Digital China Holdings Limited — Proxy Solicitation & Information Statement 2002

Oct 30, 2002

THE DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares in Dong Fang Gas Holdings Limited, you should at once hand this document, together with the enclosed form of proxy, to the purchaser or the transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or the transferee.

The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this document, 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 document.

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DONG FANG GAS HOLDINGS LIMITED ������������[*]

(Incorporated in Bermuda with limited liability)

GENERAL MANDATES TO ISSUE AND REPURCHASE SHARES

A notice convening a special general meeting of Dong Fang Gas Holdings Limited to be held at 11/F., Paul Y. Centre, 51 Hung To Road, Kwun Tong, Kowloon, Hong Kong on 15th November, 2002 at 10:30 a.m. is set out on pages 9 to 12 of this document. Whether or not you are able to attend such meeting, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon to the branch share registrars of Dong Fang Gas Holdings Limited in Hong Kong, Standard Registrars Limited at 5th Floor, Wing On Centre, 111 Connaught Road Central, Hong Kong as soon as possible but in any event not later than 48 hours before the time appointed for the holding of the meeting or any adjourned meeting. Completion of the forms of proxy will not preclude you from attending and voting at the meeting in person if you so wish.

30th October, 2002

* For identification purpose only

CONTENTS

	Page
Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
Notice of Special General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9

– i –

DEFINITIONS

In this document, unless the context otherwise indicates, the following expressions have the following meanings:–

• “Announcement”

the press announcement dated 20th September, 2002 made by the Company regarding, among others, the Subscription and the Placing

“Board”

the board of Directors

• “China Strategic”

China Strategic Holdings Limited, a company incorporated in Hong Kong with limited liability, the shares of which are listed on the Stock Exchange

“Company” Dong Fang Gas Holdings Limited, a company incorporated in Bermuda with limited liability, the shares of which are listed on the Stock Exchange

• “Conversion Option Deed” the deed dated 13th December, 2000 executed by the Company in favour of Simonson granting the right to Simonson to convert the Convertible Loan into Shares, as disclosed in the announcement of the Company dated 13th December, 2000

• “Convertible Loan” the convertible loan in the principal sum of US$12 million advanced by Simonson to Companion-China Limited, a whollyowned subsidiary of the Company, on and pursuant to the terms of the deed dated 19th April, 1997 (as supplemented)

• “Convertible Loan Assignment” the deed of assignment dated 18th February, 2002 made between, among others, Simonson and Perfect Master Ltd., relating to the assignment by Simonson to Perfect Master Ltd. of the rights and interest under or in respect of the Convertible Loan and the Conversion Option Deed, as disclosed in the announcement of the Company dated 18th February, 2002

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

• “Hong Kong”

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

• “Issue Mandate”

the issue mandate to be proposed at the Special General Meeting in the terms set out as resolution numbered 1 of the notice convening the Special General Meeting

– 1 –

DEFINITIONS

“Latest Practicable Date”	25th October, 2002, being the latest practicable date prior to
	the printing of this document for ascertaining certain information
	contained in this document
“Listing Rules”	the Rules Governing the Listing of Securities on the Stock
	Exchange
“Placing”	the placing of 25,000,000,000 new Shares by Tai Fook Securities
	Company Limited on a best efforts basis pursuant to the Placing
	Agreement
“Placing Agreement”	the conditional placing agreement dated 4th June, 2002 entered
	into between the Company and Tai Fook Securities Company
	Limited in relation to the Placing
“Repurchase Mandate”	the repurchase mandate to be proposed at the Special General
	Meeting in the terms set out as resolution numbered 2 of the
	notice convening the Special General Meeting
“Share(s)”	share(s) of HK$0.01 each in the capital of the Company
“Shareholder(s)”	holder(s) of the Share(s)
“Simonson”	Simonson International Development Limited
“Special General Meeting”	the special general meeting of the Company to be convened on
	15th November, 2002 at 10:30 a.m. at 11/F., Paul Y. Centre, 51
	Hung To Road, Kwun Tong, Kowloon, Hong Kong, the notice
	of which is set out on pages 9 to 12 of this document
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Subscription”	the subscription for 20,000,000,000 new Shares by China
	Strategic pursuant to the Subscription Agreement
“Subscription Agreement”	the conditional subscription agreement dated 4th June, 2002
	entered into between the Company and China Strategic in
	relation to the Subscription

– 2 –

	DEFINITIONS
“Takeovers Code”	the Hong Kong Code on Takeovers and Mergers
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“US$”	the United States dollars, the lawful currency of the United
	States of America
“%”	per cent.

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LETTER FROM THE BOARD

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DONG FANG GAS HOLDINGS LIMITED ������������[*]

(Incorporated in Bermuda with limited liability)

Directors: Registered office: Dr. CHAN Kwok Keung, Charles Clarendon House Dr. YAP, Allan 2 Church Street Mr. CHAN Kwok Hung Hamilton HM 11 Ms. CHAN Ling, Eva Bermuda Mr. CHEUNG Hon Kit [] Mr. NG Wai Hung [] Principal place of business in Hong Kong: 7/F., Paul Y. Centre * Non-executive Directors 51 Hung To Road Kwun Tong Kowloon Hong Kong

30th October, 2002

To the Shareholders

Dear Sir/Madam,

GENERAL MANDATES TO ISSUE AND REPURCHASE SHARES

INTRODUCTION

Since 28th August, 2002, the date of the last annual general meeting of the Company, the issued share capital of the Company had increased from HK$14,506,162.35 to HK$464,506,162.35 as at the Latest Practicable Date. The increase in the issued share capital during this period was attributed to the issue of 20,000,000,000 Shares and 25,000,000,000 Shares respectively, pursuant to the completion of the Subscription and the Placing, as announced by the Company in the Announcement. Therefore, resolutions will be proposed at the Special General Meeting to grant to the Directors a new general mandate to issue and repurchase Shares.

* For identification purpose only

– 4 –

LETTER FROM THE BOARD

This document sets out the explanatory statement required to be given in connection with the proposed grant of the Repurchase Mandate in compliance with the Listing Rules and gives all the information reasonably necessary to enable the Shareholders to make an informed decision on whether to vote for or against the resolutions to approve the Issue Mandate and the Repurchase Mandate at the Special General Meeting.

ISSUE MANDATE

At the Special General Meeting, an ordinary resolution will be proposed, to grant to the Directors the Issue Mandate in order to ensure flexibility and discretion to the Directors in the event it becomes desirable for the Company to issue Shares up to an aggregate of 20% of the issued share capital of the Company as at the date of passing the relevant resolution.

As at the Latest Practicable Date, the aggregate number of Shares in issue was 46,450,616,235. Pursuant to the Conversion Option Deed and the Convertible Loan Assignment, Perfect Master Ltd. is entitled to exercise the option to convert the Convertible Loan and accrued interest into Shares on the terms set out in the Conversion Option Deed. The issue price per Share upon exercise of the option under the Conversion Option Deed is 90% of the average closing price per Share as quoted on the Stock Exchange for the 20 trading days immediately preceding (and excluding) the date of the conversion notice. The maximum number of Shares to be issued and allotted upon exercise of the option under the Conversion Option Deed shall not exceed 20% of the issued share capital of the Company immediately prior to the issue of such Shares.

Subject to the passing of the relevant ordinary resolution to approve the Issue Mandate and on the basis that no further Shares are issued or repurchased prior to the Special General Meeting, the Company will be allowed under the Issue Mandate to issue a maximum of 9,290,123,247 Shares, being 20% of the issued share capital of the Company as at the time of passing such resolution.

REPURCHASE MANDATE

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

Subject to the passing of the relevant ordinary resolution to approve the Repurchase Mandate and on the basis that no further Shares are issued or repurchased prior to the Special General Meeting, the Company will be allowed under the Repurchase Mandate to repurchase a maximum of 4,645,061,623 Shares, being 10% of the issued share capital of the Company as at the time of passing such resolution.

– 5 –

LETTER FROM THE BOARD

REASONS FOR REPURCHASES

The Directors believe that the Repurchase Mandate is in the interests of the Company and the Shareholders as the ability of the Company to repurchase the Shares pursuant to the Repurchase Mandate will give the Company additional flexibility. Such repurchases may, depending on market conditions and funding arrangements at the time, lead to an enhancement of the value and/or earnings per Share and will only be made when the Directors believe that such repurchases will benefit the Company and the Shareholders.

FUNDING OF REPURCHASES

In repurchasing the Shares, the Company may only apply funds legally available for such purpose in accordance with its memorandum of association and bye-laws and the applicable laws of Bermuda.

An exercise of the Repurchase Mandate in full could have a material adverse impact on the working capital and the gearing levels of the Company (as compared with the position disclosed in the Company’s annual report for the year ended 31st March, 2002). The Directors do not propose to exercise the Repurchase Mandate to such extent as would, in the circumstances, have a material adverse impact on the working capital or the gearing levels of the Company (as compared with the position disclosed in the Company’s annual report for the year ended 31st March, 2002).

GENERAL

The Directors have undertaken to the Stock Exchange to exercise the Repurchase Mandate in accordance with the Listing Rules and the applicable laws of Bermuda.

If, on the exercise of the power to repurchase Shares pursuant to the Repurchase Mandate, 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 the Takeovers Code. As a result, a Shareholder or group of Shareholders acting in concert could obtain or consolidate control of the Company and become obliged to make a mandatory offer in accordance with Rule 26 of the Takeovers Code for all Shares not already owned by such Shareholder or group of Shareholders.

As at the Latest Practicable Date, China Strategic, being the controlling Shareholder, is beneficially interested in approximately 43.06% of the issued share capital of the Company. On the basis that no further Shares are issued or repurchased prior to the Special General Meeting, and in the event that the Directors exercise in full the power to repurchase Shares pursuant to the Repurchase Mandate, the shareholdings of China Strategic in the Company would be increased to approximately 47.84% of the issued share capital of the Company. As a result, China Strategic would be required under Rule 26 of the Takeovers Code to make a mandatory offer pursuant to such increase. However, such an increase will not result in the aggregate amount of the issued share capital of the Company in public hands to be reduced to less than 25%. The Directors have no present intention to exercise the Repurchase Mandate to such an extent as would trigger a takeover obligation by China Strategic.

– 6 –

LETTER FROM THE BOARD

None of the Directors or, to the best of their knowledge having made all reasonable enquiries, any of their respective associates (as defined in the Listing Rules), has any present intention to sell any Shares to the Company or its subsidiaries.

No connected person (as defined in the Listing Rules) has notified the Company that he has a present intention to sell any Shares to the Company, or has undertaken not to do in the event that the Company is authorised to make purchases of Shares.

SHARE PRICES

The highest and lowest prices at which the Shares were traded on the Stock Exchange in each of the previous twelve months immediately prior to the Latest Practicable Date were as follows:–

	Highest	Lowest
	HK$	HK$
2001
October	0.038	0.021
November	0.026	0.018
December	0.029	0.020
2002
January	0.031	0.022
February	0.026	0.021
March	0.024	0.020
April	0.023	0.020
May	0.045	0.021
June	0.074	0.025
July	0.047	0.025
August	0.031	0.018
September	0.021	0.010

No repurchase of Shares has been made by the Company or any of its subsidiaries during the six months immediately prior to the Latest Practicable Date.

PROXIES

A form of proxy for use at the Special General Meeting is enclosed. Shareholders are requested to complete and return the form of proxy in accordance with the instructions printed thereon to the branch share registrars of the Company in Hong Kong, Standard Registrars Limited, at 5th Floor, Wing On Centre, 111 Connaught Road Central, Hong Kong whether or not they are able to attend

– 7 –

LETTER FROM THE BOARD

the relevant meeting in person. It is requested that the form of proxy be returned as soon as possible, and in any event not less than 48 hours before the time appointed for the holding of such meeting or any adjourned meeting thereof (as the case may be).

The lodging of forms of proxy will not preclude Shareholders from attending and voting in person at the Special General Meeting should they so desire.

RECOMMENDATION

The Directors believe that the granting of the Issue Mandate and the Repurchase Mandate is in the interests of the Company and recommend Shareholders to vote in favour of the resolutions to approve the same at the Special General Meeting.

Yours faithfully,

For and on behalf of the board of directors of

Dong Fang Gas Holdings Limited Chan Ling, Eva Executive Director

– 8 –

NOTICE OF SPECIAL GENERAL MEETING

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DONG FANG GAS HOLDINGS LIMITED ������������[*]

(Incorporated in Bermuda with limited liability)

NOTICE IS HEREBY GIVEN THAT the special general meeting of the shareholders of Dong Fang Gas Holdings Limited (the “Company”) will be held at 11/F., Paul Y. Centre, 51 Hung To Road, Kwun Tong, Kowloon, Hong Kong at 10:30 a.m. on 15th November, 2002 for the purpose of considering and, if thought fit, passing the following resolutions as ordinary resolutions:

ORDINARY RESOLUTIONS

1. “THAT:–

• (a) subject to paragraph (c) of this resolution, the exercise by the directors of the Company (the “Directors”) during the Relevant Period (as hereinafter defined) of all the powers of the Company to allot, issue and deal with additional shares in the capital of the Company or securities convertible to such shares or options, warrants or similar rights to subscribe for any shares in the Company or such convertible securities and to make or grant offers, agreements and options, including warrants to subscribe for shares, which would or might require the exercise of such powers, subject to and in accordance with all applicable laws, be and is hereby generally and unconditionally approved;

• (b) the approval in paragraph (a) of this resolution shall be in addition to any other authorisation given to the Directors and shall authorise the Directors during the Relevant Period to make or grant offers, agreements and options which would or might require the exercise of such powers after the end of the Relevant Period;

• (c) the aggregate nominal amount of share capital allotted or agreed conditionally or unconditionally to be allotted and issued (whether pursuant to an option or otherwise) by the Directors pursuant to the approval in paragraph (a) of this resolution, otherwise than pursuant to (i) a Rights Issue (as hereinafter defined); (ii) the exercise of rights of subscription or conversion under the terms of any existing warrants, bonds, debentures, notes, deeds or other securities which are convertible into shares; (iii) an issue of shares pursuant to the exercise of options granted under any share option scheme adopted by the Company; (iv) an issue of shares in lieu of the whole or part of a dividend on shares in accordance with the Company’s bye-laws; or (v) any offer of

* For identification purpose only

– 9 –

NOTICE OF SPECIAL GENERAL MEETING

any class of securities of the Company made pro rata (apart from fractional entitlements) by the Company to holders of such class of securities (excluding for that purpose any holder whose registered addresses as shown in the register of members of the Company on the relevant record date are outside Hong Kong), shall not exceed 20% of the aggregate nominal amount of the share capital of the Company in issue as at the time of passing this resolution, and the said approval shall be limited accordingly; and

• (d) for the purpose of this resolution:–

“Relevant Period” means the period from the passing of this resolution until whichever is the earliest of:–

• (i) the conclusion of the next annual general meeting of the Company;

• (ii) the expiration of the period within which the next annual general meeting of the Company is required by any applicable law or the bye-laws of the Company to be held; and

• (iii) the revocation or variation of this resolution by an ordinary resolution of the shareholders of the Company in general meeting.

“Rights Issue” mean an offer of shares or issue of options, warrants or other securities convertible into shares open for a period fixed by the Directors to holders of shares on the register of members on a fixed record date in proportion to their then holdings of such shares (subject to such exclusions or other arrangements as the Directors may deem necessary or expedient in relation to fractional entitlements or having regard to any restrictions or obligations under the laws of any relevant jurisdiction, or the requirements of any recognised regulatory body or any stock exchange in any territory applicable to the Company).”

2. “THAT:–

• (a) subject to paragraph (c) of this resolution, the exercise of the Directors during the Relevant Period (as hereinafter defined) of all powers of the Company to repurchase issued shares in the capital of the Company on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) or any other stock exchange on which the shares of the Company may be listed and recognised by the Securities and Futures Commission of Hong Kong and the Stock Exchange for this purpose (“Recognised Stock Exchange”), subject to and in accordance with all applicable laws and the requirements of the Rules Governing the Listing of Securities on the Stock Exchange as amended from time to time or those of any other Recognised Stock Exchange, be and is hereby generally and unconditionally approved;

– 10 –

NOTICE OF SPECIAL GENERAL MEETING

• (b) the approval in paragraph (a) of this resolution shall be in addition to any other authorisation given to the Directors and shall authorise the Directors on behalf of the Company during the Relevant Period to procure the Company to purchase its shares at a price determined by the Directors;

• (c) the aggregate nominal amount of share capital of the Company repurchased or agreed conditionally or unconditionally to be repurchased by the Company pursuant to the approval in paragraph (a) of this resolution during the Relevant Period shall not exceed 10% of the aggregate nominal amount of the share capital of the Company in issue as at the time of passing this resolution, and the said approval shall be limited accordingly; and

• (d) for the purpose of this resolution:–

“Relevant Period” means the period from the passing of this resolution until whichever is the earliest of:–

• (i) the conclusion of the next annual general meeting of the Company;

• (ii) the expiration of the period within which the next annual general meeting of the Company is required by any applicable law or the bye-laws of the Company to be held; and

• (iii) the revocation or variation of this resolution by an ordinary resolution of the shareholders of the Company in general meeting.”

3. “THAT conditional upon the passing of ordinary resolutions numbered 1 and 2 as set out in the notice of the meeting of which this resolution forms part, the aggregate nominal amount of the shares in the capital of the Company which are repurchased by the Company pursuant to and in accordance with the said ordinary resolution numbered 2 shall be added to the aggregate nominal amount of the share capital of the Company that may be allotted or agreed conditionally or unconditionally to be allotted by the Directors pursuant to and in accordance with the said ordinary resolution numbered 1.”

By order of the board of directors of

Dong Fang Gas Holdings Limited Chan Ling, Eva Executive Director

Dated: 30th October, 2002

– 11 –

NOTICE OF SPECIAL GENERAL MEETING

Principal place of business in Hong Kong:–

7/F., Paul Y. Centre

51 Hung To Road

Kwun Tong Kowloon Hong Kong

Notes:

1. A member entitled to attend and vote at the meeting is entitled to appoint another person as his proxy to attend and vote instead of him. A member who is the holder of two or more shares may appoint more than one proxy to represent him and vote on his behalf at the meeting. A proxy need not be a member of the Company.

2. In order to be valid, the form of proxy together with the power of attorney or other authority (if any) under which it is signed (or a certified copy of such power or authority), must be deposited at the branch share registrars of the Company in Hong Kong, Standard Registrars Limited at 5th Floor, Wing On Centre, 111 Connaught Road Central, Hong Kong not less than 48 hours before the time appointed for the holding of the meeting or any adjourned meeting.

3. With regard to ordinary resolution numbered 1 above, the Directors wish to state that they have no immediate plans to issue any new shares of the Company (“Shares”) save for the issue of Shares pursuant to the exercise of option granted under the conversion option deed dated 13th December, 2000 executed by the Company in favour of Simonson International Development Limited (“Simonson”), whose interests and rights therein were subsequently assigned to Perfect Master Ltd. by a deed of assignment dated 18th February, 2002 made between, among others, Simonson and Perfect Master Ltd.

– 12 –