Glory Sun Land Group Limited — Proxy Solicitation & Information Statement 2005

Dec 21, 2005

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 licensed securities dealer, bank manager, solicitor, professional accountant or other professional advisor.

If you have sold or transferred all your shares in SinoCom Software Group Limited , you should at once hand this circular to the purchaser or the transferee or to the bank, licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the purchaser(s) or transferee(s).

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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SINOCOM SOFTWARE GROUP LIMITED 中訊軟件集團股份有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 299)

CONNECTED AND DISCLOSEABLE TRANSACTIONS

Independent financial adviser to the Independent Board Committee and the independent Shareholders

SOMERLEY LIMITED

A letter from the Board is set out on pages 5 to 11 of this circular. A letter from the Independent Board Committee is set out on page 12 of this circular.

A letter from Somerley Limited, the independent financial adviser to the Independent Board Committee and the independent Shareholders, containing its advice to the Independent Board Committee and the independent Shareholders is set out on pages 13 to 21 of this circular.

21 December 2005

CONTENTS

	Page
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
LETTER FROM THE INDEPENDENT BOARD COMMITTEE . . . . . . . . . . . . . . . . .	12
LETTER FROM SOMERLEY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
APPENDIX – GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	22

– i –

DEFINITIONS

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

• “associate(s)”

has the meaning ascribed to it under the Listing Rules;

• “August Announcement”

the announcement of the Company dated 30 August 2005 in relation to, among others, the entering into of the Share Transfer and Subscription Agreement;

• “Board” the board of Directors;

• “Business Day”

• a day (other than Saturday or Sunday or days on which a tropical cyclone warning No. 8 or above or a “black” rain warning signal is hoisted in Hong Kong at any time between 9:00 a.m. and 5:00 p.m. (Hong Kong time)) on which banks are generally open for general business in Hong Kong;

• “Cap” the maximum of the aggregate of 22.5% of Shares issued as at the date of the Shareholders’ Agreement, i.e. 112,500 Shares; and the aggregate Consideration of RMB350,000,000;

• “China Way”

• China Way International Limited, a company incorporated in the British Virgin Islands and the controlling shareholder of the Company which is interested in the approximately 52.10% of the issued share capital of the Company as at the Latest Practicable Date;

• “Circular” circular dated 14 September 2005 issued by the Company in relation to, among others, the entering into of the Share Transfer and Subscription Agreement;

• “Company” SinoCom Software Group Limited, a company incorporated in the Cayman Islands, the shares of which are listed on the Stock Exchange;

• “Completion” completion of the Share Transfer and the Share Subscription which took place on 21 November 2005;

• “Consideration”

• the consideration payable by SinoCom BVI upon the exercise of the Put Option by Shensoft;

• “controlling shareholder”

has the meaning ascribed to it under the Listing Rules;

• “Directors”

• the directors of the Company;

• “Exercise Price”

• the exercise price of the Put Option on each exercise by Shensoft;

– 1 –

DEFINITIONS

• “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 PRC;

• “IFA” or “Somerley”

• Somerley Limited, a licensed corporation to carry out type 1 (dealing in securities), type 4 (advising on securities), type 6 (advising on corporate finance) and type 9 (asset management) regulated activities for the purposes of the SFO and the independent financial adviser to the Independent Board Committee and the independent Shareholders in relation to the terms of the grant of the Put Option under the Shareholders’ Agreement;

• “Independent Board Committee”

• an independent committee of the Board comprising the independent non-executive Directors for the purpose of advising the independent Shareholders on the terms of the grant of the Put Option under the Shareholders’ Agreement;

• “Latest Practicable Date”

• 16 December 2005, being the latest practicable date prior to the printing of this circular for ascertaining certain information referred to in this circular;

• “Listing Rules”

• the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited;

• “Option Period” the 30-year period commencing on the date of the Shareholders’ Agreement;

• “PRC” People’s Republic of China (which for this purpose, shall not include Hong Kong, Macau and Taiwan);

• “Put Option”

• the put option granted by SinoCom BVI to Shensoft under the Shareholders’ Agreement pursuant to which Shensoft shall be entitled to sell not more than 112,500 Shares held by it to SinoCom BVI on and subject to the terms set out therein;

• “RMB” Renminbi yuan, the lawful currency of the PRC;

• “Sale Shares”

• 98,000 Shares, representing approximately 30.3% of the issued share capital of Sinocom Shensoft prior to Completion and approximately 19.6% of the existing issued share capital of Sinocom Shensoft as enlarged by the Share Subscription pursuant to the Share Transfer and Subscription Agreement;

– 2 –

DEFINITIONS

• “SFO”

• the Securities and Futures Ordinance (Cap.571 of the Laws of Hong Kong);

• “Share(s)”

• share(s) of US$1.00 each in the capital of Sinocom Shensoft;

• “Share Transfer”

• the sale of the Sale Shares from Shensoft to SinoCom BVI pursuant and subject to the terms and conditions of the Share Transfer and Subscription Agreement;

• “Share Transfer and Subscription Agreement”

• the agreement dated 25 August 2005 as supplemented by a supplemental agreement of the same date and in both cases entered into among SinoCom BVI, Shensoft, Sinocom Shensoft and the Shensoft Shareholders in connection with, among other things, the Share Transfer and the Share Subscription;

• “Share Subscription”

• the subscription of the Subscription Shares by SinoCom BVI pursuant and subject to the terms and conditions of the Share Transfer and Subscription Agreement;

• “Shareholder(s)” holder(s) of the share(s) of the Company;

• “Shareholders’ Agreement” the shareholders’ agreement dated 21 November 2005 as supplemented by a supplemental agreement dated 1 December 2005, in both cases entered into among SinoCom BVI, Shensoft, Sinocom Shensoft and the Shensoft Shareholders in connection with, among other things, the management of Sinocom Shensoft and the Put Option;

• “Shensoft”

• Shensoft Holdings (BVI) Limited, a company incorporated in the British Virgin Islands, beneficially owned as to approximately 16.67% by Huang Guang Yu (黃廣宇 ), 58.33% by Pan Hong (潘虹 ), 15.00% by Xu Jun Feng (許俊峰 ), 10.00% by Shen Jian Hua (沈建華 );

• “Shensoft Japan” (Shensoft Japan Company Limited), a limited liability company incorporated in Japan and a wholly-owned subsidiary of Sinocom Shensoft;

• “Shensoft Shanghai”

• 申軟計算機技術（上海）有限公司 (Shensoft Computer Technology (Shanghai) Company Limited), a limited liability company incorporated in the PRC and a whollyowned subsidiary of Sinocom Shensoft;

• “Shensoft Shareholders”

• Huang Guang Yu (黃廣宇 ), Pan Hong (潘虹 ), Xu Jun Feng (許俊峰 ) and Shen Jian Hua (沈建華 );

– 3 –

DEFINITIONS

• “SinoCom BVI” SinoCom Holdings (BVI) Limited, a company incorporated in the British Virgin Islands and a direct wholly-owned subsidiary of the Company;

• “Sinocom Shensoft” Sinocom Shensoft Holdings (BVI) Limited, a company incorporated in the British Virgin Islands and a whollyowned subsidiary of Shensoft prior to Completion and upon Completion, becomes an indirect non-wholly owned subsidiary owned as to 55% by the Company;

• “Sinocom Shensoft Group” Sinocom Shensoft and its subsidiaries; “Stock Exchange” The Stock Exchange of Hong Kong Limited; “Subscription Shares” 177,000 Shares, representing approximately 54.8% of the issued share capital prior to Completion and approximately 35.4% of the existing issued share capital of Sinocom Shensoft as enlarged by the Share Subscription pursuant to the Share Transfer and Subscription Agreement;

• “subsidiary” has the meaning ascribed to it under the Listing Rules; “substantial shareholder” has the meaning ascribed to it under the Listing Rules; “US” the United States of America; “US$” United States dollars, the lawful currency of the United States of America; and

• “%” per cent.

– 4 –

LETTER FROM THE BOARD

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SINOCOM SOFTWARE GROUP LIMITED 中訊軟件集團股份有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 299)

Executive Directors:

Mr. Wang Zhiqiang (Chairman) Mr. Wang Xubing Dr. Shi Chongming Mr. Siu Kwok Leung

Non-executive Director: Mr. Wang Nengguang

Registered address:

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

Independent Non-executive Directors: Mr. Pang Chor Fu Professor Li Weian Mr. Lee Kit Wah

Principal place of business in Hong Kong: Units 1713-18, 17/F Shui On Centre, 6-8 Harbour Road Wanchai, Hong Kong

21 December 2005

To the Shareholders

Dear Sir or Madam,

CONNECTED AND DISCLOSEABLE TRANSACTIONS

INTRODUCTION

On 1 December 2005, the Board announced that Completion took place on 21 November 2005 and upon Completion, SinoCom BVI, a wholly-owned subsidiary of the Company, entered into the Shareholders’ Agreement with Shensoft, Sinocom Shensoft and Shensoft Shareholders in connection with, among other things, the management of Sinocom Shensoft and the grant of the Put Option.

Based on the calculation of the “five-tests” set out in rule 14.07 of the Listing Rules, the applicable percentage ratios of the Shareholders’ Agreement after aggregation with the transactions contemplated under the Share Transfer and Subscription Agreement exceed 5% but are less than 25%. Therefore, the entering into of the Shareholders’ Agreement constitutes a discloseable transaction of the Company under the Listing Rules.

– 5 –

LETTER FROM THE BOARD

Following Completion, Shensoft and SinoCom BVI held 45% and 55% of the equity interest in Sinocom Shensoft. As Shensoft is a substantial shareholder of Sinocom Shensoft, it is a connected person of the Company within the meaning of the Listing Rules. As the aggregate Consideration may exceed HK$10,000,000 and the relevant percentage ratios exceed 2.5%, the grant of the Put Option by SinoCom BVI to Shensoft under the Shareholders’ Agreement and the acquisition of Shares by SinoCom BVI from Shensoft pursuant to the exercise of the Put Option constitute connected transactions of the Company under the Listing Rules which are subject to the reporting, announcement and independent Shareholders approval requirements under Chapter 14A of the Listing Rules.

According to Chapter 14A of the Listing Rules, the grant of the Put Option and the acquisition of Shares by SinoCom BVI from Shensoft pursuant to the exercise of the Put Option are required to be made conditional upon approval by independent Shareholders in general meeting. No Shareholders is required to abstain from voting if the Company were to convene a general meeting for the approval of the grant of the Put Option. As the Company has obtained a written approval by China Way, being the holder, as at the Latest Practicable Date, of approximately 52.10% of the issued share capital of the Company, the Company has applied to the Stock Exchange for acceptance of such written approval in lieu of holding a general meeting of the Company pursuant to Rule 14A.43 of the Listing Rules.

The purpose of this circular is to provide you with further information in relation to the Shareholders’ Agreement and the Put Option.

THE SHAREHOLDERS’ AGREEMENT

Date

• 21 November 2005 (Shareholders’ Agreement)

• 1 December 2005 (supplemental agreement to the Shareholders’ Agreement)

Parties

• (1) SinoCom BVI

• (2) Shensoft

• (3) Sinocom Shensoft

• (4) Shensoft Shareholders

Completion of the Share Transfer and Subscription Agreement (details of which have been published in the August Announcement and the Circular) took place on 21 November 2005. Following Completion, Sinocom Shensoft is held as to 55% by SinoCom BVI and as to 45% by Shensoft and becomes a non wholly-owned subsidiary of the Company. At Completion, SinoCom BVI, Shensoft, Sinocom Shensoft and the Shensoft Shareholders entered into the Shareholders’ Agreement. Pursuant to the Shareholders’ Agreement, SinoCom BVI granted the Put Option to Shensoft. Under the Put Option, Shensoft is entitled to sell the Shares to SinoCom BVI and SinoCom BVI is obliged to purchase such Shares from Shensoft at the

– 6 –

LETTER FROM THE BOARD

Exercise Price during the Option Period, provided that the aggregate number of Shares to be sold under the Put Option shall not exceed the Cap. The exercise of the Put Option is at the discretion of Shensoft. The Put Option is not transferable.

To the best of the knowledge, information and belief of the Directors having made all reasonable enquires, Shensoft, Sinocom Shensoft and each of the Shensoft Shareholders are independent third parties not connected with the directors, chief executive, substantial shareholders of the Company or any of its subsidiaries or any of their respective associates before Completion.

THE PUT OPTION

• Date of grant: 21 November 2005

• The Put Option: SinoCom BVI granted the Put Option to Shensoft under the Shareholders’ Agreement. The Put Option may be exercised by Shensoft once or on multiple occasions during the Option Period subject to the Cap. Pursuant to the Put Option, Shensoft is entitled to sell the Shares held by it to SinoCom BVI and SinoCom BVI is obliged to purchase such Shares from Shensoft at the Exercise Price, provided that the aggregate number of Shares that can be sold under the Put Option shall not exceed the Cap. Completion of the sale and purchase of Shares pursuant to the exercise of the Put Option shall take place within 30 calendar days from the date of exercise (or any other date as mutually agreed).

• Option Period: 30-year period commencing on the date of the Shareholders’ Agreement. The Option Period is determined after arm’s length negotiations between the Group and the Shensoft Shareholders taking into account, among others, the formula for determining the Exercise Price and the likely retirement age of the Shensoft Shareholders. One of the Shensoft Shareholders, Mr. Pan Hong is a director of Sinocom Shensoft.

• Exercise Price: The Exercise Price will be determined according to the following formula:

Exercise Price = A x B x C,

where:

• A = the audited net profits after tax of Sinocom Shensoft for the latest financial year at the time of the exercise of the Put Option;

• B = the number of Shares in respect of which the Put Option is exercised divided by the then total number of issued Shares; and

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LETTER FROM THE BOARD

• C = the larger of (i) 8 (being the agreed price earnings ratio of Sinocom Shensoft with reference to the price earnings ratio adopted in a previous transaction entered into by the Group of a similar nature after arm’s length negotiations between the parties thereto); or (ii) the Company’s price earnings ratio multiplied by 0.68 (being the agreed discounted price earnings ratio of an nonlisted company to that of a listed company).

The Company’s price earnings ratio shall be determined according to the following formula:

The Company’s price earnings ratio = D x E/F,

where:

• D = the average close price of the shares of the Company for the 30 Business Days immediately prior to the exercise of the Put Option;

• E = the then total number of issued shares of the Company; and

• F = the audited net profits after tax of the Company attributable to the Shareholders for the latest financial year at the time of exercise of the Put Option.

Cap: The aggregate number of Shares that can be sold by Shensoft under the Put Option is subject to (a) a maximum of the aggregate number of such sale of Shares not exceeding 22.5% of Shares issued as at the date of the Shareholders’ Agreement, i.e. 112,500 Shares; and (b) the aggregate Consideration of such sale of Shares not exceeding RMB350,000,000. This amount is determined with reference to the potential business expansion of Sinocom Shensoft in the Option Period.

Settlement: Under the Shareholders’ Agreement, SinoCom BVI shall pay the Exercise Price in cash.

Condition: Completion of the sale and purchase of Shares pursuant to the exercise of the Put Option will be subject to compliance with the applicable laws and rules and the regulations set out by the Stock Exchange or other securities supervisory authorities by the Group, including but not limited to the announcement requirement on the exercise of the Put Option.

The entering into of the Shareholders’ Agreement will not have any immediate effects on the earnings and assets and liabilities of the Group.

– 8 –

LETTER FROM THE BOARD

Information on SinoCom BVI, the Group, Shensoft, the Shensoft Shareholders, Sinocom Shensoft and Sinocom Shensoft Group

SinoCom BVI is an investment holding company and a direct wholly-owned subsidiary of the Company.

The Group is principally engaged in the provision of outsourcing software development services.

As at the Latest Practicable Date, the Shensoft Shareholders, namely Mr. Huang Guang Yu (黃廣宇 ), Mr. Pan Hong (潘虹 ), Mr. Xu Jun Feng (許俊峰 ) and Mr. Shen Jian Hua（沈建 華） are interested as to approximately 16.67%, 58.33%, 15.00% and 10.00% of the issued share capital in Shensoft respectively.

Each of Shensoft and Sinocom Shensoft is an investment holding company. Sinocom Shensoft was incorporated in the British Virgin Islands on 16 September 2004 for the sole purpose of holding Shensoft Shanghai and Shensoft Japan. Sinocom Shensoft has not prepared its own financial statements as the date of this circular.

Shensoft Japan and Shensoft Shanghai are both principally engaged in the outsourcing software development in Japan.

For the financial year ended 31 December 2004, the unaudited net asset value of Shensoft Japan is approximately HK$1,474,000, whilst the unaudited net profits before and after taxation and extraordinary items are HK$937,000 and HK$915,000 respectively. For the financial year ended 31 December 2003, the unaudited net profits before and after taxation and extraordinary items are HK$203,000 and HK$181,000 respectively.

For the financial year ended 31 December 2004, the audited net asset value of Shensoft Shanghai is approximately HK$1,965,000, whilst the audited net profits before and after taxation and extraordinary items are HK$355,000 and HK$269,000 respectively. For the financial year ended 31 December 2003, the audited net profits before and after taxation and extraordinary items are HK$440,000 and HK$440,000 respectively.

Upon Completion, the group structure of the Sinocom Shensoft Group is as follows:

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----- Start of picture text -----

The Company Shensoft Shareholders
100% 100%
SinoCom BVI Shensoft
55% 45%
Sinocom Shensoft
100% 100%
Shensoft Shanghai Shensoft Japan
100% 100%
Shensoft Hangzhou Branch Shensoft Jia Hing Branch
（申軟杭州分支機構） （申軟嘉興分支機構）
----- End of picture text -----

– 9 –

LETTER FROM THE BOARD

REASONS FOR AND BENEFITS OF THE ENTERING INTO THE SHAREHOLDERS’ AGREEMENT

The entering into the Shareholders’ Agreement is one of the conditions precedent to the Completion. Sinocom Shensoft Group is principally engaged in outsourcing software development from customers in Japan which is exactly in the same business scope as of the Group. Currently, the Group’s business growth is subject to the constraint of its human resources organic growth rate. Sinocom Shensoft Group has a total staff of about 300 persons which the Directors believe will supplement the employee reserve of the Group. The Group can further expand with these additional staff as a result. Furthermore, Shensoft Shanghai is located in Shanghai where the Directors believe has one of the world’s largest Japanese speaking population outside Japan. Shanghai will become one of the Group’s strategic geographic location to cover the human resources pool in the PRC. The Directors believe that those customers of Sinocom Shensoft Group who are not the Group’s existing customers will bring new business opportunities to the Group. For further details of the reasons for and benefits of the entering into the Share Transfer and Subscription Agreement, please refer to the August Announcement and the Circular.

The Directors, including the independent non-executive Directors, consider that the entering into of the Shareholders’ Agreement and the granting of the Put Option by SinoCom BVI to Shensoft, is on normal commercial terms which are fair and reasonable and is in the best interest of the Group and the Shareholders as a whole.

DISCLOSEABLE TRANSACTION

Based on the calculation of the “five-tests” set out in rule 14.07 of the Listing Rules, the applicable percentage ratios for the Shareholders’ Agreement after aggregation with the transactions contemplated under the Share Transfer and Subscription Agreement exceed 5% but are less than 25%. Therefore, the entering into of the Shareholders’ Agreement constitutes a discloseable transaction of the Company under the Listing Rules.

CONNECTED TRANSACTIONS

Following Completion, Sinocom Shensoft is held as to 45% and 55% by Shensoft and SinoCom BVI respectively. As Shensoft is a substantial shareholder of Sinocom Shensoft, it is a connected person of the Company within the meaning of the Listing Rules. As the aggregate Consideration may exceed HK$10,000,000 and the relevant percentage ratios exceed 2.5%, the grant of the Put Option by SinoCom BVI to Shensoft under the Shareholders’ Agreement and the acquisition of Shares by SinoCom BVI from Shensoft pursuant to the exercise of the Put Option constitute connected transactions of the Company under the Listing Rules which are subject to the reporting, announcement and independent Shareholders approval requirements under Chapter 14A of the Listing Rules.

According to Chapter 14A of the Listing Rules, the grant of the Put Option and the acquisition of Shares by SinoCom BVI from Shensoft pursuant to the exercise of the Put Option are required to be made conditional upon approval by independent Shareholders in general meeting. No Shareholders is required to abstain from voting if the Company were to convene a general meeting for the approval of the grant of the Put Option. As the Company has

– 10 –

LETTER FROM THE BOARD

obtained a written approval by China Way, being the holder, as at the Latest Practicable Date, of approximately 52.10% of the issued share capital of the Company, the Company has applied to the Stock Exchange for acceptance of such written approval in lieu of holding a general meeting of the Company pursuant to Rule 14A.43 of the Listing Rules.

RECOMMENDATION

The Independent Board Committee has been constituted to advise the independent Shareholders as regards to the terms of the Put Option. Somerley has been appointed as the independent financial adviser to advise the Independent Board Committee and the independent Shareholders on the terms of the Put Option. The letter to the independent Shareholders from the Independent Board Committee containing its advice and recommendations is set out on page 12 of this circular. Having regard to the opinion of Somerley, the letter of advice of which is set out on pages 13 to 21 of this circular, the Independent Board Committee is of the opinion that the terms of the Shareholders’ Agreement are fair and reasonable so far as the Shareholders are concerned and that the grant of the Put Option is in the interests of the Company and the Shareholders as a whole.

ADDITIONAL INFORMATION

Your attention is drawn to the letter from the Independent Board Committee, the letter from Somerley and the general information set out in the appendix to this circular.

By order of the Board SinoCom Software Group Limited Wang Zhiqiang Chairman

– 11 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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SINOCOM SOFTWARE GROUP LIMITED 中訊軟件集團股份有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 299)

21 December 2005

To the independent Shareholders

Dear Sir or Madam,

CONNECTED AND DISCLOSEABLE TRANSACTIONS

We refer to the circular dated 21 December 2005 of SinoCom Software Group Limited (the “Circular”), of which this letter forms part. Terms defined in the Circular bear the same meanings herein, unless the context otherwise requires.

We have been appointed to constitute the Independent Board Committee to form an opinion to the independent Shareholders in relation to the terms of the grant of the Put Option under the Shareholders’ Agreement.

We wish to draw your attention to the letter from the Board, as set out on pages 5 to 11 of the Circular, which provides details of the Shareholders’ Agreement and the Put Option. Your attention is also drawn to the letter from Somerley to the Independent Board Committee and the independent Shareholders which contains their advice in respect of the terms of the grant of the Put Option under the Shareholders’ Agreement as set out on pages 13 to 21 of the Circular.

Having considered, amongst other things, the principal factors and reasons considered by, and the recommendations of, Somerley as stated in their aforementioned letter of advice, the Independent Board Committee concurs with the views of Somerley that the terms of the Shareholders’ Agreement are fair and reasonable so far as the Shareholders are concerned and that the grant of the Put Option is in the interests of the Company and the Shareholders as a whole.

Yours faithfully Independent Board Committee Pang Chor Fu Li Weian Lee Kit Wah Independent Non-executive Directors

– 12 –

LETTER FROM SOMERLEY

The following is the letter of advice from Somerley to the Independent Board Committee and the independent Shareholders prepared for the purpose of inclusion in this circular:

SOMERLEY LIMITED

Suite 2201, 22nd Floor Two International Finance Centre 8 Finance Street Central Hong Kong 21 December 2005

To: The Independent Board Committee and the independent Shareholders

Dear Sirs,

CONNECTED AND DISCLOSEABLE TRANSACTIONS

I. INTRODUCTION

We refer to our appointment to act as the independent financial adviser to advise the Independent Board Committee and the independent Shareholders on the terms of the grant of the Put Option under the Shareholders’ Agreement. Details of the grant of the Put Option are contained in the circular of the Company to the Shareholders dated 21 December 2005 (the “Circular”), of which this letter forms part. Capitalised terms used in this letter have the same meanings as defined in the Circular.

On 30 August 2005, the Group announced the acquisition of the existing Shares (the Acquisition”) and the subscription of the new Shares of Sinocom Shensoft (the “Subscription”). On 21 November 2005, Completion took places, after which Sinocom Shensoft became a 55% subsidiary of the Company. At the time of Completion, the parties entered into the Shareholders’ Agreement pursuant to which the Put Option was granted by the Group to Shensoft to sell further interests in Sinocom Shensoft to the Group. Under the Listing Rules, the grant of the Put Option will be classified as if the Put Option had been exercised. The grant of the Put Option therefore constitutes a discloseable transaction for the Company under the Listing Rules. As at the date of the Shareholders’ Agreement and upon Completion, Shensoft was a substantial shareholder of Sinocom Shensoft and therefore Shensoft is considered to be a connected person of the Company under the Listing Rules. Accordingly, the grant of the Put Option by SinoCom BVI, being a direct wholly-owned subsidiary of the Company, to Shensoft under the Shareholders’ Agreement constituted a connected transaction for the Company under the Listing Rules and is required to be made conditional upon approval by independent Shareholders in general meeting. As Shensoft is not a Shareholder and no other Shareholder has an interest in the Put Option, no Shareholder would be required to abstain from voting if the Company were to convene a general meeting for the approval of the grant of the Put Option. The Company has therefore obtained a written approval from China Way, being the holder of approximately 52.1% of the issued share capital of the Company, and has applied to the Stock Exchange for acceptance of such written approval in lieu of holding a general meeting of the Company.

– 13 –

LETTER FROM SOMERLEY

The Independent Board Committee, comprising the independent non-executive Directors, namely, Messrs. Pang Chor Fu, Li Weian and Lee Kit Wah, has been constituted to advise the independent Shareholders as regards the terms of the Put Option. We, Somerley Limited, have been appointed as the independent financial adviser to advise the Independent Board Committee and the independent Shareholders on the fairness and reasonableness of the terms of the Put Option and whether the grant of the Put Option is in the interests of the Company and the Shareholders as a whole.

Somerley is not associated with the Company or its substantial Shareholders or any party acting, or presumed to be acting, in concert with any of them and, accordingly, is considered eligible to give independent advice on the grant of the Put Option. Apart from normal professional fees payable to us in connection with this appointment, no arrangement exists whereby we will receive any fees or benefits from the Company or its substantial Shareholders or any party acting, or presumed to be acting, in concert with any of them.

In formulating our opinion, we have reviewed, among other materials, the recent financial statements of subsidiaries of Sinocom Shensoft. We have also discussed with the Board the past performance and future prospects of the Group and the Sinocom Shensoft Group. We have relied on the information and facts supplied, and opinions expressed, by the Directors and management of the Company, which we have assumed to be true, accurate and complete in all material aspects at the time they were made and as at the date of the Circular.

We have also sought and received confirmation from the Directors that all material relevant information has been supplied to us and no material facts have been omitted from the information supplied and opinions expressed. We have relied on such information and consider that we have been provided with and have reviewed sufficient information to reach an informed view and to justify our reliance on the accuracy of the information contained in the Circular. We have no reason to believe that any material information has been withheld. We have not, however, conducted an independent investigation into the affairs of the Group or any of the members of the Sinocom Shensoft Group.

II. BACKGROUND TO AND REASONS FOR THE GRANT OF THE PUT OPTION

In arriving at our opinion on the grant of the Put Option, we have taken into consideration the following principal factors and reasons:

(a) Business of the Group

The Group is principally engaged in the provision of outsourcing software development services to customers in the information technology sector in Japan. Customers of the Group include established information technology companies (“IT Customers”) such as NEC, Nomura Research Institute (“NRI”) and Daiwa Institute of Research (“DIR”). The IT Customers provide software development services to their own customers in Japan. The software development services provided by the IT Customers traditionally comprise the entire process of software development from basic design of the software to be developed to implementation and installation of the product. To increase cost-efficiency, the IT Customers outsource parts of the software development process, such as functional design, detailed design, programming and unit testing to other software

– 14 –

LETTER FROM SOMERLEY

developers, such as the Group. Upon completion of such outsourced processes, the IT Customers typically resume their role in conducting system testing and installation and maintenance of the software product developed, as these functions often need to be performed in Japan. As the scale and complexity of the software development project increases, the IT Customers may outsource different components of the project to different software developers in order to make use of different expertise of different software developers and to increase efficiency. Generally speaking, the cost of outsourcing on a per software engineer per month basis in the PRC is approximately one third of that of a comparable engineer in Japan and as such, the management of the Group believe that there remains significant potential for the Group to grow as IT Customers outsource an increasing portion of the software development process to the Group.

The Group provides outsourcing services to the IT Customers principally under two modes of operation, namely: (i) on an agreed man-month basis, whereby a specified number of employees as agreed between the Group and the particular IT Customer are allocated to the tasks assigned by that customer only. The Group receives full payment of the charge out rate of the employees assigned for the specified period irrespective of the actual amount of work performed; and (ii) on a project basis, whereby the IT Customer will agree with the Group the objectives and requirements of the project and the Group will provide an estimate of cost and manpower required. Charges are made on the basis of the actual amount of work performed.

The Directors believe that providing strong customer support is an integral part of the Group’s strategy to strengthen its relationship with its customers. The Group employs qualified software engineers in performing the programming work. In order to maintain a high service quality, the Group puts a lot of effort into technical training and, in particular, Japanese language training, which is a crucial element of the outsourcing software development work as the majority of the software products are programmed in Japanese. Each team of software engineers is led by a senior customer relationship engineer who acts as the principal customer contact to ensure a high quality service delivery and to maintain a close customer relationship.

(b) Current business position and strategy of the Group

The business of the Group has been fast growing since it adopted a focus on outsourcing software development services. Turnover for the Group increased from HK$55.7 million in 2001 to HK$178.3 million in 2004, with a further increase to HK$123.1 million for the six months ended 30 June 2005 compared to HK$81.1 million recorded for the six months ended 30 June 2004. During such period, the Group has been able to foster long term relationships with key Japanese IT Customers like NEC, NEC Soft, NRI and DIR. As disclosed in the interim report of the Group for 2005, the Group continued to attract the patronage of new customers which are large software companies and software consumers in Japan including N&J Financial Solutions Inc., Sumitomo Mitsui Banking Corporation and the Japan Research Institute, Limited.

The Directors attribute the successes of the Group to the quality of the services delivered by the Group, the experienced management staff of the Group, the ability to recruit, retain and train skilled personnel and the growing size of the Group which enables

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LETTER FROM SOMERLEY

it to better allocate its human resources to projects. The Directors consider that human capital is the most important asset for the Group and forms the principal basis of the Group’s success. The total workforce of the Group has been growing at a strong pace starting with approximately 409 staff in 2001 and growing to 1,273 in June 2005. The Board has been rewarding senior and middle level staff with share options to motivate its workforce. In view of the continued success in securing software outsourcing contracts from significant Japanese IT Customers, a major challenge for the Group is to retain key talent in performing such contracts. As the Group charges its IT Customers on the basis of the time spent by the Group’s technical staff on the IT Customers’ projects, the ability to retain and recruit quality personnel could be a constraint on the Group’s growth. As discussed with the management of the Group, as a result of the requirement to recruit and train software engineers familiar with the Japanese language to serve Japanese clients, the Group has been under increasing pressure to recruit sufficient staff to satisfy the strong business growth.

(c) Reasons for the Acquisition, Subscription and the Put Option

The Sinocom Shensoft Group is principally engaged in outsourcing software development from customers in Japan which is the same business scope as that of the Group. Currently, the Group’s business growth is subject to the constraint of the organic growth rate of its human resources. Sinocom Shensoft Group has a total staff of about 300 persons which the Directors believe will supplement the employee base of the Group. The Group can further expand with these additional staff as a result. Furthermore, Shensoft Shanghai is located in Shanghai which the Directors believe has one of the world’s largest Japanese speaking populations outside Japan. Shanghai will become one of the Group’s strategic geographic locations to draw on the human resources pool in the PRC. The Directors believe that those customers of Sinocom Shensoft Group who are not the Group’s existing customers will also bring new business opportunities to the Group.

Prior to the Acquisition and the Subscription, Sinocom Shensoft, which holds the principal operating companies Shensoft Shanghai and Shensoft Japan, was wholly-owned by Shensoft. Upon Completion, Sinocom Shensoft became a 55% subsidiary of the Group and Shensoft remained a 45% shareholder therein. To consolidate the benefit of securing a new workforce of over 300 persons, it is of crucial importance to the Group that the Group will be able to retain the technical and customer servicing workforce in Sinocom Shensoft in order for the Group to enjoy the benefits from the Acquisition and Subscription. In particular, the leading senior management of Sinocom Shensoft, who hold the key customer relationships in Sinocom Shensoft as well as acting as the team leaders to the other technical staff, are of particular importance to the Group. As at the Latest Practicable Date, the Shensoft Shareholders, namely Mr. Huang Guang Yu (黃廣宇 ), Mr. Pan Hong (潘虹 ), Mr. Xu Jun Feng (許俊峰 ) and Mr. Shen Jian Hua (沈建華 ) were interested in approximately 16.67%, approximately 58.33%, 15.00% and 10.00% respectively of the issued share capital in Shensoft.

The Shareholders’ Agreement and the Put Option serve as the principal mechanism to protect the interest of the Shensoft Shareholders and give them confidence in the future management of Sinocom Shensoft as well as to incentivise them to work for the benefit of Sinocom Shensoft. The Directors consider that this feature will be effective in retaining the Shensoft Shareholders to continue to work for Sinocom Shensoft in the long term. As discussed with the Directors, the Group may consider acquiring the remainder of the interest in Sinocom Shensoft in due course, but no agreement has been reached in this regard.

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LETTER FROM SOMERLEY

III. SINOCOM SHENSOFT

(a) The business of Sinocom Shensoft

Sinocom Shensoft was incorporated as an investment holding company for the sole purpose of holding Shensoft Shanghai and Shensoft Japan. Shensoft Japan and Shensoft Shanghai are both principally engaged in handling outsourced software development projects from Japan. The Sinocom Shensoft Group’s services include software analysis, design, programming, testing within the process of software development and encompassed projects in industries including manufacturing, logistics and financial services. Major clients of the Sinocom Shensoft Group include FFC Ltd., Canon System Solutions Inc. and CREO Co., Ltd. The Sinocom Shensoft Group received ISO9001 certification in June 2003 and its operations are headquartered in Shanghai with development centres in Jiaxing and Hangzhou in Zhejiang Province. Shensoft Shanghai was initially established in 1998 and Shensoft Japan was launched in 2001.

(b) Financial Information

For the financial year ended 31 December 2004, Shensoft Japan generated sales of HK$12.5 million whilst the unaudited net profits before and after taxation and extraordinary items were HK$937,000 and HK$915,000 respectively. At that date, the unaudited net asset value of Shensoft Japan was approximately HK$1,474,000. For the financial year ended 31 December 2003, the unaudited net profits before and after taxation and extraordinary items were HK$203,000 and HK$181,000 respectively.

For the financial year ended 31 December 2004, Shensoft Shanghai generated sales of HK$8.4 million whilst the audited net profits before and after taxation and extraordinary items were HK$355,000 and HK$269,000 respectively. At that date, the audited net asset value of Shensoft Shanghai was approximately HK$1,965,000. For the financial year ended 31 December 2003, the audited net profits before and after taxation and extraordinary items were both HK$440,000.

As demonstrated by the aggregate financial results of the Sinocom Shensoft Group, the operations of the Sinocom Shensoft Group are substantially smaller than those of the Group. A relatively large portion of the workforce of the Sinocom Shensoft Group has been recruited recently. As a smaller operation, the Sinocom Shensoft Group has not yet reached a high level of efficiency in terms of human resources allocation in project planning and tends to compete against small houses on lower margin projects. However, as the Sinocom Shensoft Group has a team of over 300 staff, the Directors consider that given a successful application of the business model of the Group to the Sinocom Shensoft Group, there is significant potential for the Sinocom Shensoft Group to grow. The Directors intend to introduce their financial reporting and project reporting systems to Sinocom Shensoft with a view to improving its performance.

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LETTER FROM SOMERLEY

IV. TERMS OF PUT OPTION

Pursuant to the Shareholders’ Agreement, SinoCom BVI granted the Put Option to Shensoft which may be exercised during the Option Period subject to the Cap, to sell the Shares to SinoCom BVI. The exercise of the Put Option is at the discretion of Shensoft and the Put Option is not transferable. The following is our assessment of certain of the key terms of the Put Option:

(a) Exercise Price

The actual Exercise Price will depend on the earnings of Sinocom Shensoft and the price earnings multiple (“P/E”) of the Company at the time of exercise of the Put Option. The Exercise Price will be determined by a formula based on the audited net profits after taxation of Sinocom Shensoft multiplied by a multiple being the higher of:

• (i) 8 times; or

• (ii) the Company’s P/E multiplied by 0.68.

Accordingly, the lowest price at which the Company may acquire the interest under the Put Option will be based on 8 times P/E (the “Floor Price”) multiplied by the audited net profits after taxation of Sinocom Shensoft. The Floor Price of 8 times P/E was established with reference to the P/E adopted in a previous transaction entered into by the Group of a similar nature after arm’s length negotiations between the Group and independent third parties.

The discount applied to the Company’s P/E to arrive at the Exercise Price of approximately 32% was determined on the rationale that such discount is required to compensate for the lack of liquidity of the Shares (which are of a non-listed company) as compared to the shares of a listed company.

We have compared the P/E at which the shares of the Company are trading with the P/Es of comparable listed companies. The following is a summary of the P/Es of comparable companies:

Companies	P/E (note 1)
Tata Consulting Services_(note 2)_	36.3
Wipro Limited_(note 2)_	37.7
Satyam Computer Services Limited_(note 2)_	32.2
Infosys Technologies Limited_(note 2)_	43.4
HCL Technologies Limited_(note 2)_	26.8
Average	35.3
The Floor Price	8
The Company	22.2

Source: Bloomberg

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LETTER FROM SOMERLEY

Notes:

1. Quoted on Bloomberg as at the Latest Practicable Date based on the historical financial results of the most recent financial year.

2. Top 5 software outsourcing service companies listed in India by market capitalisation, which is the largest source of offshore software programming outsourcing services. There are no other similar companies listed on the Stock Exchange.

We note that the comparable companies trade at a range of P/Es between 26.8 times and 43.4 times with a simple average of 35.3 times while the Company trades at a P/E of 22.2 times. On this basis, we consider that the Floor Price represents a relatively conservative valuation for a company in the industry. If the price of the Company’s shares trades at a P/E above around 12 times, the Exercise Price will no longer be derived by using the Floor Price. Instead, a discount of around 32% will be applied to the P/E of the shares of the Company in arriving at the Exercise Price. We consider this to be the likely scenario given that the shares of the Company have been trading in the range of HK$3.6 to HK$6.3 in the past twelve months which represents a P/E ratio of between 16.5 times and 27.4 times. In addition, the valuation of comparable companies is substantially higher than the Floor Price. Owing to the discount to be applied to the Company’s own P/E, the mechanism will ensure that the exercise of the Put Option will enhance the earnings of the Group as a whole. We consider that this is in the interest of the Group.

(b) Option Period

The Put Option is exercisable at any time over a period of 30 years commencing from the date of the Shareholders’ Agreement. We consider this option period to be long for transactions of similar nature. As discussed with the Shensoft Shareholders, they have no intention to exercise the Put Option in the near future. As discussed with the management of the Group, the period for the Put Option has been determined on such a long term basis because the objective of the Put Option is to establish a mechanism to retain and incentivise the Shensoft Shareholders, who are the senior management of Sinocom Shensoft, to work towards the long term benefit of Sinocom Shensoft, which will be in the interest of the Group as a whole. As the Shares are not tradeable on a regulated stock exchange, the availability of an exit mechanism would provide comfort to the Shensoft Shareholders in committing their long term career to Sinocom Shensoft and has the effect of promoting a stable leadership for Sinocom Shensoft.

(c) Method of payment

The consideration for the exercise of the Put Option will be cash. The maximum amount payable upon exercise of the Put Option is RMB350,000,000. The Directors intend to utilise internal financial resources to finance such consideration. Based on such maximum amount, the cash outflow for the Group would be significant. However, in the event that the Exercise Price approaches such maximum amount, on the assumption that the exercise is one-off, based on the current P/E of the Company’s shares of 22.2 times as at the Latest Practicable Date multiplied by 0.68 for 22.5% of issued Shares to be acquired by Group, the profits after taxation of Sinocom Shensoft would have to reach RMB103 million. In such circumstances, the overall size of the Group would likely have grown significantly compared to its existing position and the financial position of the

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LETTER FROM SOMERLEY

Group should be sufficient to fund such exercise. In any event, if the Sinocom Shensoft Group has grown to such size, it is likely that the Sinocom Shensoft Group would itself contribute a significant portion of the cashflow towards the payment for the Exercise Price.

(d) The Cap

The terms of the Put Option provides for a cap whereby the aggregate number of Shares that can be sold by Shensoft under the Put Option is subject to (i) the aggregate number of such Shares not exceeding 22.5% of Shares issued as at the date of the Shareholders’ Agreement, i.e. 112,500 Shares; and (ii) the aggregate Consideration for such Shares not exceeding RMB350,000,000. The cap serves to limit the amount of cash outlay for the Group upon the exercise of the Put Option and helps ensure that the Group is capable of financing the exercise of the Put Option.

V. FINANCIAL IMPACT

The Put Option can be exercisable at any time from now to a period of 30 years. Accordingly, the Group will need to set aside financial resources to fulfill the obligations under the Put Option to purchase the Shares. The amount of financial resources needed to be set aside will depend on the financial performance of Sinocom Shensoft and may vary from year to year. If the performance of Sinocom Shensoft is very strong, a significant amount will need to be set aside. Such arrangement will put a constraint on the Group to freely utilise all its financial resources. However, the amount required to be set aside will only become material in the event that the profitability of Sinocom Shensoft also becomes significant, which is a positive development for the Group.

(a) Financial position

Based on the Company’s financial statements as at 30 June 2005 contained in its interim report, the Group had total assets of approximately HK$309.5 million, net assets of approximately HK$284.5 million and bank balances of approximately HK$251.5 million. For the year ended 31 December 2004, the Group generated net operating cash flow of approximately HK$67.2 million. Given the strong financial position of the Group and that the Group does not require significant capital expenditure to sustain its operations, the financing of the exercise of the Put Option is not expected to have a significant adverse effect on the Group’s financial position and future development. For illustration purpose, based on the unaudited combined net profits after taxation of Sinocom Shensoft for the financial year ended 31 December 2004 of approximately HK$1.2 million and the current P/E of the Company’s shares of 22.2 times, in the event that the Put Option is exercised entirely by Shensoft now, the cash outlay required by the Group to acquire the Shares would amount to approximately HK$4.1 million.

(b) Earnings

Due to the mechanism of the Exercise Price being made by reference to the future profits of Sinocom Shensoft at the time of exercise, it is not possible to estimate the actual effect of the exercise on the earnings of the Group. However, the formula for exercise means that any exercise will be made when Sinocom Shensoft is profitable and therefore will increase the earnings of the Group.

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LETTER FROM SOMERLEY

VI. DISCUSSION AND CONCLUSION

The Group has been enjoying a period of high growth in terms of sales and profits and has been securing further long term clients and is well positioned to sustain further growth. Human capital represents the key asset for companies in the software outsourcing business. Increasingly, the Group is facing pressure in recruiting sufficient software engineers to satisfy demand.

To release pressure on this bottleneck, the Group acquired a controlling interest in Sinocom Shensoft, which has over 300 employees and a strong client base. Sinocom Shensoft is located in Shanghai, a key concentration centre of human resources. For the Acquisition and the Subscription to deliver the benefits of allowing the Group to provide service to increasing customer projects, it is of crucial importance that the key management of Sinocom Shensoft be retained.

The Shareholders’ Agreement and, in particular, the Put Option serve to incentivise the Shensoft Shareholders to work towards the long term benefit of Sinocom Shensoft and provide an exit platform for the Shensoft Shareholders’ Shares, which would otherwise not be readily tradeable. The Exercise Price has been structured so that the exercise of the Put Option should be earnings enhancing for the Group. The potential exercise of the Put Option will tie up capital of the Group over a long term, but the strong financial position of the Group as referred to above under the sub-section headed “Financial position” will be sufficient for the Group to honour the obligations under the Put Option. The amount to be incurred to acquire the Shares will only become significant if Sinocom Shensoft itself becomes financially successful, which is in the interest of the Group.

VII. OPINION

Having taken into account the above factors and reasons, we consider that the terms of the Shareholders’ Agreement are fair and reasonable so far as the Shareholders are concerned and the grant of the Put Option is in the interests of the Company and the Shareholders as a whole.

Yours faithfully, for and on behalf of SOMERLEY LIMITED M.N. Sabine Chairman

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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. DISCLOSURE OF DIRECTORS’ INTERESTS

As at the Latest Practicable Date, the interests or short positions of the Directors and the chief executive of the Company in the Shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they are taken or deemed to have under such provisions of the SFO) or which were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies (“Model Code”) were as follows:

(a) Interests in Company

				Approx.
	Capacity/Nature	No. of shares of		percentage of
Name of Director	of Interest	the Company	Notes	shareholding
Mr. Wang Xubing	Interest of a controlled	140,750,000 (L)	1	52.10%
	corporation
Mr. Wang Zhiqiang	Interest of a controlled	140,750,000 (L)	2	52.10%
	corporation
Dr. Shi Chongming	Beneficial owner	1,010,800 (L)		0.37%
Mr. Siu Kwok Leung	Beneficial owner	1,070,000 (L)		0.40%

Notes:

• 1 These shares are beneficially owned by China Way International Limited (“China Way”). By virtue of his 51% shareholding interest in China Way, Mr. Wang Xubing is deemed or taken to be interested in the 140,750,000 shares of the Company owned by China Way for the purpose of the SFO.

• 2 These shares are beneficially owned by China Way. By virtue of his 49% shareholding interest in China Way, Mr. Wang Zhiqiang is deemed or taken to be interested in the 140,750,000 shares of the Company owned by China Way for the purpose of the SFO.

• 3 The letter “L” denotes a long position in shares.

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GENERAL INFORMATION

APPENDIX

(b) Interests in associated corporations of the Company

Name of			No. of ordinary
associated		Capacity/Nature	shares of	Percentage of
corporation	Name of director	of interest	US$1.00 each	shareholding
China Way	Mr. Wang Xubing	Interest of a controlled	51 (L)	51%
		corporation
China Way	Mr. Wang Zhiqiang	Interest of a controlled	49(L)	49%
		corporation

Note: The letter “L” denotes a long position in shares.

Save as disclosed herein, as at the Latest Practicable Date, none of the Directors or chief executive of the Company had any interests or short positions in the Shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 & 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have under such provisions of SFO) or which were required, pursuant to Section 352 of the SFO, to be entered in the register referred to therein or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code.

3. DISCLOSURE OF SUBSTANTIAL SHAREHOLDERS’ INTERESTS

(a) Interests in Company

As at the Latest Practicable Date, so far as is known to any Director or chief executive of the Company, the following persons (other than a Director or the chief executive of the Company) had an interest or short position in the Shares and underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO:

				Approx.
	Capacity/Nature	No. of shares		percentage of
Name of shareholder	of Interest	of the Company	Note	shareholding
China Way	Beneficial owner	140,750,000 (L)		52.10%
Legend New-Tech	Beneficial owner	14,960,782 (L)		5.54%
Investment Limited
Right Lane Limited	Interest of a controlled	14,960,782 (L)	1	5.54%
	corporation
Legend Holdings Limited	Interest of a controlled	14,960,782 (L)	2	5.54%
	corporation
Chinese Academy of	Interest of a controlled
Sciences Holdings	corporation	14,960,782 (L)	3	5.54%
Co., Ltd.

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GENERAL INFORMATION

APPENDIX

				Approx.
	Capacity/Nature	No. of shares		percentage of
Name of shareholder	of Interest	of the Company	Note	shareholding
Employee’s Stock Society	Interest of a controlled
of Legend Holdings	corporation	14,960,782 (L)	4	5.54%
Limited
Madam Zhang Yue	Interest of spouse	140,750,000 (L)	5	52.10%
Madam Yuan Yue Ling	Interest of spouse	140,750,000 (L)	6	52.10%
Sloane Robinson LLP	Investment manager	13,602,000 (L)		5.03%

Notes:

• 1 Right Lane Limited is beneficially interested in the entire issued share capital of Legend NewTech Investment Limited (“Legend New-Tech”). By virtue of its 100% interest in Legend NewTech, Right Lane Limited is deemed or taken to be interested in the 14,960,782 shares beneficially owned by Legend New-Tech.

• 2 Legend Holdings Limited is beneficially interested in the entire issued share capital of Right Lane Limited. By virtue of its 100% interest in Right Lane Limited, Legend Holdings Limited is deemed or taken to be interested in the 14,960,782 shares beneficially owned by Legend NewTech.

• 3 Chinese Academy of Sciences Holdings Co., Ltd. is beneficially interested in a 65% equity interest in Legend Holdings Limited. By virtue of its interest in Legend Holdings Limited, Chinese Academy of Sciences Holdings Co., Ltd, is deemed or taken to be interested in the 14,960,782 shares beneficially owned by Legend New-Tech.

• 4 Employee’s Stock Society of Legend Holdings Limited is beneficially interested in 35% equity interest in Legend Holdings Limited. By virtue of its interest in Legend Holdings Limited, Employee’s Stock Society of Legend Holdings Limited is deemed or taken to be interested in the 14,960,782 shares beneficially owned by Legend New-Tech.

• 5 Madam Zhang Yue is the wife of Mr. Wang Xubing and is deemed to be interested in the 140,750,000 shares in which Mr. Wang Xubing is deemed or taken to be interested for the purposes of the SFO.

• 6 Madam Yuan Yue Ling is the wife of Mr. Wang Zhiqiang and is deemed to be interested in the 140,750,000 shares in which Mr. Wang Zhiqiang is deemed or taken to be interested for the purposes of the SFO.

• 7 The letter “L” denotes a long position in shares.

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GENERAL INFORMATION

APPENDIX

(b) Interests in other members of the Group

As at the Latest Practicable Date, so far as is known to any Director or chief executive of the Company, the following person (other than a Director or the chief executive of the Company) was directly or indirectly interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group:

		Approx. percentage
		of registered/
	Name of member of	issued capital
Name of shareholder	the Group	of the company
Beijing Asia Pacific	SinoCom-Art M Technology	16%
Communications	Co., Ltd.
Technology Development
Co., Ltd.
Mr. Han Dong Hui	SinoCom-Art M Technology	24%
	Co., Ltd.
Shensoft	Sinocom Shensoft	45%
Pan Hong	Sinocom Shensoft	Note

Note: Pan Hong is interested in approximately 58.33% issued share capital of Shensoft. By virtue of his 58.33% interest in Shensoft, he is indirectly interested in 10% or more of the shares in Sinocom Shensoft.

Save as disclosed herein, as at the Latest Practicable Date, so far as is known to any Directors or chief executive of the Company, no other person (other than a Director or the chief executive of the Company) had an interest or short position in the Shares and underlying shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who was directly or indirectly interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group.

4. SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had a service contract with the Company or any of its subsidiaries which was not determinable by the Group within one year without payment of compensation, other than statutory compensation.

5. LITIGATION

As at the Latest Practicable Date, no member of the Group was engaged in any litigation or arbitration of material importance and no litigation or claim of material importance is known to the Directors to be pending or threatened against any member of the Group.

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GENERAL INFORMATION

APPENDIX

6. COMPETING INTERESTS

As at the Latest Practicable Date, none of Directors or their respective associates (as defined in the Listing Rules) had any interests in a business which competes or may compete with the business of the Group.

7. QUALIFICATIONS

The following are the qualifications of the expert who has given an opinion on the information contained in this circular:

Name

Qualifications

Somerley Limited a licensed corporation to carry out type 1 (dealing in securities), type 4 (advising on securities), type 6 (advising on corproate finance) and type 9 (asset management) regulated activities for the purposes of the SFO

8. CONSENT

Somerley has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and references to its name in the form and context in which they respectively appear herein.

As at the Latest Practicable Date, Somerley did not have any shareholding in any member of the Group or any right, whether legally enforceable or not, to subscribe for or to nominate persons to subscribe for securities of any member of the the Group, nor did it have any interest, direct or indirect, in any asset which had, since 31 December 2004, being the date to which the latest published audited financial statements of the Group were made up, been acquired or disposed of by or leased to the Group, or were proposed to be acquired or disposed of by or leased to the Group.

9. MATERIAL ADVERSE CHANGE

The Directors are not aware of any material adverse change in the financial or trading position of the Group since 31 December 2004, being the date to which the latest published audited financial statements of the Group were made up.

10. DIRECTORS’ INTERESTS IN CONTRACTS AND OTHER INTERESTS

None of the Directors is materially interested in any contract or arrangement entered into by any member of the Group subsisting at the date of this circular which is significant in relation to the business of the Group.

Since 31 December 2004, being the date to which the latest audited financial statements of the Group were made up, none of the Directors has any interest, direct or indirect, in any assets which have been acquired or disposed of by or leased to or by any member of the Group, or which are proposed to be acquired or disposed of or leased to or by any member of the Group.

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GENERAL INFORMATION

APPENDIX

11. MISCELLANEOUS

• (a) The qualified accountant and company secretary of the Company is Mr. Siu Kwok Leung, an associate member of the Hong Kong Institute of Certified Public Accountants and a fellow member of the Association of Chartered Certified Accountants.

• (b) The registered office of the Company is located at Century Yard, Cricket Square, Hutchins Drive, P.O. Box 2681 GT, George Town, Grand Cayman, British West Indies. The principal place of business of the Company in Hong Kong is located at Units 1713-18, 17/F, Shui On Centre, 6-8 Harbour Road, Wanchai, Hong Kong.

• (c) The branch share registrar of the Company in Hong Kong is Tricor Investor Services Limited, at 28th Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong.

• (d) The English text of this circular shall prevail over the Chinese text, in case of any inconsistency.

12. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours at Units 1713-18, 17/F, Shui On Centre, 6-8 Harbour Road, Wanchai, Hong Kong from 21 December 2005 to 3 January 2006 (both days inclusive):

• (a) the Share Transfer and Subscription Agreement;

• (b) the Shareholders’ Agreement;

• (c) the letter from the Independent Board Committee dated 21 December 2005, the text of which is set out on page 12 of this circular;

• (d) the letter from Somerley dated 21 December 2005, the text of which is set out on pages 13 to 21 of this circular; and

• (e) the written consent referred to in the paragraph headed “Consent” in this appendix.

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