general meeting.

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Differences

The UAL Articles do not contain any prohibition or restriction on the disposal of the assets of the Company or any of its subsidiaries.

(iii) Compensation or payments for loss of office

Summary

Pursuant to the Articles, payments to any director or past director of any sum by way of compensation for loss of office or as consideration for or in connection with his retirement from office (not being a payment to which the director is contractually entitled) must be approved by Holdings in general meeting.

Differences

The UAL Articles contain no such provisions but the Companies Ordinance imposes similar requirements.

(iv) Loans and provision of security for loans to directors

Summary

There are provisions in the Articles prohibiting the making of loans to directors.

Differences

The UAL Articles contain no such provisions.

(v) Financial assistance to purchase the company’s or any of its subsidiaries shares.

Summary

Except as allowed by the Companies Law and subject further to compliance with the rules and regulations of the Designated Stock Exchange (as defined in the Articles) and any other relevant regulatory authority Holdings shall not give financial assistance for the purpose of or in connection with a purchase made or to be made by any person of any shares in Holdings.

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Differences

The UAL Articles contain no such provisions but the Companies Ordinance imposes similar requirements.

(vi) Disclosure of interests in contracts with Holdings or any of its subsidiaries.

Summary

A director may hold any other office or place of profit with Holdings (except that of the auditor of Holdings) in conjunction with his office of director for such period and, subject to the Articles, upon such terms as the board of directors of Holdings may determine, and may be paid such extra remuneration therefor (whether by way of salary, commission, participation in profits or otherwise) in addition to any remuneration provided for by or pursuant to any other Articles. A director may be or become a director or other officer of, or otherwise interested in, any company promoted by Holdings or any other company in which Holdings may be interested, and shall not be liable to account to Holdings or the members for any remuneration, profits or other benefits received by him as a director, officer or member of, or from his interest in, such other company. Subject as otherwise provided by the Articles, the board of directors of Holdings may also cause the voting power conferred by the shares in any other company held or owned by Holdings to be exercised in such manner in all respects as it thinks fit, including the exercise thereof in favour of any resolution appointing the directors or any of them to be directors or officers of such other company, or voting or providing for the payment of remuneration to the directors or officers of such other company.

Subject to the Companies Law and the Articles, no director or proposed or intended director shall be disqualified by his office from contracting with Holdings, either with regard to his tenure of any office or place of profit or as vendor, purchaser or in any other manner whatsoever, nor shall any such contract or any other contract or arrangement in which any director is in any way interested be liable to be avoided, nor shall any director so contracting or being so interested be liable to account to Holdings or the members for any remuneration, profit or other benefits realised by any such contract or arrangement by reason of such director holding that office or the fiduciary relationship thereby established. A director who to his knowledge is in any way, whether directly or indirectly, interested in a contract or arrangement or proposed contract or arrangement with Holdings shall declare the nature of his interest at the meeting of the board of directors of Holdings at which the question of entering into the contract or arrangement is first taken into

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consideration, if he knows his interest then exists, or in any other case, at the first meeting of the board of directors of Holdings after he knows that he is or has become so interested.

A director shall not vote (nor be counted in the quorum) on any resolution of the board of directors of Holdings in respect of any contract or arrangement or other proposal in which he is to his knowledge materially interested but this prohibition shall not apply to any of the following matters, namely:

(aa) any contract or arrangement for giving of any security or indemnity to the director in respect of money lent or obligations incurred or undertaken by him at the request of or for the benefit of Holdings or any of its subsidiaries;
(bb) any contract or arrangement for the giving by Holdings of any security or indemnity to a third party in respect of a debt or obligation of Holdings or any of its subsidiaries for which the director has himself assumed responsibility in whole or in part whether alone or jointly under a guarantee or indemnity or by the giving of security;
(cc) any contract or arrangement concerning an offer of shares or debentures or other securities of or by Holdings or any other company which Holdings may promote or be interested in for subscription or purchase, where the director is or is to be interested as a participant in the underwriting or sub-underwriting of the offer;
(dd) any contract or arrangement in which the director is interested in the same manner as other holders of shares or debentures or other securities of Holdings or any of its subsidiaries by virtue only of his interest in shares or debentures or other securities of Holdings;
(ee) any contract or arrangement concerning any other company in which he is interested only, whether directly or indirectly, as an officer or executive or a shareholder other than a company in which the director together with any of his associates (as defined by the rules, where applicable, of any Designated Stock Exchange (as defined in the Articles)) is beneficially interested in 5 per cent. or more of the issued shares or of the voting rights of any class of shares of such company (or of any third company through which his interest is derived); or

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(ff) any proposal concerning the adoption, modification or operation of a share option scheme, a pension fund or retirement, death, or disability benefits scheme or other arrangement which relates both to directors and employees of Holdings or of any of its subsidiaries and does not provide in respect of any director as such any privilege or advantage not accorded to the employees to which such scheme or fund relates.

Differences

The corresponding provisions in the UAL Articles are substantially the same.

(vii) Remuneration

Summary

The ordinary remuneration of the directors shall from time to time be determined by Holdings in general meeting, such sum (unless otherwise directed by the resolution by which it is voted) to be divided amongst the directors in such proportions and in such manner as the board of directors of Holdings may agree or, failing agreement, equally, except that any director holding office for part only of the period in respect of which the remuneration is payable shall only rank in such division in proportion to the time during such period for which he held office. The directors shall also be entitled to be prepaid or repaid all travelling, hotel and incidental expenses reasonably expected to be incurred or incurred by them in attending any board of directors’ meetings, committee meetings or general meetings or separate meetings of any class of shares or of debentures of Holdings or otherwise in connection with the discharge of their duties as directors.

Any director who, by request, goes or resides abroad for any purpose of Holdings or who performs services which in the opinion of the board of directors of Holdings go beyond the ordinary duties of a director may be paid such extra remuneration (whether by way of salary, commission, participation in profits or otherwise) as the board of directors of Holdings may determine and such extra remuneration shall be in addition to or in substitution for any ordinary remuneration as a director. An executive director appointed to be a managing director, joint managing director, deputy managing director or other executive officer shall receive such remuneration (whether by way of salary, commission

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or participation in profits or otherwise or by all or any of those modes) and such other benefits (including pension and/or gratuity and/or other benefits on retirement) and allowances as the board of directors of Holdings may from time to time decide. Such remuneration may be either in addition to or in lieu of his remuneration as a director.

The board of directors of Holdings may establish or concur or join with other companies (being subsidiary companies of Holdings or companies with which it is associated in business) in establishing and making contributions out of Holdings’ monies to any schemes or funds for providing pensions, sickness or compassionate allowances, life assurance or other benefits for employees (which expression as used in this and the following paragraph shall include any director or ex-director who may hold or have held any executive office or any office of profit with Holdings or any of its subsidiaries) and ex-employees of Holdings and their dependents or any class or classes of such persons.

The board of directors of Holdings may pay, enter into agreements to pay or make grants of revocable or irrevocable, and either subject or not subject to any terms or conditions, pensions or other benefits to employees and exemployees and their dependents, or to any of such persons, including pensions or benefits additional to those, if any, to which such employees or ex-employees or their dependents are or may become entitled under any such scheme or fund as is mentioned in the previous paragraph. Any such pension or benefit may, as the board of directors of Holdings considers desirable, be granted to an employee either before and in anticipation of, or upon or at any time after, his actual retirement.

Differences

There are no material differences in the corresponding provisions in the UAL Articles

(viii) Retirement, appointment and removal

Summary

At each annual general meeting, one third of the directors for the time being (or if their number is not a multiple of three, then the number nearest to but not greater than one third) will retire from office by rotation provided that no director holding office as chairman and/or managing director shall be subject

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to retirement by rotation, or be taken into account in determining the number of directors to retire. The directors to retire in every year will be those who have been longest in office since their last re-election or appointment but as between persons who became or were last re-elected directors on the same day those to retire will (unless they otherwise agree among themselves) be determined by lot. There are no provisions relating to retirement of directors upon reaching any age limit.

The directors shall have the power from time to time and at any time to appoint any person as a director either to fill a casual vacancy on the board of directors of Holdings or as an addition to the existing board. Any director so appointed shall hold office only until the next following annual general meeting of Holdings and shall then be eligible for re-election. Neither a director nor an alternate director is required to hold any shares in Holdings by way of qualification.

A director may be removed by a special resolution of Holdings before the expiration of his period of office (but without prejudice to any claim which such director may have for damages for any breach of any contract between him and Holdings) and may by ordinary resolution appoint another in his place. Unless otherwise determined by Holdings in general meeting, the number of directors shall not be less than two. There is no maximum number of directors.

The office or director shall be vacated:

(aa) if he resigns his office by notice in writing delivered to Holdings at the registered office of Holdings for the time being or tendered at a meeting of the board of directors of Holdings whereupon the board of directors of Holdings resolves to accept such resignation;
(bb) becomes of unsound mind or dies;
(cc) if, without special leave, he is absent from meetings of the board of directors of Holdings (unless an alternate director appointed by him attends) for six (6) consecutive months, and the board of directors of Holdings resolves that his office is vacated;
(dd) if he becomes bankrupt or has a receiving order made against him or suspends payment or compounds with his creditors;

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(ee) if he is prohibited from being a director by law;
(ff) if he ceases to be a director by virtue of any provision of law or is removed from office pursuant to the Articles.

The board of directors of Holdings may from time to time appoint one or more of its body to be managing director, joint managing director, or deputy managing director or to hold any other employment or executive office with Holdings for such period and upon such terms as the board of directors of Holdings may determine and the board of directors of Holdings may revoke or terminate any of such appointments. The board of directors of Holdings may delegate any of its powers, authorities and discretions to committees consisting of such director or directors and other persons as the board of directors of Holdings thinks fit, and it may from time to time revoke such delegation or revoke the appointment of and discharge any such committees either wholly or in part, and either as to persons or purposes, but every committee so formed shall, in the exercise of the powers, authorities and discretions so delegated, conform to any regulations that may from time to time be imposed upon it by the board of directors of Holdings.

Differences

There are no material differences in the corresponding provisions of the UAL Articles.

(ix) Borrowing powers

Summary

The board of directors of Holdings may exercise all the powers of Holdings to raise or borrow money, to mortgage or charge all or any part of the undertaking, property and assets (present and future) and uncalled capital of Holdings and, subject to the Companies Law, to issue debentures, bonds and other securities of Holdings, whether outright or as collateral security for any debt, liability or obligation of Holdings or of any third party.

Differences

The corresponding provisions of the UAL Articles are substantially the same.

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APPENDIX VII

SUMMARY OF THE CONSTITUTION OF HOLDINGS AND MATERIAL DIFFERENCES WITH THE CONSTITUTION OF THE COMPANY

(x) Proceedings of the board of directors of Holdings

Summary

The board of directors of Holdings may meet for the despatch of business, adjourn and otherwise regulate their meetings as they think fit. Questions arising at any meeting shall be determined by a majority of votes. In the case of an equality of votes, the chairman of the meeting shall have an additional or casting vote.

Differences

The corresponding provisions of the UAL Articles are substantially the same.

(xi) Register of directors and Officers

Summary

The Companies Law and the Articles provide that Holdings is required to maintain at its registered office a register of directors and officers which is not available for inspection by the public. A copy of such register must be filed with the Registrar of Companies in the Cayman Islands and any change must be notified to the Registrar within thirty days of any change in such directors or officers.

Differences

The UAL Articles do not contain any provisions in this regard.

(b) Alterations to constitutional documents

Summary

The Articles may be rescinded, altered or amended by Holdings in general meeting by special resolution. The Articles state that a special resolution shall be required to alter the provisions of the Memorandum, to amend the Articles or to change the name of Holdings.

Differences

There is no corresponding provision in the UAL Articles, but the Companies Ordinance imposes similar requirements.

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(c) Alteration of capital

Summary

Holdings may from time to time by ordinary resolution in accordance with the relevant provisions of the Companies Law:

(i) increase its capital by such sum, to be divided into shares of such amounts as the resolution shall prescribe;
(ii) consolidate and divide all or any of its capital into shares of larger amount than its existing shares.
(iii) divide its shares into several classes and without prejudice to any special rights previously conferred on the holders of existing shares as the directors may determine;
(iv) sub-divide its shares or any of them into shares of smaller amount than is fixed by the Memorandum, subject nevertheless to the provisions of the Companies Law, and so that the resolution whereby any share is sub-divided may determine that, as between the holders of the shares resulting from such sub-division, one or more of the shares may have any such preferred or other special rights, over, or may have such deferred rights or be subject to any such restrictions as compared with the others as Holdings has power to attach to unissued or new shares.
(v) cancel any shares which, at the date of passing of the resolution, have not been taken, or agreed to be taken, by any person, and diminish the amount of its capital by the amount of the shares so cancelled.

Holdings may subject to the provisions of the Companies Law reduce its share capital or share premium account or any capital redemption reserve or other undistributable reserve in any way by special resolution.

Differences

There are no material differences in the corresponding provisions of the UAL Articles save that the same do not contain provision relating to power of the Company by ordinary resolution to divide its shares into several classes.

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(d) Variation of rights of existing shares or classes of shares

Summary

Subject to the Companies Law, all or any of the special rights attached to the shares or any class of shares may (unless otherwise provided for by the terms of issue of that class) be varied, modified or abrogated either with the consent in writing of the holders of not less than three-fourths in nominal value of the issued shares of that class or with the sanction of a special resolution passed at a separate general meeting of the holders of the shares of that class. To every such separate general meeting the provisions of the Articles relating to general meetings will mutatis mutandis apply, but so that the necessary quorum (other than at an adjourned meeting) shall be two persons holding or representing by proxy not less than one-third in nominal value of the issued shares of that class and at any adjourned meeting two holders present in person or by proxy whatever the number of shares held by them shall be a quorum. Every holder of shares of the class shall be entitled on a poll to one vote for every such share held by him, and any holder of shares of the class present in person or by proxy may demand a poll.

The special rights conferred upon the holders of any shares or class of shares shall not, unless otherwise expressly provided in the rights attaching to the terms of issue of such shares, be deemed to be varied by the creation or issue of further shares ranking pari passu therewith.

Differences

The corresponding provisions of the UAL Articles are substantially the same.

(e) Special resolution-majority required

Summary

Pursuant to the Articles, a special resolution of Holdings must be passed by a majority of not less than three-fourths of the votes cast by such members as, being entitled so to do, vote in person or, in the case of such members as are corporations, by their duly authorised representatives or, where proxies are allowed, by proxy at a general meeting of which not less than twenty-one clear days’ notice, specifying the intention to propose the resolution as a special resolution, has been duly given. Provided that, except in the case of an annual general meeting, if it is so agreed by a majority in number of the members having a right to attend and vote at such meeting,

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SUMMARY OF THE CONSTITUTION OF HOLDINGS AND MATERIAL DIFFERENCES WITH THE CONSTITUTION OF THE COMPANY

APPENDIX VII

being a majority together holding not less than ninety-five per cent. in nominal value of the shares giving that right and, in the case of an annual general meeting, if so agreed by all members entitled to attend and vote thereat, a resolution may be proposed and passed as a special resolution at a meeting of which less than twenty-one clear days’ notice has been given.

A copy of any special resolution must be forwarded to the Registrar of Companies in the Cayman Islands within fifteen days of being passed.

An ordinary resolution is defined in the Articles to mean a resolution passed by a simple majority of the votes of such members of Holdings as, being entitled to do so, vote in person or, in the case of corporations, by their duly authorised representatives or, where proxies are allowed, by proxy at a general meeting held in accordance with the Articles.

Differences

A special resolution and an ordinary resolution are not defined in the UAL Articles. However, a special resolution and an ordinary resolution are similarly defined in the Companies Ordinance.

(f) Voting rights (generally and on a poll) and right to demand a poll

Summary

Subject to any special rights or restrictions as to voting for the time being attached to any shares by or in accordance with the Articles, at any general meeting on a show of hands, every ordinary shareholder who is present in person or by proxy or being a corporation, is present by its duly authorised representative shall have one vote and on a poll every ordinary shareholder present in person or by proxy or, in the case of an ordinary shareholder being a corporation, by its duly authorised representative shall have one vote for every fully paid share of which he is the holder but so that no amount paid-up or credited as paid-up on a share in advance of calls or installments is treated for the foregoing purposes as paid-up on the share. Notwithstanding anything contained in the Articles, where more than one proxy is appointed by an ordinary shareholder which is a clearing house (or its nominee(s)), each such proxy shall have one vote on a show of hands. On a poll, an ordinary shareholder entitled to more than one vote need not use all his votes or cast all the votes he uses in the same way.

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SUMMARY OF THE CONSTITUTION OF HOLDINGS AND MATERIAL DIFFERENCES WITH THE CONSTITUTION OF THE COMPANY

APPENDIX VII

At any general meeting a resolution put to the vote of the meeting is to 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 by (i) the chairman of the meeting or (ii) at least three ordinary shareholders present in person or, in the case of an ordinary shareholder being a corporation, by its duly authorised representative or by proxy for the time being entitled to vote at the meeting or (iii) any ordinary shareholder or ordinary shareholders present in person or, in the case of an ordinary shareholder 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 the ordinary shareholders having the right to vote at the meeting or (iv) an ordinary shareholder or ordinary shareholders present in person or, in the case of an ordinary shareholder being a corporation, by its duly authorised representative or by proxy and holding shares in Holdings conferring a right to vote at the meeting being shares on which an aggregate sum has been paid equal to not less than onetenth of the total sum paid-up on all the shares conferring that right.

If a recognised clearing house (or its nominee(s)) is an ordinary shareholder of Holdings it may authorise such person or persons as it thinks fit to act as its representative(s) at any meeting of Holdings or at any meeting of any class of ordinary shareholders of Holdings provided that, if more than one person is so authorised, the authorisation shall specify the number and class of shares in respect of which each such person is so authorised. A person authorised pursuant to this provision shall be entitled to exercise the same powers on behalf of the recognised clearing house (or its nominee(s)) as if such person was the registered holder of the shares of Holdings held by that clearing house (or its nominee(s)) including the right to vote individually on a show of hands.

Difference

The corresponding provisions of the UAL Articles are substantially the same.

(g) Requirements for annual general meetings

Summary

An annual general meeting of Holdings must be held in each year, other than the year of incorporation (within a period of not more than 15 months after the holding of the last preceding annual general meeting or a period of 18 months from the date of incorporation, unless a longer period would not infringe the rules of any Designated Stock Exchange (as defined in the Articles)) at such time and place as may be determined by the board of directors of Holdings.

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SUMMARY OF THE CONSTITUTION OF HOLDINGS AND MATERIAL DIFFERENCES WITH THE CONSTITUTION OF THE COMPANY

APPENDIX VII

Differences

The UAL Articles require the Company to hold annual general meetings in accordance with the requirements of the Companies Ordinance, which imposes substantially the same requirements.

(h) Accounts and audit

Summary

The board of directors of Holdings shall cause true accounts to be kept of the sums of money received and expended by Holdings, and the matters in respect of which such receipt and expenditure take place, and of the property, assets, credits and liabilities of Holdings and of all other matters required by the Companies Law or necessary to give a true and fair view of Holdings’ affairs and to explain its transactions.

The accounting records shall be kept at the registered office or at such other place or places as the board of directors of Holdings decides and shall always be open to inspection by any director. No member (other than a director) shall have any right to inspect any accounting record or book or document of Holdings except as conferred by law or authorised by the board of directors of Holdings or Holdings in general meeting.

A copy of every balance sheet and profit and loss account (including every document required by law to be annexed thereto) which is to be laid before Holdings at its general meeting, together with a printed copy of the directors’ report and a copy of the auditors’ report, shall not less than twenty-one days before the date of the meeting be sent to every person entitled to receive notices of general meetings of Holdings under the provisions the Articles; however, subject to compliance with all applicable laws, including the rules of the Designated Stock Exchange (as defined in the Articles), Holdings may send to such persons a summary financial statement derived from Holdings’ annual accounts and the directors’ report instead provided that any such person may by notice in writing served on Holdings, demand that Holdings sends to him, in addition to a summary financial statement, a complete printed copy of Holdings’ annual financial statement and the directors’ report thereon.

Auditors shall be appointed and the terms and tenure of such appointment and their duties at all times regulated in accordance with the provisions of the Articles. The remuneration of the auditors shall be fixed by Holdings in general meeting or in such manner as the members may determine.

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SUMMARY OF THE CONSTITUTION OF HOLDINGS AND MATERIAL DIFFERENCES WITH THE CONSTITUTION OF THE COMPANY

APPENDIX VII

The financial statements of Holdings shall be audited by the auditors in accordance with generally accepted auditing standards. The auditors shall make a written report thereon in accordance with generally accepted auditing standards and the report of the auditor shall be submitted to the members in general meeting. The generally accepted auditing standards referred to herein may be those of a country or jurisdiction other than the Cayman Islands. If so, the financial statements and the report of the auditor should disclose this fact and name such country or jurisdiction.

Differences

There are no material differences in the corresponding provisions of the UAL Articles.

(i) Notices of meetings and business to be conducted thereat

Summary

An annual general meeting and any extraordinary general meeting at which it is proposed to pass a special resolution shall (save as set out in sub-paragraph (e) above) be called by at least twenty-one clear days’ notice in writing, and any other extraordinary general meeting shall be called by at least fourteen clear days’ notice (in each case exclusive of the day on which the notice is served or deemed to be served and of the day for which it is given). The notice must specify the time and place of the meeting and, in the case of special business, the general nature of that business. In addition notice of every general meeting shall be given to all members of Holdings other than such as, under the provisions of the Articles or the terms of issue of the shares they hold, are not entitled to receive such notices from Holdings, and also to the auditors for the time being of Holdings.

Notwithstanding that a meeting of Holdings is called by shorter notice than that mentioned above, it shall be deemed to have been duly called if it is so agreed:

(i) in the case of a meeting called as an annual general meeting, by all members of Holdings entitled to attend and vote thereat; and
(ii) in the case of any other meeting, by a majority in number of the members having a right to attend and vote at the meeting, being a majority together holding not less than ninety-five per cent. in nominal value of the issued shares giving that right.

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SUMMARY OF THE CONSTITUTION OF HOLDINGS AND MATERIAL DIFFERENCES WITH THE CONSTITUTION OF THE COMPANY

APPENDIX VII

All business shall be deemed special that is transacted at an extraordinary general meeting and also all business shall be deemed special that is transacted at an annual general meeting with the exception of the following, which shall be deemed ordinary business:

(aa) the declaration and sanctioning of dividends;
(bb) the consideration and adoption of the accounts and balance sheet and the reports of the directors and the auditors;
(cc) the election of directors in place of those retiring;
(dd) the appointment of auditors and other officers;
(ee) the fixing of the remuneration of the directors and of the auditors; and
(ff) the granting of any mandate or authority to the directors to offer, allot, grant options over or otherwise dispose of the unissued shares of Holdings representing not more than twenty per cent. in nominal value of its existing issued share capital.

Differences

The corresponding provisions of the UAL Articles are substantially the same.

(j) Transfer of shares

Summary

All transfers of shares may be effected by an instrument of transfer in the usual or common form or in a form prescribed by the Designated Stock Exchange (as defined in the Articles) or in such other form as the board of directors of Holdings may approve and which may be under hand or, if the transferor or transferee is a clearing house or its nominee(s), by hand or by machine imprinted signature or by such other manner of execution as the board of directors of Holdings may approve from time to time. The instrument of transfer shall be executed by or on behalf of the transferor and the transferee provided that the board of directors of Holdings may dispense with the execution of the instrument of transfer by the transferee in any case in which it thinks fit, in its discretion, to do so and the transferor shall be deemed to remain the holder of the share until the name of the transferee is entered in the register of members in respect thereof. The board of directors of Holdings may also resolve either generally or in any particular case, upon request by either the transferor or the transferee, to accept mechanically executed transfers.

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SUMMARY OF THE CONSTITUTION OF HOLDINGS AND MATERIAL DIFFERENCES WITH THE CONSTITUTION OF THE COMPANY

APPENDIX VII

The board of directors of Holdings in so far as permitted by any applicable law may, in its absolute discretion, at any time and from time to time transfer any share upon the principal register to any branch register or any share on any branch register to the principal register or any other branch register.

Unless the board of directors of Holdings otherwise agrees, no shares on the principal register shall be transferred to any branch register nor may shares on any branch register be transferred to the principal register or any other branch register. All transfers and other documents of title shall be lodged for registration and registered, in the case of shares on a branch register, at the relevant registration office and, in the case of shares on the principal register, at the registered office in the Cayman Islands or such other place at which the principal register is kept in accordance with the Companies Law.

The board of directors of Holdings may, in its absolute discretion, and without assigning any reason, refuse to register a transfer of any share (not being a fully paidup share) to a person of whom it does not approve or any share issued under any share incentive scheme for employees upon which a restriction on transfer imposed thereby still subsists, and it may also refuse to register any transfer of any share to more than four joint holders or any transfer of any share (not being a fully paid-up share) on which Holdings has a lien.

The board of directors of Holdings may decline to recognise any instrument of transfer unless a fee of such maximum sum as any Designated Stock Exchange (as defined in the Articles) may determine to be payable or such lesser sum as the directors may from time to time require is paid to Holdings in respect thereof, the instrument of transfer, if applicable, is properly stamped, is in respect of only one class of share and is lodged at the relevant registration office or registered office or such other place at which the principal register is kept accompanied by the relevant share certificate(s) and such other evidence as the board of directors of Holdings may reasonably require to show the right of the transferor to make the transfer (and if the instrument of transfer is executed by some other person on his behalf, the authority of that person so to do).

The registration of transfers may be suspended and the register closed on giving notice by advertisement in a relevant newspaper and, where applicable, any other newspapers in accordance with the requirements of any Designated Stock Exchange (as defined in the Articles), at such times and for such periods as the board of directors of Holdings may determine and either generally or in respect of any class of shares. The register of members shall not be closed for periods exceeding in the whole thirty days in any year.

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SUMMARY OF THE CONSTITUTION OF HOLDINGS AND MATERIAL DIFFERENCES WITH THE CONSTITUTION OF THE COMPANY

APPENDIX VII

Differences

The UAL Articles do not contain any provision relating to the keeping of branch registers or the transfer of shares between the principal register of members and the branch register. There is no requirement for the directors to publicize a suspension of registration. The UAL Articles otherwise contain broadly equivalent provisions governing transfers.

(k) Power for Holdings to purchase its own shares

Summary

Holdings is empowered by the Companies Law and the Articles to purchase its own shares subject to certain restrictions and the board of directors of Holdings may only exercise this power on behalf of Holdings subject to any applicable requirements imposed from time to time by any Designated Stock Exchange.

Differences

The UAL Articles do not contain any provision in this regard.

(l) Power for any subsidiary of Holdings to own shares in Holdings

Summary

There are no provisions in the Articles relating to ownership of shares in Holdings by a subsidiary.

Differences

The UAL Articles do not contain any provisions in this regard.

(m) Dividends and other methods of distribution

Summary

Subject to the Companies Law, Holdings in general meeting may declare dividends in any currency to be paid to the members but no dividend shall be declared in excess of the amount recommended by the board of directors of Holdings.

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SUMMARY OF THE CONSTITUTION OF HOLDINGS AND MATERIAL DIFFERENCES WITH THE CONSTITUTION OF THE COMPANY

APPENDIX VII

The Articles provide dividends may be declared and paid out of the profits of Holdings, realised or unrealised, or from any reserve set aside from profits which the directors determine is no longer needed. With the sanction of an ordinary resolution dividends may also be declared and paid out of share premium account or any other fund or account which can be authorised for this purpose in accordance with the Companies Law.

Except in so far as the rights attaching to, or the terms of issue of, any share may otherwise provide, (i) all dividends shall be declared and paid according to the amounts paid-up on the shares in respect whereof the dividend is paid but no amount paid-up on a share in advance of calls shall for this purpose be treated as paid-up on the share and (ii) all dividends shall be apportioned and paid pro rata according to the amount paid-up on the shares during any portion or portions of the period in respect of which the dividend is paid. The directors may deduct from any dividend or other monies payable to any member or in respect of any shares all sums of money (if any) presently payable by him to Holdings on account of calls or otherwise.

Whenever the board of directors of Holdings or Holdings in general meeting has resolved that a dividend be paid or declared on the share capital of Holdings, the board of directors of Holdings may further resolve either (a) that such dividend be satisfied wholly or in part in the form of an allotment of shares credited as fully paidup, provided that the shareholders entitled thereto will be entitled to elect to receive such dividend (or part thereof) in cash in lieu of such allotment, or (b) that shareholders entitled to such dividend will be entitled to elect to receive an allotment of shares credited as fully paid-up in lieu of the whole or such part of the dividend as the board of directors of Holdings may think fit. Holdings may also upon the recommendation of the board of directors of Holdings by an ordinary resolution resolve in respect of any one particular dividend of Holdings that it may be satisfied wholly in the form of an allotment of shares credited as fully paid-up without offering any right to shareholders to elect to receive such dividend in cash in lieu of such allotment.

Any dividend, interest or other sum payable in cash to the holder of shares may be paid by cheque or warrant sent through the post addressed to the holder at his registered address, or in the case of joint holders, addressed to the holder whose name stands first in the register of Holdings in respect of the shares at his address as appearing in the register or addressed to such person and at such addresses as the holder or joint holders may in writing direct. Every such cheque or warrant shall, unless the holder or joint holders otherwise direct, be made payable to the order of the holder or, in the case of joint holders, to the order of the holder whose name stands first on the register in respect of such shares, and shall be sent at his or their

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SUMMARY OF THE CONSTITUTION OF HOLDINGS AND MATERIAL DIFFERENCES WITH THE CONSTITUTION OF THE COMPANY

APPENDIX VII

risk and payment of the cheque or warrant by the bank on which it is drawn shall constitute a good discharge to Holdings. Any one of two or more joint holders may give effectual receipts for any dividends or other moneys payable or property distributable in respect of the shares held by such joint holders.

Whenever the board of directors of Holdings or Holdings in general meeting has resolved that a dividend be paid or declared the board of directors of Holdings may further resolve that such dividend be satisfied wholly or in part by the distribution of specific assets of any kind.

All dividends or bonuses unclaimed for one year after having been declared may be invested or otherwise made use of by the board of directors of Holdings for the benefit of Holdings until claimed and Holdings shall not be constituted a trustee in respect thereof. All dividends or bonuses unclaimed for six years after having been declared may be forfeited by the board of directors of Holdings and shall revert to Holdings.

No dividend or other monies payable by Holdings on or in respect of any share shall bear interest against Holdings.

Differences

There are no material differences in the corresponding provisions of the UAL Articles.

(n) Proxies

Summary

Any member of Holdings entitled to attend and vote at a meeting of Holdings is entitled to appoint another person as his proxy to attend and vote instead of him. A member who is the holder of two or more shares may appoint more than one proxy to represent him and vote on his behalf at a general meeting of Holdings or at a class meeting. A proxy need not be a member of Holdings and shall be entitled to exercise the same powers on behalf of a member who is an individual and for whom he acts as proxy as such member could exercise. In addition, a proxy shall be entitled to exercise the same powers on behalf of a member which is a corporation and for which he acts as proxy as such member could exercise if it were an individual member. On a poll or on a show of hands, votes may be given either personally (or, in the case of a member being a corporation, by its duly authorised representative) or by proxy.

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SUMMARY OF THE CONSTITUTION OF HOLDINGS AND MATERIAL DIFFERENCES WITH THE CONSTITUTION OF THE COMPANY

APPENDIX VII

Differences

The corresponding provisions of the UAL Articles are substantially the same.

(o) Call on shares and forfeiture of shares

Summary

Subject to the Articles and to the terms of allotment, the board of directors of Holdings may from time to time make such calls upon the members in respect of any monies unpaid on the shares held by them respectively (whether on account of the nominal value of the shares or by way of premium). A call may be made payable either in one lump sum or by installments. If the sum payable in respect of any call or instalment is not paid on or before the day appointed for payment thereof, the person or persons from whom the sum is due shall pay interest on the same at such rate not exceeding twenty per cent. per annum as the board of directors of Holdings may agree to accept from the day appointed for the payment thereof to the time of actual payment, but the board of directors of Holdings may waive payment of such interest wholly or in part. The board of directors of Holdings may, if it thinks fit, receive from any member willing to advance the same, either in money or money’s worth, all or any part of the monies uncalled and unpaid or installments payable upon any shares held by him, and upon all or any of the monies so advanced Holdings may pay interest at such rate (if any) as the board of directors of Holdings may decide.

If a member fails to pay any call on the day appointed for payment thereof, the board of directors of Holdings may serve not less than fourteen clear days’ notice on him requiring payment of so much of the call as is unpaid, together with any interest which may have accrued and which may still accrue up to the date of actual payment and stating that, in the event of non-payment at or before the time appointed, the shares in respect of which the call was made will be liable to be forfeited.

If the requirements of any such notice are not complied with, any share in respect of which the notice has been given may at any time thereafter, before the payment required by the notice has been made, be forfeited by a resolution of the board of directors of Holdings to that effect. Such forfeiture will include all dividends and bonuses declared in respect of the forfeited share and not actually paid before the forfeiture.

A person whose shares have been forfeited shall cease to be a member in respect of the forfeited shares but shall, notwithstanding, remain liable to pay to Holdings all monies which, at the date of forfeiture, were payable by him to Holdings

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SUMMARY OF THE CONSTITUTION OF HOLDINGS AND MATERIAL DIFFERENCES WITH THE CONSTITUTION OF THE COMPANY

APPENDIX VII

in respect of the shares, together with (if the board of directors of Holdings shall in its discretion so require) interest thereon from the date of forfeiture until the date of actual payment at such rate not exceeding twenty per cent. per annum as the board of directors of Holdings determines.

Differences

The provisions of the UAL Articles are substantially the same.

(p) Inspection of register of members

Summary

Pursuant to the Articles the register and branch register of members shall be open to inspection for at least two hours on every business day by members without charge, or by any other person upon a maximum payment of $2.50 dollars, at the registered office or such other place in the Cayman Islands at which the register is kept in accordance with the Companies Law or, upon a maximum payment of $1.00 or such lesser sum specified by the board of directors of Holdings, at the Registration Office (as defined in the Articles), unless the register is closed in accordance with the Articles.

Differences

The UAL Articles do not contain any provisions in this regard.

(q) Quorum for meetings and separate class meetings

Summary

No business shall be transacted at any general meeting unless a quorum is present when the meeting proceeds to business, but the absence of a quorum shall not preclude the appointment of a chairman.

Save as otherwise provided by the Articles the quorum for a general meeting shall be two members present in person (or, in the case of a member being a corporation, by its duly authorised representative) or by proxy and entitled to vote. In respect of a separate class meeting (other than an adjourned meeting) convened to sanction the modification of class rights the necessary quorum shall be two persons holding or representing by proxy not less than one-third in nominal value of the issued shares of that class.

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SUMMARY OF THE CONSTITUTION OF HOLDINGS AND MATERIAL DIFFERENCES WITH THE CONSTITUTION OF THE COMPANY

APPENDIX VII

A corporation being a member shall be deemed for the purpose of the Articles to be present in person if represented by its duly authorised representative being the person appointed by resolution of the directors or other governing body of such corporation to act as its representative at the relevant general meeting of Holdings or at any relevant general meeting of any class of members of Holdings.

Differences

The provision in UAL Articles is substantially the same.

(r) Rights of the minorities in relation to fraud or oppression

Summary

There are no provisions in the Articles relating to rights of minority shareholders in relation to fraud or oppression. However, certain remedies are available to shareholders of Holdings under Cayman law.

Difference

The UAL Articles likewise contain no such provision.

(s) Procedures on liquidation

Summary

A resolution that Holdings be wound up by the court or be wound up voluntarily shall be a special resolution.

Subject to any special rights, privileges or restrictions as to the distribution of available surplus assets on liquidation for the time being attached to any class or classes of shares (i) if Holdings shall be wound up and the assets available for distribution amongst the members of Holdings shall be more than sufficient to repay the whole of the capital paid-up at the commencement of the winding up, the excess shall be distributed pari passu amongst such members in proportion to the amount paid-up on the shares held by them respectively and (ii) if Holdings shall be wound up and the assets available for distribution amongst the members as such shall be insufficient to repay the whole of the paid-up capital, such assets shall be distributed so that, as nearly as may be, the losses shall be borne by the members in proportion to the capital paid-up, or which ought to have been paid-up, at the commencement of the winding up on the shares held by them respectively.

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SUMMARY OF THE CONSTITUTION OF HOLDINGS AND MATERIAL DIFFERENCES WITH THE CONSTITUTION OF THE COMPANY

APPENDIX VII

If Holdings shall be wound up (whether the liquidation is voluntary or by the court) the liquidator may, with the authority of a special resolution and any other sanction required by the Companies Law divide among the members in specie or kind the whole or any part of the assets of Holdings whether the assets shall consist of property of one kind or shall consist of properties of different kinds and the liquidator may, for such purpose, set such value as he deems fair upon any one or more class or classes of property to be divided as aforesaid and may determine how such division shall be carried out as between the members or different classes of members. The liquidator may, with the like authority, vest any part of the assets in trustees upon such trusts for the benefit of members as the liquidator, with the like authority, shall think fit, but so that no contributory shall be compelled to accept any shares or other property in respect of which there is a liability.

Differences

The corresponding provisions of the UAL Articles likewise provide that a liquidator may distribute the assets of the Company.

(t) Untraceable members

Summary

Pursuant to the Articles, Holdings may sell any of the shares of a member who is untraceable if (i) all cheques or warrants (being not less than three in total number) for any sum payable in cash to the holder of such shares have remained uncashed for a period of 12 years; (ii) upon the expiry of the 12 year period, Holdings has not during that time received any indication of the existence of the member; and (iii) Holdings has caused an advertisement to be published in accordance with the rules of the Designated Stock Exchange (as defined in the Articles) giving notice of its intention to sell such shares and a period of three months, or such shorter period as may be permitted by the Designated Stock Exchange (as defined in the Articles), has elapsed since such advertisement and the Designated Stock Exchange (as defined in the Articles) has been notified of such intention. The net proceeds of any such sale shall belong to Holdings and upon receipt by Holdings of such net proceeds, it shall become indebted to the former member of Holdings for an amount equal to such net proceeds.

Differences

The corresponding provisions in the UAL Articles are substantially the same.

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SUMMARY OF THE CONSTITUTION OF HOLDINGS AND MATERIAL DIFFERENCES WITH THE CONSTITUTION OF THE COMPANY

APPENDIX VII

(u) Subscription rights reserve

Summary

The Articles provide that to the extent that it is not prohibited by and is in compliance with the Companies Law, if warrants to subscribe for shares have been issued by Holdings and Holdings does any act or engages in any transaction which would result in the subscription price of such warrants being reduced below the par value of a share, a subscription rights reserve shall be established and applied in paying up the difference between the subscription price and the par value of a share on any exercise of the warrants.

Differences

The UAL Articles do not contain any provisions in this regard.

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SCHEME OF ARRANGEMENT

2002, HCMP NO. 2023 of 2002

IN THE HIGH COURT OF HONG KONG

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS

IN THE MATTER

Universal Appliances Limited

友利電訊工業有限公司

and

IN THE MATTER

the Companies Ordinance (Chapter 32)

SCHEME OF ARRANGEMENT

(under section 166 of the Companies Ordinance, Chapter 32)

between

Universal Appliances Limited

友利電訊工業有限公司

and

holders of Scheme Shares (as defined herein)

PRELIMINARY

— 174 —

SCHEME OF ARRANGEMENT

(A) In this scheme of arrangement, unless inconsistent with the subject or context, the following expressions shall bear the following meanings:
“Court” the High Court of Hong Kong Court of First Instance;
“Effective Date” the date on which this Scheme becomes effective in accordance with Clause 10 of this Scheme;
“holder” registered holder and includes any person entitled by transmission to be registered as such and joint holders;
“Listco”/“UAL” Universal Appliances Limited (友利電訊工業有限公司 ), a company incorporated in Hong Kong with limited liability under the Company Ordinance, Chapter 32 of the Laws of Hong Kong;
“Listco New Shares” the new Listco Ordinary Shares to be issued and allotted on implementation of this Scheme
“Listco Ordinary Shares” the ordinary shares of $0.18 each in the capital of Listco;
“Listco Preference Shares”
non-voting convertible preference shares of $0.18 each in the capital of Listco, details of which are set out in the Company's document dated 12th July, 1999;
“Mr. Ko”
Ko Chun Shun, Johnson, the Chairman of UAL
“Holdings” Universal Holdings Limited ( 友利控股有限公司 ), a company incorporated in the Cayman Islands with limited liability;
“Holdings Existing Ordinary Shares”

the existing 10,000 ordinary shares of $0.01 each in the capital of Holdings all of which have been issued nil paid and are registered in the name of and beneficially owned by Mr. Ko;

“Holdings New Ordinary Shares”

the ordinary shares of $0.01 each in the capital of Holdings to be allotted and issued upon implementation of the Scheme;

“Holdings Ordinary Shares”

the Holdings Existing Ordinary Shares and/or the Holdings New Ordinary Shares, as the case may be;

“Holdings Preference Shares”

the non-voting convertible preference shares of $0.01 each in the capital of Holdings to be allotted and issued upon implementation of the Scheme;

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SCHEME OF ARRANGEMENT

“Record Time”
4:00 p.m. (Hong Kong time) on the business day immediately preceding the Effective Date;
“Scheme”
this scheme of arrangement in its present form or with or subject to any modification thereof or addition thereto or condition which the Court may think fit to approve or impose;
“Scheme Shares”
the Scheme Ordinary Shares and/or the Scheme Preference Shares, as the case may be;
“subsidiary” has the meaning ascribed thereto in Section 2 of the Companies Ordinance (Chapter 32);
“Scheme Preference Shares”
the 240,760,000 Listco Preference Shares in issue as at the Latest Practicable Date or such lesser amount as may be resulted from the exercise of the conversion rights attaching to such Listco Preference Shares prior to the Effective Date;
“Scheme Ordinary Shares”
the 2,774,293,157 Listco Ordinary Shares in issue as at the Latest Practicable Date together with any further Listco Ordinary Shares which may be issued prior to the Effective Date; and

“$” Hong Kong dollar

(B) The share capital of Listco as at 29th July, 2002, being the Latest Practicable Date prior to the printing of this Scheme, is as follows:

Authorised: 3,409,240,000 Listco Ordinary Shares 240,760,000 Listco Preference Shares Issued and fully paid 2,774,293,157 Listco Ordinary Shares 240,760,000 Listco Preference Shares	$ 613,663,200.00

	43,336,800.00

	499,372,768.26

	43,336,800.00

As at the same date, the share premium account of Listco stood at approximately $510,871,000.

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SCHEME OF ARRANGEMENT

(C) Holdings was incorporated in the Cayman Islands. It is an exempted company incorporated on 27th May, 2002 under the Companies Law Cap. 22 (Laws of 1961, as consolidated and revised) of the Cayman Islands with an authorised share capital of $100,000 consisting of 10,000,000 ordinary shares of $0.01 each, of which the Holdings Existing Ordinary Shares have been issued and are beneficially owned by Mr. Ko.
(D) At the date hereof, Holdings does not beneficially own any Listco Ordinary Shares or Listco Preference Shares.
(E) The primary purpose of this Scheme is that the holders of Scheme Ordinary Shares and holder(s) of Scheme Preference Shares should receive Holdings Ordinary Shares and Holdings Preference Shares respectively in consideration for the cancellation and extinguishment of the Scheme Ordinary Shares and Scheme Preference Shares, as the case may be, on the basis of one Holdings Ordinary Share for each Scheme Ordinary Share held by them, and one Holdings Preference Share for each Scheme Preference Share held by him/her/it/them, each at the Record Time, and that Listco should become a wholly owned subsidiary of Holdings.
(F) Holdings has agreed to appear by Counsel at the hearing of the petition to sanction this Scheme and to undertake to the Court to be bound thereby and to execute and do and procure to be executed and done all such documents, acts and things as may be necessary or desirable to be executed or done by it for the purpose of giving effect to this Scheme.

— 177 —

SCHEME OF ARRANGEMENT

THE SCHEME

PART I — HOLDINGS

Subject to and forthwith upon this Scheme becoming effective, Holdings shall increase its authorised share capital from $100,000 to $52,407,600 by the creation of an additional 5,230,760,000 ordinary shares of $0.01 each. Such authorised share capital will be converted into two classes of shares consisting of 5,000,000,000 Holdings Ordinary Shares and 240,760,000 Holdings Preference Shares.

PART II — LISTCO

On the Effective Date,
(a) the share capital of Listco shall be reduced by cancelling and extinguishing the Scheme Shares;
(b) subject to and forthwith upon such reduction of capital taking effect, the authorised share capital of the Listco shall be increased to its former amount of $657,000,000 by the creation of such number of Listco New Shares as is equal to the aggregate number of the Scheme Shares cancelled; and
(c) the Listco shall apply the credit arising in its books of account as a result of the reduction of its share capital in paying up in full at par the Listco New Shares to be created as aforesaid, which Listco New Shares shall be allotted and issued, credited as fully paid, to Holdings and its nominee(s).

PART III — CONSIDERATION FOR CANCELLATION AND EXTINGUISHMENT OF THE SCHEME SHARES

In consideration of the cancellation of the Scheme Shares and in exchange for the allotment and issue by Listco to Holdings of the Listco New Shares:
(i) Holdings shall allot and issue at its expense the Holdings New Ordinary Shares, credited as fully paid, and Mr. Ko shall transfer the Holdings Existing Ordinary Shares, credited as fully paid, to the persons who are the holders of Scheme Ordinary Shares (as appearing in the register of members of Listco at the Record Time) in the proportion of one Holdings Ordinary Share for every Scheme Ordinary Share held and so in proportion for any greater number of Scheme Ordinary Shares held as aforesaid; and

— 178 —

SCHEME OF ARRANGEMENT

(ii) Holdings shall allot and issue at its expense the Holdings Preference Shares, credited as fully paid, to the person(s) who is/are the holder(s) of Scheme Preference Shares (as appearing in the register of members of Listco at the Record Time) in the proportion of one Holdings Preference Share for every Scheme Preference Share held and so in proportion for any greater number of Scheme Preference Shares held as aforesaid

PART IV — GENERAL

The Holdings New Ordinary Shares shall be identical, form one class and rank pari passu in all respects with the Holdings Existing Ordinary Shares.
The Holdings Preference Shares shall entitle the holder(s) special rights in relation to, amongst other things, distribution of dividend, return of capital and conversion right into ordinary shares in the capital of Holdings.
Not later than fourteen days from the Effective Date, Holdings shall allot and issue the Holdings New Ordinary Shares and Mr. Ko shall transfer the Holdings Existing Ordinary Shares, both to take effect as of the Effective Date, pursuant to paragraph 3(i) of this Scheme.
Not later than fourteen days from the Effective Date, Holdings shall allot and issue the Holdings Preference Shares with effect from the Effective Date, pursuant to paragraph 3(ii) of this Scheme.
Every instrument of transfer or certificate validly subsisting at the Record Time in respect of a transfer or holding, respectively, of any number of Scheme Ordinary Shares or Scheme Preference Share shall, at the opening of business on the Effective Date, cease to be valid for any purpose as an instrument of transfer or a certificate for the Listco Ordinary Shares or Listco Preference Shares (as the case may be) and shall instead have effect for all purposes as if it were an instrument of transfer or a certificate duly issued by Holdings for the same number of the Holdings Ordinary Shares or the Holdings Preference Shares to be allotted and issued, or transferred, pursuant to paragraph 3 of this Scheme, provided that any such certificate may, at any time after the Effective Date at the option of the holder concerned, be lodged with the registrar of Holdings in Hong Kong for exchange whereupon a certificate for the same number of Holdings Ordinary Shares or Holdings Preference Shares shall be issued by Holdings at its expense up to four weeks from the Effective Date and at the expense of the relevant holder thereafter.
All mandates or other instructions to the Company in relation to the payment of dividends on and other matters relating to the Scheme Ordinary Shares or the Scheme Preference Shares which are in force at the opening of business on the Effective Date shall, unless and until revoked, be deemed to be valid and subsisting mandates or instructions to Holdings in relation to the payment of dividends on and corresponding matters relating to the same number of Holdings Ordinary Shares or Holdings Preference Shares (as the case may be) to be allotted and issued or transferred pursuant to paragraph 3 of this Scheme.

— 179 —

SCHEME OF ARRANGEMENT

This Scheme shall become effective as soon as an office copy of the order of the Court sanctioning this Scheme under Section 166 of the Companies Ordinance, Chapter 32 of the Laws of Hong Kong, and confirming, under Section 60 of the same Ordinance, the reduction of the share capital provided for in this Scheme, together with a minute relating to the share capital of the Company and containing the particulars required by Section 61 of such Ordinance, shall have been duly registered by the Registrar of Companies in Hong Kong.
Unless this Scheme shall have become effective on or before 31st October, 2002, or such later date as the Court may allow, this Scheme shall lapse.
Listco and Holdings may jointly consent for and on behalf of all concerned to any modification of or addition to this Scheme or to any condition which the Court may think fit to approve or impose.
All costs, charges and expenses of and incidental to this Scheme and the costs of carrying the same into effect, shall be borne by the Company or Holdings.

Dated 31st July, 2002

— 180 —

NOTICE OF ORDINARY COURT MEETING

IN THE HIGH COURT OF HONG KONG SPECIAL ADMINISTRATION REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS

IN THE MATTER of UNIVERSAL APPLIANCES LIMITED

友利電訊工業有限公司

and

IN THE MATTER of

the Companies Ordinance (Chapter 32)

NOTICE OF MEETING OF HOLDERS OF ORDINARY SHARES

NOTICE IS HEREBY GIVEN that, by an Order dated 2nd July, 2002 made in the above matters, the Court has directed a Meeting to be convened of the holders of ordinary shares of $0.18 each in the capital of Universal Appliances Limited友利電訊工業有限公司 (the “Company”) for the purpose of considering and, if thought fit, approving (with or without modification) a Scheme of Arrangement proposed to be made between the Company and holders of the Scheme Ordinary Shares (as defined in such Scheme of Arrangement) and that such Meeting will be held at Harmony Room I, the Hong Kong Bankers Club, 43/F, Gloucester Tower, The Landmark, Central, Hong Kong on 23rd August, 2002 at 10:00 a.m. at which place and time all the holders of the Scheme Ordinary Shares are requested to attend.

Any person entitled to attend the Meeting can obtain a copy of the printed composite document containing the Scheme of Arrangement and the Explanatory Statement required to be furnished pursuant to Section 166A of the Companies Ordinance, together with a form of proxy, during usual business hours on any day (other than a Saturday afternoon, a Sunday or a public holiday) prior to the day appointed for the Meeting at the registered office of the Company at Room 6301-06, The Center, 99 Queen’s Road Central, Hong Kong and at the offices of the Solicitors to the Company at the address mentioned below.

— 181 —

NOTICE OF ORDINARY COURT MEETING

Holders of Scheme Ordinary Shares may vote in person at the Meeting or they may appoint another person, whether a member of the Company or not, as their proxy to attend and vote in their stead.

In the case of joint holders of a share, the vote of the senior who tenders a vote, whether in person or by proxy, will be accepted to the exclusion of the vote(s) of the other joint holder(s), and for this purpose seniority will be determined by the order in which the names stand in the Register of Members of the Company in respect of the relevant joint holding.

It is requested that forms appointing proxies be lodged at the Company’s share registrar, Tengis Limited, 4th Floor, Hutchison House, 10 Harcourt Road, Central, Hong Kong, not less than 48 hours before the time appointed for the Meeting, but if forms are not so lodged they may be handed to the Chairman at the Meeting.

By the same Order the Court has appointed Ko Chun Shun, Johnson, or, failing him, Lui Pan, Terry, or, failing him, Cheong Chow Yin, or failing him, Wong Yau Kar, David, or failing him, Wilton Timothy Carr Ingram, to act as Chairman of the Meeting and has directed the Chairman to report the result thereof to the Court.

The Scheme of Arrangement will be subject to the subsequent approval of the Court.

Solicitors to the abovenamed UNIVERSAL APPLIANCES LIMITED 友利電訊工業有限公司 KOO AND PARTNERS in association with PAUL, HASTINGS, JANOFSKY & WALKER LLP 21st & 22nd Floor Bank of China Tower 1 Garden Road Central Hong Kong

Dated 31st July, 2002

— 182 —

NOTICE OF PREFERENCE COURT MEETING

IN THE HIGH COURT OF HONG KONG SPECIAL ADMINISTRATION REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS

IN THE MATTER of UNIVERSAL APPLIANCES LIMITED

友利電訊工業有限公司

and

IN THE MATTER of

the Companies Ordinance (Chapter 32)

NOTICE OF MEETING OF HOLDER(S) OF PREFERENCE SHARES

NOTICE IS HEREBY GIVEN that, by an Order dated 2nd July, 2002 made in the above matters, the Court has directed a Meeting to be convened of the holder(s) of preference shares of $0.18 each in the capital of Universal Appliances Limited友利電訊工業有限公司(the “Company”) for the purpose of considering and, if thought fit, approving (with or without modification) a Scheme of Arrangement proposed to be made between the Company and holder(s) of the Scheme Preference Shares (as defined in such Scheme of Arrangement) and that such Meeting will be held at Harmony Room I, the Hong Kong Bankers Club, 43/F, Gloucester Tower, The Landmark, Central, Hong Kong on 23rd August, 2002 at 10:30 a.m. at which place and time all the holder(s) of the Scheme Preference Shares are requested to attend.

— 183 —

NOTICE OF PREFERENCE COURT MEETING

Holder(s) of Scheme Preference Shares may vote in person at the Meeting or they may appoint another person, whether a member of the Company or not, as their proxy to attend and vote in their stead.

It is requested that forms appointing proxies be lodged at the Company’s share registrar, Tengis Limited, 4th Floor, Hutchison House, 10 Harcourt Road, Central, Hong Kong not less than 48 hours before the time appointed for the Meeting, but if forms are not so lodged they may be handed to the Chairman at the Meeting.

The Scheme of Arrangement will be subject to the subsequent approval of the Court.

Dated 31st July, 2002

— 184 —

NOTICE OF ORDINARY EGM

UNIVERSAL APPLIANCES LIMITED 友利電訊工業有限公司

(incorporated in Hong Kong under the Companies Ordinance with limited liability)

NOTICE IS HEREBY GIVEN that an Extraordinary General Meeting of the Company for the holders of ordinary shares of $0.18 each in the capital of the Company (the “Ordinary Shares”) will be held at the Harmony Room I, the Hong Kong Bankers Club, 43/F, Gloucester Tower, The Landmark, Central, Hong Kong on 23rd August, 2002 at 11:00 a.m. (or so soon thereafter as the meeting of holder(s) of preference shares of $0.18 each in the capital of the Company convened by direction of the Court for the same place and day shall have been concluded or adjourned) to consider and, if thought fit, pass the following resolutions:

SPECIAL RESOLUTIONS

“ THAT :
(A) the Scheme of Arrangement (the “Scheme”) dated 31st July, 2002 (which, for the avoidance of doubt, includes the application for the withdrawal of the listing of the Ordinary Shares on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”)) between the Company and holders of Scheme Shares (as defined in the Scheme) in the form of the print contained in a composite document produced to this meeting, which print has for the purpose of identification been marked “A” and signed by the Chairman hereof, with any modifications, additions or conditions approved or imposed by the Court be and the same is hereby approved;
(B) for the purpose of giving effect to the Scheme:
- (i) the authorised share capital of the Company be reduced by cancelling and extinguishing the Scheme Shares (as defined in the Scheme);
- (ii) subject to and forthwith upon such reduction of capital taking effect, the authorised share capital of the Company be increased by the creation of such number of new ordinary shares of $0.18 each as is equal to the number of the Scheme Shares (as so defined) cancelled and extinguished; and

— 185 —

NOTICE OF ORDINARY EGM

(iii) on the Effective Date (as defined in the Scheme), the Company shall apply the amount of the credit which will arise in its books of account as a result of such reduction of capital in paying up in full at par the new ordinary shares of $0.18 each to be created as aforesaid, which shares shall be allotted and issued, credited as fully paid, to Universal Holdings Limited (“Holdings”) and the directors be and they are hereby unconditionally authorised to allot and issue the same accordingly.
“ THAT subject to the Scheme taking effect, the new articles of association proposed to be adopted by Holdings in the form marked “B” produced to this Meeting and for the purpose of identification signed by the Chairman hereof be and the same are hereby approved.

ORDINARY RESOLUTIONS

“ THAT subject to the Scheme taking effect, the share option scheme (the “Holdings Share Option Scheme”) proposed to be adopted by Holdings in the form marked “C” produced to this Meeting and for the purpose of identification signed by the Chairman hereof be and the same is hereby approved.
“ THAT subject to and conditional upon the Holdings Share Option Scheme taking effect in accordance with its terms, the existing share option scheme adopted by the Company on 4th August, 1999 be and is hereby terminated.
“ THAT :
(A) conditional upon the Scheme becoming effective and subject to the provisions of this resolution, the exercise by the directors of Holdings during the Relevant Period (as defined below) of all the powers of Holdings to allot, issue and deal with additional Holdings Ordinary Shares (as defined in the Scheme) 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 Holdings Ordinary Shares) which would or might require the exercise of such powers during or after the end of the Relevant Period (as defined below) be and the same is hereby approved;
(B) the aggregate nominal value of share capital allotted or agreed to be allotted (whether pursuant to an option, warrants or otherwise) by the directors of Holdings pursuant to the approval in paragraph (A) of this resolution, otherwise than pursuant to (i) a Rights Issue (as defined below), or (ii) the exercise of rights of subscription or conversion under the terms of any existing warrants, bonds, debentures, notes or other securities issued by Holdings, or (iii) the exercise of options which may be granted under any option scheme or similar arrangement for the time being adopted for the grant or issue to any persons of shares or rights to acquire Holdings Ordinary Shares, or (iv) any scrip dividend or similar arrangement providing for the allotment

— 186 —

NOTICE OF ORDINARY EGM

and issue of shares in lieu of the whole or part of a dividend on shares of Holdings in accordance with the articles of association of Holdings, or (v) a specific authority granted by the ordinary shareholders of Holdings in general meeting, shall not exceed 20 per cent. of the aggregate nominal amount of the ordinary share capital of Holdings in issue as at the date upon listing of the Holdings Ordinary Shares on the Stock Exchange (the “Listing Date”); and

“Relevant Period” means the period from the Listing Date until whichever is the earlier of:—

(i) the conclusion of the next annual general meeting of Holdings;
(ii) the expiration of the period within which the next annual general meeting of Holdings is required by the articles of association of Holdings or the laws of Cayman Islands or any other applicable law to be held; or
(iii) the revocation or variation of this resolution by an ordinary resolution of the ordinary shareholders of Holdings in general meeting;

“Rights Issue” means an offer of Holdings Ordinary Shares open for a period fixed by the directors of Holdings to holders of Holdings Ordinary Shares whose names appear on the register of members of Holdings on a fixed record date in proportion to their then holdings of such Holdings Ordinary Shares (subject to such exclusions or other arrangements as the directors of Holdings may deem necessary or expedient in relation to fractional entitlements or having regard to any legal or practical restrictions or obligations under the laws of, or the requirements of any recognised regulatory body or any stock exchange in, or in any territory outside, Hong Kong).”

6. “ THAT :

(A) conditional upon the Scheme becoming effective and subject to the provisions of this resolution, the exercise by the directors of Holdings during the Relevant Period (as defined below) of all powers of Holdings to purchase Holdings Ordinary Shares on the Stock Exchange or any other stock exchange on which Holdings Ordinary Shares may be listed and is recognised by the Securities and Futures Commission and the Stock Exchange for this purpose, subject to and in accordance with all applicable laws and/or the requirements of the Rules Governing the Listing of Securities on the Stock Exchange or of any other stock exchange as amended from time to time, be and is hereby approved;

— 187 —

NOTICE OF ORDINARY EGM

(B) the aggregate nominal value of Holdings Ordinary Shares purchased by Holdings pursuant to paragraph (A) of this resolution during the Relevant Period (as defined below) shall not exceed 10 per cent. of the aggregate nominal value of the ordinary share capital of Holdings in issue as at the Listing Date and the authority pursuant to paragraph (A) of this resolution above shall be limited accordingly; and
(C) for the purpose of this resolution:—
- “Relevant Period” means the period from the Listing Date 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 Holdings is required by the articles of association of Holdings or the laws of Cayman Islands or any other applicable law to be held; or
- (iii) the revocation or variation of this resolution by an ordinary resolution of the ordinary shareholders of Holdings in general meeting”
“ THAT conditional upon the Scheme becoming effective and subject to the passing of the resolutions out in paragraphs (5) and (6) above, the general mandate granted to the directors of Holdings and for the time being in force to exercise the powers of Holdings to allot, issue and deal with additional Holdings Ordinary Shares pursuant to the resolution set out in paragraph (5) above be and is hereby extended by the addition to the aggregate nominal value of the ordinary share capital of Holdings which may be allotted or agreed to be allotted by the directors of Holdings pursuant to such general mandate of an amount representing the aggregate nominal value of the ordinary share capital of Holdings purchased by Holdings under the authority granted pursuant to the resolution set out in paragraph (6) above, provided that such extended amount shall not exceed 10 per cent. of the total ordinary share capital of Holdings in issue as at the Listing Date.”

By the Order of the Board

Ho Te Hwai, Cecil Company Secretary

Date 31st July, 2002

— 188 —

NOTICE OF ORDINARY EGM

Registered Office:

Room 6301-06

The Center

99 Queen’s Road Central

Central

Hong Kong

Notes:

(i) A member entitled to attend and vote at the above meeting is entitled to appoint one or more than one proxy to attend and, on a poll, vote instead of him. A proxy does not need to be a member of the Company.
(ii) A green form of proxy for use at the meeting is enclosed herewith. Whether or not you propose to attend the meeting in person, you are strongly urged to complete and sign the green form of proxy in accordance with the instructions printed thereon. The green form of proxy and the power of attorney or other authority, if any, under which it is signed, or a notarially certified copy of such power of authority must be deposited at the Company’s share registrar, Tengis Limited at 4th Floor, Hutchison House, 10 Harcourt Road, Central, Hong Kong not less than 48 hours before the time appointed for holding the meeting or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending the meeting and voting in person, if you so wish.
(iii) Where there are joint holders of any share, any one of such persons may vote at any meeting, either personally or by proxy, in respect of such share as if he/she was solely entitled thereto provided that if more than one of such joint holders be present at any meeting personally or by proxy, the person whose name stands first in the register of members in respect of such share shall alone be entitled to vote in respect thereof.

— 189 —

NOTICE OF PREFERENCE EGM

UNIVERSAL APPLIANCES LIMITED 友利電訊工業有限公司

(incorporated in Hong Kong under the Companies Ordinance with limited liability)

NOTICE IS HEREBY GIVEN that an Extraordinary General Meeting of the Company for the holder(s) of preference shares (“Preference Shares”) of $0.18 each in the capital of the Company will be held at the Harmony Room I, the Hong Kong Bankers Club, 43/F, Gloucester Tower, The Landmark, Central, Hong Kong on 23rd August, 2002 at 11:30 a.m. (or so soon thereafter as the extraordinary general meeting of holders of ordinary shares of $0.18 each in the capital of the Company (the “Ordinary Shares”) for the same place and day shall have been concluded or adjourned) to consider and, if thought fit, pass the following resolutions:

SPECIAL RESOLUTIONS

“ THAT :
(A) the Scheme of Arrangement (the “Scheme”) dated 31st July, 2002 (which, for the avoidance of doubt, includes the application for the withdrawal of the listing of the Ordinary Shares on The Stock Exchange of Hong Kong Limited) between the Company and holders of Scheme Shares (as defined in the Scheme) in the form of the print contained in a composite document produced to this meeting, which print has for the purpose of identification been marked “A” and signed by the Chairman hereof, with any modifications, additions or conditions approved or imposed by the Court be and the same is hereby approved;
(B) for the purpose of giving effect to the Scheme:
- (i) the authorised share capital of the Company be reduced by cancelling and extinguishing the Scheme Shares (as defined in the Scheme);
- (ii) subject to and forthwith upon such reduction of capital taking effect, the authorised share capital of the Company be increased by the creation of such number of new ordinary shares of $0.18 each as is equal to the number of the Scheme Shares (as so defined) cancelled and extinguished; and

— 190 —

NOTICE OF PREFERENCE EGM

  - (iii) on the Effective Date (as defined in the Scheme), the Company shall apply the amount of the credit which will arise in its books of account as a result of such reduction of capital in paying up in full at par the new ordinary shares of $0.18 each to be created as aforesaid, which shares shall be allotted and issued, credited as fully paid, to Universal Holdings Limited (“Holdings”) and the directors be and they are hereby unconditionally authorised to allot and issue the same accordingly.

(C) The holder(s) of Preference Shares hereby consent(s) to each and every variation and/ or abrogation of the rights and privileges attaching to the Preference Shares as is or may be involved in the Scheme.
“ THAT subject to the Scheme taking effective, the new articles of association proposed to be adopted by Holdings in the form marked “B” produced to this Meeting and for the purpose of identification signed by the Chairman hereof be and the same are hereby approved.

By the Order of the Board

Ho Te Hwai, Cecil Company Secretary

Date 31st July, 2002

Registered Office:

Room 6301-06

The Center

99 Queen’s Road Central Central Hong Kong

Notes:

(i) A member entitled to attend and vote at the above meeting is entitled to appoint one or more than one proxy to attend and, on a poll, vote instead of him. A proxy does not need to be a member of the Company.
(ii) A blue form of proxy for use at the meeting is enclosed herewith. Whether or not you propose to attend the meeting in person, you are strongly urged to complete and sign the blue form of proxy in accordance with the instructions printed thereon. The blue form of proxy and the power of attorney or other authority, if any, under which it is signed, or a notarially certified copy of such power of authority must be deposited at the Company’s share registrar, Tengis Limited at 4th Floor, Hutchison House, 10 Harcourt Road, Central, Hong Kong not less than 48 hours before the time appointed for holding the meeting or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending the meeting and voting in person, if you so wish.
(iii) Where there are joint holders of any share, any one of such persons may vote at any meeting, either personally or by proxy, in respect of such share as if he/she was solely entitled thereto provided that if more than one of such joint holders be present at any meeting personally or by proxy, the person whose name stands first in the register of members in respect of such share shall alone be entitled to vote in respect thereof.

— 191 —

AI assistant

CHINA STATE CONSTRUCTION DEVELOPMENT HOLDINGS LIMITED — Proxy Solicitation & Information Statement 2002

49495_rns_2002-08-01_8275342d-dd74-46e5-a1b8-4467924ce9b0.pdf

Recommended proposal for

UNIVERSAL APPLIANCES LIMITED 友利電訊工業有限公司

UNIVERSAL HOLDINGS LIMITED 友利控股有限公司

pursuant to a

SCHEME OF ARRANGEMENT

PROPOSED ADOPTION OF HOLDINGS SHARE OPTION SCHEME GENERAL MANDATES TO REPURCHASE HOLDINGS ORDINARY SHARES AND TO ISSUE NEW HOLDINGS ORDINARY SHARES

Financial Adviser and Sponsor

Ernst & Young Corporate Finance Limited

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

RESPONSIBILITY STATEMENT

PROPOSAL

EFFECTS

Ordinary Shares

SUMMARY

Preference Shares

Nominal value and ownership

Reserve

SUMMARY

SHAREHOLDERS’ APPROVAL

EXPECTED TIMETABLE

UNIVERSAL APPLIANCES LIMITED 友利電訊工業有限公司

REDOMICILE PROPOSAL PROPOSED ADOPTION OF HOLDINGS SHARE OPTION SCHEME GENERAL MANDATES TO REPURCHASE HOLDINGS ORDINARY SHARES AND TO ISSUE NEW HOLDINGS ORDINARY SHARES

INTRODUCTION

REASONS FOR THE SCHEME

1. The redomicile will facilitate more flexible business development strategies

2. Enhance future equity fund raising

3. Appropriate place of incorporation

4. Development of efficient structure

SHAREHOLDING INFORMATION

WAIVER FROM THE SFC

STOCK EXCHANGE LISTING AND DEALINGS

LETTER FROM THE BOARD

DETAILS AND EFFECTS OF THE SCHEME

CHANGE IN BOARD LOT SIZE

LETTER FROM THE BOARD

GENERAL MANDATES

SHARE OPTION SCHEME

RECOMMENDATION

LETTER FROM THE BOARD

ADDITIONAL INFORMATION

PROPOSED GROUP REORGANISATION

INTRODUCTION

As at the Latest Practicable Date As at the Effective Date

SUMMARY OF THE SCHEME

EFFECTS OF THE SCHEME

(a) Business

(b) Ownership and voting control

(c) Preference Shares

(d) Reserve

(e) Assets and liabilities and financial position

(f) Directors and employees

(g) Dividends

CONDITIONS OF THE SCHEME

EXPLANATORY STATEMENT

WAIVER FROM THE SFC

CHANGE IN BOARD LOT SIZE

EXPLANATORY STATEMENT

GENERAL MANDATES

MEMORANDUM AND ARTICLES OF ASSOCIATION OF HOLDINGS

EXPLANATORY STATEMENT

SHARE OPTION SCHEME

EXPLANATORY STATEMENT

MEETINGS

LEGAL CONSIDERATIONS

EXPLANATORY STATEMENT

LISTING AND DEALINGS

EXPLANATORY STATEMENT

SHARE CERTIFICATES

EXPLANATORY STATEMENT

REGISTRATION PROCEDURES

TAXATION, STAMP DUTY AND EXCHANGE CONTROL IN THE CAYMAN ISLANDS

Holdings

(i) Taxation

CHINA STATE CONSTRUCTION DEVELOPMENT HOLDINGS LIMITED Proxy Solicitation & Information Statement 2002