KAI YUAN HOLDINGS LIMITED 開源控股有限公司 · A letter from the Independent Board Committee containing its recommendation to the Independent Shareholders of Kai Yuan Holdings

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

31 March 2008

If you are in any doubt about this circular or as to the action to be taken, you should consult alicensed securities dealer, bank manager, solicitor, professional accountant or other professionaladviser.

If you have sold or transferred all your shares in Kai Yuan Holdings Limited, you should at oncehand this circular together with the form of proxy to the purchaser or transferee or to the bank,licensed securities dealer or other agent through whom the sale or the transfer was effected fortransmission to the purchaser or the 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 liabilitywhatsoever for any loss howsoever arising from or in reliance upon the whole or any part of thecontents of this circular.

A letter from the Independent Board Committee containing its recommendation to the IndependentShareholders of Kai Yuan Holdings Limited is set out on page 18 of this circular. A letter from CMBInternational Capital Corporation Limited containing its advice to the Independent Board Committeeand the Independent Shareholders of Kai Yuan Holdings Limited is set out on pages 19 to 25 of thiscircular.

A notice convening a special general meeting (the “SGM”) of Kai Yuan Holdings Limited to be heldat Elbrus Room, Pacific Place Conference Centre, 5/F., One Pacific Place, 88 Queensway, HongKong on 17 April 2008 at 9:30 a.m. is set out on pages 26 to 29 of this circular. A form of proxy isalso enclosed. Whether or not you intend to attend the SGM, you are requested to complete theenclosed form of proxy and return the same to the Company’s branch share registrar in HongKong, Tricor Tengis Limited, at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, HongKong as soon as possible and in any event not less than 48 hours before the time appointed for theholding of the SGM or any adjournment thereof. Completion and return of the form of proxy willnot preclude you from attending and voting at the SGM or any adjourned meeting should you sowish.

KAI YUAN HOLDINGS LIMITED開源控股有限公司

(incorporated in Bermuda with limited liability)(Stock Code: 1215)

ISSUE OF CONVERTIBLE NOTES,REFRESHMENT OF GENERAL MANDATE TO ISSUE AND ALLOT SHARES

ANDREFRESHMENT OF THE GENERAL SCHEME LIMIT

UNDER THE SHARE OPTION SCHEME

Independent Financial Adviser to the Independent Board Committeeand the Independent Shareholders

招银国际CMB International Capital Corporation Limited

CONTENTS

– i –

Page

Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Letter from the Board

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

The Subscription Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Shareholding structure of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Reasons for the issue of the Convertible Notes and use of net proceeds . . . . . . 12

Equity fund-raising conducted in the 12-month period

immediately preceding the Latest Practicable Date . . . . . . . . . . . . . . . . . . . . . . . 13

Refreshment of the Existing General Mandate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Refreshment of the Scheme Mandate Limit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Procedures for demanding a poll . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Responsibility statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Letter from the Independent Financial Adviser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Notice of SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

DEFINITIONS

– 1 –

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

“2007 CB” the convertible notes in the aggregate principal amountof HK$139,880,000 issued or to be issued pursuant tothe four subscription agreements entered between theCompany and each of the 2007 CB Subscribers, detailsof which are set out in the announcement of theCompany dated 4 December 2007

“2007 CB Subscribers” Dragon Will International Develop Limited, Asia RichInternat ional Develop Limited, Bi l l ion TopInternational Develop Limited, Billion Surplus GlobalLimited and their respective successors or assigns

“Board” the board of Directors

“Business Day” a day, other than a Saturday and a day on which atropical cyclone warning no. 8 or above or a “blackrainstorm warning signal” is hoisted in Hong Kong atany time between 9:00 a.m. and 5:00 p.m., on whichlicensed banks are open for general banking businessin Hong Kong throughout their normal business hours

“Bye-laws” the bye-laws of the Company

“CMB” or “Independent CMB International Capital Corporation Limited, theFinancial Adviser” independent financial adviser to the Independent

Board Committee and the Independent Shareholdersin relation to the grant of the Issue Mandate. CMB is alicensed corporation to carry out type 1 and type 6regulated activities under the Securities and FuturesOrdinance (Chapter 571 of the Laws of Hong Kong)

“Company” Kai Yuan Holdings Limited, a company incorporatedin Bermuda with limited liability and the issued Sharesof which are listed on the Stock Exchange

“Completion Date” the date of completion of the Subscription Agreements

“connected person(s)” has the meaning ascribed to it under the Listing Rules

“Conversion Price” HK$0.258 (subject to adjustments), being the price atwhich each Conversion Share will be issued uponconversion of all or part of the Convertible Notes

DEFINITIONS

– 2 –

“Conversion Shares” Shares to be issued upon conversion of the ConvertibleNotes

“Convertible Notes” together, the Convertible Notes I, Convertible NotesII and Convertible Notes III (all as defined in the sub-paragraph headed “Subscribers” under the paragraphheaded “The Subscription Agreements” of the Letterfrom the Board of this circular)

“Directors” the directors of the Company

“Existing General Mandate” the general mandate granted to the Directors at theannual general meeting of the Company held on23 November 2007 to allot, issue or otherwise deal inup to 1,076,322,628 Shares

“Group” the Company and its subsidiaries

“HK$” Hong Kong dollars, the lawful currency of Hong Kong

“Hong Kong” the Hong Kong Special Administrative Region of thePRC

“Independent Board Committee” an independent board committee of the Boardestablished by the independent non-executive Directorsto advise the Independent Shareholders in respect ofthe grant of the Issue Mandate

“Independent Shareholders” any Shareholders other than controlling Shareholdersand their associates or, which there are no controllingShareholders, any Shareholders other than Directors(excluding independent non-executive Directors) andthe chief executive of the Company and their respectiveassociates

“Issue Mandate” the new mandate proposed to be sought at the SGMto authorise the Directors to allot, issue and deal withShares not exceeding 20% of the issued share capitalof the Company as at the date of the SGM

“Latest Practicable Date” 26 March 2008, being the latest practicable date priorto the printing of this circular for ascertaining certaininformation referred to in this circular

“Listing Rules” the Rules Governing the Listing of the Securities onthe Stock Exchange

DEFINITIONS

– 3 –

“Maturity Date” the date falling on the second anniversary of the dateof issue of the Convertible Notes

“Noteholder(s)” holder(s) of the Convertible Notes

“Options” the options granted under the Share Option Schemeto subscribe for Shares in accordance with the ShareOption Scheme

“PRC” the People’s Republic of China, which for the purposeof this circular, shall exclude Hong Kong, the MacauSpecial Administrative Region of the PRC and Taiwan

“Proposed Refreshment” the proposed refreshment of the Scheme MandateLimit under the Share Option Scheme

“Scheme Mandate Limit” the maximum number of Shares which may be allottedand issued upon the exercise of all Options which shallnot in aggregate exceed 10% of the Shares in issue asat the date of the adoption of the Share Option Schemeand thereafter, if refreshed shall not exceed 10% ofthe Shares in issue as at the date of the approval ofthe refreshed limit by the Shareholders

“SGM” the special general meeting of the Company to beconvened and held at Elbrus Room, Pacific PlaceConference Centre, 5/F. , One Pacif ic Place,88 Queensway, Hong Kong on 17 April 2008 at9:30 a.m. to consider and, if thought fit, approve (i)the Subscription Agreements and the transactionscontemplated thereunder; (ii) the grant of the IssueMandate; and (iii) the Proposed Refreshment

“Share(s)” share(s) of a nominal value of HK$0.10 each in thecapital of the Company

“Share Option Scheme” the share option scheme adopted by the Companypursuant to an ordinary resolution passed by theShareholders on 17 April 2002

“Shareholder(s)” holder(s) of Share(s)

“Stock Exchange” The Stock Exchange of Hong Kong Limited

“Subscribers” Gold Sand Capital Resources Limited, China TreasuryInternational Develop Limited and Bond LandInvestment Development Limited

DEFINITIONS

– 4 –

“Subscription Agreements” the three conditional subscription agreements dated 8March 2008 entered into between the Company as theissuer and each of the Subscribers as subscribers inrespect of the issue of the Convertible Notes

“Terminated Scheme” the share option scheme of the Company adopted on23 December 1996 and terminated by an ordinaryresolution of the Shareholders passed on 17 April 2002

“HK$” Hong Kong dollars, the lawful currency of Hong Kong

“%” per cent.

LETTER FROM THE BOARD

– 5 –


(incorporated in Bermuda with limited liability)

(Stock Code: 1215)

Executive Directors: Registered office:Mr. Hu Yishi Canon’s CourtMr. Yip Kar Hang, Raymond 22 Victoria StreetMr. Lam Cheung Shing, Richard Hamilton, HM 12

BermudaNon-executive Director:Mr. Hu Jin Xing Principal place of business

in Hong Kong:Independent non-executive Directors: Unit 4705, 47th FloorMr. Tam Sun Wing Far East Finance CentreMr. Ko Ming Tung, Edward 16 Harcourt RoadMr. Ng Ge Bun Admiralty, Hong Kong

31 March 2008

To the Shareholders and for information only,holders of outstanding share options and convertible notes of the Company

Dear Sir or Madam,

ISSUE OF CONVERTIBLE NOTES,REFRESHMENT OF GENERAL MANDATE TO ISSUE AND ALLOT SHARES

ANDREFRESHMENT OF THE GENERAL SCHEME LIMIT

UNDER THE SHARE OPTION SCHEME

INTRODUCTION

It was announced on 10 March 2008 that the Company entered into the SubscriptionAgreements with the Subscribers on 8 March 2008 under which the Company agreed toissue and the Subscribers agreed to subscribe for the Convertible Notes in an aggregateprincipal amount of HK$170,280,000.


– 6 –

The purposes of this circular are to provide you with information regarding theresolutions to be proposed at the SGM and to give you notice of the SGM. Resolutions willbe proposed at the SGM to approve (i) the Subscription Agreements and the transactionscontemplated thereunder; (ii) the grant of the Issue Mandate; and (iii) the ProposedRefreshment.

An Independent Board Committee, comprising all the independent non-executiveDirectors, has been established to advise the Independent Shareholders in relation to thegrant of the Issue Mandate. CMB has been appointed as the Independent Financial Adviserto advise the Independent Board Committee and the Independent Shareholders in relationto the grant of the Issue Mandate.

THE SUBSCRIPTION AGREEMENTS

Date

8 March 2008

Issuer

The Company

Subscribers

Gold Sand Capital Resources Limited, an investment holding company, in relationto the subscription of convertible notes in the principal amount of HK$67,080,000 (the“Convertible Notes I”).

China Treasury International Develop Limited, an investment holding company, inrelation to the subscription of convertible notes in the principal amount of HK$51,600,000(the “Convertible Notes II”).

Bond Land Investment Development Limited, an investment holding company, inrelation to the subscription of convertible notes in the principal amount of HK$51,600,000(the “Convertible Notes III”).

Save for the identity of each of the Subscribers and the principal amounts of each ofthe Convertible Notes, the terms of the Subscription Agreements are identical.

The Directors came to know of each Subscriber in business context. To the best ofthe Directors’ knowledge, information and belief having made all reasonable enquiries, (i)each of the Subscribers and their ultimate beneficial owners is third party independent ofthe Group and connected persons of the Group; and (ii) each of the Subscribers and theirultimate beneficial owners is independent of and not connected with each other and is notparty acting in concert with each other.


– 7 –

Issue size

The aggregate principal amount of all Convertible Notes is HK$170,280,000.

Conditions

Completion of the Subscription Agreements is conditional upon:

(a) the passing by the Shareholders of ordinary resolution(s) at the SGM approvingthe Subscription Agreements and the transactions contemplated thereunder,including the issue of the Convertible Notes and the allotment and issue ofthe Conversion Shares thereby, in accordance with the provisions of the ListingRules;

(b) the Listing Committee of the Stock Exchange having granted (eitherunconditionally or subject only to conditions to which neither the Companynor each of the Subscribers has any reasonable objection) the listing of, andpermission to deal in, the Conversion Shares;

(c) (if required) the Bermuda Monetary Authority granting its consent to the issueof the Convertible Notes and the allotment and issue and free transferabilityof the Conversion Shares;

(d) the representations and warranties given by the Company remaining true andaccurate in all material aspects and not misleading in any material respect asof the Completion Date by reference to the facts and circumstances subsistingas at the Completion Date; and

(e) the representations and warranties given by each of the Subscribers remainingtrue and accurate in all material aspects and not misleading in any materialrespect as of the Completion Date by reference to the facts and circumstancessubsisting as at the Completion Date.

If the conditions set out above have not been fulfilled on or before 31 May 2008 (orsuch other date as the Company and each of the Subscribers may agree in writing), theSubscription Agreements will lapse and the parties to the Subscription Agreements willbe released from all obligations under the Subscription Agreements, save for liabilities forany antecedent breaches thereof.

Completion

Completion of each of the Subscription Agreements shall take place on or before the60th Business Day from the date on which all of the conditions set out above have beenfulfilled.

Each of the Subscription Agreements is not inter-conditional.


– 8 –

PRINCIPAL TERMS OF THE CONVERTIBLE NOTES

Save for the identity of each of the Subscribers and the principal amount of each ofthe Convertible Notes, the principal terms of the Convertible Notes I, the ConvertibleNotes II and the Convertible Notes III are identical and are summarised below:

Interest

The Convertible Notes will bear interest on the outstanding principal amount thereoffrom the date of issue at a rate of 3.5% per annum. Interest will be payable yearly inarrears commencing 12 months after the date of issue of the Convertible Notes.

Maturity Date

Unless converted in accordance with the terms and conditions of the ConvertibleNotes, the Company will repay the outstanding principal amount of the Convertible Notestogether with any interest accrued thereon on the second anniversary of the date of issueof the Convertible Notes subject to and in accordance with the terms of the ConvertibleNotes.

Conversion rights

The Noteholder will have the right to convert the principal amount of the ConvertibleNotes (in amounts of not less than a whole multiple of HK$10,000 on each conversion)into Shares at the Conversion Price at any time during the period commencing from theCompletion Date to 4:00 p.m. (Hong Kong time) on the 3rd Business Day prior to theMaturity Date.

Conversion Price

The initial Conversion Price will be equal to HK$0.258 per Conversion Share, subjectto such adjustment as may be made in the event of (i) sub-division, consolidation or re-classification of Shares; (ii) capitalisation of profits or reserves of the Company; (iii) capitaldistributions made by the Company; (iv) rights issues of Shares or warrants; (v) issues ofother securities which are convertible into or exchangeable for or carrying rights ofsubscription for new Shares or modification to rights of conversion/exchange/subscriptionattaching to such securities; (vi) issues of Shares wholly for cash or for the acquisition ofassets as set out in the Convertible Notes. The Company will make an announcementwhen there is any adjustment to the Conversion Price and the adjustment shall be certifiedeither by the auditors of the Company or by an approved merchant bank.


– 9 –

The Conversion Price of HK$0.258 (subject to adjustments mentioned above)represents (i) a premium of about 9.3% over the closing price of HK$0.236 per Share asquoted on the Stock Exchange on 7 March 2008, being the last trading day immediatelyprior to the date of the Subscription Agreements; (ii) a premium of about 26.5% over theaverage closing price of approximately HK$0.204 per Share as quoted on the Stock Exchangefor the last five consecutive trading days up to and including 7 March 2008; (iii) a premiumof about 35.1% over the average closing price of approximately HK$0.191 per Share asquoted on the Stock Exchange for the last 10 consecutive trading days up to and including7 March 2008; and (iv) a premium of about 54.5% over the closing price of HK$0.167 perShare as quoted on the Stock Exchange as at the Latest Practicable Date.

The initial Conversion Price of HK$0.258 per Conversion Share was arrived at afterarm’s length negotiation between the Company and the Subscribers.

Conversion Shares

Assuming that the conversion rights attaching to the Convertible Notes I are exercisedin full at the initial Conversion Price of HK$0.258 per Conversion Share, a maximum of260,000,000 Conversion Shares will be issued, representing approximately 4.40% of theissued share capital of the Company as at the Latest Practicable Date and approximately4.22% of the issued share capital of the Company as enlarged by the allotment and issueof such Conversion Shares.

Assuming that the conversion rights attaching to the Convertible Notes II areexercised in full at the initial Conversion Price of HK$0.258 per Conversion Share, amaximum of 200,000,000 Conversion Shares will be issued, representing approximately3.39% of the issued share capital of the Company as at the Latest Practicable Date andapproximately 3.27% of the issued share capital of the Company as enlarged by theallotment and issue of such Conversion Shares.

Assuming that the conversion rights attaching to the Convertible Notes III areexercised in full at the initial Conversion Price of HK$0.258 per Conversion Share, amaximum of 200,000,000 Conversion Shares will be issued, representing approximately3.39% of the issued share capital of the Company as at the Latest Practicable Date andapproximately 3.27% of the issued share capital of the Company as enlarged by theallotment and issue of such Conversion Shares.

Assuming that the conversion rights attaching to all Convertible Notes are exercisedin full at the initial Conversion Price of HK$0.258 per Conversion Share, an aggregate of amaximum of 660,000,000 Conversion Shares will be issued, representing approximately11.17% of the issued share capital of the Company as at the Latest Practicable Date andapproximately 10.05% of the issued share capital of the Company as enlarged by theallotment and issue of all Conversion Shares.

The Conversion Shares will be issued under the special mandate proposed to besought from the Shareholders at the SGM. The Conversion Shares will rank pari passu inall respects with the Shares in issue as at the date of conversion.


– 10 –

Redemption

The Company will not be entitled to redeem any part of the outstanding principalamount of the relevant Convertible Notes.

Voting

The Noteholder will not be entitled to attend or vote at any meetings of the Companyby reason only of it being a Noteholder.

Transferability

Assignment or transfer of the Convertible Notes may only be made if:

(i) it is made to person(s) independent of and not connected with the Group orany of their respective associates (as defined in the Listing Rules);

(ii) prior written approval of the Stock Exchange (if applicable) and the Companyshall have been obtained in respect thereof; and

(iii) the principal amount to be transferred or assigned is at least HK$10,000 andintegral multiples of HK$10,000.

The Company will notify the Stock Exchange if it becomes aware of any connectedpersons of the Company dealing in the Convertible Notes.

Listing

No application will be made for a listing of, or permission to deal in, the ConvertibleNotes on the Stock Exchange or any other stock exchange. An application will be made tothe Listing Committee of the Stock Exchange for the listing of, and permission to deal inthe Conversion Shares.


– 11 –

SHAREHOLDING STRUCTURE OF THE COMPANY

The shareholding structure of the Company (i) as at the Latest Practicable Date; (ii)immediately after the exercise of the conversion rights attaching to the Convertible Notesin full; and (iii) immediately after the exercise of the conversions rights attaching to the2007 CB and the Convertible Notes in full is as follows:

Shareholding immediately Shareholding immediatelyafter the issue after the issue

of the Conversion of the Conversion SharesShares (assuming the and the issue of Shares

conversion rights attaching pursuant to the exerciseto the 2007 CB in full of the conversion

Shareholding as at the has not been rights attaching to theLatest Practicable Date exercised in full) 2007 CB in fullNumber of % Number of % Number of %

Shares (approximate) Shares (approximate) Shares (approximate)

Morich InternationalInvestments Limited (Note 1) 446,930,000 7.57 446,930,000 6.81 446,930,000 6.28

Mr. Hu Yishi (Note 2) 44,720,000 0.76 44,720,000 0.68 44,720,000 0.63

2007 Subscribers (Note 3)Dragon Will International Develop Limited 0 0 0 0 300,000,000 4.22

Mr. Zhang Weili (Note 4) 300,000,000 5.08 300,000,000 4.57 300,000,000 4.22

Billion Top International Develop Limited 0 0 0 0 250,000,000 3.51

Mr. Shi Qiuqing (Note 5) 226,000,000 3.82 226,000,000 3.44 226,000,000 3.17

SubscribersGold Sand Capital Resources Limited 0 0 260,000,000 3.96 260,000,000 3.65

China Treasury International Develop Limited 0 0 200,000,000 3.04 200,000,000 2.81

Bond Land Investment Development Limited 0 0 200,000,000 3.04 200,000,000 2.81

Other public Shareholders 4,889,963,140 82.77 4,889,963,140 74.46 4,889,963,140 68.70

Total 5,907,613,140 100 6,567,613,140 100 7,117,613,140 100


– 12 –

Notes:

1. Morich International Investments Limited is wholly and beneficially owned by Mr. Hu Yishi, anexecutive Director and chairman of the Company.

2. Mr. Hu Yishi is an executive Director and chairman of the Company.

3. To the best of the Directors’ knowledge, information and belief having made all reasonableenquiries, each of the Subscribers and their ultimate beneficial owners is independent of and notconnected with each of the 2007 CB Subscribers and their ultimate beneficial owners.

4. The Company received a transfer form dated 4 March 2008 from Asia Rich International DevelopLimited that it transferred the relevant 2007 CB in the principal amount of HK$39,000,000 toMr. Zhang Weili. To the best of the Directors’ knowledge, information and belief having madeall reasonable enquiries, Mr. Zhang Weili is a third party independent of the Group and itsconnected persons.

5. The Company received a transfer form dated 21 December 2007 from Billion Surplus GlobalLimited that it transferred the relevant 2007 CB in the principal amount of HK$29,380,000 toMr. Shi Qiuqing. To the best of the Directors’ knowledge, information and belief having made allreasonable enquiries, Mr. Shi Qiuqing is a third party independent of the Group and its connectedpersons.

REASONS FOR THE ISSUE OF THE CONVERTIBLE NOTES AND USE OF NETPROCEEDS

The Company is an investment holding company, the subsidiaries of which areprincipally engaged in property investments and resources investment operations. TheDirectors consider that the issue of the Convertible Notes will provide the Company withimmediate funding without immediate dilution of the shareholding of the existingShareholders and, if the conversion rights attaching to the Convertible Notes are exercised,the capital base of the Company will be enlarged.

The net proceeds from the issue of the Convertible Notes will be approximatelyHK$170 million which will be used for the acquisition (the “Acquisition”) of the entireissued share capital and the shareholders’ loan of a company incorporated in the BritishVirgin Islands which indirectly holds 49% equity interests in a heat supply company,details of which are set out in the announcement of the Company dated 6 March 2008.

The Company considers that the terms of the Subscription Agreements are fair andreasonable and are in the interests of the Company and the Shareholders as a whole. TheSubscribers will not be entitled to nominate any Directors to the Board under theSubscription Agreements or the Convertible Notes.


– 13 –

EQUITY FUND-RAISING CONDUCTED IN THE 12-MONTH PERIOD IMMEDIATELYPRECEDING THE LATEST PRACTICABLE DATE

Intended use ofDate of proceeds as stated Actual useannouncement Event Net proceeds in the announcement of proceeds

4 December 2007 Issue of 2007 CB Approximately For future investment or The proceeds has beenHK$107,000,000 development of suitable applied to settle part(Note) projects related to the of the consideration

principal businesses for the Acquisition.of the Group

Note: As at the Latest Practicable Date, the subscription agreements entered into between the Company andeach of Dragon Will International Develop Limited, Asia Rich International Develop Limited and BillionSurplus Global Limited dated 4 December 2007 in relation to the issue of 2007 CB have been completed.Completion of the subscription agreement entered into between the Company and Billion TopInternational Develop Limited dated 4 December 2007 will take place in accordance with the termsthereof.

REFRESHMENT OF THE EXISTING GENERAL MANDATE

At the annual general meeting of the Company held on 23 November 2007, theShareholders approved, among other things, an ordinary resolution to grant to the Directorsthe Existing General Mandate to allot up to 1,076,322,628 Shares. As at the Latest PracticableDate, 526,000,000 Shares were issued under the Existing General Mandate as a result ofthe exercise of the conversion rights attaching to the 2007 CB. There has not been anyrefreshment of the Existing General Mandate since the annual general meeting of theCompany held on 23 November 2007.

In order to provide flexible means for the Company to raise funds for its futurebusiness development and/or through the issue of new Shares whenever mergers andacquisitions opportunities arise, the Board proposes to grant the Issue Mandate for theDirectors to allot, issue and otherwise deal with new Shares with an aggregate nominalamount of not exceeding 20% of the aggregate nominal amount of the issued share capitalof the Company as at the date of SGM. The Issue Mandate is proposed to the Shareholdersprior to the Company’s next annual general meeting, and therefore, under Rule 13.36(4) ofthe Listing Rules, the Issue Mandate will be subject to the Independent Shareholders’approval by way of poll at the SGM.

As at the Latest Practicable Date, a total of 5,907,613,140 Shares were in issue. Subjectto the passing of the proposed resolution for granting the Issue Mandate to the Directorsand on the basis that no Shares will be issued or repurchased by the Company prior to theSGM, the Company will be allowed under the Issue Mandate to issue a maximum of1,181,522,628 Shares.


– 14 –

The Independent Board Committee, comprising Mr. Tam Sun Wing, Mr. Ko MingTung, Edward and Mr. Ng Ge Bun, all being the independent non-executive Directors, hasbeen formed to consider the granting of the Issue Mandate. CMB has been appointed asthe Independent Financial Adviser to advise the Independent Board Committee and theIndependent Shareholders in this regard.

Pursuant to Rule 13.36(4)(a) of the Listing Rules, any controlling Shareholders andtheir associates, or where there are no controlling Shareholders, the Directors (excludingindependent non-executive Directors) and the chief executive of the Company and theirrespective associates shall abstain from voting in favour of the resolution to approve thegranting of the Issue Mandate to be proposed at the SGM. As at the Latest PracticableDate, (i) Mr. Hu Yishi, an executive Director and chairman of the Company, held 44,720,000Shares, representing approximately 0.76% of the issued share capital of the Company as atthe Latest Practicable Date; and (ii) Morich International Investments Limited, a companywholly and beneficially owned by Mr. Hu Yishi, held 446,930,000 Shares, representingapproximately 7.57% of the issued share capital of the Company as at the Latest PracticableDate, will abstain from voting in favour of the resolution to approve the granting of theIssue Mandate and they have no intention to vote against the resolution to approve thegranting of the Issue Mandate at the SGM. Pursuant to Rule 13.39(4)(b) of the ListingRules, the vote of the Independent Shareholders in respect of the grant of the Issue Mandateat the SGM will be taken by way of poll.

REFRESHMENT OF THE SCHEME MANDATE LIMIT

The Share Option Scheme was adopted by the Company pursuant to the ordinaryresolution of the Shareholders on 17 April 2002. The purpose of the Share Option Schemeis to provide incentives or rewards to participants thereunder for their contributions tothe Group and/or to enable the Group to recruit and retain high-calibre employees andattract human resources that are valuable to the Group.

Under the Share Option Scheme, the original number of Shares which may be issuedupon the exercise of all Options granted or to be granted under the Share Option Schemewas 218,618,314 Shares, representing 10% of the issued share capital as at the date ofadoption of the Share Option Scheme and the maximum number of Shares that might beissued upon the exercise of all Options under the Share Option Scheme or other schemesof the Company. Subject to the prior approval by the Shareholders, the Company may, atany time thereafter, refresh the Scheme Mandate Limit to the extent not exceeding 10% ofthe Shares in issue as at the date of the aforesaid Shareholders’ approval.

As at the Latest Practicable Date, Options to subscribe for 218,600,000 Shares,representing approximately 3.7% of the issued share capital of the Company as at theLatest Practicable Date, had been granted under the Share Option Scheme. No Optionsgranted has been exercised, cancelled or lapsed as at the Latest Practicable Date.


– 15 –

As at the Latest Practicable Date, the total number of Shares in issue was5,907,613,140 Shares. The maximum number of Shares which may be issued upon theexercise of all Options to be granted under the Scheme Mandate Limit as refreshed will be590,761,314 Shares, assuming no further issue or repurchase of Shares prior to the SGM,representing 10% of the issued share capital of the Company as at the date of the approvalof the Proposed Refreshment by the Shareholders at the SGM.

An ordinary resolution was passed by the Shareholders on 17 April 2002 for theadoption of the Share Option Scheme and termination of the Terminated Scheme. Apartfrom the Share Option Scheme and the Terminated Scheme, the Company has no othershare option scheme. As at the Latest Practicable Date, no option is outstanding under theTerminated Scheme and no further options may be granted under the Terminated Scheme.Options previously granted under the Share Option Scheme (including without limitationthose outstanding, cancelled, lapsed or exercised in accordance with the Share OptionScheme) will not be counted the purpose of calculating the Scheme Mandate Limit asrefreshed.

Pursuant to Rule 17.03(3) of the Listing Rules, the Share which may be issued uponexercise of all outstanding Options granted and yet to be exercised under the Share OptionScheme and other share option schemes of the Company shall not exceed 30% of theShares in issue from time to time. As at the Latest Practicable Date, there are Options tosubscribe for 218,600,000 Shares granted and yet to be exercised under the Share OptionScheme, representing approximately 3.7% of the issued share capital of the Company. TheBoard undertakes that no options shall be granted under any scheme(s) of the Group ifthis will result in the 30% limit being exceeded.

The Board considers that it is in the interests of the Company to refresh the SchemeMandate Limit to permit the granting of further Options so as to provide incentives to,and recognize the contributions of, the eligible participants. The Board therefore decidedto seek the approval of the Shareholders at the SGM to refresh the Scheme Mandate Limit.

The Proposed Refreshment is conditional upon:

(i) the passing of the necessary ordinary resolution by the Shareholders at theSGM to approve the Proposed Refreshment; and

(ii) the Listing Committee of the Stock Exchange granting the listing of, andpermission to deal in, the Shares to be issued pursuant to the exercise of theOptions to be granted under the refreshed Scheme Mandate Limit.

Application will be made to the Stock Exchange for the listing of, and permission todeal in, the Shares to be issued pursuant to the exercise of the Options to be grantedunder the refreshed Scheme Mandate Limit.


– 16 –

SGM

Set out on pages 26 to 29 of this circular is a notice convening the SGM to considerand, if thought fit, to approve the resolutions to approve (i) the Subscription Agreementsand the transactions contemplated thereunder; (ii) the grant of the Issue Mandate; and(iii) the Proposed Refreshment.

A form of proxy for use at the SGM is enclosed. If you are unable to attend the SGMin person, you are requested to complete and return the form of proxy in accordance withthe instructions printed thereon as soon as possible but in any event not less than 48hours before the time appointed for holding the SGM or any adjournment thereof.Completion and returning of the form of proxy will not preclude you from attending andvoting in person at the SGM or any adjournment thereof if you so wish.

PROCEDURES FOR DEMANDING A POLL

Pursuant to bye-law 66 of the Bye-laws, a poll may be demanded in relation to aresolution put to the vote of any general meeting before or on the declaration of the resultof the show of hands:

(a) by the chairman of such meeting; or

(b) by at least three Shareholders present in person, or in the case of theShareholder being a corporation by its duly authorised representative, or byproxy for the time being entitled to vote at the meeting; or

(c) by any Shareholder or Shareholders present in person, or in the case of theShareholder being a corporation by its duly authorised representative, or byproxy and representing not less than one-tenth of the total voting rights of allShareholders having the right to vote at the meeting; or

(d) by any Shareholder or Shareholders present in person, or in the case of theShareholder being a corporation by its duly authorised representative, or byproxy and holding shares in the Company conferring a right to vote at themeeting being shares on which an aggregate sum has been paid up equal tonot less than one-tenth of the total sum paid up on all shares conferring thatright.

RECOMMENDATION

Your attention is drawn to the letter from the Independent Board Committee as setout on page 18 of this circular which contains its recommendation to the IndependentShareholders on the terms of the grant of the Issue Mandate. Your attention is also drawnto the letter of advice from CMB as set out on pages 19 to 25 of this circular, whichcontains its advice to the Independent Board Committee and the Independent Shareholdersin relation to the terms of the grant of the Issue Mandate.


– 17 –

Having considered the reasons set out herein, the Board considers that the proposedresolutions for (i) the Subscription Agreements and the transactions contemplatedthereunder; (ii) the grant of the Issue Mandate; and (iii) the Proposed Refreshment are fairand reasonable and are in the best interests of the Company and accordingly, recommendall Shareholders/Independent Shareholders to vote in favour of the resolutions to beproposed at the SGM.

RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for thepurpose of giving information with regard to the Group. The Directors collectively andindividually accept full responsibility for the accuracy of the information contained in thiscircular and confirm, having made all reasonable enquiries, that to the best of theirknowledge and belief there are no other facts the omission of which would make anystatement herein misleading.

MISCELLANEOUS

The English text of this circular shall prevail over the Chinese text for the purposeof interpretation.

By Order of the BoardKai Yuan Holdings Limited

Yip Kar Hang, RaymondExecutive Director and Chief Executive Officer

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

– 18 –



(Stock Code: 1215)

31 March 2008

To the Shareholders, and for information only,holder(s) of outstanding share optionsand convertible notes of the Company

Dear Sir or Madam,

REFRESHMENT OF EXISTING GENERAL MANDATE

We refer to the circular of the Company dated the date hereof (the “Circular”) to theShareholders, of which this letter forms part. Terms used in this letter shall have the samemeanings as those defined in the Circular unless the context requires otherwise.

We have been appointed by the Board as members to constitute an IndependentBoard Committee and to advise the Independent Shareholders in respect of the grant ofthe Issue Mandate.

CMB has been appointed to advise the Independent Board Committee and theIndependent Shareholders as to whether the grant of the Issue Mandate is fair andreasonable so far as the Independent Shareholders are concerned and whether it is in theinterests of the Company and the Shareholders as a whole. Details of its advice, togetherwith the principal factors and reasons taken into consideration in arriving at such advice,are set out on pages 19 to 25 of the Circular.

Your attention is also drawn to the letter from the Board set out on pages 5 to 17 ofthe Circular.

Having considered the terms of the grant of the Issue Mandate and the advice ofCMB, we are of the opinion that the terms of the grant of the Issue Mandate are fair andreasonable so far as the Independent Shareholders are concerned and that the grant of theIssue Mandate is in the interests of the Company and its Shareholders as a whole.Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinaryresolution to be proposed at the SGM to approve the grant of the Issue Mandate.

Yours faithfully,Tam Sun Wing Ko Ming Tung, Edward Ng Ge Bun

Independent non-executive Independent non-executive Independent non-executiveDirector Director Director

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

– 19 –

招银国际CMB INTERNATIONAL CAPITAL CORPORATION LIMITED

31 March 2008

To the Independent Board Committeeand the Independent Shareholders ofKai Yuan Holdings Limited

Dear Sirs,

PROPOSED REFRESHMENT OF THE EXISTING GENERAL MANDATE

INTRODUCTION

We refer to our appointment as the independent financial adviser to the IndependentBoard Committee and the Independent Shareholders with respect to the Refreshment ofthe Existing General Mandate, details of which are set out in the “Letter From the Board”(the “Letter”) contained in the circular of the Company dated 31 March 2008 (the“Circular”), of which this letter forms part. Terms used in this letter shall have the samemeanings as defined in the Circular unless the context otherwise requires.

As stated in the Letter, the Board proposes to refresh the Existing General Mandatefor the Directors to allot, issue and deal with additional new Shares not exceeding 20% ofthe nominal amount of share capital of the Company in issue as at the date of the SGM.The refreshment the Existing General Mandate will, if granted and not utilised, remaineffective until the earliest of: (i) the conclusion of the next annual general meeting of theCompany; (ii) the expiration of the period within which the next annual general meetingof the Company is required to be held by Bermuda law or Bye-laws; and (iii) its revocationor variation by ordinary resolutions of the Shareholders in general meeting.

Pursuant to Rule 13.36(4)(a) of the Listing Rules, any controlling Shareholders andtheir associates, or where there are no controlling Shareholders, the Directors (excludingindependent non-executive Directors) and the chief executive of the Company and theirrespective associates shall abstain from voting in favour of the resolution to approve thegranting of the Issue Mandate to be proposed at the SGM. As at the Latest PracticableDate, (i) Mr. Hu Yishi, an executive Director and chairman of the Company, held44,720,000 Shares, representing approximately 0.76% of the issued share capital of theCompany as at the Latest Practicable Date; and (ii) Morich International InvestmentsLimited, a company wholly and beneficially owned by Mr. Hu Yishi, held 446,930,000Shares, representing approximately 7.57% of the issued share capital of the Company as atthe Latest Practicable Date. Mr. Hu Yishi’s associates did not hold any Shares as at theLatest Practicable Date. As such, Mr. Hu Yishi and Morich International InvestmentsLimited will abstain from voting in favour of the resolution to approve the granting of the


– 20 –

Issue Mandate and they have no intention to vote against the resolution to approve thegranting of the Issue Mandate at the SGM. Pursuant to Rule 13.39(4)(b) of the ListingRules, the vote of the Independent Shareholders in respect of the grant of the Issue Mandateat the SGM will be taken by way of poll.

The Independent Board Committee, comprising all the independent non-executiveDirectors, namely Mr. Tam Sun Wing, Mr. Ko Ming Tung, Edward and Mr. Ng Ge Bun,has been formed to advise the Independent Shareholders as to whether the refreshment ofthe Existing General Mandate is fair and reasonable and is in the interests of the Companyand the Shareholders as a whole.

In our capacity as the independent financial adviser to the Independent BoardCommittee and the Independent Shareholders, our role is to provide the IndependentBoard Committee and the Independent Shareholders with an independent opinion andrecommendation as to whether the refreshment of the Existing General Mandate is fairand reasonable so far as the Independent Shareholders are concerned and is in the interestsof the Company and the Shareholders as a whole.

BASIS OF OUR OPINION

In formulating our recommendation, we have relied on the information, financialinformation and facts supplied to us and representations expressed by the Directors and/or the management of the Company and have assumed that all such information, financialinformation and facts and any representations made to us, or referred to in the Circular,are true, accurate and complete as at the time they were made and as at the date of theCircular, have been properly extracted from the relevant underlying accounting records(in the case of financial information) and made after due and careful inquiry by theCompany and/or the management of the Company. The Directors and/or the managementof the Company have confirmed that, having made all reasonable enquiries and to thebest of their knowledge and belief, all relevant information has been supplied to us andthat no material facts have been omitted from the information supplied and representationsexpressed to us. We have also relied on certain information available to the public andhave assumed such information to be accurate and reliable. We consider that we havereviewed all currently available information and documents which are available in thepresent circumstances and have performed all necessary steps as required under Rule13.80 of the Listing Rules, including the notes thereto, to enable us to reach an informedview and to justify our reliance on the information provided so as to provide a reasonablebasis for our opinions. We have no reason to doubt the completeness, truth or accuracy ofthe information and facts provided and we are not aware of any facts or circumstanceswhich would render such information provided and representations made to us untrue,inaccurate or misleading. We have not, however, conducted any independent verificationof the information nor have we conducted any form of in-depth investigation into thebusinesses, affairs, financial position or prospects of the Group.


– 21 –

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion and recommendation to the Independent Board Committeein relation to the refreshment of the Existing General Mandate, we have considered thefollowing factors:

Background

At the annual general meeting of the Company held on 23 November 2007,the Shareholders approved, among other things, an ordinary resolution to grant tothe Directors the Existing General Mandate to allot up to 1,076,322,628 Shares. As atthe Latest Practicable Date, 526,000,000 Shares were issued under the Existing GeneralMandate as a result of the exercise of the conversion rights attaching to the 2007 CB.There has not been any refreshment of the Existing General Mandate since the annualgeneral meeting of the Company held on 23 November 2007.

In order to provide flexible means for the Company to raise funds for itsfuture business development and/or through the issue of new Shares whenevermergers and acquisitions opportunities arise, the Board proposes to grant the IssueMandate for the Directors to allot, issue and otherwise deal with new Shares withan aggregate nominal amount of not exceeding 20% of the aggregate nominal amountof the issued share capital of the Company as at the date of SGM. The Issue Mandateis proposed to the Shareholders prior to the Company’s next annual general meeting,and therefore, under Rule 13.36(4) of the Listing Rules, the Issue Mandate will besubject to the Independent Shareholders’ approval by way of poll at the SGM.

The Group is principally engaged in the property investment and resourcesinvestment business. Reference is made to the Company’s announcement dated 6March 2008 and its annual report for the year ended 30 June 2007, the Group isplanning to extend its business to the provision of municipal public utility in Tianjinwhich shall mainly focus on heat supply to residential, commercial and industrialusers. As part of its business plan, Charter Best Investments Limited (a wholly-owned subsidiary of the Company) entered into an acquisition agreement on 31January 2007 (as supplemented by a supplemental agreement dated 6 March 2007)regarding the acquisition of 100% of the issued share capital of Spread InternationalGroup Limited (which holds 49% equity interests of Tianjin Heating DevelopmentCo., Ltd., a company established in the PRC with limited liability and is principallyengaged in the provision of municipal public utility which mainly focuses onprovision of heat to residential and commercial buildings). As stated in the saidannouncement, the Directors believe the said acquisition would enable the Group tocapitalise on the opportunities embracing the heat supply business that could enhancemomentum and competitive edges for the Group’s future development, and wouldbring long-term profitability to the Group and is in the interests of the Shareholders.


– 22 –

The Directors consider that the issue of new Shares provides an additionaland flexible means of raising funds for the use of the Group to achieve its businessplans as and when appropriate. We concur with the Directors’ view and considerthat the refreshment of the Existing General Mandate will provide an additionalmeans of financing available to the Group to participate in future investmentopportunities.

As at the Latest Practicable Date, a total of 5,907,613,140 Shares were in issue.Subject to the passing of the proposed resolution for granting the Issue Mandate tothe Directors and on the basis that no Shares will be issued or repurchased by theCompany prior to the SGM, the Company will be allowed under the Issue Mandateto issue a maximum of 1,181,522,628 Shares.

Financial flexibility and other possible alternatives

Given that equity financing is interest and security free by nature, and abigger and wider spread of the capital base may also enhance the liquidity of theShares in the securities market in Hong Kong, the Directors consider that therefreshment of the Existing General Mandate (which offers a flexible financing optionto the Company) is in the interests of the Company and the Shareholders as awhole. Apart from equity financing, the Directors have also confirmed that theywould consider other alternatives, such as (but not limited to) debt financing andbank borrowings. However, such alternatives depend on the financial position, thecost of funding of the Group and the market conditions. In addition, these alternativesmay have to be subject to a lengthy due diligence and negotiation process. TheDirectors have also confirmed that they would exercise due and careful considerationwhen choosing the best method of financing for the Group.

Given that the refreshment of the Existing General Mandate may (i) enhancethe flexibility of the Company to raise additional funds and/or to allot and issuenew Shares as consideration for funding any future investment opportunities,acquisitions and/or corporate transaction exercises as and when such opportunitiesarise; and (ii) enlarge the capital base of the Group, we believe that the refreshmentof the Existing General Mandate offers the Company a flexible financing option forthe benefit of the Group and is in the interests of the Company and the Shareholdersas a whole.

We consider that it is prudent and reasonable for the Group to maintain astrong capital base whilst additional funding may be needed for further businessdevelopment as well as for other opportunities which may arise in the future.


– 23 –

Potential dilution to shareholding of the Independent Shareholders

Set out below is a table showing (i) the shareholding structure of the Companyas at the Latest Practicable Date; (ii) for illustrative purpose, the shareholdingstructure of the Company immediately after the exercise of the conversions rightsattached to the 2007 CB and the Convertible Notes in full but before utilization ofthe refreshment of the Existing General Mandate; and (iii) the potential shareholdingdilution of existing Independent Shareholders upon the exercise of the conversionsrights attaching to the 2007 CB and the Convertible Notes in full and full utilizationof the Issue Mandate (assuming that the refreshment of the Existing General Mandateare approved at the SGM):

Shareholdingimmediately after

Shareholding the issue of theimmediately after Conversion Shares and

the issue of the the issue of SharesConversion Shares and pursuant to the exercise

the issue of Shares in full of thepursuant to the conversion rights

exercise in full of the attaching to the 2007 CBconversion rights in full and after full

As at the attaching to the utilization of theLatest Practicable Date 2007 CB in full Issue Mandate

Number of % Number of % Number of %Shares (approximate) Shares (approximate) Shares (approximate)

Morich InternationalInvestments Limited(Note 1) 446,930,000 7.57 446,930,000 6.28 446,930,000 5.39

Mr. Hu Yishi (Note 2) 44,720,000 0.76 44,720,000 0.63 44,720,000 0.53

2007 Subscribers (Note 3)Dragon Will International

Develop Limited – – 300,000,000 4.22 300,000,000 3.62

Mr. Zhang Weili (Note 4) 300,000,000 5.08 300,000,000 4.22 300,000,000 3.62

Billion Top InternationalDevelop Limited – – 250,000,000 3.51 250,000,000 3.01

Mr. Shi Qiuqing (Note 5) 226,000,000 3.82 226,000,000 3.17 226,000,000 2.72

SubscribersGold Sand Capital

Resources Limited – – 260,000,000 3.65 260,000,000 3.13

China Treasury InternationalDevelop Limited – – 200,000,000 2.81 200,000,000 2.41


– 24 –

Shareholdingimmediately after

Shareholding the issue of theimmediately after Conversion Shares and

the issue of the the issue of SharesConversion Shares and pursuant to the exercise

the issue of Shares in full of thepursuant to the conversion rights

exercise in full of the attached to the 2007 CBconversion rights in full and after full

As at the attached to the utilization of theLatest Practicable Date 2007 CB in full Issue Mandate

Number of % Number of % Number of %Shares (approximate) Shares (approximate) Shares (approximate)

Bond Land InvestmentDevelopment Limited – – 200,000,000 2.81 200,000,000 2.41

Shares to be issued underthe Issue Mandate – – – – 1,181,522,628 14.24

Public Shareholders 4,889,963,140 82.77 4,889,963,140 68.70 4,889,963,140 58.92

Total 5,907,613,140 100.00 7,117,613,140 100.00 8,299,135,768 100.00

Notes:

1. Morich International Investments Limited is wholly and beneficially owned by Mr. HuYishi, an executive Director and chairman of the Company.

2. Mr. Hu Yishi is an executive Director and chairman of the Company.

3. To the best of the Directors’ knowledge, information and belief having made all reasonableenquiries, each of the Subscribers and their ultimate beneficial owners is independent ofand not connected with each of the 2007 CB Subscribers and their ultimate beneficialowners.

4. The Company received a transfer form dated 4 March 2008 from Asia Rich InternationalDevelop Limited that it transferred the relevant 2007 CB in the principal amount ofHK$39,000,000 to Mr. Zhang Weili. To the best of the Directors’ knowledge, informationand belief having made all reasonable enquiries, Mr. Zhang Weili is a third partyindependent of the Group and its connected persons.

5. The Company received a transfer form dated 21 December 2007 from Billion SurplusGlobal Limited that it transferred the relevant 2007 CB in the principal amount ofHK$29,380,000 to Mr. Shi Qiuqing. To the best of the Directors’ knowledge, informationand belief having made all reasonable enquiries, Mr. Shi Qiuqing is a third partyindependent of the Group and its connected persons.


– 25 –

As can be seen from the above table, the aggregate shareholding of the existingpublic Shareholders will be decreased from approximately 82.77% to approximately58.92% after the issue of the Conversion Shares and the issue of Shares pursuant tothe exercise in full of the conversion rights attached to the 2007 CB in full and afterfull utilization of the Issue Mandate.

Taken into account that the financial flexibility provided to the Group by therefreshment of the Existing General Mandate and that the shareholding of all theShareholders will be diluted in proportion to their respective shareholdings uponthe utilization of the Issue Mandate, we consider that the above potential dilution tothe shareholding of the Independent Shareholders is fair and reasonable so far asthe Independent Shareholders are concerned.

RECOMMENDATION

Having considered the above, we are of the view that the refreshment of the ExistingGeneral Mandate is fair and reasonable so far as the Independent Shareholders areconcerned and is in the interests of the Company and the Shareholders as a whole.Accordingly, we advise the Independent Board Committee to recommend the IndependentShareholders to vote in favour of the ordinary resolution to be proposed at the SGM toapprove the refreshment of the Existing General Mandate.

Yours faithfully,For and on behalf of

CMB International Capital Corporation LimitedSunny Chan

Director

NOTICE OF SGM

– 26 –



(Stock Code: 1215)

NOTICE IS HEREBY GIVEN THAT a special general meeting (the “SGM”) of KaiYuan Holdings Limited (the “Company”) will be held at Elbrus Room, Pacific PlaceConference Centre, 5/F., One Pacific Place, 88 Queensway, Hong Kong on 17 April 2008 at9:30 a.m. to consider and, if thought fit, pass with or without modifications, the followingresolutions which will be proposed as ordinary resolutions as indicated below:

ORDINARY RESOLUTIONS

1. “THAT:

(a) the terms and conditions of the three subscription agreements dated 8March 2008 (the “Subscription Agreements”, a copy of which has beenproduced to the meeting marked “A” and signed by the chairman of themeeting for purpose of identification) entered into between the Companyas issuer and each of Gold Sand Capital Resources Limited, ChinaTreasury International Develop Limited and Bond Land InvestmentDevelopment Limited (collectively, the “Subscribers”) as subscribers,pursuant to which the Company has conditionally agreed to issue to theSubscribers the convertible notes (the “Convertible Notes”) in anaggregate principal amount of HK$170,280,000 at the initial conversionprice of HK$0.258 per share of the Company (the “Share”), be and arehereby approved, confirmed and ratified;

(b) the issue of the Convertible Notes by the Company to each of theSubscribers pursuant to the terms and conditions of the SubscriptionAgreements and the allotment and issue of new Shares by the Companyupon the exercise of the conversion rights attaching to the ConvertibleNotes be and are hereby approved; and

(c) the directors of the Company (the “Directors”) be and are herebyauthorised on behalf of the Company to do all such things and sign,seal, execute, perfect and deliver all such documents as they may intheir discretion consider necessary, desirable or expedient, for thepurposes of or in connection with the implementation and/or give effectto any matters relating to the Subscription Agreements, the ConvertibleNotes and all transactions contemplated thereunder.”

NOTICE OF SGM

– 27 –

2. “THAT:

(a) subject to paragraph (c) below, the exercise by the Directors during theRelevant Period (as hereinafter defined) of all the powers of the Companyto allot, issue and otherwise deal with additional Shares or securitiesconvertible into Shares, or options, warrants or similar rights to subscribefor any Shares, and to make or grant offers, agreements and optionswhich might require the exercise of such power be and is herebygenerally and unconditionally approved;

(b) the approval in paragraph (a) above shall be in addition to any otherauthorisations given to the Directors and shall authorise the Directorsduring the Relevant Period to make or grant offers, agreements andoptions which might require the exercise of such power after the end ofthe Relevant Period;

(c) the aggregate nominal amount of the share capital allotted or agreedconditionally or unconditionally to be allotted (whether pursuant to anoption or otherwise) by the Directors pursuant to the approval inparagraph (a) above, otherwise than pursuant to:

(i) a Rights Issue (as hereinafter defined);

(ii) the exercise of rights of subscription or conversion under terms ofany warrants issued by the Company or any securities which areconvertible into Shares;

(iii) the exercise of any option scheme or similar arrangements for thetime being adopted for the grant or issue to officers and/oremployees of the Company and/or any of its subsidiaries of Sharesor right to acquire Shares;

(iv) any scrip dividend or similar arrangements providing for theallotment of Shares in lieu of the whole or part of a dividend onShares in accordance with the Bye-laws of the Company;

shall not exceed 20% of the aggregate nominal amount of the sharecapital of the Company in issue at the date of passing of this Resolutionand the said approval shall be limited accordingly;

(d) subject to the passing of each of the paragraphs (a), (b) and (c) of thisResolution, any prior approvals of the kind referred to in paragraphs(a), (b) and (c) of this Resolution which had been granted to the Directorsand which are still in effect be and are hereby revoked; and

NOTICE OF SGM

– 28 –

(e) for the purpose of this Resolution:

“Relevant Period” means the period from the passing of this Resolutionuntil 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 generalmeeting of the Company is required by law or the Bye-laws of theCompany to be held; or

(iii) the revocation or variation of the authority given under thisResolution by ordinary resolution of the shareholders of theCompany in general meeting;

“Rights Issue” means the allotment, issue or grant of Shares pursuantto an offer of Shares open for a period fixed by the Directors to holdersof Shares or any class thereof on the register on a fixed record date inproportion to their then holdings of such Shares or class thereof (subjectto such exclusion or other arrangements as the Directors may deemnecessary or expedient in relation to fractional entitlements, or havingregard to any restrictions or obligations under the laws of, or therequirements of, any recognised regulatory body or any stock exchangein any territory outside Hong Kong).”

3. “THAT subject to and conditional upon the granting by the Listing Committeeof The Stock Exchange of Hong Kong Limited of, the listing of and permissionto deal in, the Shares to be issued pursuant to the exercise of options grantedunder the refreshed scheme mandate limit (the “Refreshed Scheme MandateLimit”) under the share option scheme adopted by an ordinary resolution ofthe shareholders of the Company passed on 17 April 2002 in the manner as setout in paragraph (a) of this Resolution below,

(a) the refreshment of the Refreshed Scheme Mandate Limit of up to 10% ofthe Shares in issue as at the date of passing of this Resolution be and ishereby approved; and

(b) the Directors be and are hereby authorised to do all such acts and thingsand execute all such documents, including under seal where applicable,as they consider necessary or expedient to give effect to the foregoingarrangement.”

By Order of the board ofKai Yuan Holdings Limited

Yip Kar Hang, RaymondExecutive Director and Chief Executive Officer

Hong Kong, 31 March 2008

NOTICE OF SGM

– 29 –

Principal place of business in Hong Kong:Unit 4705, 47th FloorFar East Finance Centre16 Harcourt RoadAdmiralty, Hong Kong

Registered office:Canon’s Court22 Victoria StreetHamilton HM12Bermuda

Notes:

1. A shareholder of the Company (“Shareholder”) entitled to attend and vote at the SGM may appoint oneor more proxies to attend and to vote in his stead. A proxy need not be a Shareholder.

2. Where there are joint registered holders of any Share, any one such person may vote at the SGM, eitherpersonally or by proxy, in respect of such Share as if he were solely entitled thereto; but if more thanone of such joint holders be present at the SGM personally or by proxy, that one of the said persons sopresent whose name stands first on the register of members of the Company in respect of such Sharesshall alone be entitled to vote in respect thereof.

3. In order to be valid, the form of proxy when duly completed and signed in accordance with theinstructions printed thereon together with the power of attorney or other authority, if any, under whichit is signed or a notarially certified copy thereof must be delivered to the branch share registrar of theCompany in Hong Kong, Tricor Tengis Limited, at 26th Floor, Tesbury Centre, 28 Queen’s Road East,Wanchai, Hong Kong, not less than 48 hours before the time appointed for holding the SGM or anyadjournment thereof.

4. As at the date of this notice, the board of Directors consists of Mr. Hu Yishi, Mr. Yip Kar Hang,Raymond and Mr. Lam Cheung Shing, Richard (all being executive Directors), Mr. Hu Jin Xing (beingnon-executive Director), and Mr. Tam Sun Wing, Mr. Ko Ming Tung, Edward and Mr. Ng Ge Bun (allbeing independent non-executive Directors).

Documents

KAI YUAN HOLDINGS LIMITED 開源控股有限公司 · A letter from the Independent Board Committee containing its recommendation to the Independent Shareholders of Kai Yuan Holdings