AMENDMENTS TO by liaoqinmei

VIEWS: 4 PAGES: 35

									        Summary of changes to
         the GEM Listing Rules
          effective 31 March 2004




                       CHARLTONS
             SOLICITORS AND NOTARY PUBLIC
10th Floor                       25th Floor
Hutchison House                  Bund Centre
10 Harcourt House                222 East Yan’an Road
Hong Kong                        Shanghai

Tel: (852) 2905 7888             Tel: (86) 21 6335 1908
Fax: (852) 2854 9596             Fax: (86) 21 6335 1909
                    www.charltonslaw.com
                                                         Table of Contents

A.    NOTIFIABLE TRANSACTIONS (EXCEPT CONNECTED TRANSACTIONS) ......... 1
1.    Definition of ‘transaction’ for the Purposes of Notifiable Transactions ............................. 1
2.    Classification of Notifiable Transactions ............................................................................ 2
3.    Very Substantial Acquisitions ............................................................................................. 2
4.    Very Substantial Disposals .................................................................................................. 2
5.    Reverse Takeovers .............................................................................................................. 2
6.    New Tests ............................................................................................................................ 3
7.    Revised Thresholds for Classifying Transactions ............................................................... 4
8.    Valuation of Properties, Vessels and Aircraft ...................................................................... 5
9.    Valuation of Assets.............................................................................................................. 5
10.   Options ................................................................................................................................ 5
11.   Dilution of Interest in Subsidiaries Resulting in Deemed Disposals .................................. 6
12.   Notification, Publication and Shareholders’ Approval Requirements ................................ 6
13.   Contents of Announcements ............................................................................................... 8
14.   Other Announcement Requirements ................................................................................... 8
15.   Disclosure of Financial Information in Circulars for Notifiable Transactions.................... 8
16.   Despatch of Circulars ........................................................................................................ 10

B.    CONNECTED TRANSACTIONS ................................................................................... 10
1.    Definition of Connected Person ........................................................................................ 10
2.    Definition of ‘Associate’................................................................................................... 11
3.    Relatives of a Connected Person as Deemed Associates .................................................. 11
4.    Classification of Connected Transactions ......................................................................... 12
5.    Shareholders’ Approval Requirements.............................................................................. 13
6.    Continuing Connected Transactions ................................................................................. 13
7.    Financial Assistance as a Connected Transaction ............................................................. 14

C.    APPLICATION OF THE SIZE TESTS IN OTHER PARTS OF THE RULES .......... 15
1.    Disclosure of Advances to Entities ................................................................................... 15
2.    Disclosure of Financial Assistance and Guarantees to Affiliated Companies .................. 16
3.    Application of the Percentage Ratios to other parts of the Rules ..................................... 16

D.    DILUTION OF SHAREHOLDERS’ INTERESTS ....................................................... 17
1.    Refreshment of General Mandate ..................................................................................... 17
2.    New Price Restriction on the Issue of Shares under the General Mandate ....................... 17
3.    Placing and Top-Up Subscription ..................................................................................... 17
4.    Offers of Securities Permitted to Exclude Overseas Shareholders ................................... 18
5.    Rights Issues and Open Offers .......................................................................................... 18

E.    SHARE REPURCHASES ............................................................................................... 19
1.    New Restriction on Price of Repurchases ......................................................................... 19
2.    Dealing Restriction Period ................................................................................................ 19

F.    WITHDRAWAL OF LISTING ........................................................................................ 19

G.    DISPOSAL OF INTERESTS OF INITIAL MANAGEMENT AND SIGNIFICANT
      SHAREHOLDERS .......................................................................................................... 19
1.    Commencement of Lock-up Period .................................................................................. 19
2.    Deemed Disposal of Interests ........................................................................................... 19

H.    VOTING BY SHAREHOLDERS .................................................................................... 20
1.    Poll Vote Mandatory ....................................................................................................... 20
2.    Voting by Controlling Shareholders ................................................................................ 20

                                                                 i                                d12275c4-d1e1-4184-8e2f-12e12bb79467.doc
I.   DIRECTORS AND BOARD PRACTICES ..................................................................... 21
     INDEPENDENT NON EXECUTIVE DIRECTORS
1.   Further Guidance regarding Independence ....................................................................... 21
2.   Qualification of INEDs ..................................................................................................... 23
3.   Minimum Number of INEDs ............................................................................................ 23
4.   Independent Board Committees ........................................................................................ 23

J.   BOARD PRACTICES ...................................................................................................... 24
1.   Code on Corporate Governance Practices ........................................................................ 24
2.   Report on Corporate Governance ..................................................................................... 24

K.   ESTABLISHMENT OF GOVERNANCE COMMITTEES ........................................... 25
1.   Audit Committee............................................................................................................... 25
2.   Remuneration Committee ................................................................................................. 25
3.   Nomination Committee ..................................................................................................... 25

L.   DIRECTORS’ DUTIES AND RESPONSIBILITIES .................................................... 25
1.   Duties and Responsibilities of Non-Executive Directors.................................................. 25
2.   Chairman and Chief Executive Officer ............................................................................. 25
3.   Internal Controls ............................................................................................................... 25

M.   ARTICLES OF ASSOCIATION...................................................................................... 26
1.   Voting By Interested Directors .......................................................................................... 26
2.   Nomination of Directors ................................................................................................... 26
3.   Voting at General Meetings............................................................................................... 26

N.   SECURITIES TRANSACTIONS BY DIRECTORS ...................................................... 26
1.   Disclosure of Breaches ..................................................................................................... 26
2.   Definition of Dealing ........................................................................................................ 26
3.   ‘Black-Out’ Period for Directors’ Securities Transactions ................................................ 27
4.   Dealings by Directors in Exceptional Circumstances ....................................................... 27
5.   Directors as Trustees or Beneficiaries............................................................................... 27
6.   Disclosure in Annual and Half-year Reports .................................................................... 28

O.   DIRECTORS’ CONTRACTS, REMUNERATION AND APPOINTMENTS ............... 28
1.   Directors’ Service Contracts ............................................................................................. 28
2.   Disclosure of Directors’ Remuneration............................................................................. 28

P.   DISCLOSURE OF INFORMATION.............................................................................. 28
1.   New Announcement Requirements ................................................................................... 28
2.   Notices .............................................................................................................................. 28

Q.   FINANCIAL REPORTING ............................................................................................. 29

R.   MEANING OF SUBSIDIARY ........................................................................................ 29




                                                               ii                               d12275c4-d1e1-4184-8e2f-12e12bb79467.doc
S.     TRANSITIONAL ARRANGEMENTS FOR INTRODUCTION OF LISTING RULE
       CHANGES ....................................................................................................................... 29
1.     INEDs and Audit Committee ............................................................................................ 29
2.     Amendments to Articles of Association ............................................................................ 30
3.     Financial Reporting ........................................................................................................... 30
4.     Directors’ Service Contracts ............................................................................................. 30
5.     New Size Tests and Percentage Ratios.............................................................................. 30
6.     Placing and Top-up Subscriptions..................................................................................... 31
7.     Lock-up Periods for Disposal of Initial Management and Significant Shareholders’
       Interests ............................................................................................................................. 31




Please note that this memorandum is for general information purposes only. Specific legal advice
should be sought in relation to any particular situation.




                                                                 iii                               d12275c4-d1e1-4184-8e2f-12e12bb79467.doc
                       AMENDMENTS TO THE GEM LISTING RULES
                        (THE ‘RULES’) EFFECTIVE MARCH 31, 2004
INTRODUCTION

The purpose of this memorandum is to summarize the amendments to the GEM Listing Rules (the 'Rules')
which came into effect (subject to certain transitional arrangements summarized at Section S below) on March
31, 2004.

A.       NOTIFIABLE TRANSACTIONS (EXCEPT CONNECTED TRANSACTIONS)

The term 'listed issuer' is defined for the purposes of Chapters 19 and 20 as any company or other legal person
whose securities are listed on the GEM and, unless the context requires otherwise, includes its subsidiaries. The
term 'listed issuer' as used in this memorandum with reference to notifiable and connected transactions has the
same meaning.

1.       Definition of 'transaction' for the purposes of Notifiable Transactions (Rule 19.04)

The definition of 'transaction' has been amended in line with the new Main Board definition.

         1.       The new non-exhaustive definition excludes the following:

                  a.       Revenue Transactions in the Ordinary and Usual Course of Business of the Listed
                           Issuer (Rule 19.04(1)(g)).

                           Revenue transactions in the ordinary and usual course of business of the listed issuer
                           are excluded from the definition of transaction unless expressly provided for under
                           Rule 19.04(1)(a)-(f) (eg. entering into or terminating operating leases having a
                           significant impact on the listed issuer’s operations. The Exchange will normally
                           consider an operating lease or leases to have a significant impact if, by virtue of
                           its/their total monetary value or the number of leases involved, it/they represent(s) a
                           200% or more increase in the scale of the listed issuer's existing operations conducted
                           through such leases).

                           The term 'ordinary and usual course of business' has been defined in Rule 19.04(8) as
                           the existing principal activities of the listed issuer or an activity wholly necessary for
                           its principal activities. Financial assistance will only be regarded as being in the
                           ordinary and usual course of business if it is provided by a banking company (defined
                           under Rule 20.10(1) as a bank, restricted licence bank or deposit taking company as
                           defined in the Banking Ordinance or a bank constituted under appropriate overseas
                           legislation or authority).

                           Other points to note regarding revenue transactions are that:

                           (i)      even if a revenue transaction is in the ordinary and usual course of business
                                    of the listed issuer and therefore exempted from the requirements of Chapter
                                    19, it may nevertheless be discloseable under the general obligation to keep
                                    the market informed of all price-sensitive information (under Rule 17.10);

                           (ii)     transactions involving the acquisition and disposal of properties will not
                                    generally be regarded as being of a revenue nature unless such transactions
                                    are carried out as one of the principal activities and in the usual and ordinary
                                    course of business of the issuer; and

                           (iii)    the following is a non-exhaustive list of factors to be taken into account in
                                    determining whether a transaction is of a revenue nature:

                                    1.       whether previous or recurring transactions of the same nature were
                                             treated as notifiable transactions;

                                    2.       the accounting treatment of previous transactions of the same
                                             nature;
                                                    1                        d12275c4-d1e1-4184-8e2f-12e12bb79467.doc
                                      3.       whether the accounting treatment is in accordance with generally
                                               acceptable accounting standards; and

                                      4.       whether the transaction is a revenue or capital transaction for tax
                                               purposes.

                   b.        Issue of New Securities

                             The new definition does not include the issue of new securities for cash. These
                             transactions will however fall under the new definition of 'transaction' applicable to
                             connected transactions.

                   c.        Financial Assistance

                             The grant of an indemnity or a guarantee or the provision of financial assistance by a
                             listed issuer is excluded from the definition of ‘transaction’ where:

                             (i)      the issuer is a 'banking company' (as defined under Rule 20.10(1) – see
                                      paragraph 1.a above); or

                             (ii)     where the issuer grants the indemnity or guarantee or provides financial
                                      assistance to a subsidiary. However where the subsidiary is a ‘connected
                                      person', the connected transaction provisions apply.

2.       Classification of Notifiable Transactions

Under the amended Rules, there are 6 classifications of notifiable transactions:

                       Share Transaction
                       Discloseable Transaction
                       Major Transaction
                       Very Substantial Acquisition
                       Very Substantial Disposal (new)
                       Reverse Takeover (amended).

3.       Very Substantial Acquisitions ('VSAs')

Under the amended Rules, issuers must comply with the VSA provisions irrespective of whether the assets
acquired are listed or not.

4.       Very Substantial Disposals ('VSDs')

VSDs are included as a new notifiable transaction where the tests produce a ratio of 75% or more.

5.       Reverse Takeovers (Rule 19.06)

         1.        The definition of ‘reverse takeover’ has been amended in line with the new definition
                   introduced into the Main Board Listing Rules to:

                   a.        clarify that the acquisition(s) must constitute a VSA to trigger the reverse takeover
                             provisions; and

                   b.        extend the reverse takeover provisions to an injection(s) of assets by the incoming
                             controlling shareholder(s) within 24 months of a change of control of the listed
                             issuer.

         2.        The amended definition of 'reverse takeover' refers to an acquisition or series of acquisitions
                   of assets which, in the opinion of the Exchange, constitute an attempt to list the assets to be
                   acquired which circumvents the requirements for new listing applicants under Chapter 11A. A
                   'reverse takeover' includes:


                                                       2                     d12275c4-d1e1-4184-8e2f-12e12bb79467.doc
                   a.         an acquisition or series of acquisitions of assets (aggregated under Rules 19.22 and
                              19.23) constituting a very substantial acquisition where there is or which will
                              result in a change in control (as defined in the Takeovers Code (currently a holding
                              or aggregate holdings of 30% or more of the voting rights of a company)) of the
                              listed issuer: or

                   b.         acquisition(s) of assets from the incoming controlling shareholder(s) or his/their
                              associates within 24 months after the change in control that had not been regarded
                              as a reverse takeover, which individually or together reach the threshold for a VSA
                              (Rule 19.06(6)).

                              In determining whether the acquisition(s) constitute(s) a VSA, the lower of:

                              (i)      the latest published figures of the asset value, revenue and profits as shown
                                       in the listed issuer's accounts and the market value of the listed issuer at the
                                       time of the change in control; and

                              (ii)     the latest published figures of the asset value, revenue and profits as shown
                                       in the listed issuer's accounts and the market value of the listed issuer at the
                                       time of the acquisition(s),

                              is to be used as the denominator of the percentage ratios.

         3.        Shareholders' Approval of Reverse Takeovers

                   Where there is a change in control of the listed issuer and the existing controlling
                   shareholder(s) will dispose of its/their shares to any person, the existing controlling
                   shareholder(s) and its/their associates cannot vote in favour of a resolution approving the
                   acquisition of assets from the incoming controlling shareholder or his associates at the time of
                   the change in control (Rule 19.55). This prohibition on the outgoing controlling shareholder
                   and his associates voting in favour of an injection of assets does not apply where the decrease
                   in the outgoing shareholder's shareholding results solely from a dilution through the new issue
                   of shares to the incoming controlling shareholder rather than a disposal of shares by the
                   outgoing shareholder.

         4.        See paragraph 12.2 below for the general requirements relating to shareholders’ approval.

         5.        Restriction on Disposal (Rule 19.91)

                   The Rules have been amended to allow a listed issuer to dispose of its existing business within
                   24 months of a change in control (as defined in the Takeovers Code), if the assets acquired
                   from the incoming controlling shareholder(s) or its/their associates and any other assets
                   acquired by the listed issuer (whether from the incoming shareholder or independent third
                   parties) after the change in control, can meet the active business pursuits requirement of Rule
                   11.12.

                   If the requirements of Rule 19.91 cannot be met, a disposal by a listed issuer of its existing
                   business within 24 months of a change of control will result in the issuer being treated as a
                   new listing applicant.

6.       New Tests

The following size tests have been adopted for the classification of notifiable transactions:

                       Total assets test
                       Profits test (no change)
                       Revenue test
                       Consideration test
                       Equity capital test (no change)

         1.        The total assets test is a stand-alone test which replaces the net assets test. 'Total assets' means
                   the fixed assets (including intangible assets) plus current and non-current assets (Rule 19.04).

                                                      3                        d12275c4-d1e1-4184-8e2f-12e12bb79467.doc
                 Intangible assets include goodwill (whether positive or negative).

        2.       The new consideration test is calculated by comparing the consideration for the transaction
                 with the total market capitalization of the listed issuer (ie. the average closing price of the
                 issuer's securities as stated in the Exchange's daily quotations sheets for the 5 business days
                 immediately preceding the date of the transaction) (Rule 19.07(4)).

        3.       The revenue test measures the level of activity of the target against that of the listed issuer.
                 'Revenue' means revenue arising from the principal activities of a company and does not
                 include those items of revenue and gains that arise incidentally (Rule 19.14).

7.      Revised Thresholds for Classifying Transactions

The Rules have been amended to adjust the threshold levels for categorizing notifiable transactions under all
size tests. The revised thresholds are set out in the table below.

                                               Revised thresholds (based on new size tests)
        Share transaction                      less than 5%
        Discloseable transaction               5% or more but less than 25%
                                               25% or more, but less than 100% for acquisitions and less
        Major transaction
                                               than 75% for disposals
        Very Substantial Acquisition           100% or more
        Very Substantial Disposal              75% or more

        Figures used in total assets, profits and revenue calculations

                                                  Adjustment
                                If the listed
                                                  for the value
                                issuer
                  Use the                         of a
                                publishes an
                  figures                         transaction if
                                interim report
                  shown in                        adequate
                                after the issue
                  the latest                      information    Other adjustments
                                of the annual
                  published                       has been
                                report, use the
                  annual                          published and
                                figures shown
                  report                          the
                                in the interim
                                                  transaction is
                                report
                                                  completed
                                                                  Issuer must adjust for the proposed or
        Total                                                     declared dividend (which has not been
        assets                                                    recorded in the accounts) and latest
        (R19.16,                                                  published valuation after the publication
                 Yes            Yes               Yes
        19.18                                                     of the latest published annual report or
        and                                                       interim report.
        19.19)                                                    The Exchange may require inclusion of
                                                                  contingent assets.
        Profits                                                   May exclude the profits or revenue from
                 Yes            No                No
        (R19.17)                                                  the  operation    that     have    been




                                                   4                       d12275c4-d1e1-4184-8e2f-12e12bb79467.doc
                                                                     discontinued during the previous
                                                                     financial year if the listed issuer has
                                                                     separately disclosed the profits and
                                                                     revenue     from     the     discontinued
                                                                     operations in its accounts in accordance
         Revenue                                                     with HKFRS and IFRS.
                  Yes            No                No
         (R19.17)                                                    Since profits and revenue figures are
                                                                     standalone figures for a specific
                                                                     financial period, no adjustment should
                                                                     be made for valuation and/or
                                                                     information     on    latest    published
                                                                     transactions.

8.       Valuation of Properties, Vessels and Aircraft (Rule 19.12)

Where the issuer is to assume repayment obligations for outstanding mortgages or loans, the outstanding
amounts are required to be aggregated to the consideration for the numerator of the assets test. This requirement
has also been extended to shipping and aircraft companies.

9.       Valuation of Assets (Rules 19.61 and 19.62)

The Rules are amended so that any valuation of assets (other than land and buildings) or businesses acquired by
a listed issuer based on discounted cash flows or projections of profits, earnings or cash flows will be regarded
as a profit forecast subject to the same requirements for profit forecasts under the Rules. These include
disclosure of details of the principal assumptions of the valuations and obtaining a report from the issuer's
auditors or reporting accountants. Any financial adviser mentioned in the circular to shareholders is also
required to report on the forecast.

10.      Options

The Rules have been amended in line with the new provisions relating to options introduced into the Main
Board Rules. The basic principles of the Rules relating to both notifiable and connected transactions involving
options are as set out below.

         1.        The grant, acquisition, transfer or exercise of an option by a listed issuer is treated as a
                   transaction and classified by reference to the percentage ratios as previously. Termination of
                   an option will also be treated as a transaction classified by reference to the percentage ratios,
                   unless the termination is in accordance with the terms of the original agreement and does not
                   involve payment of any amounts by way of penalty, damages or other compensation.

         2.        Options not Exercisable at the Listed Issuer's Discretion (Rules 19.74 and 20.69)

                   Where the exercise of the option is not at the discretion of the listed issuer, on the grant of the
                   option, the transaction will be classified as if the option had been exercised. The issuer should
                   then meet the requirements for notifiable transactions up-front. For the purposes of the
                   percentage ratios, the consideration includes the premium and exercise price of the option.

                   The exercise or transfer of such options must be announced as soon as reasonably practicable
                   if the grant of the option has previously been announced.

         3.        Options Exercisable at the Listed Issuer's Discretion (Rules 19.75 and 20.70)

                   Where the exercise of an option is at the listed issuer's discretion, the acquisition and exercise
                   of the option are treated as 2 transactions, each subject to the percentage ratios.

                   On the acquisition by, or grant of the option to, the listed issuer, only the premium is used for
                   the purposes of the percentage ratios. Where the premium previously represented 15%*or
                   more of the sum of the premium and exercise price, the value of the underlying assets, the
                   profits (for notifiable transactions only) and revenue attributable to such assets, and the sum of
                   the premium and exercise price is used for calculating the percentage ratios.


                                                     5                        d12275c4-d1e1-4184-8e2f-12e12bb79467.doc
                 *Note    The amended Rules reduce the premium threshold (at which the premium alone is no
                          longer used to calculate the percentage ratios) from 15% to 10% for both notifiable
                          transactions and connected transactions involving options exerciseable at an issuer’s
                          discretion.

                 When the option is exercised, the exercise price, the value of the underlying assets and the
                 profits (for notifiable transactions only) and revenue attributable to such assets, is used for
                 calculating the percentage ratios.

                 Where an option exerciseable at the issuer’s discretion is a connected transaction, there is a
                 further provision that the non-exercise of the option will be treated as if the option had been
                 exercised. The exercise price, the value of the underlying assets and the revenue attributable
                 to such assets will be used for calculating the percentage ratios (Rule 20.70(3)).

        4.       Shareholders' Approval

                 A listed issuer may seek any necessary shareholders' approval for the exercise of an option
                 which is a notifiable transaction (in addition to any necessary shareholders' approval for
                 entering into the option) at the time of entering into the option. Such approval will satisfy any
                 requirement for shareholders' approval on exercise provided that the actual monetary value of
                 the consideration payable on exercise of the option and all other relevant information are
                 known and disclosed to shareholders at the time approval is obtained and there has been no
                 change in the material facts at the time of exercise (Rule 19.76(2)).

11.     Dilution of Interest in Subsidiaries Resulting in Deemed Disposals (Rule 19.29)

The Rules have been amended so that the existing requirements relating to deemed disposals of interests in
subsidiaries apply to allotments of share capital for any consideration, and not just 'cash consideration' as
previously.

12.     Notification, Publication and Shareholders' Approval Requirements

        1.       The table below summarizes the notification, publication and shareholders' approval
                 requirements which will generally apply for each category of notifiable transaction.

                                            Publication of
                               Notification an
                                                           Circular to Shareholders' Accountants'
                               to           announcement
                                                           shareholders approval     report
                               Exchange on GEM
                                            website
                 Share
                             Yes             Yes              No              No: 1           No
                 transaction
                 Discloseable
                              Yes            Yes              Yes             No              No
                 transaction
                 Major
                             Yes             Yes              Yes             Yes: 2          Yes: 3
                 transaction
                 Very
                 substantial   Yes           Yes              Yes             Yes: 2          Yes: 5
                 disposal
                 Very
                 substantial   Yes           Yes              Yes             Yes: 2          Yes: 4
                 acquisition
                 Reverse
                               Yes           Yes              Yes             Yes: 2, 6       Yes: 4
                 takeover

                 Notes:

                 1.       No shareholder 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

                                                   6                       d12275c4-d1e1-4184-8e2f-12e12bb79467.doc
              listed issuer is required, pursuant to Rule 17.41(2), to obtain shareholders' approval in
              general meeting prior to the issue of the consideration shares.

     2.       Any shareholder and his associates must abstain from voting if such shareholder has
              a material interest in the transaction.

     3.       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.

     4.       An accountants' report for the 3 preceding financial years on any business, company
              or companies being acquired is required.

     5.       An accountants' report on the listed issuer's group is required.

     6.       Approval of the Exchange is necessary.

2.   Shareholders' Approval Requirements

     Shareholders' approval is required for major transactions, VSAs, VSDs, reverse takeovers and
     share transactions where the consideration shares are not issued under a general mandate.

     The Rules have been amended to remove the requirement for controlling shareholders to
     abstain from voting on resolutions approving a VSA or reverse takeover. The general
     requirement for all transactions subject to shareholders' approval is that a shareholder and his
     associates must abstain from voting on transactions in which the shareholder has a 'material
     interest' (Rule 2.26). Note also the specific requirements for reverse takeovers on an injection
     of assets at paragraph 5.3 above.

     There is a new explanation of 'material interest' (Rule 2.27) which applies throughout the
     Rules. Factors to be taken into account in determining whether a shareholder has a material
     interest include:

     i.       whether the shareholder or his associate is a party to the transaction or arrangement;
              and

     ii.      whether the transaction or arrangement confers upon the shareholder or his associate
              a benefit (whether economic or otherwise) not available to the issuer's other
              shareholders.

     The materiality of an interest must be determined according to the circumstances of the
     transaction, there being no benchmark for materiality of an interest which may not be
     quantifiable in financial or monetary terms.

     In addition, a poll vote is mandatory for any transaction in which a shareholder has a material
     interest and is therefore required to abstain from voting (Rule 17.47(4)). The new
     requirements for poll votes are set out under paragraph H.1 below.

3.   Waiver of Requirement to hold General Meetings

     In line with the Exchange's previous practice, amendments provide that major transactions
     may be approved by written resolutions of shareholders in lieu of an EGM (Rule 19.44) if:

     i.       no shareholder would be required to abstain from voting if an EGM were convened;
              and

     ii.      the written shareholders' approval has been obtained from a shareholder or closely
              allied group of shareholders who (together) hold more than 50% in nominal value of
              the shares giving the right to vote at the general meeting approving the transaction.

     However, written shareholders’ approval is not acceptable for a major transaction where the
     reporting accountants give a qualified opinion in the accountants’ report on the acquisition of

                                       7                        d12275c4-d1e1-4184-8e2f-12e12bb79467.doc
                  businesses or companies.

                  Details of the shareholder or closely allied group of shareholders including the name(s) of the
                  shareholder(s), the number of securities held by each such shareholder and the relationship
                  between the closely allied group must be included in the announcement of the relevant
                  transaction (Rule 19.60(5)).

                  Written shareholders' approval is not acceptable for VSAs, VSDs or Reverse Takeovers.

                  There is a new requirement that where the issuer discloses unpublished price sensitive
                  information to a shareholder in confidence in seeking that shareholder's approval, the issuer
                  must be satisfied that the shareholder is aware that he must not deal in the issuer's shares prior
                  to the information being made available to the public (Rule 19.44(2)).

13.      Contents of Announcements (Rule 19.58)

Announcements of all notifiable transactions will require the inclusion of the following additional information:

         i.       the book value and valuation (if any) of the assets the subject of the transaction;

         ii.      confirmation that to the best of the directors' knowledge, information and belief, having made
                  all reasonable enquiries, the counterparty and its ultimate beneficial owner are third parties
                  independent of the listed issuer and its connected persons;

         iii.     details of any guarantee or security given;

         iv.      the reasons for entering into the transaction;

         v.       if the transaction is a major transaction being approved by written shareholders' approval, the
                  name and number of securities held by each of the shareholders giving such approval and the
                  relationship between such shareholders; and

         vi.      if the transaction involves the disposal of an interest in, or an issue of securities of, a
                  subsidiary by the listed issuer, a statement as to whether the subsidiary will still be a
                  subsidiary of the listed issuer after the transaction.

14.      Other Announcement Requirements (Rule 19.36)

Listed issuers must make a further announcement as soon as is practicable in respect of a transaction previously
announced on the occurrence of any of the following:

         i.       the termination of the transaction;

         ii.      any material variation in its terms; and

         iii.     a material delay in completion of the agreement.

15.      Disclosure of Financial Information in Circulars for Notifiable Transactions

         1.       VSAs, Reverse Takeovers and Major Acquisitions

                  For a VSA, reverse takeover or major transaction involving the acquisition of a company or
                  business, the listed issuer must prepare an accountants' report on the target company or
                  business for the last 3 financial years (Rule 7.05). The accounts on which the report is based
                  must relate to a period ending 6 months or less before the issue of the circular. A comparative
                  table of audited financial statements taken from the listed issuer's annual reports for the last 3
                  financial years must also be included.

                  If the target asset of a major acquisition, VSA or reverse takeover is a revenue generating asset
                  (other than a company or business) with an identifiable net income stream or assets valuation,
                  the circular must include a profit and loss statement and valuation (if available) for the last 3
                  financial years on the identifiable net income stream and valuation of the assets (if available),

                                                    8                        d12275c4-d1e1-4184-8e2f-12e12bb79467.doc
     which must be reviewed by the auditors or reporting accountants. The financial information on
     which the profit and loss statement is based must relate to a financial period ended 6 months
     or less before the issue of the circular (Rules 19.67(4)(b) and 19.69(4)(b)).

     Financial information on a target contained in a shareholders circular on major acquisitions,
     VSAs and reverse takeovers must be prepared using accounting policies materially consistent
     with those of the listed issuer.

     A management discussion and analysis must also be included in the circular:

     i.       on the target for a major acquisition (Rule 19.67(5)); and

     ii.      on the enlarged group for a VSA (Rule 19.69(8)).

2.   VSDs

     For VSDs involving the disposal of a company or business, the listed issuer must prepare an
     accountants' report on the existing group for the last 3 financial years with the
     business/company being disposed of shown separately as a discontinuing operation (Rule
     7.06). The accounts on which the report is based must relate to a financial period ending no
     more than 6 months before the issue of the circular.

     If a revenue generating asset (other than a business or company) with an identifiable income
     stream or assets valuation is being disposed of, the circular must include a profit and loss
     statement and valuation (if available) for the last 3 financial years on the identifiable net
     income stream and valuation of the assets (if available), which must be reviewed by the
     auditors or reporting accountants. The financial information on which the profit and loss
     statement is based must relate to a financial period ended 6 months or less before the issue of
     the circular (Rule 19.68(2)).

     The listed issuer must also include a management discussion and analysis (as required under
     Rule 18.41) on the remaining group's performance in the circular for a VSD (Rule 19.68(3)).

3.   Pro Forma Financial Information for Circulars for Notifiable Transactions

     The amended Rules include new requirements for the inclusion of pro-forma financial
     information where the subject of the transaction is a revenue generating asset (other than a
     business or company) with an identifiable income stream or assets valuation. The following is
     a summary of the new requirements for the inclusion of pro-forma financial information.

     VSAs and Reverse Takeovers

     For VSAs or reverse takeovers involving the acquisition of a company or business, the
     circular must include a pro forma income statement, balance sheet and cash flow statement on
     the enlarged group on the same accounting basis for the latest financial year (Rule
     19.69(4)(a)(ii)).

     If the target of a VSA or reverse takeover is a revenue-generating asset with an identifiable net
     income stream or valuation, the circular must include a pro-forma P&L statement and net
     assets statement on the enlarged group on the same accounting basis for the latest financial
     year (Rule 19.69(4)(b)(ii)).

     Major Acquisitions

     If the target of a major acquisition is a company or business, the circular must include a
     pro-forma net assets statement for the enlarged group on the same accounting basis for the
     latest financial year (Rule 19.67(4)(a)(ii)).

     If the target is a revenue generating asset (other than a business or company) with an
     identifiable net income stream or assets valuation, the circular must include a pro forma net
     assets statement of the enlarged group on the same accounting basis for the latest financial
     year (Rule 19.67(4)(b)(ii)).

                                       9                       d12275c4-d1e1-4184-8e2f-12e12bb79467.doc
                 VSDs

                 For a VSD involving the disposal of a company or business, the circular must include a
                 pro-forma income statement, balance sheet and cash flow statement for the remaining group
                 on the same accounting basis for the latest financial year (Rule 19.68(2)(a)(ii)).

                 If a revenue generating asset with an identifiable income stream is being disposed of, the
                 circular must include a pro-forma P&L statement and net assets statement on the remaining
                 group for the latest financial year (Rule 19.68(2)(b)(ii)).

16.     Despatch of Circulars

        1.       The Rules require listed issuers to despatch circulars to shareholders at the same time as, or
                 before, giving notice of the general meeting to approve the transaction referred to in the
                 circular (Rule 17.46).

        2.       Any material information coming to the directors' attention after the issue of the circular must
                 be given to shareholders either in a supplementary circular or by way of an announcement not
                 less than 14 days before the relevant general meeting. The meeting must be adjourned to
                 comply with the 14-day requirement by the chairman or, if that is not allowed under the
                 issuer's constitutional documents, by a resolution to that effect.

B.      CONNECTED TRANSACTIONS

Changes to the connected transaction provisions include:

        i.       Amended definitions of 'connected persons' and 'associates';

        ii.      Amended provisions relating to the classification of connected transactions;

        iii.     Revised de minimis thresholds; and

1.      Definition of Connected Person

        1.       Connected Persons at Subsidiary Level

                 The definition of ‘connected person’ (Rules 1.01 and 20.11) has been amended in line with the
                 Main Board definition to include directors, chief executives, promoters (of PRC issuers),
                 substantial shareholders and management shareholders of the listed issuer and its subsidiaries
                 (rather than of the listed issuer only as previously).

        2.       Transactions with Subsidiaries

                 Non Wholly-owned Subsidiaries

                 A non wholly-owned subsidiary will be treated as a 'connected person' only if any connected
                 person(s) of the listed issuer (other than at the level of its subsidiaries) is/are, individually or
                 together, a substantial shareholder (ie. entitled to exercise, or control the exercise of, 10% or
                 more of the voting rights at general meetings of the company) in the non wholly-owned
                 subsidiary (Rule 20.11(5)). A subsidiary of such a non wholly-owned subsidiary will also be
                 treated as a connected person.

                 A non wholly-owned subsidiary outside the above definition is not a connected person.

                 Wholly-owned Subsidiaries

                 Wholly-owned subsidiaries are not within the definition of 'connected person' (Rule 20.12).




                                                   10                        d12275c4-d1e1-4184-8e2f-12e12bb79467.doc
2. Definition of 'Associate'

The main definition of associate in Rule 1.01 which applies throughout the Rules has been amended to include,
in summary:

         i.       a company controlled by trustees of a trust of which a relevant individual or his family
                  interests or a relevant company is a beneficiary or discretionary object (to close a previous
                  loophole); and

         ii.      a subsidiary or holding company of a trustee-controlled company and fellow subsidiaries of
                  such a holding company.

         The detailed provisions relating to trusts are that an associate includes:

         i.       in relation to an individual:

                  a.       a 'trustee-controlled company' and any of its subsidiaries (together the 'trustee
                           interests'). A 'trustee controlled company' is, in essence, a company controlled* by
                           the trustees of a trust of which the individual or any of his family interests** is a
                           beneficiary or discretionary object;

                  b.       any holding company of a trustee-controlled company and any other subsidiaries of
                           such holding company; and

                  c.       any other company controlled* (together) by the individual, his family interests**,
                           any trustee of a trust of which he or any of his family interests is a beneficiary or
                           discretionary object and/or any 'trustee interests', and any subsidiary or holding
                           company of such company or a fellow subsidiary of such holding company.

         * Note. 'Controlled' means controlled as to 30% (rather than 35% previously) or more of the voting
         rights at general meetings of the company or as to the composition of a majority of its board of
         directors.

         ** Note. The term 'family interests' of an individual means his spouse and the minor children or
         step-children (natural or adopted) of the individual or his spouse.

         ii.      in relation to a company:

                  a.       the trustees of any trust of which the company is a beneficiary or discretionary
                           object;

                  b.       a trustee-controlled company (ie. controlled (as defined above) by the trustees of any
                           trust referred to in (a) above) and any subsidiary of such trustee-controlled company
                           (together the 'trustee interests');

                  c.       a holding company of a trustee-controlled company and any other subsidiary of such
                           holding company; and

                  d.       any other company controlled (as defined above) by the company, its subsidiary or
                           holding companies or a fellow subsidiary or any other company controlled by any of
                           them, any trustees referred to in (a) above and/or any trustee interests, and any
                           subsidiary or holding company of such company or fellow subsidiary of such holding
                           company.

3.       Relatives of a Connected Person as Deemed Associates

The Rules have been aligned with the Main Board Rules as to which relatives are deemed to be 'associates' of a
connected person for the purposes of connected transactions.

In summary, the following are included within the definition:



                                                    11                        d12275c4-d1e1-4184-8e2f-12e12bb79467.doc
        i.       Close Relatives

                 These include any person co-habiting as a spouse, children, step-children, parents,
                 step-parents, siblings and step-siblings.

        ii.      Other Close Relatives

                 These include in-laws, grandparents, grandchildren, uncles and aunts, cousins, nephews and
                 nieces, whose association with the person is such that, in the opinion of the Exchange, the
                 proposed transaction should be subject to the connected transaction requirements.

The other category of persons deemed to be associates for the purposes of connected transactions, is any other
person or entity with whom the connected person has entered or proposed to enter any agreement, arrangement,
understanding or undertaking of whatever nature with respect to the transaction which is such that, in the
opinion of the Exchange, that person or entity should be considered to be a connected person (Rule 20.11(4)(a)).

4.      Classification of Connected Transactions

        1.       The Rules have been amended so that connected transactions will be subject to the same size
                 tests (except for the profits test) as notifiable transactions. The relevant tests are:

                 i.       Total assets test
                 ii.      Consideration test
                 iii.     Revenue test
                 iv.      Equity capital test

        2.       Connected and continuing connected transactions fall into 3 main categories:

                 i.       those which are exempt from the reporting, announcement and independent
                          shareholders' approval requirements (fully exempt transactions);

                 ii.      those exempt from the independent shareholders' approval requirement; and

                 iii.     transactions subject to the reporting, announcement and independent shareholders'
                          approval requirements*.

                 * These transactions will also require:

                 a.       the establishment of an independent board committee with INEDs only; and

                 b.       the appointment of an independent financial adviser to advise the independent board
                          committee and shareholders on the transaction (see paragraph I.4 below).

        3.       The categories of transactions (other than those involving financial assistance or the granting
                 of options) which are fully exempt are set out at Rule 20.31.

        4.       Revised de Minimis Exemption Thresholds (Rules 20.31 and 20.32)

                 The following table summarizes the revised de minimis thresholds for exempting connected
                 transactions from the reporting, announcement and/or independent shareholders' approval
                 requirements. The connected transaction must be on normal commercial terms if either of
                 these exemptions is to be relied upon.

                 De minimis threshold for exemption         Each of the size tests (except profits) is less
                 from reporting, announcement and           than 0.1%; or
                 independent  shareholders' approval        Each size test (except profits) is equal to or
                 requirements                               more than 0.1% but less than 2.5% and the
                                                            consideration is less than HK$1 million.
                 De minimis threshold for exemption Each size test (except profits) is less than
                 from independent shareholders' approval 2.5%; or
                 requirement                             Each size test (except profits) is equal to or

                                                  12                      d12275c4-d1e1-4184-8e2f-12e12bb79467.doc
                                                        more than 2.5% but less than 25% and the
                                                        consideration is less than HK$10 million.

5.   Shareholders' Approval Requirements

     1.     For the purposes of connected and continuing connected transactions, the definition of
            'independent shareholders' has been amended to refer to those shareholders who are not
            required to abstain from voting on the relevant transaction (Rule 20.10). The following parties
            are required by Rules 20.18 and 20.54 to abstain from voting on a connected or continuing
            connected transaction:

            i.       any connected person with a material interest in the transaction;

            ii.      any person falling within Rule 20.13(1)(b) that has a material interest in the
                     transaction and its associates; and

            iii.     any shareholder with a material interest in the transaction and its associates.

            A statement that such persons will not vote must be included in the relevant circular to
            shareholders (Rules 20.18 and 20.59(6)).

            In addition, any vote of shareholders on a connected transaction at a general meeting must be
            taken on a poll (irrespective of whether any person has a material interest in the transaction)
            (Rule 17.47(4)). The issuer must comply with the new requirements for poll votes (see further
            at paragraph H.1 below).

     2.     Waiver of Requirement to hold General Meetings

            Connected transactions may be approved by written resolutions of independent shareholders
            in lieu of an EGM (Rule 20.43) if:

            i.       no shareholder would be required to abstain from voting if an EGM were convened;
                     and

            ii.      the independent shareholders' approval has been obtained from a shareholder or
                     closely allied group of shareholders who (together) hold more than 50% of the voting
                     rights at the general meeting approving the connected transaction (see also at
                     paragraph A.12.3 above).

6.   Continuing Connected Transactions

     1.     Non-Exempt Continuing Connected Transactions

            The Rules have been amended to remove the requirements for annual review and re-approval
            of continuing connected transactions and the relevant caps by independent shareholders at
            annual general meetings (following the initial independent shareholders’ approval).

            The amended Rules require a listed issuer to comply with the reporting and announcement
            requirements and obtain independent shareholders' approval (unless exempt under Rule 20.34)
            for a continuing connected transaction and the cap set in respect of the transaction when the
            agreement is first entered into and again when it is renewed or there is a material change to its
            terms and when the cap is exceeded (Rule 20.36).

            Requirements for the annual review of continuing connected transactions by the issuer's
            INEDs are retained.

     2.     Continuing Transactions Become Continuing Connected Transactions

            Where a listed issuer has entered into a continuing transaction which becomes a continuing
            connected transaction for whatever reason (eg. a party becomes a director of the issuer), the
            issuer must, immediately upon becoming aware of that fact, comply with all applicable
            reporting and disclosure requirements. Any variation or renewal of the agreement requires
                                            13                      d12275c4-d1e1-4184-8e2f-12e12bb79467.doc
             compliance with applicable reporting, disclosure and independent shareholders' approval
             requirements (Rule 20.41). Note also the requirements where an issuer listed prior to March
             31, 2004 has previously been granted a waiver (see paragraph S.5 below).

7.   Financial Assistance as a Connected Transaction

     1.      The provision of financial assistance by or to a listed issuer will only be regarded as a
             connected transaction if it is made:

             i.       to or by a connected person; or

             ii.      to or by a company in which both the listed issuer and a connected person(s) (at the
                      listed issuer's level) are shareholders and where the connected person(s) of the listed
                      issuer (at the level of the listed issuer) is/are, individually or together, a substantial
                      shareholder of the company (ie. entitled to exercise, or control the exercise of, 10%
                      or more of the voting power at any general meeting of the company) (a 'Rule
                      20.13(2)(a)(ii) company').

     2.      Provision of Financial Assistance by a Listed Issuer: Exemptions from the Reporting,
             Announcement and Independent Shareholders' Approval Requirements (Rule 20.65)

             1.       Financial Assistance provided by a Banking Company

             As is the case for notifiable transactions, financial assistance is only regarded as being
             provided in the ordinary and usual course of business of a listed issuer if the listed issuer is a
             'banking company' (ie. a bank, restricted licence bank or deposit taking company as defined
             under the Banking Ordinance or a bank constituted under appropriate overseas legislation
             (Rule 20.10(1)). Further, references to financial assistance not provided in the ordinary and
             usual course of business mean financial assistance not provided by a banking company (Rule
             19.04(8)). Accordingly the exemptions available where financial assistance is provided in the
             ordinary and usual course of business of the listed issuer are available only to banking
             companies.

             Financial assistance provided by a listed issuer which is a banking company to a connected
             person or a Rule 20.13(2)(a)(ii) company will be fully exempt if:

             i.       it is on normal commercial terms (or better to the listed issuer) (Rule 20.65(1)); or

             ii.      it is not on normal commercial terms (or better to the listed issuer) and (a) each of the
                      percentage ratios (except profits) is less than 0.1% or (b) each of the percentage
                      ratios (except profits) is equal to or more than 0.1% but less than 2.5% and the total
                      value of the assistance plus any preferential benefit to the connected person or
                      relevant company is less than HK$1 million ('de minimis threshold 1') (Rules
                      20.65(2)(a) and (3)(a)).

             2.       Financial Assistance provided by a Listed Issuer which is not a Banking Company

             As discussed above, the exemptions available where financial assistance is not provided in the
             ordinary and usual course of business of a listed issuer are available to listed issuers which are
             not banking companies.

             Where financial assistance is provided by a listed issuer other than a banking company for the
             benefit of a connected person, it will be fully exempt if it is on normal commercial terms (or
             better to the listed issuer) and it meets the requirements for de minimis threshold 1 (see
             paragraph 7.2.1(ii) above) (Rule 20.65(2)(6)).

             Where the listed issuer provides financial assistance to a Rule 20.13(2)(a)(ii) company (see
             paragraph 7.1 above), the financial assistance will be exempt from the reporting,
             announcement and independent shareholders' approval requirements for connected
             transactions if it is on normal commercial terms (or better to the listed issuer) and:

             i.       it is provided in proportion to the listed issuer's equity interest in the company; and

                                              14                        d12275c4-d1e1-4184-8e2f-12e12bb79467.doc
                 ii.      any guarantees given by the listed issuer are on a several (not joint and several) basis
                          (Rule 20.65(3)(b)(i)).

                 Where the financial assistance provided by the listed issuer to any such company is not in
                 proportion to the issuer's equity interest or any guarantee given is not on a several basis, the
                 financial assistance will be exempt from the reporting, announcement and independent
                 shareholders' approval requirements if it is on normal commercial terms and meets the
                 requirements for de minimis threshold 1 (see paragraph 7.2.1(ii) above (Rule 20.65(3)(b)(ii)).

        3.       Provision of Financial Assistance by a Listed Issuer: Exemption from Independent
                 Shareholders' Approval

                 1.       Financial Assistance provided by a Listed Issuer which is a Banking Company

                 Financial assistance provided by a banking company in its ordinary and usual course of
                 business but not on normal commercial terms (or better to the listed issuer) will be subject
                 only to the reporting and announcement requirements for connected transactions (and exempt
                 from the independent shareholders' approval requirement) if:

                 i.       it is for the benefit of a connected person or a Rule 20.13(2)(a)(ii) company; and

                 ii.      (a) each of the percentage ratios (except profits) is less than 2.5% or (b) each of the
                          percentage ratios (except profits) is equal to or more than 2.5% but less than 25% and
                          the total value of the assistance plus any preferential benefit to the connected person
                          or relevant company is less than HK$10 million ('de minimis threshold 2') (Rule
                          20.66(1)).

                 2.       Financial Assistance provided by a Listed Issuer which is not a Banking Company

                 Financial assistance provided by a listed issuer which is not a banking company will be
                 subject only to the reporting and announcement requirements if:

                 i.       it is for the benefit of a connected person or a Rule 20.13(2)(a)(ii) company where
                          the assistance is not in proportion to the listed issuer's equity interest in the company
                          or any guarantee given is not on a several basis;

                 ii.      it is on normal commercial terms (or better to the listed issuer); and

                 iii.     it meets the requirements for de minimis threshold 2 (see paragraph 3.1(ii) above).

        4.       Provision of Financial Assistance to a Listed Issuer: Exemption from Reporting,
                 Announcement and Independent Shareholders' Approval Requirements (Rule 20.65(4))

                 Financial assistance provided to a listed issuer by a connected person or a Rule 20.13 (2)(a)(ii)
                 company is exempt from the reporting, announcement and independent shareholders' approval
                 requirements for connected transactions if:

                 i.       it is on normal commercial terms (or better to the listed issuer); and

                 ii.      no security over the assets of the listed issuer is granted in respect of the financial
                          assistance.

C.      APPLICATION OF THE SIZE TESTS IN OTHER PARTS OF THE RULES

1.      Disclosure of Advances to Entities (Rules 17.15 to 17.17)

The disclosure thresholds for advances to entities have been revised. There is a general disclosure obligation
where:

        i.       any of the percentage ratios of an advance to an entity from the issuer or any of its subsidiaries
                 exceeds 8% (the obligation under the previous Rules arose where the advance represented

                                                  15                        d12275c4-d1e1-4184-8e2f-12e12bb79467.doc
                   25% or more of the net assets of the listed issuer); and

         ii.       any of the percentage ratios for the amount of an increase in the amount of an advance to an
                   entity since the previous disclosure is 3% or more (previously 10% or more of net assets).

Although all the size tests apply in theory, only the consideration and total assets test will be relevant in practice.

Advances to a subsidiary of a listed issuer or between subsidiaries of a listed issuer are not regarded as relevant
advances to an entity.

2.       Disclosure of Financial Assistance and Guarantees to Affiliated Companies (Rule 17.18)

The term 'affiliated company' means a company accounted for by an issuer using the equity method of
accounting in accordance with Hong Kong Financial Reporting Standards ('HKFRS').

A general disclosure obligation arises where any of the percentage ratios of the financial assistance given to
affiliated companies of an issuer, and guarantees given for facilities to such affiliated companies in aggregate
exceeds 8% (previously 25% or more of the net assets of the listed issuer).

As for advances to entities, only the consideration and total assets test will apply in practice.

3.       Application of the Percentage Ratios to other parts of the Rules

The table below sets out the application of the percentage ratios used to classify notifiable transactions to other
parts of the Rules:

                                                 Revised percentage
                                                 ratio using the same
                                                 size tests as those used
                                                 to classify notifiable
                                                 transactions
         R17.27(2)                                                            Equity capital test is not
         Definition of "major subsidiary" - a 5%                              applicable.
         subsidiary represents:
         R18.25 Note 1
                                                                              Consideration and total assets
         Definition of "contract of              1%
                                                                              tests only are applicable.
         significance"
         R18.23                                                               Equity capital test is not
         Disclosure of information relating                                   applicable.
         to properties held for development      5%
         and/or sale or for investment
         purpose that represent:
         R18.37B                                                              Equity capital test is not
         Definition of "financial                                             applicable.
                                                 5%
         conglomerate" - financial business
         of a listed issuer represents:
         R17.27(1)(d) and (e)
         Notifying the Exchange and making                                    Equity capital test is not
         an announcement upon possession                                      applicable.
         of or sale by any mortgagee of a
         portion of the listed issuer's assets,
         or the making of any final
                                                5%
         judgement, declaration or order by
         any court or tribunal of competent
         jurisdiction which may adversely
         affect the listed issuer's enjoyment
         of any portion of its assets that
         represent:



                                                      16                       d12275c4-d1e1-4184-8e2f-12e12bb79467.doc
D.      DILUTION OF SHAREHOLDERS' INTERESTS

1.      Refreshment of General Mandate (Rule 17.42A)

The upper limit on the number of shares which may be issued under a general mandate (ie. 20% of the existing
issued share capital) is retained. The Exchange has however indicated that it may consider lowering the upper
limit after further market consultation.
The amended Rules allow companies to refresh their general mandate once a year subject to shareholders'
approval. This will normally be done at the company's AGM. Subsequent refreshments require independent
shareholders' approval subject to an exemption for a top-up of the unused portion of a previous general mandate
after a pre-emptive issue of shares to existing shareholders (Rule 17.42A(5)). Such top-ups only require
shareholders' approval. The relevant circular to shareholders must also contain information relating to the
issuer's history of refreshments of its mandate since the last AGM; the amount of proceeds raised from the
utilization of the mandate; the use of such proceeds; the intended use of any unutilized amount and how the
issuer has dealt with such amount.

2.      New Price Restriction on the Issue of Shares under the General Mandate (Rule 17.42B)

Issuers may not issue shares under a general mandate if the placing price or subscription price under the top-up
arrangements represent a discount of 20% or more to the bench-marked price of the securities, unless the issuer
can satisfy the Exchange that it is in severe financial difficulties or that there are other exceptional
circumstances. The bench-marked price is the higher of:

        a.       the closing price on the date of the relevant placing agreement or other agreement involving
                 the proposed issue of securities under the general mandate; and

        b.       the average closing price in the 5 trading days immediately prior to the earlier of:

                 i.       the date of announcement of the placing or the proposed transaction or arrangement
                          involving the proposed issue of securities under the general mandate;

                 ii.      the date of the placing agreement or other relevant agreement; and

                 iii.     the date on which the placing or subscription price is fixed.

        The issuer is further required to provide the Exchange with detailed information on the allottees to be
        issued with securities under the general mandate.

        There is also a new requirement (Rule 17.30A) that where securities are issued under the general
        mandate at a discount of 20% or more to the benchmarked price, the issuer must publish a separate
        announcement (ie. in addition to the announcement of the issue under the general mandate) on the
        business day following the day on which the agreement involving the proposed issue is signed. That
        announcement must disclose:

        i.       where there are less than 10 allottees, the name of each allottee (or beneficial owner, if
                 applicable) and a confirmation of its independence from the issuer; and

        ii.      where there are more than 10 allottees, the name of each allottee (or beneficial owner, if
                 applicable) subscribing 5% or more of the securities issued and a generic description of all
                 other allottees, and a confirmation of their independence from the issuer. In calculating the 5%,
                 the securities subscribed by each allottee, its holding company and their subsidiaries must be
                 aggregated.

3.      Placing and Top-Up Subscription (Rule 20.31(3)(d))

Where there is a placing and top-up by a connected person to an independent third party, the exemption from the
reporting, announcement and independent shareholders' approval requirements will only apply if the number of
new shares subscribed by the connected person does not exceed the number of shares placed by him to the
independent third party. This prevents the connected person from maintaining his percentage interest before and
after the placing while other shareholders suffer a dilution of their interest, as was previously allowed.


                                                  17                        d12275c4-d1e1-4184-8e2f-12e12bb79467.doc
4.       Offers of Securities Permitted to Exclude Overseas Shareholders (Rule 17.41)

The Rules are amended:

         a.       to allow issuers to exclude overseas shareholders in an offer of securities provided that the
                  directors of the issuer, having made enquiry as required under (b) below, consider such
                  exclusion to be necessary or expedient on account either of the legal restrictions under the
                  laws of the relevant place or the requirements of the relevant regulatory authorities or stock
                  exchange;

         b.       to require the issuer to make enquiry regarding the relevant legal restrictions and regulatory or
                  stock exchange requirements;

         c.       to require the issuer to include an explanation for the exclusion of overseas shareholders in the
                  relevant circular or document; and

         d.       to require issuers to ensure that the circular or offer document is delivered to any excluded
                  overseas shareholders, subject to compliance with local laws, regulations and requirements.

5.       Rights Issues and Open Offers

The Rules retain the requirement for independent shareholders' approval (ie. shareholders other than controlling
shareholders and their associates or, where there are no controlling shareholders, directors (except INEDs) and
the chief executive of the issuer and their associates) for any rights issue or open offer which would increase
either the issued share capital or the market capitalization of the issuer by more than 50%.

The Rules are amended to clarify how the 50% threshold is determined. The latest rights issue or open offer is
aggregated with:

i.       any other rights issues or open offers announced by the issuer (a) within the 12 month period
         immediately preceding the announcement of the proposed rights issue or open offer or (b) prior to such
         12 month period where dealing in the shares issued under the rights issue or open offer started within
         such 12 month period; and

ii.      any bonus securities, warrants or other convertible securities (assuming full conversion) granted to
         shareholders as part of such rights issues or open offers.

         (Rules 10.29 and 10.39)

The Rules relating to open offers are also amended to follow the Rules relating to rights issues in providing for
issuers to make arrangements to dispose of securities not validly applied for by shareholders in excess of their
assured allotments, provided those arrangements make such securities available for subscription by all
shareholders and allocate them on a fair basis (Rule 10.42(1)). The offer of such securities must be fully
disclosed in the open offer announcement, listing document and any circular.

Amendments to the Rules clarify that an issue of new securities to a connected person under an open offer
which is underwritten or sub-underwritten by the connected person will be exempt from the reporting,
announcement and independent shareholders' approval requirements for connected transactions provided that
the offer makes arrangements as required by Rule 10.42(1) or the absence of such arrangements or making of
other arrangements has been approved by shareholders (Rule 20.31(3)(c)).

In line with the corresponding rights issue Rules, where an open offer which is wholly or partly underwritten or
sub-underwritten by a director, chief executive or substantial shareholder of the issuer (or an associate of any of
them) fails to make arrangements or makes arrangements other than those described in Rule 10.42(1), then the
absence of such arrangements or making of such other arrangements requires shareholders' approval.
Shareholders with a material interest in any such other proposed arrangements must abstain from voting (Rule
10.42(2)).




                                                   18                       d12275c4-d1e1-4184-8e2f-12e12bb79467.doc
E.       SHARE REPURCHASES

1.       New Restriction on Price of Repurchases

         Repurchases on the GEM are not allowed at more than 5% of the average closing market price
         for the previous 5 days on which the shares are traded on the GEM (Rule 13.11(6)).

2.       Dealing Restriction Period

         The Rules have been amended (Rule 13.11(4)) to take into account issuers' delay in
         publication of their results announcements. The period during which issuers are prohibited
         from repurchasing their shares is the period of one month immediately preceding the earlier
         of:

         i.       the date of the board meeting (as such date is first notified to the Exchange in accordance with
                  the Rules) for the approval of the issuer's results for any year, half-year or quarter-year period
                  or any other interim period (whether or not required under the Rules); and

         ii.      the deadline for the issuer to publish an announcement of its results for any year, half-year or
                  quarter-year period under the Rules or any other interim period (whether or not required under
                  the Rules),

         and ending on the date of the results announcement.

F.       WITHDRAWAL OF LISTING (Rule 9.20)

The Rules are amended so as to be consistent with proposed changes to the Takeovers Code.           For issuers with
no alternative listing, any withdrawal of primary listing on the GEM will be subject to:

         i.       the approval of at least 75% of the votes of independent shareholders (ie. shareholders other
                  than controlling shareholders and their associates (or, if there are no controlling shareholders,
                  the issuer's directors (excluding INEDs) and the chief executive and their respective associates)
                  who must abstain from voting in favour). In determining the percentage, the listed securities
                  held by directors, the chief executive and any controlling shareholders or their associates that
                  vote against the resolution are included;

         ii.      the number of votes cast against the resolution must not be more than 10% of the votes
                  attaching to shares held by independent shareholders. In determining the percentage, the listed
                  securities held by directors, the chief executive and any controlling shareholders that vote
                  against the resolution are included; and

         iii.     shareholders other than directors (except INEDs), the chief executive and controlling
                  shareholders being offered a reasonable cash alternative or other reasonable alternative.

G.       DISPOSAL OF INTERESTS                   OF      INITIAL     MANAGEMENT               AND   SIGNIFICANT
         SHAREHOLDERS

1.       Commencement of Lock-up Period (Rules 13.16 and 13.17)

The lock-up periods for the disposal of interests by initial management shareholders and significant shareholders
of issuers will commence on the date by reference to which disclosure of the relevant shareholding is made in
the listing document. There will be no amendment to the expiry date of the lock-up periods.

Any offer for sale disclosed in a listing document is not subject to the above restriction.

2.       Deemed Disposal of Interests

The Rules (Rule 17.29) have been amended to create 3 new exceptions (in line with the exceptions to the new
prohibition on Main Board issuers) to the prohibition on issuers, for 6 months after their shares first commence
dealing on the GEM, from issuing shares or securities convertible into equity securities or agreeing to such an
issue (whether or not the issue of shares or securities would be completed within the 6 month period). The new
exceptions are for:

                                                    19                        d12275c4-d1e1-4184-8e2f-12e12bb79467.doc
(a)     the issue of shares, the listing of which has been approved by the Exchange, pursuant to a share option
        scheme under Chapter 23;

(b)     the exercise of conversion rights of warrants issued as part of the initial public offering; and

(c)     the issue of shares or securities pursuant to an agreement entered into before the commencement of
        dealing, the material terms of which have been disclosed in the listing document issued in connection
        with the initial public offering.

These are in addition to the existing exceptions under the GEM Rules.

H.      VOTING BY SHAREHOLDERS

1.      Poll Vote Mandatory (Rule 17.47(4))

        1.       Voting by poll (rather than by show of hands) is required for:

                 i.       connected transactions;

                 ii.      all resolutions requiring independent shareholders' approval;

                 iii.     granting of options to a substantial shareholder, an INED or any of their associates;

                 iv.      transactions in which a shareholder has a 'material interest'* and is therefore required
                          to abstain from voting under Rule 2.26; and

                 v.       any issue of shares or securities convertible into equity securities of an issuer
                          pursuant to Rule 17.29(5).

                 As discussed at paragraph A.12.2 above there is a new explanation of 'material interest' (Rule
                 2.27). Factors to be taken into account in determining whether a shareholder has a material
                 interest include:

                 i.       whether the shareholder or his associate is a party to the transaction or arrangement;

                 ii.      whether the transaction or arrangement confers upon the shareholder or his associate
                          a benefit (whether economic or otherwise) not available to the issuer's other
                          shareholders.

        2.       There is a new requirement (Rule 17.47(5)) for the issuer to publish the results of a poll on the
                 business day following the meeting. The issuer must also appoint its auditors, share registrar
                 or external accountants qualified to serve as accountants as scrutineer for the vote-taking and
                 must state the scrutineer's identity in the announcement.

        3.       There is also a new requirement for issuers to disclose the procedure of demanding a poll by
                 shareholders pursuant to their constitutional documents in circulars to shareholders, when
                 voting by poll is not a mandatory requirement under the Rules or the issuer's constitutional
                 documents.

2.      Voting by Controlling Shareholders

        1.       The following circumstances in which controlling shareholders are required to abstain from
                 voting (irrespective of whether they have a material interest) are retained:

                 a.       rights issues and open offers when either the issued share capital or market
                          capitalization of the issuer will increase by more than 50% (see paragraph D.5
                          above);

                 b.       withdrawal of a primary listing on the GEM (subject to the revised voting thresholds)
                          (see paragraph F above); and


                                                    20                       d12275c4-d1e1-4184-8e2f-12e12bb79467.doc
             c.       on a fundamental change in the principal business activities of the listed issuer during
                      the financial year of commencement of dealings in its securities on the GEM or the 2
                      following financial years (Rule 19.88).

     Amendments to the Rules now also require controlling shareholders to abstain from voting on the
     second and subsequent refreshments of the general mandate during the year (see paragraph D.1 above).

     2.      The Rules have been amended to remove the requirement for controlling shareholders to
             abstain from voting on resolutions approving a VSA or reverse takeover. Controlling
             shareholders and their associates must however abstain if the controlling shareholders have a
             material interest in the transaction. See also at paragraph A.12.2 above.

     3.      Amendments to the Rules provide that in the circumstances set out at 2.1 above, controlling
             shareholders and their respective associates are only required to abstain from voting in favour
             of the relevant resolution ie. they are now permitted to vote against the relevant resolution.
             Their intention to do so must be stated in the relevant listing document or circular to
             shareholders (Rule 17.47A).

     4.      The Rules are also amended so that in the circumstances requiring independent shareholders'
             approval, where there are no controlling shareholders, the issuer's chief executive and
             directors (excluding INEDs) and their respective associates must abstain from voting in
             favour.

     5.      In circumstances requiring independent shareholders' approval, the Exchange also reserves the
             right to require the following parties to abstain from voting in favour of the relevant resolution
             at the general meeting:

             a.       parties who were controlling shareholders of the issuer at the time the decision for the
                      transaction or arrangement was made or approved by the board (and who are still
                      shareholders, but no longer controlling shareholders, at the time of the general
                      meeting), and their associates; and

             b.       where there were no controlling shareholders, directors (other than INEDs) and the
                      chief executive of the issuer at the time the decision for the transaction or
                      arrangement was made or approved by the board, and their associates.

     6.      Issuers are required to have procedures in place 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.

I.   DIRECTORS AND BOARD PRACTICES

INDEPENDENT NON EXECUTIVE DIRECTORS

1.   Further Guidance regarding Independence (Rule 5.09)

     1.      The Rules have been amended to provide further guidelines for the determination of the
             independence of INEDs. Although none of the specified factors would necessarily be
             conclusive as to the independence of a director, the Exchange is more likely to question
             independence if the director:

             i.       holds more than 1% of the total issued share capital of the listed issuer. Where a
                      listed issuer wishes to appoint an INED holding more than 1%, it will have to satisfy
                      the Exchange, prior to the appointment, that the candidate is independent. A
                      candidate holding an interest of 5% or more will not normally be considered
                      independent. In calculating the 1% limit, the total number of shares held legally or
                      beneficially by the candidate must be taken into account together with shares which
                      may be issued to him or his nominee on the exercise of any outstanding share options,
                      convertible securities or any other rights to call for the issue of shares;

             ii.      has received an interest in any securities of the listed issuer as a gift, of by means of
                      other financial assistance, from a connected person or the listed issuer. However,

                                              21                        d12275c4-d1e1-4184-8e2f-12e12bb79467.doc
             subject to the requirement to satisfy the Exchange of the independence of a candidate
             holding between 1% and 5%, he may still be considered independent if he receives
             shares or interests in securities from the listed issuer or its subsidiaries (but not from
             a connected person) as part of his director's fee or pursuant to a share option scheme
             established in accordance with the Rules;

     iii.    is a director, partner or principal of a professional adviser which currently provides or
             has within one year immediately prior to the date of his proposed appointment
             provided services, or is an employee of such professional adviser who is or has been
             involved in providing such services during the same period, to:

             a.       the listed issuer, its holding company or any of their respective subsidiaries
                      or connected persons; or

             b.       any person who was a controlling shareholder or, if there was no controlling
                      shareholder, any person who was the chief executive or a director (other
                      than an INED) of the listed issuer within one year immediately preceding
                      the date of the proposed appointment, or any of their associates;

     iv.     has a material interest in any principal business activity of, or is involved in any
             material business dealings with the listed issuer, its holding company or their
             respective subsidiaries or with any connected persons of the listed issuer;

     v.      is on the board specifically to protect the interests of an entity whose interests are not
             the same as those of the shareholders as a whole;

     vi.     is or was connected with a director, the chief executive or a substantial shareholder
             (ie. the holder of 10% or more of the voting rights in general meetings) of the listed
             issuer within the 2 years immediately prior to the date of his proposed appointment.
             Guidance is given as to persons who will be regarded as 'connected';

     vii.    is, or was at any time during the 2 years preceding the date of his proposed
             appointment, an executive* or director (other than an INED) of the listed issuer, its
             holding company or any of their respective subsidiaries or of any connected persons
             of the listed issuer; and

     viii.   is financially dependent on the listed issuer, its holding company or any of their
             respective subsidiaries or connected persons of the listed issuer.

     * Note. An executive includes any person who has a management function in the company
     and its company secretary.

2.   Other amendments to the Rules relating to INEDs require:

     i.      an INED to provide the Exchange with a written confirmation (i) of the above factors
             concerning his independence and (ii) that there are no other factors affecting his
             independence. That confirmation must be submitted with his declaration and
             undertaking. INEDs appointed before March 31, 2004 have until September 30,
             2004 to submit their confirmation of independence with reference to the new
             guidelines;

     ii.     INEDs to inform the Exchange of any change of circumstances which may affect
             their independence;

     iii.    each INED to provide annual confirmation of his independence to the listed issuer;

     iv.     the listed issuer to confirm in its annual report whether it has received such
             confirmation and whether it considers the INED to be independent; and

     v.      that where a proposed INED fails to meet any of the independence guidelines, the
             listed issuer must satisfy the Exchange that the person is independent prior to the
             proposed appointment. The reasons why the person is considered to be independent

                                     22                        d12275c4-d1e1-4184-8e2f-12e12bb79467.doc
                           must also be disclosed in the announcement of the appointment and in the next
                           annual report. Where there is any doubt, the Exchange should be consulted at an
                           early stage.

2.       Qualification of INEDs*

The Rules are amended to require listed issuers to appoint at least one INED who has appropriate professional
qualifications or accounting or related financial management expertise (Rule 5.05(2)).

3.       Minimum Number of INEDs*

The amended Rules require a listed issuer to appoint a minimum of 3 INEDs. The Rules have further been
amended to require a listed issuer to inform the Exchange and publish an announcement immediately if the
number of its INEDs falls below the minimum number required by the Rules or if it has failed to meet the
requirement for one qualified INED (see paragraph 2 above). The Rules allow a period of 3 months for the
appointment of a sufficient number of INEDs to meet the minimum requirement or to appoint an INED who is
appropriately qualified after failure to meet the relevant requirement.

The draft of the revised Code of Best Practice (to be renamed the Code on Corporate Governance Practices)
includes as a recommended best practice that a listed issuer should appoint INEDs representing at least one third
of the board.

* Issuers listed prior to March 31 have until September 30, 2004 to meet these requirements.

4.       Independent Board Committees (Rule 17.47(6))

         1.       The Rules have been amended so that for connected transactions, transactions requiring
                  independent shareholders' approval (see paragraph H.2.1 above) and issues of shares or
                  securities convertible into equity securities of an issuer under Rule 17.29(5), issuers are
                  required to:

                  i.       establish an independent board committee (consisting only of INEDs) to advise
                           shareholders on the transaction or arrangement and on how to vote, taking into
                           account the recommendations of the independent financial adviser (see (ii) below);
                           and

                  ii.      appoint an independent financial adviser acceptable to the Exchange to recommend
                           to the independent board committee and the shareholders as to whether the terms of
                           the relevant transaction or arrangement are fair and reasonable and whether the
                           transaction or arrangement is in the interests of the issuer and its shareholders as a
                           whole and to advise shareholders on how to vote.

         2.       The Rules clarify that the independent board committee may not consist of INEDs who have a
                  material interest in the transaction or arrangement. The independent board committee may
                  consist of one INED only if all other INEDs have a material interest in the transaction or
                  arrangement. If all the INEDs have such a material interest, no board committee can be
                  formed in which case the independent financial adviser shall make its recommendations to the
                  shareholders only.

         3.       The circular to shareholders must contain:

                  i.       a separate letter from the independent board committee advising on the transaction or
                           arrangement and on how to vote, taking into consideration the recommendations of
                           the independent financial adviser (see (ii) below); and

                  ii.      a separate letter from the independent financial adviser recommending to the
                           independent board committee and shareholders (or, if applicable, to the shareholders
                           only) as to whether the terms of the relevant transaction or arrangement are fair and
                           reasonable and whether the relevant transaction or arrangement is in the interests of
                           the issuer and its shareholders as a whole and advising them how to vote. This letter
                           must set out the reasons for and the key assumptions made and factors taken into
                           account in forming that opinion.

                                                  23                       d12275c4-d1e1-4184-8e2f-12e12bb79467.doc
J.      BOARD PRACTICES

1.      Code on Corporate Governance Practices

A draft has been produced of the revised Code of Best Practice (which has been renamed the Code on Corporate
Governance Practices (the 'Code')). It is intended that the Code will apply to both Main Board and GEM issuers.
When the Code is issued it will be set out in an appendix to the Rules and the mandatory requirements of the
code set out in Rules 5.34 to 5.45 will be deleted.

The Exchange invited comments on the draft Code and the related draft Corporate Governance Report to be
submitted to the Exchange before March 31, 2004. The Exchange proposes to publish the final Code in the first
half of 2004. To allow issuers sufficient time to ensure compliance with the Code, it is proposed that the
provisions of the Code will become effective for accounting periods commencing on or after January 1, 2005.

The draft Code contains 2 tiers of recommended board practices. The first tier contains minimum standards of
board practices with which the listed issuer is expected to comply. A listed issuer can adopt its own code on
terms no less exacting than the Code provisions. Compliance with the minimum standard will not be a
mandatory requirement. Instead, the Code has adopted the 'comply or explain' approach adopted in the UK
Listing Rules. That is to say that issuers will be allowed to deviate from the minimum standard but will be
required to disclose any deviation from the minimum standards in their corporate governance report in their
annual report.

The proposed minimum standards include:

        i.       Regular board meetings at least 4 times a year at approximately quarterly intervals;

        ii.      If a director has a conflict of interest in a matter to be considered by the board, the matter
                 should be dealt with at a board meeting at which INEDs are present;

        iii.     Segregation of the roles of chairman and chief executive;

        iv.      Directors should be subject to retirement by rotation once every 3 years; and

        v.       Comprehensive, formal induction for newly appointed directors.

The second tier of recommended board practices comprises the recommended best practices that listed issuers
are encouraged to adopt. A listed issuer that has not adopted the recommended best practices is not required to
disclose any deviation in its corporate governance report, but is encouraged to disclose any deviation in the
same way as for deviation from the first tier provisions.

Major recommended best practices include:

        i.       INEDs comprising at least one third of the board;

        ii.      Establishment of a nomination committee with a majority of INEDs;

        iii.     Continuous training for directors; and

        iv.      Disclosure of senior managers' emoluments.

2.      Report on Corporate Governance

The Exchange has produced draft rules relating to its proposed corporate governance report requirements and
has invited comments to be received before March 31, 2004. Listed issuers will be required to include a
Corporate Governance Report in their summary financial reports (if any) and their annual reports and disclose
information relating to their corporate governance practices in those reports. The proposed Corporate
Governance Report consists of 3 levels of disclosure requirements:

        i.       the first level comprises mandatory disclosure requirements. A failure to comply with these
                 mandatory requirements will be regarded as a breach of the Listing Rules;


                                                  24                         d12275c4-d1e1-4184-8e2f-12e12bb79467.doc
         ii.      the second level summarizes the Code provisions relating to disclosure of the issuer's
                  corporate governance practices. These are not mandatory disclosure requirements. Listed
                  issuers are however required to explain any non-disclosure in the Corporate Governance
                  Report; and

         iii.     the third level consists of recommended disclosures that listed issuers are encouraged to
                  include.

K.       ESTABLISHMENT OF GOVERNANCE COMMITTEES

1.       Audit Committee (Rule 5.28)

The Rules have been amended to require the committee to be made up of non-executive directors only, the
majority of which must be INEDs of the listed issuer. The committee must have a minimum of 3 members, at
least one of whom must be an INED with appropriate professional qualifications or accounting or related
financial management expertise as required by Rule 5.05(2). The committee must be chaired by an INED.

There is a new requirement that if an issuer fails to establish an audit committee or at any time fails to meet the
requirements as to its constitution under Rule 5.28, it must immediately inform the Exchange and publish an
announcement containing the relevant details and reasons (Rule 17.51(2)). Listed issuers are allowed a period of
3 months to fulfil the relevant requirements.

A list of the duties and responsibilities of audit committees has been included as minimum standards and
recommended good practices in the draft Code (rather than in the Rules themselves) to provide further guidance
to issuers.

The Rules also require issuers to disclose certain information relating to the audit committee in their annual
reports.

2.       Remuneration Committee

The establishment of a remuneration committee comprising a majority of INEDs has been included as a
minimum standard in the draft Code. The draft Code also includes the principal functions of the remuneration
committee as minimum standards. These include establishing a formal and transparent procedure for developing
policy on directors' remuneration, fixing the remuneration packages of executive directors and senior
management and ensuring that no director is involved in determining his own remuneration.

3.       Nomination Committee

The establishment of a nomination committee comprising a majority of INEDs has been included as a
recommended best practice in the draft Code. The principal functions of the committee, which are also included
as recommended best practices in the draft Code, include making recommendations to the board on directors'
appointments and assessing the independence of INEDs.

L.       DIRECTORS' DUTIES AND RESPONSIBILITIES

1.       Duties and responsibilities of Non-Executive Directors (Paragraph A5 of the draft Code)

The draft Code includes the duties and responsibilities of non-executive directors as minimum standards and
best practices.

2.       Chairman and Chief Executive Officer

The draft Code (paragraph A2) requires as a minimum standard the segregation of the roles of chairman and
chief executive. The Rules also require issuers to disclose whether these roles are segregated in their corporate
governance report.

3.       Internal Controls (Paragraph C2 of the draft Code)

The draft Code includes as a minimum standard a requirement that directors should review the effectiveness of
the internal control system of the issuer and its subsidiaries at least annually and should report to shareholders
that they have done so in the annual report. The review should cover all material controls, including financial,

                                                   25                       d12275c4-d1e1-4184-8e2f-12e12bb79467.doc
operational and compliance controls and risk management functions.

The draft Code further includes as recommended best practices:

         i.       the specific areas to be covered by the annual review; and

         ii.      a requirement that issuers should disclose in the corporate governance report a statement as to
                  how they have complied with the Code's provisions on internal control.

M.       ARTICLES OF ASSOCIATION

1.       Voting By Interested Directors

The Rules have been amended (paragraph 4(1) of Appendix 3 to the Rules) so that the required provision in the
articles of association of an issuer whose equity securities are listed prohibiting a director from voting on any
board resolution approving a contract or arrangement in which he has a material interest or from being counted
in the quorum for the meeting, is extended to cover any board resolution approving a contract or arrangement in
which either he or any of his associates (as defined in the Rules) has a material interest. The existing exceptions
to the prohibition as set out in the Notes to Appendix 3 are retained.

The same prohibition has also been included in the Rules themselves (Rule 17.48A).

2.       Nomination of Directors (Appendix 3 paragraph 4(4)-(5))

The issuer's articles of association are required to provide that the minimum length of the period for
shareholders to lodge notice of their nomination of a director is at least 7 days. Amendments are required to
provide that such period should commence no earlier than the day after despatch of notice of the meeting
appointed for such election and should end no later than 7 days prior to the date of the meeting.

Rule 17.46B further requires that a listed issuer publishes an announcement or issues a supplementary circular
upon receipt of notice from a shareholder of its intention to nominate a director, if received after issue of notice
of the relevant meeting.

3.       Voting at General Meetings (Appendix 3 paragraph 14)

An issuer's articles of association are required to contain a new provision that where any shareholder is required
under the Rules to abstain from voting on any particular resolution or restricted to voting only for or against any
particular resolution, any votes cast by or on behalf of any such shareholder in contravention of such
requirement or restriction will not be counted.

See paragraph S.2 below regarding requirements for issuers listed before March 31, 2004.

N. SECURITIES TRANSACTIONS BY DIRECTORS

1.       Disclosure of Breaches

The Rules have been amended so that any breach of the minimum standard of conduct for securities transactions
by directors (the ‘Required Standard of Dealings’) set out at Rules 5.46 to 5.67 will constitute a breach of the
Rules. Listed issuers are entitled to adopt their own code in respect of securities transactions by directors on
terms no less exacting than those set out in the Required Standard of Dealings. Where a listed issuer sets a
higher standard in its own code, breach of such code will not be regarded as a breach of the Rules provided that
the standard required by the Rules is met.

2.       Definition of Dealing

A non-exhaustive definition of 'dealing' has been included at Rule 5.52. The transactions and arrangements
included within the definition constitute dealings whether they are for consideration or not. The definition
includes, among other things:

         i.       the creation of any pledge, charge or other security interest in securities of a listed issuer; and

         ii.      dealing in the securities of an entity whose assets solely or substantially comprise securities of

                                                    26                        d12275c4-d1e1-4184-8e2f-12e12bb79467.doc
                   a listed issuer.

Dealings which are specifically excluded from the definition include:

         i.        an acquisition of qualification shares by a director where the final date for acquiring the shares
                   under the issuer's constitutional documents falls within a period when the director is
                   prohibited from dealing under the Required Standard of Dealings and the director cannot
                   acquire the shares at another time;

         ii.       the taking up of entitlements under a rights issue, bonus issue, capitalization issue or other
                   offer made by a listed issuer to holders of its securities. However, applying for excess rights in
                   a rights issue or applying for shares in excess of an assured allotment in an open offer,
                   constitutes a 'dealing'; and

         iii.      undertakings to accept, and the acceptance of, general offers.

3.       'Black-Out' period for Directors' Securities Transactions (Rule 5.56)

Unless the circumstances are exceptional, directors are prohibited from dealing in a listed issuer's securities
during the period commencing one month immediately preceding the earlier of:

         i.        the date of the board meeting (as first notified to the Exchange) for approval of the listed
                   issuer's results for any year, half-year, quarter-year or any other interim period; and

         ii.       the deadline for the listed issuer to publish an announcement of its results for any year,
                   half-year or quarter-year under the Rules, or any other interim period,

and ending on the date of the results announcement.

In addition, directors are prohibited from dealing in a listed issuer's securities at any time if they are in
possession of unpublished price-sensitive information relating to those securities or if they have not been given
clearance to deal under Rule 5.61.

4.       Dealings by Directors in Exceptional Circumstances (Rule 5.67)

The Rules have been amended so that directors are allowed to dispose of, but not acquire, securities of a listed
issuer under exceptional circumstances (for example, to meet a pressing financial commitment) during the
'black-out' period.

Prior to disposing of the shares, the director must notify the Chairman or the director designated by the board for
notification of dealings in writing (as required under Rule 5.61) and receive a dated written acknowledgement.
He must also satisfy the Chairman or designated director that the circumstances are exceptional.

The listed issuer is required to:

         i.        notify the Exchange of the disposal in writing as soon as practicable, stating why it considered
                   the circumstances to be exceptional; and

         ii.       publish an announcement immediately after the disposal stating that the Chairman or
                   designated director is satisfied that the circumstances were exceptional.

5.       Directors as Trustees or Beneficiaries

The Rules have been amended so that:

i.       If a director is acting as sole trustee, the Required Standard of Dealings will apply to all dealings of the
         trust as if he were acting on his own account (unless the director is a bare trustee and neither he nor any
         of his associates is a beneficiary of the trust, in which case the Required Standard of Dealings does not
         apply) (Rule 5.57); and

ii.      If a director is acting as a co-trustee and he has not participated in or influenced the decision to deal in
         the securities and neither he nor any of his associates is a beneficiary of the trust, dealings by the trust

                                                    27                        d12275c4-d1e1-4184-8e2f-12e12bb79467.doc
         will not be regarded as his dealings (Rule 5.58).

6.       Disclosure in Annual and Half-year Reports (Rule 5.68)

i.       whether the listed issuer has adopted a code of conduct regarding securities transactions by directors on
         terms no less exacting than the Required Standard of Dealings;

ii.      having made specific enquiry of all directors, whether its directors have complied with and whether
         there has been any non-compliance with the Required Standard of Dealings and its own code of
         conduct for securities transactions by directors; and

iii.     if there has been any non-compliance with the Required Standard of Dealings, details of the
         non-compliance and an explanation of the steps taken to remedy the situation.

O.       DIRECTORS' CONTRACTS, REMUNERATION AND APPOINTMENTS

1.       Directors' Service Contracts (Rule 17.90)

The Rules have been amended to require the prior approval of shareholders (other than the relevant director and
his associates) for a service contract that is to be granted to a director of the listed issuer or any of its
subsidiaries which:

i.       may exceed a period of 3 years; or

ii.      requires the issuer to give more than one year's notice or pay compensation of more than one year's
         remuneration, in order to terminate the contract.

The Rules are also amended to require the issuer's remuneration committee (if any and provided it has a
majority of INEDs) or an independent board committee to advise shareholders (other than shareholders who are
directors with a material interest in the service contracts and their associates) on any such contract and as to how
to vote. See paragraph S.4 below for the requirements for contracts entered into before March 31, 2004.

2.       Disclosure of Directors' Remuneration

The Rules have been amended to require listed issuers to disclose individual directors' and past directors'
emoluments on a named basis in its financial statements (Rule 18.28).

P.       DISCLOSURE OF INFORMATION

1.       New Announcement Requirements

There are new requirements for issuers to include the following details in relevant announcements:

i.       biographical details of any newly appointed or         redesignated director (or supervisor of a PRC
         company);

ii.      the reasons given by a director (or supervisor) for his resignation and a statement as to whether there
         are any matters needing to be brought to the attention of holders of the issuer’s securities; and

iii.     the reason(s) for any change in the issuer’s auditors or financial year end and any other matters that
         need to be brought to the attention of the holders of the issuer’s securities, including information set out
         in the outgoing auditors’ confirmation in relation to the change. The issuer must state in the
         announcement whether the outgoing auditors have provided confirmation that there are no matters
         needing to be brought to the attention of holders of securities or explain why such confirmation has not
         been provided.

2.       Notices (Rule 17.46)

Notice of all general meetings and meetings of creditors must be published by way of announcement.




                                                    28                       d12275c4-d1e1-4184-8e2f-12e12bb79467.doc
Q. FINANCIAL REPORTING

The principal changes made to Chapter 18 of the Rules are as follows:

         i.       issuers are allowed to publish a summary half-year report rather than a full half-year report;

         ii.      the two-phased publication arrangement for annual results announcements is abolished with
                  effect from the accounting period commencing on or after July 1, 2004. The disclosure
                  requirements for results announcements have been brought into line with those for summary
                  financial reports and summary half-year reports;

         iii.     the introduction of new disclosure requirements for annual and half-year reports relating to
                  compliance with:

                  a.       the provisions relating to the required standard of directors’ securities dealings (Rules
                           18.44(6) and 18.55(5));

                  b.       the requirements in respect of INEDs (Rules 18.39A, 18.39B and 18.44(7) for annual
                           reports and Rule 18.55(6) for half-year reports) ; and

                  c.       the requirements for the establishment and constitution of an audit committee (Rules
                           18.44(8) (annual) and 18.55(7) (half-year));

         iv.      the introduction of recommended disclosures on management discussion and analysis for
                  annual and half-year reports (Rule 18.83); and

         v.       the financial information in the preliminary announcement of annual results is required to
                  'have been agreed with the auditors' rather than actually audited. The Exchange does not
                  expect there to be any material difference between the information contained in the
                  preliminary announcement of results and that contained in the audited results. If, however, it
                  becomes necessary to revise the information contained in the preliminary announcement of
                  results in the light of developments arising between the date of the announcement and
                  completion of the audit, the issuer must immediately notify the Exchange and publish an
                  announcement to inform the public (Rule 18.50A).

Chapter 7 also includes a new section on the disclosure of pro forma financial information (Rules 7.27 to 7.31)
covering when it must be prepared and the standards of preparation and assurances required.

R. MEANING OF SUBSIDIARY

The definition of 'subsidiary' for all purposes under the Rules is expanded to include:

a.       any entity which is accounted for and consolidated in the audited consolidated accounts of an issuer as
         a subsidiary under the applicable Hong Kong Financial Reporting Standards ('HKFRS') or International
         Financial Reporting Standards ('IFRS'); and

b.       any entity which will, as a result of acquisition of its equity interest by the issuer, be accounted for and
         consolidated in the next audited consolidated accounts of the issuer under the applicable HKFRS or
         IFRS.

S.       TRANSITIONAL ARRANGEMENTS FOR INTRODUCTION OF LISTING RULE CHANGES

1.       INEDs and Audit Committee

Issuers listed prior to March 31, 2004 have a transitional period of 6 months, expiring on September 30, 2004 to
comply with the requirements that:

         i.       INEDs appointed by listed issuers prior to March 31, 2004 submit to the Exchange a written
                  confirmation of their independence with reference to the new guidelines on independence
                  under Rule 5.09 (see paragraph I.1 above). If an INED fails to meet the new guidelines, a new
                  INED must be appointed to replace him. No transitional period is available for INEDs
                  appointed after March 31, 2004;

                                                    29                       d12275c4-d1e1-4184-8e2f-12e12bb79467.doc
         ii.      listed issuers appoint at least one INED with appropriate professional qualifications or
                  accounting or related financial management expertise (Rule 5.05(2));

         iii.     listed issuers appoint at least 3 INEDs (Rule 5.05(1));

         iv.      listed issuers establish an audit committee meeting the requirements of Rule 5.28 (see
                  paragraph K above).

2.       Amendments to Articles of Association

Listed issuers must amend their Articles of Association to comply with the amended provisions of Appendix 3
(see paragraph M above) at the earliest opportunity and, in any event, no later than the conclusion of their next
AGM. Where an issuer has despatched notice of an AGM before March 31, 2004 and the meeting will be
convened after that date, it must amend its articles at the earliest opportunity after the implementation of the new
Rules.

3.       Financial Reporting

The new disclosure requirements for annual and half-year results announcements, annual reports, summary
financial reports, half-year reports and summary half-year reports will be effective for accounting periods
commencing on or after July 1, 2004. The abolition of the two-phased publication arrangement for annual
results announcements will also be effective for accounting periods commencing on or after July 1, 2004. Early
adoption of the new disclosure requirements is however encouraged by the Exchange. Where results
announcements are published in accordance with the new disclosure requirements on or after March 31, 2004,
they will not be required to comply with the existing two-phased publication arrangement.

4.       Directors' Service Contracts (Rule 17.91)

The amended Rules require shareholders' approval for directors' service contracts which may exceed 3 years or
require a listed issuer to give more than one year's notice or to pay more than one year's remuneration on
termination (Rule 17.90). This new requirement applies to:

         i.       new service contracts entered into after March 31, 2004; and

         ii.      variations as to the duration or payment on termination or any other material terms of existing
                  service contracts and renewal of such contracts.

Directors' service contracts entered into on or before January 31, 2004 are exempt from the new requirements.
Issuers are however required to include the particulars of any exempt service contracts in their annual reports for
the term of such contracts (Rule 18.24A).

5.       New Size Tests and Percentage Ratios

Notifiable and Connected Transactions

The revised size tests and percentage ratios applicable to notifiable and connected transactions will apply to all
such transactions which are entered into and announced on or after March 31, 2004.

However, with respect to the new category of continuing connected transactions, the position is as follows:

         i.       Where a listed issuer has been granted a waiver for a fixed period, the waiver continues to
                  apply until the earlier of:

                  a.       the expiry of the waiver; and
                  b.       the listed issuer failing to comply with any waiver condition(s), the agreement being
                           renewed or there being a material change to the terms of the agreement.

         ii.      Where a waiver has been granted indefinitely, the listed issuer should ensure compliance with
                  the new requirements as soon as practicable.

Advances to Entities and Affiliated Companies (Rules 17.15 to 17.18)

                                                    30                       d12275c4-d1e1-4184-8e2f-12e12bb79467.doc
Listed issuers should also ensure compliance with the general disclosure requirements for advances to entities
and financial assistance and guarantees to affiliated companies based on the revised percentage ratios as soon as
possible (see Section C above).

6.       Placing and Top-up Subscriptions

The revised exemption from the reporting, announcement and independent shareholders' approval requirements
on a placing and top-up by a connected person to an independent third party will apply to placing and top-up
arrangements entered into and announced by the listed issuer on or after March 31, 2004.

7.       Lock-up Periods for Disposal of Initial Management and Significant Shareholders' Interests

The new requirements of Rules 13.16 and 13.17 (see paragraph G.1 above) will apply to all initial listing
applicants in process on or after March 31, 2004, including those new applicants whose applications have been
approved but not listed.


This memorandum is intended only to highlight some of the principal amendments to the GEM Listing Rules.
Specific advice should be sought in relation to any particular situation.




                                                  31                       d12275c4-d1e1-4184-8e2f-12e12bb79467.doc

								
To top