Kantone Holdings Limited — Proxy Solicitation & Information Statement 2005

Oct 14, 2005

IMPORTANT

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 advisers.

If you have sold or transferred all your shares in Kantone Holdings Limited, you should hand this circular at once to the purchaser or transferee or to the bank, licensed securities dealer or other agent through whom the sale or transfer 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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KANTONE HOLDINGS LIMITED 看通集團有限公司[*] (incorporated in the Cayman Islands with limited liability) (Stock Code: 1059)

SUBSCRIPTION OF NEW SHARES CONNECTED TRANSACTION AND NOTICE OF EGM

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

A letter from the Board is set out on pages 4 to 11 of this circular. A letter from the Independent Board Committee is set out on page 12 of this circular. A letter from Hercules, 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 20 of this circular.

A notice convening the EGM to be held at 3rd Floor, Kantone Centre, 1 Ning Foo Street, Chaiwan, Hong Kong at 9:30 a.m. on 31 October 2005 is set out on pages 27 to 28 of this circular. Whether or not you intend to be present at the EGM, you are requested to complete and return the accompanying form of proxy in accordance with the instructions printed on it to the branch share registrar of the Company in Hong Kong, Secretaries Limited at Ground Floor, Bank of East Asia, Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong no later than 48 hours before the time fixed for holding the EGM or any adjournment thereof. Completion and delivery of the form of proxy will not prevent you from attending, and voting at, the EGM or any adjournment thereof if you so wish.

14 October 2005

• For identification purpose only

CONTENTS

		Page
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		1
LETTER FROM THE BOARD
1.	Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
2.	The Subscription . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
3.	Reasons for and benefits of the Placing and
	Subscription and use of proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
4.	Adjustment of conversion price of Convertible Bonds . . . . . . . . . . . . . . . . .	9
5.	Information on the Company and Lawnside . . . . . . . . . . . . . . . . . . . . . . . . .	9
6.	Connected transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
7.	EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
8.	Poll procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
9.	Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
10.	General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
LETTER FROM THE INDEPENDENT BOARD COMMITTEE. . . . . . . . . . . . . . . . . . .		12
LETTER FROM HERCULES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		13
APPENDIX – GENERAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		21
NOTICE OF EGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		27

DEFINITIONS

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

“Announcement”	the announcement dated 23 September 2005 jointly
	made by the Company and Champion containing,
	amongst other things, the details of the Subscription
	and the Placing
“associates”	has the meaning ascribed thereto in the Listing Rules
“Board”	the board of Directors
“Champion”	Champion Technology Holdings Limited, a company
	continued in Bermuda and whose securities are listed
	on the main board of the Stock Exchange (stock code:
	92), the holding company of the Company
“Company”	Kantone Holdings Limited, a company incorporated
	in the Cayman Islands and whose securities are listed
	on the main board of the Stock Exchange (stock code:
	1059), and a subsidiary of Champion
“connected person(s)”	has the meaning as ascribed thereto under the Listing
	Rules
“Director(s)”	the director(s) of the Company
“EGM”	the extraordinary general meeting of the Company to
	be held at 3rd Floor, Kantone Centre, 1 Ning Foo Street,
	Chaiwan, Hong Kong at 9:30 a.m. on 31 October, 2005,
	notice of which is set out on pages 27 and 28 of this
	circular
“Group”	the Company and its subsidiaries
“Hercules” or “Independent	Hercules Capital Limited, a licensed corporation for
Financial Advisers”	type 6 (advising on corporate finance) regulated
	activity as defined under the SFO and the independent
	financial adviser to the Independent Board Committee
	and the Independent Shareholders
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“Hong Kong”	the Hong Kong Special Administrative Region of the
	PRC

– 1 –

DEFINITIONS

• “Independent Board Committee” an independent board committee of the Board established to advise the Independent Shareholders in relation to the Subscription, which comprises three independent non-executive Directors, namely, Professor Liang Xiong Jian, Professor Julia Tsuei Jo and Mr. Ho Yiu Ming

• “Independent Shareholders” shareholders of the Company other than Lawnside, Mr. Paul Kan Man Lok, Champion and their respective associates, and any connected person of the Company who is materially interested in the Subscription

• “Last Trading Day” 20 September 2005, being the last trading day prior to the suspension of trading in the Shares at 10:03 a.m. on 21 September 2005, pending the issue of the Announcement

• “Latest Practicable Date” 12 October 2005, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining certain information for inclusion in this circular

• “Lawnside” Lawnside International Limited, a company incorporated in the British Virgin Islands and is wholly and beneficially owned by Mr. Paul Kan Man Lok, an executive director of the Company and Champion

• “Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange

• “Listing Committee” the listing committee of the Stock Exchange “Placing” the placing of an aggregate of 240 million Shares by the Placing Agent on behalf of Lawnside under the Placing and Subscription Agreement

• “Placing Agent” UOB Kay Hian (Hong Kong) Limited, a licensed corporation under the SFO

• “Placing Shares” 240 million existing Shares placed by or on behalf of Lawnside pursuant to the Placing

• “Placing and Subscription the placing and subscription agreement dated 22 Agreement” September 2005 between the Company, Lawnside and the Placing Agent

– 2 –

DEFINITIONS

“PRC”	the People’s Republic of China which, for the purpose
	of this circular only, excludes Hong Kong, The Macau
	Special Administrative Region of the PRC and Taiwan
“RMB”	Renminbi, the lawful currency of the PRC
“SFO”	the Securities and Futures Ordinance (Chapter 571 of
	the laws of Hong Kong)
“Share(s)”	ordinary share(s) of HK$0.10 each in the share capital
	of the Company
“Shareholder(s)”	holder(s) of Share(s)
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Subscription”	the subscription of the Subscription Shares by
	Lawnside pursuant to the Placing and Subscription
	Agreement
“Subscription Shares”	the 240 million Shares to be subscribed for by
	Lawnside under the Subscription
“US$”	United States dollars, the lawful currency of the United
	States of America
“%”	per cent.

– 3 –

LETTER FROM THE BOARD

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KANTONE HOLDINGS LIMITED 看通集團有限公司[*]

(incorporated in the Cayman Islands with limited liability)

(Stock Code: 1059)

Directors:

Paul Kan Man Lok (Chairman) Lai Yat Kwong Leo Kan Kin Leung[#] Shirley Ha Suk Ling[#] Paul Michael James Kirby[#] Liang Xiong Jian[##] Ye Pei Da[##] Frank Bleackley[##] Julia Tsuei Jo[##] Ho Yiu Ming[##]

# Non-executive Directors

Registered office:

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

Head office in Hong Kong:

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

## Independent non-executive Directors

14 October 2005

To the Shareholders

Dear Sir or Madam,

SUBSCRIPTION OF NEW SHARES CONNECTED TRANSACTION

1. INTRODUCTION

By the Announcement dated 23 September 2005, the Board announced that the Placing and Subscription Agreement was entered into on 22 September 2005, pursuant to which Lawnside, a substantial shareholder of the Company, appointed the Placing Agent as its placing agent to place, on a best effort basis, up to 240 million Placing Shares held by Lawnside to independent third parties who were independent of and not connected with the Directors, chief executive or substantial shareholders of the Company or its subsidiaries, or any of their respective associates at HK$0.73 per Placing Share. Completion of the Placing took place on 26 September 2005 pursuant to which 240 million Shares had been placed by Lawnside.

• For identification purpose only

– 4 –

LETTER FROM THE BOARD

Under the Placing and Subscription Agreement, Lawnside has conditionally agreed to subscribe for such number of Subscription Shares equal to the aggregate number of Placing Shares sold to the placees under the Placing, that is, 240 million Subscription Shares, at HK$0.73 per Subscription Share.

An Independent Board Committee comprising Professor Liang Xiong Jian, Professor Julia Tsuei Jo and Mr. Ho Yiu Ming (all being independent non-executive Directors), has been appointed to advise the Independent Shareholders in respect of the Subscription. The remaining two independent non-executive Directors, namely Prof. Ye Pei Da and Mr. Frank Bleackley, have not been appointed as members of the Independent Board Committee, as Prof. Ye Pei Da has been appointed as a member the independent board committee of Champion and is therefore considered not sufficiently independent to advise the Independent Shareholders concurrently, and Mr. Frank Bleackley has been traveling for a few weeks prior to the Latest Practicable Date and it was inconvenient, if not impossible, for him to attend the requisite Independent Board Committee meetings or to hold the necessary discussions with Hercules vis-a-vis the Subscription. Nevertheless, as the Independent Board Committee comprises the majority of the independent non-executive Directors who are disinterested in the Subscription and the transactions contemplated thereby, the Directors consider that the composition of the Independent Board Committee is appropriate. The Company has appointed Hercules as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in this respect.

The purposes of this circular are to provide you with further information relating to the Placing and Subscription Agreement, the letter from the Independent Board Committee containing its recommendation in connection with the terms of Subscription to the Independent Shareholders, the letter from Hercules containing its advice to the Independent Board Committee and the Independent Shareholders, and a notice of the EGM to consider and, if thought fit, pass the necessary resolution to approve the Subscription.

2. THE SUBSCRIPTION

Subscriber:

Lawnside, a company incorporated in the British Virgin Islands and is wholly and beneficially owned by Mr. Paul Kan Man Lok, the Chairman of the Company and an executive Director. As at the Latest Practicable Date, Lawnside owned 167,779,752 Shares, representing about 6.8% of the existing share capital of the Company as at the Latest Practicable Date.

Number of Subscription Shares:

240 million Shares (which is equal to the aggregate number of Placing Shares sold to the placees under the Placing), representing about 9.7% of the issued share capital of the Company as at the Latest Practicable Date or about 8.9% of the issued share capital of the Company as enlarged by the Subscription.

– 5 –

LETTER FROM THE BOARD

Subscription price:

HK$0.73 per Subscription Share, which is the same as the price per Placing Share. The Placing Price was agreed after arm’s length negotiations between the Placing Agent and the Company and represents (i) a discount of about 7.6% to the closing price of HK$0.79 per Share as quoted on the Stock Exchange at 4:00 p.m. on the Last Trading Day; (ii) a discount of about 0.3% to the average closing price of about HK$0.732 per Share as quoted on the Stock Exchange for the last five trading days up to and including the Last Trading Day; and (iii) a premium of about 40.4% over the closing price of HK$0.52 per Share as quoted on the Stock Exchange at 4:00 p.m. on the Latest Practicable Date.

The net price of the Subscription Share, which is calculated by dividing the net aggregate price for all 240 million Subscription Shares (net of the related placing commission, professional fees and all related expenses for the Placing) by the total number of the Subscription Shares, is about HK$0.70. The Placing Agent charged a placing commission of 3% of the aggregate Placing Price of the Placing Shares actually placed. Such rate of placing commission was agreed between the parties after arm’s length negotiations and was determined with reference to market rate generally adopted by placing agents for similar placing exercise.

The net proceeds of the Placing, which are currently held by the Company in its designated bank accounts for Lawnside, will be released to the Company upon completion of the Subscription to satisfy the aggregate price for subscription of the Subscription Shares payable by Lawnside. If the Subscription does not become unconditional and lapses, the Company shall procure that the net proceeds from the Placing will be paid to Lawnside provided that, if completion of the Subscription fails to take place due to the default of Lawnside, the Company shall be entitled to forfeit such proceeds.

Ranking:

The Subscription Shares will rank equally in all respects among themselves and with all other Shares in issue as at the date of such allotment and issue.

Conditions of the Subscription:

Completion of the Subscription is conditional upon, among other conditions:

• (i) completion of the Placing pursuant to the Placing and Subscription Agreement;

• (ii) the Listing Committee agreeing to grant a listing of, and permission to deal in, the Subscription Shares;

• (iii) the passing of an ordinary resolution by Independent Shareholders at the EGM for the grant of a special mandate to allot and issue new Shares in connection with the Subscription; and

– 6 –

LETTER FROM THE BOARD

• (iv) compliance by the Company and Champion of the requisite disclosure and/or shareholders’ approval requirements (including, the passing of the relevant resolutions by the Independent Shareholders and the independent shareholders of Champion) as prescribed under the Listing Rules in connection with the Subscription.

Application has been made to the Stock Exchange for the listing of, and permission to deal in, the Subscription Shares.

None of the above conditions can be waived by the parties to the Placing and Subscription Agreement. As at the Latest Practicable Date, save for condition (i) which took place on 26 September 2005, none of the above conditions has been fulfilled. In the event the conditions referred to above not having been fulfilled by 31 October 2005 or such later time or date as the parties may agree, the Subscription will lapse.

Completion of the Subscription:

Completion of the Subscription will take place on the second business day following the day on which all the conditions referred to above are fulfilled.

Non-disposal undertaking by Lawnside

Under the Placing and Subscription Agreement, Lawnside has undertaken to the Company and the Placing Agent, among other things, that, during a period commencing from the date of the Placing and Subscription Agreement and ending on the date which is six months from the date of completion of the Subscription, without the prior written consent of the Placing Agent, it shall not and shall procure that neither Champion nor any of the associates of Champion or Lawnside and the companies controlled by any of them or their respective nominees or trustees holding in trust for any of them or it will sell, transfer or otherwise dispose of (or enter into agreement to dispose of) any Shares directly or indirectly owned by any of them or their respective associates immediately after the Placing together with the Subscription Shares and the interest therein, and it will not permit the registered holder thereof to dispose of (or enter into any agreement to dispose of) any such direct or indirect interests in such Shares, save pursuant to a pledge or charge as security for a bona fide commercial loan. The Directors were advised that neither Lawnside nor Champion intend to dispose of any Shares during the above moratorium period.

– 7 –

LETTER FROM THE BOARD

Changes to the shareholding as a result of the Subscription:

The shareholding structure of the Company as at the Latest Practicable Date and that immediately after the Subscription are as follows:

Champion Lawnside Placees Other public Shareholders Total	Latest Practicable Date No. of Shares % 1,387,020,962 56.2 167,779,752 6.8 240,000,000 9.7 672,483,181 27.3 2,467,283,895 100	Immediately after the Subscription No. of Shares % 1,387,020,962 51.2 407,779,752 15.1 240,000,000 8.9 672,483,181 24.8 2,707,283,895 100	Immediately after the Subscription No. of Shares % 1,387,020,962 51.2 407,779,752 15.1 240,000,000 8.9 672,483,181 24.8 2,707,283,895 100
			100

The above table excludes any allotment and issue of Shares pursuant to the exercise of the conversion and/or subscription rights attached to the convertible bonds issued by the Company after the Latest Practicable Date, particulars of which are set out in the Company’s announcement dated 7 April 2005.

Equity fund raising exercise of the Group during the past 12 months:

As disclosed in the Company’s announcement dated 7 April 2005, the Company has agreed to issue to Credit Suisse First Boston (Hong Kong) Limited (“ CSFB ”) up to US$24 million 1% convertible bonds due in 2008 (the “ Convertible Bonds ”). As at the Latest Practicable Date, Convertible Bonds with an aggregate principal amount of US$8 million have been issued. The conversion rights attached to an aggregate principal amount of US$3.4 million of the Convertible Bonds had been exercised up to the Latest Practicable Date. The net proceeds of the issue of the Convertible Bonds have been and, in respect of any unutilized amount of such proceeds, will be used as general working capital of the Group.

Save as disclosed above, the Group has not conducted any equity fund raising activities in the past 12 months prior to the Latest Practicable Date.

3. REASONS FOR AND BENEFITS OF THE PLACING AND SUBSCRIPTION AND USE OF PROCEEDS

In view of the current market conditions, the Directors consider that the Placing and Subscription represent an ideal opportunity for the Company to raise additional capital for its future business developments, to enhance its capital base, and to increase its shareholders’ base. The Directors (including the independent non-executive Directors,

– 8 –

LETTER FROM THE BOARD

who have also taken account the advice from Hercules in its letter as set out from pages 13 to 20 of this circular) consider that the terms of the Placing and Subscription Agreement, including the commissions payable by the Company under the Placing, the Placing Price and the price per the Subscription Share under the Subscription, were fair and reasonable and they were in the best interests of the Company as far as the Shareholders are concerned.

The net proceeds of the Subscription, after deducting related placing commission, professional fees and all related expenses which will be borne by the Company, are estimated to be about HK$168 million. The Company intends to use the proceeds for the Group’s investment in, and future and long term expansion and development of, the e-lottery business acquired by the Group as disclosed in the Company’s announcement dated 27 August 2005, and for general working capital of the Group. The Company has no concrete plan as to the amount and application of the net proceeds at this stage. The Group will devise and finetune plans for the future expansion and development of the e- lottery business and the corresponding fund requirements after completion of the Subscription and, to the extent that such proceeds are not immediately required for the implementation of such plans, they will be placed on interest-bearing deposits with licensed banks and/or will be used as general working capital of the Group.

4. ADJUSTMENT OF CONVERSION PRICE OF CONVERTIBLE BONDS

As at the Latest Practicable Date, the Company had outstanding Convertible Bonds with an aggregate principal amount of US$4.6 million which entitles CSFB to convert into Shares at either (i) the Fixed Conversion Price (as defined in the Company’s announcement dated 7 April 2005); or (ii) the Floating Conversion Price (as defined in the Company’s announcement dated 7 April 2005), at the election of CSFB.

The allotment and issue of the Subscription Shares pursuant to completion of the Subscription will result in an adjustment to the Fixed Conversion Price in accordance with a pre-determined formula under the conditions of the Convertible Bonds. There is no requirement under the Convertible Bonds for the review of such adjustment by auditors. Further announcement containing, among other things, the adjustment of the Fixed Conversion Price in accordance with the terms of the Convertible Bonds will be made upon such adjustment taking effect.

5. INFORMATION ON THE COMPANY AND LAWNSIDE

The Group is a leading supplier of IT solutions and communications services with a global market presence in over 50 countries.

Lawnside is a company incorporated in the British Virgin Islands and an investment holding company wholly and beneficially owned by Mr. Paul Kan Man Lok, an executive Director.

– 9 –

LETTER FROM THE BOARD

6. CONNECTED TRANSACTION

Since Lawnside was a substantial shareholder of the Company holding about 16.8% of its issued share capital at the time of signing of the Placing and Subscription Agreement, it is a connected person of the Company. As the Subscription Shares cannot be issued within 14 days after the date of the Placing and Subscription Agreement, the Subscription does not fall within the exemption under Rule 14A.31(3)(d) of the Listing Rules and is subject to the approval of the Independent Shareholders at the EGM.

7. EGM

The EGM will be held at 3rd Floor, Kantone Centre, 1 Ning Foo Street, Chaiwan, Hong Kong at 9:30 a.m. on 31 October 2005 to consider and, if thought fit, approve the Subscription and the transactions contemplated thereby. Notice of the EGM is set out on pages 27 to 28 of this circular.

A form of proxy for use at the EGM is enclosed with this circular. Whether or not you intend to be present at the EGM, you are requested to complete and return the accompanying form of proxy in accordance with the instructions printed on it to the branch share registrar of the Company in Hong Kong, Secretaries Limited at Ground Floor, Bank of East Asia, Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong no later than 48 hours before the time fixed for holding the EGM or any adjournment thereof. Completion and delivery of the form of proxy will not prevent you from attending, and voting at, the EGM or any adjournment thereof if you so wish.

As required under the Listing Rules, the votes of the Independent Shareholders to be taken at the EGM will be taken on a poll, with any connected person of the Company who is materially interested in the Subscription, and Shareholders with a material interest in the Subscription and their respective associates abstaining from voting. Champion, Lawnside, Mr. Paul Kan Man Lok and their respective associates are connected persons of the Company who are materially interested in the Subscription and therefore are required to abstain from voting in respect of the resolution to be proposed at the EGM for approving the Subscription.

8. POLL PROCEDURE

Pursuant to Article 66 of the articles of association of the Company, a resolution put to the vote of a meeting shall be decided on a show of hands unless (before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll) a poll is demanded:

• (a) by the chairman of such meeting; or

• (b) by at least three Shareholders present in person or in case of a Shareholder being a corporation by its duly authorised representative or by proxy for the time being entitled to vote at the meeting; or

– 10 –

LETTER FROM THE BOARD

• (c) by a Shareholder present in person or in the case of a Shareholder being a corporation by its duly authorised representative or by proxy and representing not less than one-tenth of the total voting rights of all Shareholders having the right to vote at the meeting; or

• (d) by a Shareholder present in person or in the case of a Shareholder being a corporation by its duly authorised representative or by proxy and holding Shares conferring a right to vote at the meeting being Shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all Shares conferring that right.

The Chairman will demand a poll for the resolution to be proposed at the EGM. The vote-taking at the EGM will be scrutinised by Secretaries Limited, the Hong Kong branch share registrar of the Company. The poll result will be published by way of announcement on the business day immediately after the date of the EGM.

9. RECOMMENDATIONS

Your attention is drawn to the letter from the Independent Board Committee set out on page 12 of this circular and the letter of advice from Hercules to the Independent Board Committee and the Independent Shareholders in connection with the terms of Subscription and the principal factors and reasons considered by them in arriving at such advice set out on pages 13 to 20 of this circular. You are advised to read these letters carefully before deciding how to vote on the resolution to be proposed at the EGM to approve the Subscription.

10. GENERAL

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

Yours faithfully, By order of the Board Kantone Holdings Limited Paul KAN Man Lok Chairman

– 11 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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KANTONE HOLDINGS LIMITED 看通集團有限公司[*]

(incorporated in the Cayman Islands with limited liability)

(Stock Code: 1059)

14 October 2005

To the Independent Shareholders

Dear Sirs,

CONNECTED TRANSACTION: SUBSCRIPTION OF NEW SHARES

We refer to the circular issued by the Company to its Shareholders dated 14 October 2005 (“ Circular ”) of which this letter forms part. Terms defined in this Circular shall have the same meanings in this letter unless the context otherwise requires.

We have been appointed by the Board to consider the terms of the Subscription. Hercules has been appointed as independent financial adviser to advise us and the Independent Shareholders in this respect.

We wish to draw your attention to the letter from the Board and the letter from Hercules set out in the Circular. Having considered the principal factors and reasons considered by, and the advice of, Hercules set out in its letter of advice, we consider that the terms of the Subscription are fair and reasonable in so far as the Independent Shareholders are concerned and the Subscription is in the interests of the Company and its shareholders as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolution approving the Subscription at the EGM.

Liang Xiong Jian

Yours faithfully, For and on behalf of the Independent Board Committee Julia Tsuei Jo Ho Yiu Ming

Independent non-executive Directors

• For identification purpose only

– 12 –

LETTER FROM HERCULES

The following is the full text of a letter of advice prepared by Hercules to the Independent Board Committee and the Independent Shareholders for the purpose of inclusion in this circular:

1503 Ruttonjee House 11 Duddell Street Central Hong Kong

14 October 2005

To the Independent Board Committee and the Independent Shareholders

Dear Sirs,

SUBSCRIPTION OF NEW SHARES CONNECTED TRANSACTION

We refer to our engagement as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders with respect to the Subscription, details of which are set out in the ‘’Letter from the Board’’ contained in the circular dated 14 October 2005 (the ‘’Circular’’) of which this letter forms part. Terms used in this letter shall have the same meanings as defined elsewhere in the Circular unless the context otherwise requires.

On 23 September 2005, the Board announced that the Placing and Subscription Agreement was entered into on 22 September 2005, pursuant to which Lawnside, a substantial Shareholder, appointed the Placing Agent as its placing agent to place, on a best effort basis, up to 240 million Placing Shares held by Lawnside to independent third parties who were independent of and not connected with the Directors, chief executive or substantial shareholders of the Company or its subsidiaries, or any of their respective associates at HK$0.73 per Placing Share. Completion of the Placing took place on 26 September 2005 pursuant to which 240 million Shares had been placed by Lawnside. According to the Placing and Subscription Agreement, Lawnside has conditionally agreed to subscribe for such number of Subscription Shares which is equivalent to the aggregate number of Placing Shares sold to the placees under the Placing, being 240 million Subscription Shares, at HK$0.73 per Subscription Share.

Since Lawnside was a substantial Shareholder at the time of signing of the Placing and Subscription Agreement and the Subscription Shares will be allotted and issued to Lawnside more than 14 days after the date of the Placing and Subscription Agreement, the Subscription does not fall within the exemption under Rule 14A.31(3)(d) of the Listing Rules and is subject to approval by the Independent Shareholders by way of poll at the EGM. Champion, Lawnside, Mr. Paul Kan Man Lok and their respective associates are required to abstain from voting in respect of the resolution to be proposed to approve the Subscription at the EGM.

– 13 –

LETTER FROM HERCULES

The Independent Board Committee, comprising Professor Liang Xiong Jian, Professor Julia Tsuei Jo and Mr. Ho Yiu Ming (all being independent non-executive Directors), has been formed to advise the Independent Shareholders on whether the Subscription is in the interests of the Company and the Shareholders as a whole and the terms of the Subscription are fair and reasonable so far as the Independent Shareholders are concerned. The remaining two independent non-executive Directors, namely Professor Ye Pei Da and Mr. Frank Bleackley, have not been appointed as members of the Independent Board Committee, as Professor Ye Pei Da has been appointed as a member the independent board committee of Champion and is therefore considered not sufficiently independent to advise the Independent Shareholders concurrently, and Mr. Frank Bleackley has been traveling for a few weeks prior to the Latest Practicable Date and it was inconvenient, if not impossible, for him to attend the requisite Independent Board Committee meetings or to hold the necessary discussions with us regarding the Subscription. Hercules is engaged to advise the Independent Board Committee and the Independent Shareholders in this regard.

In formulating our recommendations, we have relied on the information and representations supplied, and the opinions expressed, by the Directors and management of the Company and have also assumed that all statements and representations contained or referred to in the Circular and the information and representations provided to us by the Directors and management of the Company are true and accurate at the time they were made and as at the date of the Circular and will continue to be true at the date of the EGM. We have been advised by the Directors and management of the Company that all material relevant information has been supplied to us and no material facts have been omitted from the information and representations supplied and opinions expressed. We consider that we have reviewed sufficient information to reach an informed view as set out in this letter. We have no reason to suspect that any material information has been withheld by the Directors or management of the Company, or is misleading, untrue or inaccurate. We have not, however, for the purpose of this exercise, conducted any independent investigation or audit into the businesses or affairs of the Group and the related subjects of and parties to the Subscription.

PRINCIPAL FACTORS AND REASONS CONSIDERED

The principal factors and reasons that we have taken into consideration in assessing the Subscription and the terms thereof and arriving at our opinion are set out as follows:

1. Background to and Reasons for the Subscription

The Group is a leading supplier of IT solutions and communications services with a global market presence in over 50 countries. The Group is principally engaged in the sale of general systems products, provision of services and software licensing, leasing of systems products and investments in e-commerce projects and holding strategic investments in technology product development companies.

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LETTER FROM HERCULES

As stated in the “Letter from the Board”, the net proceeds of the Subscription, after deducting related placing commission, professional fees and all related expenses which will be borne by the Company, are estimated to be about HK$168 million. The Company intends to utilise such proceeds for the Group’s investment in, and future and long term expansion and development of, the e-lottery business acquired by the Group as disclosed in the Company’s announcement dated 27 August 2005, and for general working capital of the Group.

As stated in the Company’s announcement dated 27 August 2005, the aggregate subscription price for the 400,000 shares in the capital of Aspire Management Limited of HK$30 million should be sufficient for the Group’s preliminary plan to expand the e-lottery business by (i) implementing the paper-less betting system for the Anhui province; (ii) entering into co-operative agreements with other regional welfare lottery issue centres in the PRC; and (iii) developing short message service (“SMS”) betting operating systems and conducting the sale of lotteries via SMS in collaboration with other telecommunications service providers. We have been advised by the Directors that they currently expect further funding for the long term expansion and development of the e-lottery business is required and part of the proceeds from the Subscription will be applied to such development.

We have been advised by the Directors that taking into account the market conditions and the Share price performance, and in order to raise additional funding for the long term expansion and development of the e-lottery business, they consider that, after consultation with the Placing Agent, it would be best to execute a speedy equity top-up placement. We understand that the Board had considered and explored other methods such as bank borrowing to raise funding other than the top-up placement. However, given the current rising interest rate environment, the Directors preferred to raise capital through equity rather than through bank borrowing as it would adversely affect the Group’s gearing position and increase the Group’s interest expenses.

2. Principal Terms of the Subscription

Subscriber: Lawnside Subscription price: HK$0.73 per Subscription Share, which is equivalent to the price per Placing Share

Number of Subscription 240 million Shares (which is equal to the aggregate Shares: number of Placing Shares sold to the placees under the Placing), representing approximately 9.7% of the issued share capital of the Company as at the Latest Practicable Date or approximately 8.9% of the issued share capital of the Company as enlarged by the Subscription.

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LETTER FROM HERCULES

Ranking:

Conditions:

The Subscription Shares will rank equally in all respects among themselves and with all other Shares in issue as at the date of such allotment and issue.

Completion of the Subscription is conditional upon, among other conditions:

• (i) completion of the Placing pursuant to the Placing and Subscription Agreement;

• (ii) the Listing Committee agreeing to grant the listing of, and permission to deal in, the Subscription Shares;

• (iii) the passing of an ordinary resolution by the Independent Shareholders at the EGM for the grant of a special mandate to allot and issue new Shares in connection with the Subscription; and

• (iv) compliance by the Company and Champion of the requisite disclosure and/or shareholders’ approval requirements as prescribed under the Listing Rules in connection with the Subscription.

None of the above conditions can be waived by the parties to the Placing and Subscription Agreement. As at the Latest Practicable Date, save for condition (i) which took place on 26 September 2005, none of the above conditions has been fulfilled. In the event the conditions referred to above not having been fulfilled by 31 October 2005 or such later time or date as the parties may agree, the Subscription will lapse.

Completion:

Completion of the Subscription will take place on the second business day following the day on which all the conditions referred to above are fulfilled.

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LETTER FROM HERCULES

3. Basis of the Subscription Price

The price per Subscription Share of HK$0.73 is the same as the Placing price. As stated in the “Letter from the Board”, the Placing price was agreed after arm’s length negotiations between the Placing Agent and the Company.

The price of HK$0.73 per Subscription Share represents:

• a discount of approximately 7.6% to the closing price of HK$0.79 per Share as quoted on the Stock Exchange on the Last Trading Day;

• a discount of approximately 0.3% to the average closing price of about HK$0.732 per Share as quoted on the Stock Exchange for the last five trading days up to and including the Last Trading Day;

• a premium of approximately 4.3% over the average closing price of approximately HK$0.70 per Share as quoted on the Stock Exchange for the last ten trading days up to and including the Last Trading Day; and

• a premium of approximately 40.4% over the closing price of HK$0.52 per Share as quoted on the Stock Exchange on the Latest Practicable Date.

In assessing the fairness and reasonableness of the Subscription price, we have identified all share placements (the “Comparable Placements”) conducted by companies that are listed on the main board of the Stock Exchange (the “Comparable Companies”) for the period from 1 September 2005 up to the date of the Announcement. We have attempted to make references to the premium/discount represented by the placing/ subscription price to (i) the closing price on the last trading day prior to the release of the announcement of the Comparable Companies; (ii) the average five days closing price prior to the release of the announcement of the Comparable Companies; and (iii) the net asset value per share of the Comparable Companies which are set out in Table 1 below:

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LETTER FROM HERCULES

Table 1 – The Comparable Placements

Net Closing 5-day asset Comparable Gross Placing/ price average value Companies Type of share funds Date of subscription on the last closing per share (stock code) placements raised announcement price trading day price (Note 2) HK$ million HK$ HK$ HK$ HK$ Greater China Holdings Placing of 23.8 05-Sep-05 0.5 0.53 0.524 0.56 Limited (431) new shares (Note 1) Riche Multimedia Top up placing 136 07-Sep-05 0.34 0.365 0.364 1.16 Holdings Limited (764) Techtronic Industries Top up placing 1,848 08-Sep-05 19.25 20 19.97 21.60 Limited (669) China Sciences Placing and 49.4 09-Sep-05 0.76 0.81 0.772 1.15 Conservational Subscription Power Limited (351) of new shares Anex International Placing of 9.2 15-Sep-05 0.1 0.086 0.0962 2.56 Holdings Limited (723) new shares (Note 1) Victory Group Limited Top up placing 7.5 22-Sep-05 0.035 0.038 0.038 n.a. (1139) Maximum discount(Note 4) Minimum discount(Note 4) Average(Note 4) The Company Top up placing 175.2 23-Sep-05 0.73 0.79 0.732 0.41

Premium/(discount) of subscription price over/to the closing price the 5-day on the last average net asset trading closing value day price per share % % % (5.7 ) (4.6 ) (10.7 ) (6.8 ) (6.6 ) (70.7) (3.8 ) (3.6 ) (10.9 ) (6.2 ) (1.6 ) (34.0 ) 16.3 4.0 (96.1 ) (7.9 ) (7.9 ) n.a. (7.9 ) (7.9 ) (96.1 ) (3.8 ) (3.6 ) (10.7 ) (6.1 ) (4.9 ) (31.6 ) (7.6 ) (0.3 ) 78.0

Source: the Stock Exchange

Notes:

1. Being the closing price of the share on the date of announcement as the shares had not been suspended from trading prior to the release of the announcement.

2. Based on the latest audited/unaudited consolidated balance sheet published prior to the respective date of announcement.

3. n.a. denotes not applicable as the company is in net liabilities position.

4. Data of Anex International Holdings Limited were excluded as the premiums represented by the placing price over the closing price on the last trading day and the five-day average closing price were due to the fact that such closing prices were below the par value of the share but the placing price for the new shares of the company could not be lower than the par value of the shares. Therefore, we are of the view that this share placement does not represent normal market practice.

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LETTER FROM HERCULES

We note from Table 1 that the placing/subscription price of the Comparable Placements represented (i) a minimum discount of approximately 3.8% to a maximum discount of approximately 7.9% to the closing price on the last trading day prior to the release of the announcement with an average discount of approximately 6.1%; and (ii) a minimum discount of approximately 3.6% to a maximum discount of approximately 7.9% to the average closing price for the last five trading days prior to the release of the announcement with an average discount of approximately 4.9%.

The discount represented by the price per Subscription Share to the closing price on the Last Trading Day of approximately 7.6% falls to the low end of the range of the Comparable Placements. The discount represented by the Subscription price to the fiveday average closing price of approximately 0.3% falls within the range and represents a significant premium to the average discount of the Comparable Placements.

In addition, the price of HK$0.73 per Subscription Share represents a premium of approximately 78.0% to the net asset value per Share of approximately HK$0.41 per Share based on the unaudited consolidated net asset value of the Company of HK$950,382,000 as at 31 December 2004 and 2,308,341,469 Shares in issue as at 31 December 2004, which is the highest among the Comparable Placements. Since the Subscription price is at a premium to the unaudited consolidated net asset value per Share, the net asset value per Share would be enhanced upon completion of the Subscription.

On these bases, we are of the view that the price of HK$0.73 per Subscription Share is fair and reasonable so far as the Independent Shareholders are concerned.

4. Dilution Effect of the Subscription on Shareholding of the Independent Shareholders

As indicated from the “Letter from the Board”, the existing shareholding of the Independent Shareholders (including the placees) in the Company is approximately 37.0% based on 2,467,283,895 Shares in issue as at the Latest Practicable Date. Upon completion of the Subscription, the shareholding of the Independent Shareholders (including the placees) in the Company will be reduced by approximately 3.3% to approximately 33.7% based on 2,707,283,895 Shares then in issue. Therefore, the Independent Shareholders will be subject to an approximately 8.9% dilution to their existing shareholdings. While the dilution effect on shareholding is inevitable for any issue of new Shares, on the bases that (i) the net proceeds from the Subscription will provide additional capital for the Group’s investment in, and future development of, the e-lottery business acquired by the Group; (ii) the net asset value per Share of the Company would be enhanced upon completion of the Subscription; and (iii) the Subscription is part of the top-up arrangement in conjunction with the Placing to facilitate the Company’s fund-raising exercise by way of placing of new Shares to independent third parties, and the interests of the Independent Shareholders would not be prejudiced by the Subscription, we are of the view that the dilution effect to be acceptable and the Subscription is fair and reasonable so far as the Independent Shareholders are concerned.

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LETTER FROM HERCULES

RECOMMENDATION

Having considered the abovementioned principal factors and reasons, we consider that the terms of the Subscription are fair and reasonable so far as the Independent Shareholders are concerned and the Subscription is in the interests of the Company and the Shareholders as a whole. Accordingly, we would recommend the Independent Shareholders, as well as the Independent Board Committee to advise the Independent Shareholders, to vote in favour of the ordinary resolution to be proposed at the upcoming EGM.

Yours faithfully, For and on behalf of Hercules Capital Limited Louis Koo Managing Director

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APPENDIX

GENERAL INFORMATION

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. DIRECTORS’ INTERESTS AND SHORT POSITIONS IN SECURITIES

As at the Latest Practicable Date, the interests of the Directors and chief executive of the Company in the shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which are 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 which they were taken or deemed to have under SFO) or were recorded in the register required to be kept by the Company under Section 352 of the SFO, or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers were as follows:

(a) Interest in issued shares

			Approximate
			percentage of the
			issued share
Name of Director	Capacity	Number of shares	capital
Shares of the Company	Interest of	1,554,800,714	63.02%
Mr. Paul Kan Man Lok	controlled	(Note 1)
	corporation
Shares of Champion (the holding	Interest of	355,783,876	28.33%
company of the Company)	controlled	(Note 2)
Mr. Paul Kan Man Lok	corporation
Shares of	Interest of	119,969,171	79.98%
DIGITALHONGKONG.COM	controlled	(Note 3)
(“Digital HK”, a fellow subsidiary	corporation
of the Company)
Mr. Paul Kan Man Lok

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APPENDIX

GENERAL INFORMATION

Notes:

1. Among these 1,554,800,714 Shares, 167,779,752 Shares were held by Lawnside and 1,387,020,962 Shares were held by Champion as at the Latest Practicable Date and, under the SFO, Lawnside will be also taken to be interested in the 240 million Subscription Shares which will only be allotted and issued to Lawnside upon completion of the Subscription. Lawnside was wholly and beneficially owned by Mr. Paul Kan Man Lok who was deemed to be interested in all the Shares in which Lawnside and Champion were interested by virtue of the SFO.

2. These 355,783,876 shares of Champion, representing 28.33% of the entire issued share capital of Champion, were held by Lawnside. Mr. Paul Kan Man Lok was deemed to be interested in all the shares in which Lawnside was interested by virtue of the SFO.

3. Among these 119,969,171 shares of Digital HK, 117,300,000 shares were held by Champion and 2,669,171 shares were held by Lawnside. Mr. Paul Kan Man Lok was deemed to be interested in all the shares in Digital HK in which Champion and Lawnside were interested by virtue of the SFO.

(b) Interest in warrants of Champion

		Number of shares
		to be allotted and
		issued upon
		exercise in full of	Approximate
		the subscription	percentage
		rights attaching to	of the issued
Name of Director	Capacity	the warrants	share capital
Mr. Paul Kan Man Lok	Interest of controlled	66,054,182	5.27%
	corporation	(Note)

Note: Lawnside held 66,054,182 units of warrants of Champion as at the Latest Practicable Date. Mr. Paul Kan Man Lok was deemed to be interested in all the underlying shares in Champion to which these warrants relate by virtue of the SFO. These warrants would expire on 16 February 2006. These warrants entitle their holders to subscribe for shares of Champion at the price of HK$1.38 per share.

Save as disclosed above, none of the Directors or chief executive of the Company had been notified of any interest or short position in any shares, underlying shares or debenture of the Company or any of its associated corporations (as defined in Part XV of the SFO) as at the Latest Practicable Date.

3. SUBSTANTIAL SHAREHOLDERS

• (a) As at the Latest Practicable Date, as far as it was known by the Directors or chief executive of the Company, the following persons (other than a Director or chief executive of the Company disclosed under “Directors’ Interests and Short Positions in Securities” section above) had an interest in the Shares and underlying shares of the Company which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who was directly or indirectly interested in 10% or

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APPENDIX

GENERAL INFORMATION

more of the normal value of any class of Shares carrying rights to vote in all circumstances at general meetings of the Company:

			Approximate
Name of		Number of	percentage of the
Shareholder	Capacity	Shares	issued share capital
Champion	Beneficial owner	1,387,020,962	56.22%
Lawnside	Beneficial owner	167,779,752	6.80%
		(Note)

Note: 167,779,752 Shares were held by Lawnside as at the Latest Practicable Date and, under the SFO, Lawnside will be also taken to be interested in the 240 million Subscription Shares which will only be allotted and issued to Lawnside upon completion of the Subscription.

Save as disclosed herein, there is no person known to the Directors, who, as at the Latest Practicable Date, 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, or who was directly or indirectly interested in 10% or more of the normal value of any class of Shares carrying rights to vote in all circumstances at general meetings of the Company.

Mr. Paul Kan Man Lok and Mr. Leo Kan Kin Leung are directors of Lawnside.

• (b) So far as is known to the Directors, as at the Latest Practicable Date, the following persons are interested in 10% or more of the total amount of issued share capital/registered capital of the subsidiaries of the Company:

		Total amount of	Approximate
Name of	Name of	issued share capital/	percentage of
subsidiary	shareholder	registered capital	shareholding
BEL-MULTITONE	Bharat Electronics	Rupees 6,505,000	49%
(PRIVATE) LIMITED	Limited
Aspire Management	Wang Yu Peng	US$300,000	20%
Limited
Aspire Management	Lo Ming Chi,	US$300,000	20%
Limited	Charles
深圳市囱朋科技開發	Shenzhen Helper	RMB3,000,000	23.08%
有限公司	Information
(Shenzhen Helper	Technology
Science Development	Co., Ltd.
Co., Ltd.)
深圳市囱朋科技開發	Wang Yu Peng	RMB2,000,000	15.38%

深圳市囱朋科技開發 有限公司 (Shenzhen Helper Science Development Co., Ltd.)

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APPENDIX

GENERAL INFORMATION

Save as disclosed above, as at the Latest Practicable Date and so far as is known to the Directors, there was no other person (other than a Director or chief executive of the Company) 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 or, as the case may be, the registered capital of any subsidiary of the Company or any option in respect of such capital.

4. SERVICE AGREEMENTS

As at the Latest Practicable Date, none of the Directors had entered or proposed to enter into a service contract with any member of the Group which is not determinable by the employer within one year without payment of compensation (other than statutory compensation).

5. LITIGATION

As at the Latest Practicable Date, neither the Company nor any of its subsidiaries was engaged in any litigation or arbitration of material importance and there was no litigation or claim of material importance known to the Directors to be pending or threatened by or against either the Company or any of its subsidiaries.

6. MATERIAL CHANGES

The Directors are not aware of any material adverse change in the financial or trading position of the Group since 30 June 2004, being the date to which the latest published audited financial statements of the Group were made up.

7. COMPETING INTEREST

As at the Latest Practicable Date, none of the Directors or any of their respective associates was interested in any business, apart from the business of the Group, which competes or is likely to compete, either directly or indirectly, with that of the Group.

8. INTEREST IN ASSETS

As at the Latest Practicable Date, none of the Directors or Hercules had any interest, direct or indirect, in any asset which had been since 30 June 2004, being the date to which the latest published audited financial statements of the Group were made up, 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.

9. MATERIAL INTEREST IN CONTRACTS

As at the Latest Practicable Date, save for the Placing and Subscription Agreement in which Mr. Paul Kan Man Lok, being the beneficial owner of Lawnside, is interested, none of the Directors was materially interested in any contracts or arrangement subsisting as at the date hereof which was significant in relation to the business of the Group.

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APPENDIX

GENERAL INFORMATION

10. EXPERT

Hercules is licensed under the SFO for type 6 (advising on corporate finance) regulated activity as defined under the SFO and is the independent financial adviser to the Independent Board Committee and the Independent Shareholders in connection with the terms of the Subscription and the transactions contemplated thereby. Its letter of advice to the Independent Board Committee and the Independent Shareholders dated as of the date of this circular was given for the purpose of incorporation herein.

Hercules has given and has not withdrawn its written consent to the issue of this circular with copy of its letter and the reference to its name and its advice included in this circular in the form and context in which they respectively appear.

As at the Latest Practicable Date, Hercules did not have any shareholding, directly or indirectly, in any member of the Group or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

11. GENERAL

• (a) The company secretary of the Company is Ms. Jennifer Cheung Mei Ha. She is a solicitor practicing in Hong Kong. She was appointed as the company secretary of the Company in January 2005.

• (b) The qualified accountant of the Company is Mr. Lai Yat Kwong. He holds a Bachelor’s degree in Business Administration from the Chinese University of Hong Kong and has over 32 years of experience in accounting, auditing and company secretarial matters. He is a fellow member of the Association of Chartered Certified Accountants and the Hong Kong Institute of Certified Public Accountants (Practising).

• (c) The Principal share registrar and transfer office of the Company is Harbour Trust Co. Ltd. of 3rd Floor, One Capital Place, P.O. Box 897GT, George Town, Grand Cayman, Cayman Islands, British West Indies.

• (d) The Hong Kong branch share registrar and transfer office of the Company is Secretaries Limited of Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong.

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

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APPENDIX

GENERAL INFORMATION

12. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the offices of Chiu & Partners in Hong Kong at 41st Floor, Jardine House, 1 Connaught Place, Central, Hong Kong during normal business hours from 14 October 2005 up to and including the date of the EGM:

• (a) the Placing and Subscription Agreement;

• (b) the letter from the Independent Board Committee, the text of which is set out on page 12 of this circular;

• (c) the letter from Hercules, the text of which is set out on pages 13 to 20 of this circular; and

• (d) the letter of consent referred to in paragraph 10 of this appendix.

– 26 –

NOTICE OF EGM

==> picture [64 x 62] intentionally omitted <==

KANTONE HOLDINGS LIMITED 看通集團有限公司[*]

(incorporated in the Cayman Islands with limited liability)

(Stock Code: 1059)

NOTICE OF EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN that an extraordinary general meeting of Kantone Holdings Limited (“ Company ”) will be held at 3rd Floor, Kantone Centre, 1 Ning Foo Street, Chaiwan, Hong Kong at 9:30 a.m. on 31 October 2005 to consider and, if thought fit, pass the following resolution as ordinary resolution:

“ THAT :

• (a) the placing and subscription agreement (“ Placing and Subscription Agreement ”) dated 22 September 2005 and made between the Company, Lawnside International Limited (“ Lawnside ”) and UOB Kay Hian (Hong Kong) Limited in relation to, among other things, the subscription (“ Subscription ”) by Lawnside for 240 million new shares of the Company (“ Subscription Shares ”) at HK$0.73 each, a copy of which has been produced to the meeting and signed by the chairman of the meeting for the purpose of identification, be and the same is hereby approved, confirmed and ratified;

• (b) the directors of the Company be and they are hereby authorised to allot and issue Subscription Shares to Lawnside in accordance with the terms of the Placing and Subscription Agreement; and

• (c) all the transactions in relation to the Subscription contemplated under the Placing and Subscription Agreement be and the same are hereby generally and unconditionally approved and that the directors of the Company be and are hereby authorised to implement the same (with any amendments to the terms of such agreement as may be approved by the directors of the Company).”

By order of the Board Kantone Holdings Limited Paul KAN Man Lok Chairman

Hong Kong, 14 October 2005

• For identification purpose only

– 27 –

NOTICE OF EGM

Principal place of business in Hong Kong:

5th Floor, Kantone Centre

1 Ning Foo Street Chaiwan Hong Kong

Notes:

1. A member entitled to attend and vote at the meeting is entitled to appoint one or more than one proxy to attend and vote instead of him/her. A proxy need not be a member of the Company.

2. To be valid, the form of proxy must be duly completed and signed in accordance with the instructions printed thereon and together with a power of attorney or other authority, if any, under which it is signed or a notarially certified copy thereof, must be deposited at the Company’s branch share registrar and transfer offices in Hong Kong, Secretaries Limited at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong not less than 48 hours before the time for scheduled for holding the meeting or adjourned meeting thereof.

– 28 –