CHK Oil Limited — Proxy Solicitation & Information Statement 2003

Dec 29, 2003

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in doubt as to any aspect of this circular or as to the action to be taken, you should consult a licensed securities dealer, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in China Merchants DiChain (Asia) Limited, you should at once hand this circular to the purchaser or transferee or to the bank, licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this circular, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

CHINA MERCHANTS DICHAIN (ASIA) LIMITED 招商迪辰（亞洲）有限公司[*]

(Incorporated in Bermuda with limited liability)

DISCLOSEABLE TRANSACTION

Subscription of new shares in Shenzhen SEG Scientific Navigations Company Limited

Financial adviser to China Merchants DiChain (Asia) Limited

* For identification purposes only

29 December 2003

CONTENTS

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	3
Appendix – General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7

DEFINITIONS

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

“associates” has the meaning ascribed thereto in the Listing Rules “Board” the board of Directors “Company” China Merchants DiChain (Asia) Limited, a company incorporated in Bermuda with limited liability and the shares of which are listed on the Stock Exchange “Director(s)” director(s) of the Company “Group” the Company and its subsidiaries “Hong Kong” The Hong Kong Special Administrative Region of the PRC “Latest Practicable Date” 23 December 2003, being the latest practicable date prior to the printing of this circular for ascertaining certain information containing in this circular “Listing Rules” Rules Governing the Listing of Securities on the Stock Exchange

“PRC” People’s Republic of China “SEG” 深圳賽格股份有限公司 (Shenzhen SEG Company Limited), a joint stock company incorporated in the PRC with limited liability whose shares are listed on the stock exchange of Shenzhen and the substantial shareholder of SEG Scientific “SEG Scientific” 深圳市賽格導航科技股份有限公司 (Shenzhen SEG Scientific Navigations Company Limited), a joint stock company incorporated in the PRC with limited liability “SFO” the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) “Share(s)” the ordinary share(s) of HK$0.01 each in the issued share capital of the Company “Shareholder(s)” holder(s) of the Share(s) “Stock Exchange” The Stock Exchange of Hong Kong Limited

– 1 –

DEFINITIONS

“Subscription”	the subscription of 21 million and 6 million new shares to be issued by
	SEG Scientific at RMB1.35 each by Victorison and SEG respectively
“Subscription Agreement”	the subscription agreement entered into between Victorison, SEG and
	SEG Scientific on 5 December 2003 in relation to the Subscription
“Victorison”	迪辰倉儲服務（深圳）有限公司(Victorison Logistics Services
	(Shenzhen) Company Limited, a company incorporated in Shenzhen, the
	PRC and a wholly-owned subsidiary of the Company
“HK$”	Hong Kong dollar(s), the lawful currency of Hong Kong
“RMB”	Renminbi, the lawful currency of the PRC, and the exchange rate for
	RMB into HK$ for the purpose of this circular is RMB1.06=HK$1.00
“%”	per cent.

– 2 –

LETTER FROM THE BOARD

CHINA MERCHANTS DICHAIN (ASIA) LIMITED 招商迪辰（亞洲）有限公司[*]

(Incorporated in Bermuda with limited liability)

Executive Directors: Fan Di (Chairman) Li Xinggui Wu Shiyue Zhu Xiaojun Zheng Yingsheng

Non-executive Directors: Robert Fung Hing Piu Wang Shizhen Barry J. Buttifant Iain F. Bruce

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

Head office and principal place of business in Hong Kong: Units 3207-08, 32/F. West Tower, Shun Tak Centre 168-200 Connaught Road Central Hong Kong

• Independent non-executive Directors

29 December 2003

To the Shareholders

Dear Sir or Madam,

DISCLOSEABLE TRANSACTION

INTRODUCTION

The Board announced on 8 December 2003 that Victorison, a wholly-owned subsidiary of the Company, SEG and SEG Scientific entered into a subscription agreement on 5 December 2003, pursuant to which, Victorison and SEG will respectively subscribe for 21 million and 6 million new shares to be issued by SEG Scientific at RMB1.35 each. Upon completion of the Subscription Agreement, Victorison will be interested in 35% of the enlarged issued share capital of SEG Scientific.

The Subscription constitutes a “discloseable transaction” for the Company under the Listing Rules. The purpose of this circular is to provide you with further information regarding the Subscription Agreement.

• For identification purposes only

– 3 –

LETTER FROM THE BOARD

THE SUBSCRIPTION AGREEMENT

Date

5 December 2003

Parties

• (a) Victorison;

• (b) SEG; and

• (c) SEG Scientific.

SEG and SEG Scientific and their respective ultimate beneficial owners are all independent from and unconnected with the directors, chief executive and substantial shareholders of the Company or its subsidiaries or any of their respective associates.

The Subscription

Pursuant to the Subscription Agreement, Victorison and SEG agreed to respectively subscribe for 21 million and 6 million new shares to be issued by SEG Scientific at RMB1.35 each, representing 35% and 10% respectively of the enlarged issued share capital of SEG Scientific.

The total consideration for the Subscription is RMB28,350,000 (equivalent to about HK$26,745,283), which was determined after arm’s length negotiations between the parties, with reference to the audited net assets of about RMB36.8 million (equivalent to about HK$34.7 million) of SEG Scientific as at 31 December 2002.

The consideration

The consideration of RMB28,350,000 payable by Victorison under the Subscription will be funded by its internal resources and will be paid upon completion of the Subscription Agreement.

Conditions

The Subscription Agreement is conditional on, among other things, the following:

• (a) the opening of a joint bank account within seven days after obtaining the necessary approval from the Shenzhen Municipal Government;

• (b) Victorison and SEG to deposit the subscription money into the joint bank account as mentioned in (a) above within 10 days after the opening of such joint bank account;

– 4 –

LETTER FROM THE BOARD

• (c) SEG Scientific to provide an investment funds payment certificates issued by a registered accountants firm in the PRC to Victorison and SEG after the payment of the subscription money as mentioned in (b) above; and

• (d) the three parties to obtain necessary approval from the regulatory authority in relation to the Subscription.

At as the Latest Practicable Date, save for the joint bank account as mentioned in (a) above, which has already been opened, none of the above conditions has been fulfilled. There is no long stop date for the completion of the Subscription Agreement.

Other major terms of the Subscription Agreement

Other major terms of the Subscription Agreement include but not limited to: –

• (i) upon completion of the Subscription Agreement, the board of directors of SEG Scientific shall compose of 11 members (including two independent non-executive directors), of which three representatives will be nominated by Victorison;

• (ii) SEG and its related companies, in aggregate, may only increase their shareholding in SEG Scientific from the other existing shareholders up to 35% of the issued share capital of SEG Scientific as enlarged by the Subscription;

• (iii) the existing management of SEG Scientific, undertakes that the profits after tax of SEG Scientific for the 2003 and 2004 financial years will not be less than RMB4 million (equivalent to about HK$3.8 million) and RMB 7.5 million (equivalent to about HK$7.1 million) respectively. In general, the board of directors of SEG Scientific has the discretion to reward or penalise the management based on their performance; and

• (iv) the existing management of SEG Scientific is entitled to subscribe for 6 million new shares of SEG Scientific, representing 10% of the issued share capital of SEG Scientific as enlarged by the Subscription, at RMB1.115 each before 30 June 2005 after SEC Scientific has achieved the profit levels as mentioned in (iii) above.

INFORMATION OF SEG SCIENTIFIC

SEG Scientific is a joint stock company incorporated in the PRC on 29 June 1999. SEG Scientific is a manufacturer of automatic vehicle locator of global positioning system in the PRC. It also provides global positioning system vehicle tracking and monitoring services in the Southern China region. SEG is currently the largest shareholder of SEG Scientific and is interested in 20.25% of the shareholding interests of SEG Scientific. All other existing shareholders of SEG Scientific are independent from and unconnected with the directors, chief executive and substantial shareholders of the Company or its subsidiaries or any of their respective associates. Upon completion of the Subscription Agreement, Victorison will become the largest shareholder of SEG Scientific and SEG will be interested in about 21.14% of the enlarged issued share capital of SEG Scientific.

– 5 –

LETTER FROM THE BOARD

By reason of Victorison’s 35% interests in SEG Scientific upon completion of the Subscription Agreement, SEG Scientific will become an associated company of the Company. It is the intention of the Company that SEG Scientific will continue its existing business upon completion of the Subscription Agreement.

SEG Scientific recorded an audited net profit before tax and after tax of about RMB2.0 million (equivalent to about HK$1.9 million) and RMB1.9 million (equivalent to about HK$1.8 million) respectively for the year ended 31 December 2001. The audited net profit before tax and after tax of SEG Scientific was about RMB3.5 million (equivalent to about HK$3.3 million) and RMB3.4 million (equivalent to about HK$3.2 million) respectively for the year ended 31 December 2002. The audited net assets of SEG Scientific were about RMB36.8 million (equivalent to about HK$34.7 million) as at 31 December 2002. Based on the above and the profit undertaking by the existing management of SEG Scientific, the Directors believe that the Subscription will have positive impact on the earnings of the Group.

REASONS FOR THE SUBSCRIPTION

The Group is principally engaged in the distribution of electronic household appliances, production and distribution of edible oil, brewery products, operating bonded warehouse, provision of logistics and related services, and property investment.

As stated in the Company’s 2003 annual report, the Company prepared to develop an information technology services operations platform for the provision of global positioning system services in the PRC. The Board believes that it is important for the Company to capture market share as fast as possible by installing more global positioning system installations in automobiles. The Company can then leverage the captive market share to provide value-added services through its information technology services platform. To achieve this goal, the Company planned to acquire top automatic vehicle locator manufacturers of global positioning system and leading automobile monitoring service platform operators in the PRC. As such, the Board considers that the Subscription is in the interests of both the Company and the Shareholders.

GENERAL

Your attention is drawn to the additional information set out in the Appendix.

Yours faithfully, By order of the Board Fan Di Chairman

– 6 –

GENERAL INFORMATION

APPENDIX

1. RESPONSIBILITY

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors collectively and individually accept full responsibility for the accuracy of the information contained in this circular 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.

2. DIRECTORS’ INTERESTS IN SECURITIES

As at the Latest Practicable Date, the interests (including short positions) of the Directors (including their respective spouses, infant children, related trusts and companies controlled by them) in the Shares, convertible securities, warrants, options or derivatives in respect of securities which carry voting rights of the Company and its associated corporations (within the meaning of the SFO), which require notification pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short position in which any such director is taken or deemed to have under such provisions of the SFO) or which were required to be entered in the register kept by the Company pursuant to section 352 of the SFO, or which were required to be notified to the Company and the Stock Exchange, pursuant to Model Code for Securities Transactions by Directors of Listing Companies in the Listing Rules, were as follows:

Long positions in Shares:

		Number of	Percentage of
Name of Director	Capacity	Shares	issued share capital
Fan Di_(Note 1)_	Interest in	2,682,515,000	59.13%
	corporation
Robert Fung Hing Piu	Beneficial owner	78,325,437	1.73%
(Note 2)
	Beneficiary of trusts	63,604,530	1.40%
Iain F. Bruce	Beneficial owner	1,000,000	0.02%

Notes:

1. 182,515,000 Shares are held by Farsight Holdings Limited (“Farsight”) and 2,500,000,000 shares are held by DiChain Holdings Limited (formerly known as DiChain System Limited) (“DiChain Holdings). Dr. Fan is beneficially interested in the voting shares of Farsight and is deemed to be interested in more than one-third of the voting shares of DiChain Holdings and therefore is deemed to have an interest in these Shares.

2. Mr. Fung directly holds 78,325,437 Shares. By reason of Mr. Fung being one of the trustees of a charitable foundation, namely Sir Kenneth Fung Ping Fan Foundation Trust I, which holds 63,604,530 Shares, Mr. Fung is deemed to be interested in these Shares.

– 7 –

APPENDIX

GENERAL INFORMATION

Rights to acquire Shares:

Pursuant to the share option scheme of the Company adopted on 21 June 2002, certain Directors were granted share options to subscribe for Shares, details of which as at the Latest Practicable Date were as follows:

					Number of share
					options exercised,
					cancelled or	Number of
					lapsed during	share options
				Number of	the period from	as at the
				share options	20 May 2003	Latest
	Date of	Exercise/	Exercise price	granted on	to the Latest	Practicable
Name of directors	Grant	vesting period	per Share	20 May 2003	Practicable Date	Date
Fan Di	20 May 2003	20 May 2004	HK$0.12	45,000,000	–	45,000,000
		to 21 June 2012
Li Xinggui	20 May 2003	20 May 2004	HK$0.12	20,000,000	–	20,000,000
		to 21 June 2012
Wu Shiyue	20 May 2003	20 May 2004	HK$0.12	25,000,000	–	25,000,000
		to 21 June 2012
Wang Shizhen	20 May 2003	20 May 2004	HK$0.12	5,000,000	–	5,000,000
		to 21 June 2012
Zheng Yingsheng	20 May 2003	20 May 2004	HK$0.12	7,500,000	–	7,500,000
		to 21 June 2012
Zhu Xiaojun	20 May 2003	20 May 2004	HK$0.12	10,000,000	–	10,000,000
		to 21 June 2012
Robert Fung	20 May 2003	20 May 2004	HK$0.12	1,500,000	–	1,500,000
Hing Piu		to 21 June 2012
Iain F. Bruce	20 May 2003	20 May 2004	HK$0.12	1,500,000	–	1,500,000
		to 21 June 2012
Barry J. Buttifant	20 May 2003	20 May 2004	HK$0.12	1,500,000	–	1,500,000
		to 21 June 2012

Save as disclosed above, as at the Latest Practicable Date, none of the directors or chief executive of the Company had any interests or short positions in any equity or debt securities of the Company or any associated corporations (within the meaning of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short position in which any such director is taken or deemed to

– 8 –

APPENDIX

GENERAL INFORMATION

have under such provisions of the SFO) or which were required to be entered in the register kept by the Company pursuant to section 352 of the SFO, to be entered in the registered referred to therein or which were required pursuant to the Model Code for Securities Transactions by Directors of Listed Companies to be notified to the Company and the Stock Exchange.

3. SHAREHOLDERS WITH NOTIFIABLE INTERESTS

As at the Latest Practicable Date, so far as is known to the directors or chief executive of the Company, the following persons had interests or short positions in the shares and underlying shares of the Company which are required to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO or, were directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any members of the Group:

Name of				Percentage of
substantial	Long/short		Number of	issued share
shareholder	position	Capacity	Shares	capital
Farsight_(Note)_	Long	Beneficial owner	182,515,000	4.02%
	Long	Interest in	2,500,000,000	55.11%
		corporation
DiChain Holdings	Long	Beneficial owner	2,500,000,000	55.11%

Note: Farsight is interested in more than one-third of the voting shares of DiChain Holdings and is therefore deemed to be interested in the 2,500,000,000 Shares beneficially owned by DiChain Holdings.

Save as disclosed above, so far as known to the directors or chief executive of the Company, as at the Latest Practicable Date, no person (other than a director or chief executive of the Company), had an interest or short position in the shares or underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, and/or, who was, directly or indirectly, interested in 10% 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 other member of the Group, or in any options in respect of such share capital.

4. SERVICE CONTRACT

Each of Dr. Fan Di and Mr. Zhu Xiaojun has entered into a service agreement with the Company for an initial period of one year commencing 1 April 2003, which will continue thereafter until terminated by either party by three months’ prior written notice. Mr. Wu Shiyue has entered into a service agreement with the Company for an initial period of one year commencing 28 August 2002, which will continue thereafter until terminated by either party by three months’ prior written notice.

Save as disclosed above, none of the Directors had service contract with any member of the Group which is not expiring or determinable within one year without payment of compensation (other than statutory compensation) as at the Latest Practicable Date.

– 9 –

GENERAL INFORMATION

APPENDIX

5. LITIGATION

As at the Latest Practicable date, neither the Company nor any of its subsidiaries was engaged in any litigation or arbitration of material importance and no litigation or claim of material importance is known to the Directors to be pending or threatened against any member of the Group.

6. GENERAL

• (1) The company secretary of the Company is Mr. Kwok Yam Sheung. Mr. Kwok is a fellow member of the Institute of Chartered Secretaries and Administrators in the United Kingdom and a fellow member of the Hong Kong Institute of Company Secretaries. He has worked for public listed companies in Hong Kong for more than 20 years as company secretary. Mr. Kwok also has extensive experience in the property industry.

• (2) The principal share registrar and transfer office of the Company is Codan Services Limited at 2 Church Street, Hamilton HM11, Bermuda.

• (3) The branch share registrar and transfer office of the Company is Tengis Limited at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wan Chai, Hong Kong.

• (4) The English text of this circular shall prevail over the Chinese text.

– 10 –