Kantone Holdings Limited — Proxy Solicitation & Information Statement 2002

Nov 1, 2002

IMPORTANT THIS CIRCULAR REQUIRES YOUR IMMEDIATE ATTENTION

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.

If you are in doubt as to any aspect of this circular, you should consult your stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold all your shares in Kantone Holdings Limited you should at once hand this circular and the accompanying pink form of proxy to the purchaser or to the bank, stockbroker or other agent through whom the sale was effected for transmission to the purchaser.

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KANTONE HOLDINGS LIMITED

(Incorporated in the Cayman Islands with limited liability)

Directors: Paul Kan Man Lok Sunny Lai Yat Kwong Leo Kan Kin Leung Fung Kin Leung Liang Xiong-Jian Frank Bleackley Ye Peida*

Principal office: 5th Floor Kantone Centre 1 Ning Foo Street Chaiwan Hong Kong

• Independent non-executive Directors

31 October 2002

To the shareholders

Dear Sir or Madam,

NEW SHARE OPTION SCHEME AND GENERAL MANDATES TO ISSUE AND TO REPURCHASE SHARES

INTRODUCTION

On 20 December 1996, Kantone Holdings Limited (the “Company”) adopted the existing share option scheme (the “Existing Share Option Scheme”) relating to the grant of options to directors and employees of the Company and its subsidiaries (the “Group”) to subscribe for shares of the Company which scheme will expire on 15 January 2007, being ten years from the date on

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which the Existing Share Option Scheme became unconditional. As The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) has amended Chapter 17 of the Rules Governing the Listing of Securities on the Stock Exchange (the “Listing Rules”) relating to share option scheme, it is proposed to adopt a new share option scheme (the “New Share Option Scheme”) to replace the Existing Share Option Scheme.

It is also proposed to grant to the directors of the Company (the “Directors”) general mandates to issue and to repurchase shares of the Company.

The purpose of this circular is to give you further details of the abovementioned proposals and to convene an extraordinary general meeting to consider and, if thought fit, approve the resolutions necessary for the proposals to be implemented. This circular also contains the explanatory statement in compliance with the Listing Rules and gives all the information reasonably necessary to enable shareholders to make an informed decision on whether to vote for or against the resolution to approve the purchase by the Company of its own shares.

EXISTING SHARE OPTION SCHEME

Under the Existing Share Option Scheme, as at 25 October 2002 (the “Latest Practicable Date”), being the latest practicable date prior to the printing of this circular, no option was outstanding. As at the Latest Practicable Date, the Directors had no proposal to grant options under the Existing Share Option Scheme before the New Share Option Scheme is adopted.

NEW SHARE OPTION SCHEME

Principal terms of the New Share Option Scheme

A summary of the rules of the New Share Option Scheme is set out in the appendix to this circular.

Reasons for the New Share Option Scheme

Under the New Share Option Scheme, the Directors may grant options without any initial payment to any director, employee or consultant of the Group or any customer, supplier or adviser whose service to the Group or business with the Group may contribute to the business and operation of the Group. The New Share Option Scheme will enable the Group to offer valuable incentive to attract and retain quality personnel and other persons to work to increase the value of the shares of the Company. To this end, the Directors may specify the minimum period, if any, for which an option must be held or the performance targets, if any, that must be achieved before the option can be exercised.

Conditions of the New Share Option Scheme

The New Share Option Scheme is conditional on:

• (a) the approval of the shareholders of the Company at an extraordinary general meeting to be held;

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• (b) the approval of the shareholders of Champion Technology Holdings Limited (“Champion”), the holding company of the Company, at a special general meeting to be held; and

• (c) the Listing Committee of the Stock Exchange granting listing of and permission to deal in the new shares of the Company which may be issued and allotted pursuant to the exercise of options granted under the New Share Option Scheme up to 10% of the share capital of the Company in issue on the date of shareholders’ approval of the New Share Option Scheme.

Note: The Company has been informed by Champion that its special general meeting to approve the New Share Option Scheme is scheduled to be held on 29 November, 2002.

Value of the options

The Directors consider it inappropriate to value all the options that can be granted under the New Share Option Scheme on the assumption that they were granted on the Latest Practicable Date as a number of factors crucial for the valuation cannot be determined. Such factors include the exercise period and the conditions, such as performance targets, if any, that an option is subject to. Accordingly any valuation of the options based on a large number of speculative assumptions would not be meaningful but would be misleading to the shareholders.

Listing and dealings

Application has been made to the Listing Committee of the Stock Exchange for the granting of listing of and permission to deal in the new shares of the Company which may be issued and allotted pursuant to the New Share Option Scheme up to 10% of the share capital of the Company in issue on the date of shareholders’ approval of the New Share Option Scheme. Based on 2,220,961,752 shares of the Company of HK$0.1 (“Shares”) in issue as at the Latest Practicable Date, the number of Shares subject to the said application will be 222,096,175.

The shares of the Company are only listed on the Stock Exchange and not on any other stock exchange.

GENERAL MANDATE TO ISSUE SHARES

It is further proposed to grant a general mandate to the Directors to allot, issue and dispose of shares of the Company not exceeding 20 per cent. of the issued share capital of the Company on the date of the relevant resolution to provide flexibility to the Company to raise fund by issue of shares efficiently.

GENERAL MANDATE TO REPURCHASE SHARES

It is also proposed that the Directors be given a general mandate to exercise all powers of the Company to repurchase issued and fully paid shares. Under such mandate, the number of shares that the Company may repurchase shall not exceed 10 per cent. of the issued share capital of the Company as at the date of the relevant resolution. On the Latest Practicable Date, there were in issue an aggregate of 2,220,961,752 Shares. Exercise in full of the mandate, on the basis that no further Shares would be issued after the Latest Practicable Date, could accordingly result in up to 222,096,175 Shares being repurchased by the Company.

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The Directors have no present intention to repurchase any Shares but consider that the mandate will provide the Company the flexibility to make such repurchase when appropriate and beneficial to the Company. Such repurchases may enhance the net value of the Company and/or earnings per Share. As compared with the financial position of the Company as at 30 June 2002 (being the date of its latest audited accounts), the Directors consider that there would be a material adverse impact on the working capital and on the gearing position of the Company in the event that the proposed purchases were to be carried out in full during the proposed purchase period. No purchase would be made in circumstances that would have a material adverse impact on the working capital or gearing ratio of the Company.

Repurchases must be funded out of funds legally available for the purpose, including capital paid up on the shares to be repurchased, funds of the Company otherwise available for dividend or distribution and in the case of any premium payable on repurchase, out of sums standing to the share premium account of the Company.

The Company is empowered by its memorandum and articles of association to purchase its Shares. The Cayman Islands law provides that the amount of capital repaid in connection with a share repurchase may only be paid out of either the capital paid up on the relevant shares, or the profits that would otherwise be available for distribution by way of dividend or the proceeds of a new issue of shares made for such purpose. The amount of premium payable on repurchases may only be paid out of either the profits that would otherwise be available for distribution by way of dividend or out of the share premium of the Company. Under the Cayman Islands law, the repurchased Shares will remain part of the Company’s authorised but unissued share capital.

Directors, their associates and connected persons

None of the Directors nor, to the best of the knowledge and belief of the Directors having made all reasonable enquiries, any of the associates of any of the Directors has any present intention, in the event that the proposal is approved by shareholders, to sell Shares to the Company.

No connected person of the Company (as defined in the Listing Rules) has notified the Company that he has a present intention to sell Shares to the Company nor has he undertaken not to sell any of the Shares held by him to the Company in the event that the Company is authorised to make purchases of Shares.

Undertaking of the Directors

The Directors have undertaken to the Stock Exchange to exercise the power of the Company to make purchases pursuant to the proposed resolution in accordance with the Listing Rules and all applicable laws of the Cayman Islands, and in accordance with the regulations set out in the memorandum and articles of association of the Company.

Effect of Takeovers Code

A repurchase of Shares by the Company may result in an increase in the proportionate interests of a substantial shareholder of the Company in the voting rights of the Company, which could give rise to an obligation to make a mandatory offer in accordance with Rule 26 of the Hong Kong Code on Takeovers and Mergers (the “Code”).

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**

As at the Latest Practicable Date, to the best of the knowledge and belief of the Company, Champion Technology Holdings Limited and Lawnside International Limited, who held approximately 57 per cent. and 18 per cent. of the issued share capital of the Company respectively, were the only substantial shareholders holding more than 10 per cent. of the issued share capital of the Company. In the event that the Directors should exercise in full the power to repurchase Shares which is proposed to be granted pursuant to the resolution, the shareholdings of Champion Technology Holdings Limited and Lawnside International Limited, in the Company would be increased to approximately 63.3 per cent. and 20 per cent. of the issued share capital of the Company respectively and such increase would not give rise to an obligation to make a mandatory offer under Rule 26 of the Code.

General

During each of the six months preceding the date of this circular, no securities had been repurchased by the Company.

During each of the previous 12 months, the highest and lowest traded prices for Shares on the Stock Exchange were as follows:

		Per Share
Month	Highest		Lowest
	HK$		HK$
2001
October	0.090	**	0.069	**
November	0.110	**	0.083	**
December	0.110		0.084
2002
January	0.093		0.075
February	0.084		0.069
March	0.093		0.070
April	0.088		0.069
May	0.089		0.076
June	0.073		0.060
July	0.060		0.053
August	0.052		0.040
September	0.046		0.040

Adjusted price for the bonus issue of one Share for every Share held on 30 November 2001.

EXTRAORDINARY GENERAL MEETING

You will find on pages 10 to 12 of this circular a notice of an extraordinary general meeting to be held at 10:20 a.m. on 29 November 2002 (or so soon thereafter as the annual general meeting of the Company convened for the same day at 10:15 a.m. shall have concluded or adjourned) at Room 1702, One Exchange Square, 8 Connaught Place, Hong Kong.

Resolution no. 1 will be proposed as an ordinary resolution to approve the termination of the Existing Share Option Scheme and the adoption of the New Share Option Scheme.

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Resolution no. 2 will be proposed as an ordinary resolution to give a general mandate to the Directors to allot, issue and deal with shares with an aggregate nominal value not exceeding 20 per cent. of the share capital of the Company in issue as at the date of the resolution.

Resolution no. 3 will be proposed as an ordinary resolution to give a general mandate to the Directors to make on-market purchases of shares of the Company of up to 10 per cent. of the aggregate nominal amount of the share capital of the Company in issue as at the date of the resolution.

Resolution no. 4 will be proposed as an ordinary resolution to extend resolution no. 2 to include the aggregate nominal amount of the number of shares in the capital of the Company which are repurchased by the Company under the authority granted to the Directors pursuant to resolution no. 3.

There is enclosed a pink form of proxy for use at the extraordinary general meeting. You are requested to complete the form of proxy and return it to the principal office of the Company in accordance with the instructions printed thereon not less than 48 hours before the time fixed for holding the meeting, whether or not you intend to be present at the meeting. The completion and return of the form of proxy will not prevent you from attending and voting in person should you so wish.

RECOMMENDATION

The Directors believe that the proposals are in the best interest of the Company and the shareholders. Accordingly the Directors recommend you to vote in favour of all the resolutions to be proposed at the forthcoming extraordinary general meeting of the Company.

RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company and its subsidiaries (the “Group”). The Directors jointly and severally accept responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable inquiries and that to the best of their knowledge and belief there are no other facts the omission of which would made any statement therein misleading.

DOCUMENT AVAILABLE FOR INSPECTION

A draft of the rules of the New Share Option Scheme will be available for inspection at the offices of Jennifer Cheung & Co. at Unit A, 19th Floor, Two Chinachem Plaza, 68 Connaught Road Central, Hong Kong during normal business hours from the date of this circular up to and including 29 November 2002 and at the forthcoming extraordinary general meeting.

Yours faithfully, Paul Kan Man Lok Chairman

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NOTICE OF EXTRAORDINARY GENERAL MEETING

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KANTONE HOLDINGS LIMITED

(Incorporated in the Cayman Islands with limited liability)

NOTICE IS HEREBY GIVEN that an extraordinary general meeting of the abovementioned company (the “Company”) will be held at Room 1702, One Exchange Square, 8 Connaught Place, Hong Kong on 29 November 2002 at 10:20 a.m. (or so soon thereafter as the annual general meeting of the Company convened for the same day at 10:15 a.m. shall have concluded or adjourned) for the purpose of considering and, if thought fit, passing the following resolutions as ordinary resolutions:

ORDINARY RESOLUTIONS

1. “ THAT :

• (a) the existing share option scheme of the Company adopted on 20 December 1996 be and is hereby terminated; and

• (b) subject to the approval of the shareholders of Champion Technology Holdings Limited in general meeting, the rules of the new share option scheme of the Company (a copy of which has been submitted to the meeting and signed by the Chairman of the meeting for the purpose of identification) be and are hereby approved and that the directors of the Company be and are hereby authorised to implement the same and to grant options and to issue and allot shares of the Company pursuant thereto.”

• “ THAT :

• (a) subject to paragraph (c) of this resolution, the exercise by the directors of the Company during the Relevant Period of all powers of the Company to allot shares and to make and grant offers, agreements and options which would or might require shares to be allotted be and is hereby generally and unconditionally approved;

• (b) the approval in paragraph (a) shall authorise the directors of the Company during the Relevant Period to make and grant offers, agreements and options which would or might require shares to be allotted after the end of the Relevant Period;

• (c) the aggregate nominal amount of share capital allotted or agreed conditionally or unconditionally to be allotted (whether pursuant to an option or otherwise) by the directors of the Company pursuant to the approval in paragraph (a), otherwise than pursuant to shares issued as a result of a Rights Issue or a scrip dividend scheme or similar arrangements of the Company or the exercise of the subscription rights under the share option scheme of the Company, shall not exceed 20 per cent. of the aggregate nominal amount of the share capital of the Company in issue on the date of this resolution, and the said approval shall be limited accordingly;

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NOTICE OF EXTRAORDINARY GENERAL MEETING

• (d) for the purpose of this resolution:

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

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

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

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

“Rights Issue” means an offer of shares open for a period fixed by the directors of the Company to holders of shares on the register of members of the Company on a fixed record date in proportion to their then holdings of such shares (subject to such exclusions or other arrangements as the directors of the Company may deem necessary or expedient in relation to fractional entitlements or legal or practical problems under the laws of, or the requirements of any recognised regulatory body or any stock exchange in, any territory).”

3.

“ THAT :

• (a) the exercise by the directors of the Company during the Relevant Period of all powers of the Company to purchase its own shares, subject to and in accordance with all applicable laws, be and is hereby generally and unconditionally approved;

• (b) the aggregate nominal amount of shares of the Company purchased by the Company pursuant to the approval in paragraph (a) during the Relevant Period shall not exceed 10 per cent. of the aggregate nominal amount of the share capital of the Company in issue as at the date of this resolution and the said approval be limited accordingly; and

• (c) for the purposes of this resolution:

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

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

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

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

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NOTICE OF EXTRAORDINARY GENERAL MEETING

1. “ THAT conditional upon resolution no. 3 above being passed, the aggregate nominal amount of the number of shares in the capital of the Company which are repurchased by the Company under the authority granted to the directors of the Company as mentioned in resolution no. 3 above shall be added to the aggregate nominal amount of share capital that may be allotted or agreed conditionally or unconditionally to be allotted by the directors of the Company pursuant to resolution no. 2 above.”

By Order of the Board Cheung Kei Yim Secretary

Hong Kong, 31 October 2002

Principal office:

5th Floor Kantone Centre 1 Ning Foo Street Chaiwan Hong Kong

Notes:

1. A member entitled to attend and vote at the meeting convened by the above notice is entitled to appoint proxies to attend and vote in his stead. A proxy need not be a member of the Company.

2. In order to be valid, a pink form of proxy must be deposited at the Company’s principal office together with a power of attorney or other authority, if any, under which it is signed or a notarially certified copy of that power of attorney or authority, not less than 48 hours before the time for holding the meeting or adjourned meeting.

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NOTICE OF EXTRAORDINARY GENERAL MEETING

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KANTONE HOLDINGS LIMITED

(Incorporated in the Cayman Islands with limited liability)

NOTICE IS HEREBY GIVEN that an extraordinary general meeting of the abovementioned company (the “Company”) will be held at Room 1702, One Exchange Square, 8 Connaught Place, Hong Kong on 29 November 2002 at 10:20 a.m. (or so soon thereafter as the annual general meeting of the Company convened for the same day at 10:15 a.m. shall have concluded or adjourned) for the purpose of considering and, if thought fit, passing the following resolutions as ordinary resolutions:

ORDINARY RESOLUTIONS

1. “ THAT :

• (a) the existing share option scheme of the Company adopted on 20 December 1996 be and is hereby terminated; and

• (b) subject to the approval of the shareholders of Champion Technology Holdings Limited in general meeting, the rules of the new share option scheme of the Company (a copy of which has been submitted to the meeting and signed by the Chairman of the meeting for the purpose of identification) be and are hereby approved and that the directors of the Company be and are hereby authorised to implement the same and to grant options and to issue and allot shares of the Company pursuant thereto.”

• “ THAT :

• (a) subject to paragraph (c) of this resolution, the exercise by the directors of the Company during the Relevant Period of all powers of the Company to allot shares and to make and grant offers, agreements and options which would or might require shares to be allotted be and is hereby generally and unconditionally approved;

• (b) the approval in paragraph (a) shall authorise the directors of the Company during the Relevant Period to make and grant offers, agreements and options which would or might require shares to be allotted after the end of the Relevant Period;

• (c) the aggregate nominal amount of share capital allotted or agreed conditionally or unconditionally to be allotted (whether pursuant to an option or otherwise) by the directors of the Company pursuant to the approval in paragraph (a), otherwise than pursuant to shares issued as a result of a Rights Issue or a scrip dividend scheme or similar arrangements of the Company or the exercise of the subscription rights under the share option scheme of the Company, shall not exceed 20 per cent. of the aggregate nominal amount of the share capital of the Company in issue on the date of this resolution, and the said approval shall be limited accordingly;

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NOTICE OF EXTRAORDINARY GENERAL MEETING

• (d) for the purpose of this resolution:

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

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

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

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

“Rights Issue” means an offer of shares open for a period fixed by the directors of the Company to holders of shares on the register of members of the Company on a fixed record date in proportion to their then holdings of such shares (subject to such exclusions or other arrangements as the directors of the Company may deem necessary or expedient in relation to fractional entitlements or legal or practical problems under the laws of, or the requirements of any recognised regulatory body or any stock exchange in, any territory).”

3.

“ THAT :

• (a) the exercise by the directors of the Company during the Relevant Period of all powers of the Company to purchase its own shares, subject to and in accordance with all applicable laws, be and is hereby generally and unconditionally approved;

• (b) the aggregate nominal amount of shares of the Company purchased by the Company pursuant to the approval in paragraph (a) during the Relevant Period shall not exceed 10 per cent. of the aggregate nominal amount of the share capital of the Company in issue as at the date of this resolution and the said approval be limited accordingly; and

• (c) for the purposes of this resolution:

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

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

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

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

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NOTICE OF EXTRAORDINARY GENERAL MEETING

1. “ THAT conditional upon resolution no. 3 above being passed, the aggregate nominal amount of the number of shares in the capital of the Company which are repurchased by the Company under the authority granted to the directors of the Company as mentioned in resolution no. 3 above shall be added to the aggregate nominal amount of share capital that may be allotted or agreed conditionally or unconditionally to be allotted by the directors of the Company pursuant to resolution no. 2 above.”

By Order of the Board Cheung Kei Yim Secretary

Hong Kong, 31 October 2002

Principal office:

5th Floor Kantone Centre 1 Ning Foo Street Chaiwan Hong Kong

Notes:

1. A member entitled to attend and vote at the meeting convened by the above notice is entitled to appoint proxies to attend and vote in his stead. A proxy need not be a member of the Company.

2. In order to be valid, a pink form of proxy must be deposited at the Company’s principal office together with a power of attorney or other authority, if any, under which it is signed or a notarially certified copy of that power of attorney or authority, not less than 48 hours before the time for holding the meeting or adjourned meeting.

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