Sunny Optical Technology (Group) Company Limited — Proxy Solicitation & Information Statement 2003

Apr 10, 2003

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 shares in Hengan International Group Company Limited, you should at once hand this circular, together with the enclosed form of proxy, to the purchaser or other transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this circular, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

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(Incorporated in the Cayman Islands with limited liability) website: http://www.irasia.com/listco/hk/hengan

GENERAL MANDATES TO ISSUE AND REPURCHASE SHARES

TERMINATION OF THE EXISTING SHARE OPTION SCHEME AND ADOPTION OF NEW SHARE OPTION SCHEME

A notice convening the Annual General Meeting of Hengan International Group Company Limited to be held at the Harcourt Room, Lower Lobby, Conrad International Hong Kong, Pacific Place, 88 Queensway, Hong Kong on Friday, 2nd May, 2003 at 10:00 a.m., is set out on pages 19 to 21 of the Company’s 2002 Annual Report.

Whether or not Shareholders intend to attend the said meeting, they are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon as soon as possible and in any event not less than 48 hours before the time appointed for holding the meeting or any adjournment thereof. Completion and return of the form of proxy will not prevent you from attending and voting in person at the meeting or any adjournment thereof should you so wish.

• for identification purposes

25th March, 2003

Hengan International Group Company Limited

CONTENTS

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
Adoption of New Share Option Scheme . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
General Mandate to Repurchase Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
General Mandate to Issue Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
Closure of Register of Members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Annual General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Responsibility Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
Appendix I — Summary of the Principal Terms of
the Rules of the New Scheme . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Appendix II — Explanatory Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16

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Hengan International Group Company Limited

DEFINITIONS

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

“Adoption Date”	2nd May, 2003, the date on which the New Scheme is adopted
	by ordinary resolution of the Shareholders at the AGM;
“Articles”	the Articles of Association of the Company;
“Associates”	shall, in relation to an Employee, have the meaning ascribed
	to it under rule 1.01 of the Listing Rules in relation to any
	director, chief executive or substantial shareholder of the
	Group;
“AGM”	the annual general meeting of the Company to be held on 2nd
	May, 2003;
“Board”	the board of Directors or a duly authorised committee of the
	board of Directors;
“Business Day”	a day upon which the Stock Exchange is open for securities
	trading;
“Commencement Date”	the date on which the Employee complies in full with the
	requirements of the Board for the acceptance of the Offer as
	set out in the Offer;
“Companies Law”	the Companies Law (1998 Revision), as amended, of the
	Cayman Islands;
“Companies Ordinance”	the Companies Ordinance (Cap. 32 of the Laws of Hong Kong
	as amended);
“Company”	Hengan International Group Company Limited, a company
	incorporated in the Cayman Islands under the Companies
	Law, the securities of which are listed on the Stock Exchange;
“Connected Person”	has the meaning ascribed to it under rules 1.01 of the Listing
	Rules;
“Directors”	the directors of the Company;
“Employees”	Participants to the New Scheme that include Directors
	(whether executive or non-executive, including any
	independent non-executive director) and employees (whether
	full time or part time) of the Group;
“Existing Scheme”	the existing share option scheme of the Company adopted on
	10th November, 1998;

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Hengan International Group Company Limited

DEFINITIONS

“Grantee”	an Employee who has accepted an Offer and holds an Option
	in accordance with the terms of the New Scheme and (where
	the context so permits) includes a person entitled to Option in
	consequence of the death of the original Grantee;
“Group”	the Company and its Subsidiaries;
“Hong Kong”	the Hong Kong Special Administrative Region of the People’s
	Republic of China;
“Latest Practicable Date”	31st March, 2003, being the latest practicable date for
	ascertaining certain information for inclusion in this circular;
“Listing Rules”	The Rules Governing the Listing of Securities on the Stock
	Exchange;
“New Scheme”	The share option scheme of the Company to be proposed for
	adoption by the Company at the AGM;
“Offer”	the offer of the grant of an Option made in accordance with
	the New Scheme;
“Offer Date”	the date on which an Offer is made to an Employee;
“Option”	an option to subscribe for Shares pursuant to the New Scheme
	and for the time being subsisting;
“Option Period”	in respect of any Option, the period commencing on the
	Commencement Date and expiring at the close of business on
	the last date of the 10-year period or the end of the Scheme
	Period, whichever is the earlier subject to the provisions of
	early termination thereof;
“Option Price”	The amount of HK$1 or its equivalent in RMB at the
	prevailing exchange rate at the time of the Offer payable for
	the grant of an Option;
“Scheme Period”	the period commencing on the Adoption Date and expiring at
	the closing of business on the tenth anniversary thereof;
“Share(s)”	ordinary shares of HK$0.10 (or of such other nominal amount
	as shall result from a sub-division or a consolidation of such
	share from time to time) in the capital of the Company;
“Shareholder(s)”	holder(s) of Shares of the Company;
“Stock Exchange”	the Stock Exchange of Hong Kong Limited;

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Hengan International Group Company Limited

	DEFINITIONS
“Subscription Price”	the price at which each Share subject to any Option may be
	subscribed on the exercise of an Option;
“Subsidiary”	a company which is a subsidiary for the time being of the
	Company, determined in accordance with Section 2 of the
	Companies Ordinance;
“Substantial Shareholder”	has the meaning ascribed to it under rule 1.01 of the Listing
	Rules;
“HK$”	Hong Kong dollars; and
“RMB”	Reminbi, the lawful currency of the People’s Republic of
	China in the units of yuan.

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Hengan International Group Company Limited

LETTER FROM THE BOARD

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*

(Incorporated in the Cayman Islands with limited liability)

Executive Directors: Sze Man Bok (Chairman) Hui Chi Lin (Deputy Chairman and Chief Executive Officer) Yeung Wing Chun Zhang Shi Pao Hung Ching Shan Poon Fuk Chuen Xu Da Zuo Xu Chun Man

Independent Non-Executive Directors:

Henry Chan Chu Cheng Chung Guan Tao Wong Ying Kay, Ada

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

Head Office: Hengan Industrial Centre, Anhai Town, Jinjiang City, Fujian Province, PRC

Place of Business in Hong Kong: Units 2101D, 21st Floor, Admiralty Centre, Tower 1, 18 Harcourt Road, Hong Kong 25th March, 2003

To the Shareholders,

Dear Sir or Madam,

GENERAL MANDATES TO ISSUE AND REPURCHASE SHARES TERMINATION OF THE EXISTING SHARE OPTION SCHEME AND ADOPTION OF NEW SHARE OPTION SCHEME

INTRODUCTION

By an ordinary resolution of the Shareholders passed on 22nd April, 2002, general mandates were granted to the Directors (i) to repurchase, on the Stock Exchange, Shares up to a maximum of 10% of the aggregate nominal amount of the share capital in issue of the Company; (ii) to allot, issue or otherwise deal with Shares up to a maximum of 20% of the total of the aforesaid aggregate nominal amount of share capital in issue of the Company and the number of Shares repurchased (if any) pursuant to the aforesaid general mandate to repurchase Shares. These general mandates will expire at the conclusion of the AGM if they are not revoked or varied by an ordinary resolution of the Shareholders before the AGM.

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Hengan International Group Company Limited

LETTER FROM THE BOARD

The Board noted that Chapter 17 of the Listing Rules have been amended and became effective on 1st September, 2001. The Existing Scheme no longer complies with the amended rules in the Listing Rules governing share option schemes and the Board therefore proposes that the New Scheme be adopted and the Existing Scheme be terminated, subject to the approval by the Shareholders in the AGM.

This circular contains all information reasonably necessary to enable Shareholders to make an informed decision on whether to vote for or against the resolutions proposed.

ADOPTION OF NEW SHARE OPTION SCHEME

Existing Scheme

The existing scheme was adopted and approved by Shareholders on 10th November, 1998. No Options have been granted since the adoption of the Existing Scheme. Immediately upon adoption of the New Scheme, the Board will terminate the Existing Scheme and no Options under the Existing Scheme will be offered. As at the date of this circular, no option has been granted.

New Scheme

A summary of the principal terms of the rules of the proposed New Scheme is set out in Appendix I to this circular.

The purpose of the New Scheme is to enable Employees to acquire ownership interests in the Company and to encourage Employees to work towards enhancing the value of the Company for the benefit of Shareholders. Subject to the New Scheme becoming effective, the Board intends to exercise its powers under the New Scheme during the Option Period with the objective of serving the purposes of the New Scheme as stated above.

The New Scheme will become effective for a 10-year period ending at the close of business on the tenth anniversary of the date of the AGM subject to:

• (i) the passing by the Shareholders of an ordinary resolution at the AGM approving the adoption of the New Scheme; and

• (ii) the Listing Committee of the Stock Exchange granting approval of the listing of and permission to deal in any Shares which may fall to be issued pursuant to the exercise of any such Options under the New Scheme.

The Board considers that it is not appropriate (and can be misleading) to state the value of all options that can be granted under the New Scheme as if they had been granted on the Latest Practicable Date prior to the approval of the New Scheme as a number of variables which are crucial for the calculation of the option value cannot be determined. Such variables include the exercise price, exercise period, lock up period (if any), performance targets set (if any) and other relevant variables.

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Hengan International Group Company Limited

LETTER FROM THE BOARD

Subject to the obtaining of Shareholders’ approval with respect to the adoption of the New Scheme, the total number of Shares which may be issued upon exercise of all options which may be granted under the New Scheme must not in aggregate exceed 10% of the Shares in issue at the date of approval of the New Scheme. Assuming no Shares will be issued or repurchased prior to the date of the AGM on which the New Scheme is expected to be approved by the Shareholders, the total number of the Shares in issue as at the date of the AGM will be 995,312,000. Subject to the New Scheme becoming effective, the Company may grant options entitling holders thereof to subscribe for up to 99,531,200 Shares under the New Scheme.

A copy of the proposed New Scheme will be available for inspection at the principal place of business of the Company in Hong Kong at Unit 2101D, 21/F., Admiralty Centre, Tower I, 18 Harcourt Road, Hong Kong during normal business hours on any week day (except public holidays) from 17th April, 2003 up to and including 2nd May, 2003 and will also be available for inspection at the AGM.

Application will be made to the Listing Committee of the Stock Exchange for approval of the listing of, and permission to deal in, the Shares which may fall to be issued pursuant to the exercise of any such Options that may be granted under the New Scheme.

GENERAL MANDATE TO REPURCHASE SHARES

Under the Companies Law and the Listing Rules, listed companies are allowed to repurchase their own issued securities. The Articles also enable such securities repurchases to be made. The Directors consider that the power to repurchase Shares increase flexibility in the conduct of the Company’s affairs and is in the interests of its Shareholders.

At the AGM, an ordinary resolution will be proposed that the Directors be given a general mandate to exercise all powers of the Company to repurchase Shares subject to the Articles, the applicable law and relevant regulatory requirements. Shareholders should note that the maximum number of Shares that may be repurchased pursuant to the mandate as set out in Resolution No. 6 of the notice of AGM on page 20 of the Company’s Annual Report will be such number of Shares not exceeding 10% of the aggregate nominal amount of the share capital of the Company in issue at the date of the resolution (the “Share Repurchase Mandate”). A resolution authorizing the extension of the mandate as set out in Resolution No. 5 of the notice of AGM to the Directors to issue additional Shares by the number of Share repurchased (if any) under the repurchase mandate (as set out in Resolution No. 6) will be proposed as Resolution No. 7 at the AGM.

Appendix II to this circular contains the Explanatory Statement required under the Listing Rules that gives all the information reasonably necessary to enable Shareholders to make an informed decision in connection with their approval of the Share Repurchase Mandate.

GENERAL MANDATE TO ISSUE SHARES

An ordinary resolution will also be proposed at the AGM for the grant of a general mandate to the Directors to issue, allot or otherwise deal with additional Shares of the Company up to a maximum of 20% of the aggregate nominal amount of the issued capital of the Company as at the date of the resolution.

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Hengan International Group Company Limited

LETTER FROM THE BOARD

CLOSURE OF REGISTER OF MEMBERS

The register of members of the Company will be closed during 28th April, 2003 to 2nd May, 2003, both days inclusive, during which period no transfer of shares can be registered. To qualify for attending the AGM, shareholders must ensure that all transfer documents accompanied by the relevant share certificates must be lodged with the Company’s share registrar, Abacus Share Registrars Limited at G/F., Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong for registration not later than 4:00 p.m. on 25th April, 2003.

ANNUAL GENERAL MEETING

The AGM will be held at the Harcourt Room, Lower Lobby, Conrad International Hong Kong, Pacific Place, 88 Queensway, Hong Kong on Friday, 2nd May, 2003 at 10:00 a.m. The notice of AGM is set out on pages 19 to 21 of the Company’s 2002 Annual Report. Resolutions in respect of the general mandates and adoption of the New Scheme as referred to above will be proposed, amongst others, at the AGM.

A form of proxy for use at the AGM is enclosed. Whether or not you are able to attend the AGM, you are requested to complete and return the form of proxy to the Company’s share registrars, Abacus Share Registrars Limited at G/F, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong as soon as possible, and in any event not less than 48 hours before the time appointed for holding of the meeting. Completion and return of the form of proxy will not preclude you attending and voting at the AGM should you so wish.

RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors collectively and individually accept full responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief, there are no other material facts not contained in this circular, the omission of which would make any statement in this circular misleading.

RECOMMENDATION

The Directors believe the general mandates to repurchase and issue Shares and the adoption of the new share option scheme are in the interests of the Company and Shareholders, and accordingly recommend you to vote in favour of all the relevant resolutions to be proposed at the AGM.

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Hengan International Group Company Limited

LETTER FROM THE BOARD

ADDITIONAL INFORMATION

Your attention is drawn to the summary of the principal terms of the rules of the New Scheme and the Explanatory Statement as set out in the Appendies to this circular.

An announcement on the outcome of the AGM in respect of the adoption of the New Scheme will be made on the business day following such meeting.

By order of the Board Sze Man Bok Chairman

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Hengan International Group Company Limited

SUMMARY OF THE PRINCIPAL TERMS OF THE RULES OF THE NEW SCHEME

APPENDIX I

1. Purpose of the New Scheme

The purpose of the New Scheme is to enable Employees to acquire ownership interests in the Company and to encourage Employees to work towards enhancing the value of the Company for the benefit of shareholders.

1. Who May Join and Basis on Eligibility

2. 2.1 Subject to the provisions of the New Scheme, the Board shall have power at any time within the Scheme Period to make an Offer to any Employee as the Board may at its absolute discretion determine and select subject to terms and conditions of the New Scheme.

3. 2.2 The basis of eligibility of any of the Employees to the grant of Options shall be determined by the Board from time to time on the basis of his contribution or potential contribution to the development and growth of the Group.

3. Subscription Price

The Subscription Price for Shares under the New Scheme is to be determined by the Board provided always that it will not be lower than the highest of:

• (a) the closing price of the Shares as stated in the daily quotation sheet issued by the Stock Exchange for the date of Offer (which is deemed to be the date of grant if the offer for the grant of an Option is accepted by the Employee), which must be a Business Day;

• (b) the average closing price of the Shares as stated in the daily quotation sheets issued by the Stock Exchange for the five business days immediately preceding the date of Offer; and

• (c) the nominal value of a Share.

• Maximum Number of Shares

• 4.1 The maximum number of Shares which may be issued upon exercise of all outstanding Options granted and yet to be exercised under the New Scheme and any other share option schemes of the Company must not exceed 30 per cent. of the total number of Shares in issue from time to time.

• 4.2 The maximum number of Shares may be issued upon exercise of all Options to be granted under the New Scheme and any other share option schemes of the Company must not in aggregate exceed 10 per cent. of the total number of Shares in issue as at the date of approval of the New Scheme unless the Company obtains approval from the Shareholders pursuant to paragraph 4.3 below. Options lapsed in accordance with the terms of the New Scheme and any other share option schemes of the Company will not be counted for the purposes of calculating the 10 per cent. limit.

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Hengan International Group Company Limited

SUMMARY OF THE PRINCIPAL TERMS OF THE RULES OF THE NEW SCHEME

APPENDIX I

• 4.3 Subject to paragraph 4.1 above, the Company may seek approval of the Shareholders in general meeting for refreshing the 10 per cent. limit as set out in paragraph 4.2 above such that the maximum number of Shares in respect of which Options may be granted under the New Scheme or any other share option schemes of the Company shall not exceed 10 per cent. of the total number of Shares in issue as at the date of approval of the limit. Options previously granted under the New Scheme and any other share options schemes of the Company (including those outstanding, cancelled, lapsed, exercised in accordance with the New Scheme and any other share option schemes of the Company) will not be counted for the purpose of calculating the 10 per cent. limit refreshed. A circular will be sent to Shareholders.

• 4.4 Subject to paragraph 4.1 above, the Company may, by issuing a circular to the Shareholders and obtaining separate approval of the Shareholders in general meeting, grant Options beyond the 10 per cent. limit provided that the Options in excess of the limit are granted only to Employees specifically identified by the Company before such approval is sought.

• Maximum Entitlement of Each Employee

The maximum number of Shares issued and to be issued upon exercise of Options granted under the New Scheme and any other share option schemes of the Company to any Employee (including both exercised and outstanding options) in any 12-month period from the date of grant shall not exceed 1 per cent. of the Shares in issue. Any further grant of option in excess of such 1 per cent. limit in any 12 month period upto and including the date of such further grant shall be subject to the issue of a circular to the Shareholders and the approval by Shareholders with such employee and his associates abstaining from voting.

1. Granting Options to Connected Persons

2. 6.1 Any grant of Options to Director, chief executive or Substantial Shareholder of the Company, or any of their respective associates, must be approved by the independent non-executive Directors (excluding any independent non-executive Director who is the Grantee of Options).

3. 6.2 Where any grant of Options to a Substantial Shareholder or an independent non-executive Director, or any of their respective associates, will result in the Shares issued and to be issued upon exercise of all Options already granted and to be granted (including Options exercised, cancelled and outstanding) to such person in the 12-month period up to and including the date of such grant:

   • (a) representing in aggregate over 0.1 per cent. of the total number of Shares in issue; and

   • (b) having an aggregate value, based on the closing price of the Shares at each date of grant, in excess of HK$5 million,

such further grant of Options is required to be approved by Shareholders in general meeting. Any change in the terms of Options granted to a Substantial Shareholder of the

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Hengan International Group Company Limited

SUMMARY OF THE PRINCIPAL TERMS OF THE RULES OF THE NEW SCHEME

APPENDIX I

Company or an independent non-executive Director or any their respective associates is also required to be approved by Shareholders. The Company must send a circular to the Shareholders and all Connected Persons of the Company must abstain from voting at such general meeting, except that any Connected Person may vote against the relevant resolution at the general meeting provided that his intention to do so has been stated in the circular. Any vote taken at the meeting to approve the grant of such options must be taken on a poll.

7. Time on Exercise of Options

An option may be exercised in accordance with the terms of the New Scheme at any time during a period commencing on the Commencement Date and expiring at the close of business on the last date of the 10-year period or the end of the Scheme Period, whichever is the earlier subject to the provisions of early termination thereof.

8. Performance Targets

Save as determined by the Board and stated in the offer of the grant of the relevant Options, there is no performance targets that the Employees are required to achieve before any Options granted can be exercised.

9. Acceptance of Offer

An offer for the grant of options must be accepted not less than 30 days after the Offer Date and must be accompanied by payment of the Option Price.

10. Rights on Shares

The Shares to be allotted upon the exercise of an Option shall rank pari passu in all respects with the then existing issued Shares in the capital of the Company but they shall not carry voting rights until completion of the registration of the Grantee (or any other person) as the holder thereof, such Shares will entitle the holders to participate in all dividends or other distributions paid or made after the date of allotment other than any dividend or other distribution previously declared or recommended or resolved to be paid or made if the record date therefor shall be on or before the day of allotment. If under the terms of a resolution passed or an announcement made by the Company prior to the date of exercise of Option, a dividend is to be or is proposed to be paid to holders of Shares on the register on a date prior to such date of exercise, the Shares to be issued upon such exercise will not rank for such dividend. Subject as aforesaid, the Shares allotted upon the exercise of the Option will be subject to all the provisions of the articles of association the Company for the time being in force.

11. Rights are Personal to Grantee

An Option is personal to the Grantee and shall not be transferred, charged, mortgaged or assigned and shall not be disposed of or be the subject of the creation of any third party right.

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Hengan International Group Company Limited

SUMMARY OF THE PRINCIPAL TERMS OF THE RULES OF THE NEW SCHEME

APPENDIX I

12. Effect on Reorganisation of Capital Structure

In the event of any alteration in the capital structure of the Company, by way of capitalisation of profits or reserves or rights issue, consolidation, subdivision or reduction of the share capital of the Company, excluding any alternation in the capital structure of the Company which is the result of an issue of securities as consideration in any transaction, the number of Shares subject to any Option so far as unexercised and/or the Subscription Price may be adjusted in such manner as the Board may deem appropriate (other than any made on a capitalization issue, an independent financial advisor or the auditors of the Company must confirm to the Directors in writing that in their opinion such adjustments satisfy the requirement as set out in rule 17.03(13) of the Listing Rule), provided that any such alterations shall be made on the basis that the aggregate Subscription Price payable by a Grantee on the full exercise of any Option shall remain as nearly as possible the same (but shall not be greater than) as it was before such event, but no such alteration shall be made so that a Share would be issued at less than its nominal value or which would give a Grantee a different proportion of the issued share capital of the Company as that to which he was previously entitled.

1. Rights of Exercise for Grantees

An Option may be exercised by the Employee in the manner specified above in the following events to such extent as therein mentioned:

Where a Grantee ceases to be an Employee

• (a) by reason of ill-health or injury or disability or death, then he or (as the case may be) his personal representative(s) may exercise the Option (to the extent not already exercised) or, if appropriate, an election made pursuant to paragraphs 14, 15 and 16 below in writing within one year from the date of ceasing to be an Employee (or such longer period as the Board may determine);

• (b) leaves the service of the Group for reason of retirement on or after attaining the normal retirement age or at a younger age as approved by the Board, the Grantee or (as the case may be) his personal representative shall be entitled to exercise the Option held by him to the extent not already exercised in writing within one year from the date of termination of his employment, which date will be his last actual working day with the Company or the relevant Subsidiary whether salary is paid in lieu of notice or not (referred to as “the Date of Termination” for the purpose of this paragraph 13) or such longer period as the Board may determine;

• (c) leaves the service of the Group for any reason other than contemplated in this clause or certain other grounds mentioned in paragraphs 20(e) below, including but not limited to voluntary resignation or by termination of employment or service in accordance with the termination provisions of his contract of employment or service by the Company or the Company’s Subsidiary, the Grantee shall be entitled to exercise the Option held by him up to the Grantee’s entitlement at the Date of Termination in writing on or before the Date of Termination or such longer period as the Board may determine.

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Hengan International Group Company Limited

SUMMARY OF THE PRINCIPAL TERMS OF THE RULES OF THE NEW SCHEME

APPENDIX I

14. Rights on General Offer

Subject to paragraph 13(a) above, a general offer by way of take-over is made to all the holders of Shares (or all such holders other than the offeror and/or any person controlled by the offeror and/or any person acting in association or concert with the offeror), with the terms of the offer having been approved by the holders of not less than nine tenths in value of the Shares comprised in other within four months and the offeror thereafter gives a notice pursuant to the Companies Ordinance to acquire the remaining Shares, the Grantee subject to paragraph 7 may by notice in writing to the Company within 21 days of such notice exercise the Option to its full extent or to the extent specified in such notice to the extent it has not been exercised.

15. Rights on Scheme of Arrangement

Subject to paragraph 13(a) above, if a general offer by way of a scheme of arrangement is made to all the holders of Shares and the scheme has been approved by the necessary number of holders of Shares at the requisite meetings, the Grantee may thereafter (but before such time as shall be notified by the Company) by notice in writing to the Company exercise the Option to its full extent or to the extent specified in such notice.

16. Rights on Winding Up

Subject to paragraph 13(a) above, in the event of an effective resolution being passed for the voluntary winding-up of the Company, the Grantee may, by notice in writing to the Company within 21 days after the date of such resolution, elect to be treated as if the Option (to the extent not already exercised) had been exercised immediately before the passing of such resolution either to its full extent or to the extent specified in such notice to the extent it has not been exercised and shall accordingly be entitled to receive out of the assets available for distribution in the liquidation, pari passu with the holders of Shares, such sum as would have been received in respect of the Shares the subject of such election, reduced by an amount equal to the aggregate Subscription Price for the relevant number of Shares which would otherwise have been payable in respect thereof.

17. Period of the New Scheme

The New Scheme will remain in force for a period of 10 years commencing on the date on which the New Scheme is adopted by Shareholders in General Meeting and shall expiry at the close of business on the tenth anniversary thereof unless terminated earlier by Shareholders in general meeting.

18. Termination

The Company by an ordinary resolution passed at a general meeting or the Board may at any time terminate the New Scheme and in such event no further Options will be offered but in all other respects the provisions of the New Scheme shall remain in full force and effect. Options

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Hengan International Group Company Limited

SUMMARY OF THE PRINCIPAL TERMS OF THE RULES OF THE NEW SCHEME

APPENDIX I

complying with the provisions of Chapter 17 of the Listing Rules which are granted during the life of the New Scheme and remain unexpired immediately prior to the termination of the operation of the New Scheme shall continue to be exercisable in accordance with their terms of issue after termination of the New Scheme.

19. Cancellation of Options Granted But Not Yet Exercised

Any Options granted but not exercised may be cancelled if the Grantee so agrees and new options may be granted to the same Grantee under the New Scheme with available unissued options (excluding the cancelled options) provided that new options fall within the limit as prescribed by paragraph 4 above and otherwise in compliance with the terms of the New Scheme.

20. Lapse of Option

Notwithstanding the above, an Option shall lapse automatically (to the extent not already exercised) on the earliest of:

• (a) the expiry of the Option Period as stipulated in the offer letter;

• (b) the expiry of any of the periods referred to in paragraphs 13 or 16;

• (c) the Court not making an order prohibiting the offeror to acquire the remaining Shares in the Offer, the expiry of the period referred to in paragraph 14;

• (d) compromise or scheme of arrangement becoming effective, the expiry of the period referred to in paragraph 15;

• (e) the date on which (i) the Grantee ceases to be an Employee by reason of the termination of his employment on the grounds that he has been guilty of serious misconduct or other breach of the terms of his employment or (ii) the Grantee has committed an act of bankruptcy or has become insolvent or has made any arrangements or composition with his creditors generally, or has been convicted of any criminal offence involving his integrity or honesty. A resolution of the Board to the effect that the employment of a Grantee has or has not been terminated on one or more of the grounds specified in this paragraph 20(e) shall be conclusive;

• (f) subject to paragraph 16, the date of the commencement of the winding-up of the Company;

• (g) the date on which the Grantee commits a breach of paragraph 11;

• (h) the expiry of the Scheme Period;

• (i) notwithstanding any terms of the New Scheme, the date of which the Employee ceases to be employed by the Group if such date occurs during the twelve-month period following the commencement date of the Option granted;

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Hengan International Group Company Limited

SUMMARY OF THE PRINCIPAL TERMS OF THE RULES OF THE NEW SCHEME

APPENDIX I

• (j) the date on which the Board resolves to revoke the Option on such grounds as the Board shall deem reasonable. A resolution of the Board to the effect that the revocation of the Option is reasonable shall be conclusive.

21. Modification of the New Scheme

No amendment shall be made to the terms and conditions of the New Scheme which extends the class of Employees, or alters to the advantage of the Grantees of the Options except with the prior approval of the Shareholders in general meeting:

• (a) Any amendment to any terms and conditions of the New Scheme which are of a material nature, or any change to the terms of Options granted, must be approved by Shareholders in general meeting, except the alterations take effect automatically under the existing terms of the New Scheme;

• (b) Any change to the authority of the Board in relation to any alteration to the terms of the New Scheme must be approved by Shareholders in general meeting; and

• (c) Any amendment to any terms of the New Scheme or the Options granted shall comply with the relevant requirements of Chapter 17 of the Listing Rules.

22. Administration

The Board shall have power from time to time to make or vary regulations for the administration and operation of the New Scheme, provided that the same are not inconsistent with the New Scheme.

The Company will provide a summary of the terms of the New Scheme to all participants on joining the scheme (and a copy of the scheme document to any participants who requests such a copy) and all details relating to changes in the terms of the New Scheme during the life of the scheme immediately upon such changes taking effect.

23. Conditions

The New Scheme and the grant of any Option shall take effect subject to (i) the passing by the Shareholders of an ordinary resolution at the AGM to approve the adoption of the New Scheme and (ii) the Listing Committee of the Stock Exchange granting approval of the listing of and permission to deal in the Shares falling to be issued pursuant to the exercise of any such Options under the New Scheme.

If such conditions are not satisfied as aforesaid:

• (i) the New Scheme shall forthwith determine; and

• (ii) no person shall be entitled to any rights or benefits or be under any obligation under to in respect of the New Scheme or any Option.

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Hengan International Group Company Limited

EXPLANATORY STATEMENT

APPENDIX II

(a) Proposed Share Repurchase Mandate

It is proposed that the Directors may exercise the powers of the Company to repurchase up to 10% of the Shares in issue as at the date of the passing of the resolution to approve the granting to the Directors the Shares Repurchase Mandate. At the Latest Practicable Date the number of Shares in issue was 995,312,000 shares. Accordingly, the exercise of the Share Repurchase Mandate in full (being the repurchase of 10% of the Shares in issue as at the date of the passing of the resolution to approve the Share Repurchase Mandate) would enable the Company to repurchase 99,531,200 shares.

(b) Reasons for Repurchases

Repurchases of Shares will only be made if the Directors believe that such repurchases will benefit the Company and its shareholders. Such repurchases may, depending on market conditions and funding arrangements at the time, lead to an enhancement of the net value of the Company and its assets and/or its earnings per share.

(c) Funding of Repurchases

In repurchasing securities, the Company may only apply funds legally available for such purpose in accordance with the Articles, the Listing Rules and the applicable laws of the Cayman Islands.

There might be a material adverse impact on the working capital or gearing position of the Company in the event that the Share Repurchase Mandate is exercised in full. However, the Directors do not propose to exercise the Share Repurchase Mandate to such an extent as would, in the circumstances, have a material adverse effect on the working capital requirements of the Company or the gearing levels which in the opinion of the Directors are from time to time appropriate for the Company.

(d) Undertaking

None of the Directors or, to the best of their knowledge having made all reasonable enquiries, any of their associates has any present intention to sell Shares to the Company or its subsidiaries if the Share Repurchase Mandate is granted.

The Directors have undertaken to the Stock Exchange that, so far as the same may be applicable, they will exercise the repurchase mandate in accordance with the Articles, the Listing Rules and the applicable laws of the Cayman Islands.

No Connected Person has notified the Company that he has a present intention to sell Shares to the Company, or has undertaken not to do so, in the event that the repurchase mandate is granted.

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Hengan International Group Company Limited

EXPLANATORY STATEMENT

APPENDIX II

(e) Hong Kong Codes on Takeovers and Mergers and Share Repurchases

If on the exercise of the power to repurchase Shares pursuant to the Share Repurchase Mandate, a shareholder’s proportionate interest in the voting rights of the Company increases, such increase will be treated as an acquisition for the purposes of Rule 32 of the Code on Takeovers and Mergers (“Takeover Code”). As a result, a shareholder or a group of shareholders acting in concert, depending on the level of increase of the shareholders’ interest, could obtain or consolidate control of the Company and become obliged to make a mandatory offer in accordance with Rules 26 and 32 of the Takeover Code. The Directors are not aware of any consequences which may arise under the Takeover Code as a result of any repurchase made under the Share Repurchase Mandate.

(f) Share Prices

The highest and lowest prices at which Shares of the Company had been traded on the Stock Exchange during each of the previous twelve months before the Latest Practicable Date, were as follows:

	**Share **	Price
	Highest	Lowest
	(HK$)	(HK$)
2002
April	2.950	2.675
May	3.550	2.900
June	3.400	2.775
July	3.050	2.150
August	2.350	2.150
September	2.350	2.075
October	2.250	1.970
November	2.300	2.025
December	2.150	2.050
2003
January	2.650	2.100
February	2.725	2.500
March	2.675	2.325

(g) Share Repurchase Made By the Company

During the six months prior to the printing of this annual report, the Company had not purchased any of its Shares.

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Hengan International Group Company Limited