Amendments to the Hong Kong Main Board Listing Rules

Transcription

1 Issue.2 March 2004 Principal Tricor subsidiaries Abacus Share Registrars Limited East Asia Corporate Services (BVI) Limited Secretaries Limited Standard Registrars Limited Strath Corporate Services Limited Tengis Limited Tricor Executive Resources Limited Tricor Investor Services Limited Member of BEA Group Amendments to the Hong Kong Main Board Listing Rules The Stock Exchange of Hong Kong Limited (the "Exchange") announced on 30 January 2004, amongst certain changes to GEM Board Listing Rules, extensive amendments on various parts of the Main Board Listing Rules affecting the continuing obligations of listed issuers; certain transactions and corporate actions carried out by listed issuers and the application for a primary listing on the Main Board. The stated purposes of the changes are to enhance the corporate governance standards of listed issuers and market quality and to give new listing applicants more flexibility in accessing the Hong Kong stock market. This newsletter provides an overview of the major changes to the Main Board Listing Rules (the "Rules") in respect of the continuing obligations of and corporate governance over listed issuers and the notifiable and connected transactions. 1. CONTINUING OBLIGATIONS AND CORPORATE GOVERNANCE 1.1 Directors and Board Practices A. Independent non-executive directors ("INEDs") (R. 3.10) INEDs appointed before 31 March 2004 shall submit to the Exchange a written confirmation of their independence with reference to the new guidelines set out in revised Rule 3.13 (te 1 ). Every listed issuer must have at least three INEDs (te 1 ). At least one of INEDs must have appropriate professional qualifications or accounting or related financial management expertise (te 1 ). INEDs appointed on or after 31 March 2004 shall meet the new independence guidelines set out in revised Rule 3.13 and no transitional period will be allowed. Except for certain transitional arrangements, the revised Rules will take effect on 31 March B. Appointment, resignation or re-designation of directors (R , Appendix 3 - paragraph 4 & R ) In the event of appointment or re-designation of director, a listed issuer shall inform the Exchange immediately and publish an announcement in the newspapers as soon as practicable. The announcement shall include details of the newly appointed or redesignated director set out in revised Rule 13.51(2). te 1 : Listed issuers are given a transitional period of 6 months from 31 March 2004 to comply with the requirement. Please also refer to the "Timetable" set out in paragraph 4 below.

2 Disclaimer This publication is intended to provide only general information for clients and contacts of Tricor Services group. It does not purport to be comprehensive nor should it be relied upon or taken as a substitute for proper professional advice concerning specific situations which should be sought in a timely manner. Changes in law or circumstances may occur after the issue date which may make information contained in this publication no longer accurate. Please pay attention to its date of issue. In the event of resignation of director, a listed issuer shall inform the Exchange immediately and publish an announcement in the newspapers as soon as practicable. The announcement shall state the reasons given by the director for his resignation. A listed issuer has to provide a minimum of 7 days, commencing no earlier than the day after the despatch of the notice of general meeting and end no later than 7 days prior to the date of such meeting, for its shareholders to lodge their notice to nominate a person for election as a director at the meeting. The listed issuer shall, upon receipt of such notice from a shareholder, publish an announcement in the newspapers or issue a supplementary circular giving particulars of the proposed director. The announcement or supplementary circular shall be published/issued at least 14 days before the general meeting. C. Directors' service contracts (R & 13.69) Any service contract granted by the listed issuer or any of its subsidiaries to any director/proposed director of the issuer or any of its subsidiaries after 31 January 2004 shall be approved in advance by shareholders of the issuer in a general meeting (at which the relevant director and his associates shall not vote on the matter) if the contract: is for a duration that may exceed 3 years; or expressly requires the listed issuer to give a notice period of more than one year or to pay compensation of more than one year's emoluments in order to entitle the issuer to terminate the contract. Important notes: A service contract is relevant whether or not reduced to writing. A service contract not for a fixed period is to be regarded as running at least until the earliest date on which it can lawfully be determined by the employing company without payment of compensation (other than statutory compensation). Where an arrangement exists under which a director can require a listed issuer or any of its subsidiaries to enter into a further service contract with him, the arrangement will be regarded as a provision for extending the period of his existing service contract and taken into account in determining its duration. Directors' service contracts entered into on or before 31 January 2004 are exempt from the above shareholders' approval requirement. However, upon any variation as to duration or payment on termination or any other material terms of such contracts or renewal of such contracts, the listed issuer must comply in full with the afore-mentioned requirements. D. Voting of directors (R & Appendix 3 - paragraph 4) Subject to exceptions permitted by the revised Rules, a director of a listed issuer shall not vote on any board resolution approving any contract or arrangement or any other proposal in which he or any of his associates has a material interest nor shall he be counted in the quorum present at the meeting. E. Audit committee (R. 3.21) Every listed issuer must establish an audit committee which shall comply with the following requirements (te 1 ): the committee must comprise at least 3 members who must all be non-executive directors; the majority of the committee members must be INEDs; at least one INED shall have appropriate professional qualifications or accounting or related financial management expertise as required under revised Rule 3.10(2); and the committee must be chaired by an INED. F. Independent board committee & independent financial adviser (R ) In the event of the following transactions, a listed issuer shall establish an independent board committee (which shall consist only of INEDs who do not have a material interest in the relevant transaction) to give advice to shareholders and shall appoint an independent financial adviser to make recommendations to the independent board committee and the shareholders: te 1 : Listed issuers are given a transitional period of 6 months from 31 March 2004 to comply with the requirement. Please also refer to the "Timetable" set out in paragraph 4 below. 2

3 connected transactions pursuant to Chapter 14A of the revised Rules; transactions that are subject to independent shareholders' approval; spin-off proposals that are subject to shareholders' approval pursuant to paragraph 3 (e) of Practice te 15 of the revised Rules; or granting of directors' service contracts that are subject to shareholders' approval (only independent board committee is required). G. Model Code for Securities Transactions by Directors of Listed Issuers set out in Appendix 10 to the revised Rules (the "Model Code") (R. 3.17) Every director shall comply with the Model Code or the listed issuer's own code on no less exacting terms. The Model Code sets out the standard which the Exchange requires all listed issuers and their directors to meet and any breach of such required standard will be regarded as a breach of the Rules. 1.2 Qualified Full Time Accountant (R. 3.24) Every listed issuer (except where a listed issuer of debt securities, the equity securities of which are not listed on the Exchange) must have a person (who must be a qualified accountant and a fellow or associate member of the Hong Kong Society of Accountants or a similar body of accountants recognized by that Society) working on a full time basis as a member of the senior management (preferably an executive director) to oversee the listed group's financial reporting procedures and internal controls and to comply with the financial reporting and accounting-related requirements of the Rules. 1.3 New Announcement Requirements (R ) A listed issuer shall, in addition to giving of immediate notification to the Exchange, publish an announcement in the newspapers as soon as practicable in regard to the following changes: A. the rights attaching to (i) any class of listed securities and (ii) any shares into which any listed debt securities are convertible or exchangeable; B. auditors; C. financial year end; D. secretary; and E. registered office or registered place of business in Hong Kong or where applicable, agent for the service of process in Hong Kong. 1.4 Memorandum of Association and Articles of Association/Bye-laws (Appendix 3 & R ) A. A listed issuer's articles of association/bye-laws must conform with the following provisions (te 2 ): the provision as specified in the above paragraph 1.1D regarding voting of directors; where any shareholder is, under the revised Rules, required to abstain from voting on any particular resolution or restricted to voting only for or only against any particular resolution, any votes cast by or on behalf of such shareholder in contravention of such requirement or restriction shall not be counted; and a period of at least 7 days shall be allowed for shareholders to lodge a notice to the listed issuer to propose a person for election as a director and the period shall commence no earlier than the day after the despatch of the relevant notice of the general meeting and end no later than 7 days before the date of such meeting. B. Any proposed alteration of a listed issuer's memorandum of association or articles of association/bye-laws shall be reported to the Exchange immediately and an announcement in the newspapers shall be published as soon as practicable. 1.5 Matters Relating to Meetings of Shareholders A. Voting by a shareholder who has a material interest (R. 2.15) Where a transaction of a listed issuer is subject to its shareholders' approval, any shareholder that has a material interest in the transaction (to be determined on a case by case basis and having regard to all the particular circumstances of the transaction) shall abstain from voting. B. Voting by controlling shareholders (R , 6.12, 7.19, 7.24, & 13.42) Controlling shareholders and their associates (or, where there are no controlling shareholders, directors (excluding INEDs) and te 2 : Listed issuers must amend their articles of association/bye-laws at the earliest opportunity and, in any event, no later than the conclusion of their next annual general meeting. Please also refer to the "Timetable" set out in paragraph 4 below. 3

4 the chief executives of the issuer and their respective associates) must abstain from voting in favour of a resolution on the following transactions of a listed issuer even if they have no material interest thereof: second and subsequent refreshment of general mandate (please refer to the paragraph 1.6B below); withdrawal of primary listing; rights issues or open offers that increase issued share capital or market capitalization by more than 50% (please refer to the paragraph 1.6D below); and fundamental change in the principal business activities within 12 months from the listing date. The issuer must have an appropriate procedure to record that any parties that must abstain or have stated their intention to vote against the relevant resolution in the listing document, circular or announcement have done so at the general meeting. C. Voting by poll (R ) Any vote of shareholders taken at a general meeting to approve the following transactions must be taken on a poll: connected transaction pursuant to Chapter 14A of the revised Rules; transactions that are subject to independent shareholders' approval; granting of options to a substantial shareholder or an INED or any of their respective associates under revised Rule 17.04(1); and any other transactions in which a shareholder has a material interest and is therefore required to abstain from voting at the meeting. A listed issuer shall appoint a scrutineer, who may be its auditors, share registrar or external accountants who are qualified to serve as auditors, for the vote-taking. The listed issuer shall announce the results of the poll by way of an announcement to be published in the newspapers on the business day following the meeting. D. tices, circulars and proxy forms etc. (R , 13.74, 13.55, & 2.14) A listed issuer shall publish notice of every meeting of its shareholders or its creditors by way of an announcement in the newspapers. The notice shall be published on the same day as it is given to those entitled to receive it. A listed issuer shall despatch a circular to its shareholders at the same time as (or before) the issuer gives notice of the meeting to approve the transaction referred to in the circular. A listed issuer shall disclose details required under revised Rule 13.51(2) of any directors proposed to be re-elected or proposed new director in the notice of a general meeting or accompanying circular if such re-election or appointment is subject to shareholders' approval at that meeting. A listed issuer shall provide its shareholders, either in a supplementary circular or by way of an announcement in the newspapers not less than 14 days before the date of a general meeting, with any material information on the subject matter to be considered at the meeting that comes to the directors' attention after the circular is issued. A listed issuer shall disclose in each circular to shareholders convening a general meeting the procedure by which shareholders may demand a poll pursuant to its constitutional documents. The proxy form must be submitted for publication on the Exchange's website in accordance with revised Rule 2.07C. Any listing document, circular or announcement issued by a listed issuer pursuant to the Rules must disclose the name of each of its directors as at the date of such documents. 1.6 Issue of Securities A. Restriction on issue of securities within 6 months of listing (R ) further shares or securities convertible into equity securities of a listed issuer may be issued within 6 months from the date of listing except in the circumstances specified in revised Rule B. General mandate (R & 13.28) Under the revised Rules, shareholders of a listed issuer may still grant a general mandate to directors to allot/issue shares of up to 20% of the issued share capital of the issuer (i.e. such provision remains unchanged). However, additional information is required to be disclosed in the announcement published in the newspapers on the next business day following the day on which the directors agree to issue securities under a general mandate. 4

5 rmal refreshment of the general mandate once a year at the annual general meeting requires shareholders' approval (i.e. such provision remains unchanged). However, any refreshments of the general mandate before the next annual general meeting shall require independent shareholders' approval and shall comply with other requirements set out in revised Rule 13.36(4) (a new provision under the revised Rules). C. Placing of securities for cash consideration under a general mandate (R ) A listed issuer may not issue any securities for cash consideration under a general mandate at a discount of 20% or more to the "benchmarked price" (defined in revised Rule 13.36(5)) unless in exceptional circumstances (e.g., the issuer can satisfy the Exchange that it is in a serious financial position and that the only way it can be saved is by an urgent rescue operation which involves the issue of new securities at such a discount). D. Rights issues and open offers (R & 7.24) Controlling shareholders and their associates (or, where there are no controlling shareholders, directors (excluding INEDs) and the chief executives of the issuer and their respective associates) must abstain from voting in favour of any proposed rights issues or open offers by a listed issuer: which would increase either its issued share capital or its market capitalization by more than 50% (aggregated with other rights issues or open offers announced by the issuer within the preceding 12 months or prior to such 12 month period where dealing in respect of the shares issued pursuant thereto commenced within such 12 month period, together with any bonus securities, warrants or other convertible securities granted or to be granted as part of such rights issues or open offers); or which are effected in the period of 12 months from the listing date. 1.7 On-Market Purchases of Own Shares (R ) The following dealing restrictions on purchases of own shares by a listed issuer have been amended by the revised Rules: A. Restriction repealed The share repurchases limit in any one calendar month of 25% of the trading volume of the listed issuer's shares on the Exchange in the preceding calendar month is repealed. B. Restriction added A newly added restriction provides that a listed issuer shall not purchase its shares if the purchase price is higher by 5% or more than the average closing market price for the 5 preceding trading days. C. Restriction modified Under the existing Rules, a listed issuer may not purchase its shares during the period of 1 month preceding either its annual results announcement or the publication of its interim report. The revised Rules amend the said period to 1 month immediately preceding the earlier of: the date of board meeting (such date as is first notified to the Exchange) approving its results for any year, half-year, quarter or any other interim period (whether or not required under the Rules); and the deadline to publish the afore-mentioned results (whether or not required under the Rules), and ending on the date of the results announcement. 1.8 Annual and Half-Year Results Announcement - Abolition of Two-Phased Publication Arrangement (te 3 ) (Appendix 16 - paragraphs 45 & 46) The existing Rules allow a listed issuer to either: publish a long-form annual and half-year results announcement in the newspapers; or publish a short-form annual and half-year results announcement in the newspapers and then post the long-form financial results on the Exchange's website within 14 days (the "two-phased publication"). Under the revised Rules, the two-phased publication is abolished. The announcement shall contain the information as set out in paragraph 45 (for annual results announcement) and paragraph 46 (for interim results announcement) of Appendix 16 of the revised Rules. te 3 : Listed issuers shall comply with such new requirement for accounting period commencing on or after 1 July Please also refer to the "Timetable" set out in paragraph 4 below. 5

6 1.9 Disclosure in Annual Report and Interim Report (te 3 ) (Appendix 16) The revised Rules require additional information to be disclosed in a listed issuer's annual report and interim report. A summary of these major requirements is set out below: A. Annual report: Connected transaction provisions (Appendix 16 - paragraph 8) particulars of the connected transactions that are not exempt under revised Rule 14A.31; particulars of the continuing connected transactions that are not exempt under revised Rule 14A.33; and where a listed issuer includes in its annual report particulars of a connected transaction or continuing connected transaction in accordance with the Statement of Standard Accounting Practice "Related Party Disclosures" issued by the Hong Kong Society of Accountants or applicable International Financial Reporting Standards, it must specify whether or not the transaction falls under the definition of "connected transaction" or "continuing connected transaction" in Chapter 14A of the revised Rules and must also confirm whether or not it has complied with the disclosure requirements in accordance with Chapter 14A of the revised Rules. Confirmation of INED's independence (Appendix 16 - paragraphs 12A & 12B) confirmation on whether the listed issuer has received from each INED an annual confirmation of his independence pursuant to the new independence guidelines and whether it still considers the INED to be independent; and reasons why an INED appointed during the financial year was and is considered to be independent if he has failed to meet any of the new independence guidelines. Directors' service contracts (Appendix 16 - paragraph 14A) particulars of directors' service contracts entered into on or before 31 January 2004 that are exempt from shareholders' approval. the group's emolument policy including a general description of the policy, any long-term incentive schemes and the basis of determination. Public float sufficiency statement (Appendix 16 - paragraph 34A) a statement of sufficiency of public float which should be based on information that is publicly available to the listed issuer and within the knowledge of its directors as at the latest practicable date prior to the issue of the annual report. B. Annual and interim reports: Model Code for directors' dealings set out in Appendix 10 to the revised Rules (Appendix 16 - paragraphs 34 & 44) A statement on: whether the listed issuer has adopted a code of conduct regarding securities transactions by directors on terms no less exacting than the required standard set out in the Model Code; having made specific enquiry of all directors, whether its directors have complied with, or whether there has been any non-compliance with, the required standard set out in the Model Code and its code of conduct regarding securities transactions by directors; and in the event of any non-compliance with the required standard set out in the Model Code, details of such non-compliance and an explanation of the remedial steps taken by the listed issuer to address such non-compliance. Minimum number and qualification of INEDs (Appendix 16 - paragraphs 34(3) & 44(3)) in the event of any non-compliance with the appointment of a minimum number of 3 INEDs or the appointment of an INED with appropriate professional qualifications, details of such noncompliance and an explanation of the remedial steps taken by the listed issuer to address such non-compliance. te 3 : Listed issuers shall comply with such new requirement for accounting period commencing on or after 1 July Please also refer to the "Timetable" set out in paragraph 4 below. Directors' emoluments (Appendix 16 - paragraphs 24 & 24B) directors' emoluments on a named basis; and 6

7 Audit committee (Appendix 16 - paragraphs 34(4) & 44(4)) in the event of any non-compliance with the establishment of an audit committee, details of such non-compliance and an explanation of the remedial steps taken by the listed issuer to address such non-compliance. C. Introduction of summary interim report (R ) A listed issuer may send its summary interim report to holders of its securities in place of an interim report, provided that such summary interim report complies with the relevant provisions set out in the Companies (Summary Financial Reports of Listed Companies) Regulation and in Appendix 16 of the revised Rules Timeliness of Publication of Financial Information (te 4 ) (R ) If a listed issuer fails to publish periodic financial information in accordance with the revised Rules, the Exchange will normally require suspension of trading in its shares until the issuer publishes in the newspapers the requisite financial information Maintenance of Public Float (R & 13.32) Unless the Exchange has granted a lower percentage at the time of listing, the minimum percentage of listed securities of a listed issuer at all times in public hands is 25% of the issuer's total issued share capital. The Exchange will normally require a suspension of trading of a listed issuer's securities if the percentage of its public float falls below 15% (or 10% in case an issuer has been granted a lower percentage of public float at the time of listing) Continuing Obligations Relating to Disclosure (Chapter 13) Chapter 13 of the revised Rules entitled "Continuing Obligations" is primarily designed to ensure the maintenance of a fair and orderly market in securities and that all users of the market have simultaneous access to the same information. It has incorporated most of the provisions in the existing Appendix 7 (Listing Agreements) and Practice te 19 (Guidance on specific circumstances that may require timely disclosure), with certain modifications. The revised Chapter 13 includes provisions which: set out the general guiding principle for release of information (the guiding principle is that information which is expected to be price-sensitive should be released immediately it is the subject of a decision. Until that point is reached, it is imperative that the strictest security within the issuer and its advisers is observed. The directors must seek to ensure that dealings do not take place between parties one of whom does not have price-sensitive information which is in the possession of the other); and identify specific circumstances in which an issuer is obliged to disclose information to the holders of its securities and the public, including advance to an entity; financial assistance and guarantees to affiliated companies of an issuer; pledging of shares by the controlling shareholder; loan agreements with covenants relating to specific performance of the controlling shareholder; and breach of loan agreement by an issuer etc. Failure by an issuer to comply with any applicable continuing obligation may result in the Exchange taking disciplinary action in addition to its power to suspend or cancel a listing. 2. NOTIFIABLE TRANSACTIONS (Chapter 14) Chapter 14 of the revised Rules only deal with "notifiable transactions" and applies to notifiable transactions entered into and announced by listed issuers on or after 31 March Definition The existing Rules do not clearly define the term "transaction" for the purpose of notifiable transactions. The definition of "transaction" under the GEM Board Listing Rules has been incorporated into the existing Rules. Under the revised Rules, the definition of "transaction": A. includes the granting of financial assistance by a listed issuer except where it is provided to its subsidiary or except by a listed issuer being a banking company in its ordinary and usual course of business; B. excludes the issue of new securities of listed issuers for cash consideration; and C. excludes any transactions of a revenue nature that are carried out in the ordinary and usual course of business of listed issuers except where a listed issuer enters into or terminates operating lease(s) which, by virtue of the dollar value or number of leases involved, represents a 200% or more increase in the scale of its existing operations conducted through such lease arrangements. te 4 : Listed issuers shall comply with such requirement by 1 January Please also refer to the "Timetable" set out in paragraph 4 below. 7

8 2.2 Measurement Effective from 31 March 2004, the following size tests will be adopted by the Exchange to measure the impact of a transaction on a listed issuer: A. total assets test; B. profits test; C. revenue test; D. consideration test; and E. equity capital test. The total assets test has replaced the net assets test so that the current assets plus fixed assets (including intangible assets) and non-current assets of a listed issuer will be taken into account. For the revenue test, only revenue arising from the principal activities of a company will be used as basis of calculation and does not include those items of revenue and gains that arise incidentally. 2.3 Classification New percentage thresholds will be used for classifying notifiable transactions as set out in the following Table 'A'. 2.4 Reverse Takeover To prevent a backdoor listing, the reverse takeover provisions under the current GEM Board Listing Rules are introduced into the existing Rules. 2.5 Requirements on notifiable transactions The following Table 'B' summarises the notification, publication, shareholders' approval and other requirements generally applicable to the different types of notifiable transactions. However, listed issuers should in all cases refer to the revised Rules themselves for the specific requirements. Table 'A' Type of Transaction Share transaction Discloseable transaction Major transaction Very substantial acquisition Very substantial disposal Existing thresholds (based on the old size tests) Less than 15% 15% or more, but less than 50% 50% or more 100% t applicable as the existing Rules do not provide for this category Revised thresholds (based on the above new size tests) Less than 5% 5% or more, but less than 25% 25% or more, but less than 100% for acquisitions and less than 75% for disposals 100% or more 75% or more Table 'B' Type of Transaction tification to the Exchange Short suspension of dealings Publication of announcement Circular Shareholders' approval Accountants' report Treated as a new listing applicant Share transaction (te i) Discloseable transaction, unless it is price sensitive Major transaction (tes ii & vii) (te iii) Very substantial acquisition (tes ii & vii) (te iv) Very substantial disposal (tes ii & vii) (te v) Reverse takeover (tes ii, vi & vii ) (te iv) 8

9 tes: i. shareholders' approval is necessary if the consideration shares are issued under a general mandate. However, if the shares are not issued under a general mandate, the listed issuer is required, pursuant to revised Rule 13.36(2)(b) or revised Rule 19A.38, to obtain shareholders' approval in general meeting prior to the issue of the consideration shares. ii. Any shareholder and his associates must abstain from voting if such shareholder has a material interest in the transaction. For a reverse takeover, the outgoing controlling shareholder and his associates are prohibited from voting in favour of any resolution approving an injection of assets by the incoming controlling shareholder or his associates into the listed issuer group at the time of the change in control. iii. For acquisitions of businesses and/or companies only. The accountants' report is for the 3 preceding financial years on the business, company or companies being acquired (see also revised Rule 14.67(4)). iv. An accountants' report for the 3 preceding financial years on any business, company or companies being acquired is required (see also revised Rule 14.69(4)). v. An accountants' report on the listed issuer's group is required (see also revised Rule 14.68(2)). vi. Approval of the Exchange is necessary. vii. For major transactions, written shareholders' approval in lieu of holding a general meeting is acceptable if no shareholder is required to abstain from voting and the written approval is obtained from a shareholder or a closely allied group of shareholders (defined in revised Rule 14.45) holding more than 50% of the securities having the right to attend and vote. For very substantial disposals, very substantial acquisitions and reverse takeovers, no written shareholders' approval will be accepted in lieu of holding a general meeting. 3. CONNECTED TRANSACTIONS (CHAPTER 14A) Connected transactions are dealt with under the newly created Chapter 14A of the revised Rules which identifies two types of connected transactions: one-off connected transactions and continuing connected transactions. The revised Rules will apply to one-off connected transactions entered into and announced by listed issuers on or after 31 March Where a waiver has been granted to a listed issuer for a fixed period, the waiver will continue to apply until the earlier of: A. expiry of the waiver; and B. the listed issuer failing to comply with any of the waiver condition(s) or the agreement being renewed or there being a material change to the terms of the agreement. Where a waiver has been granted to a continuing connected transaction for an indefinite period, the new Rules should be complied with as soon as practicable as from 31 March Definition of "Connected Person" Under Chapter 14A of the revised Rules, the definition of "connected person" includes: A. a director (including any person who was a director within the preceding 12 months), chief executive or substantial shareholder of the listed issuer; B. a promoter or supervisor of a PRC issuer; C. any associate (as defined under 14A.11(4)) of a person referred to in the above categories A and B; D. any non wholly-owned subsidiary of the listed issuer where any connected person(s) of the listed issuer (other than at the level of its subsidiaries) referred to under the above categories A, B and C is/are (individually or together) entitled to exercise, or control the exercise of, 10% or more of the voting power at any general meeting of such non wholly-owned subsidiary; and E. any subsidiary of a non wholly-owned subsidiary referred to in the above category D. The Exchange has specific power to deem a person to be connected. Apart from transactions between a listed issuer and a connected person, certain transactions not involving a connected person are also identified as connected transactions. 3.2 Extension of the Definition of "Associate" The current Rules already treat as "associates" the trustees of any trust of which any director, chief executive or substantial shareholder or any of his family interests is a beneficiary or, in the case of a discretionary trust, is a discretionary object. The revised Rules have extended the definition of "associate" to include, inter alia, any company controlled as to 30% by the trustees. As the definition is lengthy, listed issuers should be careful in making any interpretation. For the purpose of connected transactions, "associate" of a connected person will be extended to include: 9

10 A. his spouse (and any person cohabiting with the connected person as a spouse), parents, children (including step-children) and siblings (including step-brother and step-sister); and B. his mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, sister-in-law, grandparents, grandchildren, uncle, aunt, cousin, nephew and niece. Listed issuers must notify the Exchange of any proposed transactions involving a close relative. 3.4 Provision of Financial Assistance The provision of financial assistance by a listed issuer to a company (which is not a connected person) will be regarded as a connected transaction, if the listed issuer and its connected persons are shareholders of the company and the connected person(s), individually or together, is/are entitled to exercise, or control the exercise of, 10% or more of the voting power in the company. The above de minimis exemptions are also applicable to financial assistance in certain circumstances. 3.3 Measurement Connected transactions will be subject to the same size tests (except for the profits test) as those used to classify notifiable transactions and the de minimis exemptions as set out in the following Table 'C' are available to connected transactions entered into on normal commercial terms. Table 'C' Existing thresholds (based on the old size tests) Revised thresholds (based on the new size tests mentioned under notifiable transactions above) De minimis threshold for exemption from disclosure, reporting and shareholders' approval requirements The consideration or value of the transaction is less than the higher of: HK$1 million; and 0.03% of the net tangible assets of the listed issuer. Each of the size tests (except for the profits test) is less than 0.1%; or Each of the size tests (except for the profits test) is equal to or more than 0.1% but less than 2.5% and the consideration is less than HK$1 million. De minimis threshold for exemption from shareholders' approval requirement The consideration or value of the transaction is less than the higher of: HK$10 million; and 3% of the net tangible assets of the listed issuer. Each of the size tests (except for the profits test) is less than 2.5%; or Each of the size tests (except for the profits test) is equal to or more than 2.5% but less than 25% and the consideration is less than HK$10 million. 10

11 4. TIMETABLE FOR COMPLIANCE WITH THE REVISED RULES Due date After 31 January 2004 Events to happen/actions to be taken A listed issuer shall obtain prior approval from disinterested shareholders for granting a director's service contract which contains the terms as set out in the foregoing paragraph 1.1C. The above requirement also applies to alterations of any terms of existing contracts as to duration or payment on termination. 31 March 2004 The revised Rules, subject to certain transitional arrangements, come into operation. As soon as practicable after implementation of the revised Rules As soon as practicable and no later than the conclusion of the next annual general meeting On or before 30 September 2004 A listed issuer shall ensure its compliance with the disclosure obligations in respect of continuing connected transactions (where waiver was granted for an indefinite period), advances to an entity and financial assistances and guarantees to affiliated companies of a listed issuer (under current Practice te 19 of the Rules) as revised size tests and percentage ratios will apply to these transactions. A listed issuer has to amend its articles of association or bye-laws to comply with Appendix 3 of the revised Rules (as stated in the foregoing paragraph 1.4A). INEDs A listed issuer has to comply with the first 3 sub-paragraphs of the foregoing paragraph 1.1A. Audit committee A listed issuer has to comply with the foregoing paragraph 1.1E. A listed issuer shall immediately inform the Exchange and publish an announcement in the newspapers if it fails to comply with the above requirement(s). 1 January 2005 If a listed issuer fails to publish timely periodic financial information in accordance with the revised Rules, its securities will be suspended for trading on the Exchange (as stated in the foregoing paragraph 1.10). Reporting deadline for accounting period commencing on or after 1 July 2004 A listed issuer shall comply with all the new disclosure requirements for annual and halfyear results announcements, annual reports, summary financial reports, half-year reports and summary half-year reports (as stated in the foregoing paragraphs 1.8 and 1.9). We recommend you to contact our executives if you have any doubt about the amendments outlined above. 11

12 Tricor, a member of Bank of East Asia Group, is the largest provider of integrated business, corporate and investor services in Hong Kong. Our services include Accounting, Company Formation, Corporate Secretarial, Executive Search & Selection, Initial Public Offerings & Share Registration, Payroll and Trust Administration. Our mission is to be The Business Enabler of choice. Member of BEA Group Please visit our website at Tricor Services Limited. All Rights Reserved. TRICOR SERVICES LIMITED Head Office 28/F, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong Tel: (852) Fax: (852) info@tricor.com.hk Central Office 24/F, Prince s Building, Central, Hong Kong Tel: (852) Fax: (852) MANAGEMENT Chief Executive & Joint Managing Director Johnny Ng Tel: johnny.ng@tricor.com.hk Joint Managing Director Julian Chow Tel: julian.chow@tricor.com.hk BUSINESS SERVICES DIVISION Directors of Business Services Shirley Tsang Tel: shirley.tsang@tricor.com.hk CORPORATE SERVICES DIVISION Directors of Corporate Services Patsy Cheng Tel: patsy.cheng@tricor.com.hk Paul Moyes Tel: paul.moyes@tricor.com.hk Betty Yeung Tel: betty.yeung@tricor.com.hk H C Ying Tel: h.c.ying@tricor.com.hk Diana Chung Tel: diana.chung@tricor.com.hk Natalia Seng Tel: natalia.seng@tricor.com.hk Susan Lo Tel: susan.lo@tricor.com.hk Cynthia Wong Tel: cynthia.wong@tricor.com.hk INVESTOR SERVICES DIVISION Directors of Investor Services Phyllis Leung Tel: phyllis.leung@tricor.com.hk CHINA SERVICES DIVISION Directors of China Services Natalia Seng Tel: natalia.seng@tricor.com.hk Allan Tong Tel: allan.tong@tricor.com.hk Shirley Tsang Tel: shirley.tsang@tricor.com.hk EXECUTIVE RESOURCES DIVISION Director of Executive Resources Fiona Yung Tel: fiona.yung@tricor.com.hk