XIAMEN YAN PALACE BIOENGINEERING CO., LTD. — Proxy Solicitation & Information Statement 2003

Apr 9, 2003

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 however arising from or in reliance upon the whole or any part of the contents of this circular.

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(Incorporated in Bermuda with limited liability)

PROPOSED GENERAL MANDATE FOR

PURCHASE OF OWN SHARES

A notice convening the 2003 Annual General Meeting of the Company to be held on Monday, 5th May, 2003 at 10:30 a.m. at Tang Room I, 3rd Floor, Sheraton Hong Kong Hotel & Towers, 20 Nathan Road, Kowloon, Hong Kong is set out on pages 6 to 8 of this circular. A proxy form is also enclosed. Whether or not you intend to attend and vote at the 2003 Annual General Meeting, please complete the proxy form, together with the power of attorney or other authority, if any, under which it is signed or a notarially certified copy of such power or authority, and return the same to the Company’s branch share registrar in Hong Kong, Abacus Share Registrars Limited at G/F, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong not less than 48 hours before the time appointed for holding the 2003 Annual General Meeting. Completion and return of the proxy form will not preclude any shareholder from attending and voting in person should you so wish.

31st March, 2003

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(Incorporated in Bermuda with limited liability)

Executive Directors:

Rusli Hendrawan (Chairman) Lee Sheng Kuang, James (Managing Director) Oey Tjie Ho Tang Chak Lam, Charlie

Registered Office:

Clarendon House 2 Church Street Hamilton HM11 Bermuda

Independent Non-Executive Directors:

Kwok Lam Kwong, Larry Lam Chi Kuen, Frank Lau Siu Ki, Kevin

Principal Place of Business:

23rd Floor 9 Wing Hong Street Cheung Sha Wan Kowloon Hong Kong

31st March, 2003

To the Shareholders

Dear Shareholder

PROPOSED GENERAL MANDATE FOR PURCHASE OF OWN SHARES

INTRODUCTION

At the 2002 Annual General Meeting of the Company held on 8th May, 2002, a general mandate was granted to the Directors of the Company to exercise the powers of the Company to repurchase issued shares in the capital of the Company. The general mandate will lapse at the conclusion of the 2003 Annual General Meeting to be held on 5th May, 2003 and therefore an ordinary resolution will be proposed at the 2003 Annual General Meeting to grant to the Directors authority to exercise the powers of the Company to purchase its own shares (the “Buyback Mandate”).

This circular serves as the explanatory statement to the Shareholders of the Company required by the Rules Governing the Listing of Securities (the “Listing Rules”) on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) containing all information reasonably necessary to enable Shareholders to make an informed decision on whether to vote for or against the ordinary resolution to approve the Buyback Mandate in the 2003 Annual General Meeting.

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GENERAL MANDATE TO REPURCHASE SHARES

At the 2003 Annual General Meeting of the Company to be held on Monday, 5th May, 2003, an ordinary resolution will be proposed to renew the granting to the Directors of the Buyback Mandate in the terms set out in the notice of 2003 Annual General Meeting allowing the Company to repurchase its own shares up to a limit of 10 per cent in aggregate of the Company’s issued share capital at the date of passing the resolution during the period ending on the earliest of the date of the next Annual General Meeting, the date by which the next Annual General Meeting of the Company is required to be held by law and the date upon which such authority is revoked or varied. This will allow the Company to repurchase its own shares, inter alia, on-market in accordance with the Listing Rules.

SHARE CAPITAL

As at 31st March, 2003, the issued share capital of the Company comprised 360,034,000 ordinary shares of HK$0.10 each.

Exercise in full of the Buyback Mandate, on the basis that no further shares are issued or repurchased prior to 5th May, 2003, being the date of the 2003 Annual General Meeting, could accordingly result in up to a maximum of 36,003,400 shares being repurchased by the Company during the course of the period from 5th May, 2003 to the earliest of (i) the date of the 2004 Annual General Meeting, (ii) the date by which the next Annual General Meeting of the Company is required to be held by law and (iii) the date upon which such authority is revoked or varied.

REASONS FOR REPURCHASES

The Directors believe that it is in the best interests of the Company and its Shareholders to seek a general authority from Shareholders to enable the Directors to purchase shares of the Company in the market. Such purchases 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 and will only be made when the Directors believe that such a purchase will benefit the Company and its Shareholders.

FUNDING OF REPURCHASES

Pursuant to the Buyback Mandate, repurchases would be funded entirely from the Company’s available cash flow or working capital facilities which will be funds legally available for the purpose in accordance with all applicable laws of Bermuda and the Company’s Memorandum of Association and Bye-Laws.

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On the basis of the consolidated financial position of the Company as at 31st December, 2002 (being the date to which the latest published financial statements of the Company have been made up), the Directors consider that the exercise in full of the Buyback Mandate to repurchase shares might have a material adverse impact on the working capital position of the Company as compared with its position as at 31st December, 2002. No purchase would be made in circumstances that might have a material adverse impact on the working capital or gearing position of the Company (as compared with the position disclosed in the latest published audited financial statements) unless the Directors considered that such purchases were in the best interests of the Company notwithstanding such material adverse impact.

SHARE PRICES AND REPURCHASED SHARES

The highest and lowest prices at which the shares have traded on the Stock Exchange in each of the previous twelve months are as follows:

	Highest	Lowest
	HK$	HK$
April 2002	1.55	1.36
May 2002	2.13	1.40
June 2002	1.75	1.43
July 2002	1.53	1.23
August 2002	1.43	1.10
September 2002	1.31	1.13
October 2002	1.19	1.05
November 2002	1.12	0.93
December 2002	0.92	0.53
January 2003	0.80	0.55
February 2003	0.85	0.66
March 2003	0.81	0.60

The Company has not made any purchase of shares (whether on the Stock Exchange or otherwise) in the previous six months.

HONG KONG CODE ON TAKEOVERS AND MERGERS

If as a result of a share repurchase, a Shareholder’s proportionate interest in the voting capital of the Company increases, such increase will be treated as an acquisition for the purposes of the Hong Kong Code on Takeovers and Mergers (the “Code”) and, if such increase results in a change of control, may in certain circumstances give rise to an obligation to make a general offer for shares under Rule 26 of the Code, according to Rule 32 of the Code.

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As at 31st March, 2003, being the latest practicable date prior to the printing of this circular, Respected International Limited (“RIL”) was interested in 162,000,000 shares, representing 45.00 per cent of the issued share capital of the Company. In the event that the Directors exercised in full the power to repurchase shares which is proposed to be granted pursuant to the Buyback Mandate, the shareholding of RIL in the Company would be increased to 50.00 per cent of the issued share capital of the Company. The increase of RIL’s proportionate interest in the voting capital of the Company will be treated as an acquisition for the purpose of the Code. Accordingly, RIL 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, when exceeding the 2% creeper, become obliged to make a mandatory offer in accordance with Rule 26 of the Code as a result of any such increase. Save as disclosed herein, the Directors are not aware of any consequences which may arise under the Code if the Buyback Mandate is exercised. The Directors have no present intention to exercise the Buyback Mandate to such an extent as would trigger the application of the Code in the manner described above.

RIL has notified the Company that if the Buyback Mandate is approved and exercised, it has no present intention to sell Shares to the Company.

CONNECTED PERSONS

No persons who are connected persons (as defined in the Listing Rules) of the Company have notified the Company that they have a present intention to sell shares to the Company nor have they undertaken not to do so, if the Buyback Mandate is approved.

DIRECTORS

None of the Directors or, to the best of their knowledge and having made all reasonable enquiries, their associates have any present intention, if the Buyback Mandate is approved, to sell any shares to the Company.

The Directors have undertaken to the Stock Exchange that they would exercise the Buyback Mandate in accordance with the Listing Rules and the applicable laws of Bermuda, the jurisdiction in which the Company is incorporated, and in accordance with the regulations set out in the Memorandum of Association and Bye-Laws of the Company.

RECOMMENDATION

The notice containing resolution regarding the proposal to be passed at the 2003 Annual General Meeting is set out on pages 6 to 8 of this circular.

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The Directors recommend the proposal to all Shareholders for their favourable consideration and urge them to vote in favour of the resolution to be proposed at the 2003 Annual General Meeting as they intend to do themselves in respect of their own holdings.

The Directors believe that the granting of the Buyback Mandate is in the best interest of the Company and the Shareholders as a whole as it will enable the Directors to purchase shares of the Company in the market, which may enhance the net value of the Company and its assets and/or its earnings per share.

By order of the Board Lee Sheng Kuang, James Managing Director

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(Incorporated in Bermuda with limited liability)

NOTICE OF ANNUAL GENERAL MEETING

NOTICE IS HEREBY GIVEN THAT the Annual General Meeting of the Shareholders of the Company will be held at Tang Room I, 3rd Floor, Sheraton Hong Kong Hotel & Towers, 20 Nathan Road, Kowloon, Hong Kong on Monday, 5th May, 2003 at 10:30 a.m. for the following purposes:

1. To receive and adopt the Reports of the Directors and the Auditors and the Statement of Accounts for the year ended 31st December, 2002.

2. To declare a final dividend for the year ended 31st December, 2002.

3. To re-elect Directors and to authorise the Board of Directors to fix the fees of the Directors.

4. To re-appoint Auditors for the ensuing year and to authorise the Board of Directors to fix their remuneration.

5. As special business, to consider and if thought fit, pass the following resolution as an Ordinary Resolution:

“ THAT :

• (A) subject to paragraph 5(C) below, the exercise by the Directors of the Company during the Relevant Period of all the powers of the Company to allot and issue additional shares in the share capital of the Company and to make or grant offers, agreements and options which might require the exercise of such power be and is hereby generally and unconditionally approved;

• (B) the approval in paragraph 5(A) shall authorise the Directors of the Company during the Relevant Period to make or grant offers, agreements and options which might require the exercise of such power after the end of the Relevant Period;

• (C) the aggregate nominal amount of share capital allotted or agreed conditionally or unconditionally to be allotted (whether pursuant to an option or otherwise) by the Directors of the Company pursuant to the approval in paragraph 5(A), otherwise than (i) pursuant to a Rights Issue or (ii) on the exercise of the options granted under the Company’s share option schemes or (iii) any scrip dividend or similar arrangement providing for the allotment and issue of shares in lieu of the whole

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or part of a dividend on shares in accordance with the Bye-Laws of the Company in force from time to time, shall not exceed 20 per cent of the aggregate nominal amount of the share capital of the Company in issue and the said approval shall be limited accordingly;

• (D) conditional upon the passing of the Ordinary Resolution as set out in paragraph 6 below, the general mandate granted to the Directors pursuant to paragraph 5(A) shall be extended by the addition thereto of an amount representing the aggregate nominal amount of the share capital of the Company repurchased by the Company under the authority granted in paragraph 6, provided that such amount shall not exceed 10 per cent of the aggregate nominal amount of the share capital of the Company in issue; and

• (E) 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 law to be held; and

• (iii) the revocation or variation of this Resolution by an ordinary resolution of Shareholders of the Company in General Meeting.

“Rights Issue” means an offer of shares open for a period fixed by the Directors of the Company to holders of shares, or any class of shares, on a fixed record date in proportion to their then holdings of such shares (subject to such exclusions or other arrangements as the Directors of the Company may deem necessary or expedient in relation to fractional entitlements or having regard to any restrictions or obligations under the laws of, or the requirements of any recognised regulatory body or any stock exchange in, any territory outside Hong Kong).”

1. As special business, to consider and if thought fit, pass the following resolution as an Ordinary Resolution:

“ THAT :

• (A) subject to paragraph 6(C) below, the exercise by the Directors of the Company during the Relevant Period of all the powers of the Company to repurchase issued shares in the capital of the Company subject to and in accordance with all applicable laws be and is hereby generally and unconditionally approved;

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• (B) the approval in paragraph 6(A) shall be in addition to any other authorisation given to the Directors of the Company;

• (C) the aggregate nominal amount of share capital purchased or agreed conditionally or unconditionally to be purchased by the Directors of the Company pursuant to the approval in paragraph 6(A) during the Relevant Period, shall be no more than 10 per cent of the aggregate nominal amount of the existing issued share capital of the Company at the date of this Meeting, and the authority pursuant to paragraph 6(A) 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 law to be held; and

• (iii) the revocation or variation of this Resolution by an ordinary resolution of Shareholders of the Company in General Meeting.”

By order of the Board Lee Wai Kuen, Judy Company Secretary

Hong Kong, 20th March, 2003

Notes:

1. A proxy need not be a shareholder of the Company. A shareholder is entitled to appoint a proxy of his own choice to attend and vote instead of him. A shareholder may appoint a proxy in respect of part only of his holding of shares in the Company.

2. To be valid, a proxy form, together with the power of attorney or other authority, if any, under which it is signed or a notarially certified copy of such power or authority must be lodged with the Company’s branch share registrar in Hong Kong, 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 the Annual General Meeting.

3. With regard to item 5, the Directors wish to state that, currently, they have no plan to issue any additional new shares of the Company. The present general mandate given by shareholders pursuant to the provisions of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) expires at the forthcoming Annual General Meeting and, accordingly, a renewal of that general mandate is now being sought.

4. With regard to item 6, the present general mandate given by shareholders pursuant to the provisions of the Listing Rules and the Hong Kong Code on Share Repurchases expires at the forthcoming Annual General Meeting and, accordingly, a renewal of that general mandate is now being sought.

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