Dadi International Group Limited — Proxy Solicitation & Information Statement 2005

Oct 7, 2005

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares in Milkyway Image Holdings 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 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.

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(Incorporated in the Cayman Islands with limited liability) (the “Company”) (Stock Code: 8130)

PROPOSALS FOR REFRESHMENT OF THE 10% GENERAL LIMIT ON GRANT OF OPTIONS UNDER THE SHARE OPTION SCHEME AND GRANT OF OPTIONS TO AN INDIVIDUAL EXCEEDING THE 1% LIMIT

A notice convening the extraordinary general meeting of the Company to be held at 2nd Floor, No. 77 Hung To Road, Kwun Tong, Kowloon, Hong Kong on Friday, 28th October, 2005 at 4:00 p.m. is set out on pages 9 to 10 of this circular.

A form of proxy for the extraordinary general meeting is enclosed with this circular. If you do not intend to be present at the extraordinary general meeting, you are requested to complete the form of proxy and return it to the branch share registrar of the Company, that is Secretaries Limited, at Ground Floor, BEA Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong in accordance with the instructions printed thereon not less than 48 hours before the time fixed for the meeting. Completion and return of the form of proxy will not preclude you from attending and voting in person at the forthcoming special general meeting or any adjournment thereof should you so wish.

This circular, for which 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 (“GEM”) of The Stock Exchange of Hong Kong Limited (“Stock Exchange”) (“GEM Listing Rules”) 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: (a) the information contained in this circular is accurate and complete in all material respects and not misleading; (b) there are no other matters the omission of which would make any statement in this circular misleading; and (c) 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.

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

• For identification purpose only

7th October, 2005

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 be 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 in order to obtain up-to-date information on GEM-listed issuers.

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CONTENTS

		Page
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . .	3
Refreshment of the 10% general limit on grant of
options under the Share Option Scheme . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . .	4
Grant of options to an individual exceeding the 1% limit
under the Share Option Scheme . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . .	5
Extraordinary general meeting . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . .	7
Action to be taken . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . .	7
Procedures for demanding a poll . . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . .	7
Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . .	8
NOTICE OF EXTRAORDINARY GENERAL MEETING	. . . . . . . . . . . . . . . . . . .	9

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DEFINITIONS

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

• “associate(s)” shall have the meaning ascribed to it in the GEM Listing Rules

• “Board” the board of Directors

• “Business Day” a day on which the Stock Exchange is open for business of dealing in securities

• “connected person(s)” shall have the meaning ascribed to it in the GEM Listing Rules

• “Company” Milkyway Image Holdings Limited, a company incorporated in the Cayman Islands with limited liability and whose shares are listed and traded on GEM

• “Director(s)” the board of directors of the Company

• “Extraordinary General Meeting” or “EGM”

• the extraordinary general meeting of the Company to be held at 2nd Floor, No. 77 Hung To Road, Kwun Tong, Kowloon, Hong Kong on Friday, 28th October, 2005 at 4:00 p.m. the notice of which is set out on pages 9 to 10 of this circular

• “GEM”

• the Growth Enterprise Market of the Stock Exchange

• “GEM Listing Rules”

• the Rules Governing the Listing of Securities on GEM

• “Group” the Company and its subsidiaries

• “HK$”

• Hong Kong dollars, the lawful currency of Hong Kong

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

• “Latest Practicable Date”

• 5th October, 2005, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained herein

• “Notice”

• the notice convening the Extraordinary General Meeting which is set out on pages 9 to 10 of this circular

• “Option”

• a right to subscribe for Shares granted pursuant to the terms of the Share Option Scheme

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DEFINITIONS

• “Pre-IPO Share Option Scheme”

• “Proposed Grant”

• “Proposed Grantee”

• “Scheme Mandate Limit”

• “Securities and Futures Ordinance”

• “Share(s)”

• “Shareholder(s)”

• “Share Option Scheme”

• “Stock Exchange”

• the pre-IPO share option scheme adopted by the Company on 2nd August, 2002

• the proposed grant of options to subscribe for 64,400,000 Shares under the Share Option Scheme, to the Proposed Grantee as described herein the Proposed Grantee

• Mr. To Kei Fung, a former director of the Company, the chief executive officer, an employee of the Company

• 62,720,000 Shares, being the maximum number of Shares which may be issued upon exercise of all options to be granted under the Existing Share Option Scheme and any other schemes as refreshed by Shareholders at an extraordinary general meeting held on 17th January, 2003

• the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)

• the ordinary share(s) of par value of HK$0.01 each in the capital of the Company

• holder(s) of Share(s)

• the share option scheme adopted by the Company on 2nd August 2002 and the 10 per cent mandate limit of such scheme has been refreshed and approved by Shareholders at an extraordinary general meeting held on 17th January, 2003

The Stock Exchange of Hong Kong Limited

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LETTER FROM THE BOARD

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(Incorporated in the Cayman Islands with limited liability) (the “Company”)

Executive Directors: Law Sau Yiu, Dennis (Chairman) Teng Chia Lin, Chialina Chan Dao Ho

Independent Non-executive Directors: Lung Hak Kau Wai Lai Yung Tsang Kei Ling

Registered Office: Century Yard Cricket Square Hutchins Drive P.O. Box 2681GT George Town Grand Cayman British West Indies

Head Office and Principal Place of Business: 1st Floor, 77 Hung To Road Kwun Tong Kowloon Hong Kong

7th October, 2005

To shareholders of the Company

Dear Sir or Madam,

PROPOSALS FOR REFRESHMENT OF THE 10% GENERAL LIMIT ON GRANT OF OPTIONS UNDER THE SHARE OPTION SCHEME AND GRANT OF OPTIONS TO AN INDIVIDUAL EXCEEDING THE 1% LIMIT

INTRODUCTION

The purpose of this circular is to provide you with information relating to refreshment of the 10% general limit on grant of options under the Share Option Scheme and the grant of options to an individual, who is an employee of the Company, exceeding the 1% limit as required to be sent to you in compliance with the Listing Rules so as to give you all information reasonably necessary to enable you to make an informed decision on whether to vote for or against the resolutions in relation thereto at the extraordinary general meeting.

* For identification purpose only

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LETTER FROM THE BOARD

REFRESHMENT OF THE 10% GENERAL LIMIT ON GRANT OF OPTIONS UNDER THE SHARE OPTION SCHEME

Under the rules 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 schemes of the Company must not exceed 30% of the Shares in issue from time to time;

• (2) the maximum number of Shares which may be issue upon exercise of all share options to be granted under the Share Option Scheme and any other schemes shall not in aggregate, exceed the Scheme Mandate Limit being 10% of the Shares in issue on 17th January, 2003 provided that the share options lapsed in accordance with the terms of the Share Option Scheme will not be counted for the purpose of calculating the Limit; and

• (3) the Scheme Mandate Limit may be renewed by obtaining approval of the Shareholders in general meeting provided that such renewed limit shall not exceed 10% of the Shares in issue as at the date of approval of such new limit (the “Refreshed Limit”).

The Scheme Mandate Limit is 62,720,000 Shares representing approximately 7.79% of the issued share capital of the Company as at the Latest Practicable Date. As at the Latest Practicable Date, there were 805,000,000 Shares in issue and options to subscribe up to 84,000,000 Shares have been granted under the Pre-IPO Share Option Scheme of which 84,000,000 Shares have been exercised. As at the Latest Practicable Date, no option has been granted under the Share Option Scheme.

As the purpose of the Share Option Scheme is to provide incentives and rewards to employees and eligible persons for their contributions to the Group, the Directors propose to refresh the Scheme Mandate Limit in accordance with the rules of the Share Option Scheme, which will be calculated as 10% of the issued share capital of the Company at the date of approval of the refreshment by the Shareholders. The Directors consider that the refreshment of the Scheme Mandate Limit is in the interests of the Company and its Shareholders as it enables the Company to have more flexibility in providing incentives to those eligible persons by way of the granting of the options.

As detailed in the subsequent section, the Board proposed to grant options for 64,400,000 Shares which will exceed the Scheme Mandate Limit which is 62,720,000 Shares at the Latest Practicable Date. Accordingly, the Proposed Grant as described in the subsequent section cannot be proceeded unless the refreshment is approved by Shareholders at the EGM.

Save as disclosed above and assuming no further allotment and issue of Shares and repurchase of Shares and no further grant of options under the Share Option Scheme up to the date of the Extraordinary General Meeting, upon the granting of refresher to the Scheme Mandate Limit by Shareholders in the Extraordinary General Meeting, the Scheme Mandate

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LETTER FROM THE BOARD

Limit (as refreshed) will enable the Company to grant options carrying the rights to subscribe for up to a total of 80,500,000 Shares, being 10% of the Shares in issue as at the date of approving refresher of the Scheme Mandate Limit. The Directors expect that the refresher of the Scheme Mandate Limit will not exceed 30% of the Shares in issue.

An ordinary resolution will be proposed at the Extraordinary General Meeting to refresh the Scheme Mandate Limit to 10% of the issued share capital of the Company at the date of the approval of the refreshment by the Shareholders.

Application have been made to the Stock Exchange for the listing of, and permission to deal in, the Shares to be issued pursuant to the exercise of the options to be granted pursuant to the Share Option Scheme with the Scheme Mandate Limit as refreshed.

GRANT OF OPTIONS TO AN INDIVIDUAL EXCEEDING THE 1% LIMIT UNDER THE SHARE OPTION SCHEME

At a meeting of the Board held on 16th September, 2005, it was proposed and approved by the Board (including the independent non-executive Director(s)) that grant of options for 64,400,000 Shares, representing approximately 8% (which is greater than the Scheme Mandate Limit) of the Shares in issue as at the Latest Practicable Date, be conditionally offered to the Proposed Grantee under the Share Option Scheme to subscribe for Shares, subject to the approval of the Shareholders at the EGM.

Pursuant to Chapter 23 of the GEM Listing Rules, the total number of Shares issued and to be issued upon exercise of such options granted to each participant (including both exercised and outstanding options) in any 12-month period shall not exceed 1% of the Shares in issue (“1% Individual Limit”). Where any further grant of options to a participant would result in the Shares issue and to be issued upon exercise of all options granted and to be granted to such person (including exercised, cancelled and outstanding options) in the 12-month period up to and including the date of such further grant representing in aggregate over 1% Individual Limit, such further grant must be separately approved by the Shareholders in the EGM with such participant and his associates abstaining from voting.

If the Proposed Grant is approved by Shareholders at the EGM, the total number of Shares issued and to be issued upon exercise of the Proposed Grant (including both exercised and outstanding options) in any 12-month period shall exceed 1% Individual Limit. The Proposed Grantee and its Associates shall abstain from voting at the EGM in relation to the resolution no. 2. Any vote taken at the EGM to approve the resolution no. 2 shall be taken on a poll.

As at the Latest Practicable Date, the Proposed Grantee does not hold any Shares of the issued share capital of the Company. Upon full exercise of the Proposed Grant, the Proposed Grantee will hold 64,400,000 Shares representing 7.4% of the enlarged issued share capital of the Company.

Subject to the approval of the Shareholders at the EGM, options were deemed to have been conditionally granted to and were conditionally accepted by the Proposed Grantee on 16th September, 2005, on which a written acceptance of the offer duly signed by the

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LETTER FROM THE BOARD

Proposed Grantee in accordance with the terms of the Share Option Scheme was received by the Company from the Proposed Grantee. In the event that the Proposed Grant is not approved by the Shareholders at the EGM, the Proposed Grant and the offer and acceptance thereof shall be deemed to be null and void and of no further effect. The terms of the Proposed Grant also stipulate that no option may be exercised prior to the date of approval of the Proposed Grant by the Shareholders at the EGM.

The principal terms of the Proposed Grant are as follows:

		No. of
Date of	Name of	options	No. of
conditional	Proposed	granted	options	Exercise
grant	Grantee	previously	granted	Price	Exercise Period
16th	To Kei Fung	Nil	64,400,000	HK$0.04	Between 20th September, 2005
September,			(Note 1)	(Note 2)	to 19th September, 2015
2005					(Note 2)

Notes:

• (1) 64,400,000 Shares, representing approximately 8% of the total issued share capital of the Company as at the Latest Practical Date.

• (2) Pursuant to terms of the Share Option Scheme, 16th September, 2005, the date of the meeting of the Board approving the Proposed Grant, shall be taken as the date of grant for the purpose of calculating the exercise price under the Proposed Grant. The proposed exercise price of the Proposed Grant of HK$0.04 represents the higher of the closing price of the Shares as stated in the Stock Exchange’s daily quotations sheet on 16th September, 2005, date of grant, (i.e. HK$0.04) and a price being the average closing prices of the Shares as stated in the Stock Exchange’s daily quotations sheets for the 5 Business Days immediately preceding 16th September, 2005,date of grant, (i.e. HK$0.04).

The Shares to be allotted upon the exercise of the options under the Proposed Grant will be subject to all the provisions of the articles of association of the Company for the time being in force and will rank pari passu in all respects with the fully paid Shares in issue on the date of their allotment and issue, and accordingly will entitle the Proposed Grantee to participate in all dividends or other distributions paid or made on or after the date of allotment and issue other than any dividend or other distribution previously declared or recommended or resolved to be paid or made if the record date therefore shall be before the date of allotment and issue.

The purpose of the grant of the Proposed Grant to the Proposed Grantee is to recognise his continuing contributions and dedication towards the development of the Group. The Proposed Grantee has entered into a service agreement (“Service Agreement”) with the Company on 1st August, 2005 for a period of three years (“Initial Period”). According to the Service Agreement, his appointment will continue after the Initial Period unless and until terminated by the Company or himself by giving to the other not less than six months’ prior notice, and no performance target was imposed on the Proposed Grantee.

The Board is of the view that the grant of the Proposed Grant is the best way to retain, reward and motivate the Proposed Grantee without imposing financial burden to the Group.

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LETTER FROM THE BOARD

The grant of the Proposed Grant has been approved by the independent non-executive Directors who are of the view that the Proposed Grantee has substantial contribution to the Group and should be rewarded for his contribution and could ensure a firm bond between the Proposed Grantee and the Company, which will ultimately benefit the Company.

EXTRAORDINARY GENERAL MEETING

A notice of the EGM is set out in pages 9 to 10 of this circular at which resolutions will be proposed to be considered and, if thought fit, passed by the Shareholders to approve the refreshment of the 10% general limit on grant of options under the Share Option Scheme and the grant of options to an individual exceeding the 1% limit.

ACTION TO BE TAKEN

A form of proxy for the Extraordinary General Meeting is enclosed with this circular. If you do not intend to be present at the Extraordinary General Meeting, you are requested to complete the form of proxy and return it to the branch share registrar of the Company, that is Secretaries Limited, at Ground Floor, BEA Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong in accordance with the instructions printed thereon not less than 48 hours before the time fixed for the meeting. The completion and delivery of a form of proxy will not preclude you from attending and voting at the meeting in person.

PROCEDURES FOR DEMANDING A POLL

Pursuant to the Company’s articles of association, at any general meeting a resolution put to the vote of the meeting shall 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:

• (a) by the chairman of the meeting; or

• (b) by at least three members present in person or in the case of a member being a corporation by its duly authorized representative or by proxy for the time being entitled to vote at the meeting; or

• (c) by a member or members present in person or in the case of a member being a corporation by its duly authorized representative or by proxy and representing not less than one-tenth of the total voting rights of all members having the right to vote at the meeting; or

• (d) by a member or members present in person or in the case of a member being a corporation by its duly authorized representative or by proxy and holding shares in the Company conferring a right to vote at the meeting being shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all shares conferring that right.

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LETTER FROM THE BOARD

RECOMMENDATION

The Board considers that the refreshment of the 10% general limit on grant of options under the Share Option Scheme is in the best interests of the Company and its shareholders as a whole.

The Board (including the independent non-executive Directors) is of the view that for further development of the Group which the Proposed Grantee is expected to make substantial contribution, it is in the best interests of the Company and its Shareholders to provide incentives to the Proposed Grantee by way of granting options to him under the Proposed Grant.

The Board (including the independent non-executive Directors) therefore recommends that the Shareholders should vote in favour of the resolutions to be proposed at the EGM.

Yours faithfully, By Order of the Board Milkyway Image Holdings Limited LAW SAU YIU, DENNIS Chairman

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NOTICE OF EXTRAORDINARY GENERAL MEETING

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(Incorporated in the Cayman Islands with limited liability) (the “Company”) (Stock Code: 8130)

NOTICE OF EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN that the Extraordinary General Meeting of Milkyway Image Holdings Limited (the “Company”) will be held at 2nd Floor, No. 77 Hung To Road, Kwun Tong, Kowloon, Hong Kong on Friday, 28th October, 2005 at 4:00 p.m. for the purpose of considering and, if thought fit, passing the following ordinary resolutions, with or without modifications:

ORDINARY RESOLUTIONS

1. “ THAT subject to and conditional upon the Listing Committee of The Stock Exchange of Hong Kong Limited granting listing of, and permission to deal in, any Shares which may be issued pursuant to the exercise of options which may be granted under Share Option Scheme, the refreshment of the Share Option Scheme and the other share option scheme(s) of the Company (if any), up to 10% of the number of the Shares in issue as at the date of passing this resolution (“Refreshed Limit”) be and is hereby approved and any director of the Company be and is hereby authorized to do such act and execute such document to effect the Refreshed Limit.”

2. “ THAT the grant of options under the share option scheme of the Company which was adopted by the Company on 2nd August, 2002 and refreshed by Shareholders on 17th January, 2003, to Mr. To Kei Fung entitling him to subscribe for 64,400,000 ordinary shares of HK$0.01 each (“Shares”) in the share capital of the Company be and is hereby approved and any one director of the Company be and is authorized to do such things and acts as may be necessary or expedient in order to give full effect to such grant of options.”

By Order of the Board Milkyway Image Holdings Limited Lee Wai Ming Company Secretary

Hong Kong, 7th October, 2005

* For identification purpose only

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NOTICE OF EXTRAORDINARY GENERAL MEETING

Head office and principal place of business: 1st Floor, 77 Hung To Road Kwun Tong Kowloon Hong Kong

Registered office: Century Yard Cricket Square Hutchins Drive P. O. Box 2681GT George Town Grand Cayman British West Indies

Notes:

1. A member of the Company entitled to attend and vote at the meeting is entitled to appoint one or more proxies to attend and vote instead of him. A proxy need not be a member of the Company.

2. To be valid, a form of proxy in the prescribed form together with the power of attorney or other authority (if any) under which it is signed or a certified copy thereof must be deposited at the Company’s Branch Share Registrar in Hong Kong, Secretaries Limited at Ground Floor, BEA Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong not less than 48 hours before the time fixed for holding the meeting or any adjournment thereof.

3. Completion and delivery of the form of proxy will not preclude a member from attending and voting in person at the meeting if the member so desires and in such event, the instrument appointing a proxy shall be deemed to be revoked.

4. If the resolution no. 1 does not carried, resolution no. 2 will not be proposed to be considered by members at the Extraordinary General Meeting.

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