Kantone Holdings Limited — Proxy Solicitation & Information Statement 2011

Oct 27, 2011

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this circular, make no representation to its accuracy or completeness and expressly disclaim 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 any doubt as to any aspect of this circular or as to the action to be taken, you should consult your stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser.

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

This circular, for which the directors of the Company collectively and individually accept full responsibility, includes particulars given in compliance with the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited for the purpose of giving information with regard to the Company. The directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in this circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this circular misleading.

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KANTONE HOLDINGS LIMITED

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 1059)

Directors: Paul Kan Man Lok (Chairman) Lai Yat Kwong (Acting Chief Executive Officer) Leo Kan Kin Leung Shirley Ha Suk Ling Paul Michael James Kirby Frank Bleackley Julia Tsuei Jo Miranda Ho Mo Han*

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

• Non-executive directors

** Independent non-executive directors

28 October 2011

To the shareholders

Dear Sir or Madam,

PROPOSALS RELATING TO GENERAL MANDATES TO ISSUE AND REPURCHASE SHARES NOTICE OF ANNUAL GENERAL MEETING AND RE-ELECTION OF DIRECTORS

INTRODUCTION

At the annual general meeting of Kantone Holdings Limited (the ‘‘Company’’) for the year ended 30 June 2011, resolutions will be proposed to grant to the directors of the Company general mandates to issue and repurchase shares of the Company.

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The purpose of this circular is to give you further details of the abovementioned proposals and notice of the annual general meeting of the Company for the year ended 30 June 2011 (the ‘‘AGM’’). In compliance with the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the ‘‘Stock Exchange’’), this circular also contains the explanatory statement 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, together with particulars of the directors proposed to be re-elected at the AGM.

GENERAL MANDATE TO ISSUE SHARES

At the AGM an ordinary resolution will be proposed to grant a general mandate to the directors of the Company to allot, issue and dispose of shares of the Company not exceeding 20% of the issued share capital of the Company on the date of the resolution to provide flexibility to the Company to raise funds by issue of shares efficiently. On 24 October 2011 (the ‘‘Latest Practicable Date’’), being the latest practicable date prior to printing of this circular, there were in issue an aggregate of 7,492,522,578 shares of HK$0.10 each of the Company (‘‘Shares’’). On the assumption that no Share will be issued prior to the AGM, exercise in full of the mandate could result in up to 1,498,504,515 Shares being issued by the Company.

GENERAL MANDATE TO REPURCHASE SHARES

At the AGM, an ordinary resolution will also be proposed that the directors be given a general mandate to exercise all powers of the Company to repurchase issued and fully paid shares of the Company. Under such mandate, the number of shares that the Company may repurchase shall not exceed 10% of the share capital of the Company in issue on the date of the resolution. The Company’s authority is restricted to purchases made on the Stock Exchange in accordance with the Rules Governing the Listing of Securities on the Stock Exchange (the ‘‘Listing Rules’’). Based on 7,492,522,578 Shares in issue as at the Latest Practicable Date and on the assumption that no Share will be issued prior to the AGM, exercise in full of the mandate could result in up to 749,252,257 Shares being repurchased by the Company. The mandate allows the Company to make or agree to make purchases only during the period ending on the earliest of the date of the next annual general meeting, the date by which the next annual general meeting of the Company is required to be held by law or the date upon which such authority is revoked or varied by an ordinary resolution of the shareholders in a general meeting of the Company.

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 2011 (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.

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 profits of the Company or out of a fresh issue of Shares made for the purpose of the repurchase or, subject to the Company remaining solvent in compliance with the Companies Law of the Cayman Islands, out of capital and, in the case of any premium payable on the repurchase, out of the profits of the Company or from sums standing the credit of the share premium

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account of the Company or, subject to the Company remaining solvent in compliance with the Companies Law of the Cayman Islands, out of capital. Under the Cayman Islands law, the repurchased shares will be cancelled but remain part of the authorised but unissued share capital of the Company.

The directors intend to apply the capital paid up on the relevant Shares or the profits that would otherwise be available for distribution by way of dividend for any purchase of its Shares.

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/she has a present intention to sell Shares to the Company nor has he/she undertaken not to sell any of the Shares held by him/her 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 interest 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’’).

As at the Latest Practicable Date, to the best of the knowledge and belief of the Company, Champion Technology Holdings Limited (‘‘Champion’’), who held approximately 54.26% of the issued share capital of the Company, was the only substantial shareholder holding more than 10% 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 shareholding of Champion in the Company would be increased to approximately 60.29% of the issued share capital of the Company and such increase would not give rise to an obligation on it to make a mandatory offer under Rule 26 of the Code.

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Stock Exchange Rules for repurchases of shares

The Listing Rules permit companies whose primary listings are on the Stock Exchange to repurchase their shares on the Stock Exchange subject to certain restrictions, the most important of which are summarised below:

• (a) Shareholders’ approval

The Listing Rules provide that all shares repurchases on the Stock Exchange by a company with its primary listing on the Stock Exchange must be approved in advance by an ordinary resolution, which may be by way of general mandate, or by special resolution in relation to specific transactions.

• (b) Source of funds

Repurchases must be funded out of funds legally available for the purpose.

General

During each of the six months preceding the date of this circular, no Share 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$
2010
October	0.146	0.131
November	0.139	0.121
December	0.125	0.114
2011
January	0.124	0.116
February	0.127	0.117
March	0.128	0.101
April	0.114	0.099
May	0.101	0.093
June	0.098	0.086
July	0.097	0.084
August	0.089	0.069
September	0.074	0.053
October (up to the Latest Practicable Date)	0.071	0.052

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ANNUAL GENERAL MEETING

You will find on pages 8 to 10 of this circular a notice of the AGM to be held at 9:05 a.m. on 2 December 2011, at 3rd Floor, Kantone Centre, 1 Ning Foo Street, Chaiwan, Hong Kong. Voting at the AGM will be taken by poll.

Resolution no. 5A will be proposed as an ordinary resolution to give a general mandate to the directors to allot, issue and deal with shares of the Company with an aggregate nominal value not exceeding 20% of the share capital of the Company in issue as at the date of the resolution.

Resolution no. 5B 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% of the aggregate nominal amount of the share capital of the Company in issue as at the date of the resolution.

Resolution no. 5C will be proposed as an ordinary resolution to extend resolution no. 5A 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. 5B.

There is enclosed a form of proxy for use at the AGM. You are requested to complete the form of proxy and return it to the Company’s branch share registrar in Hong Kong, Tricor Secretaries Limited, 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong 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.

RE-ELECTION OF DIRECTORS

Resolutions will be proposed at the AGM for re-election of Dr. Paul KAN Man Lok, Mr. Frank BLEACKLEY and Professor Julia TSUEI Jo as directors according to the Company’s Articles of Association. Their particulars are as follows:

Paul KAN Man Lok (‘‘Dr. Kan’’), 64, is the founder and Chairman. He is also the Chairman and an executive director of both Champion, which is the holding company of the Company listed on the Main Board of the Stock Exchange, and DIGITALHONGKONG.COM (‘‘Digital HK’’), which is a fellow subsidiary of the Company listed on the GEM Board of the Stock Exchange. He is a brother of Mr. Leo KAN Kin Leung, a non-executive director of the Company. Dr. Kan holds a Master’s degree in Business Administration from the Chinese University of Hong Kong and an Honorary Doctor of Humane Letters Degree by the University of Northern Virginia, United States. He has over 40 years of experience in the computing and telecommunications industries. Prior to setting up the Champion group in 1987, he was the general manager in charge of Asiadata Limited, a computing services subsidiary of Cable & Wireless PLC.

Dr. Kan has received a number of prestigious awards from several governments and various local and international professional bodies in recognition of his contribution to the community and the industry. Government awards include Commander of the most Excellent Order of the British Empire (CBE) by Her Majesty Queen Elizabeth II (2006); Commendatore dell’Ordine della Stella della Solidarietà Italiana by the Italian Prime Minister Hon. Romano Prodi (2006); the Hong Kong SAR Government’s appointment as a Justice of the Peace (2006); Chevalier de l’Ordre de la Légion d’Honneur by the Government of France (2007); and Silver Bauhinia Star by the Hong Kong SAR Government (2009).

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Professional awards include Young Industrialist Award (1992); Hong Kong Business AwardEnterprise Trophy (1993); Governor’s Award for Hong Kong Industries (1989); and Honorary Fellow of the Academy of Chinese Studies (2005); and Honorary Professor of Szent István University in Budapest, Hungary (2011).

In civic duties, Dr. Kan is currently the Honorary Chairman of the Hong Kong Information Technology Industry Council and the Chairman of Hong Kong IT Alliance; and a member of HKSAR Chief Executive Election Committee for the IT sector, the Council of The Chinese University of Hong Kong, the Chinese People’s Political Consultative Conference of Anhui Province in the People’s Republic of China, and the Election Committee for the Hong Kong representatives of National People’s Congress of China. He served twice on the Stock Exchange Corporate Governance Working Group during 1994–1995 and 1999–2000, and was a member of the Listing Committee of the Stock Exchange for the period 1999–2003. He was the Chairman of the Hong Kong Trade Development Council Information and Communications Technology Services Advisory Committee (2006–2010) and ICT Working Group, Hong Kong–United Kingdom Business Partnership (2004–2007).

Dr. Kan had been an independent non-executive director of CLP Holdings Limited for 9 years from 2001 until he retired in April 2010. In January 2011, Dr. Kan was appointed Honorary Consul of the Republic of Hungary in Hong Kong and Macao.

Frank BLEACKLEY (‘‘Mr. Bleackley’’), 74, has been an independent non-executive director of the Company since November 2001. He is also an independent non-executive director of Champion. He was formerly Managing Director of Chubb China Holdings Limited, a subsidiary of the former Chubb Security Group, a manufacturer and distributor of security and safety products and systems headquartered in the United Kingdom. He has considerable experience in the management and business development of joint venture companies in Hong Kong and Mainland China.

Professor Julia TSUEI Jo (‘‘Professor Tsuei’’), 84, has been an independent non-executive director of the Company since October 2003. She has over 40 years of experience in medicine and biomedical research, in particular, Traditional Chinese Medicine. She had taught in the various medical schools in USA, Taiwan and China and is well-acclaimed in the Chinese community of biological medicine research. Her research achievements in bridging east-west medicine also earned her much recognition in the international arena, as demonstrated by the numerous awards she received in the past. These include the Lifetime Achievement Award granted by the International Institute for Advanced Studies in Systems Research and Cybernetics, Baden-Baden, Germany in 2001; the Founding Patron and Lifetime Member conferred by the American Association of Acupuncture and Oriental Medicine in 1991; Chairman of Acupuncture Research Foundation of the Acupuncture and Moxibustion Society of China during 1995–2005; as well as founder of the International Medical Science Research Foundation in the US and Taiwan in 1988.

Professor Tsuei is presently President of Foundation for East-West Medicine, USA; Vice President of American Association of the Acupuncture and Bioenergetic Medicine USA; Professor Emeritus of School of Public Health, University of Hawaii, USA; Director of Clinic for East-West Medicine, Taiwan; Founding Director of Graduate Institute of Traditional Chinese Medicine, National Yang-Ming University, Taiwan; and Board member of Chinese Bio-Electromagnetic Science Association.

Dr. Kan does not have any service contract with the Company. He is not appointed for a specific term but is subject to retirement by rotation in annual general meetings of the Company in accordance with the Articles of Association of the Company. The Company has general emolument guidelines for executive directors of the Company, but Dr. Kan has elected to receive nominal salaries of HK$57,000 for the year ended 30 June 2011.

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Each of Mr. Bleackley and Professor Tsuei has a service contract with the Company commencing from 1 December 2009 and ending on the date of the AGM. Each of them will, if re-elected as a director of the Company, enter into another service contract with the Company for a term of up to three years commencing from the date of the AGM and ending on the date on which the director shall retire by rotation next time at an annual general meeting of the Company in accordance with the Articles of Association of the Company. Under their respective service contracts, each of Mr. Bleackley and Professor Tsuei is paid a director’s fee of HK$50,000 per annum and a remuneration of HK$50,000 per annum for acting as members of certain committees of the Company. The emoluments payable to them are determined with reference to the prevailing range of fees for independent non-executive directors of listed companies in Hong Kong.

Save as disclosed above, as at the Latest Practicable Date, none of the aforesaid directors (i) had other directorship held in listed public companies in the last three years; (ii) had any relationship with any directors, senior management, management shareholders, substantial shareholders or controlling shareholders of the Company; or (iii) had any interests in the shares of the Company within the meaning of Part XV of the SFO.

Save as disclosed above, there is no information relating to the re-election of the above directors required to be disclosed pursuant to the requirements of Rule 13.51(2) of the Listing Rules and there are no other matters that need to be brought to the attention of the shareholders of the Company.

RECOMMENDATION

The directors consider that the proposed granting of the mandates to issue and repurchase shares of the Company are in the interest of the Company and the shareholders as a while and so recommend you to vote in favour of the relevant resolutions at the AGM. The directors will vote all their shareholdings in favour of such resolutions.

Yours faithfully, By order of the Board Paul Kan Man Lok Chairman

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NOTICE OF ANNUAL GENERAL MEETING

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KANTONE HOLDINGS LIMITED

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 1059)

NOTICE OF ANNUAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that the annual general meeting of the abovenamed company (the ‘‘Company’’) will be held at 3rd Floor, Kantone Centre, 1 Ning Foo Street, Chaiwan, Hong Kong on 2 December 2011 at 9:05 a.m. for the following purposes:

1. To receive and consider the audited consolidated financial statements and the reports of the directors and independent auditor for the year ended 30 June 2011.

2. To declare a final dividend of 0.2 Hong Kong cents per share for the year ended 30 June 2011.

3. To elect directors and to authorise the board of directors to fix their remuneration.

4. To appoint auditor and to authorise the board of directors to fix its remuneration.

5. As special business, to consider and, if thought fit, pass the following resolutions as ordinary resolutions:

ORDINARY RESOLUTIONS

• A. ‘‘THAT:

• (a) subject to paragraph (c), the exercise by the directors of the Company during the Relevant Period of all the powers of the Company to allot, issue and deal with additional shares in the capital of the Company and to make or grant offers, agreements and options which might require the exercise of such power 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 or grant offers, agreements and options which might require the exercise of such power 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 a Rights Issue or scrip dividend scheme or similar arrangement of the Company or the exercise of the subscription rights under the share option scheme

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of the Company shall not exceed 20% 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 shall be limited accordingly; and

• (d) 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; 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 exclusion or other arrangements as the directors of the Company may deem necessary or expedient in relation to fractional entitlements or having regard to any restrictions or obligations under the laws of, or the requirements of any recognised regulatory body or any stock exchange in any territory outside Hong Kong).’’

B. ‘‘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% 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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• C. ‘‘THAT conditional upon resolution no. 5B 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 as mentioned in resolution no. 5B 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. 5A above.’’

By Order of the Board Jennifer Cheung Mei Ha Company Secretary

Hong Kong, 28 October 2011

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, in the event of a poll, vote in his stead. A proxy need not be a member of the Company. In order to be valid, the form of proxy must be deposited at the Company’s branch share registrar in Hong Kong, Tricor Secretaries Limited, 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong together with a power of attorney or other authority, if any, under which it is signed or a certified copy of that power or authority, not less than 48 hours before the time for holding the meeting or adjourned meeting.

• (2) The register of members of the Company will be closed from 8 December 2011 to 9 December 2011, both days inclusive, during which period no transfer of shares will be effected. In order to qualify for the final dividend to be approved at the annual general meeting, all transfers accompanied by the relevant share certificates must be lodged with the Company’s branch share registrar in Hong Kong, Tricor Secretaries Limited, 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong not later than 4:30 p.m. on 7 December 2011.

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