Smart Fish Wealthlink Holdings Limited — Proxy Solicitation & Information Statement 2002

May 27, 2002

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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 securities of Winsan (China) Investment Group Company Limited, you should at once hand this circular and the accompanying form of proxy to the purchaser or the transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or the transferee.

This circular does not constitute an offer of, nor is it calculated to invite offers for, shares in, or other securities of Winsan (China) Investment Group Company Limited.

The Stock Exchange of Hong Kong Limited and Hong Kong Securities Clearing Company Limited take no responsibility for the contents of this circular, make no representation as 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 document.

The directors of the Company jointly and severally accept full responsibility for the accuracy of information contained in this circular and confirm, having made all reasonable inquiries, that to the best of their knowledge, opinion expressed in this announcement have been arrived as after due and careful consideration and there are no other facts nor contained in the circular, the omission of which would make any statement in this circular misleading.

*

(Incorporated in the Cayman Islands with limited liability)

PROPOSED OPEN OFFER OF NEW SHARES TO QUALIFYING SHAREHOLDERS AT A SUBSCRIPTION PRICE OF HK$0.115 PER OFFER SHARE ON THE BASIS OF ASSURED ALLOTMENTS OF TWO OFFER SHARES FOR EVERY FIVE EXISTING SHARES HELD PAYABLE IN FULL ON APPLICATION, INCREASE IN AUTHORISED SHARE CAPITAL AND APPLICATION FOR A WHITEWASH WAIVER

Independent financial adviser to the Independent Board Committee of Winsan (China) Investment Group Company Limited

First Shanghai Capital Limited

A letter of advice from First Shanghai Capital Limited to the independent board committee of Winsan (China) Investment Group Company Limited is set out on pages 19 to 34 of this circular.

It should be noted that the Underwriting Agreement (as defined herein) contains certain provisions granting the Controlling Shareholder (as defined herein) the right to terminate the Underwriting Agreement by notice in writing given by the Controlling Shareholder at any time on or before 4:00 p.m. on the second Business Day following the last day for application and payment for the Offer Shares, if in the opinion of the Controlling Shareholder, the success of the Open Offer would be materially and adversely affected by any force majeure events (as set out in the section headed “Termination of the Underwriting Agreement” on page 11 of this circular). If the Controlling Shareholder exercises such right, the obligations of the Controlling Shareholder under the Underwriting Agreement will cease and the Open Offer will not proceed.

A notice convening an extraordinary general meeting of Winsan (China) Investment Group Company Limited to be held at Rooms 18081809, 18th Floor, Office Tower, Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong on Thursday, 20th June, 2002 at 10:30 a.m. (or so soon thereafter as the annual general meeting of the Company convened for the same date and place shall have concluded or been adjourned) to consider, inter alia , the Open Offer as set out on pages 81 to 85 of this circular. Whether or not they are able to attend the meeting in person, shareholders are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon to the branch share registrar of the Company in Hong Kong, Abacus Share Registrars Limited at 5th Floor, Wing On Centre, 111 Connaught Road, Central, Hong Kong as soon as possible and in any event not later than 48 hours before the time appointed for holding the meeting. Completion and return of the form of proxy will not preclude shareholders from attending and voting in person at the meeting should they so wish.

28th May, 2002

• For identification only

CONTENTS

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Expected timetable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	18
Letter from First Shanghai. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	19
Appendix I – Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	35
Appendix II – General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	70
Appendix III – Repurchase Mandate Explanatory Statement . . . . . . . . . . . . . . . . . .	77
Notice of EGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	81

– i –

DEFINITIONS

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

“Announcement”	the announcement dated 24th April, 2002 issued by the
	Company regarding, inter alia, the Open Offer
“Application Form”	the form of application for the Offer Shares to be issued with
	the Prospectus
“associates”	the meaning ascribed to it under the Listing Rules
“Board”	the board of directors of the Company
“Business Day”	a day, other than a Saturday, on which banks in Hong Kong
	are generally open for business
“CCASS”	the Central Clearing and Settlement System established and
	operated by HKSCC
“Code”	the Hong Kong Code on Takeovers and Mergers
“Company”	Winsan (China) Investment Group Company Limited, a
	company incorporated in the Cayman Islands with limited
	liability, whose securities are listed on the Stock Exchange
“Companies Law”	the Companies Law, Cap. 22 (Law 3 of 1961, as consolidated
	and revised) of the Cayman Islands
“Companies Ordinance”	the Companies Ordinance (Chapter 32 of the Laws of Hong
	Kong)
“Controlling Shareholder”	Winsan International Holdings Limited, a company wholly
	owned by Mr. Chan and the controlling shareholder of the
	Company, whose registered office is at P.O. Box 901, Road
	Town, Tortola, British Virgin Islands, with a direct interest in
	362,562,500 Shares representing approximately 32.57% of the
	issued share capital of the Company
“Directors”	the directors of the Company
“EGM”	the extraordinary general meeting of the Company notice of
	which is set out herein convened for 20th June, 2002 at 10:30
	a.m. (or as soon as the annual general meeting of the Company
	convened for the same date and place shall have concluded or
	been adjourned) to consider, inter alia, the Open Offer

– 1 –

DEFINITIONS

“Executive”	the Executive Director of the Corporate Finance Director of
	the SFC and any delegate of the Executive Director
“First Shanghai”	First Shanghai Capital Limited, an investment adviser under
	the Securities Ordinance (Chapter 333 of the Laws of Hong
	Kong) which has been retained as the independent financial
	adviser to the Independent Board Committee in relation to the
	Open Offer and the Waiver
“General Mandates”	the New Issue mandate and the Repurchase Mandate
“Group”	the Company and its subsidiaries
“Hong Kong”	the Hong Kong Special Administrative Region of the PRC
“HKSCC”	Hong Kong Securities Clearing Company Limited
“Independent Board	the independent board committee comprising Mr. Wong Po
Committee”	Yan and Mr. Chan Kay Cheung, the independent non-executive
	Directors, who have been appointed to advise the Independent
	Shareholders on whether the Open Offer is fair and reasonable
“Independent Shareholders”	Shareholders other than the Controlling Shareholder and its
	associates and concert parties
“Latest Practicable Date”	24th May, 2002, being the latest practicable date prior to the
	printing of this circular for ascertaining certain information in
	this circular
“Listing Rules”	the Rules Governing the Listing of Securities on the Stock
	Exchange
“Mr. Chan”	Mr. Chan Chak Shing, the sole director of and sole beneficial
	owner of all the shares in the Controlling Shareholder, and a
	Director
“New Issue Mandate”	the general unconditional mandate proposed to be granted to
	the Directors at the EGM to allot, issue and otherwise deal
	with new Shares or securities convertible into Shares

– 2 –

DEFINITIONS

“Open Offer”	the issue by way of open offer to Qualifying Shareholders at
	the Subscription Price of the Offer Shares on the basis of
	assured allotments of two Offer Shares for every five existing
	Shares held by Qualifying Shareholders on the Record Date,
	subject to the terms and conditions set out or referred to in this
	circular
“Open Offer Documents”	the Prospectus and the Application Form
“Offer Shares”	not less than 445,280,000 new Shares to be issued under the
	Open Offer
“Options”	share options granted and outstanding under the share option
	scheme adopted by the Company on 5th July, 1997, conferring
	on the holders thereof rights to subscribe in cash for new shares
	at exercise prices determined in accordance with the scheme
“Overseas Shareholder(s)”	Shareholder(s) whose address(es), as shown in the register of
	members of the Company on the Record Date, are outside of
	Hong Kong
“PRC”	People’s Republic of China
“Prospectus”	a prospectus (to be despatched on or around 24th June, 2002)
	containing details of the Open Offer
“Qualifying Shareholder(s)”	Shareholder(s) whose name(s) appear on the register of
	members of the Company on the Record Date, and whose
	address(es) as shown on the register of members of the
	Company on that day, is (are) in Hong Kong
“Record Date”	20th June, 2002, being the date by reference to which
	entitlements to apply in the Open Offer will be determined
“Repurchase Mandate”	a general and unconditional mandate proposed to be granted to
	the Directors at the EGM to exercise all the powers of the
	Company to repurchase shares of the Company on the Stock
	Exchange
“SFC”	the Securities and Futures Commission of Hong Kong
“Share(s)”	ordinary share(s) of HK$0.10 each in the capital of the
	Company

– 3 –

DEFINITIONS

“Shareholder(s)” holder(s) of (a) Share(s) “Stock Exchange” The Stock Exchange of Hong Kong Limited “Subscription Price” HK$0.115 per Offer Share “Underwriting Agreement” a conditional underwriting agreement dated 19th April, 2002 entered into between the Company and the Controlling Shareholder in respect of the Open Offer “Underwritten Shares” 480,872,000 Offer Shares, being the maximum number of Offer Shares to be underwritten by the Controlling Shareholder “Waiver” the waiver from the obligation to make a mandatory offer under Rule 26 of the Code referred to herein “HK$” Hong Kong dollars “%” per cent

– 4 –

2002

EXPECTED TIMETABLE

Shares become ex-entitlement to participate

in the Open Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Monday, 17th June Latest time for lodging transfers of Shares to

qualify for Open Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4:00 p.m. on Tuesday, 18th June Forms of proxy in respect of the EGM to be returned by. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10:30 a.m on Tuesday, 18th June Register of members closed (both days inclusive) . . . . . . . . . . . . . . . Wednesday and Thursday, 19th and 20th June EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10:30 a.m. on Thursday, 20th June Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thursday, 20th June Open Offer Documents despatched on. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Monday, 24th June Latest time for application and payment for Offer Shares . . . . 4:00 p.m. on Monday, 8th July Latest time for the Controlling Shareholder to

terminate Underwriting Agreement . . . . . . . . . . . . . . . . . 4:00 p.m. on Wednesday, 10th July Announcement of results of the Open Offer

appears in press. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thursday, 11th July Refund cheques in respect of wholly or

partly unsuccessful applications posted on or before . . . . . . . . . . . . . . . Thursday, 11th July Certificates for Offer Shares posted on or before . . . . . . . . . . . . . . . . . . . . Thursday, 11th July

– 5 –

LETTER FROM THE BOARD

*

(Incorporated in the Cayman Islands with limited liability)

Directors:

Mr. Chan Chak Shing (Chairman) Mr. Chan Hon Ching (President) Ms. Lo Mei Chun Ms. Chiu King Cheung Mr. Wang Yi Mr. Shi Dan Wei Mr. Wong Po Yan Mr. Chan Kay Cheung*

Registered office: Ugland House South Church Street P.O. Box 309 George Town Grand Cayman Cayman Islands British West Indies

* Non-executive Director

** Independent non-executive Director

Principal place of business: Room 1808-1809 Office Tower Convention Plaza 1 Harbour Road Wanchai Hong Kong 28th May, 2002

To the Shareholders

and for information only, holders of Options

Dear Sir or Madam,

PROPOSED OPEN OFFER OF NEW SHARES TO QUALIFYING SHAREHOLDERS AT A SUBSCRIPTION PRICE OF HK$0.115 PER OFFER SHARE ON THE BASIS OF ASSURED ALLOTMENTS OF TWO OFFER SHARES FOR EVERY FIVE EXISTING SHARES HELD PAYABLE IN FULL ON APPLICATION, INCREASE IN AUTHORISED SHARE CAPITAL AND APPLICATION FOR A WHITEWASH WAIVER

INTRODUCTION

It was announced by the Directors on 24th April, 2002 that, subject to the satisfaction of certain conditions, the Company intended to make the Open Offer to the Qualifying

• For identification only

– 6 –

LETTER FROM THE BOARD

Shareholders on the basis of assured allotments of two Offer Shares for every five existing Shares held by the Qualifying Shareholders as at the Record Date to raise approximately HK$50 million, by issuing not less than 445,280,000 Offer Shares at the Subscription Price, payable in full on application.

The purpose of this circular is to provide you with details regarding the terms of the Open Offer. This circular does not contain any offer and the Open Offer will only be made if the necessary resolutions are passed at the EGM.

FORMATION OF THE INDEPENDENT BOARD COMMITTEE

An independent board committee comprising Mr. Wong Po Yan and Mr. Chan Kay Cheung, the independent non-executive Directors, was set up by the Company on 19th April, 2002 to advise the Independent Shareholders on the Open Offer and the Waiver.

Mr. Chan, who beneficially wholly owns the Controlling Shareholder, is not an independent Director.

Mr. Chan Hon Ching and Ms. Lo Mei Chun are salaried employees of the Company and are also not independent. Ms. Lo Mei Chun is also a director of various subsidiaries of the Company. Ms. Chiu King Cheung is an employee of three subsidiaries of the Controlling Shareholder.

Mr. Wang Yi and Mr. Shi Dan Wei are salaried employees of Shenzhen DIC Information Technologies Co., Ltd., a subsidiary of the Company.

Therefore only Mr. Wong Po Yan and Mr. Chan Kay Cheung are members of the Independent Board Committee.

The letter of advice from the Independent Board Committee is set out on page 18 of this circular.

– 7 –

LETTER FROM THE BOARD

OPEN OFFER

Issue statistics

Basis of assured allotments under : two Offer Shares for every five existing the Open Offer Shares held by Qualifying Shareholders as at the Record Date Number of existing Shares in issue : 1,113,200,000 Shares at the Latest Practicable Date Minimum number of Offer Shares : 445,280,000 Offer Shares assuming no outstanding Options are exercised before the Record Date Outstanding Options : 88,980,000 Options convertible into 88,980,000 Shares

Maximum number of Offer Shares : 480,872,000 Offer Shares assuming full exercise of the outstanding Options before the Record Date

Qualifying Shareholders will be assured of receiving the number of Shares applied for if they apply for a number of Offer Shares equal to or less than the number in their assured allotments. Applications for Offer Shares in excess of assured allotments will be dealt with on a fair and equitable basis.

Qualifying Shareholders

The Company will send the Open Offer Documents to the Qualifying Shareholders only.

To qualify for the Open Offer, Shareholders must:

• be registered as members of the Company on the Record Date; and

• have an address in Hong Kong on the register of members of the Company on the Record Date.

In order to qualify for the Open Offer, any transfer of Shares (with the relevant share certificates) must be lodged with the Company’s branch share registrar in Hong Kong, Abacus Share Registrars Limited at 5th Floor, Wing On Centre, 111 Connaught Road, Central, Hong Kong by 4:00 p.m. on 18th June, 2002.

– 8 –

LETTER FROM THE BOARD

The assured allotments of Offer Shares are not transferable or capable of renunciation and there will not be any trading in assured allotments on the Stock Exchange.

The register of members of the Company will be closed from 19th June, 2002 to 20th June, 2002, both days inclusive. No transfer of Shares will be registered during this period.

TERMS OF THE OPEN OFFER

Subscription Price

The Subscription Price is HK$0.115 per Offer Share, payable in full when a Qualifying Shareholder makes an application pursuant to the Open Offer.

The Subscription Price payable for an Offer Share under the Open Offer represents:

• (i) a discount of approximately 4.96% to the closing price of HK$0.121 per Share as quoted on the Stock Exchange on 19th April, 2002, the last day on which the Shares were traded immediately preceding the date of the Announcement;

• (ii) a discount of approximately 4.17% to the average closing price of HK$0.12 per Share as quoted on the Stock Exchange on the last ten trading days up to and including 19th April, 2002;

• (iii) a discount of approximately 3.36% to the theoretical ex-entitlements price of $0.119 per Share based on such closing price; and

• (iv) a premium of approximately 3.60% to the closing price of HK$0.111 per Share as quoted on the Stock Exchange as at the Latest Practicable Date.

The Subscription Price was arrived at after arm’s length negotiation between the Company and the Controlling Shareholder. The Directors consider the terms of the Open Offer to be fair and reasonable and in the interests of the Company and the Shareholders as a whole.

Status of the Offer Shares

When fully paid and allotted, the Offer Shares will rank pari passu in all respects with the existing Shares. Subscribers of the Offer Shares will be entitled to receive all future dividends and distributions which are declared, made or paid on or after the date on which the Offer Shares are allotted.

– 9 –

LETTER FROM THE BOARD

Fractions of Offer Shares

The Company is not offering fractions of Offer Shares. However, Offer Shares representing the aggregation of fractional assured allotments will be made available to Qualifying Shareholders who apply for a number of Offer Shares which exceeds their assured allotments.

Application for excess Offer Shares

Under the Open Offer, Qualifying Shareholders will be entitled to apply for any number of Offer Shares but will be assured of the allotment only of the number of Offer Shares comprised in their assured allotments. The Directors will allocate excess Offer Shares at their sole discretion, on a fair and equitable basis.

Application for listing

The Company will apply to the Listing Committee of the Stock Exchange for the listing of, and permission to deal in, the Offer Shares.

Dealings in the Offer Shares registered in the Company’s branch share registrar in Hong Kong will be subject to the payment of stamp duty in Hong Kong.

IMPLICATIONS UNDER THE CODE

As at the Latest Practicable Date, the Controlling Shareholder and its associates and concert parties were interested in a total of 395,562,500 Shares, representing approximately 35.53% of the issued share capital of the Company.

Immediately upon completion of the Open Offer, assuming that the Controlling Shareholder applies for its assured allotments in full, the Controlling Shareholder and its concert parties will be interested in between approximately 35.53% and 53.95% of the enlarged issued share capital of the Company (depending on the level of applications for the Offer Shares and assuming no outstanding Options are exercised before the Record Date). Accordingly, if as a result of its taking up the Offer Shares under the Underwriting Agreement, the Controlling Shareholder and its concert parties acquire more than 2% voting rights, the Controlling Shareholder would, in the absence of the Waiver, be required under Rule 26 of the Code to make a general offer for the Shares and Options other than those held by the Controlling Shareholder and parties acting in concert with it.

The Controlling Shareholder has indicated that it intends to apply for all the Offer Shares in its assured allotment. If however, the Controlling Shareholder does not apply for all or any of the Offer Shares in its assured allotment, and other Qualifying Shareholders validly apply for allotments in excess of the Offer Shares in their assured allotment, interests of the Controlling Shareholder may fall below 35.53% of the enlarged issued share capital of the Company.

– 10 –

LETTER FROM THE BOARD

Subject to approval by the Independent Shareholders, the Executive has agreed to waive any obligations of the Controlling Shareholder to make a general offer under the Code which might result from the Open Offer. Upon completion of the Open Offer and depending on the level of the applications for the Open Offer by the Shareholders, the Controlling Shareholder and its concert parties may hold more than 50% of the Shares then in issue. In such event, the Controlling Shareholder may purchase additional Shares without triggering any further obligation for a general offer under the Code. On the other hand, if the aggregate interests of the Controlling Shareholder and its concert parties immediately upon completion of the Open Offer are between 30% and 50%, they would be allowed to acquire only up to 2% of the enlarged issued share capital of the Company in the 12 months immediately following completion of the Open Offer without incurring a general offer obligation under the Code.

UNDERWRITING ARRANGEMENT

Underwriting Agreement

The following is a summary of certain terms of the Underwriting Agreement:

Date	:	19th April, 2002
Underwriter	:	the Controlling Shareholder
Underwriting commission	:	nil

The Controlling Shareholder has agreed to underwrite a minimum of 445,280,000 Offer Shares (assuming no outstanding Options are exercised before the Record Date) and a maximum of 480,872,000 Offer Shares (assuming full exercise of the outstanding Options before the Record Date). The Open Offer is therefore fully underwritten by the Controlling Shareholder.

Termination of the Underwriting Agreement

The Controlling Shareholder has the right to terminate the Underwriting Agreement in which case the Open Offer will not proceed. That termination right may be exercised by the Controlling Shareholder at any time on or before 4:00 p.m. on the second Business Day following the last day for application and payment for the Offer Shares, if, in the opinion of the Controlling Shareholder, the success of the Open Offer would be materially and adversely affected by any force majeure event. A “force majeure” event for this purpose includes:

• a. the introduction of any new law or regulation or any change in existing law or regulation (or the judicial interpretation thereof); or

– 11 –

LETTER FROM THE BOARD

• b. the occurrence of any local, national or international event or change (whether or not forming part of series of events or changes occurring or continuing before, and/or after the date hereof) of a political, military, financial, economic or currency (including a change in the system under which the value of the Hong Kong currency is linked to the currency of the United States of America) or other nature (whether or not ejusdem generis with any of the foregoing) or of the nature of any local, national or international outbreak or escalation of hostilities or armed conflict, or affecting local securities market which in the reasonable opinion of the Controlling Shareholder, such change would have a material and adverse effect on the business, financial or trading position or prospects of the Group as a whole or the success of the Open Offer or make it inadvisable or inexpedient to proceed with the Open Offer.

If, after the last day for application and payment for the Offer Shares but at or prior to 4:00 p.m. on the second Business Day thereof, the Company commits any material breach of or omits to observe any of the obligations or undertakings expressed to be assumed by it under the Underwriting Agreement which breach or omission will have a material and adverse effect on its business, financial or trading position, the Controlling Shareholder shall be entitled (but not bound) by notice in writing to the Company to elect to treat such matter or event as releasing and discharging the Controlling Shareholder from its obligations under the Underwriting Agreement.

CONDITIONS OF THE OPEN OFFER

Completion of the Open Offer is conditional upon, inter alia:

• a. the approval to increase the authorised share capital of the Company at the EGM;

• b. the approval of the Open Offer and Waiver by the Independent Shareholders at the EGM by way of a poll;

• c. the Listing Committee of the Stock Exchange granting or agreeing to grant the listing of, and permission to deal in, the Offer Shares;

• d. the delivery to the Stock Exchange and filing and registration with the Registrar of Companies in Hong Kong respectively of one copy of the Prospectus duly certified in accordance with the Companies Ordinance and otherwise complying with the requirements of the Companies Ordinance and the Listing Rules;

• e. the obligations of the Controlling Shareholder under the Underwriting Agreement becoming unconditional and not being terminated in accordance with the terms thereof, including provisions regarding force majeure, or otherwise; and

• f. the Executive granting the Waiver to the Controlling Shareholder.

– 12 –

LETTER FROM THE BOARD

The Controlling Shareholder has notified the Company that it will not waive the fulfillment of the condition stated in paragraph (f) above.

The Executive has agreed to grant the Waiver to the Controlling Shareholder and such Waiver will be granted subject to approval by the Independent Shareholders.

REASONS FOR THE OPEN OFFER AND USE OF PROCEEDS

The Group is engaged in transportation, logistics and infrastructure businesses, with investments in both the PRC and in Hong Kong. The Group is also a solutions provider for broadband and cable television operations in the PRC. It is the intention of the Controlling Shareholder that the business of the Company will continue after the Open Offer as it has been conducted in the past. The Controlling Shareholder does not intend that there will be any significant changes to the operations or line of business of the Company, including any redeployment of the fixed assets of the Company, nor does it intend to make any changes to the terms of employment of employees of the Company and its subsidiaries.

The Open Offer is in the long term interests of the Company as it will provide funds for current business requirements of the Company and it will enable the Company to strengthen its balance sheet by replacing debt with equity and its net liabilities will be reduced.

The expected expense of the Open Offer is approximately HK$1,000,000, which will be borne by the Company. As stated in the Company’s announcement dated 19th April, 2002 of the financial results for the year ended 31st December, 2001, the Company intends to use the net proceeds of approximately HK$50,000,000 to be derived from the Open Offer as to: (a) approximately HK$15,000,000 for current business requirements – of which approximately HK$5,000,000 is to fund the roll out of the full membership program and value added services plans of the Transonline Project (as described further in the results announcement), which is the development of a freight information system in joint venture with the Research Institute of Highway under the PRC Ministry of Communications and approximately HK$10,000,000 as general working capital of the Company); and (b) approximately HK$35,000,000 in or towards the reduction of borrowings from the Controlling Shareholder, aggregating HK$37,000,000).

In view of the current market conditions and economic climate, the Directors consider that it is prudent to finance the Company’s long term growth with long term funding, preferably in the form of equity rather than debt. Having regard to the relatively thin trading of the Shares and the Subscription Price, the Directors do not expect there would be any strong or active market in any nil-paid shares which would have been provisionally allotted to Shareholders had the present exercise been a rights issue instead of an open offer. In the circumstances and given that raising funds by way of an open offer enables the existing Shareholders to maintain their percentage interests in the same way as would a rights issue, in contrast to, for example, a private placement of Shares which would result in a dilution of existing Shareholders’ interests in the Company, the Directors have decided to proceed with the Open Offer and dispense with the additional administrative burden of providing for trading

– 13 –

LETTER FROM THE BOARD

in nil-paid rights. Qualifying Shareholders who do not apply for all or part of their assured allotments under the Open Offer will suffer a dilution of their shareholdings. The Open Offer will enable the Company to strengthen its balance sheet without interest costs and whilst reducing its gearing - if the Open Offer proceeds, the Group will have net tangible assets (as opposed to the audited net tangible deficit of HK$47,752,000 as at 31st December, 2001) and its net current liability will be reduced.

Therefore the Directors consider that it would be appropriate in the present market conditions for the Company to raise funds for the purpose of repaying the Company’s indebtedness as well as financing the Company’s investments and general working capital requirement by way of the Open Offer.

OVERSEAS SHAREHOLDERS

This circular has been sent to all Shareholders, including Overseas Shareholders. All Shareholders are entitled to vote at the EGM.

The Prospectus and the Application Form will not be registered or filed under any securities or equivalent legislation of any jurisdiction other than Hong Kong. The Directors are of the view that the offer of the Offer Shares to the Overseas Shareholders would or might, in the absence of compliance with registration or other special formalities in such other jurisdictions, be unlawful or impracticable. Accordingly, no Offer Shares will be offered to the Overseas Shareholders and no Application Form in connection with the Open Offer has been or will be sent to the Overseas Shareholders. However, a copy of the Prospectus will be sent to the Overseas Shareholders for their information only.

CLOSURE OF REGISTER OF MEMBERS

The register of members of the Company will be closed from Wednesday, 19th June, 2002 to Thursday, 20th June, 2002 (both days inclusive), for the purpose of determining the entitlement of Shareholders under the Open Offer. No transfers of Shares may be registered during this period.

In order to qualify for the Open Offer, Shareholders must lodge any transfers of Shares (with the relevant share certificates) with the Hong Kong branch share registrar of the Company, Abacus Share Registrars Limited at 5/F, Wing On Centre, 111 Connaught Road, Central, Hong Kong by not later than 4:00 p.m. on Tuesday, 18th June, 2002.

LISTING AND DEALINGS

Application will be made to the Listing Committee of the Stock Exchange for the listing of, and permission to deal in, the Offer Shares. No securities of the Company are listed or dealt in on any stock exchange other than the Stock Exchange and no application has been made or is currently proposed to be made for the Shares or for any other securities of the Company to be listed or dealt in on any other stock exchange.

– 14 –

LETTER FROM THE BOARD

Subject to the granting of the listing of, and permission to deal in, the Offer Shares on the Stock Exchange as well as compliance with the stock admission requirements of HKSCC, the Offer Shares will be accepted as eligible securities by HKSCC for deposit, clearance and settlement in CCASS with effect from the respective commencement dates of dealings in the Offer Shares on the Stock Exchange or such other date as may be determined by HKSCC. Settlement of transactions between participants of the Stock Exchange on any trading day is required to take place in CCASS on the second trading day thereafter. All activities under CCASS are subject to the General Rules of CCASS and the CCASS Operational Procedures in effect from time to time.

Dealings in Offer Shares registered on the Company’s branch registrar in Hong Kong will be subject to payment of stamp duty in Hong Kong.

Existing Shares will be dealt in on an ex-entitlements basis from Monday, 17th June, 2002. If the conditions of the Open Offer are not fulfilled, the Open Offer will not proceed. Shareholders and potential investors should therefore exercise caution when dealing in the Shares, and if they are in any doubt about their position, they should consult their professional advisers.

CERTIFICATES FOR OFFER SHARES

Subject to the fulfilment of the conditions of the Open Offer, certificates for the Offer Shares are expected to be posted to those entitled thereto (and in the case of joint Shareholders, to the first-named Shareholder) at their own risk to their addresses shown on the register of members of the Company on or before Thursday, 11th July, 2002.

INCREASE IN AUTHORISED SHARE CAPITAL

The authorised share capital of the Company consists of 1,500,000,000 Shares, of which 1,113,200,000 Shares were in issue as at the Latest Practicable Date. In order to facilitate the issue of the new Shares pursuant to the Open Offer and in the future, the Directors propose to increase the authorised share capital of the Company from HK$150,000,000 to HK$300,000,000 by the creation of an additional 1,500,000,000 Shares. The proposed increase in authorised share capital of the Company is subject to approval by the Shareholders at the EGM.

GENERAL MANDATES

In connection with the enlarged share capital as a result of the Open Offer, the Directors will also seek the approval of the Shareholders for: (i) the New Issue Mandate to authorise the Directors to exercise the powers of the Company to allot and issue Shares or securities convertible into Shares of up to an aggregate nominal value not exceeding 20% of the aggregate of the issued share capital of the Company as at the date of the EGM as enlarged by the Offer Shares to be allotted and issued pursuant to the Open Offer; (ii) the Repurchase Mandate to authorise the directors of the Company to exercise the powers of the Company to repurchase Shares not exceeding 10% of the issued share capital of the Company as at the date of the EGM as enlarged by the Offer Shares to be allotted and issued pursuant to the Open Offer;

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LETTER FROM THE BOARD

and (iii) to authorise the Directors to add to the total number of Shares any Shares repurchased by the Company (up to a maximum equivalent to 10% of the issued Shares as at the date of the grant of the mandate). The Directors have no immediate plans to issue or repurchase any new Shares or securities convertible into Shares pursuant to the General Mandates.

Each of the General Mandates will continue in force until the earliest of the conclusion of the next annual general meeting of the Company, the expiration of the period within which the next annual general meeting is required to be held by law or the memorandum and articles of association of the Company and the revocation or variation of the relevant General Mandates by ordinary resolution of the Shareholders in general meeting prior to the next annual general meeting.

The reason for the proposed grant of the General Mandates is to expand and replace the mandates the Company currently has in place to ensure that the Shares issued in connection with the Open Offer will be included in calculating the number of Shares which are permitted to be allotted, issued or otherwise dealt with or repurchased by the Company under the General Mandates. The Directors believe that it is in the interests of the Company and the Shareholders as a whole that the General Mandates are granted at the EGM. An explanatory statement to provide the Shareholders with the information reasonably necessary to enable them to make an informed decision on whether to vote for or against the resolution concerning the Repurchase Mandate is set out in Appendix III to this circular.

The Directors recommend the Shareholders to vote in favour of the resolutions in relation to the General Mandates, as contained in the notice convening the EGM which are set out on pages 81 to 85 of this circular.

EXTRAORDINARY GENERAL MEETING

A notice convening the EGM to be held at Rooms 1808-1809, 18th Floor, Office Tower, Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong on 20th June, 2002 at 10:30 a.m. or as soon after the annual general meeting of the Company convened for the same day and place has concluded or been adjourned as set out on pages 81 to 85 of this circular. At the EGM, ordinary resolutions will be proposed to approve the Open Offer, the increase in the authorised share capital of the Company, the Waiver and the grant of General Mandates. The Controlling Shareholder and its associates and concert parties will abstain from voting on the resolutions to approve the Open Offer and the Waiver at the EGM.

Whether or not Shareholders are able to attend the meeting in person, they are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon to the branch share registrar of the Company in Hong Kong, Abacus Share Registrars Limited at 5/F, Wing On Centre, 111 Connaught Road Central, Hong Kong as soon as possible and in any event not later than 48 hours before the time appointed for holding the meeting. Completion and return of the form of proxy will not preclude Shareholders from attending and voting in person at the meeting should they so wish.

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LETTER FROM THE BOARD

RECOMMENDATIONS

First Shanghai have been appointed to advise the Independent Board Committee with regard to the terms of the Open Offer. After taking into account the advice and recommendation of First Shanghai, the Independent Board Committee considers that the terms of the Open Offer are fair and reasonable so far as the Shareholders are concerned and recommends the Independent Shareholders to vote in favour of the resolution in relation to the Open Offer and the Waiver to be proposed in the EGM. The full text of the letter of advice from the Independent Board Committee is set out on page 18 of this circular. The text of the letter from First Shanghai containing their recommendation and the principal factors it has taken into account in arriving at their recommendation are set out on pages 19 to 34 of this circular.

The Directors, including the independent non-executive Directors, are of the opinion that the increase in the authorised share capital of the Company and the General Mandates are in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors recommend the Shareholders to vote in favour of the resolutions for the increase in the authorised share capital and for the granting of the General Mandates to be proposed in the EGM.

FURTHER INFORMATION

Your attention is also drawn to the letter of advice from the Independent Board Committee, the letter of advice from First Shanghai, and to the additional information set out in the appendices to this circular.

Yours faithfully, By order of the Board Winsan (China) Investment Group Company Limited Chan Chak Shing Chairman

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

*

(Incorporated in the Cayman Islands with limited liability)

28th May, 2002

To the Independent Shareholders

Dear Sir or Madam,

We have been appointed by the Directors to advise you in connection with the Open Offer and the grant of the Waiver. Details of the Open Offer are set out on pages 6 to 17 of the circular (“Circular”), of which this letter forms part. Terms defined in the Circular shall have the same meanings in this letter.

We wish to draw your attention to the letter from the Board set out on pages 6 to 17 of the Circular and the letter of advice from First Shanghai set out on pages 19 to 34 of the Circular. Having taken into account the advice and recommendation of First Shanghai, we consider the terms of the Open Offer and the granting of the Waiver to be fair and reasonable so far as the Independent Shareholders are concerned. Accordingly, we recommend the Independent Shareholders to vote in favour of the resolutions set out in the notice convening the EGM to approve the Open Offer and the Waiver at the EGM.

Yours faithfully, For and on behalf of

INDEPENDENT BOARD COMMITTEE Wong Po Yan Chan Kay Cheung

• For identification only

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LETTER FROM FIRST SHANGHAI

The following is the text of a letter received from First Shanghai in respect of the Open Offer and the Waiver prepared for the purpose of incorporation in this circular:

==> picture [133 x 39] intentionally omitted <==

FIRST SHANGHAI CAPITAL LIMITED

19th Floor, Wing On Centre 71 Des Voeux Road Central Hong Kong

28th May, 2002

To the Independent Board Committee of

Winsan (China) Investment Group Company Limited

Dear Sirs,

THE OPEN OFFER AND THE WAIVER

1. INTRODUCTION

We refer to our engagement as the independent financial adviser to advise the Independent Board Committee in respect of the fairness and reasonableness of the Open Offer and whether the granting of the Waiver is in the interest of the Company and the Shareholders as a whole. Details of the Open Offer and the Waiver are set out in a circular to Shareholders dated 28th May, 2002 (the “ Circular ”), of which this letter forms part. Unless the context otherwise requires, terms used in this letter shall have the same meanings as in the Circular.

On 24th April, 2002, the Company announced the proposed Open Offer pursuant to which the Company will offer the Offer Shares at a subscription price of HK$0.115 per Offer Share to Qualifying Shareholders on the basis of two Offer Shares for every five existing Shares held by Qualifying Shareholders. Based on 1,113,200,000 Shares in issue as at the Latest Practicable Date, a minimum of 445,280,000 Offer Shares will be offered to Qualifying Shareholders on the Record Date. As at the Latest Practicable Date, the Controlling Shareholder and parties acting in concert with it were interested in a total of 395,562,500 Shares, representing approximately 35.53% of the issued share capital of the Company. The Controlling Shareholder has agreed to underwrite a minimum of 445,280,000 Offer Shares and a maximum of 480,872,000 Offer Shares (depending on whether the outstanding Options are exercised before the Record Date). On the assumption that all Qualifying Shareholders elect not to apply for any Offer Shares in their assured allotments, the shareholding of the Controlling Shareholder and parties acting in concert with it may be increased to approximately 54% of the enlarged

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LETTER FROM FIRST SHANGHAI

issued share capital of the Company. This would lead to the Controlling Shareholder and its concert parties acquiring more than 2% voting rights of the Company and triggering the “creeper” benchmark under Rule 26 of the Code. Accordingly, the Controlling Shareholder and its concert parties would be required to make a mandatory general offer for the Shares and Options not already owned or acquired by them under Rule 26 of the Code. The Controlling Shareholder does not wish to make a general offer as a result thereof and, accordingly, has applied to the Executive for granting of the Waiver pursuant to Note 1 of the Notes on dispensations from Rule 26 of the Code. The Executive has indicated that it will grant the Waiver subject to an independent vote of the Independent Shareholders by way of a poll at the EGM.

The Independent Board Committee, comprising Messrs. Wong Po Yan and Chan Kay Cheung, both being independent non-executive Directors, has been established to advise the Independent Shareholders in relation to the Open Offer and the Waiver. In assessing the eligibility of the Directors as members of the Independent Board Committee, we have considered the following:

1. Mr. Chan Chak Shing is the chairman of the Company and beneficially owns the Controlling Shareholder. He also held 25,000,000 Options as at the Latest Practicable Date. The Controlling Shareholder is the underwriter of the Open Offer and the subject of the Waiver. Accordingly, we do not consider Mr. Chan Chak Shing eligible for appointment as a member of the Independent Board Committee.

2. Mr. Chan Hon Ching is an executive Director and the brother of Mr. Chan Chak Shing. He held 11,250,000 Shares and 25,000,000 Options as at the Latest Practicable Date. As he is connected to Mr. Chan Chak Shing and has equity interest in the Company, we do not consider him eligible for appointment as a member of the Independent Board Committee.

3. Ms. Lo Mei Chun is an executive Director and director of the Company’s subsidiaries. She held 2,600,000 Shares and 1,600,000 Options as at the Latest Practicable Date. Due to the above-mentioned employment and equity interest in the Company, we do not consider her eligible for appointment as a member of the Independent Board Committee.

4. Ms. Chiu King Cheung is a non-executive Director. She held 3,812,500 Shares and 24,000,000 Options as at the Latest Practicable Date. She is also an employee of three privately held subsidiaries of the Controlling Shareholder. Due to her equity interest in the Company and her association with the Controlling Shareholder, we do not consider her eligible for appointment as a member of the Independent Board Committee.

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LETTER FROM FIRST SHANGHAI

1. Mr. Wang Yi is a non-executive Director. As he is also a director and general manager of Shenzhen DIC Information Technologies Co., Ltd., a subsidiary of the Company, we do not consider him eligible for appointment as a member of the Independent Board Committee.

2. Mr. Shi Dan Wei is a non-executive Director and a director of Shenzhen DIC Information Technologies Co., Ltd., a subsidiary of the Company. He held 3,899,200 Shares as at the Latest Practicable Date. Due to the above-mentioned employment and equity interest in the Company, we do not consider him eligible for appointment as a member of the Independent Board Committee.

3. Mr. Wong Po Yan and Mr. Chan Kay Cheung, both independent non-executive Directors, are not employees of and do not take up any executive function within any member of the Group. They have declared that they do not have a conflict of interest in the Open Offer and the Waiver. They have also declared that none of them have been an employee, agent, consultant or adviser to, nor have any financial or other connection with (i) the Controlling Shareholder, (ii) Mr. Chan Chak Shing, Ms. Wong Wan Kai or any of their close relatives or any company controlled by any of them, (iii) the Company, (iv) substantial shareholders of the Company, and (v) any party acting or presumed to be acting in concert with any of the above, other than their appointment as independent non-executive Directors. In addition, they have declared that they do not hold, directly or indirectly, any shares, options, warrants or other equity related interests in any of (i) the Controlling Shareholder or any company controlled by it, (ii) any company controlled by Mr. Chan Chak Shing, Ms. Wong Wan Kai or their close relatives, (iii) the Company and (iv) substantial shareholders of the Company. As such, we consider that they are eligible to be appointed as members of the Independent Board Committee.

We, First Shanghai Capital Limited, have been appointed to give the Independent Board Committee our opinion as to whether the Open Offer and the granting of the Waiver is in the interests of the Company and its Shareholders as a whole.

In formulating our opinion and recommendations, we have relied on the accuracy of the information and representations provided to us by the Directors, and have assumed that all information and representations made or referred to in the Circular were true at the time they were made and continue to be true as at the date hereof. We have also assumed that all statements of belief, opinion and intention made by the Directors in the Circular were reasonably made after due enquiry. We have no reason to doubt the truth, accuracy and completeness of the information and representations provided to us by the Directors and have been advised by the Directors that no material facts have been omitted from the information provided and referred to in the Circular. We consider that we have reviewed sufficient information to reach an informed view and to justify reliance on the accuracy of the information contained in the Circular and to provide a reasonable basis for our advice. We have not, however, conducted an independent investigation into the affairs of the Group.

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LETTER FROM FIRST SHANGHAI

Also, we have not considered the tax consequences for Shareholders in relation to the Open Offer and the Waiver as these are particular to their own individual circumstances. Independent Shareholders should consider their own tax position with regard to the Open Offer and the Waiver and, if in any doubt, should consult their own professional advisers.

2. PRINCIPAL FACTORS AND REASONS CONSIDERED

In formulating our opinion and recommendations relating to the Open Offer and the Waiver, we have taken into consideration the following principal factors and reasons:

2.1 Financial review of the Group

A summary of the audited consolidated accounts of the Group for each of the two years ended 31st December, 2001 is set out in appendix I to the Circular.

For the year ended 31st December, 2001, the Group’s had four principal lines of business, namely:

• i. System integration – through Shenzhen Dico Information Technology Co., Ltd. (深圳市迪科信息技術有限責任公司 ) (“Dico”), which is principally engaged in the provision of broadband and cable TV related platform and equipment for cable TV and telecommunications services operators in the PRC;

• ii. TransOnline – a portal established by the Group in August 2000 that is a network based transport logistics service provider;

• iii. Property operations – comprising a portfolio of investment properties and a number of development projects in Hong Kong and the PRC; and

• iv. Gas installation operation.

After June 2001, the Company effected a business reorganisation (“ Business Reorganisation ”) pursuant to which it acquired 70% interest in Dico and disposed of the businesses (iii) and (iv) above. The transactions involved were completed in October 2001, after which the Group has become a player in network based transport logistic infrastructure developer and an integrated broadband and cable TV related platform and equipments provider for cable TV and telecommunications service operators.

For the year ended 31st December, 2001 (“ FY01 ”), the Group’s turnover was approximately HK$240.4 million, representing a decrease of approximately 39.2% from that of approximately HK$395.1 million recorded in the year ended 31st December, 2000 (“ FY00 ”). The Group’s turnover in FY01 comprised approximately HK$237.4 million from its discontinued property and gas installation operations for the 10 months

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LETTER FROM FIRST SHANGHAI

ended 31st October, 2001, with the balance of approximately HK$3 million from system integration operations and TransOnline.

During FY01, the Group recorded an operating loss of approximately HK$439.1 million, as compared to the operating loss of approximately HK$80.8 million in FY00:

• System integration – the segment made an operating loss but before provision (the provision amounted to approximately HK$382.3 million as stated below) of approximately HK$41.3 million, which was mainly attributable to the two months operating results of Dico after the Business Reorganisation. The PRC market for Digital Video Broadcasting-Cable (“DVB-C”, a digital broadcast standard for TV, audio and data for cable TV in the PRC) solution providers were stagnant while waiting for the State Administration of Broadcasting, Film and Television (“SABFT”) to set the Condition Access (“CA”, a major component in DVB-C broadcast system used for signal encryption) standard for DVB-C. The CA of Dico have not been selected by SABFT as a first part of the DVB-C standard for the PRC. Although the Directors expect that SABFT will conduct a second round of selection of CA for DVB-C standard for the PRC in 2002 and the CA of Dico may be selected by SABFT in the second round selection, for prudence sake, a provision was made for impairment loss of goodwill of approximately HK$382.3 million, which arose at the time of the acquisition of Dico.

• TransOnline – operating loss was approximately HK$13.4 million in FY01 against a turnover of approximately HK$0.2 million. Such turnover represented the results from two small cities which underwent testing during the second half of the year. No turnover and operating results were generated for FY00 while pre-operating expenses of approximately HK$13.4 million were written-off.

• Property operations – the discontinued property operations contributed approximately HK$36.3 million operating profit but before losses on disposal of properties (which amounted to HK$38.4 million as stated below) to the Group in FY01, as compared to approximately HK$22.2 million operating loss in FY00. During FY01, the Group recorded losses on disposal of investment properties and leasehold land and buildings for an aggregate of approximately HK$38.4 million.

• Gas installation – the discontinued gas installation business recorded an operating profit of approximately HK$3 million in FY01, as compared to approximately HK$2.3 million in FY00.

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LETTER FROM FIRST SHANGHAI

As a result of the foregoing, and a gain on disposal of subsidiaries of approximately HK$8.8 million and unallocated costs of approximately HK$19 million, the Group recorded a total operating loss of approximately HK$439.1 million for FY01. During the period, the Group recorded finance cost of approximately HK$32.4 million and, after netting off the provision for taxation of approximately HK$10.8 million and minority interest of approximately HK$3 million, the Group’s net loss attributable to shareholders was approximately HK$479.4 million in FY01.

We note that after the Business Reorganisation, the Group’s outstanding borrowings had reduced substantially by approximately HK$788.1 million to approximately HK$21.4 million as at 31st December, 2001 (excluding the amounts due to related companies). The Directors have advised that the annual interest expenses for the above borrowings of approximately HK$21.4 million is approximately HK$1.2 million.

Currently, amounts due from the Group to companies controlled by Mr. Chan are approximately HK$48 million in total. The amounts are unsecured and interest bearing at the prime rate. It is intended that approximately HK$35 million of the balances will be repaid by the application of the funds raised through the Open Offer. The remaining balances are repayable on demand.

As at 31st December, 2001, the Group had net tangible deficit (excluding goodwill) of approximately HK$47.8 million and a net current liability of approximately HK$55.6 million. The Open Offer enables the Group to strengthen its balance sheet without interest costs and reducing its gearing. The Group would have positive net tangible assets as opposed to a net tangible deficit and its net current liability will be reduced.

2.2 Business review and prospects of the Group

After the Business Reorganisation, the Group’s principal business include mainly its shareholding in Dico and TransOnline. From our discussions with the Directors, we note the followings:

• TransOnline – TransOnline was launched by the Group in August 2000. It is a network-based infrastructure operator for the transport industry in the PRC developed in joint venture with the Research Institute of Highway under the PRC Ministry of Communications. The Group has an effective interest of 70% in TransOnline. To date, the Group has invested a total of approximately RMB20 million in TransOnline. During FY01, TransOnline has expanded its network-based transport logistic infrastructure from 36 cities to 140 cities with over 200 network based distribution outlets for providing basic services such as cargo matching, vehicle maintenance, insurance, lodging etc. Its coverage included 45 major logistic hubs across 30 provinces in the PRC. It also completed a call center software for its alliance members, thus increases the information flow on its nationwide

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LETTER FROM FIRST SHANGHAI

freight exchange platform. After the establishment of an extensive infrastructure by the Group, the Directors decided to carry out testing of the infrastructure and selected two small cities in the PRC to undergo testing in the second half of 2001. As the turnover of TransOnline was primarily derived from subscription fees from subscribers of the services of TransOnline, only approximately HK$0.2 million turnover was recorded during FY01 which was realised from the limited number of subscribers in the two small testing cities.

We note that the strategic goal of TransOnline is to establish itself as a dominant network based infrastructure operator for the transport industry in the PRC. It plans to expand its operation from 140 cities to over 230 cities in the PRC by the end of the year 2002. The Directors expect that full membership programme will be rolled out in or around May 2002 and the Group is currently under preparation for full roll out of its value added services for transport industry, including:

• i. Telecommunication services – such as short messages services and global positioning system; and

• ii. Logistic services – transport management system and warehouse management system.

The Directors estimated that approximately HK$5 million will be required for the roll out of the full membership program and value added services as mentioned above.

• Dico – as part of the Business Reorganisation, the Group acquired 70% interest in Dico for a total consideration of HK$467 million, which was satisfied by the Company selling its property operations to the Controlling Shareholder and directing the Controlling Shareholder to transfer to the Vendor, among other things, 268 million Shares. Dico was incorporated in October 1998 in the PRC and is principally engaged in the provision of broadband and cable TV related platform and equipment for cable TV and telecommunications services operators. It is a DVB-C solution provider that works closely with content providers who provide cable TV retail subscribers with international satellite TV programs, video on demand, distant learning programs, on-line stock trading, on-line news and weather, and other content-based broadband services through the use of existing residual cable network bandwidth left from cable TV programmes. In addition, Dico designs, manufactures and distributes set-top-boxes, under the brand name of VisCom, used by cable TV retail subscribers for the purpose of access to the cable TV programmes and broadband services. The segment of the market in which Dico operates has been stagnant while awaiting the SABFT to set the CA standard for DVB-C. The Directors are confident that Dico is well prepared and well positioned to fully capitalise

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LETTER FROM FIRST SHANGHAI

on opportunities when the DVB standard is set, which the Directors expect to happen in 2002, and market conditions improve. Dico had completed its Digital Video Broadcasting-Satellite (“DVB-S”, DVB for satellite TV) settop-box for the overseas market, which primarily targets the markets in South East Asia and the Middle East, and the Directors believe that this will be the major drive of Dico for export in 2002 as the Directors believe that the Group can produce DVB-S set-top-boxes in a more cost effective manner than its overseas competitors. The Group has started to receive trial orders for DVB-S set-top-boxes since April 2002.

Both TransOnline and Dico are new startup joint ventures without proven track record of operation and profitability under the management of the Group. The Directors have advised us that additional funding may be required to finance the operation of the above businesses in the foreseeable future. We are of the view that, like other startup businesses, future prospects of the businesses will depend on whether the companies could generate sufficient revenue to cover its operating costs.

As far as the Directors are aware, there are no other companies in the PRC that has similar business model as that of TransOnline. In respect of Dico, the Directors are aware of a number of companies in the PRC that provides DVB related components. However, the Directors believe that currently only about four of these companies are total solution providers similar to Dico. It should be noted that there is always an uncertainty that competition may intensify in the future.

We are of the view that there are risks generally associated with startup joint ventures, including the uncertainties as to the future competition level, possible additional investment requirements, possible disagreement among joint venture partners on the future development of the business and the success in the implementation of a viable business plan. The CA of Dico may or may not be selected by SABFT in the second round of selection. The Directors have confirmed to us that they are fully aware of the risks involved in changing the Group’s business focus and they have and will continue to exercise due care in assessing the development of TransOnline and Dico.

In our opinion, while there are good prospects for the businesses of the Group as mentioned above in this section, Independent Shareholders should note the above risks and uncertainties generally associated with the engagement in start-up businesses and that there may be a possibility of further losses in the future. We are of the view that the proceeds to be raised from the Open Offer would enable the Group to enhance its working capital position and, correspondingly, reduce the possible negative impacts of such risks on the Group.

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LETTER FROM FIRST SHANGHAI

2.3 The Open Offer and the Subscription Price

2.3.1 The Open Offer

The Directors have confirmed to us that they considered other methods of financing and are of the view that the Open Offer is an appropriate method of raising funds for meeting the Group’s present financing requirements.

The Directors consider that debt financing is not desirable as this will result in a higher gearing ratio for the Group. The Group is in the course of refocusing its business from traditional property operations to the logistics and broadband system integration businesses and it is uncertain as to the whether the businesses could generate profitability for the Group in the immediate future. In such circumstances, we consider that an advisable capital structure of the Group would include a low gearing ratio with a strong capital base so as to reduce future debt servicing burdens, and therefore the overall financial risk, of the Group. As such, we concur with the Directors that equity financing, which provides the Group with non interest incurring long-term funding, is preferable to that of debt financing.

The Directors consider that given the amount of funds intended to be raised and the Group’s financial performance for the year ended 31st December, 2001, a private placement of new Shares, which is a common mean of equity financing, may not be appropriate. In particular, unlike the Open Offer, a placement of Shares typically requires an issue of new Shares at discounts to the prevailing market price without providing a mechanism for participation of all Qualifying Shareholders. An issue of Shares by way of the Open Offer, on the other hand, offers all the Qualifying Shareholders an equal opportunity to participate in the enlargement of the capital base of the Company, and allows them to maintain their proportionate interests in the Company at a discount to the prevailing market price in order to participate in the future growth of the Company.

Another common equity financing mean is a rights issue. Like an open offer, a rights issue is an offer to existing shareholders of a company to subscribe for securities. One major difference between an open offer and a rights issue is that the rights received by shareholders under an open offer are not transferable. Consequently, they cannot be bought and sold in the market and there is no method of trading in the nil-paid entitlements. Thus, other things being equal, a rights issue provides additional flexibility over an open offer in that a rights issue allows shareholders who do not want to participate in the cash call of the company to dispose of their entitlements in the market so as to compensate the dilution effect brought by the increase in the share capital, whereas an open offer does not offer a similar mechanism. Having regard to the features of a rights issue as discussed above, we consider that a rights issue could provide additional flexibility in that non-participating Qualifying Shareholders could dispose of their nilpaid entitlements and, therefore, seems to be a more favourable offering structure when compared with an open offer.

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LETTER FROM FIRST SHANGHAI

The Directors have advised us that in determining the structure of the fund raising exercise, they have taken into account the relatively thin trading volume of the Shares and the Subscription Price and do not expect there would be any strong or active market in any nil-paid entitlements which would have been provisionally allotted to Shareholders had the present fund raising exercise been a rights issue. In the circumstances and given that raising funds by way of an open offer enables the Qualifying Shareholders to maintain their percentage interests in the same way as would a rights issue, the Directors have decided to proceed with the Open Offer and dispense with the additional administrative burden of providing for trading of nil-paid rights.

We have reviewed the trading volume of the Shares on the Stock Exchange for the six months ended 19th April, 2002, being the last trading date immediately prior to the date of the Announcement and find that average daily trading volume during the period represented only approximately 0.1% of the total issued share capital of the Company. We also note that the discount of the Subscription Price to the closing price per Share of HK$0.121 as quoted on the Stock Exchange on 19th April, 2002 was approximately 4.96%. On the above basis, we concur with the Directors that the absence of nil-paid rights trading entitlement would not be prejudicial to Qualifying Shareholders within the context of the relatively thin trading volume of the Shares and the relatively small discount represented by the Subscription Price to the prevailing market price.

Given that the Company has put forward the proposal of the Open Offer as its fund raising means, we evaluated the reasonableness of the Open Offer by taking into account the following factors:

1. an estimated net proceeds of approximately HK$50 million to be raised from the Open Offer could enhance the capital base of the Company and provide additional financial resources to the Group, which, in our opinion, is in the overall interest of the Company and the Shareholders; and

2. the Open Offer would provide equal opportunities to Qualifying Shareholders to participate in the capital enlargement of the Company on a pro rata basis so that their proportionate interest in the Company can be maintained.

Based on the above, we consider that the Open Offer is an acceptable way to raise funds for the Group under the current circumstances.

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LETTER FROM FIRST SHANGHAI

2.3.2 Subscription Price

The Subscription Price of HK$0.115 per Offer Share represented (i) a discount of approximately 4.96% to the closing price of HK$0.121 per Share as quoted on the Stock Exchange on 19th April, 2002, the last day on which the Shares were traded immediately preceding the date of the Announcement; (ii) a discount of approximately 4.17% to the average closing price of HK$0.12 per Share as quoted on the Stock Exchange on the last ten trading days up to and including 19th April, 2002; (iii) a discount of approximately 3.36% to the theoretical ex-entitlements price of HK$0.119 per Share based on such closing price; and (iv) a premium of approximately 3.60% to the closing price of HK$0.111 per Share as quoted on the Stock Exchange as at the Latest Practicable Date.

As mentioned above, the Subscription Price represented a discount to prevailing market prices per Share at the time of the Announcement. As a reference, we have reviewed the list of rights issues and open offers announced by companies listed on the main board of the Stock Exchange since 1st January, 2002 and up to the Latest Practicable Date, and noted that there were a total of seven rights issues and one open offer (excluding the Open Offer) which would not potentially have resulted in a significant dilution in the percentage shareholding of shareholders (i.e. increase the issued share capital by 50% or less) similar to that of the Open Offer. Brief details of these issues are set out as follows:

			Pre-
			announcement
	Date of		Price	Issue
Name of company	announcement	Proportion	(as defined below)	price	Discount
Rights issue
Bossini International	24th January, 2002	1 for 2	HK$0.47	HK$0.46	2.1%
Holdings Limited
New World	20th February, 2002	1 for 2	HK$0.068	HK$0.05	26.5%
Cyberbase Limited
China Star	20th March, 2002	1 for 2	HK$0.091	HK$0.05	45.1%
Entertainment
Limited
Playmates Interactive	28th March, 2002	1 for 5	HK$0.295	HK$0.26	11.9%
Entertainment
Limited

– 29 –

LETTER FROM FIRST SHANGHAI

			Pre-
			announcement
	Date of		Price	Issue
Name of company	announcement	Proportion	(as defined below)	price	Discount
Vision Century	28th March, 2002	1 for 2	HK$0.56	HK$0.42	25.0%
Corporation
Limited
Gold Wo	30th April, 2002	1 for 2	HK$0.06	HK$0.016	73.3%
International
Holdings
Limited
eForce Holdings	14th May, 2002	1 for 2	HK$0.142	HK$0.127	10.56%
Limited
Open Offer
HiNet Holdings	2nd April, 2002	1 for 2	HK$0.022	HK$0.018	18.2%
Limited

Of these eight issues, we noted that they all had their rights issue/open offer prices set at discounts to the closing prices quoted on the last trading day immediately prior to release of the respective announcement (the “ Pre-announcement Price ”). The discounts ranged from 2.1% and 73.3%. We noted that the 4.96% discount of the Subscription Price to the Pre-announcement Price is within the above range. We consider such a discount an incentive to attract participation by Qualifying Shareholders in the Open Offer. Given that the Open Offer enables all Qualifying Shareholders to participate in the enlargement of the Company’s capital base, we consider the discounts represented by the Subscription Price to the prevailing market prices to be fair and reasonable.

2.4 Financial effects of the Open Offer

As referred to in the letter from the Board in the Circular, the Company intends to use the net proceeds of approximately HK$50 million to be derived from the Open Offer as to:

• i. approximately HK$5 million to fund the roll out of the full membership program and value added services plans of the TransOnline project;

• ii. approximately HK$35 million in or towards the reduction of borrowing from the Controlling Shareholder; and

• iii. approximately HK$10 million for the Group’s general working capital.

– 30 –

LETTER FROM FIRST SHANGHAI

The following table illustrates the effects of the Open Offer on the audited net tangible assets of the Group (“ NTA ”) as at 31st December, 2001:

	Assuming no	Assuming all
	outstanding	outstanding
	Options are	Options are
	exercised	exercised
	prior to the	prior to the
	Record Date	Record Date
	HK$’000	HK$’000
NTA as at 31st December, 2001_(note 1)_	(47,752)	(47,752)
Proceeds from the Open Offer_(note 2)_	50,000	54,090
Pro forma NTA after the Open Offer	2,248	6,338

Notes:

1. As per the 2001 annual report of the Company.

2. The aggregate of 88,980,000 new Shares that may fall to be issued and allotted pursuant to the Option Exercise prior to the Record Date will result in an addition of 35,592,000 Offer Shares on the basis of two Offer Shares for every five existing Shares. Based on a Subscription Price of HK$0.115 per Offer Share, the additional Offer Shares will raise approximately HK$4.09 million additional proceeds for the Group.

As shown in the above table, the Open Offer will improve the NTA of the Group, bringing the Group from a net tangible deficit position to a positive net tangible assets position.

In addition, based on the interest rate of approximately 5.125% per annum, being the prevailing prime rate and the rate normally charged to other commercial loans of the Group, the repayment of approximately HK$35 million borrowings to the Controlling Shareholder will save the Company approximately HK$1.8 million annual interest expenses.

It is the present intention of the Company that out of the estimated net proceeds from the Open Offer of approximately HK$50 million (assuming no outstanding Options are exercised prior to the Record Date), approximately HK$10 million will be applied as working capital of the Group. The Group’s working capital position will therefore be enhanced by the same amount.

Based on the above, we consider that the Open Offer will improve the financial position of the Group and is in the interest of the Company and its Shareholders.

– 31 –

LETTER FROM FIRST SHANGHAI

2.5 Underwriting arrangement and effects of the Waiver

The Controlling Shareholder owned 362,562,500 Shares, or approximately 32.57% of the issued share capital of the Company as at the Latest Practicable Date. It is wholly-owned by Mr. Chan who, in conjunction with his associate Madam Wong Wan Kai, was beneficially interested in an aggregate of 395,562,500 Shares, or approximately 35.53% of the issued share capital of the Company as at the Latest Practicable Date.

The Directors have advised us that they have explored the possibility of having the Open Offer underwritten by alternative underwriters. Given that the FY01 financial results for the Group, which primarily reflected the associated expenses of the Business Reorganisation together with the financial results of two startup businesses, could not offer a solid financial track record for investors, the Directors were not able to find suitable underwriters, even though the Directors are confident about the future prospects of the Group after the Business Reorganisation. As such, they sought support from the Controlling Shareholder. Pursuant to the Underwriting Agreement, the Controlling Shareholder has agreed to underwrite all the unsubscribed Offer Shares under the Open Offer, subject to fulfillment of the conditions set out in the Underwriting Agreement.

It is quite common in a rights issue or an open offer that the underwriters would require the controlling shareholder to undertake to subscribe for its entitlement in full. In the case of the Open Offer, as the underwriter is the Controlling Shareholder, there is no such undertaking. We have been advised that the Controlling Shareholder intends to subscribe for its assured entitlement in full under the Open Offer.

In the event that the Controlling Shareholder is required to take up its underwriting commitment under the Underwriting Agreement such that the shareholding interest in the Company held by it and its concert parties will increase by more than 2%, the 2% creeper benchmark under Rule 26 of the Code will be triggered and it will be required to make a mandatory general offer for all the securities of the Company other than those already owned by the Controlling Shareholders and parties acting in concert with it under Rule 26 of the Code. The Controlling Shareholder does not intend to make such a general offer and, accordingly, has applied to the Executive for the Waiver. The Executive has indicated that it will grant the Waiver subject to approval by the Independent Shareholders at the EGM by way of a poll.

Depending on the level of participation of the Qualifying Shareholders (assuming the shareholding of overseas Shareholders are minimal), immediately after completion of the Open Offer, the shareholding interest of the Controlling Shareholder and parties acting in concert with it in the Company will be:

1. approximately 35.53% assuming (i) the Open Offer is fully subscribed by Qualifying Shareholders pro-rata to their existing shareholding; and (ii) no outstanding Options are exercised prior to the Record Date;

– 32 –

LETTER FROM FIRST SHANGHAI

1. approximately 53.95%, assuming (i) no applications are made by Qualifying Shareholders for any of the Offer Shares; and (ii) no outstanding Options are exercised prior to the Record Date;

2. approximately 35.38% assuming (i) the Open Offer is fully subscribed by Qualifying Shareholders pro-rata to their existing shareholding; and (ii) all outstanding Options are fully exercised prior to the Record Date; and

3. approximately 53.84%, assuming (i) no applications are made by Qualifying Shareholders for any of the Offer Shares; and (ii) all outstanding Options are fully exercised prior to the Record Date.

In scenarios (2) and (4) above, the Controlling Shareholder and its concert parties will have triggered the 2% “creeper” benchmark under the Code and, by passing the resolution to approve the Waiver, the Shareholders will agree that the Controlling Shareholder will not be required to make a general offer.

If the Waiver is not approved, the Open Offer will not proceed.

2.6 Concluding remarks

In evaluating the Open Offer and the Waiver, we have considered the following:

• the Open Offer is an acceptable way to raise funds for the Group under the current circumstances and that the Subscription Price is fair and reasonable;

• the Open Offer will provide permanent capital, reduce debt and help develop the businesses of the Group;

• the Open Offer is conditional on, among other things, the granting of the Waiver. In the event that the Waiver is not granted, the Open Offer will not proceed. In such event, the Company would have to give up an opportunity to raise additional capital to strengthen its financial position, which in our opinion is in the overall interest of the Company and the Shareholders; and

• the general offer obligation, if arises, will be triggered by the fact that the Controlling Shareholder increases its shareholding in the Company as a result of fulfilling its underwriting obligations pursuant to the Underwriting Agreement, whereas the fact that the Open Offer is fully underwritten by the Controlling Shareholder has demonstrated, and is consistent with, the continued support of the Controlling Shareholder of the Company and is an important factor for the success of the Open Offer.

– 33 –

LETTER FROM FIRST SHANGHAI

3. RECOMMENDATION

Having considered the above factors and reasons, we are of the opinion that the Open Offer and the Waiver are in the overall interests of the Company and its Shareholders and are fair and reasonable as far as Independent Shareholders are concerned. We would therefore recommend the Independent Board Committee to advise the Independent Shareholders to vote in favour of the resolutions to be proposed at the EGM to consider and, if though fit, approve the Open Offer and the Waiver.

Yours faithfully, For and on behalf of First Shanghai Capital Limited

James Wang Helen Zee Managing Director Executive Director

– 34 –

FINANCIAL INFORMATION

APPENDIX I

1. SHARE CAPITAL

The authorised and issued share capital of the Company immediately following the completion of the Open Offer (assuming the Open Offer becomes unconditional and assuming no outstanding Options are exercised before the Record Date) will be as follows:

Authorised: 1,500,000,000 Shares as at the Latest Practicable Date 1,500,000,000 Shares to be created 3,000,000,000 Shares Issued, to be issued and fully paid: 1,113,200,000 Shares as at the Latest Practicable Date 445,280,000 Offer Shares 1,558,480,000 Shares	HK$ 150,000,000 150,000,000
	300,000,000
	111,320,000 44,528,000
	155,848,000

After the end of the financial year ended 31st December, 2000 and up to the Latest Practicable Date, 45,100,000 Shares were issued. Of the 45,100,000 Shares issued, 42,000,000 Shares were issued and allotted at HK$0.25 per share pursuant to a share placement on 28th June, 2001; and 3,100,000 Shares were issued and allotted at HK$0.173 per share pursuant to exercise of Options by certain employees (none of whom were Directors) of the Group on various dates in January, 2001.

As at the Latest Practicable Date, the Options outstanding were as follows:

	Number of Options
Name of grantee	outstanding	Exercise price
	(The year in which Options	HK$
	were granted is in brackets)
Chan Chak Shing	(1997)
	15,000,000	1.53
	(1998)
	10,000,000	0.36

Total: 25,000,000

– 35 –

FINANCIAL INFORMATION

APPENDIX I

	Number of Options
Name of grantee	outstanding	Exercise price
	(The year in which Options	HK$
	were granted is in brackets)
Chan Hon Ching	(1997)
	1,000,000	1.53
	(1998)
	22,000,000	0.36
	(2000)
	2,000,000	0.24
	Total: 25,000,000
Pau Kwok Ping	(1997)
	1,000,000	1.53
	(2000)
	1,000,000	0.173
	Total: 2,000,000
Li Hok Wing	(1997)
	1,000,000	1.53
	(1998)
	2,000,000	0.36
	(2000)
	1,000,000	0.173
	Total: 4,000,000
Lo Mei Chun	(1997)
	600,000	1.53
	(2000)
	1,000,000	0.173
	Total: 1,600,000
Chiu King Cheung	(1997)
	1,000,000	1.53
	(1998)
	22,000,000	0.36
	(2000)
	1,000,000	0.24

Total: 24,000,000

– 36 –

FINANCIAL INFORMATION

APPENDIX I

	Number of Options	Number of Options	Number of Options
Name of grantee	outstanding			Exercise price
	(The year in which Options			HK$
	were granted is in brackets)
Wong Wan Kai			(1997)
(wife of Mr. Chan)		1,000,000		1.53
			(1998)
		1,500,000		0.36
			(2000)
		2,300,000		0.24
	Total:	4,800,000
王克建			(1997)
			500,000	1.53
			(1998)
			500,000	0.36
	Total:	1,000,000
Yau Kwok Keung			(2000)
			50,000	0.173
Ma Ming Tak			(2000)
			30,000	0.173
吳玫瓊			(1998)
			300,000	0.36
龔曉敏			(1998)
			300,000	0.36
周少麗			(1998)
			300,000	0.36
張金明			(2000)
			300,000	0.24
馬文華			(2000)
			300,000	0.24
Total:	88,980,000

Save as disclosed above, there are no other options, warrants or conversion rights affecting shares of the Company.

– 37 –

FINANCIAL INFORMATION

APPENDIX I

2. FINANCIAL INFORMATION

• (A) Summary of financial results and summary of assets and liabilities for each of the years ended 31st December, 1999, 31st December, 2000 and 31st December, 2001

The following results and assets and liabilities of the Group are extracted from the audited accounts included in the annual report of the Group for the years ended 31st December, 2000 and 31st December, 2001:

RESULTS

Turnover Loss before taxation Taxation Loss after taxation Minority interests Loss attributable to Shareholders Loss per Share Dividends	For the year ended 31st December, 2001 2000 1999 HK$’000 HK$’000 HK$’000 240,376 395,133 341,514 (471,571) (110,772) (65,684) (10,821) (1,001) (5,728) (482,392) (111,773) (71,412) 2,992 628 1,768 (479,400) (111,145) (69,644) (44.0) HK cents (10.7) HK cents (7.0) HK cents – – –

There were no extraordinary items during each of the three years ended 31st December, 2001.

– 38 –

FINANCIAL INFORMATION

APPENDIX I

ASSETS AND LIABILITIES

Goodwill Fixed assets Long term investments Other long term assets Current assets Total assets Current liabilities Long term bank and other loans Total liabilities Minority interests Net assets	As at 31st December, 2001 2000 1999 HK$’000 HK$’000 HK$’000 62,255 – – 13,973 349,665 175,092 – 4,194 3,984 – 83,255 279,087 25,910 1,419,163 1,504,944 102,138 1,856,277 1,963,107 --------------- --------------- --------------- 81,519 896,330 1,114,919 5,038 225,077 45,111 86,557 1,121,407 1,160,030 --------------- --------------- --------------- 1,078 250,841 239,115 --------------- --------------- --------------- 14,503 484,029 563,962	As at 31st December, 2001 2000 1999 HK$’000 HK$’000 HK$’000 62,255 – – 13,973 349,665 175,092 – 4,194 3,984 – 83,255 279,087 25,910 1,419,163 1,504,944 102,138 1,856,277 1,963,107 --------------- --------------- --------------- 81,519 896,330 1,114,919 5,038 225,077 45,111 86,557 1,121,407 1,160,030 --------------- --------------- --------------- 1,078 250,841 239,115 --------------- --------------- --------------- 14,503 484,029 563,962
		1,963,107 --------------- 1,114,919 45,111
		1,160,030 --------------- 239,115 ---------------
		563,962

– 39 –

FINANCIAL INFORMATION

APPENDIX I

(B) Auditors’ Report

The following report is extracted from the Company’s 2001 annual report:

REPORT OF THE AUDITORS TO THE SHAREHOLDERS OF WINSAN (CHINA) INVESTMENT GROUP COMPANY LIMITED

(incorporated in the Cayman Islands with limited liability)

We have audited the accounts on pages 20 to 54 which have been prepared in accordance with accounting principles generally accepted in Hong Kong.

Respective responsibilities of directors and auditors

The Company’s directors are responsible for the preparation of accounts which give a true and fair view. In preparing accounts which give a true and fair view it is fundamental that appropriate accounting policies are selected and applied consistently.

It is our responsibility to form an independent opinion, based on our audit, on those accounts and to report our opinion to you.

Basis of opinion

We conducted our audit in accordance with Statements of Auditing Standards issued by the Hong Kong Society of Accountants. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the accounts. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the accounts, and of whether the accounting policies are appropriate to the circumstances of the Company and the Group, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance as to whether the accounts are free from material misstatement. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the accounts. We believe that our audit provides a reasonable basis for our opinion.

Opinion

In our opinion, the accounts give a true and fair view of the state of affairs of the Company and the Group as at 31st December 2001 and of the loss and cash flows of the Group for the year then ended and have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.

PricewaterhouseCoopers

Certified Public Accountants

Hong Kong, 19th April 2002

– 40 –

FINANCIAL INFORMATION

APPENDIX I

(C) Audited Consolidated Accounts

The following financial information is extracted from the Company’s 2001 annual report:

Consolidated Profit and Loss Account

For the year ended 31st December 2001

Note Turnover Continuing operations 2 Discontinued operations 2 Cost of sales Gross profit Other revenues 2 Selling expenses Administrative expenses Other operating expenses Operating loss 3 Finance costs 4 Loss before taxation Taxation 5 Loss after taxation Minority interests Loss attributable to shareholders 6 and 21 Loss per share – basic 8	2001 HK$’000 3,017 237,359 240,376 (171,764) 68,612 4,031 (13,041) (47,905) (450,835) (439,138) (32,433) (471,571) (10,821) (482,392) 2,992 (479,400) HK cents (44.0)	2000 HK$’000 – 395,133 395,133 (374,432) 20,701 3,634 (16,985) (35,546) (52,648) (80,844) (29,928) (110,772) (1,001) (111,773) 628 (111,145) HK cents (10.7)

– 41 –

FINANCIAL INFORMATION

APPENDIX I

Consolidated Balance Sheet

As at 31st December 2001

Note Goodwill 11 Fixed assets 12 Properties held for/under development Interest in an associated company Other investments Current assets Properties held for sale Inventories 14 Amounts due from customers for contract work 15 Trade and other receivables 16 Bank balances and cash – pledged deposits – other Current liabilities Amounts due to customers for contract work 15 Amounts due to related companies 17 Trade and other payables 18 Current portion of long-term liabilities 22 Short-term loans, unsecured 19 Taxation Bank overdrafts, secured Net current (liabilities)/assets Financed by: Share capital 20 Reserves 21 Shareholders’ funds Minority interests Long-term liabilities 22	2001 HK$’000 62,255 13,973 – – – – 11,917 3,772 7,245 – 2,976 25,910 -------------- 701 47,526 16,967 3,125 13,200 – – 81,519 -------------- (55,609) 20,619 111,320 (96,817) 14,503 1,078 5,038 20,619	2000 HK$’000 – 349,665 87,109 (3,854) 4,194 910,196 – – 311,107 92,686 105,174 1,419,163 -------------- – 35,259 256,596 26,571 539,452 19,599 18,853 896,330 -------------- 522,833 959,947 106,810 377,219 484,029 250,841 225,077 959,947

– 42 –

FINANCIAL INFORMATION

APPENDIX I

Balance Sheet

As at 31st December 2001

Note Fixed assets 12 Interests in subsidiaries 13 Current assets Prepayments 16 Bank balances and cash Current liabilities Amounts due to related companies 17 Other payables 18 Net current liabilities Financed by: Share capital 20 Reserves 21 Shareholders’ funds	2001 HK$’000 34 39,843 28 974 1,002 -------------- 24,687 1,689 26,376 -------------- (25,374) 14,503 111,320 (96,817) 14,503	2000 HK$’000 30 520,535 – 267 267 -------------- 36,803 – 36,803 -------------- (36,536) 484,029 106,810 377,219 484,029

– 43 –

FINANCIAL INFORMATION

APPENDIX I

Consolidated Cash Flow Statement

For the year ended 31st December 2001

Note Net cash outflow from operating activities 23(a) Returns on investments and servicing of finance Investment income received Interest received Interest paid Net cash outflow from returns on investments and servicing of finance Taxation PRC income tax paid Investing activities Purchase of fixed assets Proceeds from disposal of fixed assets Purchase of subsidiaries 23(d) Cash outflow from disposal of subsidiaries 23(c) Increase in properties held for/under development Purchase of other investments Net decrease in pledged deposits and fixed deposit with original maturity over three months Net cash inflow from investing activities Net cash outflow before financing Financing Issue of ordinary shares 23(b) Repayment of capital element of finance leases 23(b) Net (repayment)/addition of loans 23(b) Decrease in loans with original maturity within three months Contribution from minority shareholders of subsidiaries in the PRC 23(b) Net cash (outflow)/inflow from financing Decrease in cash and cash equivalents Cash and cash equivalents at 1st January Effect of foreign exchange rate changes Cash and cash equivalents at 31st December	2001 HK$’000 (46,867) – 4,031 (57,469) (53,438) -------------- (4,462) -------------- (2,441) 170,111 2,141 (174,808) (2,777) (4,337) 98,152 86,041 -------------- (18,726) -------------- 9,874 (223) (68,804) 2,090 – (57,063) -------------- (75,789) 77,734 – 1,945	2000 HK$’000 (5,408) 1,359 2,065 (78,507) (75,083) -------------- (4,533) -------------- (8,702) 271 – – (4,454) – 32,595 19,710 -------------- (65,314) -------------- 30,426 (180) 3,499 1,573 9,588 44,906 -------------- (20,408) 97,356 786 77,734

– 44 –

FINANCIAL INFORMATION

APPENDIX I

Analysis of cash and cash equivalents Bank balances and cash Pledged deposits and fixed deposits with original maturity over three months Bank overdrafts Loans with original maturity within three months	2001 HK$’000 2,976 – – (1,031) 1,945	2000 HK$’000 197,860 (98,152) (18,853) (3,121) 77,734

– 45 –

FINANCIAL INFORMATION

APPENDIX I

Consolidated Statement of Recognised Gains and Losses

For the year ended 31st December 2001

Note Exchange differences arising on translation of subsidiaries’ accounts 21 Net gains not recognised in the profit and loss account Loss for the year 21 Total recognised losses	2001 HK$’000 – – (479,400) (479,400)	2000 HK$’000 786 786 (111,145) (110,359)

– 46 –

FINANCIAL INFORMATION

APPENDIX I

Notes to the Accounts

1 Principal accounting policies

The principal accounting policies adopted in the preparation of these accounts are set out below:

(a) Basis of preparation

As at 31st December 2001, the Group had a net tangible deficit of HK$47,752,000 and a net current liability of HK$55,609,000 (inclusive of amounts due to related companies of HK$47,526,000). In order to ensure that the Group will have sufficient financial resources to sustain and further develop its current operations, the Company plans to raise a minimum of about HK$50 million (before expenses) through an open offer of shares to its existing shareholders, which will be underwritten by Mr Chan Chak Shing, Chairman of the Company (note 28). Of the total proceeds, approximately HK$15 million will be used to fund the current operations, while the remaining HK$35 million will be applied towards the repayment of amounts due to related companies.

The directors of the Company recognise that in view of the uncertainty in the market in the immediate future, even taking account of the open offer as set out above, the continuation of the Group’s business will depend on the financial support of its directors and major shareholders. In this connection, Mr Chan Chak Shing has confirmed that he will provide the necessary funding to the Group within twelve months from the date of approval of these accounts, up to maximum of HK$20 million. Accordingly, the accounts have been prepared on a going concern basis.

The accounts have been prepared in accordance with accounting principles generally accepted in Hong Kong and comply with accounting standards issued by the Hong Kong Society of Accountants (“HKSA”). They have been prepared under the historical cost convention.

In the current year, the Group adopted the following Statements of Standard Accounting Practice (“SSAPs”) issued by the HKSA which are effective for accounting periods commencing on or after 1st January 2001:

SSAP	14	(revised)	:	Leases (effective for periods commencing on or after
				1st July 2000)
SSAP	26		:	Segment reporting
SSAP	28		:	Provisions, contingent liabilities and contingent assets
SSAP	29		:	Intangible assets
SSAP	30		:	Business combinations
SSAP	31		:	Impairment of assets
SSAP	32		:	Consolidated accounts and accounting for investments
				in subsidiaries

The adoption of these new or revised SSAPs does not have a material effect on the comparative figures of the accounts.

(b) Group accounting

• (i) Consolidation

The consolidated accounts include the accounts of the Company and its subsidiaries made up to 31st December. Subsidiaries are entities in which the Group controls the composition of the board of directors, controls more than half of the voting power or holds more than half of the issued share capital.

The results of subsidiaries acquired or disposed of during the year are included in the consolidated profit and loss account from the effective date of acquisition or up to the effective date of disposal, as appropriate.

All significant intercompany transactions and balances within the Group are eliminated on consolidation.

– 47 –

FINANCIAL INFORMATION

APPENDIX I

The gain or loss on the disposal of a subsidiary represents the difference between the proceeds of the sale and the Group’s share of its net assets together with any unamortised goodwill/negative goodwill taken to reserve which was not previously charged/recognised in the consolidated profit and loss account and also any related accumulated foreign currency translation reserve.

Minority interests represent the interests of outside shareholders in the operating results and net assets of subsidiaries of the Group.

In the Company’s balance sheet the investments in subsidiaries are stated at cost less provision for impairment losses. The results of subsidiaries are accounted for by the Company on the basis of dividends received and receivable.

(ii) Translation of foreign currencies

Transactions in foreign currencies are translated at exchange rates ruling at the transaction dates. Monetary assets and liabilities expressed in foreign currencies at the balance sheet date are translated at rates of exchange ruling at the balance sheet date. Exchange differences arising in these cases are dealt with in the profit and loss account.

The accounts of subsidiaries expressed in foreign currencies are translated at the rates of exchange ruling at the balance sheet date whilst the profit and loss account is translated at an average rate. Exchange differences are dealt with as movements in reserves.

(c) Intangible assets

Goodwill represents the excess of the cost of acquisition of a subsidiary over the fair value of the Group’s share of its net assets at the date of acquisition.

Goodwill on acquisitions is included in intangible assets and is amortised using the straightline method over a period of not more than 20 years.

Where an indication of impairment exists, the carrying amount of any intangible asset is assessed and written down immediately to its recoverable amount.

(d) Fixed assets

Fixed assets are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Fixed assets are depreciated at rates sufficient to write-off their costs less accumulated impairment losses over their estimated useful lives on a straight-line basis. The principal annual rates are as follows:

Leasehold improvement	2%
Computer equipment, furniture and fixtures	20%
Motor vehicles	20%

Major costs incurred in restoring other tangible fixed assets to their normal working condition to allow continued use of the overall assets are charged to the profit and loss account. Improvements are capitalised and depreciated over their expected useful lives to the Group.

At each balance sheet date, both internal and external sources of information are considered to assess whether there is any indication that fixed assets are impaired. If any such indication exists, the recoverable amount of the asset is estimated and where relevant, an impairment loss is recognised to reduce the asset to its recoverable amount. Such impairment losses are recognised in the profit and loss account.

The gain or loss on disposal of a fixed asset is the difference between the net sales proceeds and the carrying amount of the relevant asset, and is recognised in the profit and loss account.

– 48 –

FINANCIAL INFORMATION

APPENDIX I

(e) Assets under operating leases

Leases where substantially all the risks and rewards of ownership of assets remain with the leasing company are accounted for as operating leases. Payments made under operating leases net of any incentives received from the leasing company are charged to the profit and loss account on a straight-line basis over the lease periods.

(f) Inventories

Inventories comprise stocks and work in progress and are stated at the lower of cost and net realisable value. Cost, calculated on the first-in, first-out basis, comprises materials, direct labour and an appropriate proportion of all production overhead expenditure. Net realisable value is determined on the basis of anticipated sales proceeds less estimated selling expenses.

(g) Contract work in progress

Contract work in progress is stated at cost plus attributable profit less provisions for foreseeable losses and progress payments on account. Cost includes direct materials, direct labour and an appropriate proportion of overhead.

Where contract costs incurred to date plus recognised profits less losses exceed progress payments on account, the net amount is shown as net amounts due from customers for contract work.

Where progress payments on account exceed contract costs incurred to date plus recognised profits less losses, the net amount is shown as amounts due to customers for contract work.

(h) Accounts receivable

Provision is made against accounts receivable to the extent that they are considered to be doubtful. Accounts receivable in the balance sheet are stated net of such provision.

(i) Cash and cash equivalents

For the purposes of the cash flow statement, cash and cash equivalents comprise cash on hand, deposit held with banks with original maturity within three months when acquired and bank overdraft.

(j) Provisions

Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. Where the Group expects a provision to be reimbursed, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain.

(k) Contingent liabilities

A contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group. It can also be a present obligation arising from past events that is not recognised because it is not probable that outflow of economic resources will be required or the amount of obligation cannot be measured reliably.

A contingent liability is not recognised but is disclosed in the notes to the accounts. When a change in the probability of an outflow occurs so that outflow is probable, they will then be recognised as a provision.

– 49 –

FINANCIAL INFORMATION

APPENDIX I

(l) Deferred taxation

Deferred taxation is accounted for at the current taxation rate in respect of timing differences between profit as computed for taxation purposes and profit as stated in the accounts to the extent that a liability or an asset is expected to be payable or recoverable in the foreseeable future.

(m) Borrowing costs

Borrowing costs incurred in the acquisition and development of properties prior to their completion are capitalised as part of the carrying value of the properties concerned. The capitalisation rate is based on the weighted average cost of the borrowings and the amounts capitalised are allocated to each individual project based on the costs incurred. All other borrowing costs are charged to the profit and loss account in the period in which they are incurred.

(n) Revenue recognition

• (i) Revenue from system integration contracts is recognised using the stage of completion method by reference to terms of the respective contracts in relation to the delivery of goods and the rendering of services. Provision is made for foreseeable losses as soon as they are anticipated.

• (ii) Revenue from sale of Transonline membership cards is recognised when services are provided.

• (iii) Revenue from the sale of goods is recognised on the transfer of risks and rewards of ownership, which generally coincides with the time when the goods are delivered to customers.

• (iv) Revenue from sale of properties under development for sale or separately identifiable phases of projects is recognised upon the completion of the development of such projects or phases of projects.

• (v) Revenue in respect of sale of completed properties is recognised upon conclusion of sale and purchase agreements.

• (vi) Revenue from provision of gas installation services is recognised according to the stage of completion of installation services based on contract terms.

• (vii) Rental income is recognised on a time proportion basis.

• (viii) Property management fee is recognised when management services are rendered.

• (ix) Interest income is recognised on a time proportion basis, taking into account the principal amounts outstanding and the interest rates applicable.

(o) Research and development costs

Research and development costs are expensed as incurred, except for development costs where the technical feasibility of the product under development has been demonstrated, costs are identifiable and a market exists for the product such that it is probable that it will be profitable. Such development costs are recognised as an asset and amortised on a straight-line basis over a period of not more than three years to reflect the pattern in which the related economic benefits are recognised.

(p) Retirement benefit costs

The subsidiaries of the Group in the PRC participate in employee pension schemes operated by the relevant local government authorities in the PRC. Contributions are made to these schemes, which are defined contribution schemes in nature, based on certain percentages of the applicable salaries of the employees.

– 50 –

FINANCIAL INFORMATION

APPENDIX I

Following the adoption of the Mandatory Provident Fund (“MPF”) Scheme in December 2000, the Group’s employees in Hong Kong joint the MPF Scheme.

The Group’s contributions to the retirement schemes are expensed as incurred. The assets of the scheme are held separately from those of the Group in independently administered funds.

(q) Segment reporting

The Group presents business segments analysis only. No geographical segment analysis is prepared as less than 10% of the consolidated turnover and results of the Group are attributable to markets outside the PRC.

Unallocated costs represent corporate expenses. Segment assets consist primarily of fixed assets, inventories, receivables and operating cash. Segment liabilities comprise operating liabilities and exclude items such as taxation and certain corporate borrowings. Capital expenditure comprises additions to fixed assets.

2 Turnover, revenue and segment information

The Group was previously engaged in property development, investment and management in the PRC and Hong Kong, the operation of network based transport logistic services (“Transonline”) and the provision of gas installation services in the PRC. In October 2001, the Group disposed of its property and gas related operations in the PRC and acquired a 70% interest in Shenzhen DIC Information Technologies Company Limited (“Dico”), a company established in the PRC. Commencing in November 2001, the principal activities of the Group comprise the operation of Transonline and the provision of fully-integrated broadband and cable television related platform and equipment for cable television and telecommunication services operators.

Revenues recognised during the year are as follows:

Turnover Continuing operations System integration services income Sale of Transonline membership cards Sale of goods Discontinued operations Sale of properties Gas installation services income Rental income Property management fee income Other revenues Interest income Investment income Total revenues	2001 HK$’000 770 222 2,025 3,017 ----------------- 215,910 14,469 4,598 2,382 237,359 ----------------- 4,031 – 4,031 ----------------- 244,407	2000 HK$’000 – – –
		– ----------------- 373,268 13,473 5,976 2,416
		395,133 ----------------- 1,569 2,065
		3,634 -----------------
		398,767

– 51 –

FINANCIAL INFORMATION

APPENDIX I

Business segment analysis

Continuing operations System integration Transonline 2001 2001 HK$’000 HK$’000 Turnover 2,795 222 Operating results by segments (41,324) (6,125) Provision for impairment of goodwill (382,331) – Loss on disposal of investment properties – – Loss on disposal of leasehold land and buildings – – Segment results (423,655) (6,125) Gain on disposal of subsidiaries Unallocated costs Operating loss Finance costs Loss before taxation Taxation Loss after taxation Minority interests Loss attributable to shareholders Segment assets 95,772 4,753 Unallocated assets Total assets Segment liabilities 44,168 1,142 Unallocated liabilities Minority interests Total liabilities Capital expenditure 20 261 Depreciation 670 868 Amortisation of goodwill 3,736 –	Discontinued Property operations 2001 HK$’000 222,890 36,267 – (32,000) (6,383) (2,116) – – 1,548 2,667 –	operations Gas installation 2001 HK$’000 14,469 2,998 – – – 2,998 – – 587 92 –	Group 2001 HK$’000 240,376 (8,184) (382,331) (32,000) (6,383) (428,898) 8,756 (18,996) (439,138) (32,433) (471,571) (10,821) (482,392) 2,992 (479,400) 100,525 1,613 102,138 45,310 41,247 1,078 87,635 2,416 4,297 3,736

– 52 –

APPENDIX I

FINANCIAL INFORMATION

Continuing operations Transonline 2000 HK$’000 Turnover – Operating results by segments – Deficit on revaluation of investment properties – Write-off of pre-operating expenses (13,421) Segment results (13,421) Unallocated costs Operating loss Finance costs Loss before taxation Taxation Loss after taxation Minority interests Loss attributable to shareholders Segment assets 12,845 Investment in an associated company – Unallocated assets Total assets Segment liabilities 3,090 Unallocated liabilities Minority interests Total liabilities Capital expenditure 4,725 Depreciation 75	Discontinued operations Property Gas operations installation 2000 2000 HK$’000 HK$’000 381,660 13,473 (22,215) 2,335 (36,461) – – – (58,676) 2,335 1,817,856 23,900 (3,854) – 1,113,464 3,478 3,480 966 4,145 43	Group 2000 HK$’000 395,133 (19,880) (36,461) (13,421) (69,762) (11,082) (80,844) (29,928) (110,772) (1,001) (111,773) 628 (111,145) 1,854,601 (3,854) 5,530 1,856,277 1,120,032 1,375 250,841 1,372,248 9,171 4,263

No geographical analysis is prepared as less than 10% of the consolidated turnover and results of the Group are attributable to markets outside the PRC.

– 53 –

FINANCIAL INFORMATION

APPENDIX I

3 Operating loss

Operating loss is stated after (crediting)/charging the following:

	2001	2000
	HK$’000	HK$’000
Net exchange loss/(gain)	22	(322)
Cost of properties sold	149,647	362,447
Auditors’ remuneration	550	1,236
Depreciation of fixed assets	4,297	4,263
Staff costs (including directors’ remuneration (note 10))	21,614	22,550
Retirement benefits contributions (note 9)	699	799
Loss on disposal of other fixed assets	1,742	64
Operating leases	3,497	1,135
Amortisation of goodwill (note 11)	3,736	–
Provision for slow moving inventories	11,152	–
Provision for doubtful debt	21,497	–
Gain on disposal of subsidiaries (note 26(b))	(8,756)	–
Loss on disposal of interests in subsidiaries	–	2,766
Loss on disposal of investment properties	32,000	–
Loss on disposal of leasehold land and buildings	6,383	–
Provision for impairment loss on goodwill	382,331	–
Deficit on revaluation of investment properties	–	36,461
Write-off of pre-operating expenses	–	13,421

4 Finance costs

Interests on loans and overdrafts from banks and financial institutions Interests on other loans wholly repayable within five years Interest element of finance leases Mortgage loan interest Total borrowing costs incurred Less: Amount capitalised in properties held for/under development and properties held for sale Amount charged to the profit and loss account	2001 HK$’000 46,252 243 40 10,934 57,469 (25,036) 32,433	2000 HK$’000 75,036 65 57 3,349 78,507 (48,579) 29,928

The capitalisation rate applied to funds borrowed generally and used for property development projects during the year was 8% per annum.

– 54 –

FINANCIAL INFORMATION

APPENDIX I

5 Taxation

No provision for Hong Kong profits tax has been made in the accounts as the Group has no assessable profit in Hong Kong for the year.

The amount of taxation charged to the consolidated profit and loss account represents:

PRC income tax – Current – Deferred taxation	2001 HK$’000 10,821 – 10,821	2000 HK$’000 4,827 (3,826) 1,001

The PRC income tax has been calculated on the estimated assessable profits of the PRC subsidiaries for the year at the rates of taxation prevailing in the PRC.

6 Loss attributable to shareholders

The loss attributable to shareholders is dealt with in the accounts of the Company to the extent of HK$479,400,000 (2000: HK$110,359,000).

7 Dividends

The directors do not recommend the payment of a dividend for the year ended 31st December 2001 (2000: Nil).

8 Loss per share

The calculation of basic loss per share is based on the Group’s loss attributable to shareholders of HK$479,400,000 (2000: HK$111,145,000) and the weighted average of 1,088,393,000 (2000: 1,038,829,000) ordinary shares in issue during the year.

The exercise of the share options granted under the share options scheme of the Company would not have a dilutive effect on the loss per share for the year ended 31st December 2001.

9 Retirement benefit contributions

The Group’s PRC subsidiaries participate in defined contribution retirement schemes organised by the relevant local government authorities in the PRC. The contributions to these schemes are calculated based on certain percentage of the salaries of employees. Following the adoption of the MPF Scheme in December 2000, the Group’s directors and employees in Hong Kong joined the MPF Scheme.

– 55 –

FINANCIAL INFORMATION

APPENDIX I

10 Directors’ and senior management’S emoluments

• (a) The aggregate amounts of emoluments paid to the directors of the Company during the year are as follows:

Directors’ fees Basic salaries, housing allowances, other allowances and benefits in kind Benefit from share options exercised Contributions to pension schemes	2001 HK$’000 360 3,828 – 44 4,232	2000 HK$’000 360 4,525 11,225 –
		16,110

The emoluments of the directors of the Company fell within the following bands:

Emolument bands HK$Nil – HK$1,000,000 HK$1,000,001 to HK$1,500,000 HK$2,000,001 to HK$2,500,000 HK$8,000,001 to HK$8,500,000	Number of directors 2001 2000 9 3 1 2 – 2 – 1 10 8	Number of directors 2001 2000 9 3 1 2 – 2 – 1 10 8
		8

The directors’ fees paid to the independent non-executive directors of the Company for the year ended 31st December 2001 amounted to HK$360,000 (2000: HK$360,000).

None of the directors of the Company has waived any emolument in respect of the year ended 31st December 2001 (2000: Nil).

• (b) The five individuals whose emoluments were the highest in the Group for the year include four (2000: four) directors of the Company whose emoluments are reflected in the analysis presented above. The emoluments paid to the remaining individual (2000: one) during the year are as follows:

Basic salaries, housing allowances, other allowances and benefits in kind Contributions to pension schemes	2001 HK$’000 2,568 12 2,580	2000 HK$’000 2,680 –
		2,680

– 56 –

FINANCIAL INFORMATION

APPENDIX I

11 Goodwill

Acquisition of subsidiaries Amortisation Provision for impairment loss At 31st December Cost Accumulated amortisation and impairment loss Net book amount	Group 2001 2000 HK$’000 HK$’000 448,322 – (3,736) – (382,331) – 62,255 – 448,322 – (386,067) – 62,255 –	Group 2001 2000 HK$’000 HK$’000 448,322 – (3,736) – (382,331) – 62,255 – 448,322 – (386,067) – 62,255 –
		–
		– –
		–

12 Fixed assets – Group

Investment properties HK$’000 Cost or valuation At 1st January 2001 267,378 Additions at cost – Acquisition of subsidiaries – Disposals (170,000) Disposal of subsidiaries (97,378) At 31st December 2001 – -------------- Accumulation depreciation At 1st January 2001 – Charge for the year – Disposals – Disposal of subsidiaries – At 31st December 2001 – -------------- Net book value At 31st December 2001 – At 31st December 2000 267,378	Leasehold improvement, computer Leasehold equipment, land and furniture buildings and fixtures HK$’000 HK$’000 71,598 12,102 13 945 – 12,244 (42,144) (2,275) (29,467) (9,941) – 13,075 -------------- -------------- 7,410 3,638 1,336 1,765 (4,081) (491) (4,665) (3,668) – 1,244 -------------- -------------- – 11,831 64,188 8,464	Motor vehicles HK$’000 19,989 1,483 – (1,029) (17,838) 2,605 -------------- 10,354 1,196 (640) (10,447) 463 -------------- 2,142 9,635	Total HK$’000 371,067 2,441 12,244 (215,448) (154,624)
			15,680 -------------- 21,402 4,297 (5,212) (18,780)
			1,707 --------------
			13,973
			349,665

The fixed assets of the Company represent furniture and fixtures.

– 57 –

FINANCIAL INFORMATION

APPENDIX I

13 Interests in subsidiaries

Unlisted shares, at cost Amounts due from subsidiaries Amounts due to subsidiaries Less: Provisions	Company 2001 2000 HK$’000 HK$’000 – 368,000 751,788 703,723 – (1,099) 751,788 1,070,624 (711,945) (550,089) 39,843 520,535	Company 2001 2000 HK$’000 HK$’000 – 368,000 751,788 703,723 – (1,099) 751,788 1,070,624 (711,945) (550,089) 39,843 520,535
		1,070,624 (550,089)
		520,535

Particulars of the subsidiaries of the Group as at 31st December 2001 are set out in note 27 to the accounts.

14 Inventories

Raw materials Finished goods Provision for slow moving stock	Group 2001 2000 HK$’000 HK$’000 9,547 – 13,522 – 23,069 – (11,152) – 11,917 –	Group 2001 2000 HK$’000 HK$’000 9,547 – 13,522 – 23,069 – (11,152) – 11,917 –
		– –
		–

At 31st December 2001, the carrying amount of inventories that are carried at net realisable value amounted to HK$10,891,000 (2000: Nil).

15 Contract work in progress

Contract costs incurred plus attributable profits less foreseeable losses Less: progress payment on account Represented by: Net amounts due from customers for contract work Net amounts due to customers for contract work	Group 2001 2000 HK$’000 HK$’000 5,393 – (2,322) – 3,071 – 3,772 – (701) – 3,071 –	Group 2001 2000 HK$’000 HK$’000 5,393 – (2,322) – 3,071 – 3,772 – (701) – 3,071 –
		–
		– –
		–

– 58 –

FINANCIAL INFORMATION

APPENDIX I

16 Trade and other receivables

Trade receivables Other receivables and prepayments	Group 2001 2000 HK$’000 HK$’000 3,912 41,872 3,333 269,235 7,245 311,107	Company 2001 2000 HK$’000 HK$’000 – – 28 – 28 –	Company 2001 2000 HK$’000 HK$’000 – – 28 – 28 –
			–

The Group’s revenues from the provision of system integration services are billed based on the terms of the sale and purchase contracts and are normally receivable upon issue of invoices.

At 31st December 2001, the ageing analysis of the trade receivables was as follows:

Current to 90 days 91 to 180 days 181 to 365 days Over one year	Group 2001 2000 HK$’000 HK$’000 2,777 22,677 133 6,945 – 12,106 1,002 144 3,912 41,872	Group 2001 2000 HK$’000 HK$’000 2,777 22,677 133 6,945 – 12,106 1,002 144 3,912 41,872
		41,872

17 Amounts due to related companies

These represent the amounts due to companies beneficially owned by the Chairman of the Company, Mr Chan Chak Shing. The amounts are unsecured and interest bearing at prime rate. Pursuant to a proposed open offer of share of the Company for subscription by its existing shareholders, approximately HK$35 million of the balances will be repaid by the application of the funds raised through the open offer (note 28). The remaining balances are repayable on demand.

18 Trade and other payables

Trade payables Other payables and accrued charges Deposits received	Group 2001 2000 HK$’000 HK$’000 3,004 90,881 13,963 103,036 – 62,679 16,967 256,596	Company 2001 2000 HK$’000 HK$’000 – – 1,689 – – – 1,689 –	Company 2001 2000 HK$’000 HK$’000 – – 1,689 – – – 1,689 –
			–

At 31st December 2001, the ageing analysis of the trade payables was as follows:

Current to 90 days 91 to 180 days 181 to 365 days Over one year	Group 2001 2000 HK$’000 HK$’000 231 26,841 127 1,236 329 14,893 2,317 47,911 3,004 90,881	Group 2001 2000 HK$’000 HK$’000 231 26,841 127 1,236 329 14,893 2,317 47,911 3,004 90,881
		90,881

– 59 –

FINANCIAL INFORMATION

APPENDIX I

19 Short-term loans

Bank and financial institutions – Secured_(note (a)) – Unsecured Government loans, unsecured(note (b))_	Group 2001 2000 HK$’000 HK$’000 9,429 264,458 – 274,994 3,771 – 13,200 539,452	Group 2001 2000 HK$’000 HK$’000 9,429 264,458 – 274,994 3,771 – 13,200 539,452
		539,452

Notes:

• (a) The bank loans as at 31 December 2001 are guaranteed by 深圳市迪科網絡有限公司 (Shenzhen Dico Net Company Limited) (“Dico Net”), a third party.

• (b) Government loans comprise a loan of HK$943,000 granted by Shenzhen Futian District Science and Technology Bureau, the PRC, which is interest bearing at 2.5% per annum and guaranteed by a third party, and a loan of HK$2,828,000 granted by Shenzhen Finance Bureau, the PRC, which is interest free and guaranteed by Dico Net.

20 Share capital

Ordinary shares of HK$0.10 each Authorised: At 31st December 2001 and 2000 Issued and fully paid: At 1st January 2000 Issue of shares At 31st December 2000 At 1st January 2001 Issue of shares At 31st December 2001	Company Number of shares Total HK$’000 1,500,000,000 150,000 1,000,000,000 100,000 68,100,000 6,810 1,068,100,000 106,810 1,068,100,000 106,810 45,100,000 4,510 1,113,200,000 111,320	Company Number of shares Total HK$’000 1,500,000,000 150,000 1,000,000,000 100,000 68,100,000 6,810 1,068,100,000 106,810 1,068,100,000 106,810 45,100,000 4,510 1,113,200,000 111,320
		100,000 6,810
		106,810
		106,810 4,510
		111,320

The movements in share capital of the Company during the year were:

• (a) On 28th June 2001, 42,000,000 ordinary shares of HK$0.10 each were issued and allotted at HK$0.25 per share pursuant to a share placement. The proceeds arising from the share placement, net of issuing costs, amounted to HK$9,338,000.

• (b) During the year, 3,100,000 ordinary shares of HK$0.10 each were issued and allotted at HK$0.173 per share pursuant to the exercise of share options by certain employees of the Group. The net proceeds arising from the exercise of the share options amounted to HK$536,000.

– 60 –

FINANCIAL INFORMATION

APPENDIX I

Under the Share Option Scheme of the Company, the directors of the Company shall have power at any time within a period of ten years from 5th July 1997 to make offers to directors and employees of the Group to take up options to subscribe for shares in the Company subject to certain terms and conditions. At 31st December 2001, the share options outstanding were as follows:

Year granted 1997 1998 2000	Number of options Exercise price Expiry date HK$ 21,100,000 1.53 August 2007 58,900,000 0.36 March 2008 8,980,000 0.173 to 0.24 February 2010 to October 2010 88,980,000

21 Reserves

Group

At 1st January 2000 Issue of shares Loss for the year Transfer Exchange differences At 31st December 2000 At 1st January 2001 Issue of shares, net of expenses (note 20) Loss for the year Transfer At 31st December 2001	Share premium Reserve on account consolidation HK$’000 HK$’000 598,938 30,000 23,616 – – – – – – – 622,554 30,000 622,554 30,000 5,364 – – – (11,249) (30,000) 616,669 –	Surplus reserves HK$’000 20,321 – – 2,061 – 22,382 22,382 – – (22,382) –	Exchange fluctuation Accumulated reserve losses HK$’000 HK$’000 (7,646) (177,651) – – – (111,145) – (2,061) 786 – (6,860) (290,857) (6,860) (290,857) – – – (479,400) 6,877 56,754 17 (713,503)	Total HK$’000 463,962 23,616 (111,145) – 786
				377,219
				377,219 5,364 (479,400) –
				(96,817)

– 61 –

FINANCIAL INFORMATION

APPENDIX I

Company

At 1st January 2000 Issue of shares Loss for the year At 31st December 2000 At 1st January 2001 Issue of shares, net of expenses_(note 20)_ Loss for the year At 31st December 2001	Share premium Accumulated account losses HK$’000 HK$’000 905,232 (441,270) 23,616 – – (110,359) 928,848 (551,629) 928,848 (551,629) 5,364 – – (479,400) 934,212 (1,031,029)	Total HK$’000 463,962 23,616 (110,359) 377,219 377,219 5,364 (479,400) (96,817)

• (a) Surplus reserves comprise statutory surplus reserve, discretionary surplus reserve and statutory public welfare fund of the subsidiary companies in the PRC, which form part of shareholders’ funds.

• (b) Under the Cayman Islands Companies Law, the share premium account of the Company is distributable to the shareholders provided that immediately following the date on which the dividend is proposed to be distributed, the Company will be in a position to pay off its debts as they fall due in the ordinary course of business.

22 Long-term liabilities

Long-term loans from banks and financial institutions – Secured – Unsecured Obligation under finance leases Amounts repayable within one year	Group 2001 2000 HK$’000 HK$’000 – 221,022 8,163 30,091 – 535 8,163 251,648 (3,125) (26,571) 5,038 225,077

– 62 –

FINANCIAL INFORMATION

APPENDIX I

At 31st December 2001, the Group’s long-term liabilities were repayable as follows:

Within one year In the second year In the third to fifth years After the fifth year	Long-term loans 2001 2000 HK$’000 HK$’000 3,125 26,348 2,616 17,915 2,422 33,001 – 173,849 8,163 251,113	Obligation under finance leases 2001 2000 HK$’000 HK$’000 – 223 – 312 – – – – – 535	Obligation under finance leases 2001 2000 HK$’000 HK$’000 – 223 – 312 – – – – – 535
			535

23 Notes to the consolidated cash flow statement

(a) Reconciliation of operating loss to net cash outflow from operating activities

2001 HK$’000 Operating loss (439,138) Gain on disposal of subsidiaries (8,756) Loss on disposal of interests in subsidiaries – Loss on disposal of investment properties and land and buildings 38,383 Provision for impairment on goodwill 382,331 Deficit on revaluation of investment properties – Provision for slow moving inventories 11,152 Provision for doubtful debts 21,497 Amortisation of goodwill 3,736 Depreciation of fixed assets 4,297 Loss on disposal of other fixed assets 1,742 Investment income – Interest income (4,031) Decrease in amount due to an associated company (29,005) (Increase)/decrease in properties held for sale, net of finance costs capitalised (26,390) Decrease in inventories 2,622 Decrease in net amounts due from customers for contract work 1,680 (Increase)/decrease in trade and other receivables (23,943) Decrease in net amounts due to customers for contract work (5,923) Increase/(decrease) in amounts due to related companies 28,917 Decrease in trade and other payables (6,038) Net cash outflow from operating activities (46,867)

2000 HK$’000 (80,844) – 2,766 – – 36,461 – – – 4,263 64 (1,569) (2,065) (4,069) 52,326 – – 22,147 – (10,876) (24,012)

(5,408)

– 63 –

APPENDIX I

FINANCIAL INFORMATION

(b) Analysis of changes in financing during the year

At 1st January Cash items: Share placement (note 20(a)) Options exercised by directors and employees (note 20(b)) New loans raised Repayment of loans Repayment of capital element of finance leases Contribution from minority shareholders of subsidiaries in the PRC Non-cash items: Inception of finance leases Transfer to reserve Minority’s share of losses of subsidiaries Purchase of subsidiaries (Decrease)/increase upon disposal of subsidiaries At 31st December	Share capital and premium 2001 2000 HK$’000 HK$’000 729,364 698,938 9,338 26,730 536 3,696 – – – – – – – – – – (11,249) – – – – – – – 727,989 729,364	Obligation under finance leases 2001 2000 HK$’000 HK$’000 535 246 – – – – – – – – (223) (180) – – – 469 – – – – – – (312) – – 535	Short-term loans and long-term liabilities 2001 2000 HK$’000 HK$’000 790,565 787,066 – – – – 8,163 749,526 (76,967) (746,027) – – – – – – – – – – 13,200 – (713,598) – 21,363 790,565	Minority interests 2001 2000 HK$’000 HK$’000 250,841 239,115 – – – – – – – – – – – 9,588 – – – – (2,992) (628) 9,461 – (256,232) 2,766 1,078 250,841	Minority interests 2001 2000 HK$’000 HK$’000 250,841 239,115 – – – – – – – – – – – 9,588 – – – – (2,992) (628) 9,461 – (256,232) 2,766 1,078 250,841
					250,841

– 64 –

APPENDIX I

FINANCIAL INFORMATION

(c) Disposal of subsidiaries Net assets disposed of: Fixed assets Properties held for/under development Interest in an associated company Other investments Properties held for sale Trade and other receivables Bank balances and cash Amount due to the ultimate holding company Trade and other payables Taxation Bank and other loans Bank overdrafts Minority interests Gain on disposal of subsidiaries Consideration payable Satisfied by: Investment in subsidiaries_(note 23(d))_

2001 HK$’000 135,844 89,886 25,151 8,531 961,622 339,463 186,743 (34,607) (246,666) (25,958) (713,598) (11,935) (256,232) 458,244 8,756 467,000 467,000

	Analysis of the net outflow of cash and cash equivalent in respect of the disposal is as	Analysis of the net outflow of cash and cash equivalent in respect of the disposal is as	Analysis of the net outflow of cash and cash equivalent in respect of the disposal is as
follows:
			HK$’000
	Bank balances and cash disposed		(186,743)
	Bank overdraft disposed		11,935
			(174,808)
(d)	Purchase of subsidiaries
			2001
			HK$’000
	Net assets acquired:
		Fixed assets	12,244
		Inventories	25,691
		Net amounts due from customers for contract work	5,452
		Trade and other receivables	33,155
		Bank balances and cash	2,141
		Amounts due to related companies	(17,957)
		Net amounts due to customers for contract work	(6,624)
		Trade and other payables	(9,365)
		Bank and other loans	(13,200)
		Minority interests	(9,461)
			22,076
	Goodwill		448,322
	Cost of acquisition		470,398
	Satisfied by:
		Consideration for disposal of subsidiaries_(note 23(c))_	467,000
		Cash	3,398
			470,398

– 65 –

FINANCIAL INFORMATION

APPENDIX I

The subsidiaries acquired during the year contributed HK$4,163,000 to the Group’s net operating cash outflows, paid HK$424,000 in respect of the servicing of finance and utilised HK$20,000 for investing activities.

Analysis of the net inflow of cash and cash equivalent in respect of the acquisition is as follows:

	HK$’000
Bank balances and cash acquired	2,141

24 Commitments under operating leases

At 31st December 2001, the Group had future aggregate minimum lease payments under noncancellable operating leases in respect of land and buildings as follows:

Not later than one year In the second to fifth years	Group 2001 2000 HK$’000 HK$’000 2,155 1,091 577 – 2,732 1,091	Group 2001 2000 HK$’000 HK$’000 2,155 1,091 577 – 2,732 1,091
		1,091

The comparative figures of lease commitments have been restated as a result of the adoption of SSAP 14 (revised), which became effective for accounting period commencing on or after 1st July 2000.

25 Contingent liabilities

At 31st December 2001, a subsidiary of the Company provided a corporate guarantee in respect of banking facilities granted by banks to Dico Net to the extent of HK$18,857,000, in return for the provision of corporate guarantee by Dico Net for bank loans granted to the subsidiary to the extent of HK$12,257,000 (note 19).

26 Related party transactions

• (a) Apart from those disclosed in note 17 and 19 above, other significant related party transactions carried out in the normal course of the Group’s business were as follows:

		Group
	2001	2000
	HK$’000	HK$’000
Interest payable to related companies	2,781	3,945

This represents interest calculated at prime rate on the amounts due to companies beneficially owned by Mr Chan Chak Shing, Chairman of the Company (note 17).

(b) In August 2001, the Company entered into agreements in respect of the disposal of the property and gas related operations in the PRC to Winsan International Holdings Limited (“WIHL”) for a consideration of HK$467 million. The disposal was completed in October 2001. The Group derived a gain of HK$8,756,000 from the disposal. Details of the disposal are set out in the circular of the Company dated 8th August 2001.

– 66 –

FINANCIAL INFORMATION

APPENDIX I

27 Subsidiaries

At 31st December 2001, the Company held interests in the following principal subsidiaries which, in the opinion of the directors, were significant to the results of the year and/or formed a substantial portion of the net assets of the Group. To give details of other subsidiaries would result in particulars of excessive length.

	Place of
	incorporation/		Particulars	Effective
	establishment		of issued/	interest
Company	and operation	Principal activities	registered capital	held
Indirectly held:
Evergrow High	Hong Kong	Investment holding	2 ordinary shares	100%
Technology Investment			of HK$1 each
Group Ltd.
Cheeryork Investment Ltd.	Hong Kong	Property investment	2 ordinary shares	100%
			of HK$1 each
Shenzhen DIC Information	PRC	Provision of broadband	RMB40,000,000	70%
Technologies Co., Ltd.		and cable television
		related platform and
		equipment for cable
		television and
		telecommunication
		services operators
Evergrow Trans China	PRC	Provision of network	RMB10,000,000	70%
Beijing Information		based transport logistics
Technology Co., Ltd.		services
Evergrow Trans China	PRC	Provision of network	RMB30,000,000	70%
Network Beijing		based transport logistics
Information Technology		services
Co., Ltd.

28 Subsequent events

Pursuant to a resolution passed on 19th April 2002, the Company proposed to raise a minimum of approximately HK$50 million, before expenses, by an open offer of not less than 445,280,000 offer shares at a subscription price of HK$0.115 per offer share on the basis of an allotment of two offer shares for every five existing shares held by the qualifying shareholders. The open offer is not available for overseas shareholders. Of the total proceeds, approximately HK$15 million will be used to fund the current operations, while the remaining HK$35 million will be applied towards the repayment of amounts due to related companies. The open offer will be underwritten by Mr Chan Chak Shing, Chairman of the Company. Details of the open offer will be included in a seperate announcement to be published by the Company on or around 24th April 2002.

29 Approval of accounts

The accounts were approved by the board of directors on 19th April 2002.

– 67 –

FINANCIAL INFORMATION

APPENDIX I

3. STATEMENT OF PRO FORMA UNAUDITED ADJUSTED CONSOLIDATED NET TANGIBLE ASSETS OF THE GROUP

The following statement of pro forma unaudited adjusted consolidated net tangible assets of the Group is prepared based on the consolidated net tangible liabilities of the Group as at 31st December, 2001 as shown in the audited consolidated accounts of the Group and adjusted as follows:

Audited consolidated net assets of the Group as at 31st December, 2001 Less: goodwill as at 31st December, 2001 Audited consolidated net tangible liabilities of the Group as at 31st December, 2001 Estimated net proceeds derived from the Open Offer Pro forma unaudited adjusted consolidated net tangible assets of the group immediately after the Open Offer of 445,280,000 Offer Shares (assuming no outstanding Options are exercised before the Record Date) Audited consolidated net tangible liabilities per Share as at 31st December, 2001 based on 1,113,200,000 Shares in issue as at 31st December, 2001 Pro forma unaudited adjusted consolidated net tangible assets per Share immediately after the Open Offer based on 1,558,480,000 Shares in issue assuming no outstanding Options are exercised before the Record Date

HK$’000 14,503 (62,255) (47,752) 50,000 2,248 (0.0429) HK cents 0.0014 HK cents

4. INDEBTEDNESS OF THE GROUP

As at the close of business on 30th April, 2002, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this circular, the Group had outstanding unsecured borrowings of approximately HK$77,844,000, comprising bank loans of approximately HK$26,204,000, government loans of approximately HK$3,771,000 and amounts due to companies beneficially owned by Mr Chan of approximately HK$47,869,000.

– 68 –

FINANCIAL INFORMATION

APPENDIX I

Bank loans of approximately HK$9,809,000 and approximately HK$9,429,000 were guaranteed by Mr. Chan and a third party, respectively. The government loans comprised loans granted by Shenzhen Futian District Science and Technology Bureau and Shenzhen Finance Bureau, the PRC, amounting to approximately HK$943,000 and approximately HK$2,828,000, respectively, which were guaranteed by third parties.

As at 30th April, 2002, the Group had contingent liabilities amounting to HK$18,857,000 in respect of the provision of corporate guarantees by Shenzhen DIC Information Technologies Co., Ltd (“Dico”), a 70% owned subsidiary of the Group, for bank loans granted to a third party. In return, the third party provided corporate guarantees for loans of Dico to the extent of HK$12,257,000, comprising bank loans of approximately HK$9,429,000 and a government loan of approximately HK$2,828,000.

Save as disclosed herein and apart from intra-group liabilities and normal trade payables in the ordinary course of business of the Group, the Group did not have any outstanding mortgages, charges, debentures, or other capital or bank overdrafts, loans or other similar indebtedness or acceptance of credits or hire purchase commitments or any guarantees or other material contingent liabilities as at the close of business on 30th April, 2002.

Save as disclosed above, the Directors have confirmed that there has not been any material adverse change in the indebtedness and contingent liabilities of the Group since 30th April, 2002.

For the purpose of the above indebtedness statement, foreign currency amounts have been translated into Hong Kong dollars at the rates of exchange prevailing at the close of business on 30th April, 2002.

5. MATERIAL CHANGES

The Directors are not aware of any material changes in the financial or trading position or prospects of the Group since 31st December, 2001, the date to which the last published audited accounts of the Group were made up.

– 69 –

GENERAL INFORMATION

APPENDIX II

1. RESPONSIBILITY

This circular includes particulars given in compliance with the Listing Rules and the Code for the purpose of giving information with regard to the Company.

The directors of the Company jointly and severally accept full responsibility for the accuracy of information contained herein and confirm, having made all reasonable inquiries, that to the best of their knowledge, opinion expressed in this circular have been arrived as after due and careful consideration and there are no other facts not contained in this circular, the omission of which would make any statement contained herein misleading.

2. SHAREHOLDINGS OF THE CONTROLLING SHAREHOLDER AND PERSONS ACTING IN CONCERT

As at the Latest Practicable Date, the Controlling Shareholder and persons acting in concert with it were interested in a total of 395,562,500 Shares, representing approximately 35.53% of the issued share capital of the Company, the breakdown of which is as follows:

			Approximate
			percentage of the
Controlling		Outstanding	the issued
Shareholder and any	Number of Shares	Options	share capital
persons acting in	as at the Latest	as at the Latest	as at the Latest
concert	Practicable Date	Practicable Date	Practicable Date
Controlling Shareholder	362,562,500	–	32.57%
Madam Wong Wan Kai	33,000,000	4,800,000	2.96%
(wife of Mr. Chan)
Mr. Chan	–	25,000,000	–
(sole director and sole
beneficial owner of the
Controlling Shareholder
and Director)
Total:	395,562,500		35.53%

The Company does not have any shareholding interest in the Controlling Shareholder.

The Company has not dealt for value in any shares of the Controlling Shareholder during the period that begin 6 months prior to the Announcement and ending on the Latest Practicable Date.

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GENERAL INFORMATION

APPENDIX II

Mr. Chan, a Director, is the sole beneficial owner of the Controlling Shareholder. Save for the interests held by Mr. Chan in the Controlling Shareholder, no other Director has any interest in the Controlling Shareholder.

None of the Directors has dealt for value in any shares of the Controlling Shareholder during the period that begin 6 months prior to the Announcement and ending on the Latest Practicable Date.

The following Directors are interested in Shares as set out below:

		Approximate percentage
		of the issued share
		capital as at the
Name of Director	Number of Shares	Latest Practicable Date
Mr. Chan	395,562,500	35.53%
	(see breakdown above)
Chan Hon Ching	11,250,000	1.01%
Lo Mei Chun	2,600,000	0.23%
Chiu King Cheung	3,812,500	0.34%
Wong Po Yan	nil	nil
Chan Kay Cheung	nil	nil
Wang Yi	nil	nil
Shi Dan Wei	3,899,200	0.35%

For details of Options held by the Directors, please refer to section 1 of Appendix I of this circular.

There are no shareholdings in the Company owned or controlled by persons specified in paragraph 2(iii) of Schedule II of the Code.

3. DEALINGS IN SHARES OF THE COMPANY

Below is a summary of dealings in Shares by the Controlling Shareholder and its associates and concert parties during the period beginning 6 months prior to the Announcement and ending with the Latest Practicable Date.

On 29th October, 2001, the Controlling Shareholder transferred 32,500,000 Shares by way of gift to Mr. Pau Kwok Ping and Mr. Li Hok Wing, both were directors of the Company until 29th October, 2001, and who received 16,250,000 Shares each.

– 71 –

GENERAL INFORMATION

APPENDIX II

On 7th December, 2001, Madam Wong Wan Kai, the wife of Mr. Chan, transferred 33,000,000 Shares to the Controlling Shareholder by way of gift. No consideration was paid by the Controlling Shareholder for the said Shares. The transfer took place prior to negotiations or discussions relating to the Open Offer.

On 19th April, 2002, the Controlling Shareholder transferred 33,000,000 Shares to Madam Wong Wan Kai by way of gift. No consideration was paid by Madam Wong Wan Kai for the said Shares. The documents evidencing the transfer were submitted to the Collector of Stamp Revenue for stamping on 13th April, 2002, prior to negotiations or discussions relating to the Open Offer.

Save as disclosed in section 3 of Appendix II, the Controlling Shareholder has confirmed to the Company that neither it nor any person acting in concert with it has acquired voting rights in the Company in the 6 months prior to the date of the Announcement until the Latest Practicable Date.

Save as disclosed in section 3 of Appendix II, no Directors or persons specified in paragraph 2(iii) of Schedule II of the Code have dealt for value in the Shares during the period that begin 6 months prior to the Announcement and ending on the Latest Practicable Date.

Neither the Controlling Shareholder nor any party acting in concert with it has entered into any agreement, arrangement or understanding to transfer Shares held or to be held by it upon completion of the Open Offer.

4. SHARE PRICES OF THE COMPANY

The closing price of the Shares have traded on the Stock Exchange at the end of each of the 6 calendar months preceding the date of the Announcement were as follows:

	Per share
	HK$
31st October, 2001	0.157
30th November, 2001	0.162
28th December, 2001	0.148
31st January, 2002	0.138
27th February, 2002	0.122
28th March, 2002	0.100

The closing price of Shares traded on the Stock Exchange on 19th April, 2002, being the last business day immediately preceding the Announcement on which Shares are traded, is HK$0.121 per Share.

– 72 –

GENERAL INFORMATION

APPENDIX II

The closing price of Shares traded on the Stock Exchange on the Latest Practicable Date is HK$0.111 per Share.

The highest and lowest closing market prices with the relevant dates for each of the 6 calendar months preceding the date of the Announcement were as follows:

	Highest		Lowest
5 October 2001	0.170	12 and 22 October 2001	0.143
26 November 2001	0.183	5 November 2001	0.145
4 December 2001	0.188	27 and 28 December 2001	0.148
7 January 2002	0.160	31 January 2002	0.136
21 February 2002	0.160	25 and 26 February 2002	0.118
4 March 2002	0.122	21 and 22 March 2002	0.097
12 April 2002	0.172	2 and 29 April 2002	0.093

5. MATERIAL CONTRACTS

The following contracts have been entered into within the 2 years preceding the date of this circular, otherwise than in the ordinary course of business, and are, or may be, material:

• (a) An acquisition agreement dated 16th February, 2001 entered into among: (1) Teleprime Enterprises Limited (“Teleprime”); (2) the Company; (3) the Controlling Shareholder; (4) Hon Tung Keung; and (5) Mr. Chan for, inter alia: (i) the sale by Teleprime and the purchase by the Company of 88% of the issued share capital of Leap Technologies Inc.; (ii) the sale by the Company and purchase by the Controlling Shareholder of the entire issued share capital of 11 companies, the consideration of the above were to be satisfied by: (A) the transfer to Teleprime of Shares held by the Controlling Shareholder and of shares held by the Controlling Shareholder in Evergrow Technology Company Limited; and (B) the issue and allotment to Teleprime of 760 million convertible preference shares by the Company. The acquisition agreement and related contracts were terminated on 23rd February, 2001 by agreement between the parties.

• (b) A sale and purchase agreement dated 16th February, 2001 entered into between Winsan (BVI) Company Limited and Gold Legacy International Limited whereby, inter alia, Winsan (BVI) Company Limited agreed to sell and Gold Legacy International Limited agreed to purchase 100% of the issued share capital of Cheery Year Development Limited for a consideration of HK$33.4 million. At the time of the agreement, both Winsan (BVI) Company Limited and Golden Legacy International Limited were subsidiaries of the Company.

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GENERAL INFORMATION

APPENDIX II

• (c) An acquisition agreement dated 21st June, 2001 entered into among (1) Lion Regent Investment Limited (“Lion Regent”); (2) the Company; (3) the Controlling Shareholder; (4) Wang Jinyu; and (5) Mr. Chan whereby, inter alia , (i) Lion Regent agreed to sell and the Company agreed to purchase the entire issued share capital of Profitful Investment Limited; (ii) the Company agreed to sell and the Controlling Shareholder agreed to purchase the entire issued share capital of 11 companies, the consideration of the above was to be satisfied by the transfer to Lion Regent of Shares held by the Controlling Shareholder and of shares held by the Controlling Shareholder in Evergrow Technology Company Limited.

• (d) An underwritten placing agreement dated 28th June, 2001 entered into between NSC Securities (Asia) Limited (the “Placing Agent”) and the Controlling Shareholder in relation to, inter alia , the placing of 42,000,000 shares of the Company at a price of HK$0.25. The placing was fully underwritten by the Placing Agent.

• (e) A top-up subscription agreement dated 28th June, 2001 entered into between the Controlling Shareholder and the Company whereby, inter alia , the Company agreed to issue 42,000,000 new shares of the Company to the Controlling Shareholder at a price of HK$0.25 per share.

• (f) An underwriting agreement dated 19th April, 2002 entered into between the Company and the Controlling Shareholder whereby, inter alia , the Controlling Shareholder agreed to fully underwrite the Offer Shares.

6. SERVICE CONTRACTS

Each of Mr. Chan and Mr. Chan Hon Ching, being executive Directors, and Ms. Chiu King Cheung, being a non-executive Director, entered into a service agreement with the Company, that commenced 5th July, 1997, for an initial term of three years, and which remains in force now until three months’ notice in writing of termination has been served by either party. Save as disclosed in section 6 of Appendix II, no other Director has entered into any service agreement with the Company.

7. AGREEMENTS CONDITIONAL UPON COMPLETION

• (a) Save for the Underwriting Agreement entered into between the Controlling Shareholder and the Company, no other agreement or arrangement has been made by or entered into between the Controlling Shareholder or any person acting in concert with it and any of the Directors or recent Directors or Shareholders or recent Shareholders of the Company which is conditional on or dependent upon the outcome of the Open Offer or otherwise connected with the Open Offer.

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GENERAL INFORMATION

APPENDIX II

• (b) Save for the Underwriting Agreement entered into between the Controlling Shareholder, which is beneficially owned by Mr. Chan, one of the Directors, none of the Directors have entered into any agreement or arrangement with any other person which is conditional on or dependent upon the outcome of the Open Offer or otherwise connected with the Open Offer.

8. LITIGATION

As at the Latest Practicable Date, no member of the Group was party to any legal proceedings or claims which are of material importance. The Directors do not know of any legal proceedings or claims pending or threatened against the Company or any other member of the Group.

9. QUALIFICATION OF EXPERTS

The following are the qualifications of the experts who have given, or agreed to the inclusion of, their opinion or advice in this circular:

Name Qualification

First Shanghai an investment adviser registered under the Securities Ordinance (Cap. 333 of the Laws of Hong Kong)

PricewaterhouseCoopers Certified Public Accountants

10. CONSENTS

First Shanghai and PricewaterhouseCoopers have given and have not withdrawn their respective written consents to the issue of this circular with the inclusion of their respective letter and report and/or reference to their respective names, as the case may be, in the form and context in which they respectively appear.

11. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours on any weekday (except Saturdays, Sundays and public holidays) at the office of the Company at Rooms 1808–1809, 18th Floor, Office Tower, Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong, from the date of this circular up to and including 20 June, 2002:

• (a) memorandum and articles of association of the Company and of the Controlling Shareholder;

• (b) the letter from First Shanghai set out on pages 19 to 34 of this circular;

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GENERAL INFORMATION

APPENDIX II

• (c) the auditors’ report set out on page 40 of this circular;

• (d) a copy of each contract referred to in the section headed “Material Contracts” of Appendix II;

• (e) a copy of each contract referred to in the section headed “Service Contracts” of Appendix II;

• (f) the written consents referred to in the section headed “Consents” of Appendix II; and

• (g) the annual report of the Company for the years ended 31st December, 1999, 31st December, 2000 and 31st December, 2001.

– 76 –

APPENDIX III REPURCHASE MANDATE EXPLANATORY STATEMENT

This is the explanatory statement to provide requisite information to Shareholders for their consideration of granting the General Mandates to be granted to the Directors to purchase securities of the Company as required by the relevant provision set out in the Listing Rules to regulate the repurchase by companies with primary listings on the Stock Exchange of their own securities on the Stock Exchange (“Share Buy Back Rules”).

1. SHARE BUY BACK RULES

The Share Buy Back Rules permit companies whose primary listings are on the Stock Exchange to repurchase their shares fully paid-up on the Stock Exchange subject to certain restrictions, the most important of which are summarised below:

(a) Source of funds

Repurchases must be funded out of funds which are legally available for the purpose and in accordance with the memorandum and articles of association of the Company and the Companies Law, Cap. 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands (the “ Companies Law ”). Under the Companies Law, a company may only repurchase its securities out of capital paid up on the shares to be repurchased or out of the profits of the company or out of the proceeds of a fresh issue of shares made for the purpose or, if so authorised by the articles of association and subject to the Companies Law, out of capital.

Any amount of premium payable on a repurchase over the par value of the Shares may only be effected out of profits of the Company, or out of the Company’s share premium account, or, if so authorised by the articles of association and subject to the Companies Law, out of capital.

(b) Share capital

As at the Latest Practicable Date, the issued ordinary share capital of the Company comprised 1,113,200,000 shares of HK$0.10 each. Pursuant to the Open Offer, an aggregate of up to 445,280,000 new Shares are expected to be issued (assuming no outstanding Options are exercised before the Record Date).

Assuming that: (i) no new shares are issued and no further shares are repurchased between the Latest Practicable Date and the date of the EGM, (ii) resolutions numbered 4 and 5 set out in the notice convening the EGM are duly passed; and (iii) 445,280,000 new Shares are allotted pursuant to the Open Offer, the Company would have a total of 1,558,480,000 Shares in issue on the date of the EGM, and the Company would be allowed under the Repurchase Mandate to repurchase up to 155,848,000 Shares during the period in which the Repurchase Mandate remains in force, being 10 per cent. of the Shares in issue at the date of passing such resolutions.

– 77 –

APPENDIX III REPURCHASE MANDATE EXPLANATORY STATEMENT

(c) Connected Parties

No connected person of the Company has notified the Company that he has a present intention to sell any securities to the Company nor has any such connected person undertaken not to sell any of the securities held by him to the Company in the event that the Repurchase Mandate is passed.

2. REASONS FOR THE REPURCHASE

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

3. FUNDING OF REPURCHASES

Pursuant to the Repurchase Mandate, repurchase would be funded entirely from the Company’s available cash flow or working capital facilities which will be funds legally available under the laws of the Cayman Islands, the memorandum and articles of association of the Company for the purpose.

An exercise of the Repurchase Mandate in full could have a material adverse impact on the working capital and gearing position of the Company compared with that as at 31st December, 2001, being the date of its last audited accounts. The Directors do not, however, intend to make any repurchase in circumstances that would have a material adverse impact on the working capital or gearing position of the Company.

– 78 –

APPENDIX III REPURCHASE MANDATE EXPLANATORY STATEMENT

4. SHARE PRICES

The highest and lowest prices at which the Shares have traded on the Stock Exchange in each of the 12 calendar months were as follows:

	Highest	Lowest
	HK$	HK$
May 2001	0.380	0.202
June 2001	0.335	0.237
July 2001	0.247	0.183
August 2001	0.195	0.160
September 2001	0.178	0.138
October 2001	0.170	0.143
November 2001	0.183	0.145
December 2001	0.188	0.148
January 2002	0.160	0.136
February 2002	0.160	0.118
March 2002	0.122	0.097
April 2002	0.172	0.093

5. DISCLOSURE OF INTERESTS

None of the Directors nor, to the best of their knowledge having made all reasonable enquiries, any of their associates currently intends to sell the Shares to the Company or its subsidiaries.

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

6. HONG KONG CODES ON TAKEOVERS AND MERGERS AND SHARE REPURCHASES

If on the exercise of Repurchase Mandate, a Shareholder’s proportionate interest in the voting rights of the Company increase, such increase will be treated as an acquisition and may give rise to an obligation to make a mandatory offer in accordance with Rule 26 of the Code.

Upon completion of the Open Offer, assuming (i) no outstanding Options are exercised before the Record Date; and (ii) applications are made by the Qualifying Shareholders for all the Offer Shares pro-rata to their existing shareholding, the Controlling Shareholder and its associates, will hold an aggregate of 553,787,500 Shares, representing approximately 35.53% of the issued share capital of the Company. On the basis of 1,558,480,000 Shares then in

– 79 –

APPENDIX III REPURCHASE MANDATE EXPLANATORY STATEMENT

issue, exercise in full of the Repurchase Mandate would result in the repurchase of 155,848,000 Shares, and the aggregate interest of the Controlling Shareholder and its associates would be increased to approximately 39.48%. Accordingly, such increase may give rise to an obligation to make a mandatory offer under Rule 26 of the Code. The Directors have no present intention to exercise the Repurchase Mandate to such an extent as would result in takeover obligations.

7. SECURITIES REPURCHASES MADE BY THE COMPANY

The Company has not purchased any of the Shares (whether on the Stock Exchange or otherwise) during the 6 calendar months preceding the date of this circular.

– 80 –

NOTICE OF EXTRAORDINARY GENERAL MEETING

*

(Incorporated in the Cayman Islands with limited liability)

NOTICE IS HEREBY GIVEN that an extraordinary general meeting of Winsan (China) Investment Group Company Limited (the “Company”) will be held at Rooms 1808-1809, 18th Floor, Office Tower, Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong on 20th June, 2002 at 10:30 a.m. or as soon as the annual general meeting of the Company convened for the same date and place shall have concluded or been adjourned, for the purpose of considering, and, if thought fit, passing with or without amendment, the following Resolutions which will be proposed as ordinary resolutions of the Company:

ORDINARY RESOLUTIONS

1. “ THAT the authorised share capital of the Company be and is hereby increased from HK$150,000,000 to HK$300,000,000 by the creation of an additional 1,500,000,000 shares of HK$0.10 nominal value each.”

2. “ THAT :

conditional upon (1) the Listing Committee of The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) granting or agreeing to grant (subject to allotment), and not having revoked the listing of and permission to deal in the Offer Shares (as defined below), proposed to be allotted and issued to the shareholders of the Company as described in the Circular (as defined below) pursuant to the terms and conditions of the Open Offer (as defined below) on or about 28th May, 2002 or such later date as Winsan International Holdings Limited (the “Underwriter”), may agree with the Company in writing, and (2) the obligations of the Underwriter under the Underwriting Agreement (as defined in the Circular referred to below) becoming unconditional and not being terminated in accordance with its terms or otherwise:

• (a) the issue by way of an open offer (the “Open Offer”) of 445,280,000 new Shares of HK$0.115 each in the share capital of the Company (the “Offer Shares”) to holders of existing shares of HK$0.10 each in the capital of the Company (the “Shares”) whose names appear on the register of members of the Company as at the close of business on 20th June, 2002 (the “Record Date”) and whose addresses as shown on the register are in Hong Kong on the basis of assured allotments in the proportion of two Offer Shares for every five Shares then held and otherwise on the terms and conditions set out in a circular of the Company dated 28th May, 2002 (the “Circular”) to the shareholders of the Company, a copy of which has been produced to the meeting marked “A” and signed by the chairman of the meeting by way of identification be and is hereby approved;

• For identification only

– 81 –

NOTICE OF EXTRAORDINARY GENERAL MEETING

• (b) the Directors be and are hereby authorised to allot and issue the Offer Shares pursuant to or in connection with the Open Offer notwithstanding that the same may be offered, allotted or issued otherwise than pro rata to the existing shareholders of the Company and, in particular, the Directors may make such exclusions or other arrangements in relation to overseas shareholders as they deem necessary or expedient 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; and

• (c) the Directors be and are hereby authorised to do all acts and things which in their opinion are necessary or desirable in connection with the creation, allotment and issue of the Offer Shares, the implementation of the Open Offer and the Underwriting Agreement, the exercise or enforcement of any of the Company’s rights under the Underwriting Agreement and to make and agree to such variations of the terms of the Open Offer and the Underwriting Agreement as they may consider desirable or necessary.”

• “ THAT conditional upon the Resolution No. 2 set out in the notice of the meeting of the Company dated 28th May, 2002 being passed, and subject and pursuant to Note 1 of the “Notes on dispensations from Rule 26” of the Hong Kong Code on Takeovers and Mergers (the “Code”), it is hereby confirmed, consented to, agreed and approved that Winsan International Holdings Limited (“WIHL”) and parties acting in concert shall not be obliged to make any general offer for shares of HK$0.10 each (“Shares”) in issue in the capital of the Company held by shareholders of the Company (other than those held by WIHL and parties acting in concert at the relevant time) which would otherwise have to be made under Rule 26 of the Code as a result of the allotment and issue of the Offer Shares (as defined in Resolution No. 2 set out in the notice of the meeting of the Company dated 28th May, 2002) and of WIHL taking up the Offer Shares pursuant to an underwriting agreement between WIHL and the Company.”

• “ THAT , conditional upon the Offer Shares (as defined in Resolution No. 2 set out in the notice of the meeting of the Company dated 28th May, 2002) having been duly allotted and issued pursuant to such Resolution No. 2:

• (a) subject to paragraph (c) of this Resolution, the exercise by the Directors during the Relevant Period (as defined below) of all the powers of the Company to allot, issue and deal in additional shares of the Company (the “Shares”), securities convertible into Shares or options, warrants or similar rights to subscribe for Shares or securities convertible into Shares, and to make or grant offers, agreements and/or options which would or might require the exercise of such powers, subject to and in accordance with all applicable laws, be and is hereby generally and unconditionally approved in substitution for and to the exclusion of any existing authority previously granted;

– 82 –

NOTICE OF EXTRAORDINARY GENERAL MEETING

• (b) the approval in paragraph (a) of this Resolution shall be in addition to any other authorisation given to the Directors and shall authorise the Directors during the Relevant Period to make or grant offers, agreements and/or options which would or might require the exercise of such powers after the end of the Relevant Period;

• (c) the aggregate nominal amount of share capital allotted or agreed conditionally or unconditionally to be allotted and issued (whether pursuant to an option or otherwise) by the Directors pursuant to the approval in paragraph (a) of this Resolution, otherwise than pursuant to (i) a rights issue (as defined below); (ii) the exercise of rights of subscription or conversion under the terms of any warrants issued by the Company from time to time or any securities which are convertible into Shares; (iii) the exercise of any options or rights granted pursuant to any option schemes or similar arrangement for the time being adopted for the grant or issue to officers and/or employees of the Company and/or any of its subsidiaries of Shares or rights to acquire Shares; (iv) an issue of Shares in lieu of the whole or part of a dividend on Shares in accordance with the Company’s memorandum and articles of association; or (v) any offer of any class of securities of the Company made pro rata (apart from fractional entitlements) by the Company to holders of such class of securities (excluding for that purpose any holder whose registered address as shown in the register of members of the Company on the relevant record date is outside Hong Kong), shall not exceed 20% of the aggregate nominal amount of the share capital of the Company in issue as at the date of passing of this Resolution as enlarged by the issue of new Shares pursuant to the Open Offer as referred to Resolution No. 2 set out in the notice of meeting of the Company dated 28th May, 2002 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 laws of the Cayman Islands or the memorandum and articles of association of the Company to be held; or

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

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NOTICE OF EXTRAORDINARY GENERAL MEETING

“rights issue” means an offer of Shares open for a period fixed by the Directors to holders of Shares on the register of members of the Company on a fixed record date in proportion to their then holdings of such Shares (subject to such exclusions or other arrangements as the Directors 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 applicable to the Company).”

1. “ THAT , conditional upon the Offer Shares (as defined in Resolution No. 2 set out in the notice of the meeting of the Company dated 28th May, 2002) having been duly allotted and issued pursuant to such Resolution No. 2:

2. (a) subject to paragraph (c) below the exercise by the Directors during the Relevant Period (defined as below) of all the powers of the Company to repurchase Shares of the Company and subject to and in accordance with the Rules Governing the Listing of Securities on Stock Exchange of Hong Kong Limited and applicable laws, be and is hereby generally and unconditionally approved;

3. (b) the approval in paragraph (a) above shall be in addition to any other authorisation given to the Directors;

4. (c) the total nominal amount of the securities to be repurchased or agreed conditionally or unconditionally to be repurchased pursuant to the approval in paragraph (a) above shall not exceed 10% of the total nominal amount of the share capital of the Company in issue immediately prior to the passing of this Resolution and as enlarged by the issue of new Shares referred to in that Resolution No. 2, subject to the passing of that resolution, and the approval in paragraph (a) above shall be limited accordingly; and

5. (d) for the purpose of this Resolution, “Relevant Period” means the period from the passing of this Resolution until whichever is the earliest 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 memorandum and articles of association of the Company or any applicable laws to be held; or

   • (iii) the revocation or variation of the authority given under this Resolution by ordinary resolution of the Shareholders in general meeting.”

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NOTICE OF EXTRAORDINARY GENERAL MEETING

1. “ THAT , conditional upon the Resolutions No. 4 and 5 set out in the notice of the meeting of the Company dated 28th May, 2002 being passed, the aggregate nominal amount of the number of shares which are repurchased by the Company after the date of the passing of this Resolution (up to a maximum of 10% of the aggregate nominal amount of the share capital of the Company in issue as at the date of this Resolution) 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. 4 set out in the notice of the meeting of the Company dated 28th May, 2002.”

By order of the Board

Winsan (China) Investment Group Company Limited Lo Wai Chuen Company Secretary

Hong Kong, 28th May, 2002

Notes:

1. A member entitled to attend and vote at the above Meeting is entitled to appoint another person as his proxy to attend and on a poll vote instead of him. A proxy need not be a member of the Company.

2. In order to be valid, a form of proxy and the power of attorney or other authority (if any) under which it is signed, or a notarially certified copy of such power of authority, must be deposited at the Company’s Branch Share Registrar in Hong Kong, Abacus Share Registrars Limited of 5th Floor, Wing On Centre, 111 Connaught Road Central, Hong Kong, not less than 48 hours before the time fixed for holding the Meeting.

3. The Register of Members of the Company will be closed from 19th June, 2002 to 20th June 2002, both days inclusive, during which period no share transfers will be registered. To qualify for attendance of the Extraordinary General Meeting, all transfers accompanied by the relevant share certificates must be lodged with the Company’s Branch Share Registrar in Hong Kong, Abacus Share Registrars Limited of 5th Floor, Wing On Centre, 111 Connaught Road Central, Hong Kong, not later than 4:00 p.m. on 18th June 2002, for registration.

4. With regard to the resolution set out in items 4, 5 and 6 of this notice, the Directors have no immediate proposals either to issue or repurchase any securities of the Company. Approval is being sought from members of these general mandates pursuant to the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited.

5. The exact number of shares to be issued in the Open Offer will not be known until shortly before the meeting and if necessary the Resolution Numbered 2 will be put to the meeting in an appropriately amended form.

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