Crypto Flow Technology Limited — AGM Information 2003

Mar 31, 2003

IMPORTANT

The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) 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.

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

If you have sold all your shares in Wafer Systems Limited (the “Company”), you should at once hand this circular to the purchaser or to the bank, stockbroker or other agent through whom the sale was effected for transmission to the purchaser.

This circular, for which the directors of the Company (the “Directors”) collectively and individually accept full responsibility, includes particulars given in compliance with the Rules Governing the Listing of Securities on the Growth Enterprise Market of the Stock Exchange for the purpose of giving information with regard to the Company. The Directors, having made all reasonable enquiries, confirm that, to the best of their knowledge and belief, (i) the information contained in this circular is accurate and complete in all material respects and not misleading; (ii) there are no other matters the omission of which would make any statement in this circular misleading; and (iii) all opinions expressed in this circular have been arrived at after due and careful consideration and are founded on bases and assumptions that are fair and reasonable.

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WAFER SYSTEMS LIMITED 威發系統有限公司[*]

(Incorporated in the Cayman Islands with limited liability)

GENERAL MANDATES TO ISSUE AND REPURCHASE SHARES AND

REFRESHMENT OF THE LIMIT ON GRANT OF OPTIONS UNDER THE SHARE OPTION SCHEME

The notice convening the annual general meeting of the Company to be held on the 28th Floor of Cosco Tower, Grand Millennium Plaza, 183 Queen’s Road Central, Hong Kong on 25 April 2003 at 3:30 p.m. (the “AGM”) is set out in the 2002 Annual Report of the Company.

A form of proxy for the AGM is enclosed with the 2002 Annual Report of the Company. Whether or not you propose to attend the AGM, you are requested to complete the form of proxy and return the same to the Company’s branch share registrar in Hong Kong, Computershare Hong Kong Investor Services Limited at Shops 1712–1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong in accordance with the instructions printed thereon not less than 48 hours before the time appointed for the AGM. Completion and delivery of the form of proxy will not preclude you from attending and voting at the AGM if you so wish.

This circular will remain on the GEM website at www.hkgem.com on the “Latest Company Announcements” page for 7 days from the date of its posting.

* For identification purpose only

31 March 2003

CHARACTERISTICS OF GEM

GEM has been established as a market designed to accommodate companies to which a high investment risk may be attached. In particular, companies may list on GEM with neither a track record of profitability nor any obligation to forecast future profitability. Furthermore, there may be risks arising out of the emerging nature of companies listed on GEM and the business sectors or countries in which the companies operate. Prospective investors should be aware of the potential risks of investing in such companies and should make the decision to invest only after due and careful consideration. The greater risk profile and other characteristics of GEM mean that it is a market more suited to professional and other sophisticated investors.

Given the emerging nature of companies listed on GEM, there is a risk that securities traded on GEM may be more susceptible to high market volatility than securities traded on the main board of the Stock Exchange and no assurance is given that there will a liquid market in the securities traded on GEM.

The principal means of information dissemination on GEM is publication on the internet website operated by the Stock Exchange. Listed companies are not generally required to issue paid announcements in gazetted newspapers. Accordingly, prospective investors should note that they need to have access to the GEM website at www.hkgem.com in order to obtain up-to-date information on GEM-listed issuers.

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CONTENTS

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Chairman
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	3
General mandates to issue and repurchase Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
New Issue Mandate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
Repurchase Mandate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Refreshment of the General Scheme Limit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
AGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Appendix – Explanatory statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8

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DEFINITIONS

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

• “AGM”

the annual general meeting of the Company to be held on the 28th Floor of Cosco Tower, Grand Millennium Plaza, 183 Queen’s Road Central, Hong Kong on 25 April 2003 at 3:30 p.m., notice of which is set out in the Annual Report;

• “AGM Notice” the notice for convening the AGM set out in the Annual Report;

• “Annual Report” the annual report of the Company for the year ended 31 December 2002;

• “Board” the board of Directors or a duly authorised committee thereof from time to time;

• “Company”

Wafer Systems Limited, a company incorporated in the Cayman Islands with limited liability, the shares of which are listed on GEM;

• “Directors” the directors of the Company from time to time;

• “GEM”

the Growth Enterprise Market of the Stock Exchange;

• “GEM Listing Rules”

• the Rules Governing the Listing of Securities on GEM as may be amended from time to time;

• “Group”

the Company and its subsidiaries;

• “Hong Kong”

the Hong Kong Special Administrative Region of the People’s Republic of China;

• “Latest Practicable Date”

• 27 March 2003, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained in this circular;

• “month” calendar month;

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DEFINITIONS

• “New Issue Mandate”

• “Prospectus”

• “Repurchase Mandate”

• “Share(s)”

• “Share Option Scheme”

• “Shareholders”

• “Stock Exchange”

• “Takeovers Code”

• “HK$”

• “%”

• a general mandate to the Directors to exercise the power of the Company to allot, issue and deal with Shares during the period as set out in ordinary resolution no. 4(1) in the AGM Notice up to 20% of the issued share capital of the Company as at the date of passing ordinary resolution no. 4(1);

the prospectus of the Company dated 10 May 2002;

• a general mandate to the Directors to exercise the power of the Company to repurchase Shares during the period as set out in ordinary resolution no. 4(2) of the AGM Notice up to 10% of the issued share capital of the Company as at the date of passing ordinary resolution no. 4(2);

• share(s) of HK$0.01 each in the capital of the Company;

• the share option scheme adopted by the Company on 20 April 2002 for the purpose of encouraging its participants to achieve the long-term performance targets set by the Company and its subsidiaries;

• holders of Share(s);

The Stock Exchange of Hong Kong Limited;

the Hong Kong Code on Takeovers and Mergers;

Hong Kong dollars, the lawful currency of Hong Kong;

per cent.

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LETTER FROM THE CHAIRMAN

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WAFER SYSTEMS LIMITED 威發系統有限公司[*]

(Incorporated in the Cayman Islands with limited liability)

Executive Director: Mr. Chan Sek Keung, Ringo

Non-Executive Directors: Mr. Alasdair Gordon Nagle Ms. Clara Ho Mr. Kwan Kit Tong

Independent Non-Executive Directors: Mr. Pang Hing Chung, Alfred Mr. Tsoi Tai Wai, David

Registered office: Scotia Centre 4th Floor, P.O. Box 2804 George Town Grand Cayman Cayman Islands

Head office and principal place of business: Units 901-7, 9th Floor MLC Millennia Plaza 663 King’s Road North Point Hong Kong

31 March 2003

To the Shareholders

Dear Sir or Madam,

GENERAL MANDATES TO ISSUE AND REPURCHASE SHARES AND REFRESHMENT OF THE LIMIT ON GRANT OF OPTIONS UNDER THE SHARE OPTION SCHEME

INTRODUCTION

On 20 April 2002, resolutions were passed by the then Shareholders giving general unconditional mandates to the Directors to issue and repurchase Shares. These general mandates will expire at the conclusion of the AGM to be held on 25 April 2003. Ordinary resolutions will be proposed at the AGM to renew these general mandates.

On 20 April 2002, the Company adopted the Share Option Scheme pursuant to a resolution passed by the then Shareholders. An ordinary resolution will be proposed at the AGM to approve the refreshment of the limit on grant of options under the Share Option Scheme.

* For identification purpose only

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LETTER FROM THE CHAIRMAN

The purpose of this circular is to provide you with further details regarding the proposed renewal of the general mandates to issue and repurchase Shares and the proposed refreshment of the limit on grant of options under the Share Option Scheme, and to seek your approval of the ordinary resolutions relating to these matters at the AGM.

GENERAL MANDATES TO ISSUE AND REPURCHASE SHARES

On 20 April 2002, resolutions were passed by the then Shareholders giving general unconditional mandates to the Directors to:

• (a) allot, issue and deal with Shares with a total nominal value not exceeding 20% of (i) the aggregate of the total nominal value of the share capital of the Company in issue immediately following completion of the Placing (as defined in the Prospectus) and (ii) the total nominal value of share capital of the Company issued pursuant to the Over-allotment Option (as defined in the Prospectus);

• (b) repurchase such number of Shares representing up to 10% of (i) the aggregate of the total nominal value of the share capital of the Company in issue immediately following completion of the Placing and (ii) the total nominal value of share capital of the Company issued pursuant to the Over-allotment Option; and

• (c) add to the general mandate for issuing Shares set out in paragraph (a) above an amount representing the aggregate nominal value of the share capital of the Company repurchased by the Company pursuant to the repurchase mandate set out in paragraph (b) above.

The abovementioned general mandates will expire at the conclusion of the AGM. It is therefore proposed to seek your approval to renew the general mandates at the AGM.

The Appendix to this circular contains an explanatory statement, as required by Rule 13.08 of the GEM Listing Rules, to provide the requisite information to the Shareholders to enable the Shareholders to make an informed decision on whether to vote for or against the resolution to grant the Repurchase Mandate.

NEW ISSUE MANDATE

At the AGM, an ordinary resolution will be proposed to grant to the Directors the New Issue Mandate, details of which are set out in ordinary resolution no. 4(1) in the AGM Notice. In addition, conditional upon the proposed ordinary resolutions to grant to the Directors the New Issue Mandate and the Repurchase Mandate being passed, an ordinary resolution will be proposed that the New Issue Mandate be extended so as to authorize the Directors to allot, issue and otherwise deal with further Shares up to an aggregate nominal amount equal to the aggregate nominal amount of the share capital of the Company repurchased by the Company under the Repurchase Mandate.

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LETTER FROM THE CHAIRMAN

REPURCHASE MANDATE

At the AGM, an ordinary resolution will be proposed to grant to the Directors the Repurchase Mandate, details of which are set out in ordinary resolution no. 4(2) in the AGM Notice. The Shares which may be repurchased pursuant to the Repurchase Mandate is limited to a maximum of 10% of the issued share capital of the Company at the date of passing of the ordinary resolution approving the Repurchase Mandate, i.e. 28,226,800 Shares.

REFRESHMENT OF THE GENERAL SCHEME LIMIT

The Company adopted the Share Option Scheme pursuant to an ordinary resolution passed by the Shareholders on 20 April 2002. The purpose of the Share Option Scheme is to encourage its participants to achieve such long term performance targets set by the Group and at the same time allow its participants to enjoy the results of the Company attained through their efforts and contribution.

Under the terms of the Share Option Scheme:

• (1) The maximum number of Shares which may be issued upon exercise of all outstanding options granted and yet to be exercised under the Share Option Scheme and any other share option schemes of the Company (including the pre-listing share option scheme of the Company adopted on 20 April 2002 which was terminated on the day immediately prior to the listing date of the Shares on GEM) shall not exceed 30% of the total number of Shares in issue from time to time.

• (2) The total number of Shares which may be issued upon exercise of all options to be granted under the Share Option Scheme and any other share option schemes of the Company shall not in aggregate exceed 10% of the total number of Shares in issue immediately following completion of the Placing (as defined in the Prospectus), or 27,826,800 Shares (the “General Scheme Limit”).

• (3) Subject to paragraph (1) above and without prejudice to paragraph (4) below, the Company may seek approval of the Shareholders in general meeting to “refresh” the General Scheme Limit provided that the total number of Shares which may be issued upon the exercise of all options to be granted under the Share Option Scheme and any other share option schemes of the Company must not exceed 10% of the Shares in issue as at the approval of the “refreshed” limit and, for the purpose of calculating the “refreshed” limit, options previously granted under the Share Option Scheme and any other share option schemes of the Company (including those outstanding, cancelled, lapsed or exercised in accordance with the Share Option Scheme and any other share option schemes of the Company) will not be counted.

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LETTER FROM THE CHAIRMAN

• (4) Subject to paragraph (1) above and without prejudice to paragraph (3) above, the Company may seek separate approval of the Shareholders in general meeting to grant options beyond the General Scheme Limit or, if applicable, the “refreshed” limit referred to in paragraph (3) above to participants specifically identified by the Company before such approval is sought.

Based on the number of Shares in issue immediately following completion of the Placing, the General Scheme Limit was 27,826,800 Shares. As at the Latest Practicable Date, options representing 12,741,000 Shares, representing approximately 4.51% of the issued share capital of the Company as at the listing of the Shares on GEM, have been granted under the Share Option Scheme. These options were granted to eligible participants in recognition of their contribution to the Group. Unless the General Scheme Limit is “refreshed”, a balance of 15,085,800 Shares, representing approximately 5.34% of the issued share capital of the Company as at the listing of the Shares on GEM, may be issued pursuant to the grant of options under the Share Option Scheme. The Directors believe that the Share Option Scheme is a cost effective way to reward persons who have made contributions to the Group. The refreshment of the General Scheme Limit will allow the Directors more flexibility in employing the Share Option Scheme in the future should they need to grant share options that are over the current limit to recognize contributions made to the Group. Accordingly, the Directors would like to take the AGM as an opportunity to approve the refreshment of the General Scheme Limit instead of calling a separate extraordinary general meeting.

If the General Scheme Limit is “refreshed”, on the basis that 282,268,000 Shares are issued as at the Latest Practicable Date and assuming that no Shares are issued or repurchased by the Company prior to the AGM, the General Scheme Limit will be reset to 28,226,800 Shares (being 10% of the issued share capital of the Company as at the date of the AGM in which the refresh limit is approved) and the Company will be allowed to grant further options under the Share Option Scheme and other share option schemes of the Company carrying the rights to subscribes for a maximum of 28,226,800 Shares. As at the Latest Practicable Date, the Company has not adopted any share option schemes other than the Share Option Scheme.

At the AGM, an ordinary resolution will be proposed to approve the refreshment of the limit on grant of options under the Share Option Scheme, details of which are set out in ordinary resolution no. 4(4) in the AGM Notice.

Application has been made to GEM for the listing of and permission to deal in any Shares, representing 10% of the Shares in issue as at the AGM approving the “refreshed” General Scheme Limit, to be issued upon the exercise of the options granted under the “refreshed” General Scheme Limit.

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LETTER FROM THE CHAIRMAN

AGM

The AGM Notice is set out on page 53 of the Annual Report.

A form of proxy for the AGM is enclosed with the Annual Report. Whether you intend to attend the AGM or not, you are requested to complete the form of proxy in accordance with the instructions printed thereon and return the same to the Company’s branch share registrar in Hong Kong, Computershare Hong Kong Investor Services Limited at Shops 1712–1716, 17th Floor, Hopewll Centre, 183 Queen’s Road East, Hong Kong, not less than 48 hours before the time fixed for the AGM. Completion and delivery of the form of proxy will not preclude you from attending and voting at the AGM in person if you so wish.

RECOMMENDATION

The Directors are of the opinion that the proposals referred to in this circular are in the best interests of the Company and the Shareholders and therefore recommend the Shareholders to vote in favour of ordinary resolutions nos. 4(1) to 4(4) to be proposed at the AGM.

Yours faithfully, For and on behalf of The Board of Directors of Wafer Systems Limited Chan Sek Keung, Ringo

Chairman and Chief Executive Officer

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EXPLANATORY STATEMENT

APPENDIX

This is an explanatory statement given to all Shareholders relating to the resolution to be proposed at the AGM authorising the Repurchase Mandate. This explanatory statement contains all the information required pursuant to Rule 13.08 of the GEM Listing Rules and other relevant provisions of the GEM Listing Rules.

1. SHARE CAPITAL

As at the Latest Practicable Date, the issued share capital of the Company comprised 282,268,000 Shares.

Subject to the passing of the ordinary resolution no. 4(2) set out in the AGM Notice and on the basis that no further Shares are issued or repurchased by the Company prior to the AGM, the Company would be allowed under the Repurchase Mandate to repurchase a maximum of 28,226,800 Shares, representing 10% of the issued share capital of the Company during the period from the date of the passing of ordinary resolution no. 4(2) set out in the AGM Notice until (i) the conclusion of the next annual general meeting of the Company; (ii) the expiration of the period within which the next annual general meting of the Company is required by the articles of association of the Company or any applicable laws of the Cayman Islands to be held; or (iii) the revocation, variation or renewal of the Repurchase Mandate by ordinary resolution of the Shareholders in general meeting, whichever occurs first.

2. REASONS FOR REPURCHASES

The Directors believe that it is in the best interests of the Company and the Shareholders for the Directors to have general authority from Shareholders to enable the Company to repurchase Shares in the market. Repurchases of Shares will only be made when the Directors believe that such repurchase will benefit the Company and the Shareholders. Such repurchases may, depending on market conditions and funding arrangements at the time, lead to an enhancement of the net asset value and/or its earnings per share of the Company.

3. FUNDING OF REPURCHASES

In repurchasing Shares, the Company may only apply funds legally available for such purpose in accordance with its memorandum and articles of association, the GEM Listing Rules and the applicable laws and regulations of the Cayman Islands. The Company may not repurchase it own Shares on GEM for a consideration other than cash or for settlement otherwise than in accordance with the trading rules of the Stock Exchange from time to time.

4. GENERAL

There might be a material adverse impact on the working capital or gearing position of the Company (as compared with the position disclosed in the audited financial statements contained in the Annual Report) in the event that the Repurchase Mandate is exercised in full. However, the Directors do not propose to exercise the Repurchase Mandate to such an extent

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EXPLANATORY STATEMENT

APPENDIX

as would, in the circumstances, have a material adverse effect on the working capital requirements of the Company or on the gearing levels which in the opinion of the Directors are from time to time appropriate for the Company.

5. SHARE PRICES

The highest and lowest prices at which the Shares have traded on the GEM in each of the previous ten months preceding the Latest Practicable Date were as follows:

Month	Highest	Lowest
	HK$	HK$
2002
May	0.700	0.450
June	0.580	0.310
July	0.420	0.200
August	0.345	0.260
September	0.325	0.260
October	0.232	0.136
November	0.180	0.140
December	0.160	0.139
2003
January	0.169	0.130
February	0.140	0.100

6. DIRECTORS’ UNDERTAKING

The Directors have undertaken to the Stock Exchange that, so far as the same may be applicable, they will exercise the Repurchase Mandate in accordance with the GEM Listing Rules, the memorandum and articles of association of the Company and the applicable laws of the Cayman Islands.

7. THE TAKEOVERS CODE

If as a result of a repurchase of Shares, a Shareholder’s proportionate interest in the voting rights of the Company increases, such increase will be treated as an acquisition for the purposes of Rule 32 of the Takeovers Code. As a result, a Shareholder, or a group of Shareholders acting in concert (within the meaning under the Takeovers Code), depending on the level of increase in the Shareholder’s interests, could obtain or consolidate control of the Company and becomes(s) obliged to make a mandatory offer in accordance with Rule 26 of the Takeovers Code.

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EXPLANATORY STATEMENT

APPENDIX

As at the Latest Practicable Date, the following Shareholders are interested in more than 10% of the Shares then in issue:

		Approximate
	Number	percentage of
Name of Shareholder	of Shares	shareholding
Woodstock Management Limited_(Note i)_	56,400,000	19.98%
Mr. Chan Sek Keung, Ringo_(Note ii)_	56,964,000	20.18%
The Applied Research Council_(Note iii)_	48,460,000	17.17%
North 22 Nominees Limited_(Note iv)_	36,900,000	13.07%
Mr. Ng Lai Yick_(Note iv)_	36,900,000	13.07%
QPL International Holdings Limited_(Note v)_	27,780,000	9.84%

Notes:

• i. Woodstock Management Limited is beneficially wholly owned by Mr. Chan Sek Keung, Ringo, a Director.

• ii. In addition to (i) above, Mr. Chan Sek Keung, Ringo, is personally the beneficial owner of 564,000 shares

• iii. In addition to this shareholding, The Applied Research Council also holds 5 convertible bonds issued by the Company with face value of $20,048,100 in aggregate. If these convertible bonds were fully converted on their respective maturity dates, The Applied Research Council will hold an additional 38,063,603 Shares.

• iv. North 22 Nominees Limited is beneficially wholly owned by Mr. Ng Lai Yick.

• v. In addition to this shareholding, QPL International Holdings Limited holds 7,676,745 warrants in the Company, which are exercisable within 6 months from 17 May 2003 at the price of $0.01 per Share.

In the event that the Directors exercise in full the power to repurchase Shares in accordance with the Repurchase Mandate, the percentage shareholding of the above Shareholders in the Shares would be increased to :

	Approximate
	percentage of
Name of Shareholder	shareholding
Woodstock Management Limited	22.20%
Mr. CHAN Sek Keung, Ringo	22.42%
The Applied Research Council	19.08%
North 22 Nominees Limited	14.53%
Mr. NG Lai Yick	14.53%
QPL International Holdings Limited	10.94%

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EXPLANATORY STATEMENT

APPENDIX

The Directors are not aware of any consequences which may arise under the Takeovers Code as a consequence of any purchase made under the Repurchase Mandate. However, the Company may not repurchase Shares which would result in the amount of Shares held by the public being reduced to less than 20 per cent..

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

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

8. SHARES REPURCHASE MADE BY THE COMPANY

No repurchases of Shares have been made by the Company (whether on the GEM or otherwise) during the six months immediately preceding the Latest Practicable Date.

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