CHK Oil Limited — Proxy Solicitation & Information Statement 2004

Mar 3, 2004

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 other transferee or to the bank, the licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the purchaser or to the 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 �� !" # $ %& ' ( )[*]

(Incorporated in Bermuda with limited liability)

DISCLOSEABLE TRANSACTION

Financial Adviser to China Merchants DiChain (Asia) Limited

Financial Services Group

* For identification purposes only

3 March 2004

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 of the Company

“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

• “De Yi” �� ! " # $ % & ' ( (Guangzhou De Yi Investment Company Limited), a company incorporated in the PRC with limited liabilities which holds 5,940,000 shares in SEG Scientific representing 9.9% of the issued share capital of SEG Scientific

• “Director(s)” director(s) of the Company

• “Group” the Company and its subsidiaries

• “Hong Kong”

The Hong Kong Special Administrative Region of the PRC

• “Hua Ke”

• �� ! " # $ % & ' ( ) * (Shenzhen Hua Ke Industrial Company Limited), a company incorporated in the PRC with limited liabilities which holds 1,650,000 shares in SEG Scientific representing 2.75% of the issued share capital of SEG Scientific

• “Jie Chuang” �� ! " # $ % & ' ( (Shenzhen Jie Chuang Electronic Company Limited), a company incorporated in the PRC with limited liability which holds 1,320,000 shares in SEG Scientific representing 2.2% of the issued share capital of SEG Scientific

• “Latest Practicable Date” 27 February 2004, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained in this circular

• “Listing Rules”

Rules Governing the Listing of Securities on the Stock Exchange

• “PRC” People’s Republic of China

• “S&P Agreement”

the sale and purchase agreement entered between Victorison and Su Zhou on 4 February 2004 and each of De Yi, Hua Ke and Jie Chuang on 5 February 2004 (together, the “S&P Agreements”) pursuant to which Victorison would acquire in aggregate a further 17.60% interest in SEG Scientific

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DEFINITIONS

• “SEG” �� !"#$%&' (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 a substantial shareholder of SEG Scientific

• “SEG Scientific” �� !"#$%&'()*+, (Shenzhen SEG Scientific Navigations Company Limited), a joint stock company incorporated in the PRC with limited liability

• “SFO” the Securities & 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

• “Subscription” the subscription of 21 million and 6 million new shares issued by SEG Scientific at RMB1.35 each by Victorison and SEG respectively pursuant to the Subscription Agreement

• “Subscription the subscription agreement entered into between Victorison, SEG Agreement” and SEG Scientific on 5 December 2003 in relation to the Subscription

• “Su Zhou” �� !"#$%&'()*+(Su Zhou Industrial Park Asset Management Company Limited), a company incorporated in the PRC with limited liability which holds 1,650,000 shares in SEG Scientific representing 2.75% of the issued share capital of SEG Scientific

• “Victorison” �� ! " #$% &'() * + (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.

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LETTER FROM THE BOARD

CHINA MERCHANTS DICHAIN (ASIA) LIMITED �� !" # $ %& ' ( )[*]

(Incorporated in Bermuda with limited liability)

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

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

Non-executive Directors: Robert Fung Hing Piu Wang Shizhen

Independent non-executive Directors: Barry J. Buttifant Iain F. Bruce

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

3 March 2004

To the Shareholders

Dear Sir or Madam,

DISCLOSEABLE TRANSACTION

INTRODUCTION

On 10 February 2004, the Board announced that Victorison entered into the S&P Agreement with Su Zhou on 4 February 2004 and the S&P Agreements respectively with each of De Yi, Hua Ke and Jie Chuang on 5 February 2004 to acquire a further 17.60% interest in SEG Scientific. Upon completion of the S&P Agreements and the Subscription Agreement, Victorison will be interested in 52.60% of the issued share capital of SEG Scientific.

The transactions contemplated under the S&P Agreements together with the Subscription constitute a “discloseable transaction” for the Company under the Listing Rules.

The purpose of this circular is to give you further information regarding the S&P Agreements.

* For identification purposes only

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LETTER FROM THE BOARD

THE S&P AGREEMENTS

Date

4 and 5 February 2004

Parties

• (a) Victorison (the “Purchaser”); and

• (b) Su Zhou, De Yi, Hua Ke and Jie Chuang (together, the “Vendors”)

Su Zhou, De Yi, Hua Ke and Jie Chuang and their respective ultimate beneficial owners are not connected persons of the Company and are all independent from and unconnected with any of the directors, chief executive and substantial shareholders of the Company or its subsidiaries or any of their respective associates (as defined in the Listing Rules).

Transactions under the S&P Agreements

Pursuant to the S&P Agreements, Victorison agreed to acquire 1.65 million, 5.94 million, 1.65 million and 1.32 million shares of SEG Scientific for a total consideration of RMB14,421,000.00 (equivalent to about HK$13,604,716.98) each from Su Zhou, De Yi, Hua Ke and Jie Chuang respectively, representing 2.75%, 9.9%, 2.75% and 2.2% of the issued share capital of SEG Scientific and together 17.60% of the issued share capital of SEG Scientific. Upon completion of the S&P Agreements, Su Zhou, De Yi, Hua Ke and Jie Chuang will have no shareholding in SEG Scientific and the shareholding interest of Victorison in SEG Scientific will be increased from 35% to 52.60% of the issued share capital of SEG Scientific.

The consideration

The consideration of RMB14,421,000.00 (equivalent to about HK$13,604,716.98) payable by Victorison under the S&P Agreements, which was determined after arm’s length negotiations between the parties, with reference to the audited net asset value of about RMB36.8 million (equivalent to about HK$34.7 million) of SEG Scientific as at 31 December 2002 will be funded by its internal resources.

The consideration has a premium as compared to the net asset value of SEG Scientific of RMB1.12 per share as at 31 December 2002. SEG Scientific is a well established and the largest manufacturer of global positioning system hardware and service operator in China, and especially has a very large participation in the Southern China cities such as Shenzhen. The Group will roll out global positioning system services in China. The Board is of the view that the investment in SEG Scientific will help the Group’s expansion of its core business in global positioning system industry. As such, the Board considers paying a premium is acceptable and the increase of its interest in SEG Scientific is in the interests of both the Company and the Shareholders.

90% of the consideration, which amounts to RMB12,978,900.00 (equivalent to about HK$12,244,245.28) was fully paid on 11 February 2004. The balance of RMB1,442,100.00 (equivalent to about HK$1,360,471.70) will be paid within five days upon all necessary approvals from regulators and authorities being obtained, registration and filing procedures being completed and all conditions being fulfilled in relation to the S&P Agreements.

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LETTER FROM THE BOARD

Conditions

The S&P Agreements are conditional on, among other things, the following:

• (a) completion of the Subscription;

• (b) the Vendors to provide to the Purchaser required documents in connection with the transfer of the subject shares;

• (c) the Vendors to deliver to the Purchaser original copies of all required documents as stipulated under the S&P Agreements; and

• (d) all necessary approvals from the regulatory authorities in relation to the S&P Agreements.

Parties to the S&P Agreements shall make their best effort to fulfil or procure to fulfil all conditions above on or before 31 March 2005. Victorison is entitled to waive any or all conditions above in writing.

In the event that (a) the Subscription could not be completed on or before 31 March 2004 (or such later date as agreed by parties to the Subscription Agreement); and (b) any of the above conditions could not be fulfilled on or before 31 March 2005 and Victorison would not waive any of such conditions, the S&P Agreements will lapse. The Subscription was completed on 18 January 2004 in accordance to the terms and conditions under the Subscription Agreement.

Save as disclosed above, there are no other major terms of the S&P Agreements.

As at the Latest Practicable Date, save for condition (d), all other conditions above have been fulfilled.

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. All other existing shareholders of SEG Scientific are not connected persons of the Company and are independent from and unconnected with any of the directors, chief executive and substantial shareholders of the Company or its subsidiaries or any of their respective associates (as defined in the Listing Rules).

On 8 December 2003, the Board announced the Subscription pursuant to which Victorison and SEG would respectively subscribe 21 million and 6 million new shares in the share capital of SEG Scientific for a total consideration of RMB36.45 million (equivalent to about HK$34.39 million). The total expenses in relation to the Subscription were about HK$0.59 million. The net proceed from the Subscription was about HK$33.8 million after deducting all expenses. Upon completion of the S&P Agreements, the shareholding interest of Victorison in SEG Scientific will be increased from 35% to 52.60%. By reason of Victorison’s 52.60% interests in SEG Scientific upon completion of the S&P Agreements, SEG Scientific will become a subsidiary company of the Company.

It is the intention of the Company that SEG Scientific will continue its existing business upon completion of the S&P Agreements.

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LETTER FROM THE BOARD

Upon completion of the Subscription and S&P Agreements, the board of directors of SEG Scientific will consist of 11 directors (nine executive directors and two non-executive independent directors), among which three will be nominated by Victorison. Victorison is entitled to nominate one of its director nominees as Chairman of the board.

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 asset value of SEG Scientific was about RMB36.8 million (equivalent to about HK$34.7 million) as at 31 December 2002. For the eight months ended 31 August 2003, the unaudited net asset value of SEG Scientific was about RMB39.0 million (equivalent to about HK$36.8 million) and the unaudited profit before and after tax of SEG Scientific was about RMB2.4 million (equivalent to about HK$2.2 million) and RMB2.2 million (equivalent to about HK$2.1 million) respectively. Based on the above, the Directors believe that the S&P Agreements will have positive impact on the earnings of the Group.

REASONS FOR THE S&P AGREEMENTS

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 announcement in relation to the Subscription and 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 valueadded services through its information technology services platform. To achieve this goal, Victorison entered into the Subscription Agreement on 5 December 2003 pursuant to which it agreed to subscribe 21 million new shares in SEG Scientific, representing 35% of the enlarged share capital in SEG Scientific. As stated in the Company’s 2003 annual report, according the State Planning Council of the PRC, it is estimated the global positioning system technology in the PRC will develop into an RMB10 billion market with a focus on proprietary global positioning system products and backbone enterprises and therefore the Board is positive about the business potential of the global positioning system services industry and considers that the increase of its interests in SEG Scientific is in the interests of the Company and the Shareholders as a whole.

FURTHER INFORMATION

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

Yours faithfully, By Order of the Board

Fan Di

Chairman

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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%
Barry J. Buttifant	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.

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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	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

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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.

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APPENDIX

GENERAL INFORMATION

None of the Directors has material interest in any contract or arrangement entered into by any member of the Group which is significant in relation to the business of the Group.

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 registered office of the Company is at Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda. The head office and principal place of business of the Company in Hong Kong is at Unit 3207-08, 32/F., West Tower, Shun Tak Centre, 168-200 Connaught Road Central, Hong Kong.

• (2) 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.

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

• (4) 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.

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

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