Zibuyu Group Limited — Proxy Solicitation & Information Statement 2002

Jul 24, 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 a 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 Zhong Hua International Holdings Limited (“Company”), you should at once hand this circular with the enclosed form of proxy to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

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 Bermuda with limited liability)

PROPOSED TERMINATION OF

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

A notice convening the special general meeting of the Company to be held at The Hong Kong Bankers Club, The Dragon Room 3 and 5, 43rd Floor, Gloucester Tower, The Landmark, Central, Hong Kong on Tuesday, 11th June, 2002 at 10:00 a.m. (or so soon thereafter as the Annual General Meeting of the Company convened at the same place and date at 9:45 a.m. shall be concluded or adjourned) is appended to this circular. Whether or not you are able to attend the meeting, you are requested to complete the form of proxy in accordance with the instructions printed thereon and deposit the same with Tengis Limited, the Company’s branch share registrar in Hong Kong, at 4th Floor, Hutchison House, 10 Harcourt Road, Central, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for the holding of the meeting. Completion and return of the form of proxy will not prevent shareholders from attending and voting at the meeting if they so wish.

* for identification purposes only

17th May, 2002

CONTENTS

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board
The Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
Existing Scheme . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Reasons for the Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Conditions of the Adoption of the New Scheme . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
Value of all Options that can be Granted under the New Scheme . . . . . . . . . . . . .	6
The SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Further Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Appendix I – General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
Appendix II – Principal Terms of the New Share Option Scheme. . . . . . . . . . . . . .	9
Notice of SGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	18

– i –

DEFINITIONS

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

“associate(s)” has the meaning ascribed to it under the Listing Rules “Auditors” the auditors for the time being of the Company “Board” the board of directors of the Company “Company” Zhong Hua International Holdings Limited, a company incorporated in Bermuda with limited liability, the securities of which are listed on the Stock Exchange “Date of Grant” the date on which the Directors resolves to make an offer to grant an option under the New Scheme to an Eligible Person “Director(s)” director(s) of the Company “Eligible Persons” all Directors (whether executive or non-executive and whether independent or not), any employees (whether full-time or parttime), any consultants or advisers of or to any company in the Group or any Invested Entity (whether on an employment or contractual or honorary basis or otherwise and whether paid or unpaid) and any supplier of goods or services to any member of the Group or any Invested Entity, any customer of the Group or any Invested Entity, any person or entity that provides research, development or other technological support to the Group or any Invested Entity, any shareholder of any member of the Group or any Invested Entity or any holder of securities issued by any member of the Group or any Invested Entity, and for the purposes of the New Scheme, the options may be granted to any company wholly owned by one or more persons belonging to any of the above classes of Eligible Persons

• “Existing Options”

an aggregate of 129,500,000 share options (excluding any that had lapsed) granted and yet to be exercised under the Existing Scheme as at the Latest Practicable Date

• “Existing Scheme”

the existing share option scheme adopted by the Company pursuant to a written resolution of the Shareholders of the Company dated 19th September, 1997

– 1 –

DEFINITIONS

“Invested Entity”	any entity in which any member of the Group holds an equity
	interest
“Grantee”	any Eligible Person who accepts an offer of the grant an option
	in accordance with the terms of the New Scheme, or any person
	who is entitled to any such option
“Group”	the Company and its subsidiaries
“Hong Kong”	The Hong Kong Special Administrative Region of the People’s
	Republic of China
“Latest Practicable Date”	16th May, 2002, being the latest practicable date prior to the
	printing of this circular for ascertaining certain information
	referred to in this circular
“Listing Rules”	the Rules Governing the Listing of Securities on The Stock
	Exchange of Hong Kong Limited
“New Scheme”	the share option scheme proposed to be adopted by the
	Company, a summary of the principal terms of which is set out
	in Appendix II
“Proposal”	the termination of the Existing Scheme, the adoption of the
	New Scheme and the grant of a general mandate to the Directors
	to grant options under the New Scheme and to allot, issue and
	deal with Shares pursuant to the exercise of options granted
	under the New Scheme
“SGM”	the special general meeting of the Company to be held on
	Tuesday, 11th June, 2002 at 10:00 a.m., the notice of which is
	appended to this circular, or any adjournment thereof
“Share(s)”	the ordinary share(s) in the capital of the Company with a par
	value of HK$0.02 each (or such other prevailing par value
	from time to time)
“Shareholders(s)”	shareholder(s) of the Company
“Stock Exchange”	The Stock Exchange of Hong Kong Limited

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DEFINITIONS

“Takeover Code” the Hong Kong Code on Takeovers and Mergers “trading day” means a day on which the Stock Exchange is open for the trading of securities “HK$” Hong Kong dollars, the lawful currency of Hong Kong “%” per cent.

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LETTER FROM THE BOARD

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(Incorporated in Bermuda with limited liability)

Executive Directors:

HO Tsam Hung (Chairman) HO Pak Hung (Deputy Chairman) HO Kam Hung (Managing Director) LAM Ling Tak

Registered office: Clarendon House 2 Church Street Hamilton HM11 Bermuda

Non-executive Directors:

TSAO Kwang Yung, Peter # KWOK Lam Kwong, Larry # CHAN Chiu Kwok, Charles #

# Independent Non-executive Directors

Head office and principal place of business:

Suites 3302-04, 33rd Floor One International Finance Centre 1 Harbour View Street, Central Hong Kong

17th May, 2002

To the Shareholders and, for information only, holders of the Existing Options

Dear Sir or Madam,

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

THE PROPOSAL

Pursuant to a written resolution of all shareholders of the Company dated 19th September, 1997, the Company adopted the Existing Scheme pursuant to which the Directors were authorized to grant options to full-time employees of the Group, including executive directors of any member of the Group.

The Board proposes to seek the approval of the Shareholders for the termination of the Existing Scheme, the adoption of the New Scheme and the grant of a general mandate to the Directors to grant options under the New Scheme and to allot, issue and deal with Shares pursuant to the exercise of options granted under the New Scheme.

* for identification purposes only

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LETTER FROM THE BOARD

The purpose of this circular is to provide you with further information regarding the Proposal and to give you notice of the SGM at which an ordinary resolution will be proposed to consider and, if thought fit, approve, among other matters, the termination of the Existing Scheme, the adoption of the New Scheme and the grant of a general mandate to the Directors to grant options under the New Scheme and to allot, issue and deal with Shares pursuant to the exercise of options granted under the New Scheme.

EXISTING SCHEME

As at the Latest Practicable Date, options to subscribe for a total of 129,500,000 Shares have been granted to 10 full-time employees (including executive Directors) of the Group pursuant to the Existing Scheme at a subscription price of HK$0.6976 per Share (“Existing Options”). The Shares that will fall to be issued upon full exercise the Existing Options comprise approximately 4.35% of the existing share capital of the Company and approximately 4.16% of its enlarged share capital, based on a total of 2,980,016,725 Shares in issue as at the Latest Practicable Date. The Existing Options may be exercised any time during the period from 1st December, 2001 to 1st December, 2004 pursuant to the terms of the Existing Scheme.

The Directors confirm that they will not further exercise their authorities in granting options under the Existing Scheme prior to the date of the SGM.

Under the terms of the Existing Scheme, the Company may by ordinary resolution at general meeting terminate the operation of the Existing Scheme. Upon termination of the Existing Scheme, no further options would be offered pursuant to the Existing Scheme but the Existing Scheme would in all other respects remain in force to the extent necessary to give effect to the exercise of the Existing Options. The Existing Options will continue to be valid and exercisable in accordance with the provisions of the Existing Scheme.

REASONS FOR THE PROPOSAL

In order to comply with latest requirements of Chapter 17 of the Listing Rules, the Board proposed to adopt the New Scheme for the Company and to terminate the Existing Scheme, subject to the approval of the Shareholders.

Chapter 17 of the Listing Rules deals with share option schemes of listed companies. Major amendments have recently been introduced to Chapter 17 of the GEM Listing Rules. These amendments, which came into effect on 1st September, 2001, expand the classes of potential grantees of share options, relax certain requirements relating to the maximum number of shares comprised in share options that can be granted under the share option schemes of listed companies and, at the same time, impose new disclosure and approval requirements on listed companies. In general, these amendments are designed to incentivise the employees and other stakeholders of the listed companies through the grant of share options while improving transparency and accountability over the grant of share options by these companies.

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LETTER FROM THE BOARD

Options may no longer be granted under the Existing Scheme by the Company unless such grants have been made in compliance with the amended rules. In this connection, the Board wishes to propose to the Shareholders that the Company should terminate the Existing Scheme and adopt the New Scheme, the terms of which comply with the amended Chapter 17 of the Listing Rules. The Directors consider that the adoption of the New Scheme is in the interests of the Company and the Shareholders as a whole because it enables the Company to reward and provide incentives to its employees and other classes of persons who contributed or may contribute to the growth and development of the Group.

Set out in the Appendix II of this circular are a summary of the principal terms of the New Scheme, under which the maximum number of Shares which may be allotted and issued upon exercise of all outstanding options granted and yet to be exercised under the New Scheme and any other schemes of the Company represents 30% of the issued share capital of the Company from time to time.

CONDITIONS OF THE ADOPTION OF THE NEW SCHEME

The adoption of the New Scheme is conditional upon, among other matters, (i) the termination of the Existing Scheme by an ordinary resolution at the SGM; (ii) the approval by the Shareholders of the New Scheme at the SGM and of the allotment and issue of the Shares which may fall to be allotted and issued upon the exercise of the options granted under the New Scheme; and (iii) the Stock Exchange granting the listing of, and permission to deal in, the Shares, up to 10% of the Shares in issue upon adoption of the New Scheme, which fall to be allotted and issued upon exercise of the options granted under the New Scheme.

The Directors will seek approval of the Shareholders at the SGM for the termination of the Existing Scheme and the adoption of the New Scheme in accordance with the Listing Rules and the allotment and issue of the Shares, not exceeding 10% of the Shares in issue as at the date of the SGM, representing 298,001,673 Shares, which may fall to be allotted and issued upon exercise of the options granted under the New Scheme and any other share option schemes.

Application will be made to the Stock Exchange for the listing of, and permission to deal in, the Shares, up to 10% of the Shares in issue upon adoption of the New Scheme, which may fall to be allotted and issued upon the exercise of the options granted under the New Scheme.

VALUE OF ALL OPTIONS THAT CAN BE GRANTED UNDER THE NEW SCHEME

The Directors consider it inappropriate to value the options that can be granted under the New Scheme on the assumption that they had been granted at the Latest Practicable Date, as various determinating factors for the calculation of such value cannot be reasonably fixed at this stage. It would not be meaningful and to certain extent would be misleading to the Shareholders if the value of the options is calculated based on a set of speculated assumptions.

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LETTER FROM THE BOARD

However, the information on value of the option granted in any financial period will be provided to the Shareholders based on Black-Scholes option pricing model, the binomial model or a comparable generally accepted methodology as at the end of the relevant financial period for any interim or final results of the Company.

The Directors believe that the authority given to the Board under the New Scheme to specify any minimum period and/or performance target, if any, as conditions in any options to be granted and the requirement for a minimum subscription price as well as the selection criteria prescribed by the rules of the New Scheme will serve to protect the value of the Company as well as to achieve the purpose of the New Scheme.

THE SGM

A notice convening the SGM to be held on Tuesday, 11th June, 2002 at 10:00 a.m. at The Hong Kong Bankers Club, The Dragon Room 3 and 5, 43rd Floor, Gloucester Tower, The Landmark, Central, Hong Kong is appended to this circular. A form of proxy for use at the SGM is also enclosed. The form of proxy, in order to be valid, must be deposited in accordance with the instructions printed thereon not less than 48 hours before the time for holding the meeting. Completion and delivery of the form of proxy will not prevent the Shareholders from attending and voting in the SGM if they wish.

RECOMMENDATION

The Directors consider that the adoption of New Scheme is in the interests of the Company and the Shareholders as a whole.

Accordingly, the Directors recommend that the Shareholders vote in favour of the ordinary resolution for approving (a) the termination of the Existing Scheme; and (b) the adoption of the New Scheme; and (c) the grant of a general mandate to the Directors to grant options under the New Scheme and to allot, issue and deal with Shares pursuant to the exercise of options granted under the New Scheme.

FURTHER INFORMATION

Your attention is drawn to the additional information set out in Appendices to this circular.

By Order of the Board of

Zhong Hua International Holdings Limited Carrie Ho Company Secretary

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GENERAL INFORMATION

APPENDIX I

1. 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 facts the omission of which would make any statement in this circular misleading.

2. INTERESTS OF DIRECTORS

As at the Latest Practicable Date, none of the Directors act as trustees of the existing share option scheme or have any direct or indirect interest in the trustees (if any) of the existing share option scheme.

3. GENERAL

Copies of the following documents will be available for inspection at the Company’s principal place of business in Hong Kong at Suites 3302-04, 33rd Floor, One International Finance Centre, 1 Harbour View Street, Central, Hong Kong during normal business hours on any business day up to and including Tuesday, 11th June, 2002 and at the SGM:

• (i) the bye-laws of the Company; and

• (ii) the New Scheme.

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APPENDIX II PRINCIPAL TERMS OF THE NEW SHARE OPTION SCHEME

The following is a summary of the principal terms of the New Scheme which is proposed to be adopted by the Company as a share incentive scheme for the Company at the SGM:

(a) Purpose of the Scheme

The purpose of this Scheme is to provide Eligible Persons with the opportunity to acquire proprietary interests in the Company and to encourage Eligible Persons to work towards enhancing the value of the Company and its Shares for the benefit of the Company and its Shareholders as a whole.

(b) Administration of the New Scheme

The New Scheme shall be subject to the administration of the Board, and the decision of the Board shall be final and binding on all parties. The Board shall have the right to (i) interpret and construe the provisions of the Scheme, (ii) determine the persons who will be offered options under the New Scheme, and the number of Shares and subscription price of the options, subject to paragraph (d) below, (iii) to make such appropriate and equitable adjustments, subject to paragraph (w) below, to the terms of options granted under the New Scheme as it deems necessary, and (iv) make such other decisions or determinations as it shall deem appropriate in relation to the grant of options and/or the administration of the New Scheme. The interpretation of the New Scheme by the Board must be in accordance with Chapter 17 of the Listing Rules and any amendments to or alteration of the New Scheme referred to in paragraph (w) below must comply with the requirements referred to in paragraph (w) below.

(c) Who may join

The Board may at any time within ten years after the adoption date of the New Scheme make an offer to any Eligible Person, as the Board may in its absolute discretion select, to take up an option pursuant to which such Eligible Person may, during the period of the option, subscribe for such number of Shares as the Board may determine at a subscription price determined in accordance with (d) below. A Date of Grant of option shall be a trading day.

(d) Price of Shares

The subscription price shall be such price determined by the Board at its absolute discretion and notified to the Eligible Person in the offer but shall be no less than the highest of:

• (i) the closing price of the Shares as stated in the daily quotations sheets issued by the Stock Exchange on the Date of Grant;

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PRINCIPAL TERMS OF THE NEW SHARE OPTION SCHEME

APPENDIX II

• (ii) the average closing price of the Shares as stated in the daily quotations sheets issued by the Stock Exchange for the 5 business days immediately preceding the Date of Grant; and

• (iii) the nominal value of a Share on the Date of Grant.

(e) Maximum number of Shares

• (i) The overall limit on the number of Shares which may be issued upon exercise of all outstanding options granted and yet to be exercised under the New Scheme and other share option schemes of the Company must not exceed 30% of the Shares in issue from time to time (“Scheme Limit”).

• (ii) The Shares which may be issued upon exercise of all options to be granted under the New Scheme and other share option schemes of the Company shall not exceed 10% of the Shares in issue upon adoption of the New Scheme (the “Scheme Mandate Limit”), representing 298,001,673 Shares. Options lapsed in accordance with the terms of the relevant scheme shall not be counted for the purpose of calculating the Scheme Mandate Limit.

• (iii) The Company may renew the Scheme Mandate Limit at any time subject to prior shareholders’ approval. However, the Scheme Mandate Limit as renewed shall not exceed 10% of the Shares in issue as at the date of the aforesaid shareholders’ approval. Options previously granted under the New Scheme, and other share option schemes (including those outstanding, lapsed in accordance with the relevant scheme or exercised options) shall not be counted for the purpose of calculating the limit as renewed. A circular must be sent to shareholders in connection with the meeting at which their approval will be sought.

• (iv) The Company may also seek separate shareholders’ approval for granting options beyond the Scheme Mandate Limit to Eligible Persons specifically identified by the Company before the aforesaid shareholders’ meeting where such approval is sought. A circular must be sent to shareholders containing a generic description of the identified Eligible Persons, the number and terms of the options to be granted, the purpose of granting options to the identified Eligible Persons, and how these options serve such purpose.

• (v) The total number of Shares issued and to be issued upon exercise of the options granted and to be granted to each Eligible Person or Grantee (as the case may be) (including both exercised and outstanding options) in any 12-month period must not exceed 1% of the Shares in issue (the “Individual Limit”). Any further grant of options in excess of the Individual Limit shall be subject to shareholders’ approval with such Eligible Person or Grantee (as the case may be) and his associates (as such term is defined in the

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APPENDIX II PRINCIPAL TERMS OF THE NEW SHARE OPTION SCHEME

Listing Rules) abstaining from voting. A circular must be sent to the shareholders disclosing the identity of the Eligible Person or Grantee (as the case may be) and the number and terms of the options granted and to be granted. The number and terms of options to be granted to such Eligible Persons or Grantee, as the case may be, shall be fixed before shareholders’ approval is sought and the date of the board meeting for proposing such further grant shall be taken as the Date of Grant of an option for the purpose of calculating the subscription price.

(f) Grant of options to connected persons

The grant of options to any Director, chief executive or substantial shareholder of the Company or their respective associates shall be approved by the independent nonexecutive Directors of the Company (excluding any independent non-executive Director who is the proposed Grantee of the option). Where any grant of options to a Director, chief executive, substantial shareholder (as that term is defined in the Listing Rules) or an independent non-executive Director of the Company, or any of their respective associates, would 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:

• (i) representing in aggregate over 0.1% of the Shares in issue for the time being; and

• (ii) having an aggregate value, based on the closing price of the Shares as stated in the daily quotations sheets issued by the Stock Exchange on the Date of Grant, in excess of HK$5 million,

such grant of options shall be approved by the Shareholders (voting by way of poll). All connected persons (as defined in the Listing Rules) of the Company shall 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 to be sent to the Shareholders in connection therewith.

(g) Time of exercise of option

An option may be exercised in accordance with the terms of the New Scheme at any time during a period to be notified by the Board to each Grantee but may not be exercised after the expiry of ten years from the Date of Grant. The Board may provide restrictions on the exercise of an option during the period an option may be exercised.

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APPENDIX II PRINCIPAL TERMS OF THE NEW SHARE OPTION SCHEME

(h) Rights personal to Grantee

An option shall be personal to the Grantee and shall not be assignable and no Grantee shall in any way sell, transfer, charge, mortgage, encumber or create any interest in favour of any other person over or in relation to any option.

(i) Rights on cessation of employment by death

If the Grantee who is an employee or executive director (but not a non-executive director) of the Group, dies before exercising the option in full and none of the events which would be a ground for termination of his or her employment under (k) below then exists, the personal representative(s) of the Grantee shall be entitled within a period of 12 months from the date of death to exercise the option up to the entitlement of such Grantee as at the date of death, failing which the option will lapse.

(j) Rights on cessation of employment for other reasons

If the Grantee who is an employee or director, ceases to be an employee or executive director (but not a non-executive director) of the Group for any reason other than on his or her death or the termination of his/her employment or directorship on one or more of the grounds specified in (k) below, the option shall lapse on the date of cessation of such employment or directorship and not be exercisable unless the Board otherwise determines in which event the option shall be exercisable to the extent and within such period as the Board may determine. The date of cessation of employment or directorship shall be the last actual working day on which the Grantee was physically at work with the Company or the relevant Subsidiary, whether salary is paid in lieu of notice or not.

(k) Rights on cessation of employment by dismissal

If a Grantee who is an employee or executive director (but not a non-executive director), ceases to be an employee or executive director (but not a non-executive director) of the Group by reason of the termination of his or her employment or directorship on the grounds that he or she has been guilty of serious misconduct, or appears either to be unable to pay or to have no reasonable prospect of being able to pay his or her debts or has become bankrupt or has made any arrangement or composition with his or her creditors generally, or has been convicted of any criminal offence involving his or her integrity or honesty or on any other ground on which an employer would be entitled to terminate his or her employment summarily, his or her option will lapse and not be exercisable on the date of termination of his or her employment or directorship.

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APPENDIX II PRINCIPAL TERMS OF THE NEW SHARE OPTION SCHEME

(l) Cancellation of options

Any cancellation of option granted but not exercised may be cancelled if the Grantee so agrees. If such cancellation has been approved by the Shareholders in a general meeting, options may be re-issued after such cancellation, provided that there are available unissued options within the limits mentioned in paragraph (e) above and the re-issued options shall only be granted in compliance with the terms of the New Scheme. The relevant Grantees and their respective associates shall abstain from voting at any such Shareholders’ meeting to approve the cancellation and any vote taken at the general meeting for approving such cancellation shall be taken by poll. If cancellation takes place without Shareholders’ approval, such options may not be re-issued.

(m) Effects of alterations to share capital

• (i) In the event of any alteration in the capital structure of the Company whilst any option remains exercisable or the New Scheme remains in effect, and such event arises from a capitalization of profits or reserves, rights issue, consolidation, sub-division or reduction of the share capital of the Company, then, in any such case the Company shall instruct the Auditors or independent financial adviser to the Company to certify in writing the adjustment, if any, that ought in their opinion fairly and reasonably to be made either generally or as regards any particular Grantee, to:

• (aa) the number or nominal amount of Shares subject to option(s) already granted and to the New Scheme (insofar as it is/they are unexercised); and/or

• (bb) the subscription price of any option(s),

and an adjustment as so certified by the Auditors or the independent financial adviser to the Company shall be made, provided that:

• (I) the Auditor or financial adviser shall confirm to the Directors in writing that the adjustment (other than any made on a capitalisation issue) satisfy the requirements set out in the note to Rule 17.03(13) of the Listing Rules;

• (II) no such adjustment shall be made the effect of which would be to enable a Share to be issued at less than its nominal value;

• (III) such adjustment must give an Eligible Person the same proportion of the equity capital of the Company as that to which that person was previously entitled; and

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PRINCIPAL TERMS OF THE NEW SHARE OPTION SCHEME

APPENDIX II

• (IV) the issue of securities of the Company as consideration in a transaction shall not be regarded as a circumstance requiring any such adjustment.

• (ii) If there has been any alteration in the capital structure of the Company as referred to in paragraph (i) above, the Company shall, upon receipt of a notice from a Grantee, inform the Grantee of such alteration and shall either inform the Grantee of the adjustment to be made in accordance with the certificate of the Auditors or the independent financial adviser to the Company obtained by the Company for such purpose or, if no such certificate has yet been obtained, inform the Grantee of such fact and instruct the Auditors or the independent financial adviser to the Company as soon as practicable thereafter to issue a certificate in that regard in accordance with paragraph (i) above.

(n) Rights on a general offer

In the event of a general offer by way of takeover (other than by way of scheme of arrangement) being made to all the holders of Shares (or all such holders other than the offeror, any person controlled by the offeror and any person acting in association or concert with the offeror) and such offer becomes or is declared unconditional prior to the expiry date of the relevant option, the Company shall forthwith give notice thereof to the Grantee and the Grantee shall be entitled to exercise the option either to its full extent or to the extent notified by the Company at any time within such period as shall be notified by the Company.

In the event of a general offer by way of scheme of arrangement being made to all the Shareholders and has been approved by the necessary number of Shareholders at the requisite meetings, the Grantee may at any time thereafter (but before such time as shall be notified by the Company) exercise the option either to its full extent or to the extent notified by the Company.

(o) Rights on voluntary winding-up

In the event a notice is given by the Company to its shareholders to convene a Shareholders’ meeting for the purpose of considering and, if thought fit, approving a resolution to voluntarily wind up the Company, the Grantee may at any time thereafter (but before such time as shall be notified by the Company) exercise the option either to its full extent or to the extent notified by the Company, and the Company shall as soon as possible and in any event no later than three days prior to the date of the proposed Shareholders’ meeting, allot, issue and register in the name of the Grantee such number of fully paid Shares which fall to be issued on exercise of such option.

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APPENDIX II PRINCIPAL TERMS OF THE NEW SHARE OPTION SCHEME

(p) Rights on compromise or arrangement

In the event of a compromise or arrangement, other than a scheme of arrangement in connection with a general offer mentioned in paragraph (n) above, between the Company and its members or creditors being proposed in connection with a scheme for the reconstruction or amalgamation of the Company, the Company shall first give notice to all Grantees on the same day as it gives notice of the meeting to its members or creditors to consider such a scheme or arrangement and the Grantee may at any time thereafter but before such time as shall be notified by the Company exercise the option either to its full extent or to the extent notified by the Company, and the Company shall as soon as possible and in any event no later than three days prior to the date of the proposed meeting, allot, issue and register in the name of the Grantee such number of fully paid Shares which fall to be issued on exercise of such option.

(q) Ranking of Shares

The Shares to be allotted and issued upon the exercise of an option will rank pari passu with the fully paid Shares in issue on the date the name of the Grantee is registered on the register of members of the Company. Prior to the Grantee being registered on the register of members of the Company the Grantee shall not have any voting rights, or rights to participate in any dividends or distributions of any rights arising on a liquidation of the Company, in respect of the Shares to be issued upon the exercise of the option.

The Shares issued on exercise of the options will on issue be identical to the then existing issued Shares of the Company.

(r) Amount payable on acceptance

The amount payable on acceptance of an option is HK$1.00. The offer of the option shall be accepted by the Eligible Persons within 28 days from the date of the offer, otherwise the offer shall lapse.

(s) Minimum period or performance target

Subject to any terms specifically imposed by the Board, there is no minimum period for which an option must be held before it can be exercised and no performance target which must be achieved before the options can be exercised.

(t) Period of the New Scheme

Subject to earlier termination by the Company in general meeting or by the Board, the New Scheme shall be valid and effective for a period of ten years from the date of its adoption, being the date on which the New Scheme becomes unconditional and effective. After the expiry of the ten-year period, no further options will be offered

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APPENDIX II PRINCIPAL TERMS OF THE NEW SHARE OPTION SCHEME

or granted but in all other respects the provisions of the New Scheme shall remain in force and effect in respect of options granted under the New Scheme but not yet exercised at the time of its termination. Options complying with the provisions of Chapter 17 of the Listing Rules which are granted during the life of the New Scheme and which remain unexpired immediately prior to the end of the ten-year period shall continue to be exercisable thereafter.

(u) Termination of the New Scheme

The Company by ordinary resolution in general meeting or the Board may at any time terminate the operation of the New Scheme and in such event no further options will be offered or granted but in all other respects the provisions of the New Scheme shall remain in full force and effect in respect of options granted under the New Scheme but not yet exercised at the time of its termination. Options complying with the provisions of Chapter 17 of the Listing Rules which are granted during the life of the New Scheme and which remain unexpired immediately prior to the termination of the operation of the New Scheme shall continue to be exercisable thereafter.

(v) Lapse of option

An option shall lapse automatically and not be exercisable, to the extent not already exercised, on the earliest of:

• (i) the expiry of the option period;

• (ii) the expiry of the periods referred to in paragraph (i), (j) or (o) respectively;

• (iii) subject to any court of competent jurisdiction not making an order the effect of which is to prohibit the offeror from acquiring the remaining shares in the general offer, the expiry of the period referred to in paragraph (n) above;

• (iv) subject to the scheme of arrangement referred to in paragraph (n) or paragraph (p) above becoming effective, the expiry of the period for exercising an option relating thereto;

• (v) the date on which the Grantee who is an employee (including an executive director but excluding a non-executive director) ceases to be an employee or director by reason of the termination of his or her employment or directorship on grounds including, but not limited to, misconduct, bankruptcy, insolvency and conviction of any criminal offence;

• (vi) the date of the commencement of the winding-up of the Company; or

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APPENDIX II PRINCIPAL TERMS OF THE NEW SHARE OPTION SCHEME

• (vii) the date on which the Grantee sells, transfers, charges, mortgages, encumbers or creates any interest in favour of any third party over or in relation to the option in breach of the New Scheme.

(w) Alterations to the New Scheme

The alteration of the New Scheme are governed by Chapter 17 of the Listing Rules and cannot be altered to the advantage of Grantees or prospective Grantees of options except with the prior sanction of an ordinary resolution of the Company in general meeting with Eligible Persons and their associates abstaining from voting and the approval of the Stock Exchange. Furthermore, the provisions in the New Scheme relating to the matters set out in Rule 17.03 of the Listing Rules must not be altered except with the prior approval of the Shareholders in general meeting. Any alteration to the terms and conditions of the New Scheme which are of a material nature or any change in the terms of options granted or any change to the authority of the Board must be approved by the Shareholders, except where the alterations take effect automatically under the existing terms of the New Scheme. Any amended terms of the New Scheme or the options under such scheme must still comply with the relevant requirements of Chapter 17 of the Listing Rules.

THE PRESENT STATUS OF THE NEW SCHEME

The New Scheme is conditional on the Listing Committee granting approval to the listing of, and permission to deal in, the Shares which may be issued pursuant to the exercise of any options granted under the New Scheme.

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

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NOTICE OF SGM

==> picture [213 x 35] intentionally omitted <==

(Incorporated in Bermuda with limited liability)

NOTICE IS HEREBY GIVEN that an special general meeting of Zhong Hua International Holdings Limited (the “ Company ”) will be held at The Hong Kong Bankers Club, The Dragon Room 3 and 5, 43rd Floor, Gloucester Tower, The Landmark, Central, Hong Kong on Tuesday, 11th June, 2002 at 10:00 a.m. (or so soon thereafter as the annual general meeting of the Company convened at the same place and date at 9:45 a.m. shall be concluded or adjourned) for the purpose of considering and, if thought fit, passing, with or without modification, the following resolution:

ORDINARY RESOLUTION

“ THAT subject to The Stock Exchange of Hong Kong Limited (the “ Stock Exchange ”) granting listing of and permission to deal in the Shares (as defined below) which may fall to be issued upon exercise of options granted under the New Scheme (as defined below) and with effect from the close of business of the day on which this resolution is passed:

• (a) the existing share option scheme (the “ Existing Scheme ”) adopted by the Company pursuant to a resolution by the shareholders of the Company on 19th September, 1997 (a copy of the Existing Scheme having been produced to the Meeting marked “A” and signed by the chairman of the meeting for the purpose of identification), be and is hereby terminated and ceased to have with any further effect save and except that the Existing Scheme will remain in force to the extent necessary to give effect to the exercise of the options granted thereunder prior to the termination thereof;

• (b) the rules of the share option scheme (the “ New Scheme ”), principal terms of which have been summarized in the circular (the “ Circular ”) to the shareholders of the Company dated 17th May, 2002 (a copy of the New Scheme and the Circular having been produced to the Meeting marked “B” and “C” respectively and signed by the chairman of the Meeting for the purpose of identification), be approved and adopted and the directors of the Company (“ Directors ”) be and are hereby authorised to take all such steps as they may deem necessary, desirable or expedient to carry into effect, waive or amend the New Scheme subject to the terms thereof and Chapter 17 of the Rules Governing the Listing of Securities on the Stock Exchange; and

* for identification purposes only

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NOTICE OF SGM

• (c) the Directors be and are hereby authorised to grant options under the New Scheme in respect of shares (the “ Shares ”) of HK$0.02 each in the capital of the Company excluding any options which have been granted but lapsed, up to 10% of the issued share capital of the Company at the date hereof and to allot, issue and otherwise deal with the Shares pursuant to the exercise of options granted under the New Scheme.”

By Order of the Board of Zhong Hua International Holdings Limited Carrie Ho

Company Secretary

Hong Kong, 17th May, 2002

Head office and principal

place of business:

Suites 3302-04, 33rd Floor

One International Finance Centre

1 Harbour View Street, Central

Hong Kong

Notes:

• (i) A member of the Company entitled to attend and vote at the meeting is entitled to appoint a proxy or proxies to attend and vote in his stead. A proxy need not be a member of the Company. A form of proxy for use at the meeting is enclosed herewith. In the case of a joint holding, the form of proxy may be signed by any joint holder, but if more than one joint holder is present at the meeting, whether in person or by proxy, that one of the joint holders whose name stands first on the register of members in respect of the relevant joint holding shall alone be entitled to vote in respect thereof.

• (ii) To be valid, the form of proxy together with any power of attorney or other authority under which it is signed or a notarially certified copy of that power of attorney or authority must be deposited with the Hong Kong branch share registrar of the Company, Tengis Limited at 4th Floor, Hutchison House, 10 Harcourt Road, Central, Hong Kong not less than 48 hours before the time appointed for holding the meeting or any adjournment thereof.

• (iii) Completion and return of the accompanying form of proxy will not preclude members of the Company from attending and voting in person at the meeting or any adjournment thereof should they so wish.

• (iv) The register of members of the Company will be closed from Monday, 10th June, 2002 to Tuesday, 11th June, 2002, all days inclusive, during which period no transfer of Shares will be effected. All transfer documents accompanied by the relevant share certificates must be lodged with the Company’s branch share registrar in Hong Kong, Tengis Limited at 4th Floor, Hutchison House, 10 Harcourt Road, Central, Hong Kong not later than 4:00 p.m. on Friday, 7th June, 2002.

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