Kai Yuan Holdings Limited — Proxy Solicitation & Information Statement 2002

Dec 31, 2002

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares in Guo Xin Group Limited, you should at once hand this circular with the enclosed form of proxy to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale was effected for transmission to the purchaser or transferee.

The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this circular, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

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GUO XIN GROUP LIMITED 國新集團有限公司 *

(Incorporated in Bermuda with limited liability)

DISCLOSEABLE TRANSACTION

10 December 2002

* For identification purpose only

CONTENTS

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	3
The Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
Information on Wealth Sea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
Reason for the Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
Further Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Appendix – General Information
Responsibility Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
Directors’ Interests in Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
Directors’ Interests in Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
Substantial Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Directors’ Interests in Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Service Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Material Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10

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DEFINITIONS

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

• “ Acquisition ”

the acquisition of the entire issued share capital of Wealth Sea;

“ Agreement ” a conditional sale and purchase agreement entered into between the Company and the Vendor on 15 November 2002 in relation to the Acquisition;

• “ associates ” has the same meaning as ascribed in the Listing Rules;

• “ Board ” the board of Directors;

• “ Business Day ” a day (other than Saturdays) on which banks in Hong Kong are generally open for the transactions of normal banking business;

• “ Code ” the Hong Kong Code on Takeovers and Mergers;

• “ Company ” Guo Xin Group Limited, a company incorporated in Bermuda with limited liability, the securities of which are listed on the Stock Exchange;

• “ Completion ” completion of the Acquisition;

• “ Consideration ” HK$103,000,000;

• “ Deposit ” HK$80,000,000 which was paid by the Company to the Vendor on the date of the signing of the Agreement as deposit;

• “ Directors ” the executive directors of the Company;

• “ Group ” the Company and its subsidiaries;

• “ Hong Kong ” The Hong Kong Special Administrative Region of the PRC;

• “ Latest Practicable Date ” 6 December 2002, being the latest practicable date prior to the printing of this circular for ascertaining certain information in this circular;

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DEFINITIONS

“Listing Rules”	the Rules Governing the Listing of Securities on the Stock
	Exchange;
“PRC”	The People’s Republic of China;
“Properties”	64 residential units situates at No. 1546, Dalian Road,
	Yangpu District, Shanghai, PRC of a total gross area of
	approximately 10,111.54 square meters;
“Share(s)”	ordinary share(s) of HK$0.1 each in the capital of the
	Company;
“Shareholder(s)”	registered holder(s) of Share(s);
“Stock Exchange”	The Stock Exchange of Hong Kong Limited;
“Vendor”	Zheng You Ping (鄭幼平);
“Wealth Sea”	Wealth Sea Investment Limited, a company incorporated in
	the British Virgin Islands with limited liability, which is
	wholly owned by the Vendor;
“HK$”	Hong Kong dollars;
“RMB”	Renminbi; and
“US$”	United States dollars;

Conversion of RMB into HK$ is based on the exchange rate of RMB1.06 = HK$1.00.

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LETTER FROM THE BOARD

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GUO XIN GROUP LIMITED 國新集團有限公司 *

(Incorporated in Bermuda with limited liability)

Executive Directors:

Mr. Zhang Yang Mr. Lam Cheung Shing, Richard Mr. Yu Rui

Registered Office:

Cedar House 41 Cedar Avenue Hamilton, HM 12 Bermuda

Independent Non-executive Directors:

Mr. Tam Sun Wing Mr. Tso Shiu Kei Vincent

Principal place of business in Hong Kong : Room 4101, 41st Floor Far East Finance Centre 16 Harcourt Road Admiralty Hong Kong

10 December 2002

To the Shareholders Dear Sir or Madam,

DISCLOSEABLE TRANSACTION

INTRODUCTION

The Company announced on 19 November 2002 that it has entered into an agreement with the Vendor on 15 November 2002 for the acquisition of the entire issued share capital of Wealth Sea at a consideration of HK$103,000,000.

The Acquisition constitutes a discloseable transaction for the Company under the Listing Rules and further details are set out below. The purpose of this circular is to provide you with further information of the Acquisition.

* For identification purpose only

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LETTER FROM THE BOARD

THE AGREEMENT

Date :

15 November 2002

Parties :

• Vendor : Zheng You Ping, a PRC citizen and businessman and an independent third party not connected with the Company, any of the directors, chief executive or substantial shareholders of the Company or any of its subsidiaries or any of their respective associates. As at the date of this circular, the Vendor does not hold any interest in the share capital of the Company; and

• Purchaser : the Company.

Assets to be acquired :

1 share of US$1.00 in the capital of Wealth Sea representing its entire issued share capital.

Consideration :

The consideration is HK$103,000,000 which was determined after arm’s length negotiations by reference to and at a discount of approximately 6.3% of the estimated market price of the Properties at RMB11,522 (equivalent to approximately HK$10,870) per square meter as set out in a valuation report issued by an independent PRC valuer, Shanghai Real Estate Appraisers Co. Ltd, on 10 November 2002 by reference to the district factor and the transportation facilities of and after taking into account of the market prices of comparable properties on 10 November 2002 in region of Yangpu District of Shanghai.

The Consideration will be funded by internal resources of the Company and is payable in the following manner :

• (1) HK$80,000,000 was paid on the date of the signing of the Agreement as deposit which will be applied to settle part of the Consideration on Completion; and

• (2) balance of the Consideration in the sum of HK$23,000,000 will be paid on Completion.

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LETTER FROM THE BOARD

The amount of Deposit was determined by reference to the Vendor agreeing to fix the liquidated damages at the sum of HK$20,000,000.

Conditions :

Completion is conditional on :

• (1) the Vendor has provided the Company with all the title deeds (including but not limited to the land use right certificate, property ownership certificate and relevant approvals) of the Properties to prove Wealth Sea is the legal and beneficial owner of the Properties to the full satisfaction of the Company;

• (2) the Company having completed its due diligence (including without limitation, legal, financial and commercial aspects) in respect of Wealth Sea and the results of which are, in the absolute opinion of the Company, satisfactory and acceptable to the Company in all respects;

• (3) the Company having obtained a legal opinion issued by a lawyer (acceptable to the Company) qualified to practice laws in the PRC (which form and contents are satisfactory and acceptable to the Company) to certify that :–

• (a) Wealth Sea is the legal and beneficial owner of the Properties and the Properties are not subject to any charge, lien, encumbrance or any other rights or claims from a third party;

• (b) the land use right certificate and all relevant documents are valid and there is not any event or circumstance which will cause cancellation of such title documents; and

• (c) any other issues which the Company shall require to be included in such legal opinion; and

• (4) the Vendor is not in breach of any of the warranties in respect of Wealth Sea contained in the Agreement.

If the Vendor shall fail to provide the Company with all the title deeds (including but not limited to the land use right certificate, property ownership certificate and relevant approvals) of the Properties within 30 days from the date of signing of the Agreement to prove Wealth Sea is the legal and beneficial owner of the Properties to the full satisfaction of the Company or the conditions set out above are not fulfilled or waived by the Company on or before 30 days from the date of signing of the Agreement or such later date as the parties may agree, the Vendor shall return the Deposit to the Company forthwith and pay to the Company a sum of HK$20,000,000 as mutually agreed liquidated damages.

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LETTER FROM THE BOARD

If the conditions set out above are not fulfilled or so waived by the Company within 30 days from the date of signing of the Agreement, the Agreement will lapse and be of no further effect and no party to the Agreement will have any claim against or liability to the other party, save in respect of any antecedent breaches of the terms of the Agreement. The conditions set out above may be waived by the Company, but the Company has no intention to waive any of such condition.

Completion :

Completion will take place on or before the 3rd Business Day after all the conditions set out in the paragraph headed “Conditions” in this circular are satisfied or waived as the case may be, or such other date as the parties may agree. It is expected that completion of Agreement will take place after 30 days of the date of the signing of the Agreement.

INFORMATION ON WEALTH SEA

Wealth Sea was incorporated in the British Virgin Island on 30 October 2000. Wealth Sea has been engaged in investment in service apartments in Yangpu District of Shanghai since its incorporation. Wealth Sea has entered into several sale and purchase agreements to acquire interest in the Properties and will become the legal and beneficial owner of the Properties upon completion of all relevant procedure with the PRC authorities. As at the date of this Circular, Wealth Sea is still proceeding with the completion of all relevant procedure with the PRC authorities.

Based on the latest unaudited accounts of and information provided by Wealth Sea, the unaudited profit before taxation of Wealth Sea for the period from 30 October 2000 to 31 October 2002 was approximately HK$42,695,935. The unaudited net asset value of Wealth Sea as at 31 October 2002 was HK$104,700,670. There was no extraordinary items for the period from 30 October 2000 to 31 October 2002.

REASON FOR THE ACQUISITION

The Company is principally engaged in the trading of consumer goods in Hong Kong, including sports merchandise, photographic equipment and brand-name audio-visual products, commodity futures trading in the PRC and the operation of an e-commerce platform offering on-line reservation services of airline tickets and hotels. To couple with the development of tourism industry in Hong Kong and the PRC, the Company endeavoured to enrich its website in order to attract more tourists and to establish a solid foundation for the challenging but optimistic future. In addition, with the PRC’s accession to WTO, the economic activities between the PRC and Hong Kong have becoming increasingly frequent. The demand for air ticket booking and hotel reservation services as well as service apartments is rising, especially for travel to major China cities. Thus, the Company will invest more resources in this area, step up the establishment and development of self-operating service apartments and accelerate business growth through mergers and acquisitions so that in future the Company will be able to compliment its existing tourism businesses and further provide full range tourism services in the PRC.

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LETTER FROM THE BOARD

The Directors consider that the Acquisition coincides with the business development of the Company in the PRC and expect that the Company will hold the Properties as a long term investment. It is also expected that through engaging in self-operating service apartments, the Acquisition will contribute additional operating profit to the Group and hence gives a positive effect on the earnings per share of the Company. In addition, as a result of the Acquisition, there is no adverse effect on the assets and liabilities of the Company.

The Directors believe that the Acquisition is fair and reasonable and in the best interests of the Company and its shareholders.

FURTHER INFORMATION

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

Yours faithfully, For and on behalf of the Board Yip Kar Hang, Raymond Company Secretary

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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 enquires, 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. DIRECTORS’ INTERESTS IN SECURITIES

As at the Latest Practicable Date, the interests of the Directors and chief executives of the Company in the equity and debt securities of the Company and its associated corporations (within the meaning of the SDI Ordinance) which require notification to the Company and the Stock Exchange pursuant to Section 28 of the SDI Ordinance (including interests which any such Director is deemed or taken to have under Section 31 or Part I of the Schedule to the SDI Ordinance) or which are required to be entered into the register maintained by the Company under Section 29 of the SDI Ordinance or which are required, pursuant to the Model Code for Securities Transactions by Directors of Listed Companies, to be notified to the Company and the Stock Exchange were as follows :

Name of Directors	Nature of interests	Number of Shares
Zhang Yang	Corporate	977,887,000_(Note)_

Note : Mr. Zhang Yang is deemed to be interested in 977,887,000 Shares held by Sourcebase Developments Limited which is beneficially owned by him.

Save as disclosed above, none of the Directors or their associates had any interests in the equity and debt securities of the Company or any of its associated corporations as defined in the SDI Ordinance as at the Latest Practicable Date.

3. DIRECTORS’ INTERESTS IN CONTRACTS

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 and which is significant in relation to the business of the Group.

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GENERAL INFORMATION

APPENDIX

4. SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, according to the register kept by the Company pursuant to section 16(1) of the SDI Ordinance, and so far as is known to the Directors, the shareholders who were directly or indirectly interested in 10 per cent. or more of the issued share capital of the Company carrying rights to vote in all circumstances at general meetings of the Company together with the number of shares in which they were deemed to be interested were :

		Percentage of
Name	Number of Shares	holding
Sourcebase Developments Limited_(Note)_	977,887,000	31.3%

Note : Sourcebase Developments Limited is beneficially owned by Mr. Zhang Yang.

5. DIRECTORS’ INTERESTS IN ASSETS

None of the directors has or has had any direct or indirect material interest in any assets which have been acquired or disposed of by or leased to any member of the Group or are proposed to be acquired or disposed of by or leased to any member of the Group since 30 June 2002, being the date to which the latest published audited consolidated financial statements of the Company were made up.

6. SERVICE CONTRACT

There is no service contract between any proposed Directors and members of the Group which does not expire or is not determinable by the employer within one year without payment of compensation other than statutory compensation.

7. LITIGATION

No member of the Group is engaged in any litigation or arbitration of material importance and the Directors are not aware of any litigation or claims of material importance pending or threatened against any member of the Group.

8. MATERIAL CHANGES

Save as disclosed in the annual report to Shareholders for the financial year ended 30 June 2002, the Directors are not aware of any material adverse change in the financial or trading position of the Group since 30 June 2002, the date to which the latest published audited consolidated financial statements of the Company were made up.

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GENERAL INFORMATION

APPENDIX

9. MISCELLANEOUS

• (a) The registered office of the Company is at Room 4101, 41st Floor, Far East Finance Centre, 16 Harcourt Road, Admiralty, Hong Kong.

• (b) The Share Registrars is Tengis Limited at 4th Floor, Hutchison House, 10 Harcourt Road, Central, Hong Kong.

• (c) The secretary of the Company is Mr. Yip Kar Hang, Raymond, who is a member of the American Institute of Certified Public Accountants and the Hong Kong Society of Accountants.

• (d) The English text of this circular shall prevail over the Chinese text.

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