Kai Yuan Holdings Limited — Proxy Solicitation & Information Statement 2002

Nov 7, 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 and Hong Kong Securities Clearing Company 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)

CONSOLIDATION OF SHARES

A notice convening a special general meeting of Guo Xin Group Holdings Limited to be held at Room 4101, 41st Floor, Far East Finance Centre, 16 Harcourt Road, Admiralty, Hong Kong on 22 November 2002 at 5:00 p.m. is enclosed. A form of proxy is also enclosed.

Whether or not you are able to attend the special general meeting, you are requested to complete the enclosed form of proxy in accordance with the instructions printed thereon and return it to the office of the Company’s branch share registrars in Hong Kong, Tengis Limited, 4th Floor, Hutchison House, 10 Harcourt Road, Central, Hong Kong as soon as possible but in any event not less than 48 hours before the time appointed for the holding of the special general meeting. Completion and return of the form of proxy will not prevent you from subsequently attending and voting at the special general meeting or any adjourned meetings should you so wish.

7 November 2002

* For identification purpose only

CONTENTS

	Page
Responsibility Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	ii
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Expected timetable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	3
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
The Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Conditions of the Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Reasons for the Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
Effect of the Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
Listing and Dealings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
Consequential Adjustments to the Outstanding Shares Options Granted . . . . . . . . . .	8
Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Special General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Notice of SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11

– i –

RESPONSIBILITY STATEMENT

This document 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 document 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.

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DEFINITIONS

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

“associates” has the same meaning as ascribed in the Listing Rules; “Board” the board of Directors; “CCASS” the Central Clearing and Settlement System established and operated by HKSCC; “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; “Companies Ordinance” Companies Ordinance (Chapter 32 of the Laws of Hong Kong); “Connected Person” has the same meaning as ascribed in the Listing Rules;

• “Consolidated Share(s)” share(s) of HK$0.10 each in the share capital of the Company after the Consolidation becomes effective;

• “Consolidation” the proposed consolidation of every ten issued and unissued Existing Shares into one Consolidated Share;

• “Directors” executive directors of the Company; “Existing Share(s)” ordinary share(s) of HK$0.01 each in the capital of the Company;

• “Group” the Company and its Subsidiaries;

“HKSCC” Hong Kong Securities Clearing Company Limited; “Hong Kong” The Hong Kong Special Administrative Region of the People’s Republic of China; “Latest Practicable Date” 4 November 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;

• “Ordinary Resolution”

the ordinary resolution to be proposed and passed at the Special General Meeting as set out in the SGM Notice;

“Registrar”

• the branch share registrar of the Company in Hong Kong, Tengis Limited at 4th Floor, Hutchison House, 10 Harcourt Road, Central, Hong Kong;

• “SGM Notice”

• the notice of the Special General Meeting to be despatched to the Shareholders together with this circular;

• “Shareholder(s)” registered holder(s) of Share(s);

• “Special General Meeting” or “SGM”

• the special general meeting of the Company to be held at Room 4101, 41st Floor, Far East Finance Centre, 16 Harcourt Road, Admiralty, Hong Kong on 22 November 2002 at 5:00 p.m., to consider and, if appropriate, to approve the Ordinary Resolution or any adjournment thereof;

• “Stock Exchange”

The Stock Exchange of Hong Kong Limited;

• “Subsidiary”

• a subsidiary for the time being of the Company (within the meaning of Section 2 of the Companies Ordinance, whether incorporated in Hong Kong or elsewhere); and

• “HK$” and “cents”

Hong Kong dollars and cents.

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2002

EXPECTED TIMETABLE

Latest time for lodging proxy forms for the SGM . . . . . 5:00 p.m. on Wednesday, 20 November The SGM to be held . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5:00 p.m. on Friday, 22 November Effective Date of the Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Monday, 25 November First day for free exchange of share certificates of Existing Shares for new share certificates of Consolidated Shares . . . . . . . . . . Monday, 25 November Original counter for trading in Existing Shares in board lots of 10,000 Existing Shares temporarily closes . . . . . . . . 9:30 a.m., Monday, 25 November Temporary counter for trading in Consolidated Shares in board lots of 1,000 Consolidated Shares in the form of existing share certificate(s) opens . . . . . . . . . . . . . . . . . . . . . 9:30 a.m., Monday, 25 November Designated broker starts to stand in the market to provide matching service for trading in odd lots of Consolidated Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9:30 a.m., Monday, 25 November Original counter for trading in Consolidated Shares in board lots of 20,000 Consolidated Shares in the form of new share certificate(s) reopens . . . . . . . . . . . . . . . . . . . . . . . 9:30 a.m., Monday, 9 December Parallel trading commences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9:30 a.m., Monday, 9 December 2003 Temporary counter for trading in Consolidated Shares in board lots of 1,000 Consolidated Shares in the form of existing share certificate(s) closes . . . . . . . . . . . . . . . . . . . . . . 4:00 p.m., Thursday, 2 January Parallel trading ends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4:00 p.m., Thursday, 2 January Designated broker ceases to stand in the market to provide matching service for trading in odd lots of Consolidated Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4:00 p.m., Thursday, 2 January Last day for free exchange of existing share certificates for Existing Shares for new share certificates of Consolidated Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tuesday, 7 January

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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. Jiang Feng

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

7 November 2002

To the Shareholders

Dear Sir or Madam,

PROPOSED CONSOLIDATION OF SHARES

INTRODUCTION

The Board announced on 18 October 2002 that proposal would be put forward to the Shareholders for approving the consolidation of the Company’s shares at the SGM.

It is proposed that subject to approval being obtained from the Shareholders at the SGM and the Stock Exchange, every ten issued and unissued Existing Shares will be consolidated into one Consolidated Share.

The Directors believe that the Consolidated Shares will attract more interests from institutional investors and will result in a reduction of overall transaction costs for dealing in Consolidated Shares.

• For identification purpose only

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LETTER FROM THE BOARD

The purpose of this circular is to provide you with information in respect of the Consolidation (including details of the expected timetable, trading arrangements and the free exchange of share certificates) and to seek your approval at the SGM of the Ordinary Resolution in relation to the Consolidation as set out in the SGM Notice.

THE CONSOLIDATION

It is proposed that subject to the conditions set out below, every ten issued and unissued Existing Shares will be consolidated into one Consolidated Share. Under the Consolidation, every ten issued Existing Shares registered in the name of each Shareholder on the register of members of the Company on the opening of business on the date the Consolidation becomes effective will constitute one Consolidated Share. Any fraction of Consolidated Shares that arise from the Consolidation will be aggregated and sold for the benefit of the Company. The Consolidated Shares will rank pari passu in all respects with each other, having attached thereto the rights set out in the bye-laws of the Company.

The Consolidation is not expected to have any impact on the outstanding share options granted, save for the consequential adjustments in accordance with the terms of the relevant instruments, the details of which are set out in the sub-section headed “Consequential Adjustments to the Outstanding Shares Options granted” in this circular.

The Existing Shares are presently traded in board lots of 10,000 Existing Shares and following the Consolidation, the Consolidated Shares will be traded in board lots of 20,000 Consolidated Shares.

As at the Latest Practicable Date, the authorized share capital of the Company is HK$500,000,000 divided into 50,000,000,000 Existing Shares, of which 26,861,831,400 Existing Shares have been issued and are fully paid. Pursuant to the Consolidation, the total number of issued shares in the capital of the Company will be reduced, but the authorized share capital of the Company will remain unchanged.

CONDITIONS OF THE CONSOLIDATION

The Consolidation is conditional upon:

• (a) the passing at a SGM of the Ordinary Resolution approving the Consolidation; and

• (b) the Listing Committee of the Stock Exchange granting a listing of and permission to deal in the Consolidated Shares.

Assuming the above conditions are fulfilled, it is expected that the proposed Consolidation will become effective on the day following the SGM.

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LETTER FROM THE BOARD

REASONS FOR THE CONSOLIDATION

The Board noted that the shares in the Company have been traded at prices in the region between HK$0.01 and HK$0.068 per share in the past twelve months. In view of the low trading price of the shares in the Company and the requirement under paragraph 30 of the listing agreement, the Board has decided to put forward the consolidation proposal to the Shareholders for their approval.

Based on the closing price of HK$0.012 per share in the Company as quoted on the Stock Exchange on 17 October 2002, the monetary value per board lot of shares in the Company before and after the Consolidation is HK$120 and HK$2,400 respectively.

The Directors believe that the Consolidated Shares will attract more interests from institutional investors and will result in a reduction of overall transaction costs for dealing in Consolidated Shares.

EFFECT OF THE CONSOLIDATION

Upon the Consolidation becoming effective, the authorized share capital of the Company will remain at its original amount of HK$500,000,000, divided into 5,000,000,000 Consolidated Shares, of which 2,686,183,140 Consolidated Shares will be in issue and 2,313,816,860 Consolidated Shares will be unissued.

Other than the expenses incurred in relation to the Consolidation, the implementation thereof will not alter the underlying assets, business operations, management or financial position of the Company or the interests of the Shareholders. The Board believes that the Consolidation will not have a material adverse effect on the financial position of the Group and is in the interests of the Company and the Shareholders as a whole.

LISTING AND DEALINGS

Application will be made to the Listing Committee of the Stock Exchange for listing and permission to deal in the Consolidated Shares in issue as a result of the Consolidation. The Consolidated Shares will rank pari passu in all respects with each other and will not result in any change in relative rights of the Shareholders. No part of the share capital of the Company is listed or dealt in any other stock exchange and no such listing or permission to deal is being or is proposed to be sought.

Subject to the granting of listing of, and permission to deal in, the Consolidated Shares in the Stock Exchange, the Consolidated Shares will be accepted as eligible securities by HKSCC for deposit, clearance and settlement in CCASS with effect from the commencement date of dealings in the Consolidated Shares on the Stock Exchange or such other date as determined by

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LETTER FROM THE BOARD

HKSCC. Settlement of transactions between participants of the Stock Exchange on any trading day is required to take place in CCASS on the second trading day thereafter. All activities under CCASS are subject to the General Rules of CCASS and CCASS Operational Procedures in effect from time to time.

Subject to the proposed Consolidation becoming effective, dealings in the Consolidated Shares are expected to commence on 25 November 2002.

The Existing Shares are presently traded in board lots of 10,000 Existing Shares and following the Consolidation, the Consolidated Shares will be traded in board lots of 20,000 Consolidated Shares. Any fractional entitlements to the Consolidated Shares will be aggregated and sold and retained for the benefit of the Company. In order to alleviate the difficulties arising from the existence of odd lots of the Consolidated Shares as a result of the Consolidation, the Company has agreed to procure Interchina Securities Limited (Contact person: Mr. Jacky Chu, telephone no.: 2861-6901) to stand in the market to provide matching services for the odd lots of Consolidated Shares on a best effort basis during the period from 25 November 2002 to 2 January 2003 (both dates inclusive). Holders of odd lots of the Consolidated Shares should note that the match up of the sale and purchase of odd lots of the Consolidated Shares is not guaranteed and should seek their own professional advice if in doubt.

From 25 November 2002, the original counter for trading in the Existing Shares in board lots of 10,000 Existing Shares will be temporary closed. A temporary counter will be established for trading in the Consolidated Shares in board lots of 1,000 Consolidated Shares. Every ten Existing Shares will be deemed to represent one Consolidated Share. Certificates for Existing Shares may only be traded at this temporary counter.

With effect from 9 December 2002, the original counter for trading in Consolidated Shares will be reopened for trading in the Consolidated Shares in board lots of 20,000 Consolidated Shares.

From 9 December 2002 to 2 January 2003 (both dates inclusive), there will be parallel trading at the above two counters.

The temporary counter for trading in the Consolidated Shares in board lots of 1,000 Consolidated Shares will be removed after the close of trading on 2 January 2003. Thereafter, trading will be in Consolidated Shares in board lots of 20,000 Consolidated Shares only and the existing share certificates for the Existing Shares will cease to be marketable and will not be acceptable for dealing purpose. However, such share certificates will remain effective as document of title.

– 7 –

LETTER FROM THE BOARD

Subject to the proposed Consolidation becoming effective, Shareholders may submit their share certificates for Existing Shares to the Registrar in exchange for share certificates for Consolidated Shares free of charge at the Registrar’s office during business hours from 25 November 2002 up to and including 7 January 2003. Thereafter, existing share certificates for Existing Shares will be accepted for exchange only on payment of a fee of HK$2.50 (or such higher amount as may from time to time be allowed by the Stock Exchange) for each new share certificate issued for Consolidated Shares. A shareholder will be entitled to aggregate his/her Consolidated Shares registered in his/her name in order to obtain new share certificates in the board lot size of 20,000 Consolidated Shares.

It is expected that new share certificates for Consolidated Shares will be available for collection within a period of approximately 10 business days from the date of submission of share certificates of Existing Shares to Tengis Limited for exchange.

CONSEQUENTIAL ADJUSTMENTS TO THE OUTSTANDING SHARES OPTIONS GRANTED

Share Option Scheme (adopted on 30 December 1996)

In the event of a consolidation of the share capital of the Company whilst any share option remains exercisable, corresponding adjustments (if any) shall be made to:

• (a) the number or nominal amount of the shares subject to the option so far as unexercised; and/or

• (b) the subscription price,

as the Auditors shall certify in writing to the Board to be in their opinion fair and reasonable, provided that (a) no increase shall be made in the aggregate subscription price relating to any option; and (b) any alteration shall be made on the basis that the proportion of the issued share capital of the Company to which a grantee is entitled after such alteration shall remain the same as that to which he was entitled before such alteration, but so that no such alteration shall be made the effect of which would be to enable any share to be issued at less than its nominal value. The Auditors’ certification must also confirm that the requirement set out in Rule 17.03(13) in the Listing Rules are satisfied.

The Auditors’ certification shall be final and binding on the Company and the grantees.

At the Latest Practicable Date, options in respect of 5,000 Existing Shares with a subscription price of HK$0.27904 per Existing Share remained outstanding. Subject to the Auditors’ certification above, after the above adjustment, such outstanding options will be in respect of 500 Consolidated Shares and have a subscription price of HK$2.7904 per Consolidated Share.

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LETTER FROM THE BOARD

Share Option Scheme (adopted on 17 April 2002)

In the event of a consolidation of the share capital of the Company whilst any share option remains exercisable, corresponding adjustments (if any) shall be made to:

• (a) the number or nominal amount of the shares subject to the option so far as unexercised; and/or

• (b) the subscription price; and/or

• (c) the method of exercise of the option,

as the Auditors or an independent financial advisor shall certify in writing to the Board to be in their opinion fair and reasonable. Any such alteration must give the grantee the same proportion of the issued share capital of the Company as that to which he was previously entitled, but no adjustment shall be made to the effect of which would be to enable a share to be issued at less than its nominal value. The Auditor’s or an independent financial advisor’s certification must also confirm that the requirements set out in Rule 17.03(13) in the Listing Rules are satisfied.

The Auditors’ or an independent financial advisor’s (as the case may be) certification shall be final and binding on the Company and the grantees. The costs of the Auditors or an independent financial advisor shall be borne by the Company.

The Company shall also notify the grantees in writing of any adjustments which have been made.

There is no option granted under this share option scheme that remains outstanding.

RECOMMENDATION

The Directors consider that the Consolidation is beneficial to both the Company and the Shareholders as a whole and recommend the Shareholders to vote in favour of the Ordinary Resolution to implement the Consolidation at the forthcoming SGM.

SPECIAL GENERAL MEETING

A notice convening the SGM is set out on pages 11 to 12 of this circular. The Ordinary Resolution will be proposed at the SGM for the purpose of approving the proposed Consolidation.

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LETTER FROM THE BOARD

A form of proxy for use at the SGM is enclosed. Whether or not you are able to attend the SGM in person, you are requested to complete and return the form of proxy in accordance with the instructions printed thereon as soon as possible but in any event not later than 48 hours before the time appointed for the holding of the SGM. Completion and return of the form of proxy will not preclude you from attending and voting at the SGM or any adjournment thereof in person if you so wish.

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

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NOTICE OF SGM

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GUO XIN GROUP LIMITED 國新集團有限公司[*]

(Incorporated in Bermuda with limited liability)

NOTICE IS HEREBY GIVEN that a special general meeting of the Company will be held at Room 4101, 41st Floor, Far East Finance Centre, 16 Harcourt Road, Admiralty, Hong Kong on Friday, 22 November 2002 at 5:00 p.m. for the purpose of considering and, if thought fit, passing, with or without modification, the following resolution as ordinary resolution of the Company:

ORDINARY RESOLUTION

“ THAT pursuant to Bye-law 4B of the Company, subject to and conditional upon the Listing Committee of The Stock Exchange of Hong Kong Limited granting approval for listing of and permission to deal in the shares of HK$0.10 each in the capital of the Company (the “Consolidated Shares”) and with effect from 9:30 a.m. (Hong Kong time) on the Business Day following the date on which this resolution is passed:

• (a) every ten issued and unissued shares of HK$0.01 each (the “Existing Shares”) in the capital of the Company be consolidated into one Consolidated Share (“Consolidation”);

• (b) all of the Consolidated Shares resulting from the Consolidation shall rank pari passu in all respects and have the rights and privileges and be subject to the restrictions contained in the Company’s Bye-laws;

• (c) any fractional entitlements to the issued Consolidated Shares shall be aggregated and sold for the benefit of the Company by an agent appointed by the board of directors of the Company for that purpose in accordance with the terms and conditions set out in the circular of the Company dated 7 November 2002; and

• (d) any one or more of the directors of the Company be and is hereby authorized generally to do all things appropriate to effect and implement any of the foregoing matters as set out in the notice convening this meeting.”

“Business Day” is defined as any date (other than a Saturday or Sunday) on which banks in Hong Kong are generally open for business.

By order of the Board Yip Kar Hang, Raymond Company Secretary

Hong Kong, 7 November 2002

* For identification purpose only

– 11 –

NOTICE OF SGM

Registered Office:

Cedar House 41 Cedar Avenue Hamilton, HM 12 Bermuda

Principal place of business- in Hong Kong:

Room 4101, 41st Floor Far East Finance Centre 16 Harcourt Road Admiralty Hong Kong

Notes:–

1. A shareholder entitled to attend and vote at the above meeting may appoint another person as his proxy to attend and to vote in his stead. A member who is the holder of two or more shares may appoint more than one proxy to attend in the same occasion. A proxy need not be a shareholder of the Company.

2. Where there are joint registered holders of any Share, any one such persons may vote at the meeting, either personally or by proxy, in respect of such Share as if he were solely entitled thereto; but if more than one of such joint holders is present at the meeting personally or by proxy, that one of the said persons so present whose name stands first on the register of members of the Company in respect of such Shares shall alone be entitled to vote in respect thereof.

3. In order to be valid, the form of proxy duly completed and signed in accordance with the instructions printed thereon together with the power of attorney or other authority, if any, under which it is signed or a notarially certified copy thereof must be delivered to the office of the Company’s branch registrars in Hong Kong, Tengis Limited, 4th Floor, Hutchison House, 10 Harcourt Road, Central, Hong Kong not less than 48 hours before the time appointed for holding the meeting or any adjournment thereof.

4. Completion and return of the form of proxy will not preclude members from attending and voting in person at the meeting thereof (as the case may be) should they so wish, and in such event, the form of proxy shall be deemed to be revoked.

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