AV Concept Holdings Limited — Proxy Solicitation & Information Statement 2002

Apr 25, 2002

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares in AV Concept Holdings Limited, you should at once hand this circular with the accompanying proxy form to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

This circular is addressed to the shareholders of the Company for information in connection with the EGM (as defined herein) of the Company to be held on Monday, 13th May, 2002. This circular is not and does not constitute an offer, nor is it calculated to invite offers for, shares in or other securities of the Company.

The Stock Exchange of Hong Kong Limited and Hong Kong Securities Clearing Company Limited take no responsibility for the contents of this circular, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

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AV CONCEPT HOLDINGS LIMITED

(Incorporated in the Cayman Islands with limited liability)

PROPOSED RIGHTS ISSUE OF NOT LESS THAN 118,160,806 RIGHTS SHARES OF HK$0.10 EACH AT HK$0.26 PER RIGHTS SHARE, PAYABLE IN FULL ON ACCEPTANCE (IN THE PROPORTION OF ONE RIGHTS SHARE FOR EVERY TWO EXISTING SHARES HELD) WHITEWASH WAIVER GENERAL MANDATES TO ISSUE AND REPURCHASE SECURITIES AND ADOPTION OF NEW SHARE OPTION SCHEME AND TERMINATION OF EXISTING SHARE OPTION SCHEME Financial Adviser to the Company

Ernst & Young Corporate Finance Limited

Independent financial adviser to the Independent Board Committee

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It should be noted that the Underwriter (as defined herein) may terminate the Underwriting Agreement (as defined herein) by notice in writing given by the Underwriter to the Company at any time if, prior to 4:00 p.m. on the last day of acceptance of provisional allotments (being Monday, 3rd June, 2002) there develops, occurs or comes into force: (i) an introduction of any new law or regulation or any change in existing laws or regulations (or the judicial interpretation thereof) which may in the reasonable opinion of the Underwriter have or be likely to have a material adverse effect on the financial condition or prospects of the Group (as defined herein) taken as a whole; or (ii) any change in local, national or international, (whether or not forming part of series of events or changes occurring or continuing before, and/or after the date of the Underwriting Agreement) political, military, financial, economic, currency (including a change in the system under which the value of the Hong Kong currency is linked to the currency of the United States of America), stock market or other conditions (including volatility in market conditions in Hong Kong and elsewhere) (whether or not ejusdem generis with any of the foregoing) or in securities market conditions or a change in taxation or exchange control in Hong Kong which, in the reasonable opinion of the Underwriter, may be materially prejudicial to the Rights Issue (as defined herein); or (iii) any change (whether or not permanent) in local, national or international market conditions which in the reasonable opinion of the Underwriter materially and adversely affects the Rights Issue or makes it inadvisable or inexpedient to proceed therewith; or if the Underwriting Agreement is terminated or does not become unconditional, the Rights Issue will not proceed. For details of the Underwriter’s right to terminate are set out in the section headed “Underwriting Agreement” of the Letter from the Board on pages 8 to 25 of this circular.

It should also be noted that the existing Shares (as defined herein) will be dealt in on an ex-rights basis from Tuesday, 7th May, 2002. Dealings in the Rights Shares in their nil-paid form will take place from Tuesday, 21st May, 2002 to Wednesday, 29th May, 2002 (both dates inclusive). Any Shareholders (as defined herein) or other persons contemplating selling or purchasing Shares and/or Rights Shares (as defined herein) in their nil-paid form during the period from Tuesday, 21st May, 2002 to Wednesday, 29th May, 2002 who are in any doubt about their position are recommended to consult their professional advisers. Any Shareholders or other persons dealing in Shares up to the date on which all the conditions to which the Rights Issue is subject are fulfilled (being Monday, 3rd June, 2002 which is the date on which the Underwriter’s right of termination of the Underwriting Agreement ceases) and any persons dealing in the nil-paid Rights Shares during the period from Tuesday 21st May, 2002 to Wednesday, 29th May, 2002 will accordingly bear the risk that the Rights Issue may not become unconditional or may not proceed.

The letter of advice from Chateron (as defined herein) to the Independent Board Committee (as defined herein) in respect of the Whitewash Waiver (as defined herein) is set out on pages 27 to 42 of this circular and the letter of recommendation from the Independent Board Committee to the Independent Shareholders (as defined herein) is respect of the Whitewash Waiver is set out on page 26 of this circular.

A notice convening the EGM to be held at The Conference Room, Units 11-15, 11/F, Block A, Focal Industrial Centre, 21 Man Lok Street, Hunghom, Kowloon, Hong Kong on Monday, 13th May, 2002 at 11:00 a.m. is set out on pages 105 to 109 of this circular. Whether or not you intend to be present at the meeting, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon and deposit with the Company’s Hong Kong branch share registrar, Tengis Limited, at 4th Floor, Hutchison House, 10 Harcourt Road, Central, Hong Kong, Hong Kong as soon as possible but in any event not less than 48 hours before the time appointed for the holding of the EGM. Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM should you so desire.

23rd April, 2002

CONTENTS

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Summary of the Rights Issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
Expected timetable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	26
Letter from Chateron. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	27
Appendix I – Financial information of the Group . . . . . . . . . . . . . . . . . . . . . . . . . .	43
Appendix II – The Principal Terms of The New Share Option Scheme . . . . . . . . .	84
Appendix III – Explanatory Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	91
Appendix IV – General information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	94
Notice of Extraordinary General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	105

– i –

DEFINITIONS

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

• “Announcement”

the Company’s announcement dated 3rd April, 2002 relating to (inter alia) the Rights Issue, the Whitewash Waiver and the adoption of the New Share Option Scheme

• “associates” has the same meaning as ascribed in the Listing Rules

• “B.K.S.” or the “Underwriter”

• B.K.S. Company Limited, a company incorporated in the British Virgin Islands with limited liability, the ultimate holder of which is the trustee of a discretionary trust, the beneficiaries of such trust include Mr. So Chi On and other family members of Mr. So Yuk Kwan

• “Board” the board of Directors

• “CCASS”

• the Central Clearing and Settlement System established and operated by Hongkong Clearing

• “Chateron”

• Chateron Corporate Finance Limited, an investment adviser registered under the Securities Ordinance (Chapter 333 of the Laws of Hong Kong), which has been appointed as the independent financial adviser to the Independent Board Committee in relation to the Whitewash Waiver

• “Company”

• AV Concept Holdings Limited

• “Connected Persons”

• have the same meaning as ascribed in the Listing Rules

• “Directors”

• the directors of the Company

• “Eligible Employee”

• means any employee (whether full time or part time employee, including executive directors) of the Company, its Subsidiaries or any Invested Entity

• “Eligible Person(s)”

• any eligible Participant who accepted the offer of the grant of a Share Option in accordance with the Existing Share Option Scheme

• “Executive”

• the Executive Director of the Corporate Finance Division of the Securities and Futures Commission and any delegate of such Executive Director

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DEFINITIONS

• “Existing Share Option Scheme” the existing share option scheme of the Company which was adopted by the Company on 1st April, 1996

• “Extraordinary General Meeting” the extraordinary general meeting of the Company to be or “EGM” convened to approve, inter alia, the Whitewash Waiver and the adoption of the New Share Option Scheme

• “Extraordinary General Meeting Notice” or “EGM Notice”

• the notice convening the EGM dated 23rd April, 2002 which is set out on pages 105 to 109 of this circular

• “EYCFL” Ernst & Young Corporate Finance Limited, an investment adviser and a dealer registered under the Securities Ordinance, the financial adviser of the Company

• “General Mandate”

• the repurchase mandate and the general mandate to issue shares to be sought at the EGM as set out in the EGM Notice

• “Group” the Company and its Subsidiaries

• “Hong Kong”

• the Hong Kong Special Administrative Region of the People’s Republic of China

• “Hongkong Clearing” Hong Kong Securities Clearing Company Limited

• “HK$” Hong Kong dollars

• “Independent Board the independent board committee of the Company Committee” comprising Dr. Hon. Lui Ming Wah, JP and Mr. Charles Edward Chapman, appointed to advise the Independent Shareholders in relation to the Whitewash Waiver

• “Independent Shareholders”

• Shareholders other than B.K.S. and its associates and parties acting in concert with any of them and those who are not involved in or interested in the underwriting of the Rights Issue under the Underwriting Agreement

• “Invested Entity”

any entity in which the Group holds any equity interest

• “Latest Practicable Date”

• 19th April, 2002, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained in this circular

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DEFINITIONS

• “Listing Rules”

The Rules Governing the Listing of Securities on the Stock Exchange

• “New Share Option Scheme” the share option scheme proposed to be adopted by the Company at the Extraordinary General Meeting

• “Non-Qualifying Shareholder(s)” the Shareholder(s) whose address(es) as shown on the register of members of the Company at the close of business on the Record Date are either outside Hong Kong or stipulated in place(s) where, in the Directors’ opinion, Rights Shares may not be offered without compliance with registration and/or other legal or regulatory requirements of that jurisdiction or jurisdictions outside of Hong Kong

• “Participants”

• means any person belonging to any of the following classes of participants:

• (a) any Eligible Employee;

• (b) any non-executive director (including independent nonexecutive directors) of the Company, any of its Subsidiaries or any Invested Entity;

• (c) any supplier of goods or services to any member of the Group or any Invested Entity;

• (d) any customer of the Group or any Invested Entity;

• (e) any agent or consultants that provides research, development or other technological support to the Group or any Invested Entity; and

• (f) any shareholder of any member of the Group or any Invested Entity or any holder of any securities issued by any member of the Group or any Invested Entity who, in the opinion of the Directors, have made contribution and continuing efforts to promote the interest of the Company.

“Prospectus”

the prospectus to be issued by the Company in relation to the Rights Issue

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DEFINITIONS

• “Prospectus Documents”

• the Prospectus, the provisional allotment letter and the form of application for excess Rights Shares

• “Qualifying Shareholder(s)” the Shareholder(s), other than the Non-Qualifying Shareholder(s), whose name(s) appear(s) on the register of members of the Company on the Record Date

• “Record Date”

• Monday, 13th May, 2002, being a date for ascertaining entitlement in respect of the Rights Issue

• “Repurchase Mandate” the proposed general mandate, to be sought at the EGM, to authorise the Directors to repurchase shares in the manner set out in the EGM Notice

• “Rights Issue”

• the rights issue of one Rights Share for every two existing Shares held by Qualifying Shareholders on the Record Date

• “Rights Share(s)”

• not less than 118,160,806 new Shares to be issued and allotted pursuant to the Rights Issue

• “Scheme Mandate Limit”

• the maximum number of Shares in respect of which Share Options may be granted under the New Share Option Scheme and any other share option scheme(s) of the Company

• “SDI ordinance” the Securities (Disclosure of Interests) Ordinance, Chapter 396 of the Laws of Hong Kong

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

• “Share(s)”

• share(s) of HK$0.10 each in the capital of the Company

• “Share Option(s)”

• option(s) granted or to be granted to the Eligible Persons under the Existing Share Option Scheme or to the Participants under the New Share Option Scheme as the context requires

• “Share Buy Back Rules”

• the applicable provisions under the Listing Rules to regulate the repurchase by companies with primary listing on the Stock Exchange of their own securities on the Stock Exchange

• “Stock Exchange” The Stock Exchange of Hong Kong Limited

– 4 –

DEFINITIONS

“Subsidiary” a subsidiary for the time being of the Company (within the meaning of Section 2 of the Companies Ordinance, Chapter 32 of the Laws of Hong Kong), whether incorporated in Hong Kong or elsewhere

• “Takeovers Code” the Hong Kong Code on Takeovers and Mergers

“Underwriting Agreement” the underwriting agreement dated 3rd April, 2002 and entered into between the Company and the Underwriter in relation to the Rights Issue

“Whitewash Waiver” A waiver from the Executive pursuant to Note 1 of Notes on dispensations from Rule 26 of the Takeovers Code in respect of the obligations of B.K.S. to make a mandatory general offer for all the Shares not already owned by B.K.S. which would otherwise arise as a result of B.K.S. subscribing for the Rights Shares under the terms of the Underwriting Agreement

• “%” percent

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SUMMARY OF THE RIGHTS ISSUE

The following information is derived from, and should be read in conjunction with, the full text of this circular:

• Number of Rights Shares to be issued:

Not less than 118,160,806 Rights Shares

Basis of the Rights Issue:

One Rights Share for every two existing Shares held on the Record Date

Subscription Price:

• HK$0.26 per Rights Share, payable in full upon acceptance

Basis of entitlement:

Rights Shares will be allotted in the proportion of one Rights Share for every two existing Shares held by the Qualifying Shareholders on the Record Date. No provisional allotment of Rights Shares will be made to the Non-Qualifying Shareholders

Right of excess application:

Qualifying Shareholders will have the right to apply for Rights Shares in excess of their provisional allotments

• Amount to be raised by the Rights Issue:

Not less than approximately HK$30.7 million before expenses, and net proceeds of approximately HK$29 million

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EXPECTED TIMETABLE

2002 Despatch of circular to Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tuesday, 23rd April Last day of dealing on a cum-rights basis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Monday, 6th May First day of dealing on an ex-rights basis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Tuesday, 7th May Latest time for Shareholders to lodge transfers in order to qualify for the Rights Issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . Wednesday, 8th May Register of members closed (both days inclusive) . . . . Thursday, 9th May to Monday, 13th May Latest time for lodging proxy forms . . . . . . . . . . . . . . . . . . . . . 11:00 a.m. on Saturday, 11th May Extraordinary General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . 11:00 a.m. on Monday, 13th May Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Monday, 13th May Announcement of results of Extraordinary General Meeting . . . . . . . . . . . . . .Tuesday, 14th May Register of members re-open . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Tuesday, 14th May Prospectus Documents to be sent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Thursday, 16th May First day of dealing in nil-paid Rights Shares . . . . . . . . . . . . . . . . . . . . . . . . . . Tuesday, 21st May Latest time for splitting nil-paid Rights Shares . . . . . . . . . . . . . . . . . . . . . . . . . . Friday, 24th May Last day of dealing in nil-paid Rights Shares . . . . . . . . . . . . . . . . . . . . . . . . Wednesday, 29th May Latest time for acceptance of Rights Shares and payment . . . . . 4:00 p.m. on Monday, 3rd June Underwriting Agreement become unconditional . . . . . . . . . . . . . 4:00 p.m. on Monday, 3rd June Announcement of results of the Rights Issue . . . . . . . . . . . . . . . . . . . . . . . . . . Thursday, 6th June Refund cheques for wholly or partially unsuccessful applications for excess Rights Shares to be sent . . . . . . . . . . . . . . . . . . . . . Thursday, 6th June Certificates for fully-paid Rights Shares to be sent . . . . . . . . . . . . . . . . . . . . . Thursday, 6th June Commencement of dealing of fully-paid Rights Shares . . . . . . . . . . . . . . . . . Monday, 10th June

– 7 –

LETTER FROM THE BOARD

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AV CONCEPT HOLDINGS LIMITED

(Incorporated in the Cayman Islands with limited liability)

Executive Directors: So Yuk Kwan (Chairman and Managing Director) So Wai Yin (Deputy Managing Director) So Chi On Lee Jeong Kwan

Independent non-executive Directors: Dr. Hon. Lui Ming Wah, JP Charles Edward Chapman

Registered office: Ugland House South Church Street P.O. Box 309 George Town Grand Cayman Cayman Islands British West Indies

Principal place of business: Units 11-15 11th Floor, Block A Focal Industrial Centre 21 Man Lok Street Hunghom Kowloon Hong Kong 23rd April, 2002

To the Shareholders

Dear Sir or Madam,

PROPOSED RIGHTS ISSUE

OF NOT LESS THAN 118,160,806 RIGHTS SHARES OF HK$0.10 EACH AT HK$0.26 PER RIGHTS SHARE, PAYABLE IN FULL ON ACCEPTANCE (IN THE PROPORTION OF ONE RIGHTS SHARE FOR EVERY TWO EXISTING SHARES HELD) WHITEWASH WAIVER GENERAL MANDATES TO ISSUE AND REPURCHASE SECURITIES AND

ADOPTION OF NEW SHARE OPTION SCHEME AND TERMINATION OF EXISTING SHARE OPTION SCHEME

INTRODUCTION

On 3rd April, 2002, the Board announced, subject to the fulfillment of the conditions provided in the Underwriting Agreement that the Company proposed to raise approximately

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LETTER FROM THE BOARD

HK$30.7 million before expenses by way of the Rights Issue of not less than 118,160,806 Rights Shares at a price of HK$0.26 each. The Company will provisionally allot one Rights Share for every two existing Shares held by Qualifying Shareholders. The Rights Issue (other than the Rights Shares to be provisionally allotted to B.K.S. which it has undertaken to subscribe) is fully underwritten by B.K.S..

The purpose of this circular is to give you further information on, inter alia, the Rights Issue, the Whitewash Waiver, the adoption of the New Share Option Scheme and the termination of Existing Share Option Scheme, the general mandates to issue and purchase securities of the Company, the recommendation of the Independent Board Committee and the advice of Chateron in respect of the Whitewash Waiver and the notice convening the Extraordinary General Meeting therefor.

EYCFL has been retained by the Company as the financial advisor in respect of the Rights Issue and the Whitewash Waiver. Chateron has been appointed as the independent financial adviser to advise the Independent Board Committee in respect of the Whitewash Waiver.

PROPOSED RIGHTS ISSUE

Issue statistics

Basis of the Rights Issue:

one Rights Share for every two existing Shares held by Qualifying Shareholders

Number of existing Shares in issue: 236,321,613 Shares as at the Latest Practicable Date Number of Rights Shares: Not less than 118,160,806 Shares (and not more than 125,010,806 Shares)

Under the Rights Issue, not less than 118,160,806 nil-paid Rights Shares (assuming no Share Options are duly exercised before the Record Date) would be provisionally allotted which represents 50% of the existing issued share capital and approximately 33% of the enlarged issued share capital of the Company as enlarged by the issue of the Rights Shares.

The number of Rights Shares which may be issued pursuant to the Rights Issue will be increased in proportion to any additional Shares which may be issued and allotted pursuant to the Existing Share Option Scheme on or before the Record Date. As at the Latest Practicable Date, the Company has 13,700,000 Share Options outstanding and exercisable before the Record Date to employees of the Group to subscribe for Shares at prices from HK$0.265 to HK$1.08 per Share Option (subject to adjustments). If all the subscription rights attaching to the Share Options are duly exercised and Shares are issued and allotted pursuant to such exercise on or before the Record Date, the number of issued Shares will be increased to approximately 250,021,613 Shares and the number of Rights Shares may be issued pursuant to the Rights Issue will be increased to approximately 125,010,806 Rights Shares.

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LETTER FROM THE BOARD

Qualifying Shareholders and Non-Qualifying Shareholders

The Company will send the Prospectus Documents to Qualifying Shareholders only and the Prospectus, for information only, to the Non-Qualifying Shareholders.

To qualify for the Rights Issue, a Shareholder must:

• be registered as a member of the Company at the close of business on the Record Date; and

• have as its address on the branch register of members of the Company at the close of business on the Record Date either an address in Hong Kong or an address which is not in a place where, in the Directors’ opinion, Rights Shares may not be offered without compliance with registration and/or other legal or regulatory requirements.

The Company retains the right, however in its discretion to vary the requirements set forth above.

If on the Record Date, a Shareholder’s address on the Company’s branch register of members is in a place outside Hong Kong where, in the Director’s opinion, Rights Shares may not be offered without compliance with registration and/or other legal or regulatory requirements, such Shareholder cannot take part in the Rights Issue.

The Prospectus Documents will not be registered or filed under the applicable securities or equivalent legislation of any jurisdictions other than Hong Kong. More specifically, the Rights Shares are not being offered or sold in the United States, Canada, Australia, the Republic of Ireland or Japan. Accordingly, no provisional allotment of Rights Shares or any allotment of Rights Shares will be made to Non-Qualifying Shareholders. The Company will send the Prospectus to Non-Qualifying Shareholders for their information only, but the Company will not send provisional allotment letters or forms of application for excess Rights Shares to them.

The Company will make arrangements to sell the provisional allotment of Rights Shares which would otherwise have been allotted to Non-Qualifying Shareholders as soon as practicable after dealings in the nil-paid Rights Shares commence, if a premium (net of expenses) can be obtained. The proceeds from the sale of individual Non-Qualifying Shareholders’ nil paid Rights Shares, net of expenses, of HK$100 or more will be paid to the Non-Qualifying Shareholders in Hong Kong dollars. The Company will retain individual amounts of less than HK$100 for its own benefit. No fractions of Rights Share (nil-paid and fully paid) will be allotted. The Company will sell, if a premium (net of expenses) can be obtained, any such Rights Shares created by adding together fractions of Rights Shares and will retain the proceeds.

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LETTER FROM THE BOARD

In order to be registered as a member on the Record Date, any transfers of Shares (together with the relevant share certificate(s)) must be lodged with the Company’s branch share registrar and transfer office in Hong Kong, Tengis Limited of 4th Floor, Hutchison House, 10 Harcourt Road, Central, Hong Kong, by no later than 4:00 p.m. (Hong Kong time) on 8th May, 2002.

Closure of register of members

The Company’s register of members will be closed from 9th May to 13th May, 2002, both days inclusive. No transfer of Shares will be registered during this period.

Subscription price for the Rights Shares

HK$0.26 per Rights Share, payable in full when a Qualifying Shareholder accepts the relevant provisional allotment under the Rights Issue or applies for excess Rights Shares or when a transferee of nil-paid Rights Shares subscribes for the Rights Shares.

The subscription price of HK$0.26 per Rights Share represents (i) a discount of approximately 10.34% to the closing price of HK$0.29 per Share quoted on the Stock Exchange on 3rd April, 2002, being the date of the Underwriting Agreement and (ii) a discount of approximately 7.14% to the theoretical ex-rights price of HK$0.28 per Share based on the closing price per Share on the same day. The subscription price of HK$0.26 per Rights Share also represents a discount of approximately 16.67% to the average closing price of HK$0.312 per Share quoted on the Stock Exchange for the 10 trading days ending on 3rd April, 2002. The subscription price of HK$0.26 per Rights Share represents a discount of approximately 3.70% to the closing price of HK$0.27 per Share quoted on the Stock Exchange on the Latest Practicable Date. The subscription price also represents a discount of approximately 7.14% to the average closing price of HK$0.28 per Share as quoted on the Stock Exchange for the ten trading days up to and including the Latest Practicable Date.

The subscription of HK$0.26 was arrived at after arm’s length negotiation between the Company and the Underwriter with reference to the market price of the Shares under the prevailing market conditions. The Directors consider the terms of the Rights Issue to be fair and reasonable so far as the Shareholders are concerned. The Directors also consider it necessary and expedient, having regard to the restrictions and obligations of certain foreign jurisdictions, to limit the Rights Issue to Qualifying Shareholders.

Status of the Rights Shares

When issued, allotted and fully paid, the Rights Shares will rank pari passu in all respects with the then existing Shares. Holders of fully-paid Rights Shares will be entitled to receive all future dividends and distributions which are declared, made or paid after the date of issue and allotment of the Rights Shares.

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LETTER FROM THE BOARD

Conditions of the Rights Issue

The Rights Issue is conditional upon, inter alia:

• the posting of this circular to Shareholders containing, inter alia, details of the Rights Issue and the Whitewash Waiver, together with proxy form and the Extraordinary General Meeting Notice;

– the Company registering or filing all relevant documents with the Registrar of Companies in Hong Kong in accordance with the Companies Ordinance (Chapter 32 of the Laws of Hong Kong);

• the Listing Committee of the Stock Exchange granting the listing of, and permission to deal in the Rights Shares in their nil-paid and fully-paid forms;

• the passing by Independent Shareholders at the Extraordinary General Meeting, in compliance with the Takeovers Code of an ordinary resolution by way of poll to approve the Whitewash Waiver;

• the granting of the Whitewash Waiver by the Executive;

• the posting of the Prospectus Documents to Qualifying Shareholders; and

• the obligations of the Underwriter under the Underwriting Agreement becoming unconditional and the Underwriting Agreement not being terminated in accordance with its terms.

An application for the Whitewash Waiver has been made by B.K.S. to the Executive in respect of its obligation to make a mandatory general offer for all the Shares not held by B.K.S. as a result of the Rights Issue and the subscription of any Rights Shares by B.K.S. under its obligations pursuant to the Underwriting Agreement. B.K.S. and the Company will not waive any of the above conditions.

– 12 –

LETTER FROM THE BOARD

Underwriting Agreement

Undertakings from B.K.S.

As at the Latest Practicable Date, B.K.S. is interested in 77,632,200 Shares, representing approximately 32.85% of the then issued share capital of the Company. B.K.S. has irrevocably undertaken to the Company that the Shares beneficially owned by it would remain registered in its name from the date of the Announcement to the Record Date and to subscribe for its provisional entitlement in full, amounting to 38,816,100 Rights Shares. B.K.S. has also agreed to act as the underwriter for the balance of the Rights Issue, amounting to not less than 79,344,706 Rights Shares, subject to fulfilment of the conditions set out in the Underwriting Agreement. B.K.S. will receive an underwriting fee of 2.5% of the aggregate subscription price of the Rights Shares (other than the Rights Shares to be provisionally allotted to B.K.S. which it has undertaken to subscribe) which it has undertaken to take up under the Underwriting Agreement.

Underwriting Agreement

Date: 3rd April, 2002 Underwriter: B.K.S. Company Limited, a substantial shareholder of the Company which is interested in 77,632,200 Shares representing approximately 32.85% of the then issued share capital of the Company

Number of Shares underwritten: not less than 79,344,706 Rights Shares Commission: 2.5% of the total subscription price of the Rights Shares underwritten by the Underwriter

B.K.S. does not underwrite issue of securities in its normal course of business and will receive an underwriting commission under the Underwriting Agreement.

The Underwriting Agreement is a connected transaction which is exempted from the requirement to obtain shareholders’ approval pursuant to Rule 14.24(6)(c) of the Listing Rules.

Termination of the Underwriting Agreement

The Underwriter may terminate its commitment under the Underwriting Agreement, if prior to 4:00 p.m. on the last day of acceptance of provisional allotments (being 3rd June, 2002) there develops, occurs or comes into force:

• (i) an introduction of any new law or regulation or any change in existing laws or regulations (or the judicial interpretation thereof) which may in the reasonable opinion of the Underwriter have or be likely to have a material adverse effect on the financial condition or prospects of the Group taken as a whole; or

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LETTER FROM THE BOARD

• (ii) any change in local, national or international, (whether or not forming part of series of events or changes occurring or continuing before, and/or after the date of the Underwriting Agreement) political, military, financial, economic, currency (including a change in the system under which the value of the Hong Kong currency is linked to the currency of the United States of America), stock market or other conditions (including volatility in market conditions in Hong Kong and elsewhere) (whether or not ejusdem generis with any of the foregoing) or in securities market conditions or a change in taxation or exchange control in Hong Kong which, in the reasonable opinion of the Underwriter, may be materially prejudicial to the Rights Issue; or

• (iii) any change (whether or not permanent) in local, national or international market conditions which in the reasonable opinion of the Underwriter materially and adversely affects the Rights Issue or makes it inadvisable or inexpedient to proceed therewith; or

If the Underwriting Agreement is terminated or does not become unconditional, the Rights Issue will not proceed. Any Shareholders or other persons dealing in Shares up to the date on which all the conditions to which the Rights Issue is subject are fulfilled (being Monday, 3rd June, 2002 which is the date on which the Underwriter’s right of termination of the Underwriting Agreement ceases) and any persons dealing in the nil-paid Rights Shares during the period from Tuesday, 21st May, 2002 to Wednesday, 29th May, 2002 will accordingly bear the risk that the Rights Issue may not become unconditional or may not proceed.

Use of proceeds from the Rights Issue

The Group is principally engaged in the marketing and distribution of electronic components, the manufacture and design of electronic products and the manufacture of Internet appliances.

The Directors are of the view that it is beneficial for the Company to strengthen its equity base and to obtain additional cash resources for its further business development. The Rights Issue enables the Company to carry out the capital raising exercise while Qualifying Shareholders are given the opportunity to maintain their respective pro rata shareholding interests in the Company by participating in the Rights Issue. As such, the Directors consider that the implementation of the Rights Issue is in the interests of the Company and its Shareholders as a whole.

The Company intends to apply the net proceeds of the Rights Issue amounting to approximately HK$29 million mainly for general working capital for the Group’s manufacturing and design of electronic products. The Directors expect that the net proceeds from the Rights Issue of approximately HK$29 million will be applied by the Group as to (i) about HK$27 million for the Group’s working capital, to be utilized as to about HK$12 million to finance the

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LETTER FROM THE BOARD

increased inventory and production costs as the Group rolls out its iMP products, about HK$11 million to finance the additional trade credit extended to the iMP customers as the Group’s sales would increase, about HK$3 million to finance the Group’s research and development and about HK$1 million to finance the Group’s marketing and distribution and (ii) about HK$2 million for the capital expenditure of the Group’s iMP business.

WHITEWASH WAIVER

B.K.S. and its concert parties are beneficially interested in 77,632,200 Shares, representing approximately 32.85% of the issued share capital of the Company as at the Latest Practicable Date. B.K.S. has undertaken to take up its full entitlement of 38,816,100 Rights Shares pursuant to the Rights Issue. B.K.S. has also undertaken to the Securities and Futures Commission that they and their concert parties will not acquire or dispose of any Shares or voting rights in the Company during the period from and including the date of the Announcement to the Extraordinary General Meeting. In the event that B.K.S. is called upon to subscribe for the balance of the Rights Shares in full pursuant to its obligations under the Underwriting Agreement, the interest of B.K.S. and parties acting in concert with it in the Company would increase from approximately 32.85% to approximately 55.23% of the Company’s issued share capital immediately upon completion of the Rights Issue (assuming no Share Options are duly exercised before the Record Date) as enlarged by the issue of the Rights Shares. Accordingly, the underwriting by B.K.S. of the Rights Issue may trigger a mandatory general offer by B.K.S. under Rule 26 of the Takeovers Code for all the Shares not held by B.K.S..

If upon completion of the Rights Issue and the grant of Whitewash Waiver, B.K.S. holds more than 50% of the issued share capital of the Company, B.K.S. will be allowed under the Takeovers Code to increase its shareholding in the Company without incurring any further obligation under Rule 26 of the Takeovers Code to make a general offer. The shareholding interest of B.K.S. in the Company upon completion of the Rights Issue will depend upon whether B.K.S. makes any application for excess Rights Shares and the number of any such excess Rights Shares which may be issued and allotted to it. As at the Latest Practicable Date, B.K.S. has not indicated whether it intends to make any application for excess Rights Shares.

Application has been made by B.K.S. to the Executive for the Whitewash Waiver pursuant to Note 1 of the Notes on dispensations from Rule 26 of the Takeovers Code. The Whitewash Waiver, if granted by the Executive, would be subject to, inter alia, the approval of the Independent Shareholders taken on a poll at the Extraordinary General Meeting.

The Executive has indicated that it will grant the Whitewash Waiver subject to approval by the Independent Shareholders at the Extraordinary General Meeting, to waive any obligations to make a general offer which may result from completion of the Rights Issue. If the Whitewash Waiver is not approved by the Independent Shareholders, the Rights Issue will not proceed.

– 15 –

LETTER FROM THE BOARD

PROCEDURE FOR ACCEPTANCE OR TRANSFER

Subject to the Rights Issue being approved at the Extraordinary General Meeting, provisional allotment letters will be despatched to the Qualifying Shareholders to subscribe for the Rights Shares. If you wish to exercise your rights to subscribe for the Rights Shares, you must lodge the provisional allotment letter in accordance with the instructions printed thereon, together with a remittance for the full amount payable on acceptance, with the branch share registrar of the Company in Hong Kong, Tengis Limited, 4th Floor, Hutchison House, 10 Harcourt Road, Central, Hong Kong by not later than 4:00 p.m. on Wednesday, 8th May, 2002. All remittances must be made by cheque or cashier’s order in Hong Kong dollars. Cheques must be drawn on an account with, and cashier’s orders must be issued by, a bank in Hong Kong and made payable to “AV CONCEPT HOLDINGS LIMITED – RIGHTS ISSUE ACCOUNT” and crossed “Account Payee Only”.

It should be noted that unless the provisional allotment letter, together with the appropriate remittance, has been lodged with Tengis Limited by 4:00 p.m. on Wednesday, 8th May, 2002, whether by the original allottee or any person to whom the rights have been validly transferred, the relevant provisional allotment and all rights thereunder will be deemed to have been declined and will be cancelled.

The provisional allotment letter will contain full information regarding the procedure to be followed if you wish to accept only part of your provisional allotment or if you wish to renounce all or part of your provisional allotment.

If you wish to accept only part of your provisional allotment or transfer a part of your rights to subscribe for the Rights Shares provisionally allotted thereunder, or to transfer your rights to more than one person, the entire provisional allotment letter must be surrendered and lodged for cancellation by not later than 4:00 p.m. on 24th May, 2002 to Tengis Limited who will cancel the original provisional allotment letter and issue new provisional allotment letters in the denominations required.

None of the Prospectus Documents has been registered or filed under the securities or equivalent legislation of any jurisdictions other than Hong Kong. Accordingly, it is the responsibility of anyone outside Hong Kong wishing to make an application for the Rights Shares to satisfy himself, before acquiring any rights to subscribe for the provisionally allotted Rights Shares, as to the observance of the laws and regulations of all relevant territories, including the obtaining of any governmental or other consents and to pay any taxes and duties required to be paid in such territory in connection therewith. No application for Rights Shares will be accepted from any person whose registered address is in a place outside Hong Kong where, in the Directors’ Opinion, Rights Shares may not be offered without compliance with registration and/or other legal or regulatory requirements such Shareholder cannot take part in

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LETTER FROM THE BOARD

the Rights Issue. The Company reserves the right to refuse to accept any application for Rights Shares if it believes that such acceptance would violate the applicable securities or other laws or regulations of any jurisdiction.

All cheques and cashier’s orders will be presented for payment following receipt and all interest earned on such monies will be retained for the benefit of the Company. Any provisional allotment letter in respect of which the accompanying cheque is dishonoured on first presentation is liable to be rejected, and in that event the provisional allotment and all rights thereunder will be deemed to have been declined and will be cancelled.

If the Underwriter exercises the right to terminate its obligations under the Underwriting Agreement, the monies received in respect of acceptances of the Rights Shares will be returned to the Qualifying Shareholders or such other persons to whom the Rights Shares in their nilpaid form shall have been validly transferred without interest, by means of cheques despatched by the ordinary post at the risk of such Qualifying Shareholders or such other persons on or about Thursday, 6th June, 2002.

APPLICATIONS FOR EXCESS RIGHTS SHARES

Qualifying Shareholders may apply for any unsold entitlements of Non-Qualifying Shareholders, any unsold Rights Shares arising from the aggregation of fraction of Rights Shares and any Rights Shares provisionally allotted but not accepted.

Application for excess Rights Shares may be made by completing the appropriate form of application and lodging the same with a separate remittance for the excess Rights Shares being applied for. The Directors will allocate the excess Rights Shares at their discretion on a fair and reasonable basis but will give preference to topping-up odd lots to whole board lots of Shares.

If you wish to apply for any Rights Shares in addition to your provisional allotment under the Rights Issue, you must complete and sign the form of application for excess Rights Shares, which will be despatched to the Qualifying Shareholders after the Rights Issue have been approved at the Extraordinary General Meeting, and lodge the form of application for excess Rights Shares, together with a separate remittance for the amount payable on application in respect of the excess Rights Shares applied for, with Tengis Limited, 4th Floor, 10 Harcourt Road, Central, Hong Kong by not later than 4:00 p.m. on Monday, 3rd June, 2002. All remittances must be made by cheque or cashier’s order in Hong Kong Dollars. Cheques must be drawn on an account with, and cashier’s order must be issued by a bank in Hong Kong and made payable to “AV CONCEPT HOLDINGS LIMITED – EXCESS APPLICATION ACCOUNT” and crossed “Account Payee Only”. Tengis Limited will notify you of any allotment of excess Rights Shares made to you, which allotment will be allocated on a fair and reasonable basis to be decided at the sole discretion of the Board.

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LETTER FROM THE BOARD

All cheques and cashier’s orders will be presented for payment following receipt and all interest earned on such monies will be retained for the benefit of the Company. Any form of application for excess Rights Shares in respect of which the accompanying cheque is dishonoured on first presentation is liable to be rejected.

If the Underwriter exercises the right to terminate its obligations under the Underwriting Agreement, the monies received in respect of applications for excess Rights Shares will be returned to the Qualifying Shareholders without interest, by means of cheques despatched by ordinary post at the risk of such Qualifying Shareholders or such other persons on or about Thursday, 6th June, 2002.

If no excess Rights Shares are allotted to you, a refund cheque for the full amount tendered on application is expected to be posted to you at your own risk on or about Thursday, 6th June, 2002. If the number of excess Rights Shares allotted to you is less than that applied for, a cheque for the surplus application monies is expected to be posted to you at your own risk on or about Thursday, 6th June, 2002.

The form of application for excess Rights Shares is for use only by the Qualifying Shareholders to whom it is addressed and is not transferable. All documents, including cheques for amounts due, will be sent by ordinary post at the risk of the persons entitled thereto to their registered addresses.

CERTIFICATES FOR RIGHTS SHARES

Subject to the fulfilment of the conditions of the Rights Issue, certificates for all fullypaid Rights Shares are expected to be posted to those Qualifying Shareholders who have been accepted and applied for (where appropriate), and paid for the relevant Rights Shares by 6th June, 2002 at their own risk.

ADJUSTMENT TO THE SUBSCRIPTION PRICE OF THE SHARE OPTIONS

As at the Latest Practicable Date, the number of outstanding Share Options under the Existing Share Option Scheme was 13,700,000.

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LETTER FROM THE BOARD

Subject to the Rights Issue becoming unconditional and in accordance with the provisions of the Existing Share Option Scheme, the maximum number of Shares to be issued pursuant to exercise of the outstanding Share Options and the exercise price of the Share Options should be adjusted as detailed below:

			Adjusted
		Number of Shares	number of Shares		Adjusted
		subject to outstanding	subject to outstanding	Exercise price	Exercise price
		Share Options before	Share Options after	per Share before	per Share after
Exercisable period	Date of grant	Rights Issue	Rights Issue	Rights Issue	Rights Issue
				HK$	HK$
28th June, 2000 –
27th June, 2003	28th December, 1999	5,500,000	8,250,000	1.08	0.72
20th April, 2001 –
19th April, 2003	20th October, 2000	3,500,000	5,250,000	0.47	0.31
2nd May, 2002 –
1st May, 2005	2nd November, 2001	4,700,000	7,050,000	0.265	0.18

The above adjustments to the number of Shares subject to outstanding Share Options and to the exercise price of the Share Options have been confirmed by Ernst & Young, the auditors of the Company, as properly adjusted in accordance with the terms and conditions as set out in the Existing Share Option Scheme.

APPLICATION FOR LISTING AND DEALINGS

Application will be made to the Listing Committee of the Stock Exchange for the listing of, and permission to deal in, the Rights Shares in both their nil-paid and fully-paid forms. It is expected that dealings in the Rights Shares in their nil-paid form will take place from Tuesday, 21st May, 2002 to Wednesday, 29th May, 2002, both days inclusive.

No part of the share capital of the Company is listed or dealt in on any stock exchange other than the Stock Exchange and no application is being made or is currently proposed or sought for the Shares to be listed or dealt in on any other stock exchange.

Subject to the granting of listing of, and permission to deal in, the Rights Shares in both their nil-paid and fully-paid forms on the Stock Exchange, the Rights Shares in both their nilpaid and fully-paid forms will be accepted as eligible securities by Hongkong Clearing for deposit, clearance and settlement in CCASS with effect from the commencement dates of dealings in the Rights Shares in their nil-paid and fully-paid forms on the Stock Exchange or such other dates as determined by Hongkong Clearing. Settlement of transactions between participants of the Stock Exchange on any trading day is required to take place in CCASS on the second trading day thereafter. All activities under CCASS are subject to the General Rules of CCASS and CCASS Operational Procedures in effect from time to time.

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LETTER FROM THE BOARD

All necessary arrangements will be made to enable the Rights Shares in both their nil-paid and fully-paid forms to be admitted into CCASS.

For the purpose of trading on the Stock Exchange, a board lot for the Rights Shares in both their nil-paid and fully-paid forms will be 2,000 Shares which is the same board lot size as the existing Shares trading on the Stock Exchange. Dealings in the nil-paid and fully-paid Rights Shares will be subject to payment of stamp duty in Hong Kong.

CHANGE IN SHAREHOLDING STRUCTURE

Assuming no Share Options are exercised before Record Date

			After Rights	Issue and
			assuming B.K.S. takes up
	Before	Rights Issue	all underwritten shares
Existing	No. of Shares held	approximate %	No. of Shares held	approximate %
B.K.S.	77,632,200	32.85%	195,793,006	55.23%
Director	275,000	0.12%	275,000	0.08%
Other Shareholders	158,414,413	67.03%	158,414,413	44.69%
Total issued share capital	236,321,613	100.00%	354,482,419	100.00%

Assuming all Share Options are exercised before Record Date

			After Rights	Issue and
			assuming B.K.S. takes up
	Before	Rights Issue	all underwritten shares
Existing	No. of Shares held	approximate %	No. of Shares held	approximate %
B.K.S.	77,632,200	31.05%	202,643,006	54.03%
Directors	2,275,000	0.91%	2,275,000	0.61%
Other Shareholders	170,114,413	68.04%	170,114,413	45.36%
Total issued share capital	250,021,613	100.00%	375,032,419	100.00%

FUTURE INTENTION OF B.K.S.

The Directors have been informed by B.K.S. that B.K.S. has no intention to make any changes to the Board, the continued employment of the employees of the Group, the continuing of the Group’s existing business or the deployment of fixed assets. The long-term justification for the Rights Issue is explained in the section headed “Use of proceeds from the Rights Issue”.

B.K.S. has no intention to dispose of any of the 77,632,200 Shares held by it and has no existing arrangement and is not in discussions with any party about the disposal of such Shares.

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LETTER FROM THE BOARD

FUTURE PLANS AND PROSPECTS OF THE GROUP

The slowdown of the global economy and cyclical downturn of the semiconductors and related computer industries have resulted in a significant decrease in demand for the Group’s semiconductor products. As disclosed in the interim report for the six months ended 30th September, 2001, the majority of the decrease in the Group’s turnover was attributable to the reduction of sales of semiconductor products in the Singapore market. The effect of this has to some extent been offset by the growth of the Group’s design and manufacture business. The Group has taken measures to maintain its competitiveness by tightly controlling operating costs and by focusing on sales and marketing to promote the Group’s products to its industrial and consumer electronics customers. Notwithstanding the above steps taken by the Group, the Directors consider that the Group’s business may still be adversely affected due to the prolonged weak market for semiconductor throughout the year 2001.

With more positive signs indicating a recovering US economy being announced since beginning of 2002, the Directors expect that the Group’s customers will become more confident of a recovery in the consumer market. In light of the above, the Directors expect that demand for electronic products and semiconductors will recover.

The Group has recorded strong growth in its turnover of design and manufacturing business, particularly in respect of the sales of its Internet Media Player (“iMP”) products. The Group’s original design manufacturing iMP products were first launched in the fourth quarter of 2000. In addition, the Group has launched and started to promote its own brand iMP products in the first quarter of 2002. It is hoped that the sale of own brand iMP products will help to improve the Group’s profit margin. The Group’s iMP products have won awards and accolades, including the Year 2000 Ten Best Design Award from the Korea Institute of Industrial Design Promotion and praise in many industry journals and magazines. The Directors are optimistic that the sales of the Group’s iMP products will continue to grow. Despite the above positive factors, the Group will continue to make efforts to control working capital and maximise operational efficiency.

ADOPTION OF THE NEW SHARE OPTION SCHEME AND TERMINATION OF THE EXISTING SHARES OPTION SCHEME

Introduction

The Stock Exchange published an announcement on 23rd August, 2001 in which amendments to Chapter 17 of the Listing Rules were set out, which became effective on 1st September, 2001. In order to comply with the amendments to the Listing Rules and the announcement of the Stock Exchange, the Board considers that it is in the interests of the Company to terminate the Existing Share Option Scheme and to adopt the New Share Option Scheme.

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LETTER FROM THE BOARD

A summary of the principal terms of the rules of the New Share Option Scheme which is proposed to be approved and adopted by the Company at the EGM is set out in Appendix II to this circular.

The Existing Share Option Scheme was adopted on 1st April, 1996 and will expire on 31st March, 2006. It is contemplated that the Existing Share Option Scheme shall terminate upon the adoption of the New Share Option Scheme. Upon termination of the Existing Share Option Scheme, no further options will be granted thereunder but in all other respects, the provisions of the Existing Share Option Scheme shall remain in force and all Share Options granted prior to such termination shall continue to be valid and exercisable in accordance therewith. As at the Latest Practicable Date, the Company had 13,700,000 Share Options outstanding. The Directors had granted options pursuant to the Existing Share Option Scheme to employees for subscription of a total of 13,700,000 Shares representing approximately 5.80% of the issued share capital of the Company as at the Latest Practicable Date. Save as disclosed above, the Company did not have any other options, warrants and other convertible securities outstanding as at the Latest Practicable Date.

The New Share Option Scheme is conditional upon:

• (i) the passing of an ordinary resolution at the EGM approving the adoption of the New Share Option Scheme and the termination of the Existing Share Option Scheme; and

• (ii) the Listing Committee of the Stock Exchange granting the listing of, and permission to deal in any new Shares which may fall to be allotted and issued upon the exercise of the subscription rights attaching to the share options that may be granted under the New Share Option Scheme.

The Directors consider that it is not appropriate to state the value of all the Share Options that can be granted under the New Share Option Scheme as if they had been granted at the Latest Practicable Date prior to the approval of the New Share Option Scheme given that the variables which are crucial for the calculation of the value of such Option cannot be determined. The variables which are critical for the determination of the value of such Share Options include, the subscription price for the Shares upon the exercise of the subscription rights attaching to the Share Options, whether or not any Share Options will be granted under the New Share Options Scheme and the timing of the granting of such Share Options, the period during which the subscription rights may be exercised, the discretion of the Board to impose any performance target that has to be achieved before the subscription right attaching to the Share Options can be exercised and any other conditions that the Board imposed on the Share Options and whether or not such Share Options if granted will be exercised by the Share Options holders. The subscription price payable for the Share depends on the price of the Shares as quoted on the Stock Exchange, which in turn depends on when the Board is to grant Share Options under the New Share Option Scheme. With a scheme life of ten years, the Board

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LETTER FROM THE BOARD

is of the view that it is too premature to state whether or not any Share Options will be granted under the New Share Option Scheme, and if so, the number of Share Options that may be granted. It is also difficult to ascertain with accuracy the subscription price of the Shares given the volatility the Share price may be subject to during the 10-year life span of the New Share Option Scheme. In the premises, the Directors are of the view that the value of the Share Options depends on a number of theoretical basis and speculative assumptions. Accordingly, the Directors believed that any calculation of the value of the Share Options will not be meaningful and may be misleading to Shareholders in the circumstances.

Application for Listing

Application will be made to the Listing Committee of the Stock Exchange for approval of the listing of, and permission to deal in, the Shares which may fall to be issued pursuant to the exercise of any Share Options that may be granted under the New Share Option Scheme.

Reasons for adopting the New Share Option Scheme

The purpose of the New Share Option Scheme is to assist in retaining and recruiting highcalibre staff who can make a valuable contribution to the Group and to provide incentive to the Participants for their contribution, and continuing efforts to promote the interest of the Company.

The New Share Option Scheme permits the Company to grant Share Options to a wider category of Participants, and not just the Eligible Persons as under the Existing Share Option Scheme. Under the rules of the New Share Option Scheme, the Board has discretion to set a minimum period for which a Share Option has to be held before the exercise of the subscription rights attaching thereto. This discretion allows the Board to provide incentive to a Participant to remain as a Participant during the minimum period and thereby enable the Group or the relevant Invested Entity to continue to benefit from the services of such Participant during such period. This discretion, coupled with the power of the Board to impose any performance target as it considers appropriate before any Share Option can be exercised, enables the Group to provide incentives to the Participants to use their best endeavours in assisting the growth and development of the Group. Although the New Share Option Scheme does not provide for the granting of Share Options with right to subscribe for Shares at a discount to the trading price of the Shares on the Stock Exchange, the Directors are of the view that the flexibility given to the Board in granting Share Options to Participants and to impose minimum period for which the Share Options have to be held and performance targets that have to be achieved before the Share Options can be exercised, will place the Group in a better position to attract human resources that are valuable to the growth and development of the Group as a whole, than the Existing Share Option Scheme. An announcement on the outcome of the EGM for the termination of the Existing Share Option Scheme and the adoption of the New Share Option Scheme will be made by the Company upon passing of the relevant ordinary resolutions at the EGM.

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LETTER FROM THE BOARD

GENERAL MANDATES TO ISSUE SHARES AND REPURCHASE SHARES

The Board also proposes to grant General Mandate to the Directors:

• (a) to exercise the powers of the Company to issue, allot or otherwise deal with Shares to a maximum of 20% of the aggregate nominal amount of the issued share capital of the Company as at the date of passing the ordinary resolution as enlarged by the issue of the Rights Shares subject to the Rights Issue becoming unconditional and being completed in accordance with its terms as the Directors consider appropriate;

• (b) to repurchase Shares up to a maximum of 10% of the aggregate nominal amount of the issued share capital of the Company as at the date of passing the ordinary resolution as enlarged by the issue of the Rights Shares as the Directors consider appropriate; and

a separate ordinary resolution will be proposed to extend the general mandates by adding to it the number of Shares repurchased under the Repurchase Mandate after the granting of the general mandate. Such resolutions are conditional on the passing of the resolution approving the Rights Issue. An explanatory statement providing the requisite information regarding the issue and Repurchase Mandate is set out in Appendix III to this circular.

The issue and repurchase mandate allows the Company to issue securities and make purchases only during the period ending on the earliest of the date of the next annual general meeting, the date by which the next annual general meeting of the Company is required to be held by law or the date upon which such authority is revoked or varied.

EXTRAORDINARY GENERAL MEETING

There is set out on pages 105 to 109 of this circular a notice convening the Extraordinary General Meeting to be held on Monday, 13th May, 2002 at The Conference Room, Units 11-15, 11/F, Block A, Focal Industrial Centre, 21 Man Lok Street, Hunghom, Kowloon, Hong Kong at 11:00 a.m., at which, inter alia, an ordinary resolution will be proposed to consider and, if thought fit, to approve the Whitewash Waiver and also to consider and, if thought fit, to approve, inter alia, the General Mandate and the adoption of New Share Option Scheme and termination of Existing Share Option Scheme.

Ordinary resolutions will also be proposed at the Extraordinary General Meeting to give the Directors (i) a general mandate to allot, issue and deal with securities of the Company up to a maximum of 20% and (ii) to repurchase Shares up to a maximum of 10% of the aggregate nominal amount of the issued share capital of the Company as at the date of the resolution as enlarged by the Rights Shares and the adoption of New Share Option Scheme and termination of Existing Share Option Scheme.

– 24 –

LETTER FROM THE BOARD

A form of proxy for use at the Extraordinary General Meeting is enclosed with this circular. Whether or not you are able to attend the Extraordinary General Meeting in person, you are requested to complete and return the form of proxy in accordance with the instructions printed thereon to the Company’s branch share registrar in Hong Kong, Tengis Limited, 4th Floor, Hutchison House, 10 Harcourt Road, Central, Hong Kong as soon as possible but in any event not later than 48 hours before the time appointed for the holding of the Extraordinary General Meeting, that is, 11:00 a.m. on Saturday, 11th May, 2002. Completion and return of the form of proxy will not preclude you from attending and voting in person at the Extraordinary General Meeting should you so wish.

RECOMMENDATION

Your attention is drawn to the letter from the Independent Board Committee set out on page 26 of this circular which contains its recommendation to the Independent Shareholders as to voting at the Extraordinary General Meeting in relation to the Whitewash Waiver.

Your attention is also drawn to the letter received from Chateron, for incorporation into the circular, which contains its advice to the Independent Board Committee in relation to the Whitewash Waiver and the principal factors and reasons considered by it in arriving thereat. The text of the letter from Chateron is set out on pages 27 to 42 of this circular.

The Independent Board Committee has considered the Whitewash Waiver and the advice given by Chateron in relation thereto, and recommends the Independent Shareholders to vote in favour of the ordinary resolution to be proposed at the Extraordinary General Meeting in relation to the Whitewash Waiver.

ADDITIONAL INFORMATION

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

Yours faithfully,

For and on behalf of the Board

AV CONCEPT HOLDINGS LIMITED

So Yuk Kwan Chairman

– 25 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

==> picture [59 x 34] intentionally omitted <==

AV CONCEPT HOLDINGS LIMITED

(Incorporated in the Cayman Islands with limited liability)

23rd April, 2002

To the Independent Shareholders

Dear Sir or Madam,

PROPOSED WHITEWASH WAIVER

We refer to the letter from the Board set out on pages 8 to 25 of the circular dated 23rd April, 2002 (the “Circular”) of which this letter forms part. Capitalised terms defined in the Circular shall have the same meaning when used herein unless the context otherwise requires.

We have been appointed as members of the Independent Board Committee to consider the Whitewash Waiver and to advise the Independent Shareholders as to whether or not it would be fair and reasonable and in the interests of the Independent Shareholders to vote in favour of the ordinary resolution to be proposed at the Extraordinary General Meeting to approve the Whitewash Waiver. Chateron has been appointed to advise the Independent Board Committee in relation to the Whitewash Waiver.

We wish to draw your attention to the letter from the Board and the letter from Chateron to the Independent Board Committee which contains its advice to us in relation to the Whitewash Waiver as set out in the Circular.

Having taken into account principal factors and reasons considered by and the opinion of Chateron as stated in its letter of advice, we consider that it would be fair and reasonable and in the interests of the Independent Shareholders to approve the Whitewash Waiver. We therefore recommend the Independent Shareholders to vote in favour of the ordinary resolution approving the Whitewash Waiver to be proposed at the Extraordinary General Meeting.

Your faithfully,

For and on behalf of the Independent Board Committee Dr. Hon. Lui Ming Wah, JP Charles Edward Chapman

Independent non-executive Directors

– 26 –

LETTER FROM CHATERON

2201-3, 22ND FLOOR, WORLDWIDE HOUSE, 19 DES VOEUX ROAD CENTRAL, HONG KONG TEL: (852) 2868 2828 FAX: (852) 2868 0390

23rd April, 2002

The Independent Board Committee AV Concept Holdings Limited Units 11-15 11th Floor, Block A Focal Industrial Centre 21 Man Lok Street Hunghom Kowloon Hong Kong

Dear Sirs,

PROPOSED WHITEWASH WAIVER

INTRODUCTION

We refer to the announcement (the “ Announcement ”) issued by AV Concept Holdings Limited (the “ Company ”) dated 3rd April, 2002 in respect of, inter alia, (i) the Company’s proposed rights issue of no less than 118,160,806 rights shares (the “ Rights Shares ”), in the proportion of one Rights Share for every two existing shares held by the Qualifying Shareholders (as such term is defined in the Announcement) on the Record Date (as such term is defined in the Announcement), at a subscription price of HK$0.26 per Rights Share; and (ii) the Whitewash Waiver (as such term is defined in the Announcement). Details of the terms of the Rights Issue and the Whitewash Waiver are set out in a circular (the “ Circular ”) issued by the Company to the Shareholders (as such term is defined in the Circular) dated 23rd April, 2002 containing, inter alia, details and terms of the Rights Issue and the Whitewash Waiver, of which this letter forms part. Capitalized terms used in this letter shall have the same meanings ascribed to them in the Circular unless the context otherwise requires.

Details, terms and conditions of the Rights Issue are referred to in the letter from the Board as set out on pages 8 to 25 of the Circular. We noted that, under the terms of the Rights Issue, one Rights Share shall be issued for every two existing issued Shares held on the Record Date. As referred to in the letter from the Board as set out on pages 8 to 25 of the Circular, (i)

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LETTER FROM CHATERON

assuming that no Share Options shall be exercised on or before the Record Date, the resultant issued share capital of the Company after the completion of the Rights Issue shall comprise an aggregate of 354,482,419 Shares, representing an increase of 50% from the existing 236,321,613 Shares in issue as at the Latest Practicable Date; and (ii) assuming that all the Share Options shall be exercised on or before the Record Date, the resultant issued share capital of the Company after the completion of the Rights Issue shall comprise an aggregate of 375,032,419 Shares, representing an increase of 50% from the 250,021,613 Shares to be in issue following the full exercise of the Options but before the Rights Issue. Therefore, under either of scenarios (i) or (ii) above, the Rights Issue would not result in an increase in the Company’s issued share capital by more than 50% and therefore the Rights Issue is not subject to the approval of the Independent Shareholders under the requirement of Rule 7.19(6) of the Listing Rules.

As referred to in the letter from the Board as set out on pages 8 to 25 of the Circular, B.K.S. is the Underwriter for the Rights Issue and in the event that B.K.S. is called upon to subscribe for the balance of the Rights Shares in full pursuant to its obligations under the Underwriting Agreement, the resultant beneficial interest of B.K.S. and its concert parties in the Company would increase from approximately 32.85% as at the Latest Practicable date to (i) approximately 55.23% after the completion of the Rights Issue, assuming that no Share Options shall be exercised on or before the Record Date; and (ii) approximately 54.03% after the completion of the Rights Issue, assuming that all the Share Options shall be exercised on or before the Record Date. In this connection, we were informed by the Directors that given B.K.S. and its concert parties have been beneficially interested in an aggregate of approximately 32.85% of the Company’s issued share capital prior to the implementation by the Securities and Futures Commission of the new rules regarding the amendments to the mandatory offer provisions of the Takeovers Code on 19th October, 2001, it is considered that B.K.S. is subject to the provisions of Rule 26.6 of the Takeovers Code and that the trigger point of 35% (instead of 30% under the new rules) would apply in determining the general offer obligation of B.K.S. and its concert parties pursuant to the Takeovers Code. Accordingly, the underwriting by B.K.S. of the Rights Issue may trigger a mandatory general offer by B.K.S. and its concert parties under Rule 26 of the Takeovers Code for all the issued Shares not otherwise held by B.K.S. and its concert parties. B.K.S. has applied to the Executive for the grant of the Whitewash Waiver, which is subject to the approval of the Independent Shareholders by way of a poll at the EGM.

The Independent Board Committee comprising Dr. Hon. Lui Ming Wah, JP (“ Dr. Lui ”) and Mr. Charles Edward Chapman (“ Mr. Chapman ”), being independent non-executive Directors, has been established by the Company to advise the Independent Shareholders in respect of the Whitewash Waiver. We, Chateron, have been appointed by the Company to advise the Independent Board Committee in relation to the Whitewash Waiver. This letter contains our advice to the Independent Board Committee as to whether or not it would be fair and

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reasonable and in the interests of the Independent Shareholders to approve the Whitewash Waiver, and our recommendation to the Independent Board Committee to advise the Independent Shareholders as to whether or not they should approve the Whitewash Waiver. Given that the Rights Issue is conditional upon, inter alia, the grant of the Whitewash Waiver by the Executive which is, in turn, subject to the approval of the Independent Shareholders by way of a poll at the EGM, we have formulated our opinion, advice and recommendation to the Independent Board Committee in relation to the Whitewash Waiver as referred to in the section headed “The Whitewash Waiver” below. In this regard, we have also reviewed the merits of the Rights Issue and its benefits to the Group as referred to in the section headed “Overview of the Rights Issue” below, and we would recommend the Independent Shareholders to take this into account in conjunction with our opinion, advice and recommendation in relation to the Whitewash Waiver when making their voting decisions at the EGM.

In evaluating the eligibility of Dr. Lui and Mr. Chapman as members of the Independent Board Committee, we have reviewed the Directors' declarations submitted to the Securities and Futures Commission and noted that:–

• (i) as at the Latest Practicable Date, Mr. So Yuk Kwan, an executive Director, was a beneficiary of a discretionary trust which beneficially owns B.K.S., the single largest shareholder of the Company and which is also a party to the Rights Issue and the Whitewash Waiver. Therefore, we consider that Mr. So Yuk Kwan is not eligible for appointment as a member of the Independent Board Committee;

• (ii) as at the Latest Practicable Date, Mr. So Chi On, an executive Director, was a beneficiary of a discretionary trust which beneficially owns B.K.S., the single largest shareholder of the Company and which is also a party to the Rights Issue and the Whitewash Waiver. Therefore, we consider that Mr. So Chi On is not eligible for appointment as a member of the Independent Board Committee;

• (iii) as at the Latest Practicable Date, Mr. So Wai Yin, an executive Director, was an employee of the Group as well as a salaried Director pursuant to a service contract between himself and the Company. Therefore, we consider that Mr. So Wai Yin is not eligible for appointment as a member of the Independent Board Committee; and

• (iv) as at the Latest Practicable Date, Mr. Lee Jeong Kwan, an executive Director, was an employee of the Group as well as a salaried Director pursuant to a service contract between himself and the Company. Therefore, we consider that Mr. Lee Jeong Kwan is not eligible for appointment as a member of the Independent Board Committee.

Accordingly, Dr. Lui and Mr. Chapman, being the remaining Directors, are the only Directors eligible for appointment as members of the Independent Board Committee to advise the Independent Shareholders in relation to the Whitewash Waiver.

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LETTER FROM CHATERON

In formulating our opinion and recommendation to the Independent Board Committee in relation to the Whitewash Waiver, we have relied on the accuracy of the information and representations contained in the Circular which have been provided to us by the Directors and which the Directors consider to be complete and relevant. We have assumed that all statements, information and representations made or referred to in the Circular and for which the Directors are solely responsible (as referred to in the paragraph headed “Responsibility statement” in Appendix IV to the Circular), were true and correct in all respects at the time they were made and continued to be so as at the date of despatch of the Circular. We have also assumed that all statements of belief, opinion and intention made by the Directors in the Circular were reasonably made after due and careful enquiry and are based on honestly-held opinions. We have no reason to doubt the truth, accuracy and completeness of the information and representations provided to us by the Directors and we have been advised by the Directors that no material facts have been omitted from the information and representations provided in and referred to in the Circular. We consider that we have received sufficient information to enable us to reach an informed view and to justify our reliance on the accuracy of the information and representations contained in the Circular and to provide a reasonable basis for our opinion and recommendation. We have no reason to suspect that any material information has been withheld by the Company. We have not, however, carried out any independent verification of the information provided to us by the Directors, nor have we conducted an independent in-depth investigation into the affairs of the Group.

In formulating our opinion and recommendation, we have not considered the tax consequences on the Independent Shareholders as a result of their approval of the Whitewash Waiver, since these are particular to the individual circumstances of any Independent Shareholder. It is emphasized that we will not accept responsibility for any tax effects on or liabilities of any person resulting from the Whitewash Waiver being approved by the Independent Shareholders. In particular, any Independent Shareholder who is in any doubt of his/her own tax position should consult his/her own professional adviser(s).

OVERVIEW OF THE RIGHTS ISSUE

We have considered and reviewed the background, terms and conditions of the Rights Issue (as referred to in the letter from the Board as set out on pages 8 to 25 of the Circular), and we noted that the Rights Issue is conditional upon (inter alia) the approval by the Independent Shareholders of the Whitewash Waiver by way of a poll at the EGM and the grant thereof by the Executive and which also constitutes the subject matter of our advice as referred to in the section headed “The Whitewash Waiver” below. In particular, we wish to draw the attention of the Independent Shareholders to our review of the Rights Issue as follows:-

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LETTER FROM CHATERON

1. Business review and future prospects of the Group

Business review of the Group

The Group is principally engaged in the marketing and distribution of electronic components, the manufacture and design of electronic products and the manufacture of Internet appliances.

Set out below are the summary audited consolidated results of the Company for each of the three years ended 31st March, 2001 and the unaudited consolidated results of the Company for the six months ended 30th September, 2001 (with the Company’s corresponding results for the six months ended 30th September, 2000 for the purpose of comparison):-

		Six months	Six months
		ended	ended
	30th	September,	30th September,	Year	ended 31st	March,
		2001	2000	2001	2000	1999
		HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Turnover		556,423	588,057	1,100,080	957,597	1,051,470
Operating profit		10,909	23,580	32,164	37,060	22,375
Finance costs		(8,544)	(7,195)	(16,269)	(11,967)	(12,796)
Share of profit from associates		532	5	5,267	–	–
Profit before taxation		2,897	16,390	21,162	25,093	9,579
Net profit attributable
to Shareholders		2,272	14,434	16,127	22,340	8,082

For the three years ended 31st March, 2001, the average turnover of the Group amounted to approximately HK$1,036 million. The Group’s turnover is derived from (i) the marketing and distribution of electronics components; and (ii) the design, manufacture and original-equipment-manufacture (OEM) of electronic products and Internet appliances. The proportion of the Group’s turnover attributable to the marketing and distribution of semiconductors and related products (expressed as a percentage of the Group’s total turnover) decreased from approximately 91.2% during the year ended 31st March, 1999 to approximately 85.6% during the year ended 31st March, 2001. On the other hand, the

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LETTER FROM CHATERON

Group’s turnover attributable to its manufacturing operations (expressed as a percentage of the Group’s total turnover) increased from approximately 8.8% during the year ended 31st March, 1999 to approximately 14.4% during the year ended 31st March, 2001. The Group’s net profit attributable to Shareholders amounted to approximately HK$8.1 million, HK$22.3 million and HK$16.1 million during the three years ended 31st March, 1999, 2000 and 2001, respectively.

We were informed by the Directors that the Group’s turnover attributable to the marketing and distribution of semiconductors and related products are mainly influenced by macro-economics factors, market conditions as well as customer demands. The Directors are of the view that in the event of cyclical upturns and downturns of the global and/or regional semiconductors markets, the Group’s turnover attributable to the marketing and distribution of semiconductors and related products may also be affected. We concur with the Directors’ view in this regard, given that trading businesses are generally susceptible and sensitive to prevailing market conditions. Therefore, during the three years ended 31st March, 2001, the Group had consistently been developing its manufacturing operations. The Group established a strategic partnership programme with strategic players in the electronic products/Internet appliances industry for the development of its manufacturing know-how and products. For instance, during the year ended 31st March, 2001, the Group acquired an approximately 19.44% interest in Reigncom Limited, a company incorporated in Korea, which designed and developed the Group’s iMP (Internet Media Player) product range such as advanced CD/MP3 discmans.

During the six months ended 30th September, 2001, the Company recorded unaudited consolidated net profit attributable to Shareholders of approximately HK$2.3 million. As referred to in the Company’s interim report for the six months ended 30th September, 2001, the worsened financial results of the Group during the six months ended 30th September, 2001, when compared with the Company’s unaudited consolidated net profit attributable to Shareholders of approximately HK$14.4 million during the six months ended 30th September, 2000, was mainly attributable to, inter alia, (i) the reduction in turnover attributable to the sales and distribution of semiconductors in the Singapore market, particularly in the light of the fall in demand of semiconductors by multinational customers for applications in mobile communication devices and computer peripherals, which were severely and adversely affected by the cyclical downturn of the semiconductors industry and the slowdown of the United States economy; and (ii) the reduction in the Group’s overall gross profit margin in the distribution of semiconductors in the Hong Kong market due to the cyclical downturn of the semiconductors industry and the competitive operating environment in Hong Kong. Furthermore, notwithstanding the foregoing and as referred to in the Company’s interim report for the six months ended 30th September, 2001, the Group’s turnover attributable to its manufacturing operations increased by approximately 113% from approximately HK$77 million during the six

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LETTER FROM CHATERON

months ended 30th September, 2000 to approximately HK$164 million during the six months ended 30th September, 2001, which was mainly attributable to the Group’s awardwinning iMP product range and which contributed approximately 29% of the Group’s total turnover of approximately HK$556 million for the six months ended 30th September, 2001 when compared with its weighting of approximately 13% of the Group’s total turnover of approximately HK$588 million for the corresponding six months ended 30th September, 2000. We also noted from the Company’s interim report for the six months ended 30th September, 2001 that (i) the Group’s operating profit attributable to the marketing and distribution of semiconductors and related products was reduced by approximately 66% from approximately HK$18.3 million during the six months ended 30th September, 2000 to approximately HK$6.2 million during the six months ended 30th September, 2001; and (ii) the Group’s operating profit attributable to its manufacturing operations was reduced by approximately 9% from approximately HK$5.2 million during the six months ended 30th September, 2000 to approximately HK$4.7 million during the six months ended 30th September, 2001. In this regard, we were informed by the Directors that the small decrease in the Group’s operating profit attributable to manufacturing operations from the six months ended 30th September, 2000 to the six months ended 30th September, 2001 (despite an increase in turnover) as referred to above is due to the marketing costs and the major development and start-up costs for the launch of the Group’s iMP product range. We concur with the Directors’ view in this regard given the launch of the Group’s iMP product range in November 2000, and that it is reasonable for marketing, start-up and development costs to be incurred by the Group during the 11month period from November 2000 to September 2001. As referred to in the Company’s interim report for the six months ended 30th September, 2001, since the initial launch of the iMP product range in the fourth quarter in 2000, the iMP product range has won the Year 2000 Ten Best Design Award from the Korea Institute of Industrial Design Promotion and has generated public interests from the consumer market (as seen in the market review article published by Cnet’s Editors’ Choice in April 2002 and Amazon.com as referred to below), which altogether helped contribute towards the building up of a solid revenue base and a substantial market share for the Group in the niche CD/MP3 discman market in the United States, Europe and Korea.

Future prospects of the Group

We noted that as referred to in the Company’s interim report for the six months ended 30th September, 2001, the Group will continue to promote its own brandname iMP product range in the year 2002. We have enquired with and were informed by the Directors that since the launch of the Group’s iMP product range in November 2000 and the subsequent roll-out of its recent product models, the Group’s discman and CD player products have set new technical and product standards for the market and have also won the Year 2000 Ten Best Design Award from the Korea Institute of Industrial Design

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LETTER FROM CHATERON

Promotion. We were further informed by the Directors that the Group’s iMP product range has established a market share worldwide and in the US as far as the CD/MP3 discman market is concerned, and ranks first and second in the market review article published by Cnet’s Editor’s Choice in April 2002 for CD/MP3 players and ranks among the best-selling CD/MP3 players as published by Amazon.com. We consider that, based on the foregoing, the Group’s iMP product range has established a prominent market position in the CD/ MP3 discman market.

We were also informed by the Directors regarding their estimate that, in view of the fact that the Group only started marketing iMP products under its own brandname in the first quarter of 2002, a major portion of over 95% of the Group’s iMP products (by turnover) is sold in ODM (Original Design and Manufacturing) form whilst a minor portion of less than 5% (by turnover) is sold under the Group’s own brandname of “ Soul ”. For the purpose of improving its overall profit margin, the Group plans to increase the proportion of iMP product sales under its own brandname. Furthermore, we were informed by the Directors that customers’ orders received by the Group for iMP products are capable of covering about 90% of the Group’s manufacturing capacity for iMP products until the end of the year 2002. Based on the foregoing and in view of the fact that the major development and start-up costs for the iMP product range were already absorbed during the initial product launch and that cost savings in material usage would be achieved under mass production, the Directors believe that there would be a growth in revenue contribution from the iMP product range as well as an improvement in profit margin attributable to the iMP product range, and we concur with the Directors’ view in this regard. We consider that, based on the Group’s strategy to increasingly focus on the manufacturing operations (in particular the promotion and expansion of the iMP product range as referred to above), it would be reasonable for the Group to raise funds through the Rights Issue given that it would make available to the Group additional financial resources to strengthen the Company’s equity base and to facilitate the Group’s further business development. We consider that the Group’s continued promotion and expansion of the iMP product range is able to generate commercial and economic benefits to the Group through an expansion in the geographical market coverage of the Group’s iMP products, such as advanced discmans which are capable of playing audio CDs and compressed music recorded on CD-R and CD-RW that offer higher profit margins and which, in our view, would be in the interests of the Group and the Shareholders as a whole.

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2. Reason for the Rights Issue and use of proceeds

As referred to in the letter from the Board as set out on pages 8 to 25 of the Circular, the net proceeds of the Rights Issue, after deduction of costs and expenses, are estimated to amount to approximately HK$29 million which will be applied for the purposes of funding the Group’s general working capital for the manufacturing and design of electronic products. In this regard, we have referred to the Company’s interim report for the six months ended 30th September, 2001 from which we noted that as at 30th September, 2001, (i) the Company had aggregate cash balances of only approximately HK$8.5 million; and (ii) the Group had aggregate import and trust receipt loans (essentially working capital finance) of approximately HK$198 million whilst the Company’s unaudited consolidated net assets amounted to approximately HK$188.6 million as at 30th September, 2001. We were informed by the Directors that the Company is implementing an active and strategic expansion into the business of design and manufacturing of iMP products, since its launch in November 2000. In this respect, the Group requires further working capital for the aforesaid planned expansion which is necessary to finance, inter alia, the research and development of the Group’s iMP products. The Directors are of the view that iMP is a fast-changing product type and its design and technical standards are subject to rapid changes. Continued research and development is essential for the Group to keep up with the latest design trends and standards, particularly in view of the planned development of the iMP business under the Group’s brandname. Furthermore, the Directors consider that the Group will need further working capital to build up its production, distribution and marketing capability for its iMP products to fuel expansion. The Directors expect that the net proceeds from the Rights Issue will be applied by the Group as to (i) about HK$27 million for the Group’s working capital, to be utilized as to about HK$12 million to finance the increased inventory and production costs as the Group rolls out its iMP products, about HK$11 million to finance the additional trade credit extended to the iMP customers as the Group’s sales would increase, about HK$3 million to finance the Group’s research and development and about HK$1 million to finance the Group’s marketing and distribution; and (ii) about HK$2 million for the capital expenditure of the Group’s iMP business.

We consider that it would justify the Company to raise proceeds from the Rights Issue for the purpose of an active and strategic expansion into the iMP business, in view of the fact that a substantial part of the Group’s working capital was tied up in accounts receivables and inventory (whose aggregate balances exceeded HK$350 million as at 30th September, 2001) and that the Group maintained a high level of import and trust receipt loans of approximately HK$198 million as at 30th September, 2001. Therefore, we consider that it is prudent for the Group to raise proceeds from the Rights Issue so that sufficient funding could be earmarked for the ongoing and future working capital requirements of the Group’s iMP business.

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LETTER FROM CHATERON

In the light of the above, we consider that it is reasonable for the Group to raise funding from the Rights Issue, particularly in view of (i) the Group’s limited cash reserves and its high level of import and trust receipt loans (which are essentially the Group’s working capital finance) as at 30th September, 2001 as referred to above; and (ii) the presently uncertain stock market sentiment and conditions where it would be advisable for the Group to raise funding at the first available opportunity in which case B.K.S. has agreed to underwrite the Rights Issue.

Therefore, based on our foregoing discussions, we concur with the Directors’ view that the Group’s presently available financial resources may not afford the Group to be able to expand actively and strategically into the manufacturing business, particularly the iMP product range (as discussed and referred to in the paragraph headed “Business review and future prospects of the Group” above), and that it would not be financially prudent for the Group to seek external bank financings for such purpose given that banks have generally adopted a more prudent attitude in making loan decisions to commercial enterprises. Furthermore, we consider that it would also be favourable to the Company and the Shareholders for the Group to be able to derive interest-free funding, at the expense of increasing its borrowings which shall be interestbearing. Therefore, we consider that funding the Group’s general working capital requirements of the manufacturing and design of electronic products by way of the Rights Issue to be appropriate in the circumstances.

3. Underwriting arrangements of the Rights Issue

As referred to in the letter from the Board as set out on pages 8 to 25 of the Circular, the Rights Shares which are required to be underwritten (the “ Underwritten Rights Shares ”) comprise such number which is not less than 79,344,706 Rights Shares (subject to the exercise of any or all of the Share Options by the holders thereof on or before the Record Date). Such number of Underwritten Rights Shares represent approximately 67.15% of the total number of Rights Shares to be issued under the Rights Issue, and have been fully underwritten by the Underwriter, B.K.S., pursuant to its obligations under the Underwriting Agreement. Such Underwritten Rights Shares represent the remaining balance of the Rights Shares, other than an aggregate of 38,816,100 Rights Shares which will be allotted to and which were irrevocably undertaken to be subscribed for by B.K.S. or by subscribers to be procured by it, under the Rights Issue and which represents the provisional entitlement of B.K.S. under the Rights Issue.

We consider that the entering into by B.K.S. of the Underwriting Agreement in respect of its underwriting of the Underwritten Rights Shares demonstrates a gesture of support by B.K.S. (as the Company’s single largest shareholder) to the Company which would enable the Rights Issue to be proceeded with, and thereby in making available additional financial resources for the Group’s general working capital for the manufacturing and design of electronic products which accomplishes the Group’s business growth and development plans as referred to in the paragraph headed “Business review and future prospects of the Group” above, particularly under the prevailing weak and unstable stock market conditions and sentiment where it is often

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LETTER FROM CHATERON

difficult for issuers to procure commercial underwriting interests (as we have further discussed in the section headed “The Whitewash Waiver” below). Therefore, subject to the fulfillment of the conditions of the Underwriting Agreement, we consider that the underwriting arrangements for the Rights Issue are in the interests of the Company and the Shareholders (including the interests of the Independent Shareholders) as a whole.

THE WHITEWASH WAIVER

Principal factors and reasons considered

In arriving at our recommendation in relation to the Whitewash Waiver, we have considered the following principal factors and reasons:–

1. Reasons for obtaining the Whitewash Waiver by B.K.S. and its concert parties

As referred to in the letter from the Board as set out on pages 8 to 25 of the Circular, B.K.S. and its concert parties were in aggregate beneficially interested in 77,632,200 Shares, representing approximately 32.85% of the issued share capital of the Company as at the Latest Practicable Date. In the event that, pursuant to the Underwriting Agreement, B.K.S. and its concert parties were required to take up an aggregate of not less than 79,344,706 Rights Shares in full, then B.K.S. and its concert parties would be beneficially interested in an aggregate of (i) 195,793,006 Shares after the completion of the Rights Issue, representing approximately 55.23% of the resultant issued share capital of the Company as enlarged by the Rights Issue (assuming that no Share Options shall be exercised on or before the Record Date); and (ii) 202,643,006 Shares after the completion of the Rights Issue, representing approximately 54.03% of the resultant issued share capital of the Company as enlarged by the Rights Issue (assuming that all the Share Options shall be exercised on or before the Record Date). Therefore, in either of scenarios (i) or (ii) above where B.K.S. and its concert parties would have a resultant aggregate beneficial interest of exceeding 50% in the enlarged issued share capital of the Company after the Rights Issue, B.K.S. and its concert parties may increase their shareholdings in the Company without incurring any general offer obligation for the remaining Shares not already owned or agreed to be acquired by them under Rule 26 of the Takeovers Code. Accordingly, B.K.S. has made an application to the Executive for the grant of the Whitewash Waiver pursuant to Note 1 to the Notes on dispensation from Rule 26 of the Takeovers Code which, if granted by the Executive, will be subject to (inter alia) the approval of the Independent Shareholders by way of a poll at the EGM. Furthermore, as referred to in the letter from the Board as set out on pages 8 to 25 of the Circular, the Rights Issue is also conditional upon, inter alia, the Whitewash Waiver being approved by the Independent Shareholders by way of a poll at the EGM and being granted by the Executive.

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LETTER FROM CHATERON

In this regard, we consider that if the Whitewash Waiver is not approved by the Independent Shareholders at the EGM and therefore is not granted by the Executive to B.K.S. and its concert parties, then the completion of the Rights Issue would not be proceeded with as a result of which we consider that the Group would not be able to derive additional financial resources for the purpose of funding its general working capital for the manufacturing and design of electronic products, particularly in the promotion and expansion of the iMP product range and to reap the commercial and economic benefits to be derived therefrom, as we have discussed and referred to in the section headed “Overview of the Rights Issue” above.

We also consider that, in order for the Rights Issue to be proceeded with, it would be important for B.K.S. (being the single largest shareholder having a beneficial interest of approximately 32.85% in the Company as at the Latest Practicable Date) to be able to demonstrate its support and commitment towards the Group, by way of (i) giving its irrevocable undertaking to the Company to subscribe or procure subscriptions for its provisional entitlement in full under the Rights Issue which amounts to 38,816,100 Rights Shares; and (ii) entering into the Underwriting Agreement which enables the Rights Issue to be proceeded with under the prevailing weak and unstable stock market conditions and sentiment, where it is often difficult to procure underwriting interests from commercial underwriters. In this regard, we have made reference to an aggregate of 19 rights issues and open offers that were announced by listed companies on the Stock Exchange since 1st January, 2002 up to and including the Latest Practicable Date, whose issue sizes ranged between HK$28 million and HK$388 million (with an average issue size of approximately HK$124 million) as follows:–

			Size of
			rights issue/
			open offer
Date	Name of issuer	Type	(HK$’million)	Underwriter
2002
4th January	Easyknit International	Rights issue	88	Commercial
	Holdings Limited			underwriters
8th January	Kwong Hing International	Rights issue	77	Commercial
	Holdings (Bermuda)			underwriter
	Limited
16th January	Wang On Group Limited	Rights issue	197	Commercial
				underwriters
				and a
				shareholder

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LETTER FROM CHATERON

			Size of
			rights issue/
			open offer
Date	Name of issuer	Type	(HK$’million)	Underwriter
2002
17th January	Digital World Holdings	Rights issue	109	Commercial
	Limited			underwriters
				and major
				shareholder
21st January	Winfoong International	Open offer	146	Controlling
	Limited			shareholder
24th January	Bossini International	Rights issue	63	Controlling
	Holdings Limited			shareholder
1st February	Wo Kee Hong (Holdings)	Rights issue	47	Commercial
	Limited			underwriter
5th February	Shimao China Holdings	Rights issue	214	Controlling
	Limited			shareholder
20th February	New World Cyberbase	Rights issue	97	Commercial
	Limited			underwriter
				and major
				shareholder
26th February	China Investments	Rights issue	28	Major
	Holdings Limited			shareholder
27th February	Applied (China) Limited	Rights issue	42	A shareholder
14th March	China Strategic Holdings	Rights issue	138	Major
	Limited			shareholders
20th March	China Star Entertainment	Rights issue	53	Commercial
	Limited			underwriter
21st March	Shun Tak Holdings	Rights issue	388	Commercial
	Limited			underwriters

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LETTER FROM CHATERON

			Size of
			rights issue/
			open offer
Date	Name of issuer	Type	(HK$’million)	Underwriter
2002
28th March	Vision Century	Rights issue	350	Controlling
	Corporation Limited			shareholder
28th March	Playmates Interactive	Rights issue	52	Commercial
	Entertainment Limited			underwriter
2nd April	HiNet Holdings Limited	Open offer	112	Commercial
				underwriters
				and major
				shareholder
3rd April	Can Do Holdings Limited	Open offer	44	Major
				shareholder
10th April	B-Tech (Holdings) Limited	Rights issue	103	Commercial
				underwriter

Out of the above population of reference samples, we noted that a total of 12 rights issues and open offers were underwritten by the controlling shareholder/major shareholder/a shareholder of the issuer concerned (which represents over 60% in number of the population of 19 rights issues/open offers under study). In other words, we consider that it has recently become a common feature that rights issues and/or open offers are often underwritten by the controlling shareholders/major shareholders of the issuers concerned, which we believe demonstrates the fact that the prevailing weak and unstable stock market conditions and sentiment have made it difficult for issuers to procure commercial underwriting interests.

2. Effect of the Whitewash Waiver

We noted that the actual resultant beneficial interests of B.K.S. and its concert parties in the Company would depend on, inter alia, the ultimate level of subscription for the Rights Shares by the Independent Shareholders upon the completion of the Rights Issue. This means that, upon the completion of the Rights Issue:–

• (i) in the event the level of subscription by the Independent Shareholders is 100%, then B.K.S. and its concert parties would retain their aggregate beneficial shareholding of approximately 32.85% in the Company assuming that no Share Options shall be exercised in full on or before the Record Date;

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LETTER FROM CHATERON

• (ii) in the event the level of subscription by the Independent Shareholders is 100% and assuming that all the Share Options shall be exercised on or before the Record Date, then B.K.S. and its concert parties would have a resultant aggregate beneficial shareholding of approximately 31.05% in the Company;

• (iii) in the event the level of subscription by the Independent Shareholders is 0% and assuming that no Share Options shall be exercised on or before the Record Date, then B.K.S. and its concert parties would have a resultant aggregate beneficial shareholding of approximately 55.23% in the Company; and

• (iv) in the event the level of subscription by the Independent Shareholders is 0% and assuming that all the Share Options shall be exercised on or before the Record Date, then B.K.S. and its concert parties would have a resultant aggregate beneficial shareholding of approximately 54.03% in the Company.

In this regard, we wish to emphasize that under scenarios (iii) and (iv) above where B.K.S. and its concert parties would have a resultant aggregate beneficial shareholding of exceeding 50% in the Company after the completion of the Rights Issue, and upon the obtaining by B.K.S. and its concert parties of the Whitewash Waiver from the Executive, B.K.S. and its concert parties would be exempted under the Whitewash Waiver from their obligation to make a general offer under Rule 26 of the Takeovers Code.

In such circumstances, the Independent Shareholders would forego the benefit of a possible general offer which might otherwise be extended to them had the Whitewash Waiver not been obtained by B.K.S. and its concert parties from the Executive. In this regard, we have taken into account our recommendation on the merits of the Rights Issue and its benefits to the Group as a whole as referred to in the section headed “Overview of the Rights Issue” above, as well as the fact that the Rights Issue is conditional upon, inter alia, the approval by the Independent Shareholders of the Whitewash Waiver by way of a poll at the EGM and the grant of the Whitewash Waiver by the Executive to B.K.S. and its concert parties. Based on our evaluation of the merits of the Rights Issue as referred to in the section headed “Overview of the Rights Issue” above, we are of the view that the Rights Issue is in the interests of the Company and the Shareholders (which includes the interests of the Independent Shareholders) as a whole. Therefore, we are also of the view that it would be in the interests of the Independent Shareholders to approve the Whitewash Waiver by way of a poll at the EGM, notwithstanding that the Independent Shareholders would forego the opportunity of a general offer which might otherwise be extended to them.

– 41 –

LETTER FROM CHATERON

RECOMMENDATION

Having taken into account (i) our review of the merits of the Rights Issue; and (ii) the principal factors and reasons considered by us in relation to our evaluation of the Whitewash Waiver as referred to above, we consider that it would be fair and reasonable and in the interests of the Independent Shareholders to approve the Whitewash Waiver by way of a poll at the EGM so that, as a result, the Whitewash Waiver may be granted by the Executive to B.K.S. and its concert parties in order to enable the Rights Issue to be proceeded with and be completed. Therefore, we would advise the Independent Shareholders to vote in favour of the resolution to be proposed at the EGM to consider and, if thought fit, approve the Whitewash Waiver.

Yours faithfully,

For and on behalf of

Chateron Corporate Finance Limited Christopher Wong Director

– 42 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1A. SHARE CAPITAL

The authorised and issued share capital of the Company as at the Latest Practicable Date were and following completion of the Rights Issue (assuming the Rights Issue becoming unconditional) will be as follows:

No. of Shares Authorised: 800,000,000 Shares as at the Latest Practicable Date Issued and fully paid and to be issued: 236,321,613 Shares as at the Latest Practicable Date 118,160,806 Rights Shares to be issued assuming that none of the Share Options were exercised 354,482,419	Nominal value HK$ 80,000,000
	23,632,161 11,816,080
	35,448,241

All Shares in issue rank pari passu in all respects with each other, including in particular as to dividends, voting rights and capital. The Rights Shares, when fully-paid, will rank pari passu in all respects with the then existing Shares in issue, including as to the right to receive all future dividends and other distributions which may be declared, made or paid in respect of a record date which falls after the date of issue of the Rights Shares.

The Shares are listed on the Stock Exchange and none of the securities of the Company are listed or dealt in on any other stock exchange and no such listing or permission to deal is being or is proposed to be sought.

Save as disclosed in this circular in respect of (i) the Rights Issue set out in the letter from the Board in this circular; and (ii) the employee Share Options set out in this appendix, no share or loan capital of the Company has been issued or is proposed to be issued for cash or otherwise and no commissions, discounts, brokerages or other special terms have been granted in connection with the issue or sale of any such capital since 31st March, 2001 (the date to which the latest audited consolidated financial statements of the Company were made up). The Company had no debt securities in issue as at the Latest Practicable Date.

– 43 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1B. SHARE OPTION SCHEME

On 1st April, 1996, the Company approved a share option scheme under which the Board may, at their discretion, invite any full-time employees and/or executive Directors of the Group to take up options to subscribe for shares of the Company at any time during the 10 yeas from the date of approval of the share option scheme. The maximum number of Shares in respect of which options can be granted may not exceed 10% of the issued share capital of the Company excluding any Shares issued on the exercise of the Share Options from time to time.

As at the Latest Practicable Date, the number of outstanding Share Options under the Existing Share Option Scheme was 13,700,000.

Subject to the Rights Issue becoming unconditional and in accordance with the provisions of the Existing Share Option Scheme of the Company, the maximum number of Shares to be issued pursuant to exercise of the outstanding Share Options and the exercise price of the Share Options should be adjusted as detailed below:

			Adjusted
		Number of Shares	number of Shares		Adjusted
		subject to outstanding	subject to outstanding	Exercise price	Exercise price
		Share Options before	Share Options after	per Share before	per Share after
Exercisable period	Date of grant	Rights Issue	Rights Issue	Rights Issue	Rights Issue
				HK$	HK$
28th June, 2000 –
27th June, 2003	28th December, 1999	5,500,000	8,250,000	1.08	0.72
20th April, 2001 –
19th April, 2003	20th October, 2000	3,500,000	5,250,000	0.47	0.31
2nd May, 2002 –
1st May, 2005	2nd November, 2001	4,700,000	7,050,000	0.265	0.18

The above adjustments to the number of Shares subject to outstanding Share Options and to the exercise price of the Share Options have been confirmed by Ernst & Young, the auditors of the Company, as properly adjusted in accordance with the terms and conditions as set out in the Existing Share Option Scheme of the Company.

Save as disclosed above, the Company did not have any other options, warrants and other convertible securities outstanding as at the Latest Practicable Date.

– 44 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2. THREE YEARS FINANCIAL RESULTS

Set out below is a summary of the audited consolidated profit and loss accounts for each of the three years ended 31st March, 2001, and the consolidated statement of recognised gains and losses for each of the two years ended 31st March, 2001, the consolidated balance sheet as at 31st March, 2000 and 2001 and the consolidated cash flow statements for each of the two years ended 31st March, 2001 of the Group together with the relevant notes as extracted from the audited financial statements of the Company for each of the two years ended 31st March, 2000 and 2001.

CONSOLIDATED PROFIT AND LOSS ACCOUNT

Year ended 31st March, 2001

Notes TURNOVER 3 Cost of sales Gross profit Other revenue Selling and distribution costs Administrative expenses Other operating expenses PROFIT FROM OPERATING ACTIVITIES 5 Finance costs 6 Share of profits less losses of associates PROFIT BEFORE TAX Tax 9 NET PROFIT FROM ORDINARY ACTIVITIES ATTRIBUTABLE TO SHAREHOLDERS 10, 28 DIVIDEND 11 EARNINGS PER SHARE 12 Basic Diluted	2001 HK$’000 1,100,080 (1,002,665) 97,415 2,297 (19,472) (36,432) (11,644) 32,164 (16,269) 5,267 21,162 (5,035) 16,127 – 7.0 cents 7.0 cents	2000 HK$’000 957,597 (877,143) 80,454 9,775 (10,712) (33,689) (8,768) 37,060 (11,967) – 25,093 (2,753) 22,340 – 11.4 cents 11.3 cents	1999 HK$’000 1,051,470 (978,563) 72,907 5,981 (9,477) (37,776) (9,260) 22,375 (12,796) – 9,579 (1,497) 8,082 – 4.4 cents N/A

– 45 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED STATEMENT OF RECOGNISED GAINS AND LOSSES

Year ended 31st March, 2001

Note Exchange differences on translation of the financial statements of a foreign subsidiary and associates and loss not recognised in the profit and loss account 28 Net profit from ordinary activities attributable to shareholders 28 Total recognised gains and losses Goodwill eliminated against reserves on acquisition of interests in associates 28	2001 HK$’000 (2,874) 16,127 13,253 (49,481) (36,228)	2000 HK$’000 (604) 22,340 21,736 – 21,736

– 46 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED BALANCE SHEET

31st March, 2001

Notes NON-CURRENT ASSETS Fixed assets 13 Interests in associates 15 Long term receivable 16 Other assets 17 CURRENT ASSETS Short term investments 18 Inventories 19 Accounts receivable 20 Prepayments, deposits and other receivables Cash and cash equivalents 21 CURRENT LIABILITIES Accounts payable and accrued expenses 22 Import and trust receipt loans 23 Tax payable Current portion of finance lease payables 24 Interest-bearing bank loans and overdrafts 23 NET CURRENT ASSETS TOTAL ASSETS LESS CURRENT LIABILITIES NON-CURRENT LIABILITIES Finance lease payables 24 Other long term payable 25 Deferred tax 26 CAPITAL AND RESERVES Issued capital 27 Reserves 28	2001 HK$’000 79,140 44,788 2,347 2,472 128,747 1,406 186,704 144,895 14,947 23,809 371,761 63,990 231,470 3,294 2,380 8,286 309,420 62,341 191,088 (5,347) (521) (392) 184,828 23,632 161,196 184,828	2000 HK$’000 60,687 – 4,387 1,668 66,742 – 109,968 154,536 22,279 16,403 303,186 66,836 120,101 2,456 192 885 190,470 112,716 179,458 (1,044) (571) (395) 177,448 20,400 157,048 177,448

– 47 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

CONSOLIDATED CASH FLOW STATEMENT

Year ended 31st March, 2001

Note NET CASH OUTFLOW FROM OPERATING ACTIVITIES 29(a) RETURNS ON INVESTMENTS AND SERVICING OF FINANCE Interest received Interest paid Interest element of finance lease rental payments Net cash outflow from returns on investments and servicing of finance TAX Hong Kong profits tax paid Overseas tax paid Taxes paid INVESTING ACTIVITIES Purchases of fixed assets Purchases of other assets Acquisitions of interests in associates Acquisitions of short term investments Loan to an associate Advance to an associate Proceeds from disposal of fixed assets Proceeds from disposal of a property Net cash outflow from investing activities NET CASH OUTFLOW BEFORE FINANCING ACTIVITIES	2001 HK$’000 (5,089) 1,505 (16,010) (259) (14,764) (2,730) (836) (3,566) (17,627) (804) (50,357) (1,406) (15,000) (15,766) 588 – (100,372) (123,791)	2000 HK$’000 (18,309) 516 (11,892) (75) (11,451) (1,285) (788) (2,073) (14,793) – – – – – 388 14,332 (73) (31,906)

– 48 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Note FINANCING ACTIVITIES 29(b) Issue of shares Exercise of share options Share repurchase expenses Repayment of bank loans Capital element of finance lease rental payments Net cash inflow from financing activities INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS Cash and cash equivalents at beginning of year Exchange realignments, net CASH AND CASH EQUIVALENTS AT END OF YEAR ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS Cash and bank balances Time deposits Bank overdrafts Import and trust receipt loans maturing within three months from the date of advance Revolving bank loans under trade facilities	2001 HK$’000 31,896 – (1,234) (313) (4,215) 26,134 (97,657) (82,089) 614 (179,132) 23,809 – – (194,655) (8,286) (179,132)	2000 HK$’000 41,458 3,650 – (1,856) – 43,252 11,346 (93,534) 99 (82,089) 12,195 4,208 (572) (97,920) – (82,089)

– 49 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

BALANCE SHEET

31st March, 2001

Notes NON-CURRENT ASSETS Interests in subsidiaries 14 Interests in associates 15 CURRENT ASSETS Tax recoverable Dividend receivable Prepayments, deposits and other receivables Cash and bank balances CURRENT LIABILITIES Accounts payable and accrued expenses 22 NET CURRENT ASSETS/(LIABILITIES) CAPITAL AND RESERVES Issued capital 27 Reserves 28	2001 HK$’000 148,884 33,589 182,473 17 – 109 53 179 380 (201) 182,272 23,632 158,640 182,272	2000 HK$’000 145,533 –
		145,533
		17 3,500 108 54
		3,679
		330
		3,349
		148,882
		20,400 128,482
		148,882

– 50 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

NOTES TO FINANCIAL STATEMENTS

31st March, 2001

1. CORPORATE INFORMATION

During the year, the Group was involved in the following principal activities:

• Marketing and distribution of electronic components

• Design, manufacture and original equipment manufacture of electronic products and Internet appliances

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of preparation

These financial statements have been prepared in accordance with Hong Kong Statements of Standard Accounting Practice, accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance. They have been prepared under the historical cost convention, except for the remeasurement of certain equity investments, as further explained below.

Basis of consolidation

The consolidated financial statements include the financial statements of the Company and its subsidiaries for the year ended 31st March, 2001. The results of subsidiaries acquired or disposed of during the year are consolidated from or to their effective dates of acquisition or disposal, respectively. All significant intercompany transactions and balances within the Group are eliminated on consolidation.

Subsidiaries

A subsidiary is a company in which the Company, directly or indirectly, controls more than half of its voting power or issued share capital or controls the composition of its board of directors.

Interests in subsidiaries are stated in the Company’s balance sheet at cost unless, in the opinion of the directors, there have been permanent diminutions in values, when they are written down to values determined by the directors.

Associates

An associate is a company, not being a subsidiary, in which the Group has a long term interest of generally not less than 20% of the equity voting rights and over which it is in a position to exercise significant influence.

The Group’s share of the post-acquisition results and reserves of associates is included in the consolidated profit and loss account and consolidated reserves, respectively. The Group’s interests in associates are stated in the consolidated balance sheet at the Group’s share of net assets under the equity method of accounting.

– 51 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The results of associates are included in the Company’s profit and loss account to the extent of dividends received and receivable. The Company’s interests in associates are stated at cost less any provisions for impairment in values, other than those considered to be temporary in nature, deemed necessary by the directors.

Goodwill

Goodwill arising on the consolidation of subsidiaries and on the acquisition of associates represents the excess purchase consideration paid over the fair values ascribed to the net underlying assets acquired and is eliminated against reserves in the year of acquisition. Upon the disposal of interests in subsidiaries or associates, the relevant portion of attributable goodwill previously eliminated against reserves is written back and included in the calculation of the gain or loss on disposal.

Fixed assets and depreciation

Fixed assets are stated at cost less accumulated depreciation.

The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditure incurred after fixed assets have been put into operation, such as repairs and maintenance and overhaul costs, is normally charged to the profit and loss account in the period in which it is incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of an asset, the expenditure is capitalised as an additional cost of that asset.

Depreciation is calculated on the straight-line basis to write off the cost of each asset over its estimated useful life. The principal annual rates used for this purpose are as follows:

Leasehold land	Over the remaining lease terms
Buildings	2%
Leasehold improvements	20% – 331/3%
Furniture, fittings and office equipment	20% – 331/3%
Plant, machinery and tools	20% – 50%
Motor vehicles	20%

Freehold land is not depreciated.

The gain or loss on disposal or retirement of a fixed asset recognised in the profit and loss account is the difference between the net sales proceeds and the carrying value of the relevant asset.

Other assets

Other assets held on a long term basis are stated at cost unless, in the opinion of the directors, there have been impairments in values which are considered to be other than temporary in nature, when they are written down to values determined by the directors, on an individual asset basis.

– 52 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Leased assets

Leases that transfer substantially all the rewards and risks of ownership of assets to the Group, other than legal title, are accounted for as finance leases. At the inception of a finance lease, the cost of the leased asset is capitalised at the present value of the minimum lease payments and recorded together with the obligation, excluding the interest element, to reflect the purchase and financing. Assets held under capitalised finance leases are included in fixed assets and depreciated over the shorter of the lease terms and the estimated useful lives of the assets. The finance costs of such leases are charged to the profit and loss account so as to provide a constant periodic rate of charge over the lease terms.

Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Rentals applicable to such operating leases are charged to the profit and loss account on the straight-line basis over the lease terms.

Short term investments

Short term investments are investments in equity securities not held for an identified long term purpose and are stated at their fair values on the basis of their quoted market prices at the balance sheet date on an individual investment basis. The unrealised gains or losses arising from changes in the fair value of a security are credited or charged to the profit and loss account in the period in which they arise.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined using the weighted average method and, in the case of work in progress and finished goods, comprises direct materials, direct labour and an appropriate proportion of overheads. Allowance is made for any obsolete or slow-moving items. Net realisable value is based on estimated selling prices less further costs expected to be incurred to completion and disposal.

Deferred tax

Deferred tax is provided, using the liability method, on all significant timing differences to the extent it is probable that the liability will crystallise in the foreseeable future. A deferred tax asset is not recognised until its realisation is assured beyond reasonable doubt.

Foreign currencies

Foreign currency transactions are recorded at the applicable rates of exchange ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the applicable rates of exchange ruling at that date. Exchange differences are dealt with in the profit and loss account.

On consolidation, the financial statements of overseas subsidiaries and associates are translated into Hong Kong dollars at the applicable rates of exchange ruling at the balance sheet date. The resulting translation differences are included in the exchange fluctuation reserve.

– 53 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Revenue recognition

Revenue is recognised when it is probable that the economic benefits will flow to the Group and when the revenue can be measured reliably, on the following bases:

• (a) on the sale of goods, when the significant risks and rewards of ownership have been transferred to the buyer, provided that the Group maintains neither managerial involvement to the degree usually associated with ownership, nor effective control over the goods sold;

• (b) commission income, in the accounting period in which the services are provided; and

• (c) interest income, on a time proportion basis taking into account the principal outstanding and the effective interest rate applicable.

Related parties

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party, or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. Related parties may be individuals or corporate entities.

Retirement benefits scheme

The Group operates a defined contribution Mandatory Provident Fund retirement benefits scheme (the “Scheme”) under the Mandatory Provident Fund Schemes Ordinance, for those employees who are eligible to participate in the Scheme. The Scheme became effective from 1st December, 2000. Contributions are made based on a percentage of the employees’ salaries and are charged to the profit and loss account as they become payable in accordance with the rules of the Scheme. The assets of the Scheme are held separately from those of the Group in an independently administered fund. The Group’s employer mandatory contributions vest fully with the employees when contributed into the Scheme. The Group’s employer voluntary contributions are refundable to the Group when the employee leaves employment prior to the contributions vesting fully in accordance with the rules of the Scheme.

Prior to the Scheme being effective, the Group operated a defined contribution pension scheme for certain employees who were eligible to participate in the scheme. This scheme operated in a similar way to the Mandatory Provident Fund retirement benefits scheme, except that when an employee left the scheme prior to his/her interest in the employer contributions vesting fully, the ongoing contributions payable by the Group were reduced by the relevant amount of forfeited contributions. This scheme was terminated with effect from 1st December, 2000.

Cash equivalents

For the purpose of the consolidated cash flow statement, cash equivalents represent short term highly liquid investments which are readily convertible into known amounts of cash and which were within three months of maturity when acquired, less advances from banks repayable within three months from the date of the advance. For the purpose of balance sheet classification, cash equivalents represent assets similar in nature to cash, which are not restricted as to use.

– 54 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

3. TURNOVER

Turnover comprises the net invoiced value of goods sold, net of returns and discounts and after the elimination of intra-group transactions, and commissions received on distribution. Revenue from the following activities has been included in turnover:

Marketing and distribution Design, manufacture and original equipment manufacture	2001 HK$’000 941,086 158,994 1,100,080	Group 2000 HK$’000 808,676 148,921 957,597	1999 HK$’000 959,009 92,461
			1,051,470

4. RELATED PARTY TRANSACTIONS

In addition to the related party transactions and balances detailed elsewhere in the financial statements, the Group had the following transactions with related parties during the year:

Notes Interest income from an associate (a) Sales of finished goods to an associate (b) Purchases of raw materials from an associate (c) Sales of plastic materials and products to Inter-Cassette (Hong Kong) Limited (“ICHKL”) (d) Purchase of plastic materials and products from ICHKL (e) Interest income received from ICHKL in respect of a purchase and leaseback transaction (f)	2001 HK$’000 777 21,153 53,879 – – –	Group 2000 HK$’000 – – – – – –	1999 HK$’000 – – – 122 593 180

• (a) The interest income from an associate is charged at a rate of HIBOR plus 2.5% per annum on the loan advanced to the associate.

• (b) The directors consider that the sales were made according to the standard prices, terms and conditions similar to those offered to other customers of the Group.

• (c) The directors consider that the purchases were made according to the standard prices, terms and conditions similar to those offered to other customers of the associate.

– 55 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

• (d) ICHKL is a wholly-owned subsidiary of a former minority shareholder of a subsidiary of the Group. The directors consider that the sales were made according to the standard prices, terms and conditions offered to the major customers of the Group.

• (e) The directors consider that the purchases were made according to the standard prices, terms and conditions similar to those offered to other customers of ICHKL.

• (f) The interest income arose from a purchase and leaseback transaction in respect of certain fixed assets. Interest income in the prior year was charged at HK$15,000 per month in accordance with the lease agreement.

5. PROFIT FROM OPERATING ACTIVITIES

2001 HK$’000 Profit from operating activities is arrived at after charging: Depreciation: Owned fixed assets 8,596 Leased fixed assets 997 Operating lease rentals in respect of land and buildings 2,252 Auditors’ remuneration 941 Loss on deemed disposal of interest in an associate 1,310 Loss on disposal of partial interest in an associate 1,010 Staff costs (including directors’ remuneration – note 7): Wages and salaries 31,087 Pension contributions 1,130 Less: Forfeited contributions* (97) Net pension contributions 1,033 32,120 Loss on disposal of fixed assets – Exchange losses, net 1,991 and after crediting: Gain on disposal of fixed assets 524 Gain on disposal of a property – Interest income Bank deposits 1,505 Purchase and leaseback transaction –	Group 2000 HK$’000 7,061 430 2,384 880 – – 25,283 840 (105) 735 26,018 27 989 – 6,388 516 –	1999 HK$’000 5,323 322 1,863 737 – – 22,267 830 (130) 700 22,967 287 1,792 – – 220 180

• At 31st March, 2001, there were forfeited contributions of HK$79,000 (2000: Nil; 1999: Nil) available to the Group to reduce its employer’s voluntary contributions to the Mandatory Provident Fund retirement benefits scheme in future years.

– 56 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

6. FINANCE COSTS

Interest on bank loans and overdrafts wholly repayable within five years Interest on finance leases	2001 HK$’000 16,010 259 16,269	Group 2000 HK$’000 11,892 75 11,967	1999 HK$’000 12,715 81
			12,796

7. DIRECTORS’ REMUNERATION

Directors’ remuneration disclosed pursuant to the Listing Rules and Section 161 of the Hong Kong Companies Ordinance is as follows:

Fees Other emoluments: Basic salaries, housing, other allowances and benefits in kind Pension scheme contributions	2001 HK$’000 100 6,362 258 6,620 6,720	Group 2000 HK$’000 138 5,010 122 5,132 5,270	1999 HK$’000 130
			4,726 146
			4,872
			5,002

Fees of HK$100,000 (2000: HK$138,000; 1999: HK$130,000) are payable to the independent nonexecutive directors. There were no other emoluments payable to the independent non-executive directors for the year (2000: Nil; 1999: Nil).

– 57 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The remuneration of the directors fell within the following bands:

Nil – HK$1,000,000 HK$1,000,001 – HK$1,500,000 HK$1,500,001 – HK$2,000,000 HK$2,500,001 – HK$3,000,000 HK$3,000,001 – HK$3,500,000	2001 Number of directors 4 1 1 – 1 7	2000 Number of directors 5 – – – 1 6	1999 Number of directors 3 1 – 1 –
			5

There was no arrangement under which a director waived or agreed to waive any remuneration during the year.

No value is included in directors’ remuneration in respect of share options granted to a director during the year because, in the absence of a readily available market value for the options on the Company’s shares, the directors are unable to arrive at an accurate assessment of the value of the options granted.

8. FIVE HIGHEST PAID EMPLOYEES

The five highest paid employees during the year included three (2000: two; 1999: three) directors, details of whose remuneration are set out in note 7 above. The details of the remuneration of the remaining two (2000: three; 1999: two) non-director, highest paid employees are as follows:

Salaries and other benefits Pension scheme contributions	2001 HK$’000 2,312 95 2,407	Group 2000 HK$’000 2,387 49 2,436	1999 HK$’000 1,638 76
			1,714

The remuneration of the two (2000: three; 1999: two) non-director, highest paid employees fell within the following bands:

Nil – HK$1,000,000 HK$1,000,001 – HK$1,500,000	2001 Number of employees – 2	2000 Number of employees 3 –	1999 Number of employees 2 –

– 58 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

During the year, one of the non-director, highest paid employees was appointed as a director of the Company. The relevant portion of directors’ emoluments of that employee is included in note 7 above.

No value is included in the remuneration of the two (2000: three; 1999: two) non-director, highest paid employees in respect of share options granted to them during the year because, in the absence of a readily available market value for the options on the Company’s shares, the directors are unable to arrive at an accurate assessment of the value of the options granted.

9. TAX

Hong Kong profits tax has been provided at the rate of 16% (2000: 16%; 1999: 16%) on the estimated assessable profits arising in Hong Kong during the year. Taxes on profits assessable elsewhere have been calculated at the rates of tax prevailing in the countries in which the Group operates, based on existing laws, interpretations and practices in respect thereof.

Provision for tax in respect of profit for the year: Hong Kong Overseas Deferred Prior year overprovision Share of tax attributable to associates Tax charge for the year	2001 HK$’000 2,972 1,453 – – 610 5,035	Group 2000 HK$’000 2,339 702 94 (382) – 2,753	1999 HK$’000 1,003 826 – (332) – 1,497

10. NET PROFIT FROM ORDINARY ACTIVITIES ATTRIBUTABLE TO SHAREHOLDERS

The net profit from ordinary activities attributable to shareholders dealt with in the financial statements of the Company is HK$219,000 (2000: HK$370,000; 1999: HK$38,000).

11. DIVIDEND

No dividend was proposed or paid in respect of the years ended 31st March, 2001 and 1999.

In respect of the year ended 31st March, 2000, the directors recommended a bonus issue of new shares which were issued during the current year to the shareholders of the Company whose names appeared on the register of members of the Company on 22nd September, 2000, in the proportion of 1 new share for every 10 shares held by them. Based on the 212,856,012 ordinary shares in issue as at 22nd September, 2000, 21,285,601 new ordinary shares were issued. These new shares were issued as fully paid by capitalising the sum of approximately HK$2,128,000 standing to the credit of the share premium account of the Company and rank pari passu in all respects with all other issued shares of the Company.

– 59 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

12. EARNINGS PER SHARE

The calculation of basic earnings per share is based on the net profit from ordinary activities attributable to shareholders of HK$16,127,000 (2000: HK$22,340,000; 1999: 8,082,000) and the weighted average of 230,118,380 (2000: 195,286,199; 1999: 182,413,012) ordinary shares in issue during the year.

The calculation of diluted earnings per share is based on the net profit from ordinary activities attributable to shareholders of HK$16,127,000 (2000: HK$22,340,000). The weighted average number of ordinary shares used in the calculation is the weighted average of 230,118,380 (2000: 195,286,199) ordinary shares in issue during the year, as used in the basic earnings per share calculation, and the weighted average of 414,037 (2000: 2,432,544) ordinary shares assumed to have been issued at no consideration on the deemed exercise of certain share options during the year.

The diluted earnings per share for the year ended 31st March, 1999 has not been shown as both the outstanding warrants and options during the year ended 31st March, 1999 had an anti-dilutive effect on the basic earnings per share for that year.

The comparative amounts of the basic and diluted earnings per share have been adjusted for the effect of the one for ten bonus issue during the year ended 31st March, 2001.

– 60 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

13. FIXED ASSETS

Group

Group
Land and buildings (Hong Kong) HK$’000 At cost: At beginning of year 20,970 Additions – Disposals – Exchange realignments – At 31st March, 2001 20,970 Accumulated depreciation: At beginning of year 2,198 Provided during the year 419 Disposals – Exchange realignments – At 31st March, 2001 2,617 Net book value: At 31st March, 2001 18,353 At 31st March, 2000 18,772	Land and buildings (Overseas) HK$’000 8,698 – – (235) 8,463 1,074 246 – (27) 1,293 7,170 7,624	Leasehold improve- ments HK$’000 9,596 7,214 – – 16,810 2,823 2,371 – – 5,194 11,616 6,773	Furniture, fittings and office equipment HK$’000 13,021 1,361 (585) (74) 13,723 10,734 981 (546) (67) 11,102 2,621 2,287	Plant, machinery and tools HK$’000 32,999 15,980 (17) – 48,962 10,024 4,373 (3) – 14,394 34,568 22,975	Motor vehicles HK$’000 6,922 3,812 (3,415) (83) 7,236 4,666 1,203 (3,404) (41) 2,424 4,812 2,256	Total HK$’000 92,206 28,367 (4,017 (392
						116,164
						31,519 9,593 (3,953 (135
						37,024
						79,140
						60,687

The land and buildings at cost included above are held under the following lease terms:

Freehold Medium term leases	Hong Kong HK$’000 – 20,970 20,970	Overseas HK$’000 8,463 – 8,463	Total HK$’000 8,463 20,970
			29,433

Certain land and buildings held by Group companies were pledged to banks to secure certain bank borrowings and banking facilities granted to the Group (note 23).

The net book value of assets held under finance leases included in the total amount of fixed assets as at 31st March, 2001 amounted to HK$11,236,000 (2000: HK$1,546,000). The depreciation charge for the year in respect of such assets amounted to HK$997,000 (2000: HK$430,000).

– 61 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

14. INTERESTS IN SUBSIDIARIES

Unlisted shares, at cost Due from subsidiaries Due to subsidiaries	Company 2001 2000 HK$’000 HK$’000 55,015 55,015 109,545 106,194 (15,676) (15,676) 148,884 145,533

The balances with subsidiaries are unsecured, interest-free and have no fixed terms of repayment.

Particulars of the Company’s subsidiaries are as follows:

		Nominal
		value of
	Place of	issued and	Class of	Equity interest
	incorporation/	fully paid	shares	attributable
Name	operations	share capital	held	to the Company		Principal
				Direct	Indirect	activities
AV Electronics	British Virgin	US$40,000	Ordinary	100%	–	Investment
Group Limited	Islands/					holding
	Hong Kong
AVT Holdings	British Virgin	US$1	Ordinary	100%	–	Investment
Limited	Islands/					holding
	Hong Kong
AV Cassette Limited	Hong Kong	HK$100	Ordinary	–	100%	Dormant
AV Chaseway	Hong Kong	HK$2,500,000	Ordinary	–	100%	Manufacture
Limited						and trading of
						electronic
						products and
						Internet
						appliances
AV Concept (China)	Hong Kong	HK$10,000	Ordinary	–	100%	Investment
Industrial Co.,						holding
Limited
AV Concept	British Virgin	US$2	Ordinary	–	100%	Dormant
Electronics	Islands/
Limited	Hong Kong

– 62 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

		Nominal
		value of
	Place of	issued and	Class of	Equity interest
	incorporation/	fully paid	shares	attributable
Name	operations	share capital	held	to the Company		Principal
				Direct	Indirect	activities
AV Concept Limited	Hong Kong	HK$2	Ordinary	–	100%	Trading of
		HK$1,000,000	Deferred	–	100%	electronic
						components
AVC Technology	Hong Kong	HK$2	Ordinary	–	100%	Trading of
Limited		HK$100,000	Deferred	–	100%	electronic
						products and
						Internet
						appliances
Bostex Electronics	Singapore	S$2,000,000	Ordinary	–	100%	Trading of
Pte Ltd						electronic
						components

15. INTERESTS IN ASSOCIATES

Unlisted shares, at cost Share of net assets Loan to an associate Due from an associate	Group 2001 2000 HK$’000 HK$’000 – – 14,022 – 15,000 – 15,766 – 44,788 –	Company 2001 2000 HK$’000 HK$’000 31,480 – – – – – 2,109 – 33,589 –	Company 2001 2000 HK$’000 HK$’000 31,480 – – – – – 2,109 – 33,589 –
			–

The loan to an associate is unsecured, bears interest at a rate of HIBOR plus 2.5% per annum and has no fixed terms of repayment.

The amount due from an associate is unsecured, interest-free and has no fixed terms of repayment.

– 63 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Particulars of the associates are as follows:

		Place of
		incorporation/	Equity	interest
	Business	registration and	attributable
Name	structure	operations	to the	Group	Principal
			2001	2000	activities
Guangzhou Thinker	Corporate **	People’s	35%	–	Provision of
E-Commerce Co., Ltd.		Republic			system
(“Thinker”)*		of China			integration and
					e-commerce
					related services
Reigncom Limited	Corporate	Republic	20%	–	Design and
(“Reigncom Korea”)*		of Korea			trading of
					electronic
					products

• Not audited by Ernst & Young Hong Kong or other Ernst & Young International member firms.

• ** This associate has no issued share capital and is formed under a joint venture contract.

Each of the above associates has a financial year end of 31st December. The consolidated financial statements have been adjusted for material transactions between the associates and the Company and its subsidiaries between 1st January and 31st March.

The interest in Thinker is held through a wholly-owned subsidiary. The shareholding in Reigncom Korea is held by the Company.

– 64 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Included in the Group’s share of the net assets of its associates is the share of net assets of Reigncom Korea which was acquired by the Company during the year and, in the opinion of the directors, is material in the context of the Group’s financial statements. Details of the net assets and the results of Reigncom Korea and its subsidiaries as at 31st March, 2001 and for the year then ended, are as follows:

Non-current assets Current assets Current liabilities Non-current liabilities Share of net assets attributable to the Group at 31st March, 2001 Turnover Profit before tax Profit before tax attributable to the Group for the year ended 31st March, 2001	2001 HK$’000 63,976 123,431 (76,670 (44,239
	66,498
	13,300
	134,013 19,403
	5,463

Reigncom Korea had no material contingent liabilities as at 31st March, 2001.

16. LONG TERM RECEIVABLE

Long term receivable	Group 2001 2000 HK$’000 HK$’000 2,347 4,387

The balance represents an amount due from Inter-Cassette (Hong Kong) Limited (“ICHKL”), a wholly-owned subsidiary of a former minority shareholder of a subsidiary of the Group. The balance is secured by certain fixed assets of ICHKL, is interest-free and is not repayable within one year.

17. OTHER ASSETS

Other assets, at cost	Group 2001 2000 HK$’000 HK$’000 2,472 1,668

In the opinion of the directors, there have been no impairments in the values of these assets.

– 65 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

18. SHORT TERM INVESTMENTS

Listed equity investments in Hong Kong, at market value INVENTORIES Raw materials Work in progress Finished goods	Group 2001 2000 HK$’000 HK$’000 1,406 – Group 2001 2000 HK$’000 HK$’000 24,330 17,425 6,620 144 155,754 92,399 186,704 109,968	Group 2001 2000 HK$’000 HK$’000 1,406 – Group 2001 2000 HK$’000 HK$’000 24,330 17,425 6,620 144 155,754 92,399 186,704 109,968
		109,968

19. INVENTORIES

The carrying amount of inventories included in the above that are carried at net realisable value is HK$25,474,000 (2000: HK$2,101,000).

20. ACCOUNTS RECEIVABLE

Trading terms with customers vary with the type of products supplied. Invoices are normally payable within 30 days of issuance, except for well-established customers, where the terms are extended to 60 days. On customer-specific and highly specialised items, deposits in advance or letters of credit may be required prior to the acceptance and delivery of the products. Each customer has a maximum credit limit. The Group seeks to maintain strict control over its outstanding receivables and has a credit control policy to minimise credit risk. A credit committee consisting of the senior management and the directors of the Group has been established to review and approve large customer credits.

The aged analysis of the accounts receivable as at 31st March, 2001 was as follows:

Accounts receivable: Current Overdue less than 30 days Overdue 31 – 60 days Overdue over 60 days	Group 2001 2000 HK$’000 HK$’000 76,253 70,353 36,641 28,033 10,450 17,936 21,551 38,214 144,895 154,536	Group 2001 2000 HK$’000 HK$’000 76,253 70,353 36,641 28,033 10,450 17,936 21,551 38,214 144,895 154,536
		154,536

The above aged analysis, stated net of provision for doubtful debts, was prepared based on the invoice due dates.

– 66 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

21. CASH AND CASH EQUIVALENTS

Cash and bank balances Time deposits	Group 2001 2000 HK$’000 HK$’000 23,809 12,195 – 4,208 23,809 16,403	Group 2001 2000 HK$’000 HK$’000 23,809 12,195 – 4,208 23,809 16,403
		16,403

22. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

The aged analysis of accounts payable as at 31st March, 2001 was as follows:

Trade creditors: Current Overdue less than 30 days Overdue 31 – 60 days Overdue over 60 days Accrued expenses	Group 2001 2000 HK$’000 HK$’000 38,934 33,305 13,798 16,635 2,067 4,754 2,464 3,733 57,263 58,427 6,727 8,409 63,990 66,836	Company 2001 2000 HK$’000 HK$’000 – – – – – – – – – – 380 330 380 330	Company 2001 2000 HK$’000 HK$’000 – – – – – – – – – – 380 330 380 330
			– 330
			330

The above aged analysis was prepared based on the invoice due dates.

23. INTEREST-BEARING BANK BORROWINGS

Amounts repayable within one year or on demand: Bank overdrafts Revolving bank loans under trade facilities Other bank loans Import and trust receipt loans Total bank borrowings	Group 2001 2000 HK$’000 HK$’000 – 572 8,286 – – 313 8,286 885 231,470 120,101 239,756 120,986	Group 2001 2000 HK$’000 HK$’000 – 572 8,286 – – 313 8,286 885 231,470 120,101 239,756 120,986
		885 120,101
		120,986

Certain of the above bank borrowings and of the Group’s banking facilities are secured by fixed charges over certain of the land and buildings held by the Group (note 13).

– 67 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

24. FINANCE LEASE PAYABLES

There were commitments under finance leases at the balance sheet date as follows:

Amounts payable: Within one year In the second year In the third to fifth years, inclusive After five years Total minimum finance lease payments Future finance charges Total net finance lease payables Portion classified as current liabilities Long term portion of finance lease payables	Group 2001 2000 HK$’000 HK$’000 2,851 252 2,851 255 2,719 756 322 203 8,743 1,466 (1,016) (230 7,727 1,236 (2,380) (192 5,347 1,044	Group 2001 2000 HK$’000 HK$’000 2,851 252 2,851 255 2,719 756 322 203 8,743 1,466 (1,016) (230 7,727 1,236 (2,380) (192 5,347 1,044
		1,466 (230
		1,236 (192
		1,044

25. OTHER LONG TERM PAYABLE

The other long term payable represents the long term portion of an amount payable for the acquisition of a sports and social club debenture.

26. DEFERRED TAX

At beginning of year Charge for the year Exchange realignments At end of year	Group 2001 2000 HK$’000 HK$’000 395 301 – 94 (3) – 392 395	Group 2001 2000 HK$’000 HK$’000 395 301 – 94 (3) – 392 395
		395

– 68 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The principal components of the Group’s provision for deferred tax and deferred tax liabilities/ (assets) not provided for/(recognised) are as follows:

Provided 2001 2000 HK$’000 HK$’000 Accelerated capital allowances 392 395 Tax losses available for future relief – – 392 395 27. SHARE CAPITAL Authorised: 800,000,000 ordinary shares of HK$0.10 each Issued and fully paid: 236,321,613 (2000: 203,996,012) ordinary shares of HK$0.10 each		Not provided 2001 2000 HK$’000 HK$’000 2,060 1,380 (3,861) (1,306) (1,801) 74 2001 2000 HK$’000 HK$’000 80,000 80,000 23,632 20,400

During the year ended 31st March, 2001, the following movements in share capital were recorded:

• (a) Pursuant to an agreement dated 29th February, 2000, the Company granted Reigncom Limited (“Reigncom HK”), a company incorporated in Hong Kong, a call option to subscribe for 8,860,000 ordinary shares of HK$0.10 each in the Company (the “Option Shares”). In the same agreement, Reigncom HK granted a put option to the Company whereby the Company may require Reigncom HK to subscribe for the Option Shares.

Both the call and the put options were exercisable for a period of one year commencing on 29th February, 2000 at a subscription price of HK$3.60 per share.

The call option was exercised by Reigncom HK during the year to subscribe for 8,860,000 shares of the Company. The share issue raised cash proceeds, before expenses, of HK$31,896,000.

• (b) Pursuant to an ordinary resolution passed in the Annual General Meeting held on 22nd September, 2000, the Company issued 21,285,601 bonus shares of HK$0.10 each to the shareholders of the Company in the proportion of 1 bonus share for every 10 shares held by the shareholders whose names appeared on the register of members of the Company on the same date. The bonus shares were issued as fully paid by capitalising the sum of approximately HK$2,128,000 standing to the credit of the share premium account of the Company.

– 69 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

• (c) On 8th December, 2000, by a private arrangement, the Company entered into an agreement (the “Repurchase Agreement”) with B2B International Ltd. (“B2B International”), to repurchase 3,820,000 shares in the Company (the “Repurchase Shares”) for a consideration of 17,200 shares in Reigncom Korea held by the Company (the “Reigncom Shares”). The Reigncom Shares represented 8.04% of the entire issued share capital of Reigncom Korea. B2B International is an indirect wholly-owned subsidiary of Reigncom Korea. The Reigncom Shares were acquired by the Company pursuant to a subscription agreement dated 29th February, 2000 and the Repurchase Shares were issued upon the exercise of the call option granted as detailed in (a) above. The arrangement has the effect of partially unwinding the Company’s previous subscription of shares in Reigncom Korea. Following the completion of the Repurchase Agreement on 13th March, 2001, the Repurchase Shares were cancelled and the issued share capital of the Company was reduced by the par value thereof.

The premium and the related expenses of HK$13,343,000 arising on the share repurchase transaction had been charged to the share premium account. An amount equivalent to the par value of the shares cancelled and the premium on the share repurchase had been transferred from the share premium account of the Company to the capital redemption reserve.

• (d) On 21st March, 2001, the Company issued 6,000,000 shares of HK$0.10 each to eCom International Limited (“eCom”), a company incorporated in the British Virgin Islands, at an ascribed issue price of HK$2.50 per share as part of the consideration for the acquisition of a 20% interest in Thinker.

During the year ended 31st March, 2000, the following movements in share capital were recorded:

• (e) Pursuant to a subscription agreement dated 25th November, 1999, 33,166,000 shares of HK$0.10 each were issued for cash at a subscription price of HK$1.25 per share. The share issue raised cash proceeds, before expenses, of HK$41,457,500.

• (f) The subscription rights attached to 5,000,000 share options were exercised at the subscription price of HK$0.73 per share, resulting in the issue of 5,000,000 shares of HK$0.10 each for a total cash consideration, before expenses, of HK$3,650,000.

• (g) Pursuant to an ordinary resolution passed on 29th March, 2000, the authorised share capital of the Company was increased from HK$40,000,000 to HK$80,000,000 by the creation of 400,000,000 additional shares of HK$0.10 each, ranking pari passu in all respects with the existing shares of the Company.

– 70 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

A summary of the transactions during the year and in the prior year with reference to the above movements of the Company’s ordinary share capital is as follows:

At 1st April, 1999 Issue of shares Exercise of share options At 31st March, 2000 and 1st April, 2000 Issue of shares Bonus issue of shares Repurchase and cancellation of shares At 31st March, 2001	Number of shares issued/ Par value (repurchased) HK$’000 16,583 165,830,012 3,317 33,166,000 500 5,000,000 20,400 203,996,012 1,486 14,860,000 2,128 21,285,601 (382) (3,820,000) 23,632 236,321,613

Share options

On 1st April, 1996, the Company approved a share option scheme (the “Scheme”) under which the directors may, at their discretion, grant options to executive directors of the Company and employees of the Group to subscribe for ordinary shares in the Company.

(i) Share options expiring on 27th June, 2003

At the beginning of the year, there were 10,499,600 outstanding share options granted to certain employees of the Group. During the year, one of such employees was appointed as a director of the Company. The options are exercisable during the period from 28th June, 2000 to 27th June, 2003 at a subscription price of HK$1.19 per share.

Pursuant to the one for ten bonus issue of the Company on 22nd September, 2000, the number of these share options granted was adjusted from 10,499,600 to 11,549,560 and the exercise price was adjusted from HK$1.19 per share to HK$1.08 per share.

None of these share options was exercised during the year.

The exercise in full of these share options would, under the present capital structure of the Company, result in the issue of 11,549,560 additional ordinary shares of HK$0.10 each.

– 71 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(ii) Share options expiring on 19th April, 2003

On 20th October, 2000, the Company granted 5,500,000 share options for nil consideration to certain employees of the Group. During the year, one of such employees was appointed as a director of the Company.

The options are exercisable during the period from 20th April, 2001 to 19th April, 2003 at a subscription price of HK$0.47 per share.

None of these share options was exercised during the year.

The exercise in full of these share options would, under the present capital structure of the Company, result in the issue of 5,500,000 additional ordinary shares of HK$0.10 each.

(iii) Share options which expired on 27th March, 2001

Pursuant to an option agreement dated 28th March, 2000, the Company granted eCom, a company incorporated in the British Virgin Islands, an option to subscribe for 15,000,000 ordinary shares of HK$0.10 each in the Company.

The share option was exercisable during the period from 28th March, 2000 to 27th March, 2001 at a subscription price of HK$2.50 per share.

The share option was not exercised and was lapsed on 27th March, 2001.

(iv) Share options which expired on 28th February, 2001

As described in note (a) above, Reigncom HK exercised the call option during the year to subscribe for 8,860,000 shares of the Company at a subscription price of HK$3.60 per share.

– 72 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

28. RESERVES

Group

Share premium account HK$’000 At 1st April, 1999 62,768 Issue of shares 38,141 Exercise of share options 3,150 Exchange realignments – Net profit for the year – At 31st March, 2000 and 1st April, 2000 104,059 Issue of shares 45,410 Bonus issue of shares (2,128) Repurchase and cancellation of shares (13,343) Transfer to capital redemption reserve (12,491) Goodwill on acquisitions of interests in associates (49,481) Deemed disposal of interest in an associate: Goodwill written back 1,909 Exchange fluctuation reserve released – Transfer to capital reserve – Disposal of partial interest in an associate: Goodwill written back 7,816 Reserves released – Exchange realignments – Net profit for the year – At 31st March, 2001 81,751	Capital reserve* HK$’000 – – – – – – – – – 12,491 – – – 1,632 – (468) – – 13,655	Exchange fluctuation reserve HK$’000 (5,462) – – (604) – (6,066) – – – – – – 140 – – 572 (2,874) – (8,228)	Retained profits HK$’000 36,715 – – – 22,340 59,055 – – – – – – – (1,632) – 468 – 16,127 74,018	Total HK$’000 94,021 38,141 3,150 (604) 22,340 157,048 45,410 (2,128) (13,343) – (49,481) 1,909 140 – 7,816 572 (2,874) 16,127 161,196

– 73 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Group

Group
Reserves retained by: Company and subsidiaries Associates At 31st March, 2001 Reserves retained by: Company and subsidiaries Associates At 31st March, 2000	Share premium account HK$’000 81,751 – 81,751 104,059 – 104,059	Capital reserve* HK$’000 12,491 1,164 13,655 – – –	Exchange fluctuation reserve HK$’000 (6,803) (1,425) (8,228) (6,066) – (6,066)	Retained profits HK$’000 72,686 1,332 74,018 59,055 – 59,055	Total HK$’000 160,125 1,071
					161,196
					157,048 –
					157,048

* Included in the balance of the capital reserve as at 31st March, 2001 is a capital redemption reserve balance amounting to approximately HK$12,491,000 (2000: Nil).

Company

At 1st April, 1999 Issue of shares Exercise of share options Net profit for the year At 31st March, 2000 and 1st April, 2000 Issue of shares Bonus issue of shares Repurchase and cancellation of shares Transfer to capital redemption reserve Net profit for the year At 31st March, 2001	Share premium account HK$’000 62,768 38,141 3,150 – 104,059 45,410 (2,128) (13,343) (12,491) – 121,507	Capital redemption reserve HK$’000 – – – – – – – – 12,491 – 12,491	Retained profits HK$’000 24,053 – – 370 24,423 – – – – 219 24,642	Total HK$’000 86,821 38,141 3,150 370
				128,482 45,410 (2,128) (13,343) – 219
				158,640

In accordance with the Companies Law (2001 Second Revision) of the Cayman Islands, the share premium account is distributable in certain circumstances.

– 74 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

29. NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT

• (a) Reconciliation of profit from operating activities to net cash outflow from operating activities:

Profit from operating activities Interest income Loss/(gain) on disposal of fixed assets Gain on disposal of a property Depreciation Loss on deemed disposal of interest in an associate Loss on disposal of partial interest in an associate Decrease in long term receivable Increase in inventories Decrease in accounts receivable Decrease/(increase) in prepayments, deposits and other receivables Decrease in accounts payable and accrued expenses Increase/(decrease) in import and trust receipt loans Decrease in other long term payable Net cash outflow from operating activities	2001 HK$’000 32,164 (1,505) (524) – 9,593 1,310 1,010 1,040 (77,182) 8,721 8,320 (2,635) 14,634 (35) (5,089)	2000 HK$’000 37,060 (516) 27 (6,388) 7,491 – – – (39,049) 33,697 (6,014) (21,424) (23,158) (35) (18,309)

(b) Analysis of changes in financing during the year

	Share capital	Bank loans
	(including share	and finance
	premium)	lease payables
	HK$’000	HK$’000
Balance at 1st April, 1999	79,351	3,399
Net cash inflow/(outflow) from financing	45,108	(1,856)
Inception of finance lease contracts	–	7
Exchange realignments	–	(1)
Balance at 31st March, 2000 and 1st April, 2000	124,459	1,549
Net cash inflow/(outflow) from financing	30,662	(4,528)
Repurchase and cancellation of shares	(12,491)	–
Transfer to capital redemption reserve	(12,491)	–
Issue of shares on acquisition of interest in an associate	15,000	–
Goodwill on acquisitions of interests in associates	(49,481)	–
Goodwill written back on deemed disposal of interest
in an associate	1,909	–
Goodwill written back on disposal of partial interest in
an associate	7,816	–
Inception of finance lease contracts	–	10,740
Exchange realignments	–	(34)
Balance at 31st March, 2001	105,383	7,727

– 75 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

• (c) Major non-cash transactions

• (i) On 21st March, 2001, the Company issued a total of 6,000,000 new shares of HK$0.10 each at an ascribed issue price of HK$2.50 per share as part of the consideration for the acquisition of interest in an associate, as detailed in note 27(d).

• (ii) Pursuant to the Repurchase Agreement (as detailed in note 27(c)), the Company repurchased 3,820,000 shares of the Company of HK$0.10 each from B2B International and in return, disposed of 17,200 shares in Reigncom Korea. The transaction was completed on 13th March, 2001.

• (iii) During the year, the Group entered into finance lease arrangements in respect of fixed assets with a total capital value at the inception of the leases of HK$10,740,000.

• (iv) Pursuant to an ordinary resolution passed in the Annual General Meeting held on 22nd September, 2000, the Company issued 21,285,601 bonus shares of HK$0.10 each to the shareholders of the Company in the proportion of 1 bonus share for every 10 shares held by the shareholders whose names appeared on the register of members of the Company on 22nd September, 2000. The bonus shares were issued as fully paid by capitalising the sum of approximately HK$2,128,000 standing to the credit of the share premium account of the Company.

• (v) During the year, the Group recorded a loss on the deemed disposal of an interest in an associate of HK$1,310,000. The deemed disposal had no significant impact on the Group’s cash flow.

30. CONTINGENT LIABILITIES

Bills discounted with recourse Standby documentary credits Guarantees given in respect of facilities granted to: – Subsidiaries* – A supplier	Group 2001 2000 HK$’000 HK$’000 – 8,306 20,600 – – – 3,900 – 24,500 8,306	Company 2001 2000 HK$’000 HK$’000 – – – – 424,805 313,193 – – 424,805 313,193	Company 2001 2000 HK$’000 HK$’000 – – – – 424,805 313,193 – – 424,805 313,193
			313,193

• Pursuant to the shareholders’ agreement of Reigncom Korea, the Group has provided standby documentary credits in favour of the bankers of Reigncom Group for the amount of HK$20,600,000 (2000: Nil). The Group will be liable for such amounts up to HK$20,600,000 due by Reigncom Group to its bankers in the event Reigncom Group is unable to pay them. Subject to re-negotiation, the last expiry date of such documentary credits is 15th December, 2001.

• ** At the balance sheet date, HK$276,994,000 (2000: HK$138,155,000) had been utilised for the banking facilities granted to subsidiaries guaranteed by the Company.

– 76 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

31. COMMITMENTS

Capital commitments contracted for Annual commitments payable in the following year under operating leases in respect of land and buildings expiring: Within one year In the second to fifth years, inclusive After five years Other commitments, contracted for_*_	Group 2001 2000 HK$’000 HK$’000 284 – 8 148 437 – 1,862 1,861 2,307 2,009 2,000 50,568	Company 2001 2000 HK$’000 HK$’000 – – – – – – – – – – – 43,568	Company 2001 2000 HK$’000 HK$’000 – – – – – – – – – – – 43,568
			– – –
			–
			43,568

• On 29th February, 2000, the Company entered into an agreement with Reigncom Korea to subscribe for new shares in Reigncom Korea. The Group’s and the Company’s commitment as at 31st March, 2000 in respect of the subscription of new shares in Reigncom Korea amounted to US$5,600,000, which was approximately HK$43,568,000.

On 28th March, 2000, AVT Holdings Limited (“AVT”), a wholly-owned subsidiary of the Company, entered into a joint venture agreement and a transfer contract to subscribe for and to purchase shares in Thinker. On 16th August, 2000, AVT entered into two supplemental contracts to each of the joint venture agreement and the transfer contract. These agreements and contracts are collectively referred to as the “Thinker Contracts”. Pursuant to the Thinker Contracts, the Group’s commitment as at 31st March, 2000 in respect of the subscription and purchase of shares in Thinker amounted to HK$7,000,000, of which HK$5,000,000 was paid during the current year. The Group’s commitment as at 31st March, 2001 in respect of the Thinker Contracts is therefore HK$2,000,000.

32. COMPARATIVE AMOUNTS

The fixed assets categories, “Furniture, fittings and office equipment” and “Plant, machinery and tools”, were previously disclosed as one category under the heading of “furniture, fittings and equipment” in note 13 to the financial statements. The category was split during the year for the purpose of clearer presentation. Accordingly, the prior year’s balances of cost, accumulated depreciation and net book value in respect of this category of fixed assets have been reclassified for comparative purposes.

33. APPROVAL OF THE FINANCIAL STATEMENTS

The financial statements were approved by the board of directors on 26th July, 2001.

– 77 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

3. INTERIM REPORT

The following has been extracted from the unaudited consolidated interim report of the Group for the six months ended 30th September, 2001.

CONDENSED CONSOLIDATED PROFIT AND LOSS ACCOUNT

Notes TURNOVER 2 Cost of sales Gross profit Other revenue Selling and distribution costs Administrative expenses Other operating expenses PROFIT FROM OPERATING ACTIVITIES 3 Finance costs Share of profits less losses from associates PROFIT BEFORE TAX Tax 4 NET PROFIT FROM ORDINARY ACTIVITIES ATTRIBUTABLE TO SHAREHOLDERS INTERIM DIVIDEND 5 EARNINGS PER SHARE 6 Basic Diluted	Six months ended 30th September, 2001 2000 (Unaudited) (Unaudited) HK$’000 HK$’000 556,423 588,057 (516,333) (534,039) 40,090 54,018 1,245 2,555 (11,895) ( 7,623) (15,573) ( 19,615) (2,958) ( 5,755) 10,909 23,580 (8,544) ( 7,195) 532 5 2,897 16,390 (625) ( 1,956) 2,272 14,434 – – 1.0 cents 7.0 cents N/A 7.0 cents

– 78 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES

The unaudited condensed consolidated interim financial statements have been prepared in accordance with Hong Kong Statement of Standard Accounting Practice (“SSAP”) No. 25 “Interim Financial Reporting” issued by the Hong Kong Society of Accountants (“HKSA”) and the applicable disclosure requirement of Appendix 16 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”).

These unaudited condensed consolidated interim financial statements should be read in conjunction with the annual financial statements for the year ended 31st March, 2001.

The accounting policies and methods of computation used in the preparation of these statements are consistent with those used in the financial statements for the year ended 31st March, 2001 except as described below.

The Group has adopted a number of new and revised SSAPs issued by the HKSA for the first time in the current period. The changes to the Group’s accounting policies resulting from the adoption of these new policies are set out below:

(a) SSAP 30: Business combinations

Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net assets of the acquired subsidiary or associate at the date of acquisition. The Group has adopted SSAP 30 and has elected not to restate goodwill previously eliminated against reserves. Goodwill arising on acquisitions after 1st April, 2001 is capitalised and amortised over its estimated useful life. Goodwill on acquisitions that occurred prior to 1st April, 2001 was eliminated directly to reserves in the year of acquisition.

(b) SSAP 31: Impairment of assets

SSAP 31 requires company to assess whether there is any impairment of assets. If any such indication exists, the asset’s recoverable amount is estimated and an impairment loss is recognised for the excess of carrying value of the asset over its estimated recoverable amount.

– 79 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2. SEGMENTAL INFORMATION

The Group’s turnover and contribution to profit from operating activities by activities and geographical areas are summarised as follows:

		Six months ended 30th September,	Six months ended 30th September,	Six months ended 30th September,
	2001		2000
		Contribution		Contribution
		to profit from		to profit from
		operating		operating
	Turnover	activities	Turnover	activities
	(Unaudited)	(Unaudited)	(Unaudited)	(Unaudited)
	HK$’000	HK$’000	HK$’000	HK$’000
By activities:
Marketing and distribution	392,222	6,160	510,959	18,340
Design, manufacture and
original equipment
manufacture	164,201	4,749	77,098	5,240
	556,423	10,909	588,057	23,580
By geographical areas:
Hong Kong	372,170	10,118	410,606	18,390
Singapore	36,262	(3,345)	146,018	4,368
USA, Europe and Korea	147,991	4,136	31,433	822
	556,423	10,909	588,057	23,580

3. PROFIT FROM OPERATING ACTIVITIES

	Six months	ended
	30th September,
	2001	2000
	(Unaudited)	(Unaudited)
	HK$’000	HK$’000
Profit from operating activities is arrived
at after charging:
Depreciation	6,136	4,262
Loss on deemed disposal of interest
in an associate	403	–
Exchange losses, net	578	557
and after crediting:
Interest income	906	283

– 80 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4. TAX

Hong Kong profits tax has been provided at the rate of 16% (2000: 16%) on the estimated assessable profits arising in Hong Kong during the period. Taxes on profits assessable elsewhere have been calculated at the rates of tax prevailing in the countries in which the Group operates, based on existing laws, interpretations and practices in respect thereof.

	Six months ended	Six months ended
	30th	September,
	2001	2000
	(Unaudited)	(Unaudited)
	HK$’000	HK$’000
Provision for tax in respect of
profit for the period:
Hong Kong	599	1,261
Overseas	26	695
Tax charge for the period	625	1,956

5. INTERIM DIVIDEND

The Board of Directors of the Company do not recommend the payment of an interim dividend for the six months ended 30th September, 2001 (2000: Nil).

6. EARNINGS PER SHARE

The calculation of basic earnings per share is based on the unaudited net profit attributable to shareholders of HK$2,272,000 (2000: HK$14,434,000) and the weighted average of 236,321,613 (2000: 206,138,583) ordinary shares in issue during the period.

The diluted earnings per share has not been shown as the outstanding options have an anti-dilutive effect on the basic earnings per share for the period.

The calculation of diluted earnings per share for the prior period is based on the unaudited net profit attributable to shareholders of HK$14,434,000. The weighted average number of ordinary shares used in the calculation is the weighted average of 206,138,583 ordinary shares in issue during the prior period, as used in the basic earnings per share calculation, and the weighted average of 820,006 ordinary shares assumed to have been issued at no consideration on the deemed exercise of share options during the prior period.

– 81 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

4. PRO FORMA CONSOLIDATED NET ASSETS

Set out below is the pro forma consolidated net assets of the Group based on the audited consolidated net assets as at 31st March, 2001 adjusted, inter alia, for the unaudited consolidated profits of the Group for the six months ended 30th September, 2001 and the effects of the Rights Issue:

Audited consolidated net assets of the Group as at 31st March, 2001 Unaudited consolidated profit after taxation for the six months ended 30th September, 2001 Adjusted pro forma consolidated net assets of the Group before the Rights Issue Estimated net proceeds of the Rights Issue Adjusted pro forma consolidated net assets after the Rights Issue Adjusted pro forma consolidated net assets per Share before the Rights Issue (based on 236,321,613 Shares in issue) Adjusted pro forma consolidated net assets per Share after the Rights Issue (based on 354,482,419 Shares in issue)	HK$’000 184,828 2,272
	187,100 29,000
	216,100
	HK$0.79
	HK$0.61

5. INDEBTEDNESS

At the close of business on 31st March, 2002, the latest practicable date for the purpose of ascertaining certain information relating to this indebtedness statement prior to the printing of this circular, the Group had total outstanding borrowings of approximately HK$225 million, comprising a bank loan of approximately HK$2 million, import and trust receipt loans of approximately HK$217 million and obligation under hire purchase contracts of approximately HK$6 million. In addition, as at 31st March, 2002, the Group had contingent liabilities in respect of standby documentary credits granted to an investee company of the Group of approximately HK$21 million and guarantees given in respect of facilities granted to a supplier of the Group amounting to approximately HK$12 million.

As at 31st March, 2002, to secure certain of the above bank borrowings and banking facilities granted to the Group, the Group had pledged certain leasehold land and buildings to a bank having an aggregate net book value of approximately HK$8 million.

– 82 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Save as aforesaid or as otherwise disclosed herein, and apart from intra-group liabilities, the Group did not have any outstanding indebtedness at the close of business on 31st March, 2002, any loan capital issued and outstanding or agreed to be issued, bank overdrafts, loans or other similar indebtedness, liabilities under acceptances or acceptance credits, debentures, mortgage, charges, hire purchase commitments, guarantees or other material contingent liabilities.

For the purpose of the above indebtedness statement, foreign currency amounts have been translated into Hong Kong dollars at the applicable rates of exchange prevailing at the close of business in Hong Kong on 31st March, 2002.

6. WORKING CAPITAL

The Directors are of the opinion that in the absence of unforeseen circumstances and after taking into account the net proceeds from the Rights Issue, the Group’s internal resources and available banking and other borrowing facilities, the Group has sufficient working capital for its present requirements.

– 83 –

THE PRINCIPAL TERMS OF THE NEW SHARE OPTION SCHEME

APPENDIX II

The following is a summary of the rules of the New Share Option Scheme proposed to be adopted at the EGM to be held on 13th May, 2002:

PURPOSE OF THE SCHEME

The purpose of the New Share Option Scheme is to assist in retaining and recruiting highcalibre staff who can make a valuable contribution to the Group and to provide incentive to the Participants for their contribution, and continuing efforts to promote the interest of the Company.

WHO MAY JOIN

The Board may in its absolute discretion grant options to any Participants.

PRICE OF SHARES

Share Options may be granted at an initial payment of HK$1.00 for each acceptance of grant of option(s) and can be exercised at an exercise price determined by the Board (subject to adjustments as provided in the rules of the New Share Option Scheme) which shall be at least the higher of (i) the closing price of the Shares as stated in the Stock Exchange’s daily quotations sheet on the date of the offer, which must be a trading day; (ii) the average closing price of the Shares as stated in the Stock Exchange’s daily quotations sheets for the five trading days immediately preceding the date of the offer; and (iii) the nominal value of the Shares.

MAXIMUM NUMBER OF SHARES AVAILABLE FOR SUBSCRIPTION

The Scheme Mandate Limit shall not exceed 10% of the total number of issued Shares as enlarged by the issue of Rights Shares immediately upon the completion of the Rights Issue. Share Options lapsed in accordance with the terms of the Existing Share Option Scheme shall not be counted for the purpose of calculating the 10% limit. The Company may refresh the Scheme Mandate Limit by an ordinary resolution of the Shareholders of the Company in general meeting, provided that:

• (a) the Scheme Mandate Limit to be refreshed shall not exceed 10% of the total number of issued Shares as at the date of the Shareholders’ approval of the refreshed limit;

• (b) Share Options previously granted under the Existing Share Option Scheme and any other share option schemes of the Company (including options outstanding, cancelled, or lapsed in accordance with the relevant rules or exercised options) shall not be counted for the purpose of calculating the limit as refreshed; and

– 84 –

THE PRINCIPAL TERMS OF THE NEW SHARE OPTION SCHEME

APPENDIX II

• (c) a circular regarding the proposed refreshing of the Scheme Mandate Limit has been despatched to the Shareholders in a manner complying with, and containing the matters specified in, the relevant provisions of Chapter 17 of the Listing Rules.

The aggregate maximum number of Shares which may be issued upon exercise of all outstanding options granted and yet to be exercised under the New Share Option Scheme and any other share option scheme(s) of the Company must not in aggregate exceed 30 per cent. of the total number of Shares in issue from time to time.

As at the Latest Practicable Date, there were in issue an aggregate of 236,321,613 Shares. Upon completion of the Rights Issue, a total of 354,482,419 Shares will be in issue. In addition, there are outstanding Share Options granted under the Existing Share Option Scheme upon full exercise of which a total of 13,700,000 Shares will be issued. Assuming no further Shares will be issued prior to the date of the adoption of the New Share Option Scheme, Share Options to subscribe for a total of not more than 35,448,241 Shares may be granted under the New Share Option Scheme pursuant to the Scheme Mandate Limit.

The maximum number of Shares (issued and to be issued) in respect of which options may be granted under the New Share Option Scheme and any other share option scheme(s) of the Company (whether exercised, cancelled or outstanding) to any Participants in any 12-month period shall not exceed 1% of the total number of Shares in issue from time to time unless such grant has been duly approved by an ordinary resolution of the Shareholders in general meeting at which the relevant Participants and his associates abstained from voting and the Company has issued a circular in accordance with the relevant provisions of Chapter 17 of the Listing Rules.

In calculating the aforesaid limit of 1%, options that have already been lapsed shall not be counted.

GRANT OF SHARE OPTIONS TO CONNECTED PERSONS

Any grant of options to a Director, chief executive or substantial shareholder of the Company or any of their respective associates must be approved by the independent nonexecutive Directors (excluding any independent non-executive Director who is a prospective grantee of the options).

Where options are proposed to be granted to a substantial shareholder or an independent non-executive Director or any of their respective associates, and the proposed grant of options would result in the number or value (as the case may be) of the Shares issued and to be issued upon exercise of all options already granted and to be granted (including options exercised, cancelled and outstanding) to such person during the 12-month period up to and including the

– 85 –

THE PRINCIPAL TERMS OF THE NEW SHARE OPTION SCHEME

APPENDIX II

date of the grant of such options to represent in aggregate over 0.1% of the total number of issued Shares for the time being and have an aggregate value (based on the closing price of the Shares at the date of each grant of these options) exceeding HK$5,000,000, the proposed grant shall be subject to the issue of a circular and the approval of the Shareholders in general meeting (taken on a poll) in accordance with the requirements of the Listing Rules at which all Connected Persons abstained from voting (but a Connected Person may vote against the resolution at the general meeting provided that his intention to do so has been stated in the circular).

In calculating the aforesaid limit of 0.1%, options that have already been lapsed shall not be counted.

TIME FOR EXERCISE OF OPTIONS

The grantee of an option may subscribe for Shares during such period as may be determined by the Board (the period shall commence on the date on which the offer relating to such option is duly approved by the Board in accordance with the New Share Option Scheme and expire in any event not later than the last day of the ten year period after the date of the adoption of the New Share Option Scheme (subject to early termination)). The New Share Option Scheme does not provide for any minimum period for which an option must be held before it can be exercised.

PERFORMANCE TARGETS

The New Share Option Scheme provides that there are no performance targets that need to be met before a grantee is entitled to exercise an option duly granted save as determined by the Board and provided in the offer.

RIGHTS ARE PERSONAL TO GRANTEE

An option shall be personal to the grantee of the option and shall not be assignable nor transferable.

RIGHTS ON CEASING EMPLOYMENT

Subject to the provision in the paragraph below head “RIGHTS ON DEATH” and the subparagraph (d) under the paragraph below headed “LAPSE OF OPTION”, if a grantee of an option ceases to be a Participants, the grantee may only exercise the option within a period of one month thereafter from the date of ceasation.

– 86 –

THE PRINCIPAL TERMS OF THE NEW SHARE OPTION SCHEME

APPENDIX II

RIGHTS ON DEATH

If a grantee of an option dies, the personal representative(s) of the grantee may only exercise the option within a period of twelve months thereafter.

RIGHTS ON DISMISSAL

If a grantee of an option ceases to be a Participant by reason of summary dismissal, the right to exercise the option shall thereupon terminate immediately.

EFFECT OF ALTERATIONS TO CAPITAL

In the event of a capitalisation issue, rights issue, consolidation, subdivision or reduction of the share capital of the Company, the Company shall make corresponding alterations (if any) to:

• (a) the number of Shares subject to options already granted so far as they remain exercisable; and/or

• (b) the subscription price;

provided that

• (i) each grantee is given the same proportion of the equity capital of the Company as that to which he was previously entitled;

• (ii) no alterations shall be made which would result in the subscription price for a Share being less than its nominal value;

• (iii) no such alterations shall be made in respect of an issue of securities by the Company as consideration in a transaction;

• (iv) any such alterations, save as those made on a capitalisation issue, shall be confirmed by the auditors of the Company or the independent financial adviser in writing to the Directors as satisfying the requirements of the foregoing paragraphs (i) and (ii); and

• (v) any such alterations made pursuant to a subdivision or consolidation of share capital shall be made on the basis that the aggregate subscription price payable by a grantee on full exercise of any options shall remain as nearly as possible the same (but shall not be greater than) as it was before such event.

– 87 –

THE PRINCIPAL TERMS OF THE NEW SHARE OPTION SCHEME

APPENDIX II

RIGHTS ON A GENERAL OFFER

If a general offer is made to all the Shareholders, the grantee may be by notice in writing within twenty-one days after such offer becoming or being declared unconditional exercise any options to its full extent or to the extent specified in such notice, and to the extent that they have not been so exercised, the right to exercise the options shall upon the expiry of such period terminate immediately.

RIGHTS ON WINDING UP

If a notice is given of a general meeting at which a resolution will be proposed for the voluntary winding-up of the Company, each grantee shall be entitled to exercise all or any of his options at any time not later than five business days prior to the proposed general meeting of the Company. The right to exercise the options shall, to the extent that they have not been so exercised, terminate immediately on the date of the commencement of the voluntary windingup of the Company.

RIGHTS ON A SCHEME OF ARRANGEMENT

If a general offer by way of a scheme of arrangement is made to all the Shareholders, the grantee may thereafter (but before such time as shall be notified by the Company) by notice in writing to the Company exercise the options in full or in part.

RANKING OF SHARES

Shares allotted on the exercise of options will rank pari passu in all respects with the other fully-paid Shares in issue at the relevant date of allotment except in respect of rights to any dividend or other distribution previously declared or recommended or resolved to be paid or made if the record date therefor is before the relevant date of allotment.

PERIOD OF THE SCHEME

The New Share Option Scheme shall be valid and effective for a period of ten years commencing after its date of adoption at the EGM (subject to early termination).

VARIATION AND TERMINATION

The New Share Option Scheme may be altered in any respect by resolution of the Board except that certain provisions as to:

• (a) the definitions of grantee and Participant(s); and

– 88 –

THE PRINCIPAL TERMS OF THE NEW SHARE OPTION SCHEME

APPENDIX II

• (b) the provisions relating to the matters set out in Rule 17.03 of the Listing Rules including those relating to the purpose, duration and administration of the New Share Option Scheme, grant of options (except for the provision that an offer may be accepted in full or in part and the requirements that the offer shall be in writing and shall contain the terms of the offer), subscription price, exercise of option, lapse of option, maximum number of Shares available for subscription, reorganisation of capital structure, alteration of the New Share Option Scheme, cancellation of options granted and termination;

shall not be altered to the advantage of grantees or prospective grantees except with the prior approval of the Shareholders in general meeting (with Participants and their respective associates abstained from voting). No such alterations shall operate to affect adversely the terms of issue of any options granted or agreed to be granted prior to such alterations except with the consent or sanction in writing of such majority of the grantees as would be required of the Shareholders under the Memorandum and Articles of Association of the Company for the time being for a variation of the rights attached to the Shares.

Any alterations to the provisions of the New Share Option Scheme which are of a material nature (except where alterations take effect automatically under the provisions of the New Share Option Scheme) or any change to the terms of options granted must be approved by the Shareholders in general meeting. Any change to the authority of the Board in relation to any alternations to the terms of the New Share Option Scheme must be approved by the Shareholders in general meeting. Any amendment to any terms of the New Share Option Scheme or the options granted shall comply with the relevant requirements of Chapter 17 of the Listing Rules.

The Company, by resolution in general meeting, or the Board may at any time terminate the operation of the New Share Option Scheme and in such event no further Share Options will be offered but in all other respects the provisions of the New Share Option Scheme shall remain in full force and effect and Share Options granted prior to such termination shall continue to be valid and exercisable in accordance with the New Share Option Scheme.

LAPSE OF OPTION

The right to exercise an option (to the extent not already exercised) shall terminate immediately upon the earliest of:

• (a) the expiry of the option period as described in the above paragraph headed “TIME FOR EXERCISE OF OPTIONS”;

• (b) the expiry of any of the periods referred to in the paragraphs above headed “RIGHTS ON CEASING EMPLOYMENT”, “RIGHTS ON DEATH” AND “RIGHTS ON A GENERAL OFFER”;

– 89 –

THE PRINCIPAL TERMS OF THE NEW SHARE OPTION SCHEME

APPENDIX II

• (c) subject to the scheme of arrangement becoming effective, the expiry of the period referred to in the paragraph above headed “RIGHTS ON A SCHEME OF ARRANGEMENT”;

• (d) the date on which the grantee ceases to be a Participant by reason of summary dismissal for misconduct or other breach of the terms of his employment or other contract constituting him a Participant, or appears either to be unable to pay or to have no reasonable prospect of being able to pay his debts or has become insolvent or has made any arrangements or composition with his creditors generally or on which has been convicted of any criminal offence involving his integrity or honesty;

• (e) subject to the provision in the paragraph above headed “RIGHTS ON WINDING UP”, the date of the commencement of the voluntary winding-up of the Company;

• (f) the date on which the grantee commits a breach of the provisions of the New Share Option Scheme that an option shall be personal to the grantee and shall not be assignable nor transferable and that no grantee shall sell, transfer, charge, mortgage or encumber or create any interest in favour of a third party over or in relation to any options; or

• (g) the expiry of the period for the fulfilment of any performance criteria specified by the Board.

CANCELLATION OF UNEXERCISED OPTIONS

The Company may cancel an option granted under the New Share Option Scheme but not exercised with the approval of the grantee of such option. No options may be granted to a Participant in place of his cancelled options unless there are available unissued options (excluding the cancelled options) within the Scheme Mandate Limit approved by the Shareholders as mentioned in the paragraph headed “MAXIMUM NUMBER OF SHARES” above.

– 90 –

EXPLANATORY STATEMENT

APPENDIX III

LISTING RULES

The Listing Rules permit companies with a primary listing on the Stock Exchange to repurchase their own Shares on the Stock Exchange subject to certain restrictions. This appendix serves as an explanatory statement, as required by the Share Buy Back Rules.

REASONS FOR REPURCHASES

The Directors believe that the Repurchase Mandate is in the best interests of the Company and its Shareholders. Such repurchases may, depending on market conditions and funding arrangements at the time, lead to an enhancement of the net asset value of the Company and/or its earnings per Share and will only be made when the Directors believe that such repurchases will benefit the Company and its Shareholders.

SHARE CAPITAL

Based on the 236,321,613 Shares in issue (assuming no Share Options are exercised before the Latest Practicable Date) as at the Latest Practicable Date and on the basis that (i) the 118,160,806 Rights Shares and duly allotted and issued in accordance with the Rights Issue; (ii) the resolutions approving the Rights Issue and the Repurchase Mandate are passed in the Extraordinary General Meeting; and (iii) no further Shares are issued or repurchased between the Latest Practicable Date and the date of the Extraordinary General Meeting, the Company would be allowed under the Repurchase Mandate to repurchase a maximum of 35,448,241 Shares.

FUNDING OF REPURCHASES

In repurchasing Shares, the Company may only apply funds legally available for such purpose in accordance with the Memorandum and Articles of Association of the Company and the applicable laws of the Cayman Islands and Hong Kong. Repurchases pursuant to the Repurchase Mandate will be made out of funds of the Company legally permitted to be utilized in this connection, including capital paid up on the repurchased Shares or out of funds of the Company otherwise available for dividend distribution or out of the proceeds of a fresh issue of Shares made for such purpose. Any premium payable on a purchase over the par value of the Shares to be purchased must be provided for out of funds of the Company otherwise available for dividend distribution or out of sums standing to the credit of the Company’s share premium account.

There might be a material adverse impact on the working capital or gearing position of the Company (as compared with the position disclosed in the audited accounts contained in the annual report for the year ended 31st March, 2001) in the event that the Repurchase Mandate was to be carried out in full at any time during the proposed repurchase period. However, the

– 91 –

EXPLANATORY STATEMENT

APPENDIX III

Directors do not propose to exercise the Repurchase Mandate to such extent as would, in the circumstances, have a material adverse effect on the working capital requirements of the Company or the gearing levels which in the opinion of the Directors are from time to time appropriate for the Company.

MARKET PRICES

The highest and lowest prices at which the Shares have been traded on the Stock Exchange during each of the previous twelve months were as follows:

	Highest	Lowest
	HK$	HK$
2001
April	0.50	0.385
May	0.60	0.42
June	0.53	0.43
July	0.46	0.32
August	0.43	0.33
September	0.36	0.21
October	0.28	0.232
November	0.315	0.235
December	0.31	0.255
2002
January	0.375	0.27
February	0.335	0.275
March	0.34	0.28

GENERAL

The Directors have undertaken to the Stock Exchange that they will exercise the repurchase mandate in accordance with the Listing Rules and the applicable laws of the Cayman Islands and Hong Kong.

If as a result of a repurchase of Shares pursuant to the repurchase mandate, a Shareholder’s proportionate interest in the voting rights of the Company increases, such increase will be treated as an acquisition for the purposes of the Takeovers Code. Accordingly, a Shareholder or a group of Shareholders acting in concert (within the meaning under the Code), depending on the level of increase in the Shareholders’ interest, could obtain or consolidate control of the Company and become obliged to make a mandatory offer in accordance with Rule 26 of the Code.

– 92 –

APPENDIX III

EXPLANATORY STATEMENT

As at the Latest Practicable Date, according to the register maintained under section 16(1) of the SDI Ordinance, B.K.S. was interested in 77,632,200 Shares, representing approximately 32.85% of the issued share capital of the Company. Based on such interest and in the event that the Directors exercised in full the power to repurchase Shares under the Repurchase Mandate, the interest of B.K.S. would be increased to approximately 36.50% of the issued share capital of the Company. If so, the Directors will take necessary steps to comply with the Listing Rules and the Takeovers Code. The Directors have no present intention to repurchase any Shares to the extent that it will trigger the obligations under the Takeovers Code to make a mandatory offer. The Directors have no intention to exercise the Repurchase Mandate to such an extent that the public shareholding will be reduced to less than 25%.

If the Rights Issue becomes unconditional and B.K.S. fully takes up his underwriting commitment of 79,344,706 Rights Shares and takes up the 38,816,100 Rights Shares provisionally allotted to him, the shareholding in the Company held by B.K.S. will be increased to approximately 55.23% of the enlarged share capital of the Company after the Rights Issue. In the event that the Repurchase Mandate is exercised in full and no further Shares are issued, the beneficial interest of B.K.S. in the issued share capital of the Company will be increased to approximately 61.37%. The Directors are not aware of any consequences which would arise under the Takeovers Code as a result of an exercise for the general mandate to repurchase.

None of the Directors nor, to the best of their knowledge having made all reasonable enquiries, any of their respective associates (as defined in the Listing Rules) has a present intention to sell Shares to the Company if the repurchase mandate is approved by Shareholders.

No Connected Person of the Company has notified the Company that he has a present intention to sell any Shares to the Company, or has undertaken not to do so, if the repurchase mandate is exercised.

SHARES PURCHASES MADE BY THE COMPANY

No purchase of Shares has been made by the Company during the last six months (whether on the Stock Exchange or otherwise).

– 93 –

GENERAL INFORMATION

APPENDIX IV

GENERAL INFORMATION

1 . RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Takeovers Code and the Listing Rules for the purpose of giving information with regard to the Group. The information contained herein has been supplied by the Directors who haven taken all reasonable care to ensure the information stated herein is accurate. The Directors jointly and severally accept full responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable inquires, that to the best of their knowledge, opinions expressed herein have been arrived at after due and careful consideration and there are no other facts not contained in this circular, the omission of which would make any statement contained herein misleading.

The information in this circular relating to B.K.S. has been supplied by the directors of B.K.S. The issue of this circular has been approved by the directors of B.K.S. who jointly and severally accept full responsibility for the accuracy of information contained in this circular, (other than those relating to the Group), and confirm, having made all reasonable inquiries, that to the best of their knowledge, opinions expressed in this circular have been arrived at after due and careful consideration and there are no other facts (other than those related to the Group) not contained in this circular, the omission of which would make any statement in this circular misleading.

2. DISCLOSURE OF DIRECTORS’ INTERESTS

As at the Latest Practicable Date, the interests of the Directors and their associates in the equity or debt securities of the Company or any of its associated corporations (as defined in the SDI Ordinance) which were required to be notified to the Company and the Stock Exchange pursuant to section 28 of the SDI Ordinance (including interests which were taken or deemed to have been taken under section 31, of or Part I of the Schedule to the SDI Ordinance) or which were required, pursuant to Section 29 of the SDI Ordinance, to be entered in the register referred to therein or which were required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by the Directors of Listed Companies were as follows:

			Approximate % of
	Number of Shares as at		the issued share
	the Latest Practicable Date		capital as
	Personal	Other	at the Latest
Directors	Interests	Interests	Practicable Date
Mr. So Yuk Kwan	Nil	77,632,200(Note)	32.85%
Mr. So Chi On	Nil	77,632,200(Note)	32.85%
Mr. So Wai Yin	275,000	Nil	0.12%

– 94 –

GENERAL INFORMATION

APPENDIX IV

• Note: B.K.S. Company Limited, which is a wholly-owned subsidiary of Credit Cash Limited, is the legal and beneficial owner of 77,632,200 Shares. The entire issued share capital of Credit Cash Limited is held by Ansbacher (BVI) Limited, as trustee of a discretionary trust, the beneficiaries of which include Mr. So Chi On and other family members of Mr. So Yuk Kwan.

As at the Latest Practicable Date, Mr. Lee Jeong Kwan has 2,000,000 Share Options which were granted pursuant to the Existing Share Option Scheme.

Save disclosed above, none of the Directors or their associates had any personal, family, corporate or other interests in the equity or debt securities of the Company or any of its associated corporations as defined in the SDI Ordinance.

As at Latest Practicable Date

• (i) save for the fact that B.K.S. is the underwriter of the Rights Issue and that B.K.S. is ultimately owned by a discretionary trust for the benefit of the family members of Mr. So Yuk Kwan, including Mr. So Chi On, none of the Directors are materially interested in any contract or arrangement subsisting at the Latest Practicable Date of this circular which is significant in relation to the business of the Group taken as a whole;

• (ii) none of the Directors have any direct or indirect interest in any assets which have been, since 31st March, 2001 (being the date to which the latest published audited accounts of the Company were made up), acquired or disposed of by or leased to any member of the Group, or which are proposed to be acquired or disposed of by or leased to any member of the Group;

• (iii) no agreement, arrangement or understanding (including any compensation arrangement) exists between B.K.S. or any parties acting in concert with it and any of the directors, recent directors, shareholders or recent shareholders of the Company having any connection with or dependence upon the Whitewash Waiver; and

• (iv) no benefit has been given to any Director as compensation or otherwise in connection with any acquisitions by the Group since 31st March, 2001 to which the latest published audited accounts of the Company have been made up.

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GENERAL INFORMATION

APPENDIX IV

3. SUBSTANTIAL SHAREHOLDERS

So far as is known to any Director or chief executive of the Company, the following parties were, directly or indirectly, interested in 10% or more of the issued share capital of the Company as recorded in the register required to be kept under Section 16 of the SDI Ordinance as at the Latest Practicable Date:

		Approximate % of the
		issued Share capital
		as at the Latest
	Number of Shares	Practicable Date
B.K.S. Company Limited	77,632,200(Note)	32.85%
Credit Cash Limited	77,632,200(Note)	32.85%
Ansbacher (BVI) Limited	77,632,200(Note)	32.85%

• Note: 77,632,200 Shares are beneficially held by B.K.S. Company Limited, which is a wholly-owned subsidiary of Credit Cash Limited. Credit Cash Limited is a company wholly-owned by Ansbacher (BVI) Limited, which is the trustee of a discretionary trust, the beneficiaries of which include Mr. So Chi On and other family members of Mr. So Yuk Kwan. Therefore, the Shares in which B.K.S. Company Limited was shown as being interested duplicate those of Credit Cash Limited and Anstsacher (BVI) Limited.

Save as disclosed herein, no other person war recorded in the register kept pursuant to Section 16 of the SDI Ordinance as having, directly or indirectly, an interest in 10 per cent. or more of the issued share capital of any member of the Group as at the Latest Practicable Date.

4. INTEREST OF OTHER PARTIES

• (i) No subsidiary of the Company or pension fund of the Company or of a subsidiary of the Company and (to the best of the Company’s knowledge) no banker, financial and/ or other professional adviser to the Company, has any shareholding interest in the Company.

• (ii) The Company does not have any shareholding interest in B.K.S..

• (iii) Save for the Directors’ interests as disclosed above, none of the Directors has any interest in the shares of B.K.S.

• (iv) There are no Shares, warrants, options convertible securities and/or derivatives in respect of the Shares which are managed on a discretionary basis by fund managers (other than exempt fund managers) connected with the Company.

– 96 –

GENERAL INFORMATION

APPENDIX IV

5. DEALINGS IN THE COMPANY’S SHARES AND SHARES IN B.K.S.

B.K.S. has not dealt in any Shares, warrants, options convertible securities and derivatives in respect of the Shares for the six months prior to the date of the Announcement and B.K.S. has undertaken to the Securities and Futures Commission that they and their concert parties will not acquire or dispose of any Shares or voting rights in the Company during the period from the date of Announcement up to the date of the EGM.

The Company or the Directors have not dealt in the Shares, warrants, options, convertible securities and derivatives in respect of shares in B.K.S. during the period beginning with six months prior to the date of the Announcement and ending with the Latest Practicable Date.

No subsidiary of the Company or pension fund of the Company or of a subsidiary of the Company and no banker, financial and/or other professional advisers to the Company (to the best of the Company’s knowledge) has dealt for value in any Shares or any warrants, options, convertible securities and derivatives in respect of the Shares during the period beginning with the date of the Announcement and ending with the Latest Practicable Date.

There are no Shares, warrants, options, convertible securities and derivatives in respect of the Shares dealt by fund managers (other than exempt fund managers) whose investments are managed on a discretionary basis and who are connected with the Company during the period beginning with the date of the Announcement and ending with the Latest Practicable Date.

6. DIRECTORS

Executive Directors

Mr. So Yuk Kwan , aged 52, is the founder, Chairman and Managing Director of the Group. He is responsible for the formulation of the Group’s overall strategic planning and business development. Mr. So holds a Master Degree of Business Administration from the University of East Asia and he is also a Fellow Member of the British Institute of Management. Mr. So has over 27 years’ experience in the electronics industry. Presently, he is the Secretary of the Executive Committee and the Vice Chairman of the External Affairs Sub-Committee of The Hong Kong Electronic Industries Association, a member of the Electronics Advisory Committee of the Hong Kong Trade Development Council, a member of the technology panel of Hong Kong Industrial Technology Centre Corporation and a committee member of the Hong Kong – Shenzhen Electronics Joint Committee. Mr. So Yuk Kwan is the father of Mr. So Chi On.

– 97 –

GENERAL INFORMATION

APPENDIX IV

Mr. So Wai Yin , aged 36, is the Deputy Managing Director of the Group. He is responsible for the marketing and operation of the Group and in particular, the Group’s manufacturing activities in the PRC. Mr. So has extensive marketing and engineering experience in the electronics industry. He holds a Bachelor Degree of Science in Electronics from the Chinese University of Hong Kong and a Master Degree of Business Administration from the City University of Hong Kong.

Mr. So Chi On , aged 25, is in charge of the overall management of the Group’s MP3 division and the development of information technology projects in the PRC. Mr. So holds a Bachelor Degree of Business Administration from the University of Wisconsin Madison. Mr. So Chi On is the son of Mr. So Yuk Kwan.

Mr. Lee Jeong Kwan , aged 41, is responsible for the overall management of the Group’s semiconductors sales and distribution business. Mr. Lee has extensive experience in the semiconductors industry. Prior to joining the Group, Mr. Lee held various senior management positions with Samsung Electronics Corporation in Hong Kong and Korea. Mr. Lee holds a Bachelor of Science Degree in Electronics Engineering from Hanyang University, Korea.

Independent Non-Executive Directors

Dr. Hon. Lui Ming Wah , JP, aged 64, holds a Master Degree in Applied Science from the University of New South Wales, Australia and a Doctorate in Engineering from the University of Saskatchewan, Canada. Dr. Lui is currently the Managing Director of Keystone Electronic Co. Ltd. In addition to being member of other committees, Dr. Lui is a member of the Legislative Council of HKSAR, the Honorary Chairman of The Hong Kong Electronic Industries Association, the Chairman of Electronics Industry Training Board of Vocational Training Council, the Vice Chairman of the Chinese Manufacturers Association of Hong Kong and a member of the Board of Mandatory Provident Fund Schemes Authority.

Mr. Charles Edward Chapman , aged 53, has profound experience in the electronics industry for more than 22 years. Mr. Chapman maintains good connections with local and overseas governments as well as trade organisations worldwide. Prior to joining The Hong Kong Electronic Industries Association since 1988 as an Executive Director, Mr. Chapman, a journalist by profession, was the Economics Editor of the Hong Kong Trade Development Council for 11 years and was the Business Editor for 8 years of a local English newspaper before that.

– 98 –

GENERAL INFORMATION

APPENDIX IV

7. LEGAL ADVISERS, AUDITORS, SHARE REGISTRARS AND PRINCIPAL BANKERS OF THE COMPANY

Registered Office	Ugland House
	South Church Street
	P. O. Box 309
	George Town
	Grand Cayman
	Cayman Islands
	British West Indies
Legal Advisers	As to Hong Kong law:
	Koo and Partners
	22/F, Bank of China Tower
	1 Garden Road
	Hong Kong
	As to Cayman Islands law:
	Maples and Calder Asia
	1504 One International Finance Centre
	1 Harbour View Street
	Hong Kong
Head office and	Units 11-15
Principal place of business	11th Floor, Block A
	Focal Industrial Centre
	21 Man Lok Street
	Hunghom, Kowloon
	Hong Kong
Executive Directors	Mr. So Yuk Kwan
	Flat 2, 6th Floor
	Block B, Tolo Ridge
	4233 Tai Po Road
	Tai Po Kau, Tai Po
	New Territories
	Hong Kong
	Mr. So Wai Yin
	4H, Block 3
	Cronin Garden
	2 Po On Road
	Sham Shui Po, Kowloon
	Hong Kong

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GENERAL INFORMATION

APPENDIX IV

Mr. So Chi On Flat 2, 6th Floor Block B, Tolo Ridge 4233 Tai Po Road Tai Po Kau, Tai Po New Territories Hong Kong Mr. Lee Jeong Kwan Flat E, 18th Floor Banyan Mansion Tai Koo Shing Hong Kong Independent Non-Executive Directors Dr. Hon. Lui Ming Wah, JP Unit B, 16/F Skylodge 1 No. 8 Ying Ping Road Beacon Hill Kowloon Hong Kong Mr. Charles Edward Chapman Flat B, 10th Floor Percival House 83 Percival Street Hong Kong Authorised representatives Mr. So Yuk Kwan Mr. So Wai Yin Auditors Ernst & Young Certified Public Accountants 15/F, Hutchison House Harcourt Road Central, Hong Kong Principal share registrar and HSBC Financial Services (Cayman) transfer office in the Cayman Islands Limited HSBC House Mary Street P.O. Box 1109 GT Grand Cayman Cayman Islands

– 100 –

GENERAL INFORMATION

APPENDIX IV

Branch share registrar and Tengis Limited transfer office in Hong Kong 4/F, Hutchison House Central, Hong Kong Principal bankers DBS Bank Keppel TatLee Bank Limited Standard Chartered Bank The Hongkong and Shanghai Banking Corporation Limited

8. MARKET PRICES

The Shares are listed on the Stock Exchange. The table below shows the closing prices of the Shares on the Stock Exchange on (i) the last trading day on which trading in Shares took place in each of the six calendar months immediately preceding the date of the Announcement; and (ii) on the Latest Practicable Date:

	Closing price
	HK$
31st October, 2001	0.27
30th November, 2001	0.31
31st December, 2001	0.28
31st January, 2001	0.295
28th February, 2002	0.30
28th March, 2002	0.30
Latest Practicable Date	0.27

The closing price of the Shares on the Stock Exchange on 2nd April, 2002 being the last trading day immediately preceding the date of the Announcement was HK$0.30.

The lowest and highest closing price of the Shares recorded on the Stock Exchange between 2nd November, 2001 and the Latest Practicable Date was HK$0.235 on 5th November, 2001 and HK$0.375 on 11th January, 2002 respectively.

– 101 –

GENERAL INFORMATION

APPENDIX IV

9. EXPERT

Each of EYCFL, Chateron and Ernst & Young has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letters and reference to its name in the form and context in which they appear.

None of EYCFL, Chateron or Ernst & Young is beneficially interested in the share capital of any member of the Group nor has any right, whether legally enforceable or not, to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

None of EYCFL, Chateron or Ernst & Young has any direct or indirect interest in any assets which have been, since 31st March, 2001 (being the date to which the latest published audited accounts of the Company were made up), acquired or disposed of by or leased to any member of the Group, or which are proposed to be acquired or disposed of by or leased to any member of the Group.

10. QUALIFICATION

The following is the qualification of the expert who has given opinion or advice which is contained in this circular:

Name	Qualification
Ernst & Young	an investment adviser and a dealer registered under the
Corporate Finance	Securities Ordinance (Chapter 333 of the Laws of Hong Kong)
Limited
Chateron Corporate	an investment adviser registered under the Securities Ordinances
Finance Limited	(Chapter 333 of the Laws of Hong Kong)
Ernst & Young	Certified public accountants

11. EXPENSES

The expenses in connection with the Rights Issue, including financial advisory fees, underwriting commission, printing, registration, translation, legal and accounting charges are estimated to be HK$1.7 million and are payable by the Company.

– 102 –

GENERAL INFORMATION

APPENDIX IV

12. MATERIAL CONTRACTS

Save for the Underwriting Agreement as disclosed in this circular, the Company does not have any material contracts (not being contracts entered into in the ordinary course of business) entered into by the Group apart from the material contracts disclosed in the annual report within the 2 years immediately preceding the Latest Practicable Date.

13. LITIGATION

Neither the Company nor any of its subsidiaries is engaged in any litigation or arbitration of material importance and no litigation or claim of material importance is known to the Directors to be pending or threatened by or against the Company or any of its subsidiaries.

14. MATERIAL ADVERSE CHANGES

Save for disclosed in the paragraph headed “Future Plans and Prospectus of the Group” in the section headed “Letter from the Board”, the Directors are not aware of any other material adverse changes in the financial or trading position of the Group since 31st March, 2001, the date to which the latest published audited accounts of the Group were made up to.

15. SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors has entered into any service contracts with any member of the Group (excluding contracts expiring within one year without payment of compensation (other than statutory compensation)) or had entered into or amended any service contracts within six months before the date of the Announcement.

16. MISCELLANEOUS

• (a) The secretary of the Company is Ms. Chan Lap Sau, Anita, ACIS.

• (b) The registered office of B.K.S. is P.O. Box 3340, Road Town, Tortola, British Virgin Islands.

• (c) No person, prior to the posting of this circular, had irrevocably committed themselves to vote for or against the resolutions proposed to approve the Whitewash Waiver.

• (d) No person had an arrangement of the kind referred to in Note 8 to Rule 22 of the Takeovers Code with the Company or with B.K.S.

• (e) The English text of this circular shall prevail over the Chinese text.

– 103 –

GENERAL INFORMATION

APPENDIX IV

17. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during normal business hours on weekdays (Saturday and public holidays excepted) at the principal place of business of the Company in Hong Kong at Units 11-15, 11th Floor, Block A, Focal Industrial Centre, 21 Man Lok Street, Hunghom, Kowloon, Hong Kong up to and including the date of the Extraordinary General Meeting (and any adjournment thereof) and will also be available at the Extraordinary General Meeting.

• the letter from the Independent Board Committee dated 23rd April, 2002 the text of which is set out on page 26 of this circular;

• the letter from Chateron dated 23rd April, 2002 to the Independent Board Committee, the text of which is set out on pages 27 to 42 of this circular;

• the written consents referred to in paragraph 9 of this appendix;

• the annual reports of the Company for the financial years ended 31st March, 2001 and 31st March, 2000;

• the interim reports of the Company for the six-month period ended 30th September, 2001;

• the Memorandum and Articles of Association of the Company and B.K.S.;

• the rules of the New Share Option Scheme; and

• this circular.

– 104 –

NOTICE OF THE EXTRAORDINARY GENERAL MEETING

==> picture [59 x 35] intentionally omitted <==

AV CONCEPT HOLDINGS LIMITED

(Incorporated in the Cayman Islands with limited liability)

NOTICE IS HEREBY GIVEN that the Extraordinary General Meeting of AV Concept Holdings Limited (the “Company”) will be held at The Conference Room, Units 11-15, 11/F, Block A, Focal Industrial Centre, 21 Man Lok Street, Hunghom, Kowloon, Hong Kong on Monday, 13th May, 2002 at 11:00 a.m. for the purposes of considering and, if thought fit, passing the following resolutions which will be proposed as ordinary resolutions:

ORDINARY RESOLUTION S

1. “ THAT the waiver from the Executive (as defined in the circular, a copy of which has been produced to the meeting marked “A” and signed by the Chairman of the meeting for the purpose of identification (“ Circular ”)) pursuant to Note 1 of Notes on the dispensations from Rule 26 of the Hong Kong Code on Takeovers and Mergers in respect of the obligations of B.K.S. Company Limited or any party (or parties) acting in concert with it to make a mandatory general offer for all the shares in the equity share capital of the Company not already held by such party (or parties) as a result of (i) its/their entering into of the underwriting agreement dated 3rd April, 2002 (“ Underwriting Agreement ”) entered into between the Company and B.K.S. Company Limited, details of which are contained in the Circular; and/or (ii) it/they having to perform its/their obligation to take up shares pursuant to the Underwriting Agreement is and be hereby approved.”

2. “ THAT :

3. (a) subject to the following provisions of this Resolution, the exercise by the directors of the Company (the “ Directors ”) during the Relevant Period (as hereinafter defined) of all the powers of the Company to purchase ordinary shares of HK$0.10 each in the capital of the Company, subject to and in accordance with all applicable laws and the requirements of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited as amended from time to time, be and is hereby generally and unconditionally approved;

4. (b) the aggregate nominal amount of ordinary shares of HK$0.10 each of the Company which may be purchased by the Company pursuant to the approval in sub-paragraph (a) above shall not exceed 10 per cent of the aggregate nominal amount of ordinary share capital of the Company in issue as at the date of the passing of this resolution as enlarged by the Rights Issue (as defined in the circular, a copy of which has been produced to the meeting marked “A” and signed by the Chairman of the meeting for the purpose of identification); and

– 105 –

NOTICE OF THE EXTRAORDINARY GENERAL MEETING

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

• (d) for the purpose of this Resolution:–

“Relevant Period” means the period from the passing of this Resolution until whichever is the earliest of:–

  - (a) the conclusion of the next annual general meeting of the Company;

  - (b) the expiration of the period within which the next annual general meeting of the Company is required by the Articles of Association of the Company or any other applicable laws to be held; and

  - (c) the revocation or variation of authority given under this resolution by an ordinary resolution of the shareholders of the Company in general meeting.”

1. “ THAT :

2. (a) (conditional upon the passing of the Ordinary Resolution No. 1 as set out in the notice convening this meeting and) subject to the following provisions of this Resolution, the exercise by the directors of the Company (the “ Directors ”) during the Relevant Period (as defined below) of all the powers of the Company to allot, issue, grant, distribute or otherwise deal with additional shares of HK$0.10 each in the capital of the Company (“ Shares ”), and to make, issue or grant offers, agreements or options (including warrants, bonds, debentures, notes of securities which carry rights to subscribe for or are convertible into Shares) which would or might require Shares to be allotted, issued, granted, distributed or otherwise dealt with subject to and in accordance with all applicable laws, be and is hereby generally and unconditionally approved;

3. (b) the approval in sub-paragraph (a) of this Resolution shall authorise the Directors during the Relevant Period to make, issue or grant offers, agreements or options (including warrants, bonds, debentures, notes of any securities which carry rights to subscribe for or are convertible into shares) which would or might require the exercise of such powers after the end of the Relevant Period;

– 106 –

NOTICE OF THE EXTRAORDINARY GENERAL MEETING

• (c) the aggregate nominal amount of share capital allotted or agreed conditionally or unconditionally to be allotted (whether pursuant to an option, conversion or otherwise) and issued by the Directors pursuant to the approval in this Resolution, otherwise than pursuant to:

• (i) a rights issue (as defined below);

• (ii) an issue of shares as scrip dividends pursuant to the Memorandum and Articles of Association of the Company from time to time; or

• (iii) an issue of shares pursuant to the exercise of warrants to subscribe for shares of the Company or under any option scheme or similar arrangement for the time being adopted for the grant or issue to employees of the Company and/or any of its subsidiaries of shares or rights to the exercise of warrants to subscribe for shares of the Company or under any option scheme or similar arrangement for the time being adopted for the grant or issue to the employees of the Company and/or any of its subsidiaries of shares or rights of the Company,

shall not exceed 20% of the greater of (i) the aggregate nominal amount of the issued share capital of the Company at the date of passing of this Resolution or (ii) the aggregate nominal amount of the issued share capital of the Company as enlarged by the Rights Issue (as defined in the circular, a copy of which has been produced to the meeting marked “A” and signed by the Chairman of the meeting for the purpose of identification), and the said approval shall be limited accordingly;

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

• (e) for the purpose of this Resolution:

“Relevant Period” means the period from the passing of this Resolution until whichever is the earlier of:

• (i) the conclusion of the next annual general meeting of the Company;

• (ii) the expiration of the period within which the next annual general meeting of the Company is required by the Memorandum and Articles of Association of the Company to be held; or

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NOTICE OF THE EXTRAORDINARY GENERAL MEETING

• (iii) the date on which the authority set out in this Resolution is revoked or varied by an ordinary resolution of the shareholders of the Company in general meeting;

“rights issue” means an offer of shares open for a period fixed by the Directors to the holders of shares of the Company on the register on a fixed record date in proportion to their holdings of such shares as at that date (subject to such exclusions or other arrangements as the Directors may deem necessary or expedient in relation to fractional entitlements or having regard to any restrictions or obligations under the laws of, or the requirements of any recognised regulatory body or any stock exchange in, any territory applicable to the Company or its shareholders).”

1. “ THAT conditional upon the passing of the Ordinary Resolutions Nos. 1, 2 and 3 set out in the notice convening this meeting (the “ Notice ”) being passed and becoming unconditional, the aggregate nominal amount of ordinary shares in the capital of the Company which are purchased by the Company under the authority granted to the directors of the Company by the Ordinary Resolution No. 2 set out in the Notice shall be added to the aggregate nominal amount of ordinary shares in the capital of the Company that may be allotted or agreed conditionally or unconditionally to be allotted by the directors of the Company pursuant to the Ordinary Resolution No. 3 set out in the Notice.”

2. “ THAT subject to the Listing Committee of The Stock Exchange of Hong Kong Limited (the “ Stock Exchange ”) granting listing of, and permission to deal in, the shares of HK$0.10 each in the capital of the Company (“ Shares ”) which may fall to be issued by the Company pursuant to the exercise of options granted under the New Share Option Scheme (as defined in the circular dated the same date of this notice (“ Circular ”), the New Share Option Scheme be and is hereby approved and adopted by the Company and with effect from the date of the New Share Option Scheme becoming unconditional and coming into effect, the Existing Share Option Scheme (as defined in the Circular) be terminated therefrom and the directors of the Company (“ Directors ”) be and are hereby authorized to allot and issue Shares up to 10% of the issued share capital (as enlarged by the issue of Rights Shares immediately upon the completion of the Rights Issue) pursuant to the exercise of any options which may fall to be granted under the New Share Option Scheme, and that to the extent permissible under the articles of association of the Company, the Rules Governing the Listing of Securities on the Stock Exchange and the rules of the New Share Option Scheme, the Directors may vote in respect of any resolution(s) under or affecting the New Share Option Scheme (including the granting of options

– 108 –

NOTICE OF THE EXTRAORDINARY GENERAL MEETING

thereunder or approving the allotment and issue of Shares upon exercise of options thereunder) notwithstanding any interest(s) of any Director(s).”

By Order of the Board of AV Concept Holdings Limited So Yuk Kwan Chairman

Hong Kong, 23rd April, 2002

Notes:

1. Any member entitled to attend and vote at the Extraordinary General Meeting (as defined in the Circular) is entitled to appoint one or more than one proxy to attend and vote instead of him/her at the Extraordinary General Meeting. A proxy need not be a member of the Company.

2. To be valid, a form of proxy together with the power of attorney or other authority, if any, under which it is signed or a notarially certified body of that power of attorney or authority must be lodged at the Company’s branch share registrar in Hong Kong, Tengis Limited, 4th Floor, Hutchison House, 10 Harcourt Road, Central, Hong Kong, not less than 48 hours before the time appointed for holding the meeting or any adjournment thereof. Completion and return of the proxy will not preclude any member from attending and voting in person should you so wish.

3. In case of joint registered holders of any shares, any one of such persons may vote at the Extraordinary General Meeting, either personally or by proxy, in respect of such shares if he/she were solely entitled thereto, but if more than one of such joint holders be present at the Extraordinary General Meeting personally or by proxy, that one of the said persons so present whose name stands first in the register of members of the Company in respect of such shares shall alone be entitled to vote in respect thereof.

4. A form of proxy for use at the Extraordinary General Meeting is enclosed herewith.

5. In accordance with Note 1 of the Notes on dispensations from Rule 26 of the Hong Kong Code on Takeovers and Mergers approved by the Securities and Futures Commission, B.K.S. Company Limited and its associates (as defined in the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited) will abstain from voting with respect of Ordinary Resolution No.1 as set out above and the said Ordinary Resolution No.1 will be determined by way of poll.

– 109 –

==> picture [66 x 39] intentionally omitted <==

AV CONCEPT HOLDINGS LIMITED

(Incorporated in the Cayman Islands with limited liability)

Form of proxy for use at the Extraordinary General Meeting

to be held on 13th May 2002

I/We[1] _________________

of______________

being the registered holder(s) of ___________

shares[2] of HK$0.10 each in the share capital of the above-named Company, HEREBY APPOINT THE CHAIRMAN OF THE MEETING[3] or ______________

of______________

as my/our proxy to vote and act for me/us at the Extraordinary General Meeting (and at any adjournment thereof) of the said Company to be held at The Conference Room, Units 11-15, 11/F., Block A, Focal Industrial Centre, 21 Man Lok Street, Hunghom, Kowloon, Hong Kong on Monday, 13th May 2002 at 11:00 a.m. for the purposes of considering and, if thought fit, passing the Resolutions as set out in the Notice convening the said Meeting and at such Meeting (and at any adjournment thereof) to vote for me/us and in my/our name(s) in respect of the Resolutions as indicated below[4] .

RESOLUTIONS	FOR	AGAINST
1. Ordinary Resolution Numbered 1
2. Ordinary Resolution Numbered 2
3. Ordinary Resolution Numbered 3
4. Ordinary Resolution Numbered 4
5. Ordinary Resolution Numbered 5

Dated this_ day of ____ 2002

Signed ________

Notes:

1. Full name(s) and address(es) to be inserted in BLOCK CAPITALS .

2. Please insert the number of shares registered in your name(s) to which the proxy relates. If no number is inserted, this form of proxy will be deemed to relate to all the shares in the Company registered in your name(s).

3. If any proxy other than the Chairman is preferred, strike out “THE CHAIRMAN OF THE MEETING” here inserted and insert the full name and address of the proxy desired in the space provided.

4. IMPORTANT: IF YOU WISH TO VOTE FOR THE RESOLUTIONS, TICK THE APPROPRIATE BOXES MARKED “FOR”. IF YOU WISH TO VOTE AGAINST THE RESOLUTIONS, TICK THE APPROPRIATE BOXES MARKED “AGAINST” . If no direction is given, the proxy may vote or abstain as he sees fit. Your proxy will also be entitled to vote at his discretion on any resolution properly put to the Meeting other than those referred to in the Notice convening the Meeting.

5. This form of proxy must be signed by you or your attorney duly authorised in writing or, in the case of a corporation, must be either executed under its common seal or under the hand of an officer or attorney duly authorised.

6. In the case of joint registered holders of any share any one of such persons may attend and vote at the Meeting, either in person or by proxy in respect of such shares as if he was solely entitled thereto; but if more than one of the joint holders be present at the Meeting personally or by proxy, that one of the said persons whose name stands first on the register of members in respect of the relevant shares will alone be entitled to vote in respect of them.

7. To be valid, this form of proxy, together with the power of attorney (if any) or other authority (if any) under which it is signed or a notarially certified copy thereof, must be deposited at the Company’s Branch Registrar, Tengis Limited, 4th Floor, Hutchison House, 10 Harcourt Road, Central, Hong Kong not less than 48 hours before the time appointed for holding the Meeting.

8. The proxy need not be a member of the Company but must attend the Meeting in person to represent you.

9. Completion and delivery of the form of proxy will not preclude you from attending and voting at the Meeting if you so wish.

10. ANY ALTERATION MADE TO THIS FORM OF PROXY MUST BE INITIALLED BY THE PERSON WHO SIGNS IT .