G-Resources Group Limited — Proxy Solicitation & Information Statement 2002

Aug 6, 2002

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular 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 all your shares in Credit Card DNA Security System (Holdings) Limited, 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.

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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**CREDIT CARD DNA SECURITY SYSTEM (HOLDINGS) LIMITED ***

(Incorporated in Bermuda with limited liability)

DISCLOSEABLE TRANSACTION

SUBSCRIPTION FOR PREFERENCE SHARES IN AND GRANT OF OPTION BY W-PHONE, INC.

* For identification purposes only

2 August 2002

Credit Card DNA Security System (Holdings) Limited

CONTENTS

		Page
DEFINITIONS .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
**LETTER FROM **	THE BOARD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
Introduction	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
Subscription Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		5
Shareholdings in the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		11
Financial effects of the transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		11
Information	on W-Phone . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
Reasons for	the transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
General . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
APPENDIX	— GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15

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Credit Card DNA Security System (Holdings) Limited

DEFINITIONS

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

“Board”	the board of Directors
“Company”	Credit Card DNA Security System (Holdings) Limited, a
	company incorporated in Bermuda with limited liability, the
	shares of which are listed on the Stock Exchange
“Completion”	completion of the subscription of the Subscription Shares
	under the Subscription Agreement which took place on 24
	July 2002
“Common Stock”	ordinary shares of US$0.001 each in the capital of W-Phone
“Consideration Shares”	38,000,000 Shares issued by the Company on Completion to
	satisfy the consideration payable for the Subscription Shares
	under the Subscription Agreement
“Consultancy Agreement”	the agreement dated 1 January 2002 entered into between Mr.
	Fred Sum and W-Phone in connection with Mr. Fred Sum
	providing certain consulting services to W-Phone
“Convertible Note”	a convertible loan note due 2004 in an outstanding aggregate
	principal amount of HK$13,800,000 issued by the Company
	on 16 July 2001
“Directors”	the directors of the Company, including its independent
	non-executive directors
“Mr. Fred Sum”	Sum Mun Kid, Frederick, an independent non-executive
	Director
“Group”	the Company and its subsidiaries
“Hong Kong”	the Hong Kong Special Administrative Region of the PRC
“Latest Practicable Date”	31 July 2002, being the latest practicable date prior to the
	printing of this circular for ascertaining certain information
	contained in this circular
“Listing Rules”	The Rules Governing the Listing of Securities on the Stock
	Exchange
“Option”	an option granted by W-Phone to Star Cyber DNA,
	exercisable at any time during the Option Period, to require
	W-Phone to issue to Star Cyber DNA the Option Shares

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Credit Card DNA Security System (Holdings) Limited

DEFINITIONS

“Option Period”	the period commencing on the date of Completion (i.e. 24
	July 2002) and ending on the date falling twelve months after
	the date of Completion (i.e. 23 July 2003)
“Option Shares”	2,244,445 Series C1 Preference Shares
“PRC”	the People’s Republic of China
“Preferred Stock”	preference shares of US$0.001 each in the capital of
	W-Phone, divided into three series namely “Series A
	Preference Shares” “Series B Preference Shares” and “Series
	C1 Preference Shares”
“Qualified Financing Securities”	the same class and series of securities issued in a Qualified
	Financing with the same purchase price and upon the same
	terms applicable to the Qualified Financing
“Qualified Financing”	the closing of a financing (other than a debt financing)
	undertaken by W-Phone principally for capital raising
	purposes in which the aggregate amount of gross proceeds
	received by W-Phone exceeds US$5,000,000 (equivalent to
	about HK$39,000,000)
“Registration Rights Agreement”	an agreement entered into between Star Cyber DNA and
	W-Phone on Completion as described in the section headed
	“Registration Rights Agreement” in the letter from the Board
“SDI Ordinance”	the Securities (Disclosure of Interests) Ordinance (Chapter
	396 of the Laws of Hong Kong)
“Star Cyber DNA”	Star Cyber DNA Limited, a company incorporated in the
	British Virgin Island with limited liability, a wholly owned
	subsidiary of the Company
“Subscription Shares”	422,222 Series C1 Preference Shares
“Subscription Agreement”	the conditional agreement dated 10 July 2002 between Star
	Cyber DNA and W-Phone for the subscription of the
	Subscription Shares by Star Cyber DNA and grant of the
	Option
“Share Options”	options to subscribe for Shares granted under the share option
	scheme of the Company adopted on 11 April 1994 and
	modified on 27 July 2001
“Shares”	ordinary shares of HK$0.01 each in the capital of the
	Company
“Stock Exchange”	The Stock Exchange of Hong Kong Limited

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Credit Card DNA Security System (Holdings) Limited

DEFINITIONS

“Series C1 Preference Shares”	Series C1 preference shares	of US$0.001 each in the	capital	capital
	W-Phone
“W-Phone”	W-Phone, Inc., a company	incorporated in the state		of
	Delaware in the United States of America which		is	not
	connected with any of the	directors, chief executives		and
	substantial shareholders of	the Company or any	of	its
	subsidiaries or their respective associates (as defined		in	the
	Listing Rules)
“HK$”	Hong Kong dollars
“US$”	United States dollars

Unless otherwise stated, amounts in US$ have been translated, for illustration purpose only, into HK$ at an exchange rate of US$1 to HK$7.8.

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Credit Card DNA Security System (Holdings) Limited

LETTER FROM THE BOARD

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**CREDIT CARD DNA SECURITY SYSTEM (HOLDINGS) LIMITED ***

(Incorporated in Bermuda with limited liability)

Executive Directors: WONG Kam Fu (Chairman) CHAN Kwong On, Daniel WONG Kam Wing WANG Zhao Bin ZHAO Hua LEW Mon Hung

Independent non-executive Directors: SUM Mun Kid, Frederick HA Ping

Registered office: Cedar House 41 Cedar Avenue Hamilton HM12 Bermuda

Head office and principal place of business in Hong Kong:

11th Floor Tai Sang Bank Building 130-132 Des Voeux Road Central Hong Kong

2 August 2002

To the Shareholders

Dear Sir or Madam,

DISCLOSEABLE TRANSACTION

SUBSCRIPTION FOR PREFERENCE SHARES IN AND GRANT OF OPTION BY W-PHONE, INC.

INTRODUCTION

On 11 July 2002, the Company announced that Star Cyber DNA, a wholly owned subsidiary of the Company, had, on 10 July 2002, entered into a conditional agreement with W-Phone pursuant to which:

• (a) Star Cyber DNA agreed with W-Phone to subscribe for 422,222 new Series C1 Preference Shares, representing about 2.53% of its existing issued share capital and about 2.47% of its issued share capital as enlarged by these new shares, for a total consideration of US$633,333 (equivalent to about HK$4,939,997) to be satisfied by Star Cyber DNA

• For identification purposes only

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Credit Card DNA Security System (Holdings) Limited

LETTER FROM THE BOARD

procuring the Company to issue to W-Phone 38,000,000 Consideration Shares, credited as fully paid at HK$0.13 each (representing a premium of about 36.84% to the closing price of the Shares of HK$0.095 on 9 July 2002, being the trading day immediately preceding the date of the Subscription Agreement). Based on the closing price per Share of HK$0.095 on 9 July 2002, the total value of the Consideration Shares is HK$3.61 million;

• (b) in consideration of Star Cyber DNA subscribing for new Series C1 Preference Shares under the Subscription Agreement, W-Phone granted the Option to Star Cyber DNA, exercisable by Star Cyber DNA at any time during the Option Period (in whole or in part), to require W-Phone to issue to Star Cyber DNA the Option Shares, representing about 11.60% of the issued share capital of W-Phone as enlarged by the Subscription Shares and the Option Shares. The consideration for the acquisition of the Option Shares is an amount of US$3,366,667.5 (equivalent to about HK$26.26 million) to be satisfied by Star Cyber DNA procuring the Company to issue to W-Phone an equivalent value of Shares, credited as fully paid at the issue price of HK$0.13 per Share (representing a premium of about 36.84% to the closing price of the Shares of HK$0.095 on 9 July 2002, being the trading day immediately preceding the date of the Subscription Agreement). Based on the closing price per Share of HK$0.095 on 9 July 2002, the total value of the Shares that fall to be issued on exercise in full of the Option is HK$19.19 million; and

• (c) W-Phone agreed to enter into the Registration Rights Agreement with Star Cyber DNA on Completion whereby W-Phone shall provide for the rights of Star Cyber DNA to receive financial information concerning W-Phone and registration of Common Stock issued upon conversion of Series C1 Preference Shares then held by Star Cyber DNA.

On 24 July 2002, Completion took place as a result of which the Consideration Shares were issued to W-Phone and Star Cyber DNA and W-Phone entered into the Registration Rights Agreement.

The subscription of the Subscription Shares under the Subscription Agreement constitutes a discloseable transaction for the Company under the Listing Rules. The purpose of this circular is to provide Shareholders with details of the Subscription Agreement and certain information on W-Phone and the Group in compliance with the requirements of Chapter 14 of the Listing Rules.

THE SUBSCRIPTION AGREEMENT

Parties

Issuer:

W-Phone, a company incorporated in the state of Delaware in the United States of America which is not connected with any of the directors, chief executives and substantial shareholders of the Company or any of its subsidiaries or their respective associates (as defined in the Listing Rules)

Subscriber:

Star Cyber DNA, a wholly owned subsidiary of the Company

Date of the Subscription Agreement:

10 July 2002

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Credit Card DNA Security System (Holdings) Limited

LETTER FROM THE BOARD

Assets to be acquired and option granted

Pursuant to the Subscription Agreement, W-Phone agreed to issue the Subscription Shares to Star Cyber DNA on the terms and conditions in the Subscription Agreement. Completion took place on 24 July 2002 as a result of which the Subscription Shares were issued to Star Cyber DNA. The Subscription Shares represent about 2.53% of the existing issued share capital of W-Phone and about 2.47% of the issued share capital of W-Phone as enlarged by the Subscription Shares.

In consideration of Star Cyber DNA agreeing to subscribe for the Subscription Shares pursuant to the terms of the Subscription Agreement, W-Phone has, pursuant to the Subscription Agreement, granted to Star Cyber DNA the Option, exercisable by Star Cyber DNA at any time during the Option Period (in whole or in part), to require W-Phone to issue to Star Cyber DNA the Option Shares, representing about 11.60% of the entire issued share capital of W-Phone after Completion and exercise in full of the Option by Star Cyber DNA.

Series C1 Preference Shares

The Subscription Shares were, and the Option Shares will be, issued with the following principal rights and restrictions:

• (a) The Series C1 Preference Shares will confer upon its holder the right to receive, out of funds legally available therefor, dividends at an annual rate equal to US$0.12 (equivalent to about HK$0.936) (as adjusted for combinations, consolidations, subdivisions or stock splits with respect to such shares) for each issued Series C1 Preference Share, payable when and if declared by the board of W-Phone, in preference and priority to the payment of dividends on any shares of Common Stock.

• (b) Each Series C1 Preference Share will be convertible into such number of fully-paid and non-assessable shares of Common Stock as is determined by dividing the original issue price of the Series C1 Preference Share, being US$1.50 (equivalent to about HK$11.7), by the then applicable conversion price for such Series C1 Preference Share, being initially US$1.50.

• (c) Each Series C1 Preference Share will automatically be converted into shares of Common Stock at the then effective applicable conversion price upon the earlier of:

• (i) the listing of W-Phone on a stock exchange in the United States of America; and

• (ii) the written consent of a majority of shareholders of Series C1 Preference Shares.

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Credit Card DNA Security System (Holdings) Limited

LETTER FROM THE BOARD

• (d) In the event of any liquidation, dissolution, or winding up of W-Phone, whether voluntary or not, or the sale, lease, assignment, transfer, conveyance or disposal of all or substantially all of the assets of W-Phone, or the acquisition of W-Phone by another entity by means of consolidation, corporate reorganizations or merger, or other transaction or series of related transactions in which more than 50% of the outstanding voting power of W-Phone is disposed of, distributions to holders of Series C1 Preference Shares will be made in the following manner:

• (i) the amount of US$1.50 (equivalent to about HK$11.7) (as adjusted for combinations, consolidations, subdivisions, or stock splits with respect to such shares) for each Series C1 Preference Share then held by such holder, plus an amount equal to all declared but unpaid dividends on such Series C1 Preference Shares;

• (ii) if the assets and funds available to be distributed among the holders of the Preferred Stock shall be insufficient to permit the payment to such holders of the full preferential amount, then the entire assets and funds of W-Phone legally available for distribution to such holders shall be distributed rateably based on the total preferential amount due to each such holder;

• (iii) after payment has been made to the holders of Preferred Stock of the full amounts to which they are entitled, the remaining assets of W-Phone available for distribution shall be distributed rateably among the holders of Common Stock.

• (e) A holder of the Series C1 Preference Shares is entitled to attend or vote at any general meetings of W-Phone and the holder of Series C1 Preference Shares shall be entitled to the number of votes equal to the number of shares of Common Stock into which such Series C1 Preference Shares could be converted.

• (f) The holders of Series C1 Preference Shares, voting as a single class, shall be entitled to elect two members to the board of directors of W-Phone.

• (g) All Common Stock to be issued on conversion of the Series C1 Preference Shares will be issued free from all claims, charges, lien, encumbrances and equities and be identical and will rank pari passu in all respects with the Common Stock then in issue.

• (h) The Series C1 Preference Shares may not be transferred unless all applicable laws, rules and regulations of the United States of America have been complied with.

Assuming that all of the Subscription Shares and Option Shares respectively are converted at the initial conversion price of US$1.50 per Series C1 Preference Share (equivalent to about HK$11.7), a total of 2,666,667 shares of Common Stock will fall to be issued, representing about 15.98% of the existing issued share capital of W-Phone and about 13.78% of its issued share capital as enlarged by the issue of these shares of Common Stock.

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Credit Card DNA Security System (Holdings) Limited

LETTER FROM THE BOARD

Registration Rights Agreement

Pursuant to the terms of the Subscription Agreement, W-Phone had, upon Completion, entered into the Registration Rights Agreement with Star Cyber DNA whereby W-Phone provided for the rights of Star Cyber DNA to receive financial information concerning W-Phone and the registration of Common Stock issued upon conversion of the Series C1 Preference Shares then held by Star Cyber DNA in the event of a listing of W-Phone on a stock exchange in the United States of America in order for Star Cyber DNA to transfer its shareholding in W-Phone in accordance with the laws, rules and regulations governing the transfer of shares in the United States of America.

Consideration

The consideration for the issue of the Subscription Shares was determined after arm’s length negotiations between the parties by reference to the issue price for each Series C1 Preference Share presently in issue (i.e. US$1.50, equivalent to about HK$11.7) which was determined by the management of W-Phone to be the fair market value for such shares after having made comparisons to other private companies in the United States of America engaging in businesses of a nature similar to those of W-Phone. Such issue price of US$1.50 is equal to the initial conversion price at which each Series C1 Preference Share is convertible into shares of Common Stock and such issue price is applicable to all Series C1 Preference Shares previously issued by W-Phone and those to be issued to Star Cyber DNA under the Subscription Agreement. If W-Phone issues further Series C1 Preference Shares in the future at an issue price less than US$1.50 per Series C1 Preference Share, a corresponding adjustment will be made to lower the conversion price under the Series C1 Preference Shares such that, on conversion, a greater amount of shares of Common Stock will be issued to the converting holder of the Series C1 Preference Shares.

Although no separate independent valuation of W-Phone was performed, the Board believes that the management and founders of W-Phone have the necessary expertise to operate and expand W-Phone’s businesses, particularly in the PRC and Taiwan markets, and the Group could, through its investment in W-Phone, establish a strategic alliance with W-Phone and explore means by which they could cooperate in future business development. In view of this and the reasons described in the section headed “Reasons for the transactions” below, the Board is of the view that the issue price of US$1.50 per Subscription Share and all other terms of the Subscription Agreement are fair and reasonable and in the interest of the Company and its shareholders as a whole.

Based on an issue price of US$1.50, the total consideration for the Subscription Shares is a sum of US$633,333 (equivalent to about HK$4,939,997) which was satisfied upon Completion by the Company issuing to W-Phone 38,000,000 Consideration Shares at HK$0.13 each. Based on the closing price per Share of HK$0.095 on 9 July 2002 (being the trading day immediately preceding the date of the Subscription Agreement), the total value of the Consideration Shares is HK$3.61 million. The Consideration Shares represent about 0.745% of the Company’s issued share capital immediately prior to the issue of the Consideration Shares and about 0.740% of its existing issued share capital following the issue of the Consideration Shares on 24 July 2002.

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Credit Card DNA Security System (Holdings) Limited

LETTER FROM THE BOARD

Assuming that the Option is exercised in full, the total consideration payable by Star Cyber DNA for the acquisition of the Option Shares is a sum of US$3,366,667.5 (equivalent to about HK$26.26 million and equivalent to US$1.50 per Option Share which is the same as the issue price per Subscription Share) and was determined after arm’s length negotiations between the parties. Having regard to the reasons described above, the Board is of the view that the issue price of US$1.50 per Option Share is fair and reasonable. Such consideration will be satisfied, on completion of the issue of the Option Shares, by the Company issuing 202,000,000 Shares at the issue price of HK$0.13 per Share. Based on the closing price per Share of HK$0.095 on 9 July 2002 (being the trading day immediately prior to the date of the Subscription Agreement), the total value of the Shares that fall to be issued on exercise in full of the Option is HK$19.19 million. In the event of an exercise in full of the Option, such Shares will represent about 3.93% of the Company’s existing issued share capital and about 3.78% of its existing issued share capital as enlarged by the issue of these Shares. The Shares that fall to be issued on full exercise of the Option, together with the Consideration Shares issued on Completion, represent about 4.71% of the Company’s issued share capital immediately prior to the issue of the Consideration Shares on 24 July 2002, about 4.67% of its existing issued share capital and about 4.50% of its existing issued share capital as enlarged by the issue of these Shares.

The issue price of HK$0.13 per Share represents a premium of about 36.84% to the closing price of the Shares of HK$0.095 as quoted on the Stock Exchange on 9 July 2002, being the trading day immediately preceding the date of the Subscription Agreement, a premium of about 19.27% to the average closing price per Share of HK$0.109 quoted on the Stock Exchange for the 10 trading days up to and including 9 July 2002, a premium of about 73.33% to the closing price of HK$0.075 per Share quoted on the Stock Exchange at the Latest Practicable Date and a premium of about 61.29% to the average closing price per Share of HK$0.0806 quoted on the Stock Exchange for the 10 trading days up to and including the Latest Practicable Date.

The Consideration Shares were upon issue, and all new Shares to be issued on exercise of the Option will be, credited as fully paid, rank pari passu in all respects with all Shares in issue on the respective dates of allotment, free from all claims, liens, charges, equities and encumbrances and third party rights of any kind and together with all rights attaching thereto from the respective dates of allotment, including the right to receive all dividends and distributions declared, made or paid on or after such dates.

The Consideration Shares were, and the Shares to be issued on exercise of the Option will be, issued under the general mandate granted to the Directors at the special general meeting of the Company held on 19 April 2002. An application has been made to the Stock Exchange for the granting of the listing of and permission to deal in the Consideration Shares and all new Shares that may fall to be issued on exercise in full of the Option.

Conditions

According to the Subscription Agreement, Completion is conditional upon:

• (a) the Stock Exchange granting the listing of and permission to deal in the Consideration Shares and any Shares which may fall to be issued pursuant to the exercise of the Option;

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Credit Card DNA Security System (Holdings) Limited

LETTER FROM THE BOARD

• (b) if required, permission from the Bermuda Monetary Authority having been obtained in respect of the issue and free transferability of the Consideration Shares and any Shares which may fall to be issued pursuant to the exercise of the Option;

• (c) if required, the shareholders of the Company passing the necessary resolutions at a special general meeting of the Company to approve the Subscription Agreement; and

• (d) Star Cyber DNA being satisfied with the results of a legal and financial due diligence review to be conducted by it on W-Phone (including without limitation the receipt by it of a legal opinion (in form and substance satisfactory to it) from a legal adviser in the United States of America covering such matters as are relevant to the transactions contemplated under the Subscription Agreement as Star Cyber DNA may request).

Pursuant to the Subscription Agreement, if the conditions are not fulfilled by the date falling 60 days after the date of the Subscription Agreement (i.e. 8 September 2002) or such later date as the parties may agree, the Subscription Agreement will lapse and no party to this agreement will have any claim against the other save for any antecedent breach. These conditions were fully satisfied or otherwise waived on 23 July 2002.

Completion

Following the fulfilment or waiver, as applicable, of the conditions described above, Completion took place on 24 July 2002.

Consultancy Agreement

Pursuant to the Subscription Agreement, W-Phone has, amongst others, represented and warranted to Star Cyber DNA that, save as disclosed in the Subscription Agreement, there are no outstanding warrants or other rights to acquire any equity securities of W-Phone. As a disclosure against this warranty of W-Phone, it was revealed to the Company in the Subscription Agreement, amongst others, that Mr. Fred Sum, an independent non-executive Director, had entered into the Consultancy Agreement with W-Phone and, in connection with consulting services to be rendered by Mr. Fred Sum, W-Phone will issue warrants to Mr. Fred Sum to purchase up to 260,000 shares of the Qualified Financing Securities at the same purchase price and upon the same terms applicable to the Qualified Financing.

W-Phone intends to conduct capital raising exercises from time to time. If the aggregate gross proceeds received by W-Phone from such a capital raising exercise exceeds US$5 million (equivalent to about HK$39 million), such capital raising exercise will constitute a Qualified Financing. In the event of a successful implementation of a Qualified Financing, the warrants described above will entitle Mr. Fred Sum to purchase up to 260,000 shares of the same class and series of securities issued by W-Phone in such Qualified Financing, at the same purchase price and on the same terms applicable to such Qualified Financing.

The Board had reviewed the arrangement under the Consultancy Agreement as disclosed to Star Cyber DNA in the Subscription Agreement. The Board considers this disclosure, and the other disclosures made by W-Phone against the warranties given by it to Star Cyber DNA under the Subscription Agreement, to be acceptable.

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Credit Card DNA Security System (Holdings) Limited

LETTER FROM THE BOARD

SHAREHOLDINGS IN THE COMPANY

As at the Latest Practicable Date and following the issue of the Consideration Shares on 24 July 2002, the Company had 5,136,334,165 Shares in issue. The following table illustrates the changes in the Company’s shareholding structures before and after the issue of the Consideration Shares and Shares upon full exercise of the Option.

	Immediately				Immediately
	before the	Approximate		Approximate	after issue of	Approximate
	issue of the	percentage of		percentage of	Shares on full	percentage of
	Consideration	the then issued	As at the Latest	the issued	exercise of the	the issued
	Shares	share capital	Practicable Date	share capital	Option	share capital
Sheung Hai
Developments
Limited and its
associate
company	1,683,991,543	33.03%	1,683,991,543	32.78%	1,683,991,543	31.54%
Win Channel
Investments
Limited	1,993,192,348	39.10%	1,993,192,348	38.81%	1,993,192,348	37.34%
W-Phone	—	—	38,000,000	0.74%	240,000,000	4.50%
Public	1,421,150,274	27.87%	1,421,150,274	27.67%	1,421,150,274	26.62%
Total	5,098,334,165	100%	5,136,334,165	100%	5,338,334,165	100%

The Subscription Agreement does not provide for the rights of W-Phone to nominate any person to the Board and W-Phone presently does not intend to nominate any such person.

FINANCIAL EFFECTS OF THE TRANSACTIONS

Assets and liabilities

As disclosed in the latest unaudited consolidated financial statements of the Group for the six months ended 31 December 2001, the Group recorded unaudited net liabilities of about HK$20,355,000 as at 31 December 2001, representing an unaudited net deficit per Share of about HK$0.042. Following completion of the capital injection by the existing controlling shareholders of the Company as announced by the Company on 23 April 2002, the Group recorded an unaudited net asset value of about HK$23,646,000, representing an unaudited net asset value per Share of about HK$0.005. (Further details on the financial impact of such capital injection were disclosed in the Company’s circular dated 26 March 2002.) On 20 June 2002, two convertible loan notes issued by the Company in an aggregate principal amount of HK$10,350,000 were converted by the holder of such notes into Shares at a conversion price of HK$0.0952 per Share. As a result of this conversion, 108,718,486 Shares were issued and the unaudited net asset value of the Group was increased by HK$10,350,000 to about HK$33,996,000, representing an unaudited net asset value per Share of about HK$0.0067.

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Credit Card DNA Security System (Holdings) Limited

LETTER FROM THE BOARD

Following Completion on 24 July 2002, the net asset value of the Group was increased by an amount equal to the value of the Consideration Shares by reference to the closing price per Share as quoted on the Stock Exchange on the date of Completion. Based on the closing price per Share of HK$0.085 as quoted on the Stock Exchange on 24 July 2002, the unaudited net asset value of the Group immediately following Completion was increased by an amount of HK$3,230,000 to approximately HK$37,226,000 and the unaudited net asset value per Share was increased to about HK$0.0072.

Assuming that the Option is exercised in full, the net asset value of the Group will be increased by an amount equal to the value of the Shares issued pursuant to a full exercise of the Option by reference to the closing price per Share as quoted on the Stock Exchange on the date of such issue. On this basis and assuming that the closing price per Share as quoted on the Stock Exchange on the date of such issue is HK$0.075 (equivalent to its closing price as at the Latest Practicable Date), the unaudited net asset value of the Group immediately following Completion and full exercise of the Option will be increased by an amount of HK$15,150,000 to approximately HK$52,376,000 and the unaudited net asset value per Share would be increased to about HK$0.0098.

Earnings

For the two years ended 31 December 2001, W-Phone had recorded consolidated net losses before tax and extraordinary items in its unaudited and audited profit and loss accounts amounting to about US$3.12 million (equivalent to about HK$24.34 million) and about US$7.225 million (equivalent to about HK$56.36 million) respectively, averaging about US$5.17 million (equivalent to about HK$40.35 million) per year. (Further details on W-Phone’s financial performance are set out in the section headed “Information on W-Phone” below.) However, the Board believes that the management of W-Phone has the necessary expertise and connection in the industry of wireless software application and devices to establish and secure a solid customer base in the markets of the PRC and Taiwan such that the financial performance of W-Phone is expected to improve in the longer run.

As described in the section headed “Series C1 Preference Shares” above, the Series C1 Preference Shares will confer on its holder the right to receive dividends at an initial annual rate of US$0.12 (equivalent to about HK$0.936) (subject to adjustments) for each issued Series C1 Preference Share, payable when and if declared by the board of W-Phone, in preference and priority to the payment of dividends on any shares of Common Stock. To this end, any potential income generated from the Group’s interest in W-Phone is expected to enhance the Group’s overall earnings.

INFORMATION ON W-PHONE

W-Phone is a company incorporated on 5 October 1997 with limited liability in the state of Delaware of the United States of America and is engaged in the business of manufacturing and providing wireless data software infrastructure products and services of real-time and broadband solution for wireless mobile devices. The existing shareholders and directors of W-Phone are independent of and not connected with any of the directors, chief executives and substantial shareholders of the Company or any of its subsidiaries or their respective associates (as defined in the Listing Rules).

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Credit Card DNA Security System (Holdings) Limited

LETTER FROM THE BOARD

The board of directors of W-Phone currently consists of 5 members. As described in paragraph (f) in the section headed “Series C1 Preference Shares” above, the holders of Series C1 Preference Shares, voting as a single class, will be entitled to elect two members to the board of directors of W-Phone. Following Completion but before exercise of the Option, Star Cyber DNA is interested in about 18.58% of the Series C1 Preference Shares in issue and, to that extent, will be entitled to participate in the election of nominees to the board of directors of W-Phone. Apart from the Subscription Shares and the Option Shares and the warrants mentioned in the section headed “Consultancy Agreement” above, W-Phone currently has other outstanding obligations to issue equity securities and may from time to time conduct capital raising exercises. Accordingly, Star Cyber DNA’s equity interest in W-Phone may be diluted as a result of any further issuance of equity securities by W-Phone.

Based on the unaudited consolidated management accounts of W-Phone, W-Phone’s unaudited consolidated net loss before tax and extraordinary items amounted to about US$12.3 million (equivalent to about HK$95.94 million) for the period from 15 October 1997, being the date of its incorporation, up to 31 March 2002. Based on W-Phone’s unaudited consolidated accounts for the year ended 31 December 2001, W-Phone’s unaudited consolidated net loss before and after tax and extraordinary items for that year amounted to about US$7.225 million (equivalent to about HK$56.36 million) and US$7.231 million (equivalent to about HK$56.40 million) respectively. Based on W-Phone’s audited accounts for the year ended 31 December 2000, the audited net loss before and after tax and extraordinary items for that year are the same and amounted to about US$3.12 million (equivalent to about HK$24.34 million). The audited consolidated net assets of W-Phone as at 31 December 2000 were approximately US$8.38 million (equivalent to about HK$65.36 million). The unaudited consolidated net assets of W-Phone as at 31 December 2001 and 31 March 2002 were approximately US$1.23 million (equivalent to about HK$9.59 million) and US$323,600 (equivalent to about HK$2.52 million) respectively. The Company was informed by W-Phone that no audited accounts of W-Phone are available for the year ended 31 December 2001 as it is not required by applicable laws to have its accounts audited annually.

REASONS FOR THE TRANSACTIONS

The Group is principally engaged in the provision of credit card security services, trading of electronic products such as electronic dictionaries, provision of financial information through pagers, internet and mobile phones and investments in high-tech and related businesses.

The existing shareholders and the board of W-Phone are experts in the industry of wireless software application and devices. The Board believes that they have such ability and connection to establish a solid customer base both in the markets of the PRC and Taiwan. Furthermore, the existing wireless platform established by W-Phone is useful and compatible with the Group’s core businesses in the provision of credit card security and payment authorisation services. By establishing a cooperative alliance with W-Phone, the Group can share in W-Phone’s resources and technologies in multi-messages-system which are synergistic with the Group’s existing businesses.

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Credit Card DNA Security System (Holdings) Limited

LETTER FROM THE BOARD

The Board also notes that W-Phone is currently incurring losses. However, having regard to the reasoning described above, the Board is of the view that W-Phone’s businesses have a growth potential which is expected to improve its financial performance in the longer run. The Board also believes that W-Phone’s resources and technologies in multi-messages-system are compatible with those used by the Group in its provision of credit card security and payment authorisation services. As such, the Group’s strategic alliance with W-Phone achieved through its investment in W-Phone is expected to enhance the Group’s core businesses. In view of these potential benefits to the Group, the Board is of the view that the transactions contemplated under the Subscription Agreement are fair and reasonable and in the interest of the Group and the Company’s shareholders as a whole.

GENERAL

The subscription of the Subscription Shares constitutes a discloseable transaction for the Company under the Listing Rules. A further announcement will be made if the Company exercises the Option and the Company will comply with its obligations under the Listing Rules at the time of exercising the Option.

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

Yours faithfully, For and on behalf of the Board Wong Kam Fu Chairman

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Credit Card DNA Security System (Holdings) Limited

GENERAL INFORMATION

APPENDIX

1. RESPONSIBILITY STATEMENT

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. SHARE CAPITAL

The authorised and issued share capital of the Company immediately before Completion and as at the Latest Practicable Date were as follows:

Authorised: 60,000,000,000 Shares Issued and fully paid: 5,098,334,165 Shares immediately before Completion 5,136,334,165 Shares as at the Latest Practicable Date Based on the issued share capital as at the Latest Practicable Date and upon issue of Shares on full exercise of the Option but before any conversion of the Convertible Note or exercise of the Share Options, the issued share capital will be: 5,136,334,165 Shares as at the Latest Practicable Date 202,000,000 Shares to be issued on full exercise of the Option 5,338,334,165	HK$ 600,000,000 50,983,342 51,363,342 51,363,342 2,020,000
	53,383,342
Based on the issued share capital as at the Latest Practicable Date and upon issue of Shares on full exercise of the Option, full conversion of the Convertible Note (based on a conversion price of HK$0.0645 per Share) and full exercise of the Share Options, the issued share capital will be: 5,136,334,165 Shares as at the Latest Practicable Date 202,000,000 Shares to be issued on full exercise of the Option 213,953,488 Shares to be issued on full conversion of the Convertible Note 23,850,000 Shares to be issued on full exercise of the Share Options	51,363,342 2,020,000 2,139,534 238,500
5,576,137,653	55,761,376

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Credit Card DNA Security System (Holdings) Limited

GENERAL INFORMATION

APPENDIX

Convertible Note

The Company had, on 16 July 2001, issued the Convertible Note and, as at the Latest Practicable Date, an aggregate principal amount of HK$13.8 million under the Convertible Note remains outstanding. The Convertible Note is convertible into Shares at an adjusted initial conversion price per Share that equals the lower of:

• (a) 80% of the average closing price per Share on the Stock Exchange for the last 10 trading days immediately preceding the conversion date on which dealings in the Shares took place or may have taken place; and

(b) HK$0.40.

Assuming that the Convertible Note is fully converted into Shares at a price of HK$0.0645, being 80% of the average closing price per Share for the ten trading days up to and including the Latest Practicable Date, 213,953,488 Shares will be issued, representing about 4.17% of the total existing issued share capital of the Company and about 4% of the issued share capital of the Company as enlarged by the Shares that fall to be issued on full exercise of the Option. Shares issued on an exercise of the conversion rights attaching to the Convertible Note will rank pari passu in all respects with the then existing issued Shares.

Share Options

On 11 April 1994, the Company adopted a share option scheme (modified on 27 July 2001) under which the Directors may, at their discretion, invite any employees or directors of the Group to take up options to subscribe for Shares at any time during the period of ten years from the date on which the share option scheme was adopted.

The number of Shares which fall to be issued pursuant to an exercise of all outstanding Share Options as at the Latest Practicable Date was 23,850,000 with an exercise price of between HK$0.4 and HK$1.5368 per Share.

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Credit Card DNA Security System (Holdings) Limited

GENERAL INFORMATION

APPENDIX

3. DISCLOSURE OF INTERESTS

• (a) Interests of Directors

As at the Latest Practicable Date, the interests of the Directors in the share capital of the Company notifiable to the Company and the Stock Exchange under Section 28 of the SDI Ordinance and including interests in which a Director would be deemed or taken to have under Section 31 of or Part I of the Schedule to the SDI Ordinance or required to be entered into the register under Section 29 of the SDI Ordinance or required, pursuant to the Model Code for Securities Transactions by Directors of Listed Companies under the Listing Rules, to be notified to the Company and the Stock Exchange were as follows:

			Approximate percentage		Approximate percentage
	**Number of **	Shares held	of the Company’s issued		of the Company’s issued
			share capital as at the	Number of	share capital as at the
Name of Directors	Personal	Corporate	Latest Practicable Date	Share Options	Latest Practicable Date
				(Note 2)
Wong Kam Fu	—	1,683,991,543 (Note 1)	32.78%	9,968,750	0.19%
Chan Kwong On, Daniel	—	—		1,250,000	0.02%
Wong Kam Wing	—	—		5,000,000	0.10%
Wang Zhao Bin	—	—		750,000	0.01%
Zhao Hua	—	—		700,000	0.01%

Notes:

1. 1,678,516,543 of these Shares were beneficially owned by Sheung Hai Developments Limited (“Sheung Hai”) and the remaining 5,475,000 of these Shares were beneficially owned by Super Biotech Enterprises Limited (“Super Biotech”). The entire share capital of both Sheung Hai and Super Biotech are held by Mr. Wong Kam Fu.

2. These Share Options are exercisable during the period from 21 February 2001 to 31 August 2004 with exercise prices of between HK$0.4 to HK$1.5368 per Share.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors had for the purposes of section 28 of the SDI Ordinance, nor were they taken to or deemed to have under section 31 of, or Part I of the Schedule to, the SDI Ordinance, any interests in the equity or debt securities of the Company or any of its associated corporations (within the meaning of the SDI Ordinance) or any interests which were required to be entered in the register kept by the Company pursuant to section 29 of the SDI Ordinance or any interests which were required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies under the Listing Rules.

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Credit Card DNA Security System (Holdings) Limited

GENERAL INFORMATION

APPENDIX

(b) Interests of Substantial Shareholders

As at the Latest Practicable Date, so far as was known to, or could be ascertained after reasonable enquiry by, the Directors, the following persons (not being a Director or the chief executive of the Company) 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 the Company:

e Company:
	Number of	Percentage
Name of Shareholders	Shares held	holding
Win Channel Investments Limited (Note 1)	1,993,192,348	38.81%
Sheung Hai Developments Limited (Note 2)	1,678,516,543	32.68%

Notes:

1. Win Channel Investments Limited is wholly and beneficially owned by Mr Chim Pui Chung who is deemed to be interested in these Shares by virtue of his interest in Win Channel Investments Limited.

2. Sheung Hai Developments Limited is wholly and beneficially owned by Mr Wong Kam Fu who is deemed to be interested in these Shares by virtue of his interest in Sheung Hai Developments Limited.

According to the register of interests kept by the Company under Section 16(1) of the SDI Ordinance and so far as was known to the Directors, other than the interests disclosed above, there were no other persons (other than a director or chief executive of the Company) who, as at the Latest Practicable Date, 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 meeting of any member of the Group or in any options in respect of such capital.

4. LITIGATION

As at the Latest Practicable Date, to the best knowledge of the Directors, neither the Company nor any of its subsidiaries was engaged in any litigation or claims which was in the opinion of the Directors of material importance and no litigation or claims which was in the opinion of the Directors of material importance was known to the Directors to be pending or threatened by or against any member of the Group.

5. GENERAL

• (a) The secretary of the Company is Ms. Tam Pui Ling, Elaine, who is an associate member of the Institute of Chartered Secretaries and Administrators and the Hong Kong Institute of Company Secretaries.

• (b) The registered office of the Company is at Cedar House, 41 Cedar Avenue, Hamilton HM12, Bermuda and its head office and principal place of business in Hong Kong is at 11/F., Tai Sang Bank Building, 130-132 Des Voeux Road Central, Hong Kong.

• (c) The share registrar and transfer office of the Company in Hong Kong is Secretaries Limited at 5th Floor, Wing On Centre, 111 Connaught Road, Central, Hong Kong.

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Credit Card DNA Security System (Holdings) Limited