Persistence Gold Group Ltd — AGM Information 2004

Aug 30, 2004

THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this document, you should consult a licensed securities dealer, a bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or otherwise transferred all your securities in Shanghai Merchants Holdings Limited, you should at once hand this document and the accompanying form of proxy 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 document, 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 document.

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SHANGHAI MERCHANTS HOLDINGS LIMITED 上海商貿控股有限公司[*]

(incorporated in Bermuda with limited liability)

(Stock Code: 1104)

GENERAL MANDATES TO REPURCHASE AND ISSUE SECURITIES, ADOPTION OF NEW SHARE OPTION SCHEME AND TERMINATION OF EXISTING SHARE OPTION SCHEME,

AMENDMENT OF BYE-LAWS OF THE COMPANY,

RE-ELECTION OF DIRECTORS

AND

FULL TEXT OF PROPOSED RESOLUTIONS

The full text of the proposed resolutions for consideration at the Annual General Meeting (as defined herein) is contained in Appendix III hereof for your attention. A form of proxy for use at the Annual General Meeting is enclosed. Whether or not you intend to attend the Annual General Meeting you are requested to complete the enclosed form of proxy and return it in accordance with the instructions printed thereon as soon as possible to the branch share registrar of the Company in Hong Kong, Secretaries Limited, at 28th Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong and in any event not less than 48 hours before the time appointed for the holding of the Annual General Meeting. Completion and return of the form of proxy will not preclude you from personally attending and voting at the Annual General Meeting or any adjourned meeting if you so desire.

* For identification purpose only

26 August 2004

CONTENTS

		Page
Definitions . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the	Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	3
Appendix I –	Explanatory Statement for the Repurchase Mandate . . . . . . . . . . .	10
Appendix II –	Summary of the Principal Terms of the
	New Share Option Scheme. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
Appendix III –	Annual General Meeting 2004 – Full Text of
	Proposed Resolutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	24

– i –

DEFINITIONS

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

• “Amendment of Bye-Laws”

proposed changes to the existing Bye-Laws of the Company;

• “Annual General Meeting”

the annual general meeting 2004 of the Company to be held at Chater Room 1, B/3, Regal Hongkong Hotel of 88 Yee Wo Street, Causeway Bay, Hong Kong on 22 September 2004 at 11:00 a.m. or any adjournment thereof;

• “Board”

the board of Directors;

• “Bye-Laws”

the existing bye-laws of the Company;

• “Company”

• Shanghai Merchants Holdings Limited, a company incorporated in Bermuda with limited liability, the Shares of which are listed on the Stock Exchange;

• “Directors”

• directors of the Company;

• “Eligible Persons”

including (i) any employees; (ii) any executive, nonexecutive Directors (including, without limitation, independent non-executive Directors) of the Company and/or any of its subsidiaries; and (iii) any consultants, suppliers or customers of the Company and/or any of its subsidiaries;

• “Existing Share Option Scheme”

the present share option scheme of the Company currently in subsistence;

• “Extension Mandate”

a general mandate proposed to be granted to the Directors of the Company to extend the limit under the Issue Mandate by the number of Shares representing the aggregate nominal amount of the Shares repurchased by the Company under the Repurchase Mandate since the granting of the Repurchase Mandate;

– 1 –

DEFINITIONS

• “Issue Mandate”

• “Latest Practicable Date”

• “Listing Committee”

• “Listing Rules”

• “New Share Option Scheme”

• “Participants”

• “Profit Harbour”

• “Repurchase Mandate”

• “Shareholders”

• “Shares”

• “Stock Exchange”

• a general mandate proposed to be granted to the Directors at the Annual General Meeting to allot, issue and deal with additional Shares not exceeding 20 per cent of the issued share capital of the Company as at the date of passing of the relevant resolution approving such grant;

• 23 August 2004, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained herein;

• the listing sub-committee of the board of directors of the Stock Exchange with responsibility for the main board;

• the Rules Governing the Listing of Securities on the Stock Exchange;

• a new share option scheme of the Company proposed to be adopted at the Annual General Meeting;

• Eligible Persons participating in the New Share Option Scheme;

• a company incorporated in the British Virgin Islands, the entire issued share capital of which is beneficially owned by Mr. Yue Jialin, the Chairman and executive Director of the Company;

• a general mandate proposed to be granted to the Directors at the Annual General Meeting to repurchase Shares not exceeding 10 per cent of the issued share capital of the Company as at the date of passing of the relevant resolution approving such grant;

• registered holders of Shares;

• ordinary shares of nominal value HK$0.10 each in the capital of the Company;

The Stock Exchange of Hong Kong Limited.

– 2 –

LETTER FROM THE BOARD

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SHANGHAI MERCHANTS HOLDINGS LIMITED 上海商貿控股有限公司[*]

(incorporated in Bermuda with limited liability)

(Stock Code: 1104)

Executive Directors: Mr. Yue Jialin (Chairman) Mr. Lau Yau Cheung Brent

Independent Non-Executive Directors: Mr. Wong Wing Kuen, Albert Mr. Tsui Robert Che Kwong Mr. Wu Guo Jian

Registered office: Clarendon House 2 Church Street Hamilton HM11 Bermuda

Head office and principal place of business in Hong Kong: 67th Floor, The Center 99 Queen’s Road Central Hong Kong

26 August 2004

To the Shareholders

Dear Sir or Madam,

GENERAL MANDATES TO REPURCHASE AND ISSUE SECURITIES, ADOPTION OF NEW SHARE OPTION SCHEME AND TERMINATION OF EXISTING SHARE OPTION SCHEME,

AMENDMENT OF BYE-LAWS OF THE COMPANY,

RE-ELECTION OF DIRECTORS

AND

FULL TEXT OF PROPOSED RESOLUTIONS

1. INTRODUCTION

The purpose of this document is to provide the Shareholders with information regarding the resolutions to be proposed at the Annual General Meeting concerning the proposed re-election of Directors, approval of the Repurchase Mandate, the adoption of the New Share Option Scheme and Amendment of Bye-Laws.

• For identification purpose only

– 3 –

LETTER FROM THE BOARD

2. GENERAL MANDATES FOR THE REPURCHASE AND ISSUE BY THE COMPANY OF ITS SECURITIES

At the annual general meeting of the Company held on 7 June 2002, a general mandate was given to the Directors to exercise the powers of the Company to repurchase its securities. Such mandate has already, in accordance with its terms, lapsed.

An ordinary resolution to give a fresh general mandate to the Directors to exercise the powers of the Company to exercise the Repurchase Mandate will be proposed at the forthcoming Annual General Meeting.

An explanatory statement, as required under the relevant rules set out in the Listing Rules regarding the repurchase by companies with primary listings on the Stock Exchange of their own securities to provide the requisite information on the Repurchase Mandate, is set out in Appendix I hereto.

In addition to the ordinary resolution regarding the Repurchase Mandate, two other ordinary resolutions will also be proposed at the Annual General Meeting, one of which is for granting of the Issue Mandate and the other is for the granting of the Extension Mandate.

3. ADOPTION OF THE NEW SHARE OPTION SCHEME

At the Annual General Meeting, an ordinary resolution will be proposed to give the Directors the power to implement and administer the New Share Option Scheme with effect from the date of passing of the resolution. The Existing Share Option Scheme will be terminated immediately upon the adoption of the New Share Option Scheme. A summary of the principal terms of the New Share Option Scheme is set out in Appendix II of this circular in accordance with Chapter 17 of the Listing Rules.

The New Share Option Scheme and the grant of any option thereunder is conditional upon the Shareholders passing an ordinary resolution to approve the New Share Option Scheme at the Annual General Meeting or other general meeting of the Shareholders and approval by the Listing Committee for the listing of and permission to deal in Shares which may fall to be issued thereunder.

4. CURRENT STATUS OF THE EXISTING SHARE OPTION SCHEME

Owing to the onset of receivership proceedings, the change in management and the continued investigations by the authorities into the affairs of the Company, all of which had precluded the full access of the books and records of the Group by the existing Directors, the Directors are unable to confirm that, as at the Latest Practicable Date, there are no outstanding share options granted that had not been exercised, lapsed or cancelled under the Existing Share Option Scheme.

– 4 –

LETTER FROM THE BOARD

As at the Latest Practicable Date, the former records of the Group were based on the substantial amount of documents returned to the Company from its former receivers and managers on or about 6 July 2004. Such returned documents are still deprived of a significant portion of books and records previously confiscated by the Independent Commission Against Corruption (prior to the appointment of receivers of the Company on 17 June 2003), records which had not been returned to the Company along with the documents returned by the receivers. As such, to this date, a significant amount of the books and records of the Group were still unavailable to the Company and its existing Directors.

In light of the incomplete books and records maintained by the Company, the Directors do not have sufficient information relating to the movements of the share options as at the Latest Practicable Date. The following movements of the share options granted pursuant to the Existing Share Option Scheme to the former Directors and employees of the Group have been prepared based on the information contained in a circular issued by the Company dated 7 October 2003, an announcement made by Profit Harbour dated 21 October 2003 and the letters of grant of options issued by the former directors of the Company. No options were granted to the existing Directors under any share option scheme of the Group prior to and no options were held by the existing Directors as at the Latest Practicable Date.

				Number of	share options
				surrendered/
				lapsed as at	Balance as at
Name				the Latest	the Latest
or category	Date	Exercisable	Exercise	Practicable	Practicable
of participant	of grant	period	price	Date	Date
	(note i)	(note ii)	HK$
Ex-Directors
Mo Yuk Ping	28.6.2002	2.7.2002-1.7.2007	0.556	–	240,000
Shi Zhi Hong	28.6.2002	2.7.2002-1.7.2007	0.556	–	2,400,000
Shan Zhenglin	28.6.2002	2.7.2002-1.7.2007	0.556	–	2,400,000
Gong Bei Ying	28.6.2002	2.7.2002-1.7.2007	0.556	–	2,400,000
Sub-total				–	7,440,000
Ex-employees of the Group
In aggregate	28.6.2002	2.7.2002-1.7.2007	0.556	–	2,400,000
				–	9,840,000

Notes:

• (i) The vesting period of share options is from the date of the grant until the commencement of the exercise period.

• (ii) The exercise price of share options is subject to adjustment in the case of rights or bonus issues, or other similar changes in the Company’s share capital.

– 5 –

LETTER FROM THE BOARD

The Directors confirm, insofar as they are aware after having made all reasonable enquiries as disclosed above, the number of outstanding options issued under the existing share option scheme of the Company, if exercised in full, will not involve the allotment and issue by the Company of Shares exceeding an aggregate of 10 per cent. of the entire issued share capital of the Company as at the Latest Practicable Date.

The Directors confirm that they will not exercise their powers under the Existing Share Option Scheme and the New Share Option Scheme prior to its adoption in the Annual General Meeting.

5. PURPOSE AND EXPLANATION OF THE NEW SHARE OPTION SCHEME

The Directors consider that in order to recognize the contributions of the Eligible Persons to the growth of the Group and to further motivate and encourage the Eligible Persons’ continued performance and efficiency and maintain their amenable relations with the Group, it is in the best interest of the Company to provide them with opportunities to obtain a shareholding interest in the Company and to reward them for their ongoing contribution to the Company’s long term success and prosperity.

The Directors believe that with no requirement of performance targets, no minimum period for which an option must be held by the Eligible Persons before it can be exercised and a fair mechanism for determining the exercise price of the options, the Directors can have ample discretion in prescribing terms for grants of options specific to the circumstance with an aim to achieve the goals of the New Share Option Scheme which is to provide the best incentive to Eligible Persons for continuing support of the Company. In this connection, the Directors propose to recommend to the Shareholders at the Annual General Meeting to approve the adoption of the New Share Option Scheme.

A summary of the terms of the New Share Option Scheme is set out in Appendix II hereof for your attention.

6. TERMINATION OF EXISTING SHARE OPTION SCHEME

The Existing Share Option Scheme will be terminated simultaneously with the passing of the resolution approving and adopting the New Share Option Scheme in the Annual General Meeting. In this connection, no further options would then be granted under the Existing Share Option Scheme.

7. APPLICATION FOR LISTING

Application has been made to the Listing Committee for the approval of the listing of, and permission to deal in, the Shares which may fall to be issued pursuant to the exercise of the options that may be granted under the New Share Option Scheme.

– 6 –

LETTER FROM THE BOARD

8. PROPOSED AMENDMENT OF BYE-LAWS

The Directors propose that a special resolution for the Amendment of Bye-Laws will be proposed at the Annual General Meeting in order to conform to the constitutional requirements with respect to listed issuers under the revised Listing Rules effective as of 31 March 2004. The full text of the Amendment of Bye-Laws are set out in Appendix III hereof for your attention.

9. VOTING AT THE ANNUAL GENERAL MEETING

The full text of the ordinary resolutions and the special resolution to be proposed at the Annual General Meeting are set out in full in Appendix III hereof.

A form of proxy for use at the Annual General Meeting is enclosed with the 2003 Annual Report of the Company despatched to the Shareholders. Whether or not you intend to attend the Annual General Meeting, you are requested to complete the proxy form and return it to the branch share registrar of the Company in Hong Kong, Secretaries Limited at 28th Floor, BEA Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong not less than 48 hours before the time appointed for holding the Annual General Meeting (i.e. before 11:00 a.m. on Monday, 20 September 2004). The completion and return of a proxy form will not preclude a Shareholder from attending the Annual General Meeting and voting in person.

Under the Bye-Laws, any resolution put to the vote at a general meeting of the Company shall be decided on a show of hands, unless voting by poll has been demanded before or on the declaration of the result of the show of hands or on the withdrawal of another demand for a poll to be taken.

Under the Bye-Laws, a poll may be properly demanded at a general meeting of the Company in one of the following manners:

• (i) by the chairman of the meeting; or

• (ii) by at least three (3) Shareholders present in person (or, in the case of a Shareholder being a corporation, by its duly authorized representative) or by proxy for the time being entitled to vote; or

• (iii) by any Shareholder or Shareholders present in person or by proxy and representing not less than one-tenth (1/10) of the total voting rights of all the Shareholders entitled to vote at the meeting.

10. RE-ELECTION OF DIRECTORS

At the Annual General Meeting, an ordinary resolution to re-elect Mr. Wong Wing Kuen, Albert (“ Mr. Wong ”), Mr. Tsui Robert Che Kwong (“ Mr. Tsui ”) and Mr. Wu Guo Jian (“ Mr. Wu ”) as Directors will be proposed.

Mr. Wong , aged 53, was appointed as an independent non-executive Director on 6 July 2004, is due to retire and is eligible for re-election at the forthcoming Annual General Meeting in accordance with the Bye-Laws.

– 7 –

LETTER FROM THE BOARD

Mr. Wong is a fellow member of The Institute of Chartered Secretaries and Administrators, a fellow member of The Hong Kong Institute of Company Secretaries, a fellow member of The Taxation Institute of Hong Kong, a member of Hong Kong Securities Institute, an associate member of Association of International Accountants, a fellow member of Society of Registered Financial Planners, an associate member of Hong Kong Institute of Arbitrators, a full member of The Chartered Institute of Arbitrators, an associate member of The Chartered Institute of Bankers in Scotland and a full member of Macau Society of Certified Practising Accountants. Mr. Wong has also, prior to 1 July 2004, been a director of Minghua Group International Holdings Limited, a listed public company in the United States of America.

Other than the aforesaid, Mr. Wong has not held any directorship in other listed public companies in the three preceding years.

Mr. Wong (other than in the capacity as Director) does not have any relationship with the other Directors, senior management or substantial or controlling Shareholders of the Company, does not hold any other position within the Company or the Group and does not hold any interest in Shares which may be disclosable under the provisions of the Securities and Futures Ordinance (Chapter 571 of The Laws of Hong Kong).

Mr Wong has not entered into any service contract with the Company and his current and proposed tenure as Director is for a non-specific term, with no specification as to his emolument, and is subject to the provisions for retirement, removal, rotation and determination of remuneration as the other Directors under the Bye-Laws.

Mr. Tsui , aged 50, was appointed as an independent non-executive Director on 6 July 2004, is due to retire and is eligible for re-election at the forthcoming Annual General Meeting in accordance with the Bye-Laws.

Mr. Tsui is a graduate of the University of Buckingham, England, with a bachelor degree in Law. He is the sole proprietor of Robert C.K. Tsui & Co., a firm of solicitors in Hong Kong. Mr. Tsui has been practicing in the legal field for more than 18 years. Mr. Tsui is also an independent non-executive director of Teem Foundation Group Limited, a company the shares of which are listed on the Main Board of the Stock Exchange.

Other than the aforesaid, Mr. Tsui has not held any directorship in other listed public companies in the three preceding years.

Mr. Tsui (other than in the capacity as Director) does not have any relationship with the other Directors, senior management or substantial or controlling Shareholders of the Company, does not hold any other position within the Company or the Group and does not hold any interest in Shares which may be disclosable under the provisions of the Securities and Futures Ordinance (Chapter 571 of The Laws of Hong Kong).

– 8 –

LETTER FROM THE BOARD

Mr. Tsui has not entered into any service contract with the Company and his current and proposed tenure as Director is for a non-specific term, with no specification as to his emolument, and is subject to the provisions for retirement, removal, rotation and determination of remuneration as the other Directors under the Bye-Laws.

Mr. Wu , aged 58, was appointed as an independent non-executive Director on 6 July 2004, is due to retire and is eligible for re-election at the forthcoming Annual General Meeting in accordance with the Bye-Laws.

Mr. Wu is a director of New Era International Holdings Limited and has been specializing in trading and property development for more than 15 years.

Mr. Wu has not held any directorship in other listed public companies in the three preceding years.

Mr. Wu (other than in the capacity as Director) does not have any relationship with the other Directors, senior management or substantial or controlling Shareholders of the Company, does not hold any other position within the Company or the Group and does not hold any interest in Shares which may be disclosable under the provisions of the Securities and Futures Ordinance (Chapter 571 of The Laws of Hong Kong).

Mr. Wu has not entered into any service contract with the Company and his current and proposed tenure as Director is for a non-specific term, with no specification as to his emolument, and is subject to the provisions for retirement, removal, rotation and determination of remuneration as the other Directors under the Bye-Laws.

Save for the foregoing, there are no other matters that the Company considers necessary to bring to the attention of the Shareholders with respect to the proposed re-election of the foregoing Directors.

11. RECOMMENDATION

The Directors believe that the ordinary resolutions for re-election of Directors, the Repurchase Mandate, Issue Mandate and Extension Mandate and the adoption of the New Share Option Scheme and the special resolution for the Amendment of Bye-Laws are all in the best interests of the Company and its Shareholders as a whole. Accordingly, the Directors recommend that you vote in favour of all of the aforesaid proposed resolutions at the Annual General Meeting.

Should there be any inconsistency between the English text and the Chinese text of this document, the English text shall prevail.

By Order of the Board of Directors Yue Jialin Chairman

– 9 –

EXPLANATORY STATEMENT FOR THE REPURCHASE MANDATE

APPENDIX I

This appendix serves as an explanatory statement, as required by the Listing Rules, to provide the requisite information to you for your consideration of the Repurchase Mandate.

1. SHARE CAPITAL

As at the Latest Practicable Date, the issued share capital of the Company comprised 413,000,000 Shares.

Subject to the passing and pursuant to the terms of the ordinary resolution regarding the Repurchase Mandate and on the basis that no further Shares are issued or repurchased prior to the Annual General Meeting to be held on 22 September 2004, the Company would be allowed under the Repurchase Mandate to repurchase a maximum of 41,300,000 Shares, representing 10 per cent of the then issued share capital of the Company.

2. REASONS FOR REPURCHASE

The Directors believe that the Repurchase Mandate is in the best interests of the Company and its Shareholders as a whole. Such repurchase may, depending on market conditions and funding arrangements at the time, lead to an enhancement of the net assets value and/or earnings per Share and will only be made when the Directors believe that such repurchase will benefit the Company and its Shareholders as a whole.

3. FUNDING OF REPURCHASE AND MATERIAL ADVERSE IMPACT

In repurchasing Share, the Company may only apply funds legally available for such purpose in accordance with its Bye-Laws and the laws of Bermuda. Bermuda 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 dividend or the proceeds of a fresh issue of shares made for such purpose. The amount of premium payable on repurchase may only be paid out of either the profits that would otherwise be available for dividend or out of the share premium or contributed surplus accounts of the Company.

There might be an adverse impact on the working capital or gearing position of the Company as compared with the position disclosed in the audited accounts contained in its annual report for the year ended 31 December 2003 in the event that the Repurchase Mandate were to be exercised in full at any time during the proposed repurchase period. However, the Directors do not propose to exercise the Repurchase Mandate to such extent as would, in the circumstances, have a material adverse effect on the working capital requirements or the gearing levels of the Company which in the opinion of the Directors are from time to time appropriate.

– 10 –

EXPLANATORY STATEMENT FOR THE REPURCHASE MANDATE

APPENDIX I

4. SHARE PRICES

Since trading in Shares has been suspended from 9:30 a.m. on 2 June 2003 and remains suspended as at the Latest Practicable Date, the highest and lowest prices at which Shares have traded on the Stock Exchange during the current month and each of the previous twelve months before the printing of this document cannot be disclosed. The closing price of each Share was HK$0.26 as at 1 June 2003 (being the last trading day for Shares prior to suspension) as quoted on the Stock Exchange’s daily quotation sheet on the date.

5. UNDERTAKING AND EFFECT OF REPURCHASE

The Directors have undertaken to the Stock Exchange that they will exercise the powers of the Company to make repurchases pursuant to the Repurchase Mandate and in accordance with the Listing Rules and the laws of Bermuda, so far as the same may be applicable.

None of the Directors nor, to the best of their knowledge having made all reasonable enquiries, their associates as defined in the Listing Rules, have any present intention to sell any securities of the Company to the Company or its subsidiaries under the Repurchase Mandate if the same be approved by the Shareholders.

No connected persons (as defined in the Listing Rules) have notified the Company that they have a present intention to sell securities of the Company to the Company or its subsidiaries or have undertaken not to do so, in the event that the Repurchase Mandate is approved by the Shareholders.

If a Shareholder’s proportionate interest in the voting rights of the Company increases upon exercise of the powers to repurchase securities of the Company pursuant to the Repurchase Mandate, such increase will be treated as an acquisition for the purposes of the Hong Kong Code on Takeovers and Mergers (the “ Takeovers Code ”). As a result, a Shareholder or group of persons acting in concert, could obtain or consolidate control of the Company and become obliged to make a mandatory general offer for all Shares in issue at the time in accordance with Rules 26 and 32 of the Takeovers Code.

As at the Latest Practicable Date, Mr. Yue Jialin (“ Mr. Yue ”), the Chairman and executive Director of the Company, beneficially held 262,602,000 Shares, representing approximately 63.58 per cent of the existing issued share capital of the Company. To the best knowledge of the Company, no other person, together with any associates thereof, was beneficially interested in Shares representing 10 per cent or more of the entire issued share capital of the Company as at the Latest Practicable Date.

– 11 –

EXPLANATORY STATEMENT FOR THE REPURCHASE MANDATE

APPENDIX I

In the event that the Directors exercise in full the power to repurchase Shares which is proposed to be granted pursuant to the Repurchase Mandate then (if the present Shareholders’ interests in Shares remained the same) the attributable shareholding of Mr. Yue in the Company would be increased to approximately 70.65 per cent of the issued share capital of the Company. However, since Mr. Yue’s shareholding interests in the Company already exceeds 50 per cent, such increase will not give rise to any obligation to make a mandatory offer under Rule 26 of the Takeovers Code. In any event, the Directors have no current intention to exercise the Repurchase Mandate to such an extent as would give rise to the aforesaid scenario. Further, the Repurchase Mandate will be exercised only if the number of Shares held by the public would not, as a result, fall below 25 per cent of all Shares as may from time to time be in issue in order to comply with the minimum public float requirements of the Listing Rules.

6. SECURITIES REPURCHASE MADE BY THE COMPANY

The Company has not purchased any of its securities (whether on the Stock Exchange or not) in the six months preceding the date of this document.

– 12 –

SUMMARY OF THE PRINCIPAL TERMS OF THE NEW SHARE OPTION SCHEME

APPENDIX II

The following is a summary of the principal terms of the New Share Option Scheme proposed to be adopted by the Shareholders at the Annual General Meeting.

The purpose of the New Share Option Scheme is to enable the Company to grant options to selected persons as incentives or rewards for their contribution to the Group.

1. TERMS OF THE NEW SHARE OPTION SCHEME

(a) Grant of options

Subject to the terms of the New Share Option Scheme, the Board may, at its absolute discretion, invite Eligible Persons to take up options to subscribe for Shares at a price calculated in accordance with paragraph (b) below.

An offer of the grant of an option shall be made to Eligible Persons by letter in such form as the Board may from time to time determine and shall remain open for acceptance by the Eligible Person concerned for a period of 28 days from the date upon which it is made provided that no such offer shall be open for acceptance after the 10th anniversary of the date of adoption of the New Share Option Scheme or after the New Share Option Scheme has been terminated.

A non-refundable nominal consideration of HK$1.00 is payable by the Participant upon acceptance of an option. An option shall be deemed to have been accepted when the duplicate letter comprising acceptance of the option duly signed by the Participant together with the said consideration of HK$1.00 is received by the Company. Any offer of the grant of an option may be accepted in respect of less than the number of Shares in respect of which it is offered provided that it is accepted in such number of Shares as represents a board lot for the time being for the purpose of trading on the Stock Exchange or an integral multiple thereof.

(b) Price of Shares

The subscription price for Shares under the New Share Option Scheme may be determined by the Board at its absolute discretion but in any event will not be less than the higher of: (i) the closing price of the Shares as stated in the daily quotations sheet of the Stock Exchange on the date of grant, which must be a business day; and (ii) the average closing price of the Shares as stated in the daily quotations sheets of the Stock Exchange of the five business days immediately preceding the date of grant, which must be a business day; and (iii) the nominal value of the Shares. The date of grant is the business day on which the Directors resolve to make an offer of the option provided it is accepted within 30 business days of the date of the offer.

– 13 –

SUMMARY OF THE PRINCIPAL TERMS OF THE NEW SHARE OPTION SCHEME

APPENDIX II

(c) Time of exercise of option

An option may be exercised in accordance with the terms of the New Share Option Scheme at any time during a period to be determined on the date of offer of grant of option and notified by the Directors to each Participant, which period may commence from the date of acceptance of the offer for the grant of options but shall end in any event not later than 10 years from the date of the date on which the New Share Option Scheme is conditionally adopted, subject to the provisions for early termination thereof. Unless otherwise determined by the Directors and stated in the offer of the grant of options, there is no minimum period required under the New Share Option Scheme for holding of an option before it can be exercised.

An option may be exercised in whole or in part by the Participant giving notice in writing to the Company stating that the option is thereby exercised and the number of Shares in respect of which it is exercised. Each such notice must be accompanied by a remittance for the full amount of the subscription price for the Shares in respect of which the notice is given. Within 28 days after receipt of the notice and the remittance and, where appropriate, receipt of the certificate of the Company’s auditors, the Company shall allot the relevant Shares to the Participant (or his legal personal representatives) credited as fully paid.

(d) Performance targets

Unless the Directors otherwise determine and state in the offer of the grant of the options, a Participant is not required to achieve any performance targets before options granted under the New Share Option Scheme can be exercised. No performance targets are specifically stipulated under the New Share Option Scheme.

(e) Maximum number of Shares

• (aa) The maximum number of Shares which may be allotted and issued upon exercise of all outstanding options granted and yet to be exercised under the New Share Option Scheme and any other share option scheme(s) of the Group must not in aggregate exceed 30 per cent of the share capital of the Company in issue from time to time. No options may be granted under the New Share Option Scheme or any other share option scheme(s) of the Group, if this will result in such 30 per cent limit being exceeded.

• (bb) The total number of the Shares which may be allotted and issued upon the exercise of all options (excluding, for this purpose, options which have lapsed in accordance with the terms of the New Share Option Scheme and any other share options scheme(s) of the Group) to be granted under the

– 14 –

SUMMARY OF THE PRINCIPAL TERMS OF THE NEW SHARE OPTION SCHEME

APPENDIX II

New Share Option Scheme and any other share option scheme of the Group must not in aggregate exceed 10 per cent of the Shares in issue as at the date of approval of the New Share Option Scheme (the “ Scheme Mandate Limit ”).

• (cc) Subject to (aa) above and without prejudice to (dd) below, the Company may seek approval by the Shareholders in general meeting for “refreshing” the Scheme Mandate Limit (a circular containing the information required by the Listing Rules must be dispatched to Shareholders for that purpose) provided that the total number of Shares which may be allotted and issued upon the exercise of all options to be granted under the New Share Option Scheme and any other share option scheme of the Group must not exceed 10 per cent of the Shares in issue as at the date of approval of the limit and, for the purpose of calculating the limit, options (including those outstanding, cancelled, lapsed or exercised in accordance with the New Share Option Scheme and any other share options scheme of the Group) previously granted under the New Share Option Scheme and any other share option scheme of the Group will not be counted.

• (dd) Subject to (aa) above and without prejudice to (cc) above, the Company may seek separate approval of the Shareholders in general meeting to grant options beyond the Scheme Mandate Limit or, if applicable, the extended limit referred to in (cc) above to proposed Participants specifically identified by the Company before such approval is sought. In such event, the Company must send a circular to the shareholders containing a generic description of such specified Participants, the number and terms of options to be granted, the purpose of granting options to the specified Participants with an explanation as to how the terms of the options serve such purpose and such other information required under Rule 17.02(2)(d) of the Listing Rules and the disclaimer required under Rule 17.02(4) of the Listing Rules.

(f) Maximum entitlement of each Participant

The total number of Shares issued and which may fall to be issued on the exercise of options granted under the New Share Option Scheme and any other share option scheme of the Group (including both exercised and outstanding options) to each Participant shall not exceed 1 per cent of the total issued share capital of the Company for the time being (the “ Individual Limit ”). Any further grant of options in excess of the Individual Limit in any 12-month period up to and including the date of such further grant shall be subject to the approval of the Shareholders in general meeting with such Participant and his associates (as defined in the Listing Rules) abstaining from voting.

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In such event, the Company must send a circular to the Shareholders disclosing the identity of the Participant, the number and terms of the options to be granted (and options previously granted to such Participant), the information required under Rule 17.02(2)(d) and the disclaimer required under Rule 17.02(4) of the Listing Rules. The number and terms (including the subscription price) of the options to be granted (and options previously granted to such Participant) must be fixed before the approval of the Shareholders and the date of the Board meeting proposing such further grant should be taken as the date of grant for the purpose of calculating the subscription price under paragraph (b) above.

The exercise of any option shall be subject to the Shareholders in general meeting approving any necessary increase in the authorized share capital of the Company. Subject thereto the Board shall make available sufficient authorized but unissued share capital of the Company to meet subsisting demands which may arise from the exercise of options.

(g) Restrictions on the time of grant of options

Grant of options may not be made after a price sensitive event has occurred or a price sensitive matter has been the subject of a decision until such price sensitive information has been disclosed by way of announcement in the newspapers. In particular, no option may be granted during the period commencing one month immediately preceding the earlier of (i) the date of the Board meeting (as such date is first notified to the Stock Exchange in accordance with the Listing Rules) for the approval of the Company’s results for any year, half-year, quarterly or any other interim period (whether or not required under the Listing Rules); and (ii) the deadline for the Company to publish an announcement of its results for any year or half-year under the Listing Rules, or quarterly or any other interim period (whether or not required under the Listing Rules), and ending on the date of the results announcement.

The Directors may not grant any option to a Participant who is a Director during the periods or times in which the Directors are prohibited from dealing in the Shares pursuant to the Model Code for Securities Transactions by Directors of Listed Companies prescribed by the Listing Rules or any corresponding code or securities dealing restrictions adopted by the Company.

(h) Rights are personal to grantees

An option is personal to the grantee and shall not be assignable. An option shall not be sold, transferred, charged, mortgaged, encumbered or created with any interest in favour of any third party.

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(i) Rights on dismissal or ceasing employment

If the grantee of an option ceases to be an Eligible Person for any reason other than his ill-health, injury, disability, retirement or death or the termination of his employment on one or more of the grounds of serious misconduct, bankruptcy, insolvency, arrangement or composition with his creditors generally or conviction of any criminal offence involving his integrity or honesty or other ground on which an employer would be entitled to terminate his employment under the grantee’s service contract with the Group, at common law or pursuant to any applicable laws, his option (to the extent not already exercised) will lapse on the date of cessation of his employment and shall not be exercisable.

(j) Rights on ill-health, injury, disability, death or retirement

If the grantee of an option ceases to be an Eligible Person by reason of his illheath, injury, disability or death or by reason of retirement in accordance with his contract of employment or upon expiration of his term of directorship and none of the events which would be ground for termination of his employment under paragraph (i) above occurs, the grantee or his legal personal representative(s) (as the case may be) may exercise the option in full (to the extent not already exercised) or to the extent specified in the notice to exercise such option within a period of 12 months after he so ceases or the expiration of the relevant option period of the relevant options, whichever is the earlier, provided that any option not so exercised shall lapse at the end of such period and shall not be exercisable.

(k) Rights on voluntary resignation or employing company ceasing to be a member of the Group

If the grantee of an option ceases to be an Eligible Person by reason of voluntary resignation or by reason of his employing company ceasing to be a member of the Group and one of the events which would be ground for termination of his employment under paragraph (i) above occurs, the grantee may exercise the option in full (to the extent not already exercised) or to the extent specified in the notice to exercise such option on or before the last actual working day with the Group whether salary is paid in lieu of notice or not or the expiration of the relevant option period, whichever is the earlier, provided that any option not so exercised shall lapse after such last actual working day.

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(l) Cancellation of options

Any options granted but not exercised may be cancelled if the grantee agrees.

Any cancellation of options granted but not exercised and the issuance of new options to the same grantee may only be made under the New Share Option Scheme with available unissued options (excluding the cancelled options) within the Scheme Mandate Limit referred to in paragraph (c) above. Options lapsed in accordance with the terms of the New Share Option Scheme will not be counted for the purpose of calculating the Scheme Mandate Limit.

(m) Effect of alterations to share capital

In the event of any alteration in the capital structure of the Company while any option remains exercisable whether by way of capitalization of profits or reserves, rights, issue, consolidation, subdivision or deduction of the share capital of the Company (other than an issue of shares as consideration in respect of a transaction to which the Company is a party), such corresponding alterations (if any) will be made in (i) the number of Shares subject to any option so far as such option remains unexercised; and/ or (ii) the subscription price per Share; and/or (iii) the method of exercise of the option as the auditors for the time being of the Company shall at the request of the Company or any grantee certify in writing to be in their opinion fair and reasonable in compliance with Rule 17.03(13) of the Listing Rules and the note hereto, provided that any such alterations shall be made on the basis that the grantee shall have the same proportion of the issued share capital of the Company to which he was entitled before such alteration and the aggregate subscription price payable by the grantee on the full exercise of any option shall remain nearly as possible the same as (but not greater than) it was before such event, but so that no such alterations shall be made the effect of which would be to enable a Share to be issued at less than its nominal value. Save in the case of a capitalization issue, an independent financial adviser or the auditors for the time being of the Company must confirm to the Directors in writing that such adjustments satisfy the aforesaid requirements.

(n) Rights on a general offer

In the event of a general offer being made to all the holders of Shares (or all such holders other than the offeror and/or any person controlled by the offeror and/or any person acting in concert (as defined in the Takeovers Code) with the offeror) and such offer becomes or is declared unconditional during the option period of the relevant option, the grantee (or his legal personal representative(s)) shall be entitled to exercise the option in full to the extent not already exercised (or to the extent specified in the notice of exercise of such option) at any time within one month after the date on which the offer becomes or is declared unconditional.

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(o) Rights on winding up

In the event a notice is given by the Company to its members to convene a general meeting for the purpose of considering and, if thought fit, approving a resolution to voluntarily wind-up the Company, the Company shall on the same date or as soon as after it dispatches such notice to each member of the Company give notice thereof to all grantees and each grantee (or his legal personal representatives provided none of the events which would be ground for termination of his employment under paragraph (f) above occurs) shall be entitled to exercise all or any of his options (to the extent not already exercised) at any time not later than 2 business days prior to the proposed general meeting of the Company by giving notice in writing to the Company, accompanied by a remittance for the full amount of the aggregate subscription price in respect of the relevant options in respect of which notice is given whereupon the Company shall as soon as possible and, in any event, no later than the business day immediately prior to the date of the proposed general meeting referred to above, allot and issue such number of Shares to the grantee credited as fully paid.

(p) Rights on a reconstruction, compromise or arrangement

If an application is made to the court (otherwise than where the Company is being voluntarily wound up) in connection with a proposed compromise or arrangement between the Company or creditors (or any class of them) or between the Company and its members (or any class of them), the grantee may by notice in writing to the Company within 4 business days prior to the proposed meeting, exercise the option in full (to the extent not already exercised) or to the extent specified in such notice. If a compromise or arrangement between the Company and its members or creditors is proposed for the purposes of or in connection with a scheme for the reconstruction of the Company or its amalgamation with any other company or companies, the Company shall give notice to all grantees on the same date as it dispatches the notice to each member or creditor of the Company summoning the meeting to consider such a compromise or arrangement, and thereupon the grantee (or his personal representative(s)) may until the expiry of the period commencing from such date and ending on the earlier of (i) the date falling 2 calendar months thereafter; or (ii) the date on which such compromise or arrangement is sanctioned by the court exercises any of his options whether in full or in part, but the exercise of an option as aforesaid shall be conditional upon such compromise or arrangement being sanctioned by the court and becoming effective. Upon such compromise or arrangement becoming effective, all options shall lapse except insofar as previously exercised under the New Share Option Scheme.

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SUMMARY OF THE PRINCIPAL TERMS OF THE NEW SHARE OPTION SCHEME

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(q) Ranking of Shares

The Shares to be allotted and issued upon the exercise of an option will be subject to all the provisions of the Bye-Laws for the time being in force and will rank pari passu in all respects with the fully paid Shares in issue on the date of allotment and accordingly will entitle the holders to participate in all dividends and other distributions paid or made on or after the date of allotment other than any dividends and other distributions previously declared or recommended or resolved to be paid or made with respect to a record date which shall be before the date of allotment.

Unless the context otherwise requires, references to “Shares” in this paragraph include references to shares in the ordinary equity share capital of the Company of such nominal amount as shall result from a sub-division, consolidation, reclassification or reduction of the share capital of the Company from time to time.

(r) Duration and administration of the New Share Option Scheme

The New Share Option Scheme has been adopted for a period of 10 years commencing from the date the Company conditionally adopts the New Share Option Scheme, after such period no further options will be granted but the provisions of the New Share Option Scheme shall remain in full force and effect in all other respects. The New Share Option Scheme shall be subject to the administration of the Board the decision of which (save as otherwise provided therein) shall be final and binding on all parties.

(s) Grant of options to connected persons or any of their associates

• (aa) Any grant of options to a connected person (means a director, chief executive or substantial shareholder of the Company or any of its subsidiaries or an associate of any of them, such terms as defined in the Listing Rules) must be approved by the independent non-executive Directors (excluding any independent non-executive Director who is the grantee of the options).

• (bb) Where options are proposed to be granted to a connected person who is also a substantial shareholder of the Company or an independent nonexecutive Director or their respective associates and if such grant would result in the total number of Shares issued and to be issued upon exercise of the options granted and to be granted (including options exercised, cancelled and outstanding) in any 12-month period up to and including the date of grant to such person representing in aggregate over 0.1 per cent of the total issued Shares and having an aggregate value, based on the closing period of the Shares at the date of each grant, in excess of HK$5 million, then the proposed grant must be subject to the approval of Shareholders in

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general meeting. The Company must send a circular to the Shareholders. All connected persons of the Company must abstain from voting in favour at such general meeting. Pursuant to Rule 13.39(4) of the Listing Rules, any vote taken at the meeting to approve the grant of such options must be taken on a poll. The Company must also comply with the requirements under Rules 13.39(5), 13.40, 13.41 and 13.42 of the Listing Rules. Any change in the terms of options granted to a substantial shareholder or an independent non-executive Director of the Company, or any of their respective associates must be approved by the Shareholders in general meeting.

A circular must be prepared by the Company to the Shareholders explaining the proposed grant and must contain the following information: (i) details of the number and terms (including the subscription price) of the options to be granted; (ii) a recommendation from the independent non-executive Directors (excluding any independent non-executive Director who is a grantee) on whether or not to vote in favour of the proposed grant; (iii) the information required under Rules 17.02(2)(c) and (d) of the Listing Rules; (iv) the disclaimer required under Rule 17.02(4) of the Listing Rules; and (v) the information required under Rule 2.17 of the Listing Rules.

(t) Lapse of option

An opinion shall lapse automatically (to the extent not already exercised) on the earliest of:

• (i) the expiry of the relevant option period;

• (ii) the expiry of the acceptance period referred to in (a);

• (iii) the determination of the Board or the expiry of the periods or dates referred to in paragraphs (i), (j), (k), (n), (o) and (p);

• (iv) subject to paragraph (o), the date of the commencement of the winding-up of the Company;

• (v) subject to paragraph (p), the proposed compromise or arrangement becoming effective;

• (vi) the date on which the grantee ceases to be an Eligible Person by reason of the termination of his employment on any one or more of the grounds under paragraph (i); and

• (vii) the date on which the grantee commits a breach of paragraph (h).

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SUMMARY OF THE PRINCIPAL TERMS OF THE NEW SHARE OPTION SCHEME

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(u) Termination

The Company by ordinary resolution in general meeting may at any time terminate the operation of the New Share Option Scheme and in such event no further options will be offered but in all other respects the provision of the New Share Option Scheme shall remain in force to the extent necessary to give effect to the exercise of any options granted prior thereto or otherwise as may be required in accordance with the provisions of the New Share Option Scheme and options granted, including options exercised or outstanding under the New Share Option Scheme, prior to such termination shall continue to be valid and exercisable in accordance with the New Share Option Scheme.

Details of the options granted, including options exercised or outstanding, under the New Share Option Scheme shall be disclosed in the circular to shareholders seeking approval of establishing any new option scheme after such termination.

(v) General

The Company will comply with the relevant statutory requirements and the Listing Rules from time to time in force on a continuing basis in respect of the New Share Option Scheme and any other schemes of the Company.

The decision of the Directors in any dispute relating to an option or matter relating to the New Share Option Scheme shall be final and conclusive.

(w) Miscellaneous

• (aa) The New Share Option Scheme is conditional on the Listing Committee of the Stock Exchange granting approval of the listing of and permission to deal in the Shares to be allotted and issued pursuant to the exercise of any options which may be granted under the New Share Option Scheme.

• (bb) The terms and conditions of the New Share Option Scheme relating to the matters set out in Rule 17.03 of the Listing Rules shall not be altered to the advantage of grantees of the options except with the approval of the Shareholders in general meeting.

• (cc) Any alterations to the terms and conditions of the New Share Option Scheme which are of a material nature shall be approved by the Shareholders in general meeting, except where the alterations take effect automatically under the existing terms of the New Share Option Scheme.

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• (dd) The amended terms of the New Share Option Scheme or the options shall comply with the relevant requirements of Chapter 17 of the Listing Rules.

• (ee) Any change to the authority of the Directors or the scheme administrators in relation to any alteration to the terms of the New Share Option Scheme shall be approved by the Shareholders in general meeting.

2. VALUE OF OPTIONS GRANTED UNDER THE NEW SHARE OPTION SCHEME

The Directors consider it inappropriate to disclose the value of options which may be granted under the New Share Option Scheme as if they had been granted as at the Latest Practicable Date. Any such valuation will have to be made on the basis of certain option pricing model or other methodology, which depends on various assumptions including, the subscription price, the exercise period, interest rate, expected volatility and other variables. As no options have been granted, certain variables are not available for calculating the value of options. The Directors believe that any calculation of the value of options as at the Latest Practicable Date based on a number of speculative assumptions would not be meaningful and would be misleading to investors.

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The following is the full text of the resolutions to be proposed at the Annual General Meeting of the Company to be held at Chater Room 1, B/3, Regal Hongkong Hotel of 88 Yee Wo Street, Causeway Bay, Hong Kong on Wednesday, 22 September 2004 at 11:00 a.m. (or at the soonest time thereafter as the special general meeting* of the Company convened on the same date and place shall have been concluded or adjourned):

ORDINARY RESOLUTIONS

As ordinary business, to consider and, if thought fit, pass with or without amendments the following as ordinary resolutions of the Company:–

1. To receive and consider the financial statements and the reports of the directors (the “ Directors ”) and auditors (the “ Auditors ”) of Shanghai Merchants Holdings Limited (the “ Company ”) for the year ended 31 December 2003;

2. To re-elect Directors and to authorize the board of Directors to fix their remuneration;

3. To re-appoint Auditors and to authorize the board of Directors to fix their remuneration;

As special business, to consider and, if though fit, pass with or without amendments the following as ordinary resolutions of the Company:–

1. (i) “ THAT :

2. (a) subject to paragraph (b) below, the exercise by the Directors of the Company during the Relevant Period (as hereinafter defined) of all the powers of the Company to repurchase shares in the capital of the Company through the facilities of The Stock Exchange of Hong Kong Limited (the “ Stock Exchange ”) or of another exchange recognized by the Securities and Futures Commission of Hong Kong and the Stock Exchange for this purpose, subject to and in accordance with all applicable laws and the requirements of the Rules Governing the Listing of Securities on the Stock Exchange or of any other stock exchange as amended from time to time, be and is hereby generally and unconditionally approved;

3. (b) the aggregate nominal amount of share capital of the Company to be repurchased by the Company pursuant to the approval in paragraph (a) above shall not exceed ten per cent (10%) of the aggregate nominal amount of the share capital of the Company in issue at the date of this Resolution and the approval in paragraph (a) above shall be limited accordingly; and

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• (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 its Bye-laws or the laws of Bermuda to be held; and

  • (iii) the date on which the authority set out in this Resolution is revoked or varied by an ordinary resolution of the shareholders in general meeting.”

• (ii) “ THAT :

• (a) subject to paragraph (c) below, the exercise by the Directors of the Company during the Relevant Period (as hereinafter defined) of all the powers of the Company to allot, issue and deal with additional shares in the capital of the Company or securities convertible into such shares or options, warrants or other rights to subscribe for any such shares or such convertible securities and to make or grant offers, agreements and options which would or might require the exercise of such power be and is hereby generally and unconditionally approved;

• (b) the approval in paragraph (a) above shall authorize the Directors of the Company during the Relevant Period (as hereinafter defined) to make or grant offers, agreements and options which would or might require the exercise of such power after the end of the Relevant Period;

• (c) the aggregate nominal amount of share capital to be allotted or agreed conditionally or unconditionally to be allotted (whether pursuant to an option or otherwise) and issued by the Directors of the Company pursuant to the approval in paragraph (a) above, otherwise than pursuant to (i) a Rights Issue; (ii) an issue of shares as scrip dividends pursuant to the Bye-Laws of the Company from time to time; (iii) an issue of shares under any option scheme or similar arrangement for the time being adopted for the grant or issue to employees of the Company and/or any of its subsidiaries of shares or rights to acquire shares of the Company; or (iv) an issue of shares upon the exercise of rights of subscription or conversion under the terms of any warrants

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of the Company, shall not exceed twenty per cent (20%) of the aggregate nominal amount of the issued share capital of the Company at the date of passing this Resolution, and the said approval in paragraph (a) above shall be limited accordingly; and

• (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 general meeting of the Company;

• (ii) the expiration of the period within which the next annual general meeting of the Company is required by its Bye-laws or the laws of Bermuda to be held; and

• (iii) the date on which the authority set out in this Resolution is revoked or varied by an ordinary resolution of the shareholders in general meeting; and

“Rights Issue” means an offer of shares open for a period fixed by the Directors of the Company to the holders of shares of the Company on the register on a fixed record date in proportion to their then holdings of such shares as at that date (subject to such exclusions 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 recognized regulatory body or any stock exchange in any territory outside Hong Kong applicable to the Company).”

• (iii) “ THAT conditional upon the passing of Ordinary Resolution Nos. 4(i) and 4(ii) above, the general mandate granted to the Directors of the Company to allot, issue and deal with additional shares pursuant to Ordinary Resolution No. 4(ii) above be and is hereby extended by the addition thereto of an amount representing the aggregate nominal amount of share capital of the Company repurchased by the Company under the authority granted pursuant to the Ordinary Resolution No. 4(i) above, provided that such amount shall not exceed ten per cent (10%) of the aggregate nominal amount of the issued share capital of the Company at the date of passing of this Resolution.”

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1. “ THAT a new share option scheme of the Company (the “ New Share Option Scheme ”) be adopted in accordance with its terms subject to and conditional upon the Stock Exchange granting its approval for the listing and permission to deal in shares which may fall to be issued by the Company pursuant to the exercise of options granted thereunder, terminating with contemporaneous effect the existing share option scheme of the Company adopted on 7 June 2002 and authorizing the Directors to take all such steps necessary or expedient in order to give effect to the New Share Option Scheme and to allot and issue ordinary shares of the Company pursuant to the exercise of any option which may fall to be granted under the New Share Option Scheme.”

SPECIAL RESOLUTION

As special business, to consider and, if thought fit, pass the following as a special resolution of the Company:

1. “ THAT the bye-laws of the Company as existing and previously in force immediately prior to the passing of this resolution (the “ Existing Bye-Laws ”) be amended in the following manner:

2. (1) By inserting the following new definition after the definition of “Act” in Bye-law 1:

   • ““associate” has the meaning attributed to it in the rules of the Designated Stock Exchange.”

3. (2) By deleting the words “a recognised clearing house within the meaning of Section 2 of the Securities and Futures (Clearing Houses) Ordinance of Hong Kong or” from the definition of “clearing house” in Bye-law 1.

4. (3) By deleting the words, “Ying Wing Holdings Limited” and inserting “Shanghai Merchants Holdings Limited” for the definition of “Company” in Bye-law 1.

5. (4) By inserting the words “for the purposes of Section 47 of the Act” immediately before the words “all or any of the special rights” in the first line in Bye-law 10.

6. (5) (a) By re-numbering existing Bye-law 76 as Bye-law 76(1);

   • (b) By inserting the following as new Bye-law 76(2):

     • “(2) Where the Company has knowledge that any Member is, under the rules of the Designated Stock Exchange, required to abstain from voting on any particular resolution of the Company or restricted to voting only for or only against any particular

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resolution of the Company, any votes cast by or on behalf of such Member in contravention of such requirement or restriction shall not be counted.”

• (6) By substituting the existing Bye-law 84(2) with the following new Bye-law 84(2):

• “84(2) Where a Member is a clearing house (or its nominee(s) and, in each case, being a corporation), it may authorise such persons as it thinks fit to act as its representatives at any meeting of the Company or at any meeting of any class of Members provided that the authorisation shall specify the number and class of shares in respect of which each such representative is so authorised. Each person so authorised under the provisions of this Bye-law shall be deemed to have been duly authorised without further evidence of the facts and be entitled to exercise the same rights and powers on behalf of the clearing house (or its nominee(s)) as if such person was the registered holder of the shares of the Company held by the clearing house (or its nominee(s)) in respect of the number and class of shares specified in the relevant authorisation including the right to vote individually on a show of hands.”

• (7) By inserting the words “at the annual general meeting” before the words “in accordance with Bye-law 87” and the words “or at any special general meeting” before the words “and shall hold office” in the fourth and fifth lines of Bye-law 86(1).

• (8) By substituting the existing Bye-law 88 with the following new Bye-law 88 under the section titled “Retirement of Directors”:

• “88 No person, other than a retiring Director, shall, unless recommended by the Board for election, be eligible for election to the office of Director at any general meeting, unless notice in writing of the intention to propose that person for election as a Director and notice in writing by that person of his willingness to be elected shall have been lodged at the Office or at the head office at least seven days before the date of the general meeting. The period for lodging such notice will commence no earlier than the day after the despatch of the notice of the meeting appointed for such election and no later than 7 days prior to the date of such meeting.”;

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• (9) By deleting the existing Bye-law 103 in its entirety and substituting therewith the following new Bye-law:

• “103 (1) Save as otherwise provided by these Bye-laws, a Director shall not vote (nor be counted in the quorum) on any resolution of the Board approving any contract or arrangement or proposal in which he or any of his associate(s) is/are materially interested, and if he shall do so his vote shall not be counted, but this prohibition shall not apply to any of the following matters namely:

  • (i) the giving of any security or indemnity either:

    • (a) to the Director or his associate(s) in respect of money lent or obligations incurred or undertaken by him or any of them at the request of or for the benefit of the Company or any of its subsidiaries; or

    • (b) to a third party in respect of a debt or obligation of the Company or any of its subsidiaries for which the Director or his associate(s) has himself/ themselves assumed responsibility in whole or in part and whether alone or jointly under a guarantee or indemnity or by the giving of security;

  • (ii) any proposal concerning an offer of shares or debentures or other securities of or by the Company or any other company which the Company may promote or be interested in for subscription or purchase where the Director or his associate(s) is/are or is/are to be interested as a participant in the underwriting or sub-underwriting of the offer;

  • (iii) any proposal concerning any other company in which the Director or his associate(s) is/are interested only, whether directly or indirectly, as an officer or executive or shareholder or in which the Director or his associate(s) is/are beneficially interested in shares of that company, provided that the Director and any of his associates are not in aggregate beneficially interested in 5% or more of the issued shares of any class of such company (or of any third company through which his interest or that of his associate(s) is derived) or of the voting rights;

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• (iv) any proposal or arrangement concerning the benefit of employees of the Company or its subsidiaries including:

  • (a) the adoption, modification or operation of any employees’ share scheme or any share incentive or share option scheme involving the issue or grant of options over shares or other securities by the Company under which the Director or his associate(s) may benefit; or

  • (b) the adoption, modification or operation of a pension fund or retirement, death or disability benefits scheme which relates both to Directors, his associates and employees of the Company or any of its subsidiaries and does not provide in respect of any Director or his associate(s), as such any privilege or advantage not generally accorded to the class of persons to which such scheme or fund relates; and

• (v) any contract or arrangement in which the Director or his associate(s) is/are interested in the same manner as other holders of shares or debentures or other securities of the Company by virtue only of his/their interest in shares or debentures or other securities of the Company.”;

• (2) A company shall be deemed to be a company in which a Director together with any of his associate(s) own(s) 5 per cent. or more if and so long as (but only if and so long as) he together with any of his associate(s) (either directly or indirectly) is/are the holder(s) of or beneficially interested in 5 per cent. or more of any class of the equity share capital of such company or of the voting rights available to members of such company (or of any third company through which his interest or that of any of his associate(s) is derived). For the purpose of this paragraph there shall be disregarded any shares held by a Director or his associate(s) as bare or custodian trustee and in which neither he nor any of them have any beneficial interest, any shares comprised in a trust in which the interest of the Director or his associate(s) is/are in reversion or remainder if and so long as some other person is entitled to receive the income thereof, and any shares comprised in an authorised unit trust scheme in which the Director or his associate(s) is/are interested only as a unit holder.”;

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ANNUAL GENERAL MEETING 2004 – FULL TEXT OF PROPOSED RESOLUTIONS

APPENDIX III

• (3) If any questions shall arise at any meeting of the Board as to the materiality of the interest of a Director (other than the chairman of the meeting) or any of his associate(s) or as to the entitlement of any Director (other than such chairman) to vote or be counted in the quorum and such question is not resolved by his voluntarily agreeing to abstain from voting or not to be counted in the quorum, such question shall be referred to the chairman of the meeting and his ruling in relation to such other Director shall be final and conclusive except in a case where the nature or extent of the interest of the Director or any of his associate(s) concerned as known to such Director has not been fairly disclosed to the Board. If any questions as aforesaid shall arise in respect of the chairman of the meeting or any of his associates such question shall be decided by a resolution of the Board (for which purpose such chairman shall not be counted in the quorum and shall not vote thereon) and such resolution shall be final and conclusive except in a case where the nature or extent of the interest of such chairman or any of his associates as known to such chairman, has not been fairly disclosed to the Board.”;

AND THAT any Director be and is hereby authorized generally to do or execute for and on behalf of the Company all such acts, deeds and things incidental to or in connection with the implementation of aforesaid amendments, as he may deem necessary, desirable or appropriate.”

* Shareholders should take note that reference to “Special General Meeting” in the above appendix has been superseded by the accompanying notice of Annual General Meeting 2003 to denote instead the Annual General Meeting 2003 convened to be held at the same time and place in substitution of the special general meeting.

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