THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this document or as to the action to be taken, you should consult a licensed securities dealer, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in I-China Holdings Limited (Provisional Liquidators Appointed), you should at once hand this document and the accompanying form of proxy to the purchaser or to the transferee or to the bank, licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the purchaser or to the transferee.

The Stock Exchange of Hong Kong Limited and Hong Kong Securities Clearing Company Limited take no responsibility for the contents of this document, 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 document.

I-CHINA HOLDINGS LIMITED

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(Provisional Liquidators Appointed)

(Incorporated in Bermuda with limited liability) WAI KEE HOLDINGS LIMITED (Incorporated in Bermuda with limited liability)

RESTRUCTURING OF I-CHINA HOLDINGS LIMITED (PROVISIONAL LIQUIDATORS APPOINTED) INVOLVING, INTER ALIA, CAPITAL RESTRUCTURING, DEBT RESTRUCTURING INVOLVING CREDITORS’ SCHEMES OF ARRANGEMENT UNDER SECTION 99 OF THE COMPANIES ACT AND SECTION 166 OF THE COMPANIES ORDINANCE, SUBSCRIPTION OF NEW I-CHINA SHARES AND I-CHINA PREFERENCE SHARES, INJECTION OF THE TOP TACTIC GROUP, WHITEWASH WAIVER AND GENERAL MANDATES TO ISSUE AND REPURCHASE NEW I-CHINA SHARES

Financial adviser to I-China Holdings Limited Financial adviser to Wai Kee Holdings Limited

(Provisional Liquidators Appointed)

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Independent financial adviser to the Independent I-China Shareholders

AMS Corporate Finance Limited

A letter from AMS Corporate Finance Limited, the independent financial adviser to the Independent I-China Shareholders, containing its advice to the Independent I-China Shareholders in relation to the Proposed Restructuring and the Whitewash Waiver, is set out on pages 41 to 74 of this document.

A notice convening the SGM to be held at Plaza IV, Novotel Century Hong Kong, 238 Jaffe Road, Wanchai, Hong Kong, on 18 March 2004 at 10:00 a.m. is set out on pages 201 to 208 of this document. A form of proxy for use at the SGM is enclosed. Regardless of whether you intend to attend the SGM, you must complete and return the enclosed form of proxy in accordance with the instructions printed thereon as soon as possible and in any event not less than 48 hours before the time appointed for the holding of the SGM or any adjournment thereof. Delivery of a form of proxy will not preclude you from attending and voting in person at the SGM or any adjourned SGM should you so desire.

24 February 2004

CONTENTS

		Page
Definitions	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Expected timetable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		8
Letter from	the Provisional Liquidators
1.	Introduction and background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
2.	Existing business of the I-China Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
3.	The Proposed Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
4.	Conditions precedent to Completion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	21
5.	Principal terms of the I-China Preference Shares . . . . . . . . . . . . . . . . . . . . . .	22
6.	Effects of the Proposed Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	23
7.	Use of proceeds from the Subscription . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	27
8.	Directors and management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	27
9.	Intentions of Wai Kee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	27
10.	Reasons for the Proposed Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	28
11.	Maintaining the listing status of I-China . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	28
12.	Possible on-going connected transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . .	29
13.	General mandates to issue and repurchase New I-China Shares . . . . . . . . . .	31
14.	Listing and dealings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	32
15.	Trading arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	32
16.	The SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	34
17.	General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	34
18.	Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	35
19.	Additional information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	35
Letter from	Wai Kee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	36
Letter from	AMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	41
Appendix I	— Financial information of the I-China Group . . . . . . . . . . . . . . . . . .	75
Appendix II — Accountants’ report on the Top Tactic Group . . . . . . . . . . . . . . . .		135
Appendix III — Financial information of the I-China Group upon Completion. .		176
Appendix IV — Explanatory statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		187
Appendix V — General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		191
Notice of Special General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		201
Bye-law 3(B). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		209

— i —

DEFINITIONS

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

“Amazing Reward Group”

Amazing Reward Group Limited together with its subsidiaries, which form part of the Top Tactic Group. Amazing Reward Group Limited is a company incorporated with limited liability in the BVI and a wholly-owned subsidiary of Wai Kee

“AMS”

AMS Corporate Finance Limited, a corporation deemed licensed to carry on business in types 4, 6 and 9 of the regulated activities (advising on securities and corporate finance and asset management, respectively) under the SFO and the independent financial adviser to the Independent I-China Shareholders in respect of the Proposed Restructuring and the Whitewash Waiver

“Announcement” the joint announcement dated 18 December 2003 issued by I-China and Wai Kee in relation to the Proposed Restructuring

“Arbitration Settlement” the settlement of the arbitration against Zen Pacific Civil pursuant to the settlement agreement between the HKHA, Zen Pacific Civil and Wai Kee dated 24 September 2003 as disclosed in the announcements issued by Wai Kee dated 22 and 25 September 2003

“Asian Capital” Asian Capital (Corporate Finance) Limited, a corporation licensed under the SFO to perform types 1, 4, 6 and 9 of the regulated activities (as defined under the SFO) and the financial adviser to I-China

“associate(s)” has the meaning ascribed thereto under the Listing Rules “Bermuda Court” Supreme Court of Bermuda “BVI” British Virgin Islands “Capital Reduction” the reduction of the issued share capital of I-China from HK$5,083,397.64 to HK$1,270,849.41 by cancelling the paid-up capital to the extent of HK$0.0075 on each of the 508,339,764 issued I-China Shares so that each issued I-China Shares shall be treated as one fully paid share of HK$0.0025 and the cancellation of unissued share capital of HK$74,916,602.36 resulting in an authorised and issued share capital of HK$1,270,849.41

— 1 —

DEFINITIONS

“Capital Restructuring”	the Capital Reduction, the I-China Share Consolidation
	and the Increase in Authorised I-China Share Capital
“CCASS”	the Central Clearing and Settlement System established
	and operated by HKSCC
“Companies Act”	Companies Act 1981 of Bermuda
“Companies Ordinance”	Companies Ordinance (Chapter 32 of the Laws of Hong
	Kong)
“Completion”	completion of the Restructuring Agreement and the
	Subscription Agreement
“Concert Parties”	has the meaning ascribed to the term “parties acting in
	concert”, including those presumed to be acting in
	concert, in the Takeovers Code
“Courts”	Hong Kong Court and Bermuda Court
“Creditors”	any person to whom I-China owes a claim other than the
	preferential creditors of I-China
“Creditors Put Option”	put option granted by Wai Kee to the Creditors and/or
	the Scheme Administrators to sell all or part of the
	200,000,000 New I-China Shares at a price of HK$0.01
	per New I-China Share within 90 days after the expiry
	of two years following Completion
“Debt Restructuring”	the proposed restructuring of the indebtedness and
	liabilities of I-China pursuant to the Proposed
	Restructuring
“Distribution”	the proposed distribution of the New I-China Shares to
	the Wai Kee Shareholders on the basis of 14 New
	I-China Shares for every five Wai Kee Shares held by
	Wai Kee Shareholders at the Record Date
“DTT”	Messrs. Deloitte Touche Tohmatsu, Certified Public
	Accountants
“Escrow Agent”	RSM Nelson Wheeler Corporate Advisory Services
	Limited, a company incorporated in Hong Kong, the
	registered office of which is situated at 7th Floor, Allied
	Kajima Building, 138 Gloucester Road, Wanchai, Hong
	Kong, which will hold the deposit for the proceeds of
	the Subscription paid by Wai Kee as stakeholder in
	accordance with the terms of the Restructuring Agreement

— 2 —

DEFINITIONS

“Executive”	Executive Director of the Corporate Finance Division of
	the SFC or any delegate of the Executive Director
“HKHA”	Hong Kong Housing Authority
“HKSCC”	Hong Kong Securities and Clearing Company Limited
“Hong Kong”	the Hong Kong Special Administrative Region of the
	PRC
“Hong Kong Court”	the Court of First Instance of the High Court of Hong
	Kong, SAR
“I-China”	I-China Holdings Limited (Provisional Liquidators
	Appointed), a company incorporated in Bermuda with
	limited liability, the shares of which are listed on Main
	Board of the Stock Exchange
“I-China Board”	board of I-China Directors
“I-China Director(s)”	director(s) of I-China
“I-China Group”	I-China and its subsidiaries
“I-China Group Companies”	all companies directly or indirectly held by I-China other
	than Trinity
“I-China Preference Share(s)”	preference share(s) of HK$0.01 each to be issued by I-
	China, which are convertible into New I-China Shares at
	an initial conversion price of HK$0.01 per New I-China
	Share
“I-China Share(s)”	ordinary share(s) of HK$0.01 each in the existing issued
	share capital of I-China
“I-China Share Consolidation”	consolidation of every four issued I-China Shares upon
	completion of the reduction of the issued share capital
	of I-China into one New I-China Share
“I-China Shareholders”	holders of the I-China Shares or the New I-China Shares
	as the case may be
“Increase in Authorised I-China	the increase in the authorised share capital of I-China
Share Capital”	from HK$1,270,849.41 to HK$200,000,000 divided into
	17,000,000,000 New I-China Shares and 3,000,000,000
	I-China Preference Shares

— 3 —

DEFINITIONS

“Independent I-China Shareholders”	I-China Shareholders who are not involved or have no
	interest in the Restructuring Agreement, the Subscription
	Agreement, the Schemes and the Whitewash Waiver,
	being all I-China Shareholders, save for Mr. Wong Che
	Ming, Steve, who is an independent non-executive Wai
	Kee Director and is presumed to be a Concert Party of
	Wai Kee under the Takeovers Code
“Latest Practicable Date”	23 February 2004, being the latest practicable date prior
	to the printing of this document for ascertaining certain
	information contained in this document
“Listing Rules”	Rules Governing the Listing of Securities on the Stock
	Exchange
“New I-China Share(s)”	ordinary share(s) of HK$0.01 each in the capital of
	I-China upon implementation of the Capital Restructuring
“Petition”	petition to wind up I-China filed by the Petitioning
	Creditor on 3 December 2002 in relation to the debts of
	approximately HK$5.4 million owed by I-China to the
	Petitioning Creditor

“Petitioning Creditor” Seapower Finance Limited (the loans previously owned to Seapower Resources International Limited (Provisional Liquidator Appointed) and Seapower Secretaries Limited have been assigned to Seapower Finance Limited)
“PRC” the People’s Republic of China which, for the purpose of this document, excludes Hong Kong, the Macau Special Administrative Region of the PRC and Taiwan
“Proposed Restructuring” the proposed restructuring of I-China involving the Capital Restructuring, the Debt Restructuring, the Subscription, injection of the Top Tactic Group and the Whitewash Waiver
“Provisional Liquidators” Messrs. Cosimo Borrelli and Fan Wai Kuen of RSM Nelson Wheeler Corporate Advisory Services Limited, and Mr. R. Craig Christensen of Arthur Morris and Co. of Hamilton Bermuda, the joint and several provisional liquidators of I-China

— 4 —

DEFINITIONS

“Quam Capital”	Quam Capital Limited, a corporation deemed licensed
	under the SFO to perform types 4, 6 and 9 of the
	regulated activities (as defined in the SFO) and the
	financial adviser to Wai Kee
“Record Date”	record date for determining the entitlement of Wai Kee
	Shareholders to the Distribution
“Relevant Period”	period commencing on 18 June 2003 (the date of
	commencement of the six month period prior to the date
	of the Announcement in relation to the Restructuring
	Proposal) and ending on the Latest Practicable Date
“Restructuring Agreement”	conditional agreement dated 20 November 2003 entered
	into by I-China, the Provisional Liquidators, Wai Kee
	and the Escrow Agent
“Restructuring Proposal”	non-legally binding proposal dated 11 August 2003,
	entered into by the Provisional Liquidators, Wai Kee
	and the Escrow Agent, which sets out, amongst other
	things, the indicative terms of the Proposed Restructuring
“Schemes”	proposed schemes of arrangement pursuant to section 99
	of the Companies Act and section 166 of the Companies
	Ordinance between I-China and the Creditors to be
	approved or imposed by the Courts, with or without any
	modification
“Scheme Administrators”	such persons appointed pursuant to the terms of the
	Schemes
“SFC”	Securities and Futures Commission
“SFO”	Securities and Futures Ordinance (Chapter 571 of the
	Laws of Hong Kong)
“SGM”	special general meeting of I-China to be held, inter alia,
	to consider and pass the resolutions proposed for the
	implementation of the transactions contemplated under
	the Restructuring Agreement and the Subscription
	Agreement
“Stock Exchange”	The Stock Exchange of Hong Kong Limited

— 5 —

DEFINITIONS

“Subscription”	proposed subscription of (i) 5,987,000,000 New
	I-China Shares by Wai Kee, representing approximately
	94.8% of the issued ordinary share capital of I-China
	upon Completion but before the Distribution and
	conversion of the I-China Preference Shares, for an
	aggregate amount of HK$59.87 million and (ii)
	3,000,000,000 I-China Preference Shares carrying the
	right to convert into New I-China Shares at an initial
	conversion price of HK$0.01 each
“Subscription Agreement”	agreement, to be agreed and to be entered into between
	Wai Kee, I-China, and the Provisional Liquidators in
	connection with the Subscription
“Takeovers Code”	Hong Kong Code on Takeovers and Mergers
“Top Tactic Group”	Top Tactic Holdings Limited and its subsidiaries upon
	Completion (comprising the Amazing Reward Group and
	the Zen Pacific Group)
“Trinity”	Trinity Rent A Car Limited, a company incorporated
	with limited liability under the laws of Hong Kong and
	a wholly-owned subsidiary of I-China
“Trinity Option”	option granted by I-China to Wai Kee, exercisable at
	Wai Kee’s sole discretion before Completion, pursuant
	to which Wai Kee, has the right to transfer the entire
	issued share capital of Trinity to the Provisional
	Liquidators or the Scheme Administrators for HK$1
“Wai Kee”	Wai Kee Holdings Limited, a company incorporated in
	Bermuda with limited liability, the shares of which are
	listed on the Main Board of the Stock Exchange. Wai
	Kee is independent of, and not connected with, the
	directors, chief executive or substantial shareholder, nor
	a Concert Party, of I-China and its subsidiaries and their
	respective associates
“Wai Kee Board”	board of Wai Kee Directors
“Wai Kee Directors”	directors of Wai Kee

— 6 —

DEFINITIONS

“Wai Kee Group” Wai Kee and its subsidiaries
“Wai Kee Share(s)” ordinary share(s) of HK$0.10 each in the share capital of Wai Kee
“Wai Kee Shareholders” holders of the Wai Kee Shares
“Whitewash Waiver” a waiver pursuant to Note 1 on dispensations from Rule 26 of the Takeovers Code from the obligation of Wai Kee and its Concert Parties to make a mandatory general offer for all the New I-China Shares not already owned or agreed to be acquired by them upon Completion
“Zen Pacific Civil” Zen Pacific Civil Contractors Limited, a company incorporated with limited liability in Hong Kong and a wholly-owned subsidiary of Zen Pacific Construction Limited
“Zen Pacific Group” Zen Pacific Construction Limited together with its subsidiaries, which form part of the Top Tactic Group. Zen Pacific Construction Limited is a company incorporated with limited liability in the BVI and a wholly-owned subsidiary of Wai Kee
“Zen Pacific Option” the put option granted by Wai Kee to I-China, which forms part of the Restructuring Agreement, pursuant to which I-China will have a right to transfer all of its interest in the Zen Pacific Group back to Wai Kee for a nominal value of HK$1 in the event that the settlement amount with HKHA, net of the provision of HK$60 million previously made for the award, exceeds the net tangible asset value of the Zen Pacific Group immediately after the Arbitration Settlement and which while originally included in the Restructuring Proposal is now no longer relevant and will not be taken up
“HK$” and “cent(s)” Hong Kong dollar(s) and cent(s), the lawful currency of Hong Kong
“US$”

United States dollar(s), the lawful currency of the United States of America, the exchange rate for US$ into HK$ for the purpose of this document is US$1=HK$7.78

— 7 —

EXPECTED TIMETABLE

2004

Latest time for lodging forms of proxy for the SGM . . . . . . . 10:00 a.m. on Tuesday 16 March

SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10:00 a.m. on Thursday 18 March

Announcement of results of the SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Friday 19 March

Subject to the Courts’ availability, I-China, through the Provisional Liquidators, is seeking leave from the Courts to convene the Creditors’ meeting before the end of March 2004. Further announcement(s) in relation to the timetable for the Creditors’ meeting, the hearing of the Courts to sanction the respective Schemes, trading arrangements, and resumption of trading in the I-China Shares will be made as soon as practicable.

— 8 —

LETTER FROM THE PROVISIONAL LIQUIDATORS

24 February 2004

To the I-China Shareholders,

Dear Sir/Madam,

1. INTRODUCTION AND BACKGROUND

The Provisional Liquidators and Wai Kee jointly announced on 18 December 2003 that the Restructuring Agreement in relation to the Restructuring Proposal for I-China was signed on 20 November 2003.

I-China (formerly known as Seapower International Holdings Limited) which was incorporated in Bermuda in 1990. It is an investment holding company and its principal subsidiaries were engaged in cold storage warehousing, printing and the provision of reprographic services, car rental and financing businesses. I-China disposed of its printing and reprographics businesses in late 1999 and ceased its financing business in late 2002. On 28 September 2000, it was renamed as I-China Holdings Limited.

Trading in the I-China Shares has been suspended since 10:00 a.m. on 15 January 2002. On 3 December 2002, the Petitioning Creditor filed a winding up petition against I- China as a result of I-China’s failure to repay amounts due to the Petitioning Creditor. On 5 December 2002, Messrs. Cosimo Borrelli and Fan Wai Kuen of RSM Nelson Wheeler Corporate Advisory Services Limited were appointed as Provisional Liquidators of I-China by the Hong Kong Court to, amongst other things, protect and preserve the assets of I-China and, if possible, to facilitate a restructuring of I-China.

On 12 May 2003, the Hong Kong Court adjourned the Petition against I-China to 10 November 2003. On that day the Petition was further adjourned to 9 February 2004. On 9 February 2004, the Hong Kong Court further adjourned the Petition to 21 June 2004 to allow the Provisional Liquidators sufficient time to facilitate a restructuring of I- China.

— 9 —

LETTER FROM THE PROVISIONAL LIQUIDATORS

Following their appointment, the Provisional Liquidators undertook a search for potential investors to facilitate a restructuring of I-China.

On 17 February 2003, the Stock Exchange informed I-China that I-China had been placed into the third stage of the delisting procedures in accordance with Practice Note 17 of the Listing Rules and that I-China was required to submit a resumption proposal to the Stock Exchange within six months.

On 11 August 2003, the Provisional Liquidators and Wai Kee jointly submitted the Restructuring Proposal to the Stock Exchange. Following a review hearing by the Listing (Review) Committee on 28 October 2003, the Listing (Review) Committee informed the Provisional Liquidators on 4 November 2003 that the Provisional Liquidators may proceed with the Restructuring Proposal. On 20 November 2003, I-China, the Provisional Liquidators, Wai Kee and the Escrow Agent signed the Restructuring Agreement.

By a Bermuda Court order dated 8 January 2004, the Bermuda Court appointed Messrs. Cosimo Borrelli and Fan Wai Kuen, both of RSM Nelson Wheeler Corporate Advisory Services Limited, together with Mr. R. Craig Christensen of Arthur Morris and Co. of Hamilton Bermuda, as joint and several provisional liquidators of I-China in Bermuda.

The Provisional Liquidators have received in-principle support for the Restructuring Proposal from the Creditors representing approximately 87% of the total estimated indebtedness of I-China as at the Latest Practicable Date.

The Proposed Restructuring, if successfully implemented, will result in, amongst other things, the following upon Completion:

(i) a restructuring of the share capital of I-China by way of the Capital Restructuring;
(ii) all the Creditors discharging and waiving their claims against I-China pursuant to the Schemes;
(iii) the financial position of the I-China Group will be improved so that the I-China Group will have a pro forma unaudited adjusted consolidated net tangible asset value of not less than HK$40 million from an unaudited consolidated net liabilities of approximately HK$697 million as at 30 September 2003;
(iv) injection of the Top Tactic Group by Wai Kee into I-China;
(v) Wai Kee holding a controlling interest of approximately 94.8% in the issued share capital of I-China upon Completion (but before the Distribution and conversion of the I-China Preference Shares); and

— 10 —

LETTER FROM THE PROVISIONAL LIQUIDATORS

(vi) the resumption of trading in the I-China Shares upon Completion subject to sufficient public float being restored.

The purpose of this document is to provide you with information in relation to, amongst other things, the Proposed Restructuring and the financial information of the I-China Group, to include a letter from AMS setting out its advice to the Independent I-China Shareholders in respect of the Proposed Restructuring and the Whitewash Waiver, and to give you notice of the SGM at which resolutions will be proposed to seek your approval of, amongst other things, (i) the Restructuring Agreement which, amongst other things, includes the Capital Restructuring, the Debt Restructuring and the Whitewash Waiver; (ii) the Subscription Agreement; (iii) the appointment of new I-China Directors to be nominated by Wai Kee conditional on Completion; (iv) the removal of all current I-China Directors on Completion; (v) the granting of general mandate to future I-China Directors to exercise the powers of I-China to issue, allot or deal with additional New I- China Shares as set out in the notice of the SGM; and (vi) the granting of general mandate to future I-China Directors to repurchase New I-China Shares as set out in the notice of the SGM. The notice of the SGM is set out on pages 201 to 208 of this document.

Trading in the I-China Shares has been suspended at the request of I-China since 10:00 a.m. on 15 January 2002 and will remain suspended until Completion and until a sufficient public float has been restored.

Following the appointment of the Provisional Liquidators to I-China, the powers of the I-China Directors, including an independent non-executive director, have been suspended. As a result, no independent board committee of I-China has been formed and AMS has been appointed to advise the Independent I-China Shareholders in respect of the Proposed Restructuring and the Whitewash Waiver. The letter from AMS to the I-China Shareholders is set out on pages 41 to 74 of this document.

2. EXISTING BUSINESS OF THE I-CHINA GROUP

The I-China Group has been engaged in the car rental business in Hong Kong through Trinity which leases motor vehicles to customers on a contract basis in return for rental income and which commenced business in the early 1990s. However, due to a lack of working capital, the car rental operation has been maintained on a limited scale in recent years. The unaudited turnover of Trinity was approximately HK$2.5 million and approximately HK$0.4 million for the financial year ended 31 March 2003 and for the six months ended 30 September 2003 respectively. The unaudited net loss was approximately HK$1.5 million and approximately HK$0.08 million for the financial year ended 31 March 2003 and for the six months ended 30 September 2003 respectively.

— 11 —

LETTER FROM THE PROVISIONAL LIQUIDATORS

The investment properties situated in the PRC were recorded in the audited accounts of the I-China Group for the year ended 31 March 2002 at HK$147,800,000. According to I-China’s annual report for the year ended 31 March 2002, the I-China Group was in the process of obtaining the Certificate for Housing Ownership of these properties.

Since their appointment, the Provisional Liquidators have appointed PRC legal advisers to ascertain the status of the I-China Group’s titles to the investment properties situated in the PRC. The PRC legal advisers confirmed that the I-China Group does not have the legal titles to the investment properties. Accordingly, the amount of HK$147,800,000 has been provided in full in the audited financial statements of the I-China Group for the year ended 31 March 2003 as set out in Appendix I of this document.

For the financial year ended 31 March 2003, the audited net book value of the land and buildings was HK$4,900,000. As disclosed in note 15 to the financial statements of the I-China Group as set out on page 102 of this document, the land and buildings have been foreclosed by a secured creditor. The land and buildings will be excluded from the I-China Group upon Completion as a result of the exclusion of the I-China Group Companies pursuant to the Restructuring Agreement.

3. THE PROPOSED RESTRUCTURING

The Proposed Restructuring involves, among other things, the Capital Restructuring, the Debt Restructuring, the Subscription, the Group Reorganisation and the injection of the Top Tactic Group.

(A) The Capital Restructuring

The existing authorised share capital of I-China is HK$80,000,000 divided into 8,000,000,000 I-China Shares, of which 508,339,764 I-China Shares are issued and credited as fully paid up. Under the Proposed Restructuring, I-China’s share capital will be reorganised as follows:

(a) the issued share capital of HK$5,083,397.64 will be reduced by HK$3,812,548.23 to HK$1,270,849.41 by cancelling the paid-up capital to the extent of HK$0.0075 on each of the 508,339,764 issued shares of HK$0.01 each so that each of such issued shares shall be treated as one fully paid share of HK$0.0025. The credit of HK$3,812,548.23 arising from the Capital Reduction will be applied to eliminate an equivalent amount of I-China’s accumulated losses, which stood at approximately HK$978 million as at 31 March 2003;
(b) every four issued I-China Shares reduced pursuant to (a) above will be consolidated into one New I-China Share of HK$0.01. Accordingly, 508,339,764 issued shares of HK$0.0025 will be consolidated into 127,084,941 issued New I-China Shares of HK$0.01 each;

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LETTER FROM THE PROVISIONAL LIQUIDATORS

(c) the unissued share capital of HK$74,916,602.36 in the authorised share capital of HK$80,000,000 of I-China will be cancelled and diminished resulting in an authorised and issued share capital of HK$1,270,849.41; and
(d) the authorised share capital of I-China will be increased from HK$1,270,849.41 to HK$200,000,000 divided into 17,000,000,000 New I- China Shares and 3,000,000,000 I-China Preference Shares, including 6,314,084,941 issued New I-China Shares and 10,685,915,059 unissued New I-China Shares and 3,000,000,000 issued I-China Preference Shares upon Completion.

The existing board lot size of the I-China Shares is 2,000 each and the New I-China Shares will be traded in board lots of 20,000 each. The Capital Restructuring will become effective upon Completion.

(B) The Debt Restructuring

As at the Latest Practicable Date, based on the books and records of I-China and the notices of claim received by the Provisional Liquidators, the estimated indebtedness due by I-China to the Creditors is approximately HK$569 million (comprised of secured debts of approximately HK$115 million secured by a US$10 million debenture granted by Seapower Consortium Company Limited, a subsidiary of I-China, and land and buildings of the I-China Group of approximately HK$4.9 million as at 31 March 2003 and unsecured debts of approximately HK$454 million), including borrowings of approximately HK$545 million due to financial Creditors, as to approximately HK$9 million due to other Creditors, approximately HK$6 million due to the Petitioning Creditor and approximately HK$9 million due to subsidiaries of I-China. Ms. Shirley Choi Siu Lui and Mr. Norman Choi Sung Fung, both I-China Directors, have filed notices of claim with the Provisional Liquidators in relation to claims for directors’ remuneration. Save for the above and based on the information currently available to the Provisional Liquidators, none of the Creditors are connected persons (as defined in the Listing Rules) of I- China.

The Creditors’ claims will be subject to formal adjudication by the Scheme Administrators once the Schemes have become effective.

The purpose of the Schemes is to release and discharge all of the indebtedness of I-China. Since the I-China Group Companies will be excluded from the I-China Group after Completion in accordance with the terms of the Restructuring Agreement, upon Completion, their respective indebtedness of approximately HK$145 million will be excluded from the restructured I-China Group. Trinity and its indebtedness of approximately HK$8 million will remain in the I-China Group post Completion in accordance with the Restructuring Agreement.

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LETTER FROM THE PROVISIONAL LIQUIDATORS

Pursuant to the Schemes, in consideration of the Creditors’ discharging and waiving all their claims of approximately HK$569 million against I-China, the Scheme Administrators will receive the following (which has an estimated value of HK$24 million) for distribution (on a pro-rata basis pursuant to the terms of the Schemes) to the Creditors:

(a) HK$22 million in cash from the proceeds of the Subscription to be paid by Wai Kee upon Completion;
(b) 200,000,000 New I-China Shares of HK$0.01 each (representing approximately 3.2% of the issued share capital of I-China upon Completion but before the conversion of the I-China Preference Shares);
(c) the granting of the Creditors Put Option by Wai Kee to the Creditors and/or the Scheme Administrators to sell all or part of the 200,000,000 New I-China Shares to Wai Kee at a price of HK$0.01 per New I-China Share exercisable within 90 days after the expiry of two years following Completion. The Creditors Put Option is exercisable by the Creditors at their sole discretion; and
(d) any cash held by I-China as at the date of Completion.

The Schemes will become effective and binding on all the Creditors if, among other things, (i) more than 50% in number representing more than 75% in value of the indebtedness of all the Creditors who attend and vote in person or by proxy in the relevant Creditors’ meeting or meetings vote in favour of the Schemes; and (ii) the Courts have sanctioned the respective Schemes.

As detailed in the paragraph headed (D) “Group reorganisation” below, pursuant to the Proposed Restructuring, all the I-China Group Companies will be transferred to the Provisional Liquidators or Scheme Administrators (or their nominees) at a nominal consideration of HK$1. The shares of the I-China Group Companies shall be held on trust for the Creditors in accordance with the terms of the Debt Restructuring.

(C) The Subscription

Immediately after the implementation of the Capital Restructuring, Wai Kee shall subscribe and I-China shall allot and issue 5,987,000,000 New I-China Shares at HK$0.01 each (representing approximately 94.8% of the enlarged issued share capital of I-China before the Distribution, the exercise of the Creditors Put Option and the conversion of the I-China Preference Shares) and 3,000,000,000 I-China Preference Shares in accordance to the terms of the Restructuring Agreement and the Subscription Agreement.

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LETTER FROM THE PROVISIONAL LIQUIDATORS

The total consideration for the Subscription payable by Wai Kee is HK$89.87 million, which will be satisfied as follows:

HK$29.87 million in cash; and
HK$60 million by way of the injection of the Top Tactic Group by Wai Kee into I-China, including HK$60 million as the consideration for injecting the Amazing Reward Group and HK$1 as a nominal consideration for injecting the Zen Pacific Group into I-China.

The cash consideration of HK$29.87 million will be financed from Wai Kee’s internal resources. Wai Kee has deposited HK$2 million into an account of the Escrow Agent pursuant to the Restructuring Agreement. The consideration for the Top Tactic Group of HK$60 million, represents a premium of approximately 100% and approximately 13% to the audited combined net tangible assets of the Top Tactic Group as at 31 December 2002 and as at 31 October 2003 respectively (as set out in the paragraph headed “(E) Injection of the Top Tactic Group” below). No valuation of the Top Tactic Group has been performed and the consideration for the Top Tactic Group was determined after arm’s length negotiations between the Provisional Liquidators and Wai Kee with reference to the earning potential and the value of contracts on hand of the Top Tactic Group at the time when the Restructuring Proposal was entered.

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LETTER FROM THE PROVISIONAL LIQUIDATORS

(D) Group reorganisation

Set out below is a simplified group chart of the I-China Group before and after the Proposed Restructuring:

Before Completion

==> picture [249 x 379] intentionally omitted <==

----- Start of picture text -----

I-China
100% 100%
I-China Group
Trinity
Companies
I-China
100% 100%
Top Tactic
Trinity Holdings Limited
(Notes 1 & 2)
100% 100%
Zen Pacific
Construction Amazing Reward
Limited Group Limited
(Note 2)
(Note 2)
100%
Zen Pacific
100%
Civil Contractors
Limited
Leader Civil
ConstructionHsin Lung Engineering Leader Marine
Corporation Contractors Limited
Company Limited Limited
Leader Wai Kee China Wai Kee (Zens)
Construction Construction Construction &
Company Limited Company Limited Transportation
Company Limited
----- End of picture text -----

After Completion

Notes:

The subsidiaries of Top Tactic Holdings Limited disclosed in the above diagram represent the principal subsidiaries of the Top Tactic Group.
Top Tactic Holdings Limited will become the holding company of the Amazing Reward Group and the Zen Pacific Group pursuant to a group reorganisation before Completion.

With the exception of Trinity which operates the car rental business in Hong Kong, all members of the I-China Group are dormant. For details of the I-China Group Companies, please refer to note 34 to the financial statements of the I- China Group as set out in pages 114 to 116 of this document. Pursuant to the

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LETTER FROM THE PROVISIONAL LIQUIDATORS

Proposed Restructuring, all the I-China Group Companies will be transferred to the Provisional Liquidators or the Scheme Administrators (or their nominees) at a nominal consideration of HK$1. The shares of the I-China Group Companies shall be held on trust for the Creditors in accordance with the terms of the Debt Restructuring. Following Completion, the I-China Group will comprise I-China, Trinity and the Top Tactic Group. Particulars of the Top Tactic Group are set out on pages 136 to 139 of this document.

Other than the Petition, there is another winding up petition which has been issued against a subsidiary of I-China, Seapower Trading Company Limited, in relation to which a winding up order has been made. Since Seapower Trading Company Limited will be excluded from the restructured I-China Group, this winding up order will have no impact on the restructured I-China Group.

Save as described above, as at the Latest Practicable Date, there was no winding up petition against I-China, the Top Tactic Group and Trinity. As the winding up petition against I-China will be withdrawn conditional on Completion, there will not be any winding up petition against any member of the restructured I-China Group upon Completion.

Wai Kee has also been provided with an option, exercisable at its sole discretion before Completion, to transfer the entire issued share capital of Trinity to the Provisional Liquidators or the Scheme Administrators (or their nominees) on trust for the Creditors at the nominal value of HK$1. The Trinity Option is to allow time for Wai Kee to finalise their future plans for the restructured I-China Group. As at the Latest Practicable Date, Wai Kee had no intention of exercising the Trinity Option. Further announcement in this regard will be made as and when appropriate. It is the intention of Wai Kee to continue the car rental business as part of the restructured I-China Group subject to the results of its operational review post Completion. The unaudited net liabilities of Trinity as at 30 September 2003 were approximately HK$5.4 million. Set out below is a summary of the financial performance of Trinity for the two years ended 31 March 2003 as well as the six months period ended 30 September 2003:

	For the	For the	For the six
	year ended	year ended	months ended
	31 March	31 March	30 September
	2002	2003	2003
	(Unaudited)	(Unaudited)	(Unaudited)
	HK$ million	HK$ million	HK$ million
Turnover	3.5	2.5	0.4
Net profit/(loss)	0.1	(1.5)	(0.08)
Negative net tangible assets	(3.8)	(5.3)	(5.4)

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LETTER FROM THE PROVISIONAL LIQUIDATORS

(E) Injection of the Top Tactic Group

Pursuant to the Restructuring Proposal, Wai Kee will inject the Top Tactic Group into I-China for a total consideration of HK$60 million. Top Tactic Holdings Limited was incorporated with limited liability in the BVI on 28 November 2003. After a restructuring to be implemented by Wai Kee prior to Completion, Top Tactic Holdings Limited will become the holding company of the Top Tactic Group. The Top Tactic Group shall represent the entire construction business of Wai Kee, which shall comprise the Amazing Reward Group and the Zen Pacific Group.

As a result of a group reorganisation of Wai Kee in 2002, most of the major projects and joint ventures of the Zen Pacific Group were transferred to the Amazing Reward Group and the Amazing Reward Group became the construction flagship of Wai Kee thereafter. The principal activities of the Top Tactic Group are the undertaking of civil construction projects mainly for the public sector in Hong Kong, the PRC and Taiwan. At present, contracts on hand of the Top Tactic Group comprise of mainly civil engineering projects obtained from the Hong Kong Government and public utilities in Hong Kong and Taiwan. Unlike the Amazing Reward Group which holds various construction licences issued by the Hong Kong Government which enables it to tender for new projects in relation to public civil works, the Zen Pacific Group voluntarily surrendered its construction licences in September 2002 and therefore does not hold the appropriate construction licences. Accordingly, the Zen Pacific Group will not be able to tender for new projects in relation to public civil works in the near future. Although the Wai Kee Directors are not able to assess the possibility of regaining the surrendered licences, given its experience and expertise in the construction industry, the Zen Pacific Group is expected to apply for the relevant construction licences previously held by Zen Pacific Civil and tenders for new projects in the medium-term. The injection of the Zen Pacific Group can provide a clear delineation between the businesses of the restructured I-China Group and the remaining Wai Kee Group after Completion such that the remaining Wai Kee Group will not engage in any construction business post Completion. In addition, Zen Pacific Civil has substantial experience and a long established track record in the construction industry and thus its injection is expected to provide a competitive advantage for I-China in tendering for new projects after Completion.

The Arbitration Settlement

As disclosed in the announcements of Wai Kee dated 22 and 25 September 2003 in relation to the Arbitration Settlement, a settlement agreement was entered into between the HKHA, Zen Pacific Civil and Wai Kee on 24 September 2003 pursuant to which HK$80 million will be paid to the HKHA. As the settlement amount was in excess of the aggregate of the provision of HK$60 million previously made in

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LETTER FROM THE PROVISIONAL LIQUIDATORS

the financial statements of the Wai Kee Group for the year ended 31 March 2000 and the net asset value of the Zen Pacific Group of approximately HK$10.5 million as at 30 June 2003, Wai Kee has provided a guarantee to the HKHA for the performance by Zen Pacific Civil of its obligations under the settlement agreement. Wai Kee has undertaken to I-China that after deducting the settlement amount of HK$80 million pursuant to the Arbitration Settlement, the Zen Pacific Group will have a positive net tangible asset value at Completion. It has been agreed between Wai Kee and the Provisional Liquidators that any residual net tangible asset value of the Zen Pacific Group after the Arbitration Settlement at Completion will remain with the Zen Pacific Group. Based on the net tangible asset value of the Zen Pacific Group of approximately HK$2.9 million as at 31 October 2003, after taking into account the provision of HK$80 million in relation to the Arbitration Settlement, it is expected that the net tangible asset value of the Zen Pacific Group will be positive at Completion.

In light of the settlement with the HKHA and the guarantee and undertaking provided by Wai Kee, the Zen Pacific Option is now redundant and will not be taken up or implemented. The Zen Pacific Option was originally designed and granted by Wai Kee during the negotiation of the Restructuring Proposal to protect the interests of the restructured I-China Group and I-China Shareholders from any adverse decision from the arbitration if the arbitration was not settled prior to the Completion. The Zen Pacific Option would have allowed I-China a right to transfer all of its interest in the Zen Pacific Group back to Wai Kee for a nominal value of HK$1 (the same as the purchase price for the Zen Pacific Group) in the event that, on the date the settlement agreement was signed, the settlement amount due to the HKHA, net of the provision made for the award, exceeds the net tangible asset value of the Zen Pacific Group immediately after the Arbitration Settlement. In light of the Arbitration Settlement the Zen Pacific Option is now no longer relevant to the Proposed Restructuring and the information set out herein in relation to Zen Pacific Option is for information purposes only.

At as the Latest Practicable Date, the Top Tactic Group had no outstanding litigation save for that associated with a claim of HK$72,000 from a subcontractor which is being defended and the hearing date is yet to be determined.

Financial information of the Top Tactic Group

The audited net liabilities of the Top Tactic Group was approximately HK$4 million as at 31 March 2001 and the audited net tangible asset value of the Top Tactic Group was approximately HK$13 million, HK$30 million and HK$53 million as at 31 March 2002, 31 December 2002 and 31 October 2003 respectively. The table below sets out a summary of the audited combined results of the Top

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LETTER FROM THE PROVISIONAL LIQUIDATORS

Tactic Group for the two years ended 31 March 2002, the nine months ended 31 December 2002 and the ten months ended 31 October 2003.

					For the
				For the nine	ten months
	For the			months ended	ended
	year ended 31		March	31 December	31 October
	2001		2002	2002	2003
	HK$ ‘million	HK$	‘million	HK$ ‘million	HK$ ‘million
Turnover	1,330		1,068	524	554
Net profit/(loss)	(9)		24	9	22

As set out above, the turnover of the Top Tactic Group over the two years ended 31 March 2002 and the nine months ended 31 December 2002 decreased as a result of the depressed economy and property market in Hong Kong throughout this period. However, the Top Tactic Group recorded profits for the financial year ended 31 March 2002 and thereafter as the Top Tactic Group substantially completed certain major contracts during such periods. For the ten months ended 31 October 2003, the Top Tactic Group recorded a significant increase in profit as a result of completion of a number of major projects of its jointly controlled entities which contributed more than HK$80 million in profit. The Wai Kee Directors are of the view that the construction market in Hong Kong may not be able to recover in the short term. However, the Top Tactic Group, and in particular, the Amazing Reward Group, will try to capitalise on the government’s new procurement policy introduced in November 2002 in respect of its projects. Unlike the former practice, under which construction projects were usually awarded to the lowest tender, the new policy adopted includes a marking scheme which gives a weighting of 40% to tender’s performance rating based on past record and 60% to the tender price. At present, two subsidiaries of the Top Tactic Group, both of which are members of the Amazing Reward Group, have the required track record and therefore provide a competitive edge in tendering for new projects.

In addition, in view of the anticipated increased demand in construction work for the environmental sector in the PRC, as a result of the increasing population of the major cities in the PRC, the Wai Kee Directors believe that the Top Tactic Group should also focus on this area including sanitary landfill projects which involves the construction of infrastructure to accommodate and process household refuse. In June 2003, the Top Tactic Group invested RMB30 million in an investment holding company in the PRC whose investment targets are companies undertaking waste management projects in the PRC, including incinerators and refuse landfill. The Wai Kee Directors anticipate that this investment will assist the long-term development of the Top Tactic Group in the environmental sector of the construction industry in the PRC.

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LETTER FROM THE PROVISIONAL LIQUIDATORS

For details of the financial information of the Top Tactic Group, please refer to Appendix II to this document.

4. CONDITIONS PRECEDENT TO COMPLETION

Completion of the transactions contemplated under the Restructuring Agreement will be subject to, amongst others, the fulfillment of the following:

(a) the Courts sanctioning the Schemes;
(b) all necessary resolutions being passed by the Independent I-China Shareholders approving:
(i) the Subscription and the allocation of certain New I-China Shares to the Creditors;
(ii) the Capital Restructuring;
(iii) the appointment of a number of new directors to I-China (such number to be agreed between Wai Kee and I-China) and the removal of a number of current I-China Directors (such number to be agreed between Wai Kee and I-China) conditional only upon Completion taking place;
(iv) the removal and appointment of I-China’s auditors on Completion (the audited accounts of I-China for the financial year ended 31 March 2003 were audited by DTT);
(v) the granting of the Whitewash Waiver by the Executive in respect of any obligation on Wai Kee and its Concert Parties to make a mandatory general offer in compliance with Rule 26 of the Takeovers Code for all the New I-China Shares after Completion as a result of the Subscription. The Whitewash Waiver, if granted, is subject to the Independent I-China Shareholders’ approval by way of poll at the SGM; and
(vi) all transactions contemplated under the Restructuring Agreement and the Subscription Agreement;
(c) either: (i) conditional confirmation from the Stock Exchange that it approves the resumption of trading in the I-China Shares and the commencement of trading in the New I-China Shares; or (ii) confirmation from the Stock Exchange that it approves I-China’s draft announcement in respect of, inter alia, the resumption of trading in the I-China Shares and the commencement of trading in the New I-China Shares;
(d) the Listing Committee of the Stock Exchange granting the listing of, and permission to deal in, the New I-China Shares in issue on Completion and to be issued pursuant to the Restructuring Agreement and the Subscription Agreement;

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LETTER FROM THE PROVISIONAL LIQUIDATORS

(e) confirmation that the Executive has granted the Whitewash Waiver to Wai Kee pursuant to Note 1 on dispensations from Rule 26 of the Takeovers Code;
(f) consent of the Bermuda Monetary Authority to the issue of the New I-China Shares, the I-China Preference Shares and the free transferability of the New I- China Shares and the I-China Preference Shares;
(g) withdrawal of the Petition by the Petitioning Creditor and the discharge of the Provisional Liquidators conditional only upon Completion;
(h) the Subscription Agreement being entered into between the relevant parties; and
(i) the put option agreement being entered into between the relevant parties.

Pursuant to the Restructuring Agreement, none of the above conditions precedent can be waived. Subsequent to the execution of the Restructuring Agreement and the publication of the Announcement, it was decided that DTT would be retained as auditors of I-China after Completion. Further, as the terms of the Creditors Put Option will be incorporated in the Schemes, there will not be a separate put option agreement. Accordingly, the Provisional Liquidators and the Wai Kee Directors are preparing the necessary documentation to remove conditions precedent 4(b)(iv) and 4(i) as originally set out in the Restructuring Agreement. Further announcement with respect to the above will be made in due course. Save for the above, none of the other conditions precedent can be waived. If any of the above conditions, save for 4(b)(iv) and 4(i) above, have not been fulfilled within 180 days of the date of the publication of the Announcement or such later date as I-China, the Provisional Liquidators and Wai Kee may agree in writing, pursuant to the terms of the Restructuring Agreement, the Restructuring Agreement will lapse. If the Whitewash Waiver is not granted by the Executive and approved by the majority of the Independent I-China Shareholders at the SGM, the Restructuring Agreement will lapse and the Proposed Restructuring will not be implemented. All transactions contemplated under the Restructuring Agreement are inter-conditional. As at the Latest Practicable Date, none of the above conditions precedent had been fulfilled.

5. PRINCIPAL TERMS OF THE I-CHINA PREFERENCE SHARES

The terms of the I-China Preference Shares are subject to the Subscription Agreement to be entered into prior to the Completion.

The I-China Preference Shares shall entitle their holders thereof the right to convert their I-China Preference Shares into full-paid New I-China Shares at any time after the date of issuance of the I-China Preference Shares but before the seventh anniversary of such date at the conversion price (“Conversion Price”) of HK$0.01 per New I-China Share. The Conversion Price will be subject to adjustment in certain circumstances, including subdivision or consolidation of the share capital of I-China, bonus issue,

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LETTER FROM THE PROVISIONAL LIQUIDATORS

rights issue and other dilutive events, according to commonly used adjustment formulae. Each I-China Preference Share shall automatically be converted into such number of New I-China Shares to be determined by the issue price of such I-China Preference Shares divided by the then effective applicable Conversion Price on the seventh anniversary of the date of issuance of the I-China Preference Shares. Any conversion of the I-China Preference Shares will dilute any New I-China Shares held at the time of conversion.

If I-China shall issue additional shares after Completion for a consideration per share less than the Conversion Price in effect, the Conversion Price shall be reduced concurrently with such issues.

Holders of the I-China Preference Shares shall be entitled to receive dividends at the rate of 2% per annum at its issue price. The holders of I-China Preference Shares shall be entitled to receive dividends prior to and in preference to the holders of the New I- China Shares. No dividend, whether in cash, in property or in shares of I-China, shall be allowed to be paid on any other class or series of shares of I-China unless and until the dividend payable to holders of the I-China Preference Shares was first paid or granted in full on the I-China Preference Shares. The dividends payable to the holders of I-China Preference Shares shall be cumulative.

In the event of liquidation or a return of capital of I-China, holders of the I-China Preference Shares shall be entitled to receive an amount prior and in preference to any distribution of any asset of I-China to the holders of the New I-China Shares. Any remaining assets of I-China will be distributed rateably amongst the holders of the New I-China Shares.

The holder of each I-China Preference Share shall not have any voting rights.

The I-China Preference Shares shall be non-redeemable and will not be listed on any stock exchange.

6. EFFECTS OF THE PROPOSED RESTRUCTURING

(a) Share Capital

The proposed changes in the share capital of I-China are illustrated in section 1 of Appendix I to this document.

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LETTER FROM THE PROVISIONAL LIQUIDATORS

(b) Shareholding Structure

The following table shows the estimated changes in the shareholding of I-China upon Completion.

As at the Latest Practicable Date No. of I-China Shares (million) % Wai Kee — — Mr. Zen Wei Peu, Derek_(Note 3) — Mr. Wong Che Ming, Steve(Note 4) — — Wai Kee and its Concert Parties — — Mr. Choi Sai Leung (Note 5) 127 25.0 Creditors — — Existing I-China Shareholders (Note 6) 381 75.0 The bankruptcy trustee of Mr. Choi Sai Leung (Note 5) — — Existing Wai Kee’s Shareholders (Note 7)_ — — Public 508 100.0 Total 508 100.0	Immediately upon Completion but before the Distribution (Note 1) No. of New I-China Shares (million) % 5,987 94.8 — — — — 5,987 94.8 — — 200 3.2 95 1.5 32 0.5 — — 327 5.2 6,314 100.0	Immediately upon Completion and after the Distribution and exercise of the Creditors Immediately Put Option upon in full but before Completion conversion of and after the I-China the Distribution Preference Shares (Note 1) No. of No. of New New I-China I-China Shares Shares (million) % (million) % 3,788 60.0 3,988 63.2 495 7.8 495 7.8 — — — — 4,283 67.8 4,483 71.0 — — — — 200 3.2 — — 95 1.5 95 1.5 32 0.5 32 0.5 1,704 27.0 1,704 27.0 2,031 32.2 1,831 29.0 6,314 100.0 6,314 100.0	Upon exercise of the Creditors Put Option in full and full conversion of the I-China Preference Shares (Note 2) No. of New I-China Shares (million) % 6,988 75.0 495 5.3 — — 7,483 80.3 — — — — 95 1.0 32 0.4 1,704 18.3 1,831 19.7 9,314 100.0	Upon exercise of the Creditors Put Option in full and full conversion of the I-China Preference Shares (Note 2) No. of New I-China Shares (million) % 6,988 75.0 495 5.3 — — 7,483 80.3 — — — — 95 1.0 32 0.4 1,704 18.3 1,831 19.7 9,314 100.0
				80.3 — — 1.0 0.4 18.3
				19.7
				100.0

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LETTER FROM THE PROVISIONAL LIQUIDATORS

Notes:

Assumes no conversion of the I-China Preference Shares.
Wai Kee has undertaken to I-China and the Stock Exchange that it will not convert the I- China Preference Shares if such conversion will result in the public float of the enlarged issued share capital of I-China from time to time falling below 25%, or the minimum public float requirement as stipulated under Rule 8.08 of the Listing Rules.
Mr. Zen Wei Peu, Derek is one of the proposed new I-China Directors and is a Wai Kee Shareholder.
Mr. Wong Che Ming, Steve, is an independent non-executive Wai Kee Director, who currently holds 129,000 I-China Shares, representing approximately 0.025% of the existing issued share capital of I-China and 0.002% of the enlarged issued share capital of I-China immediately upon Completion but before the conversion of the I-China Preference Shares.
Based on the information available to date, other than Mr. Choi Sai Leung, who is a I-China Director and was declared bankrupt by the High Court of Hong Kong on 3 April 2002, the existing I-China Directors did not hold any I-China Shares as at 31 March 2002. Upon Completion, the bankruptcy trustee of Mr. Choi Sai Leung, will be holding 31,786,070 New I-China Shares for the benefit of the creditors of Mr. Choi Sai Leung.
The existing I-China Shareholders are classified as “public” post Completion because the existing I-China Shareholders are not connected persons (as defined in the Listing Rules) of I-China post Completion.
This entry excludes the shareholding interest of Mr. Zen Wei Peu, Derek.

As set out in the above table, immediately upon Completion but before the Distribution and the conversion of the I-China Preference Shares, Wai Kee together with its Concert Parties will be interested in approximately 94.8% of the enlarged issued share capital of I-China. After the Distribution, the exercise of the Creditors Put Option and the conversion of the I-China Preference Shares, Wai Kee will be interested in approximately 75% of the enlarged issued share capital of I-China.

(c) Working capital

Pursuant to the Restructuring Agreement, Wai Kee will provide financial resources to meet I-China’s working capital requirements for its operations prior to and if necessary, after Completion in the following manner:

Interim working capital of the I-China Group before Completion

Wai Kee will advance working capital up to HK$10,000 per month to I-China during the course of the restructuring to continue I-China’s existing business, subject to a maximum amount of HK$60,000, which shall be treated as an interest-

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LETTER FROM THE PROVISIONAL LIQUIDATORS

free loan from Wai Kee to I-China and will be repayable on demand provided that the I-China Group has sufficient working capital for its on-going operations and any repayment.

Post Completion Working Capital

The proposed new executive I-China Directors and the Wai Kee Directors are of the opinion that, in the absence of unforeseen circumstances as well as taking into account the present working capital and the available banking facilities of the Top Tactic Group, the I-China Group will have sufficient working capital for the 12 months period post Completion.

In addition, Wai Kee, as a guarantor, has made available, through a commercial bank, standby interest-bearing banking facilities of HK$45 million to the Top Tactic Group, which are drawable on demand by the Top Tactic Group. The interest rates of these banking facilities are in line with the prevailing market rate and were based on arm’s length negotiations. As at the Latest Practicable Date, approximately HK$21 million of the HK$45 million banking facilities had been utilised. The Wai Kee Directors expect to repay such utilised banking facilities before the end of February 2004. The Wai Kee Directors are of the opinion that, in the absence of unforeseen circumstances, the full banking facilities of HK$45 million will continue to be available to the Top Tactic Group for the 12 months period post Completion. Further, Wai Kee will advance up to HK$1 million additional working capital by way of shareholder’s loan to meet the working capital requirements of the restructured I-China Group if necessary. Wai Kee will comply with the applicable requirements of Chapter 14 of the Listing Rules after Completion in this regard.

(d) Indebtedness

As at the Latest Practicable Date, I-China’s estimated indebtedness was approximately HK$569 million and the indebtedness of the I-China Group as at 30 September 2003 was approximately HK$713 million. Following the Proposed Restructuring, all the indebtedness of I-China will be discharged and waived pursuant to the Schemes. The effect of the Proposed Restructuring on the indebtedness of the I-China Group is set out under the section headed (B) “The Debt Restructuring” on page 13 of this document.

None of the companies in the I-China Group had any outstanding mortgage, charge or debenture, loan capital, bank overdraft, loan, debt security or other similar indebtedness or any hire purchase commitment, finance lease commitment, guarantee or other material contingent liability at the close of business on the Latest Practicable Date other than those in respect of the above indebtedness and intra-group liabilities.

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LETTER FROM THE PROVISIONAL LIQUIDATORS

(e) Net Assets

As detailed in section 1 headed “Pro forma unaudited adjusted consolidated net tangible assets of the I-China Group upon Completion” in Appendix III to this document, the pro forma unaudited adjusted consolidated net tangible assets of the I-China Group upon Completion will be approximately HK$46 million, representing approximately 0.7 cent per New I-China Share immediately following Completion. This represents an improvement of approximately HK$727 million to the negative net tangible assets of the I-China Group as at 31 March 2003 which amounted to approximately HK$681 million or HK$(1.34) per I-China Share.

7. USE OF PROCEEDS FROM THE SUBSCRIPTION

The aggregate cash proceeds of HK$29.87 million from the Subscription will be applied as follows:

HK$22 million to be paid to the Creditors under the Schemes; and
the balance of HK$7.87 million for the settlement of the restructuring costs and expenses to be incurred in relation to the implementation of the Restructuring Proposal.

8. DIRECTORS AND MANAGEMENT

The current I-China Board comprises Ms. Shirley Choi Siu Lui, Mr. Norman Choi Sung Fung, Ms. Ou Yirong and Mr. Vincent Cheung Wing Hung as executive directors, Mr. Choi Sai Leung as a non-executive director and Mr. Ronald Lau Kin Hon as an independent non-executive director. Pursuant to the order by the Hong Kong Court, the Provisional Liquidators were appointed to I-China on 5 December 2002. The powers of the I-China Directors have been suspended since then and therefore no independent board committee has been formed. Upon Completion, the Petition will be withdrawn and the Provisional Liquidators will be discharged. The proposed new I-China Directors to be nominated by Wai Kee will be appointed to I-China and all current I-China Directors will be removed. The proposed new I-China Directors will take office without any restriction on their powers save as specified in the Bye-Laws of I-China. Details of the proposed new I-China Directors are contained in the paragraph headed “Future intentions of Wai Kee” in the “Letter from Wai Kee” as set out on pages 36 to 40 of this document.

9. INTENTIONS OF WAI KEE

Further details of the intentions of Wai Kee with respect to the I-China Group after Completion are set out in the “Letter from Wai Kee”.

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LETTER FROM THE PROVISIONAL LIQUIDATORS

The Provisional Liquidators consider that Wai Kee’s future intentions with respect to the I-China Group are in the best interest of I-China and its shareholders, particularly when I-China’s current financial position is taken into account. If I-China is unable to restructure its indebtedness with its Creditors as set out in the Proposed Restructuring, the Provisional Liquidators believe that there is a strong likelihood that I-China will be wound up. Should I-China be wound up, there is unlikely to be any return to the Creditors and I-China Shareholders.

10. REASONS FOR THE PROPOSED RESTRUCTURING

I-China had suffered audited consolidated net losses of approximately HK$222 million and approximately HK$184 million for the financial years ended 31 March 2002 and 31 March 2003 respectively. As at 31 March 2003, the total audited liabilities of the I-China Group were approximately HK$697 million, of which approximately HK$549 million were bank and other borrowings. The audited consolidated net liabilities of the I-China Group were approximately HK$681 million as at 31 March 2003.

After taking into account the current financial position of the I-China Group and other alternative restructuring proposals received by I-China, the Provisional Liquidators believe that the Restructuring Proposal represents the best option available to I-China, the Creditors and the I-China Shareholders.

If the Proposed Restructuring is successfully implemented, all I-China’s indebtedness of approximately HK$569 million as at the Latest Practicable Date will be released and discharged pursuant to the Schemes. This indebtedness of approximately HK$569 million is included for indicative purposes only and remains subject to formal adjudication by the Scheme Administrators once the Schemes are implemented. If I-China is unable to restructure its indebtedness with the Creditors, the Provisional Liquidators believe that there is a strong likelihood that I-China will be wound up. Should I-China be wound up, it is unlikely that there will be any return to the Creditors and the I-China Shareholders.

11. MAINTAINING THE LISTING STATUS OF I-CHINA

It is the intention of Wai Kee to maintain the listing status of I-China on the Stock Exchange upon Completion. Accordingly, Wai Kee intends to distribute approximately 2,199 million New I-China Shares (representing approximately 1,731.5% of the existing issued share capital of I-China immediately after the I-China Share Consolidation and approximately 34.8% of the enlarged issued share capital of I-China immediately after Completion but before the conversion of I-China Preference Shares) to the Wai Kee Shareholders upon Completion, on the basis of 14 New I-China Shares for every five Wai Kee Shares held by the Wai Kee Shareholders at the Record Date, so that the public float of I-China will be restored to not less than 25% in accordance with the requirements under Rule 8.08 of the Listing Rules before resumption of trading of the New I-China Shares.

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LETTER FROM THE PROVISIONAL LIQUIDATORS

Wai Kee has undertaken to I-China and the Stock Exchange that it will not convert the I-China Preference Shares if such conversion will result in the public float of the enlarged issued share capital of I-China from time to time falling below 25%, or the minimum public float requirement as stipulated under Rule 8.08 of the Listing Rules.

The Stock Exchange has stated that if less than 25% of the issued New I-China Shares are in public hands following Completion or if the Stock Exchange believes that:

a false market exists or may exist in the trading of the New I-China Shares; or
there are insufficient New I-China Shares in public hands to maintain an orderly market,

it will consider exercising its discretion to suspend trading in the New I-China Shares until a sufficient level of public float is attained.

Any acquisitions or disposals of assets by I-China will be subject to the provisions of the Listing Rules. Pursuant to the Listing Rules, the Stock Exchange has the discretion to require I-China to issue a document to I-China Shareholders irrespective of the size of the proposed transactions particular when such proposed transaction represents a departure from the principal activities of the I-China Group following Completion. The Stock Exchange also has the power to aggregate a series of acquisitions or disposals of I-China and any such transactions may result in I-China being treated as if it were a new listing applicant and subject to the requirements for new applicants as set out in the Listing Rules.

12. POSSIBLE ON-GOING CONNECTED TRANSACTIONS

Exempted connected transactions

Wai Kee has provided indemnities and guarantees in favour of third parties in respect of the obligations of members of the Top Tactic Group (which are wholly-owned subsidiaries of Wai Kee prior to Completion) pursuant to various construction contracts. It is common practice in the construction industry to require the holding company of a contractor to guarantee the performance of construction contracts in particular, construction contracts for public works. The Wai Kee Directors anticipate that it is likely that Wai Kee will be required to provide guarantees for new construction contracts to be entered into by members of the Top Tactic Group initially for a period of three years after Completion.

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LETTER FROM THE PROVISIONAL LIQUIDATORS

In consideration of the provision of guarantees for construction contracts and guarantees for banking facilities (together, the “Corporate Guarantees”), the details of which are set out in subparagraph headed “Working capital” under the paragraph headed “6. Effects of the Proposed Restructuring”. The Wai Kee Group has been charging the Top Tactic Group corporate guarantee fees based on normal commercial terms with reference to prevailing market rates charged by financial institutions in Hong Kong. For the two years ended 31 March 2002, the nine months ended 31 December 2002 and the ten months ended 31 October 2003, Wai Kee had provided guarantees for total contract sum of approximately HK$2,171 million, HK$2,145 million, HK$2,294 million and HK$2,447 million, respectively. For the two years ended 31 March 2002, the nine months ended 31 December 2002 and the ten months ended 31 October 2003, Wai Kee had provided guarantees for banking facilities of approximately HK$38 million, HK$42 million, HK$40 million and HK$45 million respectively. The policy of charging guarantees by the Wai Kee Group was first implemented in April 2002. For the nine months ended 31 December 2002 and the ten months ended 31 October 2003, the corporate guarantee fees in relation to the Corporate Guarantees charged by the Wai Kee Group to the Top Tactic Group amounted to approximately HK$2.1 million and HK$2.2 million respectively, representing approximately 0.1% and 0.1% of the total Corporate Guarantees (comprising the guarantees for construction contracts and banking facilities) for each of the corresponding periods. Although Wai Kee will be considered a connected person of I-China upon Completion, as the corporate guarantee fees have been charged on normal commercial terms and no security has been given by the Top Tactic Group in relation to the Corporate Guarantees, the corporate guarantee fees fall within the ambit of Rule 14.24(8) of the Listing Rules for I-China and therefore are not subject to any disclosure or I-China Shareholder’s approval requirements. The amount of corporate guarantee fees to be charged by the Wai Kee Group after Completion will continue to be based on the total contract sum of the projects of the Top Tactic Group (which Wai Kee is required by third parties to provide Corporate Guarantee), and the banking facilities guaranteed by Wai Kee. The Wai Kee Directors have confirmed that if corporate guarantee fees are charged by the Wai Kee Group to the Top Tactic Group in the future, they will be subject to similar terms.

As a result of the Distribution, certain directors of the Wai Kee Group will receive shares in I-China and become I-China Shareholders. The granting of financial assistance by Wai Kee to members of the Top Tactic Group which will be wholly-owned subsidiaries of I-China after Completion will therefore constitute connected transactions for Wai Kee under the Listing Rules. The Wai Kee Directors consider that it would not be practical to make regular disclosure of the above connected transactions pursuant to the Listing Rules. Therefore, Wai Kee will apply to the Stock Exchange for a waiver from strict compliance with the disclosure requirements under Rule 14.25(1) of the Listing Rules or the disclosure and the shareholders’ approval requirements under Rule 14.26 of the Listing Rules for a period of three financial years ending 31 December 2006. As at the Latest Practicable Date, a shareholder of Wai Kee who holds over 50% of the independent voting rights, has undertaken to Wai Kee to vote in favour of the resolution to be proposed at a special general meeting of Wai Kee to be convened to approve the resolution in respect of the connection transactions.

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LETTER FROM THE PROVISIONAL LIQUIDATORS

Other possible ongoing connected transactions

In the past, there have been transactions between the Top Tactic Group and the remaining Wai Kee Group after Completion (the “Remaining Wai Kee Group”) in relation to the provision of quarry products and management information system services. For the two years ended 31 March 2002, the nine months ended 31 December 2002 and the ten months ended 31 October 2003, the consideration paid by the Top Tactic Group to the Remaining Wai Kee Group for the provision of quarry products was approximately HK$1 million, HK$2.8 million, HK$8.3 million and HK$3.1 million respectively and the consideration paid by the Remaining Wai Kee Group to the Top Tactic Group for the provision of management information system services for the two years ended 31 March 2002, the nine months ended 31 December 2002 and the ten months ended 31 October 2003 was approximately HK$1.1 million, HK$0.6 million, HK$0.1 million and HK$0.1 million respectively. These transactions are expected to continue after Completion on an on-going basis and therefore will constitute on-going connected transactions for I-China under the Listing Rules upon Completion. As the consideration per year under each of the above transactions is estimated to be less than HK$10 million and will be conducted on normal commercial terms and in the ordinary and usual course of business of I- China, these transactions will be subject to the disclosure requirement of Rule 14.25(1) of the Listing Rules upon Completion. I-China shall comply with the applicable requirements under Chapter 14 of the Listing Rules, disclose full details of the transactions by way of press announcement and/or seek independent shareholders’ approval if the respective consideration of the above transactions payable to the Wai Kee Group exceeds the thresholds as set out in Rule 14.24(5) and/or Rule 14.25(1) of the Listing Rules or the relevant Listing Rules in force from time to time.

13. GENERAL MANDATES TO ISSUE AND REPURCHASE NEW I-CHINA SHARES

At the SGM, ordinary resolutions will be proposed to (i) grant a general mandate to the future I-China Directors to allot, issue and deal with additional New I-China Shares not exceeding 20% of the aggregate nominal amount of the issued share capital of I-China immediately following Completion; and (ii) add to such general mandate so granted to the future I-China Directors any New I-China Shares representing 10% of the aggregate nominal amount of the share capital of I-China repurchased by I-China pursuant to the repurchase mandate as detailed below.

In addition, an ordinary resolution will be proposed at the SGM to give future I-China Directors a general and unconditional mandate to repurchase New I-China Shares on the Stock Exchange up to a maximum of 10% of the issued share capital of I-China immediately following Completion.

An explanatory statement as required by the relevant provisions of the Listing Rules in connection with the repurchase mandate above is set out in Appendix IV to this document. The results of the resolutions to be proposed at the SGM in relation to the above general mandate and repurchase mandate will not affect Completion.

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LETTER FROM THE PROVISIONAL LIQUIDATORS

14. LISTING AND DEALINGS

No listing of the I-China Preference Shares will be sought on the Stock Exchange or any other stock exchanges. An application will be made to the Stock Exchange for the listing of, and permission to deal in the New I-China Shares to be allotted and issued under the Restructuring Agreement and the Subscription Agreement and the New I- China Shares to be issued upon conversion of the I-China Preference Shares pursuant to the Restructuring Agreement and the Subscription Agreement.

Subject to the granting of the listing of, and permission to deal in, the New I-China Shares (including those to be issued pursuant to the exercise of the conversion rights attached to the I-China Preference Shares), the New I-China Shares will be accepted as eligible securities by HKSCC for deposit, clearance and settlement in CCASS with effect from the commencement date of dealings in the New I-China Shares on the Stock Exchange or such other date as determined by HKSCC. Settlement of transactions between participants of the Stock Exchange 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 Operation Procedures in effect from time to time.

As at the Latest Practicable Date, I-China has no outstanding warrants, options, convertible securities or other derivatives convertible into I-China Shares. No share or loan capital of I-China has been put under option or agreed conditionally or unconditionally to be put under option, and no other conversion right affecting the New I-China Shares or other derivatives in respect of securities which are being offered for or which carry voting rights have been issued or granted or agreed conditionally or unconditionally to be issued or granted.

No part of the equity or debt securities of I-China is listed or dealt in or is proposed for listing or dealing in on any stock exchange other than the Stock Exchange.

15. TRADING ARRANGEMENTS

(a) Documents of Title

The Capital Restructuring will become effective upon Completion. Upon the Capital Restructuring becoming effective, the nominal value of the issued New I-China Shares will remain unchanged at $0.01 each. Certificates for New I-China Shares will be issued in green colour in order to distinguish them from the certificates for the I-China Shares which are in light green colour.

I-China Shareholders may submit certificates for the I-China Shares to the branch share registrar of I-China in Hong Kong, Progressive Registration Limited at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road,

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LETTER FROM THE PROVISIONAL LIQUIDATORS

Wanchai, Hong Kong, to exchange, at the expense of I-China, for new certificates for the New I-China Shares. It is expected that the certificates for the New I- China Shares will be available within ten working days from the date of submission of the certificates of the I-China Shares.

(b) Facilities for odd lot holders

The existing board size of the I-China Shares is 2,000 each and the New I-China Shares will be traded in board lots of 20,000 each. In order to alleviate the difficulties arising from the existence of odd lots as a result of the Capital Restructuring, Quam Securities Company Limited will be appointed to provide matching services for the odd lots of New I-China Shares on a best effort basis. Holders of the New I-China Shares in odd lots (i.e. lots which are not in integral multiples of 20,000 New I-China Shares) who wish to take advantage of this matching facility either to dispose of their odd lots of New I-China Shares or top up to board lots of 20,000 New I-China Shares may contact Mr. Paul Leung of Quam Securities Company Limited at Room 3308, Gloucester Tower, The Landmark, 11 Pedder Street, Central, Hong Kong at telephone number 2847-2239 during office hours.

The Provisional Liquidators recommend that the I-China Shareholders consult their own professional advisers if they are in any doubt about the facility described above.

(c) Taxation

I-China Shareholders having a registered address or being resident outside of Hong Kong may be subject to overseas taxation or deemed profits or capital gains arising from the exchange of the I-China Shares for the New I-China Shares. I-China Shareholders, whether in Hong Kong or in other jurisdictions, are recommended to consult their own professional advisers if they are in any doubt as to the tax implications of the Schemes and, in particular, whether the receipt of the New I-China Shares for their I-China Shares would render such holders liable to taxation in Hong Kong or in other jurisdictions. It is emphasised that the taxation implications of the Schemes are personal matters for the I-China Shareholders themselves and none of I-China, the I-China Directors and officers, the future I-China Directors and officers after Completion, the Provisional Liquidators or Wai Kee or any of the other parties involved in the Restructuring Proposal accepts any responsibility for the taxation or any other liability of the I- China Shareholders arising from the exchange of the I-China Shares for the New I-China Shares or any other aspect of the Schemes.

Further announcement(s) in relation to the timetable of the trading arrangements of the I-China Shares and the New I-China Shares will be made as and when appropriate.

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LETTER FROM THE PROVISIONAL LIQUIDATORS

16. THE SGM

Set out on pages 201 to 208 of this document is a notice convening the SGM to be held at 10:00 a.m. on 18 March 2004 at Plaza IV, Novotel Century Hong Kong, 238 Jaffe Road, Wanchai, Hong Kong, at which resolutions will be proposed to consider and approve, inter alia, (i) the Capital Restructuring; (ii) the Restructuring Agreement; (iii) the Subscription Agreement; (iv) the injection of the Top Tactic Group; (v) the Whitewash Waiver; (vi) the appointment of the new I-China Directors to be nominated by Wai Kee conditional upon Completion; (vii) the removal of all current I-China Directors; (viii) the granting of a general mandate to future I-China Directors the powers to issue, allot or deal with additional New I-China Shares as set out in the notice of the SGM; (ix) the granting of general mandate to future I-China Directors to repurchase the New I-China Shares as set out in the notice of SGM; and (x) the amendment of the Bye-laws of I- China. The results of the ordinary resolutions to be proposed at the SGM in relation to the general mandate to issue New I-China Shares and the repurchase mandate will not affect Completion.

A form of proxy for use at the SGM is enclosed. Regardless of whether you are able to attend the SGM, you must complete and return the form of proxy in accordance with the instructions printed thereon to I-China Holdings Limited, c/o the Provisional Liquidators, 7th Floor, Allied Kajima Building, 138 Gloucester Road, Wanchai, Hong Kong (for the attention of Messrs. Cosimo Borrelli/Fan Wai Kuen) as soon as possible but in any event not less than 48 hours before the time appointed for the holding of the SGM. Delivery of a form of proxy will not preclude you from attending and voting in person at the meeting should you so desire.

17. GENERAL

The Restructuring Agreement, the Capital Restructuring, the Subscription Agreement, the injection of the Top Tactic Group, the Whitewash Waiver and all the transactions contemplated thereunder will be subject to the approval of the Independent I-China Shareholders at the SGM according to the Takeovers Code.

The financial results for the year ended 31 March 2003 and for the two interim periods for the six months ended 30 September 2002 and 30 September 2003 respectively were published on 30 January 2004. The annual report for the year ended 31 March 2003 and the two interim reports for the six months ended 30 September 2002 and 30 September 2003 respectively shall be published and despatched to I-China Shareholders prior to the resumption of trading in the I-China Shares.

Asian Capital has been appointed as the financial adviser to I-China. Quam Capital has been appointed as the financial adviser to Wai Kee. AMS has been appointed as the independent financial adviser to advise the Independent I-China Shareholders in respect of the Proposed Restructuring and the Whitewash Waiver. Details of the advice of AMS, together with the principal factors and reasons considered in arriving at such advice, are set out on pages 41 to 74 of this document.

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LETTER FROM THE PROVISIONAL LIQUIDATORS

18. RECOMMENDATIONS

If the Proposed Restructuring is successfully implemented, all of I-China’s estimated indebtedness of approximately HK$569 million as at the Latest Practicable Date will be released and discharged pursuant to the Schemes. If I-China is unable to restructure its indebtedness with the Creditors as set out in the Restructuring Proposal, the Provisional Liquidators believe that there is a strong likelihood that I-China will be wound up. Should I-China be wound up, there is unlikely to be any return to the Creditors and the I-China Shareholders.

The letter from AMS set out in this document contains its advice to the Independent I- China Shareholders in relation to the Proposed Restructuring and the Whitewash Waiver and the principal factors and reasons considered by AMS in arriving at its advice and Independent I-China Shareholders are strongly advised to consider the letter from AMS before deciding to vote in favour of or against the resolutions to be proposed at the SGM.

19. ADDITIONAL INFORMATION

Your attention is drawn to the additional information set out in the appendices to this document, the “Letter from Wai Kee”, the “Letter from AMS”, the notice of the SGM and the new Bye-law 3(B).

Yours faithfully, For and on behalf of

I-CHINA HOLDINGS LIMITED (Provisional Liquidators Appointed) Cosimo Borrelli Fan Wai Kuen R. Craig Christensen

Joint and Several Provisional Liquidators

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LETTER FROM WAI KEE

==> picture [39 x 38] intentionally omitted <==

WAI KEE HOLDINGS LIMITED

(incorporated in Bermuda with limited liability)

Executive Wai Kee Directors: Zen Wei Pao, William (Chairman) Zen Wei Peu, Derek (Vice Chairman) Fong Shiu Leung, Keter

Non-executive Wai Kee Directors: Lam Wai Hon, Patrick Cheng Chi Pang, Leslie

Independent non-executive Wai Kee Directors: Wong Che Ming, Steve Wan Siu Kau, Samuel

Registered office: Clarendon House Church Street Hamilton HM 11 Bermuda

Principal place of business: Unit 702B, 7th Floor East Ocean Centre 98 Granville Road Tsimshatsui Kowloon Hong Kong

24 February 2004

To the I-China Shareholders,

Dear Sir or Madam,

1. INTRODUCTION

It was announced on 18 December 2003 that the Restructuring Agreement was entered into on 20 November 2003. Details of the terms of the Restructuring Agreement are set out in the “Letter from the Provisional Liquidators” of the document dated 24 February 2004 (the “Document”) of which this letter forms part. Terms used in this letter, unless otherwise defined, shall have the same meanings as defined in the Document. The purpose of this letter is to provide you with, among others, additional information on Wai Kee as well as the future plans of the I-China Group after Completion.

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LETTER FROM WAI KEE

2. INFORMATION ON WAI KEE

Wai Kee is an exempted company incorporated in Bermuda with limited liability, the shares of which have been listed on the Stock Exchange since 28 August 1992. The Wai Kee Group is principally engaged in construction, quarrying, highway and expressway operations and biotechnology businesses in the Greater China region. The Wai Kee Directors are Messrs. Zen Wei Pao, William, Zen Wei Peu, Derek, Fong Shiu Leung, Keter, Lam Wai Hon, Patrick, Cheng Chi Pang, Leslie, Wong Che Ming, Steve and Wan Siu Kau, Samuel. As at the Latest Practicable Date, Messrs. Zen Wei Pao, William and Zen Wei Peu, Derek, the controlling shareholders of Wai Kee, in aggregate, were interested in approximately 364.2 million Wai Kee Shares, representing approximately 46.4% of the issued share capital of Wai Kee. Wai Kee and its Concert Parties are not connected with any of the directors, chief executive or substantial shareholders of I- China or its subsidiaries or their respective associates.

The audited consolidated turnover of the Wai Kee Group for the year ended 31 March 2002 and the nine months ended 31 December 2002 was approximately HK$2,072 million and approximately HK$646 million respectively and the audited consolidated net profits of the Wai Kee Group were approximately HK$101 million and approximately HK$87 million respectively for the corresponding periods. As stated in the 2003’s interim report of Wai Kee which was published in August 2003, for the six months ended 30 June 2003, the unaudited consolidated turnover and net profits of the Wai Kee Group were approximately HK$451 million and HK$45 million respectively. The unaudited consolidated net tangible asset value of the Wai Kee Group as at 30 June 2003 was approximately HK$1,987 million.

3. FUTURE INTENTIONS OF WAI KEE

(A) Business

Other than the injection of Top Tactic Group, Wai Kee has no intention of injecting any other assets or business to the I-China Group within 12 months after Completion. It is the intention of Wai Kee that upon Completion, the I-China Group will continue its existing car rental business in Hong Kong. Upon Completion, the I-China Group will also serve as the construction flagship of Wai Kee with a geographical focus on Hong Kong, the PRC and Taiwan. The Wai Kee Group will be engaged in quarrying, highway and expressway operations and biotechnology businesses and will not be engaged in the construction business upon Completion. Wai Kee will conduct a review of the financial positions and operations of I-China with a view to determining the strategies of the I-China’s business activities after Completion. Further, the I-China Group may explore and develop its core businesses and/or similar lines of existing businesses in the interest of the I-China Shareholders. As advised by the Provisional Liquidators, the I-China Group had one employee employed by Trinity as at the Latest Practicable Date. Wai Kee does not have any plan to layoff such employee of Trinity after Completion.

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LETTER FROM WAI KEE

Save for the reasons as stated in the paragraph headed “Group reorganisation” in the “Letter from the Provisional Liquidators” of the Document, Wai Kee has no intention of disposing of the remaining assets of the I-China Group after Completion.

(B) Directors and management

The current I-China Board consists of six directors. However, the powers of these I-China Directors have been suspended since the appointment of the Provisional Liquidators on 5 December 2002. It is the intention of Wai Kee that all the current I-China Directors, including the independent non-executive I-China Director, will be removed upon Completion and five new I-China Directors, including two executive directors and three independent non-executive directors, will be appointed.

Particulars of the proposed I-China Directors are set out below:

Executive I-China Directors

Mr. Zen Wei Peu, Derek, aged 51, is a Wai Kee Director and the vice chairman of the Wai Kee Board and is also an executive director of Road King Infrastructure Limited. Mr. Zen joined the Wai Kee Group in 1982 and has over 25 years of experience in civil engineering. He holds a bachelor of science degree in civil engineering from the University of Hong Kong and a master degree in business administration from the Chinese University of Hong Kong. He is currently a member of the Institution of Civil Engineers and the Hong Kong Institution of Engineers and a fellow member of the Institution of Quarrying in the United Kingdom. Mr. Zen is proposed to be nominated as the chairman of the I-China Board upon Completion.

Mr. Yu Sai Yen, aged 49, was appointed the managing director of Leader Construction Company Limited, a member of the Amazing Reward Group, in 2002. He has over 25 years of experience in project management and contract administration of large-scale civil engineering projects in site formation, reclamation, highway and railway works. Prior to joining the Wai Kee Group, he was the general manager of the marine engineering division of UDL Holdings Limited, a company which is principally engaged in marine civil engineering business and the shares of which are listed on the Main Board of the Stock Exchange. Mr. Yu holds a bachelor of science degree in civil engineering from the University of Dundee, the United Kingdom. He is a fellow member of the Hong Kong Institution of Engineers and a member of the Institution of Civil Engineers. Mr. Yu is proposed to be nominated as the vice chairman of the I-China Board upon Completion.

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LETTER FROM WAI KEE

Independent non-executive I-China Directors

Dr. Chow Ming Kuen, Joseph, OBE, JP, aged 62, has extensive experience in the civil and structural engineer industry. He is a fellow member of the Hong Kong Institution of Engineers, the Institution of Civil Engineers and the Institution of Structural Engineers. He was the president of the Hong Kong Institution of Engineers from 2001 to 2002, the chairman of the Hong Kong Engineer’s Registration Board from 1996 to 1998 and a member of Hong Kong Housing Authority from 1996 to 2000.

Mr. James C. Ng, aged 60, is the chief executive officer of e-New Media Company Limited, a company which is principally engaged in the provision of telecommunication services and operation of recreational clubs, and the shares of which are listed on the Main Board of the Stock Exchange. Mr. Ng has over 18 years of experience in the banking industry and was the chief executive officer of a local bank in Hong Kong prior to joining e-New Media Company Limited. He is a director of Chinachem Group companies, an adviser of the Employers’ Federation of Hong Kong, a member of the Election Committee (800) of Hong Kong Chief Executive. Mr. Ng holds a master of business administration degree from Golden Gate University in San Francisco and a bachelor degree in arts from St. Jose State University in the United States.

The above proposed new executive and independent non-executive I-China Directors will be appointed before the resumption of trading of the I-China Shares and the commencement of trading of the New I-China Shares on the Stock Exchange in compliance with Rule 3.10 of the Listing Rules. A third independent non-executive I-China Director will be appointed no later than 30 September 2004 in compliance with the Listing Rules. Particulars of the third independent non-executive director will be announced as soon as practicable.

4. WHITEWASH WAIVER

As at the Latest Practicable Date, Wai Kee and its Concert Parties do not own any shares, warrants, options, convertible securities, derivatives of or interest in I-China except for Mr. Wong Che Ming, Steve, an independent non-executive Wai Kee Director, who owned 129,000 I-China Shares (representing approximately 0.025% of the existing issued share capital of I-China) which were acquired over two years ago. Immediately after Completion but before the Distribution, the exercise of the Creditors Put Option and the conversion of the I-China Preference Shares, Wai Kee will be interested in 5,987 million New I-China Shares, representing approximately 94.8% of the enlarged share capital of I-China. Accordingly, pursuant to Rule 26 of the Takeovers Code, Wai Kee will be required to make an unconditional mandatory general offer for all the New I-China Shares (other than those already owned or agreed to be acquired by Wai Kee and/or its Concert Parties).

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LETTER FROM WAI KEE

Wai Kee has applied to the Executive for the Whitewash Waiver. Subject to the Independent I-China Shareholders’ approval, by way of a poll at the SGM, to waive any obligations of Wai Kee and its Concert Parties to make a general offer which might result from Completion, the Executive has not indicated that it will not grant the Whitewash Waiver.

Pursuant to the Takeovers Code, upon Completion, the shareholding of Wai Kee in I-China will exceed 50%, Wai Kee will be free to acquire additional New I-China Shares thereafter without incurring any further obligations under the Takeovers Code to make a mandatory offer.

Wai Kee and its Concert Parties have not dealt in any securities of I-China for the period of six months prior to 18 December 2003, the date of the Announcement.

5. GENERAL INFORMATION

Your attention is drawn to the “Letter from the Provisional Liquidators”, the “Letter from AMS” and the additional information set out in the appendices to the Document.

Yours faithfully,

By Order of the Board WAI KEE HOLDINGS LIMITED Zen Wei Peu, Derek Vice Chairman

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LETTER FROM AMS

==> picture [291 x 42] intentionally omitted <==

24 February 2004

To the Independent I-China Shareholders of

I-China Holdings Limited

Dear Sirs,

We refer to our appointment as the independent financial adviser to the Independent I-China Shareholders in respect of the Proposed Restructuring and the Whitewash Waiver, details of which are set out in the document to the I-China Shareholders dated 24 February 2004 (the “Document”), of which this letter forms part. Unless the context otherwise requires, terms used in this letter have the same meanings as those defined in the Document.

In formulating our opinion, we have relied upon the accuracy of the information and representations contained in the Document. We have considered, among others, the financial information of the I-China Group and the Top Tactic Group contained in the relevant appendices to the Document and the Restructuring Agreement. We have not participated in the selection process of the restructuring proposals and we are therefore not in the position to comment on such process or the terms of any other proposals. We have assumed that all statements and representations made or referred to in the Document were true at the time they were made and will continue to be true as at the date of the Document and the date of the SGM. We have also assumed that all statements of belief and opinions and intention respectively made by the Provisional Liquidators and Wai Kee in the Document were reasonably made after due care and enquiry.

We consider that we have reviewed sufficient information to enable us to reach an informed view and to justify our reliance on the information provided so as to provide a reasonable basis for our opinions. The Provisional Liquidators and Wai Kee have confirmed respectively that there are no other facts not contained in the Document the omission of which would make any statement in the Document misleading. We have no reason to doubt the truth, accuracy or

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LETTER FROM AMS

completeness of the information provided to us by the Provisional Liquidators, the advisers of I-China, Wai Kee or its advisers. We have not, however, conducted an independent verification of the information provided, nor have we carried out an in-depth investigation into the affairs of the I-China Group, the Top Tactic Group, or the prospects of the markets in which they respectively operate.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In formulating our recommendation, we have taken into consideration the following principal factors and reasons:

A. THE PROPOSED RESTRUCTURING

(i) Background

I-China was an investment holding company and its principal subsidiaries and associates had been principally engaged in investment holding, cold storage warehousing, printing and the provision of reprographic services, property holding, financing and car rental business. The I-China Group has been incurring net losses since 1998. As a result of the losses sustained over the years, the I-China Group has been operating in a tight liquidity position. I-China disposed of its printing and reprographic business in late 1999. During the year of 2001, all of the I-China Group’s properties in Hong Kong were seized and subsequently disposed of by the I-China Group’s financial creditors. In addition, Seapower Resources International Limited (“Seapower”), which was I-China’s principal associate engaged in the operation of cold storage and warehousing facilities, went into financial difficulties during the year of 2001. As a result of the capital and debt restructuring exercise of Seapower completed in December 2003 and based on the audited financial statements of the I-China Group for the year ended 31 March 2003 as set out in Appendix I to the Document, the I-China Group’s equity interest in Seapower is estimated to be diluted from approximately 27.55% to approximately 0.53%. As at the Latest Practicable Date, the principal activity of the I-China Group was car rental business but such car rental business had been suspended due to the lack of working capital.

Trading in the I-China Shares has been suspended since 15 January 2002. On 5 December 2002, the Provisional Liquidators were appointed by the High Court of Hong Kong as joint and several provisional liquidators of I-China. On 17 February 2003, the Stock Exchange informed I-China that I-China had been placed into the third stage of the delisting procedures in accordance with Practice Note 17 of the Listing Rules and that I-China was required to submit a resumption proposal to the Stock Exchange within the following six months. On 11 August 2003, the Provisional Liquidators and Wai Kee jointly submitted the Restructuring Proposal

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LETTER FROM AMS

to the Stock Exchange. Following a review hearing by the Listing (Review) Committee on 28 October 2003, the Listing (Review) Committee informed the Provisional Liquidators that they may proceed with the Restructuring Proposal.

Further information on the events leading to the current situation of the I-China Group is described in the letter from the Provisional Liquidators contained in the Document (the “Letter from the Provisional Liquidators”).

(ii) Current financial position of the I-China Group

(a) Results of operations

The I-China Shareholders should note that the financial results of the I-China Group for the six months ended 30 September 2002 and 30 September 2003 and for the year ended 31 March 2003 were published on 30 January 2004. The table below summarises the results of the I-China Group for each of the three years ended 31 March 2003 and the six months ended 30 September 2003 as disclosed in Appendix I to the Document:

Six months ended

	30 September	Year	ended 31	March
	2003	2003	2002	2001
	(unaudited)	(audited)	(audited)	(audited)
	HK$’000	HK$’000	HK$’000	HK$’000
Turnover	359	2,544	3,437	5,580
Net loss for the
period/year	15,823	183,725	222,307	261,301

For the year ended 31 March 2001, while the I-China Group recorded a turnover of approximately HK$5.6 million, the net loss for the year amounted to approximately HK$261.3 million. The I-China Group’s turnover for the year represented rental income from its car rental business and property leasing. As indicated in I-China’s annual report for the year ended 31 March 2001, the net loss for the year was mainly attributable to the holding losses on the I-China Group’s investments in listed securities of approximately HK$90.8 million, the finance costs of approximately HK$69.4 million and the share of associates’ losses of approximately HK$88.1 million (which was mainly attributable to Seapower of approximately HK$87.1 million).

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LETTER FROM AMS

For the year ended 31 March 2002, the I-China Group recorded a turnover and a net loss of approximately HK$3.4 million and HK$222.3 million, respectively. As shown in I-China’s annual report for the year ended 31 March 2002, the turnover for the year represented rental income from its car rental business and property leasing, and the net loss of approximately HK$222.3 million was mainly attributable to the finance costs of approximately HK$70.2 million, the loss on partial disposal of an associate of approximately HK$37.3 million and the share of associates’ losses of approximately HK$100.7 million. As advised by the Provisional Liquidators, their enquiries indicate that the drop in turnover was mainly attributable to the downsizing of the car rental business as a result of lack of working capital, as well as the cessation of the property leasing business due to the secured creditors’ foreclosure of the relevant properties of the I-China Group during the year. The share of associates’ losses of approximately HK$100.7 million was mainly attributable to Seapower, which recorded substantial net loss during the year and for which provision for impairment loss was recognised by the I-China Group as a result of the appointment of provisional liquidators to Seapower.

For the year ended 31 March 2003, the I-China Group recorded a turnover from car rental business of approximately HK$2.5 million and a net loss of approximately HK$183.7 million. Based on the consolidated income statement of the I-China Group for the year ended 31 March 2003 as summarised in Appendix 1 to the Document, the net loss for the year was mainly attributable to the write-off of investment properties of approximately HK$147.8 million and the finance costs of approximately HK$23.7 million.

For the six months ended 30 September 2003, the I-China Group’s unaudited turnover from car rental business and net loss amounted to approximately HK$0.4 million and HK$15.8 million respectively. As advised by the Provisional Liquidators, the shrinkage of business turnover was mainly due to the limited operations of the I-China Group as a result of the lack of working capital. Loss for the period represented mainly the finance costs of approximately HK$15.8 million.

Independent I-China Shareholders should refer to Appendix I to the Document for further details on the financial information of the I-China Group for the year ended 31 March 2003 and the six months ended 30 September 2003. Independent I-China Shareholders should also note that the auditors of I-China have disclaimed their opinions on the audited financial statements of I-China for each of the three years ended 31 March 2003. Such auditors’ reports of I-China for each of the three years ended 31 March 2003 have been reproduced and contained in Appendix I to the Document.

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LETTER FROM AMS

Having considered the I-China Group’s continuous losses and the shrinkage in business operations under the present circumstances, we consider that without implementing any restructuring proposal or taking corporate actions, the I-China Group would not be able to continue as a going concern and may likely be wound up.

(b) Net assets

Based on the condensed consolidated balance sheet of the I-China Group as at 30 September 2003 which is set out in Appendix I to the Document, the I-China Group had unaudited total current assets of approximately HK$10.9 million and unaudited total current liabilities of approximately HK$713.2 million, representing an unaudited net current liabilities of approximately HK$702.3 million. As at 30 September 2003, the I-China Group’s current assets comprised mainly short-term receivables of approximately HK$6.5 million and trade and other receivables of approximately HK$2.9 million, whereas the I-China Group’s current liabilities comprised mainly bank and other borrowings of approximately HK$551.0 million and other payables of approximately HK$143.0 million. Taking into account the unaudited non-current assets of approximately HK$5.1 million, the I-China Group had unaudited net liabilities of approximately HK$697.2 million as at 30 September 2003, equivalent to approximately HK$1.37 per I-China Share. Such net liabilities were mainly resulted from the losses accumulated over the previous years.

(c) Indebtedness of the I-China Group

Based on the condensed consolidated balance sheet of the I-China Group as at 30 September 2003 set out in Appendix I to the Document, the I-China Group’s unaudited total liabilities as at 30 September 2003 amounted to approximately HK$713.2 million of which approximately HK$551.0 million was bank and other borrowings. The total indebtedness due by I-China to the Creditors was estimated by the Provisional Liquidators at about HK$569 million as at the Latest Practicable Date. Since the I-China Group relies primarily on bank financing, finance costs, which amounted to approximately HK$69.4 million, HK$70.2 million, HK$23.7 million and HK$15.8 million for each of the three years ended 31 March 2003 and the six months ended 30 September 2003 respectively, have been a significant source of cash outflow and expense.

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LETTER FROM AMS

Based on the above, it can be noted that the interest savings (which will be further discussed under the section headed “Effects of the Proposed Restructuring” below) and the relief of debt-servicing obligations resulted from the I-China Group’s indebtedness being discharged and waived by the Creditors as a result of the Proposed Restructuring will significantly alleviate the I-China Group’s financial predicament (i.e. a net-liability position of approximately HK$697.2 million as at 30 September 2003) and improve its cashflow position.

(iii) The Proposed Restructuring

The Proposed Restructuring involves, among others, (i) the Capital Restructuring; ii) the Debt Restructuring which includes the Schemes; (iii) the Subscription; (iv) injection of the Top Tactic Group; and (v) the Whitewash Waiver.

(a) Capital Restructuring

The Capital Restructuring comprises the reduction of the par value of the issued I-China Shares, the consolidation of the reduced I-China Shares and the increase of the authorised share capital of I-China, details of which are set out in the Letter from the Provisional Liquidators. The Capital Restructuring will be subject to, among other conditions, the passing of a special resolution by the Independent I-China Shareholders at the SGM and whose approval as a whole represents one of the conditions precedent to implementing the Proposed Restructuring.

As a result of the Capital Restructuring, a credit of approximately HK$3.8 million arising from the capital reduction will be applied to reduce part of I-China’s accumulated losses.

Given the terms of the Restructuring Agreement, we are of the view that the principal purpose of the Capital Restructuring is to restructure the capital base of I-China so as to facilitate the subsequent issue of new I-China Shares to Wai Kee pursuant to the Subscription, as well as the distribution of new I-China Shares to the Creditors under the Schemes. Accordingly, we consider such arrangements under the Capital Restructuring reasonable in facilitating the implementation of the Proposed Restructuring.

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LETTER FROM AMS

(b) Debt Restructuring

The total indebtedness due by I-China to the Creditors was estimated by the Provisional Liquidators at approximately HK$569 million as at the Latest Practicable Date and will be restructured by way of the Schemes. Details of the Debt Restructuring are set out in the Letter from the Provisional Liquidators and a summary of which is set out below:

The Schemes

In exchange for the Creditors’ agreement to discharge and waive all their claims against I-China, the Creditors will receive from I-China, via the Scheme Administrators, (i) HK$22 million in cash; (ii) 200,000,000 New I- China Shares of HK$0.01 each (representing approximately 3.2% of the issued share capital of I-China upon Completion but before the conversion of the I-China Preference Shares); (iii) the grant of the Creditors Put Option by Wai Kee to the Creditors and/or the Scheme Administrators to sell all or part of the 200,000,000 New I-China Shares to Wai Kee at a price of HK$0.01 per New I-China Share exercisable at their sole discretion within 90 days after the expiry of two years following Completion; and (iv) any cash held by I-China as at the date of Completion.

We have attempted to quantify the total amount to be received by the Creditors under the Schemes and compared it with the amount to be discharged and waived by the Creditors upon the successful implementation of the Debt Restructuring and have set out the results in the table below:

Cash 200,000,000 New I-China Shares_(Note 1) Cash held by I-China at Completion(Note 2) Amount available to the Creditors Total amount to be discharged and waived by the Creditors Amount unrecoverable by the Creditors (B) – (A) _Notes:	HK$’ million 22.0 1.4 — 23.4 (A) 569.0 (B) 545.6

Based on the pro forma adjusted net tangible asset value of the New I-China Shares immediately after Completion (but before the conversion of the I-China Preference Shares) of approximately HK$0.007 per New I-China Share.

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LETTER FROM AMS

We have noted from the balance sheet of I-China as at 31 March 2003 set out in Appendix I to the Document that bank balances and cash of I-China as at 31 March 2003 amounted to approximately HK$5,000 only. Since it is expected that the cash held by I-China at Completion will be minimal, we have assumed such cash amount to be zero for the purposes of our above analysis.

We have used the pro forma adjusted net tangible asset value per New I- China Share instead of the par value in calculating the value of the 200,000,000 New I-China Shares to be issued to the Creditors as we consider that the net tangible asset value is more indicative of the value to be received by the Creditors upon Completion. On the basis as set out in the above table, the amount to be waived by the Creditors will be approximately HK$546 million. We consider the amount to be discharged and waived by the Creditors substantial as compared to the amount to be received by them under the Schemes. Accordingly, we are of the opinion that the Schemes are in the interests of I-China and the I-China Shareholders as a whole because of the significant amount of indebtedness discharged and waived by the Creditors upon the successful implementation of the Debt Restructuring.

As mentioned above, I-China’s total indebtedness due to the Creditors which was estimated by the Provisional Liquidators at approximately HK$569 million as at the Latest Practicable Date will be completely discharged and waived by the Creditors upon the successful implementation of the Debt Restructuring. However, the Proposed Restructuring will lapse if the Debt Restructuring fails to proceed and, accordingly, the Creditors and the Provisional Liquidators may proceed with the liquidation of I-China. The Provisional Liquidators have indicated in their letter contained in the Document that, should I-China be liquidated, the return to the Creditors will be minimal and there will unlikely be any return to the I-China Shareholders. On the basis of the current circumstances, we are of the opinion that the Proposed Restructuring is more likely to provide a higher return to the I-China Shareholders over a short period of time than if I- China is forced into liquidation and is therefore in the interests of I-China and the I-China Shareholders as a whole.

(c) Subscription

Immediately after the implementation of the Capital Restructuring and subject to the terms of the Restructuring Agreement and the Subscription Agreement, Wai Kee will subscribe for 5,987,000,000 New I-China Shares at an issue price of HK$0.01 each. The number of New I-China Shares to be issued to Wai Kee represents approximately 94.8% of the enlarged issued share capital of I-China before the conversion of the I-China Preference Shares.

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LETTER FROM AMS

Subject to the terms of the Restructuring Agreement and the Subscription Agreement, Wai Kee will also subscribe for 3,000,000,000 I-China Preference Shares at an issue price of HK$0.01 each. As the holder of the I-China Preference Shares, Wai Kee has the right to convert, at any time within seven years from the date of issuance of the I-China Preference Shares, the 3,000,000,000 I-China Preference Shares into 3,000,000,000 full-paid New I-China Shares (subject to adjustment), representing approximately 32.2% of the enlarged issued share capital of I-China after such conversion, at no further cash consideration. In addition, as indicated in the Document, any outstanding I-China Preference Shares as at the seventh anniversary of the date of issuance of the I-China Preference Shares will automatically be converted into New I-China Shares on such anniversary. As noted in the Document, the holder of each I-China Preference Share will not have any voting right but will be entitled to receive dividends, prior to and in preference to the holders of the New I-China Shares, at the rate of 2% per annum at the issue price of HK$0.01 per I-China Preference Share. The dividends payable to the holders of the I-China Preference Shares shall be cumulative. Given the above-mentioned terms of the I-China Preference Shares and as far as the I-China Shareholders are concerned, we consider the issue of the I-China Preference Shares is in essence a form of financing to I-China by Wai Kee. As regards the dividend yield of 2% per annum of the I-China Preference Shares for a term of seven years (which is equivalent to approximately 2.01% per annum based on the amount of cash proceeds to be raised under the Subscription) until their conversion into the New I-China Shares, we have compared such yield to the average yield accepted under the latest issues of the Exchange Fund Notes by the government of Hong Kong with a maturity of seven years. The average yield accepted for the Exchange Fund Notes with a maturity of seven years is 3.87% per annum, which is substantially higher than the effective dividend yield of the I-China Preference Shares of approximately 2.01% per annum. We are therefore of the view that the terms of the I-China Preference Shares, which are similar to those of medium to long term financing, are fair and reasonable as far as the Independent I-China Shareholders are concerned. Further information on the terms of the I-China Preference Shares is set out in the section headed “Principal terms of the I-China Preference Shares” in the Letter from the Provisional Liquidators.

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LETTER FROM AMS

Based on the above, the total consideration for the Subscription is HK$89.87 million and subject to the terms of the Restructuring Agreement and the Subscription Agreement, such consideration will be satisfied by (i) the cash consideration of HK$29.87 million in cash and (ii) HK$60 million (being the remaining balance of the total consideration) by way of the injection of the Top Tactic Group by Wai Kee into I-China. Particulars of the Top Tactic Group will be discussed in detail in the section headed “The Top Tactic Group” below.

The issue price per New I-China Share of HK$0.01 represents a discount of approximately 67.7% to the closing price of the I-China Shares of HK$0.031 each on 14 January 2002 which was the last trading day prior to the suspension of the trading in the I-China Shares and a discount of approximately 68.3% to the average closing price of HK$0.0315 per I- China Share for the ten trading days ended 14 January 2002. Based on the proposed consolidation of every four issued I-China Shares into one New I- China Share, the subscription price of HK$0.01 each represents a discount of approximately 91.9% to the theoretical closing price of the New I-China Shares of HK$0.124 each on 14 January 2002 and a discount of approximately 92.1% to the theoretical average closing price of the New I- China Shares of HK$0.126 each for the ten trading days ended 14 January 2002.

We consider such discounts of the issue price as stated above to be irrelevant in the evaluation of the issue price under the Subscription. This is because the I-China Shares have been suspended from trading since 15 January 2002, and subsequently all of the I-China Group’s properties in Hong Kong were seized and disposed of by the I-China Group’s financial creditors. Given the fact that the I-China Shares were suspended from trading for more than two years, we consider that the closing price of the I-China Shares prior to the suspension of trading is not reflective of the current financial condition and value of I-China and it is, therefore, inappropriate to use the share prices recorded prior to the suspension of trading as a benchmark for comparison. Furthermore, in view of a possible involuntary liquidation of I-China and its current net liabilities position, we are of the view that the closing prices of the I-China Shares prior to the suspension of trading will not provide a fair basis for the evaluation of the issue price under the Subscription.

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LETTER FROM AMS

Given the current financial conditions of I-China, we consider that it would unlikely be able to raise any funds from debt or equity issue at the then prevailing market prices of the I-China Shares prior to suspension of trading. Based on the pro forma unaudited adjusted consolidated net tangible assets of the I-China Group upon Completion as set out in section 1 of Appendix III to the Document, the unaudited adjusted consolidated net liabilities of the I-China Group prior to implementation of the Proposed Restructuring amounted to about HK$697.2 million, equivalent to about HK$1.37 per I- China Share. The issue price of HK$0.01 per New I-China Share therefore represents a significant premium over the net liabilities attributed to each I- China Share. The I-China Group’s net asset position immediately after Completion will be discussed in detail in the section headed “Effects of the Proposed Restructuring” below.

Based on the above analysis, as well as the positive financial effects as discussed in the section headed “Effects of the Proposed Restructuring” below and the avoidance of a possible involuntary liquidation of I-China, we consider that it is commercially acceptable and typical in a corporate rescue exercise for the subscription price of the New I-China Shares, which was arrived at after arm’s length negotiations, to be lower than the closing price of the I-China Shares immediately prior to the suspension of trading.

(iv) The Top Tactic Group

As mentioned in the section headed “Subscription” above, part of the consideration for the Subscription in the amount of HK$60 million will be satisfied by way of the injection of the Top Tactic Group by Wai Kee into I-China. As stated in the Letter from the Provisional Liquidators, the Top Tactic Group comprises the Amazing Reward Group and the Zen Pacific Group and currently represents the entire construction business of the Wai Kee Group. As advised by the Wai Kee Directors, the Amazing Reward Group will be principally engaged in the undertaking of civil construction projects mainly for the public sector in Hong Kong, the PRC and Taiwan. On the other hand, since the Zen Pacific Group currently does not hold the required construction licences issued by the relevant authorities from the Hong Kong Government, the Wai Kee Directors expect that the Zen Pacific Group will become inactive following the completion of its projects in hand. As advised by the Wai Kee Directors, except for Zen Pacific Civil, all members of the Zen Pacific Group were substantially dormant as at the Latest Practicable Date. As stated in the Letter from the Provisional Liquidators, the Zen Pacific Group is expected to apply for relevant construction licences and tender

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for new projects in the medium term. Further information on the Top Tactic Group is stated under the section headed “Injection of the Top Tactic Group” in the Letter from the Provisional Liquidators. In particular, we wish to draw the Independent I-China Shareholders’ attention to the following:

(a) Financial performance of the Top Tactic Group

The audited combined results of the Top Tactic Group for each of the two years ended 31 March 2002, the eight months ended 31 December 2002 and the ten months ended 31 October 2003 (the “Relevant Period”), as disclosed in Appendix II to the Document, are summarised as follows:

	1 January	1 April
	2003 to	2002 to	Year ended
	31 October 31 December		31 March
	2003	2002	2002	2001
	HK$’000	HK$’000	HK$’000	HK$’000
Combined
Turnover	553,615	523,652	1,068,058	1,329,671
Profit (loss) for the
period/year	21,958	9,254	24,338	(8,581)

As shown in the above table, except for the year ended 31 March 2001, the Top Tactic Group was profitable for each of the year/period during the Relevant Period.

For the year ended 31 March 2001, the Top Tactic Group recorded a turnover of approximately HK$1,329.7 million and a loss of approximately HK$8.6 million. As advised by the Wai Kee Directors, the unfavourable result for the year was mainly due to the unforeseen delay and cost overrun in an aggregate amount of approximately HK$46.0 million in relation to certain completed projects recognised during the year, despite the fact that there was also recognition of projects which were profitable during the year.

Although the turnover of the Top Tactic Group for the year ended 31 March 2002 decreased by approximately 19.7% to approximately HK$1,068.1 million, the Top Tactic Group recorded a profit of approximately HK$24.3 million, representing a significant improvement from the loss of approximately HK$8.6 million for the previous year. As advised by the Wai Kee Directors, the turnover of the Top Tactic Group would normally vary from time to time and depend on the stages of completion of its projects

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during the year. The Wai Kee Directors have also advised that given the nature of construction projects which generally involve numerous work procedures and relatively long durations, it is not necessary that the turnover recognised at completion stage will be higher than that recognised at prior stages. As projects approach completion, claims and variations can be agreed with client and such claims and variations may sometimes only be finalised and recognised after the actual completion of the relevant works (i.e. all the relevant costs have already been recognised when incurred). As substantial parts of the Top Tactic Group’s major projects such as the West Rail Mega Projects with Kowloon-Canton Railway Corporation (“KCRC”) were completed during the year ended 31 March 2002, the Top Tactic Group could still register a substantial improvement in the net profit for the year ended 31 March 2002 despite the decrease of its turnover by approximately 19.7% from the previous year.

For the nine months ended 31 December 2002, the Top Tactic Group recorded a turnover of approximately HK$523.7 million and a profit of approximately HK$9.3 million. As mentioned above, since a number of the Top Tactic Group’s major projects were substantially completed during the year ended 31 March 2002, the turnover for the nine-month period ended 31 December 2002 dropped significantly as compared to the previous years. For the ten months ended 31 October 2003, the Top Tactic Group recorded a turnover of approximately HK$553.6 million and a profit of approximately HK$22.0 million. As compared to the turnover and profit of approximately HK$523.7 million and HK$9.3 million respectively for the nine months ended 31 December 2002, the profit of approximately HK$22.0 million for the ten months ended 31 October 2003 would represent an increase of approximately 136.6% even though the turnover for the same period increased by approximately 5.7% to HK$553.6 million. As advised by the Wai Kee Directors, the significant increase of profit for the ten months ended 31 October 2003 was mainly due to the share of profits less losses of the jointly controlled entities of the Top Tactic Group in the amount of approximately HK$92.9 million during the same period, whereas such profits share by the Top Tactic Group for the nine months ended 31 December 2002 was approximately HK$35.6 million only. As explained by the Wai Kee Directors, since the combined turnover of the Top Tactic Group did not include the share of turnover of its jointly controlled entities, the profit for the ten months ended 31 October 2003 would appear to grow at a faster pace than the turnover during the same period when compared to the financial performance of the Top Tactic Group during the nine months ended 31 December 2002.

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As noted from the Letter from the Provisional Liquidators, the Wai Kee Directors are of the view that the construction market in Hong Kong may not be able to recover in the short term. Nevertheless, it was also stated that the Amazing Reward Group will try to capitalise on the Hong Kong Government’s new procurement policy for public work projects which came in effect in November 2002. Unlike the old procurement policy under which the winning bid would usually be awarded to the lowest bid, the new procurement policy adopts a marking scheme under which the tenderers’ work performance record will be taken into consideration in addition to the financial bid. As advised by the Wai Kee Directors, two wholly-owned subsidiaries of the the Amazing Reward Group have currently maintained with the Hong Kong Government a good record on the quality of works performed. Accordingly, the Wai Kee Directors are of the view that the Amazing Reward Group will have a competitive advantage when it tenders for new projects from the Hong Kong Government and is therefore able to capitalise on such new procurement policy. As advised by the Wai Kee Directors, most of the major projects and joint ventures of the Zen Pacific Group have been transferred to the Amazing Reward Group as a result of a group reorganisation of Wai Kee in 2002. Following such group reorganisation, members of the Amazing Reward Group have become the principal operating subsidiaries of the Wai Kee Group engaging in the civil construction business. In addition, since the Zen Pacific Group has no longer been able to tender for any new civil projects in Hong Kong following the group reorganisation, all the subsequent civil projects in Hong Kong awarded to the Wai Kee Group were tendered by members of the Amazing Reward Group. As regards the new procurement policy of the Hong Kong Government, given that the Amazing Reward Group has been able to establish a good track record on the quality of works performed with the Hong Kong Government since the group reorganisation of Wai Kee in 2002, we concur with the Wai Kee Directors’ view that the Amazing Reward Group will be able to capitalise on such new procurement policy. Furthermore, as the Amazing Reward Group is not a party to the Arbitration Settlement (the details of which will be discussed further in the section headed “Consideration for the Zen Pacific Group” below), we consider that the Arbitration Settlement will not have any impact on the business pursuit by the Amazing Reward Group under the new procurement policy of the Hong Kong Government.

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As regards the market prospects of the civil construction projects for the public sector in Hong Kong, it is likely that the Hong Kong Government will continue to be very cautious about expenditure on major infrastructure projects given the prevailing economic conditions and the current fiscal deficit of the Hong Kong Government. Given the fact that a significant number of projects in the current portfolio of the Top Tactic Group are, or soon to be, at the final stage of completion, we are of the view that the Top Tactic Group may be unable to maintain its turnover in the near future at a level comparable to that of previous years.

The Wai Kee Directors expect that a number of major local infrastructure projects, such as the KCRC’s Shatin-to-Central Link Project (which is expected to be scheduled for commencement of civil works by 2005) and the KCRC’s Kowloon Southern Link Project, will fill the market with substantial value of civil works in the next few years. Furthermore, we have noted from the recent 2004 Policy Address by the Chief Executive of Hong Kong that the Hong Kong Government currently plans to spend an average of HK$29 billion on capital works over the next five years. In view of these positive factors as well as the recent signs of economic recovery in Hong Kong including the easing of the unemployment rate (from the highest of 8.7% during May to July 2003 to 7.5% during September to November 2003) and the stabilisation of the property market (as indicated by the latest figures on banks’ residential mortgage loans in negative equity, which included the lowest recorded outstanding loan value of approximately HK$107 billion at end-December 2003), we consider that the civil construction business for the Hong Kong public sector, which forms a principal part of the Top Tactic Group’s business, may be on the path of recovery.

As advised by the Wai Kee Directors, the Top Tactic Group has also undertaken civil construction projects in Taiwan and in the PRC since 1997. Based on the accountants’ report on the Top Tactic Group as set out in Appendix II to the Document, the turnover of the Top Tactic Group in respect of the Taiwan market amounted to approximately 10.4% for the ten months ended 31 October 2003. As regards the PRC market, the Wai Kee Directors have advised that, other than the share of its jointly controlled entities’ turnover of approximately HK$0.11 million for the ten months ended 31 October 2003, the Top Tactic Group did not record any turnover on its own accounts in respect of the PRC market during such period. The

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Wai Kee Directors expect that the Hong Kong market will still be the major geographical segment for the Top Tactic Group’ civil construction business in the near future. Given that the turnover of the Top Tactic Group in respect of both the Taiwan market and the PRC market has been substantially lower than the Hong Kong market, we are of the view that it is logical for the Top Tactic Group to maintain its focus on the Hong Kong market in the near future.

As stated in the Letter from the Provisional Liquidators, the Top Tactic Group may also focus on the construction works for the environmental sector in the PRC in the future, including sanitary landfill projects which involve the construction of infrastructures to accommodate and process household refuse. The Wai Kee Directors have advised that the Top Tactic Group was in the progress of formulating its first sanitary landfill project in the PRC market, but no concrete plan had been determined as at the Latest Practicable Date. Accordingly, we are not in a position to comment on the market potential of construction works for the environmental sector in the PRC. However, in view of the vast market size and large demand for the modernisation of cities in the PRC, we consider that it is the interest of the Top Tactic Group to capitalise on its experience and expertise in the civil construction business for further expansion into the PRC market.

(b) Consideration for the Top Tactic Group

As noted from the Letter from the Provisional Liquidators, the consideration for the Top Tactic Group of HK$60 million represents essentially the consideration for the injection of the Amazing Reward Group since the consideration for the Zen Pacific Group has been agreed at a nominal value of HK$1.

Consideration for the Zen Pacific Group

As mentioned under the section headed “The Arbitration Settlement” in the Letter from the Provisional Liquidators, an agreement dated 24 September 2003 was entered into between HKHA, Zen Pacific Civil (which is a whollyowned subsidiary of the Zen Pacific Group) and Wai Kee in relation to the settlement of the arbitration against Zen Pacific Civil by HKHA. Pursuant to such settlement agreement, Zen Pacific Civil will pay HK$80 million to HKHA and Wai Kee has provided a guarantee to HKHA for the performance by Zen Pacific Civil of its obligations under the settlement agreement. In

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light of the effect of the payment of HK$80 million by a member of the Zen Pacific Group under the Arbitration Settlement on the financial position of the Zen Pacific Group, Wai Kee has undertaken to I-China that the Zen Pacific Group will have a positive net tangible asset value at Completion.

Based on the information provided by the Wai Kee Directors, the Zen Pacific Group recorded a net loss of approximately HK$50.5 million for the ten months ended 31 October 2003 and the net tangible asset value of the Zen Pacific Group as at 31 October 2003 was approximately HK$2.9 million, which had already taken into account the provision of HK$80 million in relation to the Arbitration Settlement. The Wai Kee Directors have advised that most of the projects of the Zen Pacific Group were completed as at the Latest Practicable Date and that the post-Completion financial results of the Zen Pacific Group are expected to be immaterial and should not have any significant impact on the overall performance of the Top Tactic Group. It is therefore expected by the Wai Kee Directors that the net tangible asset value of the Zen Pacific Group at Completion will be a positive but immaterial amount.

As indicated from above, it appears that the Zen Pacific Group will become inactive following the completion of its existing projects as it currently does not have the required construction licences to tender for any new civil projects for the public sector in Hong Kong. As advised by the Wai Kee Directors, the reason for the injection of the Zen Pacific Group into the I- China Group is to provide a clear delineation between the businesses of the restructured I-China Group and the remaining Wai Kee Group after Completion. Following the Completion, all existing companies of the Wai Kee Group which are engaged in the civil construction business, being all those under not only the Amazing Reward Group but also the Zen Pacific Group, will be held under the I-China Group. If the Zen Pacific Group remains with the Wai Kee Group, competition may exist following Completion where both the Wai Kee Group and the restructured I-China Group have members engaging in civil construction business. Given the possibility of competition between the Wai Kee Group and the restructured I-China Group following Completion, we consider the reason for the injection of the Zen Pacific Group to be fair and reasonable as far as the Independent I-China Shareholders are concerned.

Given the limitation in the business pursuit by the Zen Pacific Group in the future and based on the undertaking by Wai Kee on a positive net tangible asset value of the Zen Pacific Group at Completion, we are of the view that the consideration for the injection of the Zen Pacific Group into I-China at

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a nominal value of HK$1 is fair and reasonable as far as the Independent I-China Shareholders are concerned. Furthermore, given that (i) the settlement between Zen Pacific Civil and HKHA has been confirmed and full provision of HK$80 million has already been accounted for by the Zen Pacific Group; (ii) most of the projects of the Zen Pacific Group have been completed; (iii) the Zen Pacific Group will not be able to tender for any new projects until it obtains the required licences; and (iv) the Zen Pacific Group consists of individual legal entities of limited liabilities, the Wai Kee Directors are of the view, with which we concur, that the existing business affairs of the Zen Pacific Group will unlikely have any adverse impacts on the I-China Group in future.

Consideration for the Amazing Reward Group

Given the nature of business of the Amazing Reward Group, we consider that reference to price/earnings multiples, which is a common valuation method for companies with profitable track record, is relevant and appropriate in assessing the fairness and reasonableness of the consideration for the Amazing Reward Group.

Based on the information provided by the Wai Kee Directors, the profit of the Amazing Reward Group for the ten months ended 31 October 2003 was approximately HK$87.8 million. On this basis, the consideration of HK$60 million for the injection of the Amazing Reward Group to the I-China Group represents a price/earnings multiple of approximately 0.68 time. In assessing the fairness and reasonableness of such price/earnings multiple, we have attempted to compare it with the price/earnings multiples of companies listed on the main board of the Stock Exchange which operations are comparable to the Amazing Reward Group. Given the fact that the Amazing Reward Group is principally engaged in the undertaking of civil construction projects mainly for the public sector in Hong Kong, the PRC and Taiwan, we have not been able to identify any companies listed on the main board of the Stock Exchange of which the principal business is identical to the Amazing Reward Group. Nevertheless, we have identified, to the best of our knowledge, four companies listed on the main board of the Stock Exchange of which the latest annual reports showed that a significant portion of their principal activities was the undertaking of civil construction projects in Hong Kong and they had been profitable (the “Comparable Companies”). Set out below is a summary of the particulars of the Comparable Companies based on their respective market capitalisation and

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financial information reported in their latest published annual reports available (which were all for the year ended 31 March 2003) as at 20 November 2003 (being the date of the Restructuring Agreement):

			Net tangible
		Profit as	asset		Premium/
		reported	value based	Price/	(discount)
	Market	in the annual	on the annual	earnings	of market
	capitalisation	report for the	report for the	multiple	capitalisation
	as at	year ended	year ended	as at	over/to the
	20 November	31 March	31 March	20 November	net tangible
Company	2003	2003	2003	2003	asset value
	HK$’000	HK$’000	HK$’000	Times	%
Chevalier
Construction
Holdings
Limited	60,009	7,418	76,398	8.09	(21.45)
Chun Wo
Holdings
Limited	300,687	5,595	613,249	53.74	(50.97)
Tysan Holdings
Limited	124,417	15,500	677,271	8.03	(81.63)
Vantage
International
(Holdings)
Limited	316,800	10,632	105,976	29.80	198.94
The Amazing	60,000	87,827	40,000	0.68	50.00
Reward Group	(Note 1)	(Note 2)	(Note 3)	(Note 4)

Notes:

This represents the consideration for the Amazing Reward Group.
This is based on the management accounts of the Amazing Reward Group as at 31 October 2003.
Pursuant to an undertaking by Wai Kee to I-China, the net tangible asset value of the I-China Group at Completion will not be less than HK$40 million. Since the net tangible assets of the restructured I-China Group upon Completion will comprise

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mainly those of the Zen Pacific Group and the Amazing Reward Group and the net tangible asset value of the Zen Pacific Group at Completion is expected to be positive but immaterial, we have assumed conservatively that the net tangible asset value of the Amazing Reward Group at Completion will be at least HK$40 million.

This is based on the net profit of the Amazing Reward Group for the ten-month period ended 31 October 2003.

As shown in the above table, the price/earnings multiples of the Comparable Companies range from approximately 8.03 times to 53.74 times. Since the price/earnings multiple of approximately 0.68 time as represented by the consideration of HK$60 million is substantially lower than any of the price/ earnings multiples of the Comparable Companies, we are of the view that the consideration of HK$60 million appears to be fair and reasonable as far as the Independent I-China Shareholders are concerned. Nevertheless, it should be noted that the business activities of the Comparable Companies may not be directly comparable to those carried out by the Amazing Reward Group. Each of the Comparable Companies is distinct and the price/earnings multiple of each Comparable Company may be affected by particular factors which are not applicable to the Amazing Reward Group. It should also be noted that the price/earnings multiple of approximately 0.68 time in our case is based on the net profit of the Amazing Reward Group for a tenmonth period, whereas the price/earnings multiple of each of the Comparable Companies is based on the result for a full year period. We consider that the Comparable Companies only provide a reference as to the market’s valuation of companies of which the principal activities include the undertaking of civil construction projects in Hong Kong.

On the other hand, based on the net tangible asset value of the Amazing Reward Group as at 31 October 2003 of approximately HK$63.9 million, the consideration of HK$60 million represents a discount of approximately 6.2% to such net tangible asset value. However, as advised by the Wai Kee Directors, it is intended that the Top Tactic Group will declare an interim dividend prior to Completion but the exact amount of the interim dividend was not yet determined as at the Latest Practicable Date. The Wai Kee Directors have advised that the amount of the interim dividend will depend on the financial position of the I-China Group immediately prior to Completion. As mentioned in the Letter from the Provisional Liquidators, Wai Kee has undertaken to I-China that the I-China Group will have a net tangible asset value of not less than HK$40 million at Completion. Taking into consideration (i) the possible interim dividend to be declared by the Top Tactic Group prior to Completion; (ii) the net tangible asset value of the Zen Pacific Group at Completion expected to be positive but immaterial; and (iii) the undertaking mentioned above, we have assumed conservatively

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that the net tangible asset value of the Amazing Reward Group at Completion will be at least HK$40 million. On this basis, the consideration of HK$60 million therefore represents a premium of not more than 50.0% over the net tangible asset value of the Amazing Reward Group at Completion.

As shown in the above table, while the market capitalisation of one Comparable Company commands a premium of approximately 198.9% over its net tangible asset value, the market capitalisation of the other three Comparable Companies command a discount ranging from 21.5% to 81.6%. Since the shares of most Comparable Companies were traded at a discount to their respective net tangible asset value, the premium of up to 50% in our case seems to suggest that the consideration for the Amazing Reward Group was higher than the recent market price for companies having similar business operations. However, we consider it more relevant and appropriate to evaluate the consideration using price/earnings multiple instead of net tangible asset value, since the value of the Amazing Reward Group should be based on the earnings potential of the underlying assets rather than the book value of such assets, which comprise mainly plant and machinery and vessels.

As mentioned above, except for the year ended 31 March 2001, the Top Tactic Group was profitable during the Relevant Period despite the fact that the civil construction market in Hong Kong had been adversely affected by the recession in the economy in recent years. In view of a number of major infrastructure projects to be commenced in the next few years, the civil construction market in Hong Kong is expected to be on the path of recovery. It has also been discussed above that when compared to the Comparable Companies in terms of price/earnings multiple, we are of the view that the consideration for the Top Tactic Group of HK$60 million is fair and reasonable as far as the Independent I-China Shareholders are concerned. Accordingly, we are of the view that the injection of the Top Tactic Group, as one of the terms of the Subscription Agreement and a part of the Proposed Restructuring, is in the interest of I-China and the I-China Shareholders as a whole.

(v) Effects of the Proposed Restructuring

(a) Net assets

As stated in the Letter from the Provisional Liquidators, other than Trinity, all companies of the I-China Group will be transferred to the Provisional Liquidators or the Scheme Administrators (or their nominees) at a nominal consideration of HK$1 and the shares of these companies will be held on trust for the Creditors in accordance with the terms of the Debt Restructuring.

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The Provisional Liquidators have advised that, based on the books and records available to them as at the Latest Practicable Date, the total assets and total liabilities of the I-China Group Companies were, respectively, approximately HK$15 million and HK$145 million as at 30 September 2003 and all the I-China Group Companies were either substantially insolvent or dormant and did not have any material assets available to the unsecured creditors. As also stated in the Letter from the Provisional Liquidators, Wai Kee has been provided with the Trinity Option, which is exercisable at the sole discretion of Wai Kee before Completion for the transfer of the entire issued share capital of Trinity to the Provisional Liquidators or the Scheme Administrators (or their nominees) on trust for the Creditors at a nominal consideration of HK$1. As at the Latest Practicable Date, Wai Kee had no intention of exercising the Trinity Option. Accordingly, it should be noted that the only member of the I-China Group that would remain with the restructured I-China Group upon Completion is Trinity, which had unaudited net liabilities of approximately HK$5.4 million as at 30 September 2003.

As regards the Trinity Option, it should be noted that the pro forma unaudited consolidated net tangible assets of the I-China Group upon Completion set out in section 1 of Appendix III to the Document, which shows the financial effect of the Proposed Restructuring, has been prepared under the assumption that Wai Kee would not exercise the Trinity Option before Completion. Even if Wai Kee exercises the Trinity Option before Completion and Trinity is transferred to the Provisional Liquidators or the Scheme Administrators (or their nominees) on trust for the Creditors, the operations or financial position of the restructured I-China Group will not be adversely affected given that Trinity had net liabilities of approximately HK$5.4 million as at 30 September 2003 and its business operation (i.e. the car rental business) has already been suspended. Accordingly, we do not consider the Trinity Option to be materially significant in assessing the overall fairness and reasonableness of the terms of the Proposed Restructuring.

Based on the pro forma unaudited adjusted consolidated net tangible assets of the I-China Group upon Completion set out in section 1 of Appendix III to the Document, the pro forma unaudited adjusted consolidated net tangible assets of the I-China Group upon Completion will amount to approximately HK$46.4 million, equivalent to approximately HK$0.007 per New I-China Share (before any conversion of the I-China Preference Shares). This represents a significant improvement compared with the net liabilities of approximately HK$697.2 million, equivalent to approximately HK$1.37 per I-China Share prior to the implementation of the Proposed Restructuring.

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The Proposed Restructuring will improve the net tangible asset position of the I-China Group by an amount of approximately HK$743.6 million as a result of debts compromised and discharged by the Creditors in the amount of approximately HK$560.1 million, net liabilities excluded from the Proposed Restructuring in the amount of approximately HK$130.6 million, and the injection of the Top Tactic Group with a net tangible asset value of approximately HK$52.8 million.

In addition, based on the pro forma unaudited consolidated balance sheet of the I-China Group set out in section 2 of Appendix III to the Document, the net current assets of the I-China Group upon Completion will amount to approximately HK$11.7 million (i.e. the total current assets of approximately HK$413.8 million net of the total current liabilities of approximately HK$402.1 million). As mentioned under the section headed “Consideration for the Amazing Reward Group” above, it is intended by the Wai Kee Directors that the Top Tactic Group will declare an interim dividend prior to Completion but the exact amount of which was not yet determined as at the Latest Practicable Date. Accordingly, the aforesaid pro forma net current assets of the I-China Group upon Completion of approximately HK$11.7 million will be reduced by an amount equivalent to the interim dividend eventually declared by the Top Tactic Group prior to Completion. As indicated in the Document, Wee Kee has undertaken to maintain the net tangible asset value of the I-China Group at no less than HK$40 million at Completion. The amount of interim dividend to be declared by the Top Tactic Group prior to Completion will therefore be limited by such undertaking. Although we are not in a position to ascertain the netcurrent-asset position of the I-China Group upon Completion and after declaration of the interim dividend by the Top Tactic Group, we, having regard to (i) the significant amount of net current liabilities of the I-China Group (i.e. net current liabilities of approximately HK$702.3 million as at 30 September 2003); (ii) the pro forma net current assets of the I-China Group of approximately HK$11.7 million upon Completion but before declaration by the Top Tactic Group of the interim dividend; and (iii) the undertaking by Wai Kee to maintain the net tangible asset value of the I- China Group at no less than HK$40 million at Completion, are still of the view that the net-current-asset position of the I-China Group will substantially improve as a result of the Proposed Restructuring.

Independent Shareholder should note that the information on the pro forma unaudited adjusted consolidated net tangible assets of the I-China Group as mentioned above has been prepared on a going concern basis whereas the actual value of its assets may depreciate if I-China is forced into liquidation. The Proposed Restructuring provides a means to preserve the value of I-

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China’s assets because it will prevent I-China from being liquidated. Given this benefit and the enhancement of the overall pro forma net asset position of the I-China Group as a result of the Proposed Restructuring, we consider that the Proposed Restructuring is in the interests of I-China and the I- China Shareholders as a whole.

(b) Working capital

The Subscription is expected to raise approximately HK$29.9 million in cash, of which HK$22 million will be applied to the cash payment to the Scheme Administrators for distribution to the Creditors pursuant to the Schemes and the remaining balance of approximately HK$7.9 million will be applied towards the restructuring-related expenses. Accordingly, it should be noted that there will not be any direct injection of cash remaining to I- China upon Completion. As stated in section 3 of the Appendix III to the Document, the proposed new executive directors of I-China and the Wai Kee Directors are of the opinion that the restructured I-China Group will have sufficient working capital for its operations for the 12-month period following Completion. Accordingly, whether or not the restructured I-China Group will have sufficient working capital following Completion to meet its cashflow requirements will depend on the operating results of the Top Tactic Group.

It was also stated in the Letter from the Provisional Liquidators that Wai Kee will, if necessary, advance up to HK$1 million by way of shareholder’s loan to satisfy the working capital requirements of the restructured I-China Group. As indicated in a banking facilities letter provided to us by Wai Kee, a commercial bank has granted credit facilities of up to HK$45 million to certain members of the Amazing Reward Group which have been guaranteed by Wai Kee.

Based on the information on the post-Completion cashflow projection for the restructured I-China Group as set out in section 3 of Appendix III to the Document, the cash balance of the I-China Group as at 1 October 2003 is approximately HK$1.5 million and the expected cash balances of the I- China Group Companies and I-China to be excluded from the restructured I-China Group as at 1 October 2003 are estimated at approximately HK$0.5 million. In addition, the expected cash balance of the Top Tactic Group as at 31 March 2004 is approximately HK$100.5 million and the expected net cash outflow from operating activities for the period from 1 October 2003 to 31 March 2005 is approximately HK$39.1 million. Furthermore, distribution from joint venture construction projects is estimated at

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approximately HK$14.0 million and the payment to HKHA in relation to the Arbitration Settlement will amount to HK$70.0 million. Pursuant to the terms of the I-China Preference Shares and based on the assumption that 3,000,000,000 I-China Preference Shares remain outstanding as at 31 March 2005, there will also be a dividend of HK$0.6 million payable to Wai Kee at the end of the 12-month period following Completion. Taking into consideration the aforesaid amounts, as well as the proceeds from the Subscription, payment to the Creditors and the restructuring costs and expenses, the expected cash balance as at 31 March 2005 will be approximately HK$5.7 million. Given such positive cash balance of approximately HK$5.7 million expected at the end of the 12-month period as well as the banking facilities of up to HK$45.0 million available to the Top Tactic Group as mentioned above, the Wai Kee Directors and the proposed new executive I-China Directors are therefore of the view that the restructured I-China Group will have sufficient working capital for its operations during the 12-month period following Completion.

In view of the above projections, except for i) the expected cash balances of the I-China Group Companies and I-China to be excluded from the restructured I-China Group; ii) the payment to HKHA in relation to the Arbitration Settlement; iii) dividend payment to Wai Kee in respect of the I-China Preference Shares; iv) the proceeds from the Subscription; v) payment to the Creditors and vi) the restructuring costs and expenses which are not expected to vary substantially, the other projections are largely based on the estimation by the proposed new executive I-China Directors and the Wai Kee Directors and concern principally the business operations of the Top Tactic Group in the near future. As regards the expected net cash outflow from operating activities for the period from 1 October 2003 to 31 March 2005 of approximately HK$39.1 million, it would appear that the cash flow of the Top Tactic Group is deteriorating when compared to the net cash inflow from operating activities of approximately HK$10.1 million of the Top Tactic Group for the ten months ended 31 October 2003 set out in Appendix II to the Document. However, it should be noted that the expected net cash outflow from operating activities for the period from 1 October 2003 to 31 March 2005 of approximately HK$39.1 million has been arrived at based on the assumption that there would not be any awards of new project to the Top Tactic Group during such period. Furthermore, as advised by the Wai Kee Directors, the operating cash flow of the Top Tactic Group, which was similar to its turnover, would generally vary from period to period and depend on the progress of its projects during the period. As evidenced in the combined cash flow statements of the Top Tactic Group set out in Appendix II to the Document, while the Top Tactic Group had a net cash from operating activities of approximately HK$10.1 million and HK$13.6 million for the ten months ended 31 October 2003 and the year

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ended 31 March 2001 respectively, it recorded a net cash used in operating activities of approximately HK$63.7 million and HK$63.8 million for the nine months ended 31 December 2002 and the year ended 31 March 2002 respectively. The Wai Kee Directors have advised that, given the particular nature of the civil construction business, the operating cash flow of the Top Tactic Group would generally be expected to fluctuate from time to time.

Since there is always uncertainty as to the business operations and cash flow of the Top Tactic Group in the future, Independent I-China Shareholders should note that there is no assurance that the cash flow eventually achieved by the restructured I-China Group during the 12-month period following Completion would not deviate substantially from the cash flow currently projected. Nevertheless, we have noted that all of the components under the cash flow projections, in particular the expected cash balance of the Top Tactic Group as at 31 March 2004, the expected net cash outflow from operating activities and the distribution from joint venture construction projects, have been arrived at after due care and consideration of the proposed new executive I-China Directors and the Wai Kee Directors and reviewed by the auditors and financial advisers of Wai Kee, and we have no reason to doubt the validity of any particular components of the cash flow projections. Accordingly, based on the assumptions that (i) the expected cash balance at the end of the projection period will be approximately HK$5.7 million and (ii) the banking facilities of up to HK$45 million as mentioned above will continue to be available to the Top Tactic Group throughout the 12-month period following Completion, we are of the view that sufficient working capital will be available to the I-China Group for its operations during such period.

(c) Operating results

Upon the successful implementation of the Proposed Restructuring, I-China’s indebtedness due to the Creditors of approximately HK$569 million as at the Latest Practicable Date will be fully discharged and waived and I- China’s interest expenses are expected to decrease significantly as a result of the reduction in the overall level of indebtedness. Assuming conservatively a bank borrowing rate at the prevailing prime rate for Hong Kong dollars of 5% per annum, approximately HK$28.5 million of interest expenses on an annualised basis would have been saved on the total indebtedness of HK$569 million as a result of the Proposed Restructuring.

Following the Completion, it is likely that the operating results of the I- China Group in the immediate future will depend substantially on the performance of the Top Tactic Group given that the assets of the restructured I-China Group will comprise of mainly the assets of the Top Tactic Group.

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There is uncertainty as to the post-Completion results of the Top Tactic Group, though the Top Tactic Group recorded a net profit of approximately HK$22.0 million for the ten months ended 31 October 2003. Nevertheless, in view of the savings on finance costs as a result of the discharge of the debts as mentioned above, we consider that the Proposed Restructuring will have a positive effect on the operating results of the I-China Group and therefore is in the interest of I-China and the I-China Shareholders as a whole.

(d) Dilution effect on the shareholding

The effects on the existing shareholding structure of I-China of the Proposed Restructuring are set out in the paragraph headed “Shareholding Structure” under the section headed “Effects of the Proposed Restructuring” in the Letter from the Provisional Liquidators. In order to assess the fairness and reasonableness of the dilution effect on I-China’s existing shareholding structure under the Proposed Restructuring, we have identified, to the best of our knowledge, for comparison all those restructuring exercises completed, during the 24-month period immediately before the announcement of the Proposed Restructuring, by companies which were listed on the main board of the Stock Exchange and to which provisional liquidators or receivers had been appointed (the “Comparable Exercises”). The table below summarises the dilution effects of the Comparable Exercises:

	Shareholding	of existing			Amount
	public shareholders				of equity	Total
		Immediately			provided	Indebtedness
	Before	after	Dilution	by investor		involved
	restructuring	restructuring	effect		(Note 1)	(Note 2)
Company	(A)	(B)	(B)/(A)-1	HK$ million		HK$ million
	(%)	(%)
Innovative
International
(Holdings)
Limited	72.29	0.29	99.60%		65.0	856.6
Akai Holdings
Limited	100.00	1.10	98.90%		915.8	9,855.4
					(Note 3)	(Note 4)
Seapower Resources
International
Limited	72.45	1.41	98.05%		46.0	1,589.0

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Company
Wireless
InterNetworks
Limited
Wah Nam Group
Limited
Fujian Group
Limited
I-China

Shareholding of existing
Amount
public shareholders
of equity
Total
Immediately
provided
Indebtedness
Before
after
Dilution
by investor
involved
restructuring
restructuring
effect
(Note 1)
(Note 2)
(A)
(B)
(B)/(A)-1
HK$ million
HK$ million
(%)
(%)
52.99
3.73
92.95%
40.0
995.3
100.00
9.01
90.99%
40.0
440.7
(Note 4)
44.70
11.00
75.39%
40.8
747.4
75.00
1.50
98.00%
89.9
569.0
(Note 5)
(Note 6)

Notes:

The amount of equity represents the total amount of cash provided by the relevant investor as equity, and does not include any additional amounts of cash provided as loan capital or to be provided under option, warrant or other convertible instruments.
The amount of indebtedness represents the total amount of outstanding indebtedness estimated by the investor as at the date of the relevant document.
This represents the aggregate value of assets to be provided by the investors under the restructuring proposal of which HK$12.0 million was cash.
This represents the aggregate amount of claims with proof of debt received by the provisional liquidators but before adjudication.
Based on the shareholding of I-China following Completion but before conversion of any I-China Preference Shares.
This represents the total consideration to be paid by Wai Kee under the Subscription Agreement of which approximately HK$29.9 million will be paid by cash and the remaining HK$60 million will be satisfied by way of injection of the Top Tactic Group.

The shareholding of existing I-China Shareholders will be diluted from approximately 75.0% to approximately 1.5% of the enlarged issued share capital of I-China following Completion but before the conversion of any I- China Preference Shares. Such dilution is a result of the issue of 6,187,000,000 New I-China Shares to Wai Kee and the Creditors pursuant to the Proposed Restructuring. As illustrated under the paragraph headed

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LETTER FROM AMS

“Effects of the Proposed Restructuring” in the Letter from the Provisional Liquidators, if the I-China Preference Shares are converted in full, 3,000,000,000 New I-China Shares will be further issued at no further cash consideration and the existing I-China Shareholders’ interests will be diluted further to approximately 1.0% of the enlarged issued share capital of I- China, representing dilution by approximately 98.67% from their original shareholding.

As shown in the above table, the amount of equity provided by investors under the Comparable Exercises ranged from approximately HK$40.0 million to HK$915.8 million. It should be noted that, except for one Comparable Exercise (i.e. Akai Holdings Limited), the amount of equity to be provided by the respective investors under the Comparable Exercises was all cash while the cash consideration to be provided by Wai Kee is only approximately HK$29.9 million with the balance to be satisfied by way of asset injection.

If the I-China Preference Shares are converted in full, the magnitude of the dilution effect of approximately 98.67% of the Proposed Restructuring represents the third largest among the Comparable Exercises. Based on the results of the above comparison, we are of the view that, as far as the Independent I-China Shareholders are concerned, the percentage of shareholding interest to be obtained by Wai Kee in I-China in exchange for its investments in the I-China Group to be relatively high.

Nevertheless, in view of I-China’s indebtedness of approximately HK$569 million as at the Latest Practicable Date and the I-China Group’s net liability position of approximately HK$697.2 million as at 30 September 2003, it would be very difficult for I-China to raise capital by way of debt issue or from the equity market. In the absence of a viable restructuring proposal which includes prompt equity injection for settlement of large amount of debts and general operation needs, it is very likely that the Creditors and the Provisional Liquidators may proceed with the liquidation of I-China if the Proposed Restructuring is not approved by the Independent I-China Shareholders. The Provisional Liquidators have indicated that there will unlikely be any return to the I-China Shareholders if I-China is wound up.

The I-China Shareholders should also be reminded that trading in the I- China Shares has been suspended since 15 January 2002. It is currently expected that the New I-China Shares will resume trading immediately following Completion if the Proposed Restructuring is successfully

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LETTER FROM AMS

implemented. Therefore, the Proposed Restructuring, if successfully implemented, will also provide an opportunity for an open market to the existing I-China Shareholders to realise, should they wish so, part or all of their investments in I-China which is at present not available to the I-China Shareholders due to the suspension of trading in the I-China Shares.

Taking the above factors into consideration, we consider that although there will be a substantial dilution effect on the Independent I-China Shareholders’ shareholding interests in I-China, such dilution effect is still acceptable as far as the Independent I-China Shareholders are concerned.

(vi) Future management of the I-China Group and intentions of Wai Kee

Following the Completion, all existing I-China Directors, namely, Ms. Shirley Choi Siu Lui, Mr. Choi Sai Leung, Mr. Norman Choi Sung Fung, Ms. Ou Yirong, Mr. Vincent Cheung Wing Hung and Mr. Ronald Lau Kin Hon will be removed from the I-China Board. The composition of the future I-China Board and particulars of the proposed I-China Directors are contained in the letter from Wai Kee in the Document.

Particulars of Wai Kee are also contained in the letter from Wai Kee in the Document.

As stated in the letter from Wai Kee, other than the injection of the Top Tactic Group, Wai Kee has no intention of injecting any other assets or businesses into the I-China Group within 12 months following Completion. It is the intention of Wai Kee that, subject to the result of its operational review following Completion, the I-China Group may continue its car rental business in Hong Kong. It was also stated in the letter from Wai Kee that the I-China Group will serve as the construction flagship of the Wai Kee Group with a geographical focus on Hong Kong, the PRC and Taiwan. Given that the two proposed executive I-China Directors, namely Mr. Zen Wei Peu, Derek and Mr. Yu Sai Yen, have over 25 years of experience in the civil engineering sector, we have no reason to doubt the expertise and capacity of the new executive I-China Directors to manage the future construction business of the I-China Group.

Given the substantially small scale of the I-China Group’s operations in the car rental business in the past as compared to the size of the construction business to be injected into the I-China Group upon Completion, it appears that the future focus of the I-China Group in the short to medium term will be on the construction business rather than the car rental business. If Wai Kee exercises the Trinity

— 70 —

LETTER FROM AMS

Option before Completion, the entire issued share capital of Trinity will be transferred to the Provisional Liquidators or the Scheme Administrators (or their nominees). Furthermore, as advised by the Provisional Liquidators, the business operation of Trinity (i.e. the car rental business) had already been suspended and had only one employee as at the Latest Practicable Date. Even if Wai Kee does not exercise the Trinity Option before Completion, the resumption of Trinity’s car rental business will still be subject to the results of the post-Completion operational review by Wai Kee. We are of the view that, regardless of whether the car rental business will be resumed by the restructured I-China Group or not, the operation of the restructured I-China Group in the near future will still be principally in relation to the construction business of the Top Tactic Group. We therefore consider the I-China Group’s car rental business not of material significance for the purposes of assessing the fairness and reasonableness of the terms of the Proposed Restructuring.

As stated in the letter from Wai Kee, Wai Kee will conduct a review on the I- China Group’s financial positions and operations for the purposes of determining the strategies for the I-China Group’s business activities after Completion. While we are at present unable to comment on any specific strategies that may be adopted by Wai Kee for the restructured I-China Group, we consider that the Proposed Restructuring will introduce to I-China a new controlling shareholder who has the financial resources to restore its financial condition to a stable level and inject a normally operating business and is therefore in the interests of I- China and the I-China Shareholders as a whole.

B. THE WHITEWASH WAIVER

Immediately upon Completion but before the Distribution, Wai Kee will be interested in approximately 94.82% of the enlarged issued share capital of I-China. In accordance with Rule 26 of the Code, Wai Kee is obliged to make a general offer for all the I-China Shares other than those already held by Wai Kee or parties acting in concert with it.

As stated in the Letter from Wai Kee, Wai Kee has applied to the Executive for the waiver from its obligations to make a general offer for all the new I-China Shares other than those already held by Wai Kee or parties acting in concert with it. The Proposed Restructuring is conditional on the approval of the Whitewash Waiver by the Independent I-China Shareholders by way of a poll at the SGM and on the grant of the Whitewash Waiver by the Executive. Subject to the approval by the Independent I-China Shareholders on a vote taken by way of a poll to waive any obligations of Wai Kee and the parties acting in concert with it to make a general offer subsequent to the Completion, the Executive has not indicated that it will not grant the Whitewash Waiver.

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LETTER FROM AMS

Independent I-China Shareholders should note that by passing the resolution to approve the Whitewash Waiver and immediately upon implementation of the Proposed Restructuring, Wai Kee and parties acting in concert with it will hold more than 50% (i.e. approximately 94.82%) of the enlarged issued share capital of I-China. Accordingly, Wai Kee and parties acting in concert with it may increase their shareholdings, including through the conversion in full of the I-China Preference Shares or acquiring I-China Shares in the open market, without incurring any future obligation under Rule 26 of the Code to make a general offer.

As mentioned in the Document, Wai Kee has indicated that it will not waive or amend the Whitewash Waiver condition. In the event that the Whitewash Waiver is not approved by the Independent I-China Shareholders, the Proposed Restructuring will not proceed and I-China will not receive the funds from the Subscription. For reasons as discussed under the section headed “The Proposed Restructuring” above, we concur with the Provisional Liquidators that I-China will likely be wound up if the Proposed Restructuring is not implemented. Under such circumstances and given the current financial conditions of the I-China Group, the I-China Shareholders will unlikely be able to realise any returns. Given that the requirement for the Whitewash Waiver is a common feature in rescue proposals for companies which are in financial difficulties and revived as a result of injection of funds/assets by new investors, and that the I-China Shareholders will unlikely be able to realise any returns if the Proposed Restructuring is not implemented as a result of the failure to obtain the approval of the Whitewash Waiver, we are therefore of the view that the grant of the Whitewash Waiver is in the interest of I-China and the I-China Shareholders as a whole for the purposes of implementing the Proposed Restructuring and is fair and reasonable as far as the Independent I-China Shareholders are concerned.

RECOMMENDATION

Having considered the factors and reasons set out above and, in particular, the following:

Negative aspects of the Proposed Restructuring

(i) The total cash consideration to be provided by Wai Kee is approximately HK$29.9 million of which HK$22 million will be applied to the cash payment to the Scheme Administrators for distribution to the Creditors pursuant to the Schemes and the remaining balance of approximately HK$7.9 million will be applied towards the restructuringrelated expenses. Accordingly, there will not be any direct injection of cash remaining to I-China upon Completion.

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LETTER FROM AMS

(ii) The shareholding of the existing I-China Shareholders will be substantially diluted by approximately 98.0% from approximately 75.0% to approximately 1.5% of the enlarged issued share capital of I-China following Completion. If the I-China Preference Shares are converted in full, the existing I-China Shareholders’ interests will be diluted further to approximately 1.0% of the enlarged issued share capital of I-China, representing dilution by approximately 98.67% from their original shareholding.
(iii) The prospects of the restructured I-China Group depend highly on the performance of the Top Tactic Group, the future operating results of which remain uncertain.

Positive aspects of the Proposed Restructuring

(i) All indebtedness (which was estimated to be approximately HK$569 million as at the Latest Practicable Date) due to the Creditors by I-China will be discharged and waived upon Completion.
(ii) The financial position of the I-China Group will improve from a net liability position of approximately HK$697.2 million to a net tangible asset position of no less than HK$40 million upon Completion.
(iii) The injection of the Top Tactic Group, which recorded an audited profit of approximately HK$24.3 million, HK$9.3 million and HK$22.0 million for the year ended 31 March 2002, the nine months ended 31 December 2002 and the ten months ended 31 October 2003 respectively, and of which the consideration appears to be fair and reasonable, will bring a normally operating business to the restructured I-China Group.
(iv) There is a strong likelihood of an involuntary liquidation and a delisting from the Stock Exchange if I-China fails to restructure its indebtedness.
(v) There will unlikely be any return to the I-China Shareholders in case of a liquidation of I-China.
(vi) If the Proposed Restructuring is successfully implemented, the New I-China Shares may resume trading following Completion. This will provide an opportunity for an open market to the existing I-China Shareholders to realise, should they wish so, part or all of their investments in I-China which is at present not available to the I-China Shareholders due to the suspension of trading in the I-China Shares.

— 73 —

LETTER FROM AMS

We consider that the Proposed Restructuring is, on balance, in the interests of I-China and the I-China Shareholders as a whole and that the terms of the Proposed Restructuring and the Whitewash Waiver are fair and reasonable so far as the Independent I-China Shareholders are concerned. Therefore, we recommend the Independent I-China Shareholders to vote in favour of the resolutions in relation to the Proposed Restructuring and the Whitewash Waiver to be proposed at the SGM.

Yours faithfully, For and on behalf of

AMS Corporate Finance Limited Jinny Mok Director

— 74 —

APPENDIX I FINANCIAL INFORMATION OF THE I-CHINA GROUP

1. SHARE CAPITAL

The authorised and issued share capital of I-China as at the Latest Practicable Date were, and following Completion, will be as follows:

Authorised:		HK$
8,000,000,000	I-China Shares of HK$0.01 each as at the Latest	80,000,000.00
	Practicable Date
17,000,000,000	New I-China Shares of HK$0.01 each upon	170,000,000.00
	the Capital Restructuring becoming effective
3,000,000,000	I-China Preference Shares of HK$0.01 each upon	30,000,000.00
	the Capital Restructuring becoming effective
Issued and fully paid or to be issued as fully paid or credited to be fully paid:
508,339,764	I-China Shares of HK$0.01 each as at the Latest	5,083,397.64
	Practicable Date
127,084,941	New I-China Shares of HK$0.01 each upon	1,270,849.41
	the Capital Restructuring becoming effective
5,987,000,000	New I-China Shares to be issued pursuant to	59,870,000.00
	the Subscription
200,000,000	New I-China Shares to be issued	2,000,000.00
	to the Creditors
6,314,084,941	New I-China Shares of HK$0.01 each upon	63,140,849.41
	Completion but before full conversion of
	I-China Preference Shares
3,000,000,000	New I-China Shares to be issued	30,000,000.00
	upon full conversion of I-China
	Preference Shares
9,314,084,941	New I-China Shares of HK$0.01 each upon	93,140,849.41
	Completion and full conversion of I-China
	Preference Shares
3,000,000,000	I-China Preference Shares of HK$0.01 each	30,000,000.00
	upon Completion

— 75 —

APPENDIX I FINANCIAL INFORMATION OF THE I-CHINA GROUP

There has been no alteration in the number of I-China Shares since 31 March 2003, which is the last financial year end date of I-China to the Latest Practicable Date.

As at the Latest Practicable Date, all issued I-China Shares ranked pari passu in all respects, including, in particular, as to dividends, voting rights and return of capital. All New I-China Shares to be issued will rank pari passu in all respects with the New I-China Shares then in issue, including in particular, as to dividends, voting rights and return of capital.

As at the Latest Practicable Date, I-China Group had no outstanding warrants, options, convertible securities or other derivatives convertible into I-China Shares, and no share or loan capital of I-China Group has been put under option or agreed conditionally or unconditionally to be put under option and no other conversion right affecting the I- China Shares or other derivatives in respect of securities which are being offered for or which carry voting rights have been issued or granted or agreed conditionally or unconditionally to be issued or granted.

2. FINANCIAL SUMMARY

The table set out below summarises the consolidated results of I-China for the preceding three financial years ended 31 March 2003, as derived from the audited consolidated financial statements of I-China.

The auditors disclaimed their opinions on the audited consolidated financial statements of I-China for the years ended 31 March 2001, 2002 and 2003. Qualified auditors’ opinion in respect of the audited consolidated financial statements of I-China for the years ended 31 March 2001, 2002 and 2003 are reproduced on pages 79 to 134 of this document.

— 76 —

FINANCIAL INFORMATION OF THE I-CHINA GROUP

APPENDIX I

RESULTS
Turnover
Direct operating expenses
Other operating income
Selling and administrative expenses
Other operating expenses
Loss from operations
Finance costs
Loss on partial disposal of an associate
Gain on disposal of subsidiaries
Shares of results of associates
Loss before taxation
Taxation
Loss before minority interests
Minority interests
Net loss for the year
Loss per Share:
Basic
Dividend per Share

For the year ended 31 March
2001
2002
2003
HK$’000
HK$’000
HK$’000
5,580
3,437
2,544
(3,603)
(2,735)
(2,012)
9,617
1,167
198
(17,349)
(6,399)
(10,007)
(92,839)
(9,983)
(148,900)
(98,594)
(14,513)
(158,177)
(69,430)
(70,150)
(23,723)
(5,502)
(37,338)
—
258
—
—
(88,122)
(100,738)
—
(261,390)
(222,739)
(181,900)
89
—
(1,825)
(261,301)
(222,739)
(183,725)
—
432
—
(261,301)
(222,307)
(183,725)
HK$
HK$
HK$
(0.514)
(0.437)
(0.361)
—#
—#
—#

No dividend for ordinary Shares was declared for the preceding three financial years ended 31 March 2003.

— 77 —

APPENDIX I FINANCIAL INFORMATION OF THE I-CHINA GROUP

The table set out below summarises the audited consolidated net liabilities for the I- China Group as at the last three financial year end dates, as extracted from the respective audited consolidated financial statements of I-China for the financial years ended 31 March 2001, 2002 and 2003.

Non-current assets
Investment properties
Property, plant and equipment
Long-term deposits
Interests in associates
Other investments
Current assets
Short-term receivables
Trade and other receivables
Other investments
Amounts due from associates
Taxation recoverable
Bank balances and cash
Current liabilities
Trade and other payables
Amounts due to associates
Amounts due to directors
Taxation payable
Obligations under finance leases
Bank and other borrowings
Net current liabilities
Minority interests
Capital and reserves
Share capital
Reserves

For the year ended 31 March
2001
2002
2003
HK$’000
HK$’000
HK$’000
195,340
150,900
—
16,500
8,320
5,670
—
—
—
126,918
—
—
469
—
—
339,227
159,220
5,670
6,483
6,483
6,483
2,213
280
3,084
1,199
—
—
—
—
31
2,545
2,541
—
999
1,016
931
13,439
10,320
10,529
63,278
116,378
129,056
9,268
9,836
10,284
—
—
7,663
1,858
1,858
1,142
226
328
123
563,254
538,808
549,324
637,884
667,208
697,592
(624,445)
(656,888)
(687,063)
(432)
—
—
(285,650)
(497,668)
(681,393)
50,834
5,083
5,083
(336,484)
(502,751)
(686,476)
(285,650)
(497,668)
(681,393)

— 78 —

APPENDIX I FINANCIAL INFORMATION OF THE I-CHINA GROUP

3. AUDITORS’ REPORT ON THE FINANCIAL STATEMENTS OF I-CHINA FOR THE YEAR ENDED 31 MARCH 2003

The following information is extracted from the auditors’ report on the financial statements of I-China for the year ended 31 March 2003. References to page numbers are to page numbers of such audited financial statements of I-China for the year ended 31 March 2003.

==> picture [183 x 55] intentionally omitted <==

==> picture [83 x 57] intentionally omitted <==

TO THE SHAREHOLDERS OF I-CHINA HOLDINGS LIMITED (Provisional Liquidators Appointed)

(incorporated in Bermuda with limited liability)

We have audited the financial statements on pages 9 to 41 which have been prepared in accordance with accounting principles generally accepted in Hong Kong other than as set out below.

Respective responsibilities of Provisional Liquidators and auditors

The Company’s Provisional Liquidators are responsible for the preparation of financial statements which give a true and fair view. In preparing financial statements which give a true and fair view it is fundamental that appropriate accounting policies are selected and applied consistently.

It is our responsibility to form an independent opinion, based on our audit, on those financial statements and to report our opinion solely to you, as a body, in accordance with section 90 of the Bermuda Companies Act, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.

Basis of opinion

We conducted our audit in accordance with Statements of Auditing Standards issued by the Hong Kong Society of Accountants (“HKSA”), except that the scope of our work was limited as explained below.

An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgments made by the Provisional Liquidators in the preparation of the financial statements, and of whether the accounting policies are appropriate to the circumstances of the Company and of the Group, consistently applied and adequately disclosed.

— 79 —

APPENDIX I FINANCIAL INFORMATION OF THE I-CHINA GROUP

Our report on the financial statements of the Group for the year ended 31 March 2002 was disclaimed in view of the pervasive nature of the limitations on the scope of our audit as explained in our audit report dated 30 August 2002.

We were unable to obtain sufficient documentary evidence to satisfy ourselves that the following balances as at 31 March 2002 included in the consolidated balance sheet were free from material misstatement:

Investment properties of HK$150,900,000;
Land and buildings of HK$4,900,000;
Interest in associates of Nil;
Interest accruals of HK$109,295,000 included in the item of “trade and other payables”; and
Bank and other borrowings of HK$521,936,000.

Any adjustments found to be necessary to the opening net liabilities of the Group would have a consequential effect on the opening reserves of the Group as at 31 March 2002 and on the loss of the Group for the year ended 31 March 2003. Also the comparative figures to the consolidated balance sheet as at 31 March 2002 shown on page 10 may not be comparable with the figures as at 31 March 2003. Similarly, the comparative figures to the consolidated income statement for the year ended 31 March 2002 shown on page 9 may not be comparable with the figures for the current year.

As explained in note 2(b) to the financial statements, the information available to the Provisional Liquidators in preparing the financial statements was limited. As a result, the Provisional Liquidators are unable to represent that all transactions entered into by the Company and its subsidiaries prior to their appointment are reflected in the books and records and in the financial statements. Accordingly, the Provisional Liquidators were unable to satisfy themselves as to the completeness of identification and the appropriateness of disclosure in respect of the potential claims, the commitments, the contingent liabilities and the pledge of assets in the financial statements as at 31 March 2003.

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APPENDIX I FINANCIAL INFORMATION OF THE I-CHINA GROUP

As explained in note 2(b)(i) to the financial statements, due to the limited books and records available to the Provisional Liquidators, there is insufficient information for the Provisional Liquidators to satisfy themselves that all the amounts included in the consolidated income statement for the year ended 31 March 2003 were free from material misstatement. As a result, the Provisional Liquidators were unable to satisfy themselves as to the reliability of the related disclosure in the financial statements.
As explained in note 2(b)(ii) to the financial statements, the Provisional Liquidators are currently reviewing the validity of the claims by directors of the Company in respect of their emoluments of HK$7,216,000. Accordingly, the Provisional Liquidators were unable to satisfy themselves as to whether these directors’ emoluments for the year ended 31 March 2003 and the corresponding amount included in the amounts due to directors of the Group are the Company as at 31 March 2003 were free from material misstatement.
As explained in note 2(b)(iii) to the financial statements, due to the limited books and records available to the Provisional Liquidators, the Provisional Liquidators were unable to assess whether any allowance for doubtful debt is required in respect of short-term receivables of HK$6,483,000 as at 31 March 2003. Accordingly, the Provisional Liquidators were unable to satisfy themselves as to whether these short-term receivables in the consolidated balance sheet as at 31 March 2003 were free from material misstatement.
As explained in note 2(b)(iv) to the financial statements, due to the limited books and records available to the Provisional Liquidators, the Provisional Liquidators were unable to obtain sufficient evidence to satisfy themselves as to the validity of other receivables of HK$2,861,000 and HK$53,000 included in the balance sheets of the Group and the Company respectively nor to assess whether any allowance for doubtful debt is required to be made in respect of these receivables. Accordingly, the Provisional Liquidators were unable to satisfy themselves as to whether these receivables in the balance sheets of the Group and the Company as at 31 March 2003 were free from material misstatement.
As explained in note 2(b)(v) to the financial statements, due to the limited books and records available to the Provisional Liquidators, the Provisional Liquidators were unable to obtain bank statements or other documentary evidence in respect of bank balances and cash of the Group and the Company of HK$931,000 and HK$5,000 respectively as at 31 March 2003. Accordingly, the Provisional Liquidators were unable to satisfy themselves as to whether these bank balances and cash in the balance sheets of the Group and the Company as at 31 March 2003 were free from material misstatement.

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APPENDIX I FINANCIAL INFORMATION OF THE I-CHINA GROUP

As explained in note 2(b)(vi) to the financial statements, due to the limited books and records available to the Provisional Liquidators, the Provisional Liquidators were unable to obtain sufficient documentary evidence in respect of the amount of HK$141,231,000 included in the item of “bank and other borrowings” as at 31 March 2003. Accordingly, the Provisional Liquidators were unable to satisfy themselves as to whether these borrowings in the consolidated balance sheet as at 31 March 2003 and the related interest expenses of HK$8,188,000 for the year ended 31 March 2003 were free from material misstatement.
As explained in note 2(b)(vii) to the financial statements, due to the limited books and records available to the Provisional Liquidators, the Provisional Liquidators were unable to obtain sufficient documentary evidence in respect of the amount of HK$1,513,000 included in the item of “amounts due to asociates” as at 31 March 2003. Accordingly, the Provisional Liquidators were unable to satisfy themselves as to whether these amounts due to associates in the consolidated balance sheet as at 31 March 2003 were free from material misstatement.
As explained in note 2(b)(viii) to the financial statements, due to the limited books and records available to the Provisional Liquidators, the Provisional Liquidators were unable to obtain sufficient documentary evidence in respect of amounts due to directors of the Group and the Company of HK$7,663,000 and HK$7,361,000 respectively as at 31 March 2003. Accordingly, the Provisional Liquidators were unable to satisfy themselves as to whether these amounts due to directors in the balance sheets of the Group and the Company as at 31 March 2003 were free from material misstatement.
As explained in note 2(b)(ix) to the financial statements, due to the limited books and records available to the Provisional Liquidators, the Provisional Liquidators were unable to determine the appropriate amount to be transferred from the asset revaluation reserve account to deficit account as a result of the realisation of asset revaluation reserve upon disposal of the properties held by associates during the year ended 31 March 2002. Accordingly, the Provisional Liquidators were unable to satisfy themselves as to whether the asset revaluation reserve of HK$223,734,000 as at 31 March 2003 and 2002; and the deficit of HK$1,133,264,000 and HK$949,539,000 as at 31 March 2003 and 2002 respectively in the consolidated balance sheet were free from material misstatement.

There were no other satisfactory audit procedures that we could adopt to satisfy ourselves as to the matters set out in paragraphs 1 to 11 above. Any adjustments to the above figures would as appropriate affect the net liabilities of the Group and of the Company as at 31 March 2003 and the loss and cash flows of the Group for the year then ended.

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APPENDIX I FINANCIAL INFORMATION OF THE I-CHINA GROUP

In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. We believe that our audit provides a reasonable basis for our opinion.

Fundamental uncertainty relating to the going concern basis

In forming our opinion, we have considered the adequacy of the disclosure made in note 2(a) to the financial statements which explains that the Company, acting through the Provisional Liquidators entered into an agreement for the implementation of a restructuring proposal (the “Restructuring Agreement”), amongst others, with Wai Kee Holdings Limited on 20 November 2003. As at the date of this report, completion of the Restructuring Agreement will require the fulfillments of certain conditions including the relevant approvals from the The Stock Exchange of Hong Kong Limited, the Securities and Futures Commission as well as the Supreme Court of Bermuda and the Court of First Instance of High Court of Hong Kong. The Provisional Liquidators have prepared the financial statements on a going concern on the basis that the Restructuring Agreement will be implemented in full on completion and the restructured Group will be able to meet in full its financial obligations as they fall due for the foreseeable future. The financial statements do not include any adjustments that would result from the failure of proposed restructuring. We consider that appropriate disclosures have been made. However, in view of the extent of the uncertainty relating to the completion of the restructuring arrangement, we disclaim our opinion in respect of the fundamental uncertainty relating to the going concern basis.

Qualifications arising from disagreement about the accounting treatment and about the extent of disclosure

(1) The Group has the policy of including land and buildings in the balance sheet at valuation. However, as explained in note 15 to the financial statements, no valuation was performed as at 31 March 2003. This is not in accordance with the Group’s accounting policy and Statement of Standard Accounting Practice (“SSAP”) 17 “Property, plant and equipment” issued by the HKSA which requires that when the item of property, plant and equipment is stated at valuation, revaluations should be made with sufficient regularity such that the carrying amount does not differ materially from that which would be determined using fair value at the balance sheet date. In the absence of a valuation being made of the Group’s land and buildings, it is not practicable to quantify the effect of this departure on the amounts shown in the balance sheet for land and buildings;

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APPENDIX I FINANCIAL INFORMATION OF THE I-CHINA GROUP

(2) As explained by the Provisional Liquidators in note 2(b)(x) to the financial statements, due to the limited books and records available to the Provisional Liquidators, the following required disclosures have not been made in the financial statements:
Details of deferred taxation disclosures as required by SSAP 12 “Accounting for deferred tax”;
The carrying amount of land and buildings had the land and buildings are carried at cost less accumulated depreciation as required by SSAP 17 “Property, plant and equipment”;
Details of related party disclosures as required by SSAP 20 “Related party disclosures”;
Details of the retirement benefits scheme as required by SSAP 34 “Employee benefits”; and
Details of analysis of pledge of assets, contingencies and commitments as required by the Hong Kong Companies Ordinance.

Disclaimer of opinion

Because of the significance of the possible effect of the limitations in evidence available to us as set out in the basis of opinion section of this report and because of the significance of the fundamental uncertainty relating to the going concern basis, we are unable to form an opinion as to whether the financial statements give a true and fair view of the state of affairs of the Company and of the Group as at 31 March 2003 or of the loss and cash flows of the Group for the year then ended and as to whether the financial statements have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.

In respect alone of the limitations on our work set out in the basis of opinion section of this report:

we have not obtained all the information and explanations that we considered necessary for the purpose for our audit; and
we were unable to determine whether proper books of accounts have been kept.

Deloitte Touche Tohmatsu

Certified Public Accountants

Hong Kong, 29 January 2004

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APPENDIX I FINANCIAL INFORMATION OF THE I-CHINA GROUP

4. FINANCIAL INFORMATION

The following information is extracted from the audited financial statements of I-China for the year ended 31 March 2003. References to page numbers are to page numbers of such financial statements of I-China for the year ended 31 March 2003.

Consolidated Income Statement

For the year ended 31 March 2003

Notes Turnover Direct operating expenses Other operating income 6 Selling and administrative expenses Other operating expenses 7 Loss from operations 8 Finance costs 9 Loss on partial disposal of an associate Share of results of associates Loss before taxation Taxation 12 Loss before minority interests Minority interests Net loss for the year Loss per share — basic 13	2003 HK$’000 2,544 (2,012) 198 (10,007) (148,900) (158,177) (23,723) — — (181,900) (1,825) (183,725) — (183,725) (36.14 cents)	2002 HK$’000 3,437 (2,735) 1,167 (6,399) (9,983) (14,513) (70,150) (37,338) (100,738) (222,739) — (222,739) 432 (222,307) (43.73 cents)

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APPENDIX I FINANCIAL INFORMATION OF THE I-CHINA GROUP

Consolidated Balance Sheet

At 31 March 2003

Notes Non-current assets Investment properties 14 Property, plant and equipment 15 Long-term deposits 16 Interests in associates 18 Current assets Short-term receivables 19 Trade and other receivables 20 Amounts due from associates 21 Taxation recoverable Bank balances and cash Current liabilities Trade and other payables 22 Amounts due to associates 23 Amounts due to directors Taxation payable Obligations under finance leases 25 Bank and other borrowings 26 Net current liabilities Capital and reserves Share capital 27 Reserves	2003 HK$’000 — 5,670 — — 5,670 6,483 3,084 31 — 931 10,529 129,056 10,284 7,663 1,142 123 549,324 697,592 (687,063) (681,393) 5,083 (686,476) (681,393)	2002 HK$’000 150,900 8,320 — — 159,220 6,483 280 — 2,541 1,016 10,320 116,378 9,836 — 1,858 328 538,808 667,208 (656,888) (497,668) 5,083 (502,751) (497,668)

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APPENDIX I FINANCIAL INFORMATION OF THE I-CHINA GROUP

Balance Sheet

At 31 March 2003

Notes Non-current assets Long-term deposits 16 Interests in subsidiaries 17 Current assets Other receivables Taxation recoverable Bank balances and cash Current liabilities Other payables Amounts due to associates 23 Amounts due to subsidiaries 24 Amounts due to directors Taxation payable Bank and other borrowings 26 Net current liabilities Capital and reserves Share capital 27 Reserves 29	2003 HK$’000 — — 53 — 5 58 123,125 5,401 9,347 7,361 383 408,093 553,710 (553,652) (553,652) 5,083 (558,735) (553,652)	2002 HK$’000 — — — 1,825 1 1,826 110,625 5,278 8,422 — 383 390,201 514,909 (513,083) (513,083) 5,083 (518,166) (513,083)

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APPENDIX I FINANCIAL INFORMATION OF THE I-CHINA GROUP

Consolidated Statement of Changes in Equity

For the year ended 31 March 2003

At 1 April 2001 Share of post-acquisition reserve movements of associates Deficit arising on revaluation of investment properties Net profits (losses) not recognised in income statement Effect of capital reduction Realised on disposal of an associate Realised on disposal of properties Net loss for the year At 31 March 2002 and 1 April 2002 Net loss for the year At 31 March 2003 Attributable to: the Company and its subsidiaries Associates	Share capital HK$’000 50,834 — — — (45,751) — — — 5,083 — 5,083	Share premium HK$’000 414,978 — — — (414,978) — — — — — — — — —	Capital redemption reserve HK$’000 115	Special reserve HK$’000 168,788 — — — — — — — 168,788 — 168,788 168,788 — 168,788	Capital reserve HK$’000 49,769 — — — — 4,836 — — 54,605 — 54,605 18,105 36,500 54,605	Investment property revaluation reserve HK$’000 11,278	Asset revaluation reserve HK$’000 218,207 64 ) — ) 64 — 14,431 (8,968) — 223,734 — 223,734 4,464 219,270 223,734	Translation reserve HK$’000 (2,690) 1,376 — 1,376 — 860 — — (454) — (454) 4,236 (4,690) (454)	Deficit HK$’000 (1,196,929) — — — 460,729 — 8,968 (222,307) (949,539) (183,725) (1,133,264) (595,244) (538,020) (1,133,264)	Total HK$’000 (285,650) 1,440 (11,278 ) (9,838) — 20,127 — (222,307) (497,668) (183,725) (681,393)
			— —			— (11,278
			—			(11,278
			— — — —			— — — —
			115 —			— —
			115			—

			115 —			— —
			115			—

— 88 —

APPENDIX I FINANCIAL INFORMATION OF THE I-CHINA GROUP

Consolidated Cash Flow Statement

For the year ended 31 March 2003

OPERATING ACTIVITIES Loss from operations Adjustments for: Interest income Allowances for bad and doubtful debts Depreciation and amortisation Deficit arising on revaluation of investment properties Deficit arising on revaluation of land and buildings Investment properties written off Loss on disposal of investment properties Loss on disposal of property, plant and equipment Net realised and unrealised holding loss on other investments Operating cash flows before movements in working capital (Increase) decrease in trade and other receivables Increase in amounts due from associates Increase (decrease) in trade and other payables Increase in amounts due to associates Increase in amounts due to directors Cash used in operations Interest received Hong Kong Profits Tax refunded NET CASH USED IN OPERATING ACTIVITIES INVESTING ACTIVITIES Proceeds from disposal of property, plant and equipment Purchase of property, plant and equipment Proceeds from disposal of other investments NET CASH FROM INVESTING ACTIVITIES	2003 HK$’000 (158,177) — — 932 — — 147,800 1,100 678 — (7,667) (2,804) (31) 1,614 322 7,663 (903) — — (903) 1,068 (28) — 1,040	2002 HK$’000 (Restated) (14,513) (36) 1,109 1,592 6,222 16 — 2,154 990 337 (2,129) 824 — (4,361) 149 — (5,517) 36 4 (5,477) 6,933 (865) 1,331 7,399

— 89 —

FINANCIAL INFORMATION OF THE I-CHINA GROUP

APPENDIX I

FINANCING ACTIVITIES Repayment of bank and other borrowings Repayment of obligations under finance leases Interest on obligations under finance leases NET CASH USED IN FINANCING ACTIVITIES NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR CASH AND CASH EQUIVALENTS AT END OF THE YEAR, represented by bank balances and cash ANALYSIS OF THE BALANCES OF CASH AND CASH EQUIVALENTS Cash and cash equivalents as previously reported Effect of reclassification of bank and other borrowings Cash and cash equivalents as restated	2003 HK$’000 — (205) (17) (222) (85) 1,016 931	2002 HK$’000 (Restated) (1,485) (384) (36) (1,905) 17 999 1,016 (172,863) 173,879 1,016

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APPENDIX I FINANCIAL INFORMATION OF THE I-CHINA GROUP

Notes to the Financial Statements

For the year ended 31 March 2003

1. General

The Company is an exempted company incorporated in Bermuda with limited liability. Its shares are listed on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”). The trading of the shares in the Company on the Stock Exchange has been suspended since 15 January 2002.

On 5 December 2002, Messrs. Cosimo Borrelli and Fan Wai Kuen, of RSM Nelson Wheeler Corporate Advisory Services Limited were appointed by the High Court of Hong Kong (the “High Court”) as joint and several provisional liquidators of the Company (the “Provisional Liquidators”) to, amongst other things, protect the assets of the Company and to facilitate a restructuring of the Company.

The Company is an investment holding company. The principal activities of its principal subsidiaries are set out in note 34.

2. Basis of Preparation of Financial Statements

(a) In preparing the financial statements, the Provisional Liquidators have given careful consideration to the future liquidity of the Group in the light of the Group’s net liabilities of HK$681 million (2002: HK$498 million) as at 31 March 2003.

As explained in note 33, the Company, acting through the Provisional Liquidators, entered into an agreement for the implementation of a restructuring proposal (the “Restructuring Agreement”), amongst others, with Wai Kee Holdings Limited (“Wai Kee”, a company incorporated in Bermuda with limited liability and the shares of which are listed on the Stock Exchange) on 20 November 2003. The restructuring proposal includes, inter alia, a capital restructuring, debt restructuring involving schemes of arrangement and a subscription of new shares and the injection of certain assets (the “Proposed Restructuring”).

As at the date of this report, completion of the Restructuring Agreement will require the fulfillments of certain conditions including the relevant approvals from the Stock Exchange, the Securities and Futures Commission as well as the Supreme Court of Bermuda and the Court of First Instance of the High Court of Hong Kong (the “Courts”).

The Provisional Liquidators have prepared the financial statements on a going concern on the basis that the Restructuring Agreement will be implemented in full on completion and the restructured Group will be able to meet in full its financial obligations as they fall due for the foreseeable future.

(b) These financial statements were prepared based on the limited books and records and other latest information available to the Provisional Liquidators. The Provisional Liquidators have used their best endeavour to assess all the financial and business records of the Group. As the Provisional Liquidators did not exercise any control over the business, property and affairs of the Group prior to their appointment on 5 December 2002, they do not have the same level of knowledge of the financial affairs of the Company and the Group as the Company's directors. The key management and staff responsible for maintaining the books and records of the Group had left the Group and the Provisional Liquidators do not have all books and records of the Group. The information available to the Provisional Liquidators is limited. As a result, the Provisional Liquidators are unable to represent that all transactions entered into by the Company and its subsidiaries prior to their appointment are reflected in the books and records and in the financial statements. Accordingly, the Provisional Liquidators were unable to satisfy themselves as to the completeness of identification and the

— 91 —

FINANCIAL INFORMATION OF THE I-CHINA GROUP

APPENDIX I

appropriateness of disclosure in respect of the potential claims, the commitments, the contingent liabilities and the pledge of assets in the financial statements as at 31 March 2003. In addition, the Provisional Liquidators were unable to obtain sufficient documentary information to satisfy themselves regarding the matters described below.

(i) Due to the limited books and records available to the Provisional Liquidators, there is insufficient information for the Provisional Liquidators to satisfy themselves that all the amounts included in the consolidated income statement for the year ended 31 March 2003 were free from material misstatement. As a result, the Provisional Liquidators were unable to satisfy themselves as to the reliability of the related disclosure in the financial statements.
(ii) As explained in note 10, the Provisional Liquidators are currently reviewing the validity of the claims by directors of the Company in respect of their emoluments of HK$7,216,000. Accordingly, the Provisional Liquidators were unable to satisfy themselves as to whether these directors’ emoluments for the year ended 31 March 2003 and the corresponding amount included in the amounts due to directors of the Group and the Company as at 31 March 2003 were free from material misstatement.
(iii) Due to the limited books and records available to the Provisional Liquidators, the Provisional Liquidators were unable to assess whether any allowance for doubtful debt is required in respect of short-term receivables of HK$6,483,000 as at 31 March 2003. Accordingly, the Provisional Liquidators were unable to satisfy themselves as to whether these short-term receivables in the consolidated balance sheet as at 31 March 2003 were free from material misstatement.
(iv) Due to the limited books and records available to the Provisional Liquidators, the Provisional Liquidators were unable to obtain sufficient evidence to satisfy themselves as to the validity of other receivables of HK$2,861,000 and HK$53,000 included in the balance sheets of the Group and the Company respectively nor to assess whether any allowance for doubtful debt is required to be made in respect of these receivables. Accordingly, the Provisional Liquidators were unable to satisfy themselves as to whether these receivables in the balance sheets of the Group and the Company as at 31 March 2003 were free from material misstatement.
(v) Due to the limited books and records available to the Provisional Liquidators, the Provisional Liquidators were unable to obtain bank statements or other documentary evidence in respect of bank balances and cash of the Group and the Company HK$931,000 and HK$5,000 respectively as at 31 March 2003. Accordingly, the Provisional Liquidators were unable to satisfy themselves as to whether these bank balances and cash in the balance sheets of the Group and the Company as at 31 March 2003 were free from material misstatement.
(vi) Due to the limited books and records available to the Provisional Liquidators, the Provisional Liquidators were unable to obtain sufficient documentary evidence in respect of the amount of HK$141,231,000 included in the item of “bank and other borrowings” as at 31 March 2003. Accordingly, the Provisional Liquidators were unable to satisfy themselves as to whether these borrowings in the consolidated balance sheet as at 31 March 2003 and the related interest expenses of HK$8,188,000 for the year ended 31 March 2003 were free from material misstatement.

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FINANCIAL INFORMATION OF THE I-CHINA GROUP

APPENDIX I

(vii) Due to the limited books and records available to the Provisional Liquidators, the Provisional Liquidators were unable to obtain sufficient documentary evidence in respect of the amount of HK$1,513,000 included in the item of “amounts due to associates” as at 31 March 2003. Accordingly, the Provisional Liquidators were unable to satisfy themselves as to whether these amounts due to associates in the consolidated balance sheet as at 31 March 2003 were free from material misstatement.
(viii) Due to the limited books and records available to the Provisional Liquidators, the Provisional Liquidators were unable to obtain sufficient documentary evidence in respect of amounts due to directors of the Group and the Company of HK$7,663,000 and HK$7,361,000 respectively as at 31 March 2003. Accordingly, the Provisional Liquidators were unable to satisfy themselves as to whether these amounts due to directors in the balance sheets of the Group and the Company as at 31 March 2003 were free from material misstatement.
(ix) Due to the limited books and records available to the Provisional Liquidators, the Provisional Liquidators were unable to determine the appropriate amount to be transferred from the asset revaluation reserve account to deficit account as a result of the realisation of asset revaluation reserve upon disposal of the properties held by associates during the year ended 31 March 2002. Accordingly, the Provisional Liquidators were unable to satisfy themselves as to whether the asset revaluation reserve of HK$223,734,000 as at 31 March 2003 and 2002; and the deficit of HK$1,133,264,000 and HK$949,539,000 as at 31 March 2003 and 2002 respectively in the consolidated balance sheet were free from material misstatement.
(x) Due to the limited books and records available to the Provisional Liquidators, the following disclosures have not been made in the financial statements:
Details of deferred taxation disclosures as required by Statement of Standard Accounting Practice (“SSAP”) 12 “Accounting for deferred tax” issued by the Hong Kong Society of Accountants;
The carrying amount of land and buildings had the land and buildings are carried at cost less accumulated depreciation as required by SSAP 17 “Property, plant and equipment”;
Details of related party disclosures as required by SSAP 20 “Related party disclosures”;
Details of the retirement benefits scheme as required by SSAP 34 “Employee benefits”; and
Details of analysis of pledge of assets, contingencies and commitments as required by the Hong Kong Companies Ordinance.

3. Adoption of Statements of Standard Accounting Practice/Changes in Accounting Policies

In the current year, the Group has adopted, for the first time, a number of new and revised SSAPs. The adoption of these SSAPs has resulted in a change in the format of presentation of the cash flow statement and an inclusion of a statement of changes in equity, and in the adoption of the following new and revised accounting policies but has had no material effect on the results for the current or prior accounting periods. Accordingly, no prior period adjustment has been required.

— 93 —

APPENDIX I FINANCIAL INFORMATION OF THE I-CHINA GROUP

Foreign Currencies

The revisions to SSAP 11 “Foreign Currency Translation” have eliminated the choice of translating the income statements of overseas operations at the closing rate for the period, the policy previously followed by the Group. They are now required to be translated at an average rate. This change in accounting policy has not had any material effect on the results for the current or prior accounting periods.

Cash Flow Statements

Under SSAP 15 (Revised) “Cash Flow Statements”, cash flows are classified under three headings — operating, investing and financing, rather than the previous five headings. Interest and dividends, which were previously presented under a separate heading, are classified as operating and financing cash flows. Cash flows arising from taxes on income are classified as operating activities, unless they can be separately identified with investing or financing activities. In addition, the amount present for cash and cash equivalents have been amended to exclude short-term bank and other borrowings that are financing in nature. Cash flows of overseas operations have been re-translated at the rates prevailing at the dates of the cash flows rather than the rate of exchange ruling on the balance sheet date. The re-definition of cash and cash equivalents has resulted in a restatement of the comparative amounts shown in the cash flow statement.

Employee Benefits

SSAP 34 “Employee Benefits” introduces measurement rules for employee benefits, including retirement benefit plans. Because the Group participates only in defined contribution retirement benefit schemes, the adoption of SSAP 34 has not had any material impact on the financial statements.

4. Significant Accounting Policies

The financial statements have been prepared under the historical cost convention as modified for the revaluation of properties.

The financial statements have been prepared in accordance with accounting principles generally accepted in Hong Kong. The principal accounting policies adopted are as follows:

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries made up to 31 March each year.

The results of subsidiaries and associates acquired or disposed of during the year are included in the consolidated income statement from the effective dates of acquisition or up to the effective dates of disposal, as appropriate.

All significant intercompany transactions and balances within the Group are eliminated on consolidation.

Goodwill

Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identifiable assets and liabilities of a subsidiary or an associate at the date of acquisition.

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APPENDIX I FINANCIAL INFORMATION OF THE I-CHINA GROUP

Goodwill arising on acquisitions prior to 1 April 2001 continues to be held in reserves and will be charged to the consolidated income statement at the time of disposal of the relevant subsidiary or associate, or at such time as the goodwill is determined to be impaired.

On disposal of a subsidiary or an associate, the attributable amount of unamortised goodwill or goodwill previously eliminated against reserves is included in the determination of the profit or loss on disposal.

Negative goodwill

Negative goodwill represents the excess of the Group’s interest in the fair value of the identifiable assets and liabilities of a subsidiary or an associate at the date of acquisition over the cost of acquisition.

Negative goodwill arising on acquisitions prior to 1 April 2001 continues to be held in reserves and will be credited to consolidated income statement at the time of disposal of the relevant subsidiary or associate.

To the extent that the negative goodwill is attributable to losses or expenses anticipated at the date of acquisition, it is released to income in the period in which those losses or expenses arise. The remaining negative goodwill is recognised as income on a straight line basis over the remaining average useful live of the identifiable acquired depreciable assets. To the extent that such negative goodwill exceeds the aggregate fair value of the acquired identifiable non-monetary assets, it is recognised in income immediately.

Turnover

Turnover represents rental income received and receivable during the year.

Revenue recognition

Rental income under operating leases is recognised on a straight line basis over the terms of the relevant leases.

Interest income is recognised on a time basis, by reference to the principal outstanding and at the interest rate applicable.

Investments in subsidiaries

Investments in subsidiaries are included in the Company’s balance sheet at cost, less any identified impairment losses.

Interests in associates

The consolidated income statement includes the Group’s share of post-acquisition results of its associates for the year. In the consolidated balance sheet, interests in associates are stated at the Group’s share of the net assets of the associates, less any identified impairment losses.

Investment properties

Investment properties are completed properties which are held for their investment potential, any rental income being negotiated at arm’s length.

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APPENDIX I FINANCIAL INFORMATION OF THE I-CHINA GROUP

Investment properties are stated at their open market value based on independent professional valuations at each balance sheet date. No depreciation or amortisation is provided for investment properties with an unexpired term, including the renewable period, of more than twenty years.

Any revaluation increase or decrease arising on the revaluation of investment properties is credited or charged, respectively, to the investment property revaluation reserve unless the balance of this reserve is insufficient to cover a revaluation decrease, in which case the excess of the revaluation decrease over the balance of the investment property revaluation reserve is charged to the income statement. Where a decrease has previously been charged to the income statement and a revaluation increase subsequently arises, this increase is credited to the income statement to the extent of the decrease previously charged.

On disposal of investment properties, the balance on the investment property revaluation reserve attributable to the disposed properties is transferred to the income statement.

Property, plant and equipment

Property, plant and equipment are stated at cost or valuation less depreciation and amortisation and accumulated impairment losses.

Land and buildings are stated in the balance sheet at their revalued amount, being the fair value at the date of valuation less any subsequent accumulated depreciation and amortisation and impairment losses. Revaluations are performed with sufficient regularity such that the carrying amount does not differ materially from that which would be determined using fair values at the balance sheet date.

Any revaluation increase arising on revaluation of land and building is credited to the asset revaluation reserve, except to the extent that it reverses a revaluation decrease of the same asset previously recognised as an expense, in which case the increase is credited to the income statement to the extent of the decrease previously charged. A decrease in net carrying amount arising on revaluation of such assets is charged to the income statement to the extent that it exceeds the balance, if any, on the asset revaluation reserve relating to a previous revaluation of that particular asset. On the subsequent sale or retirement of a revalued asset, the attributable revaluation surplus is transferred to deficit.

Depreciation and amortisation are provided to write off the cost or valuation of assets over their estimated useful lives, using the straight line method, at the following rates per annum:

Leasehold land	Over the terms of the relevant leases
Buildings	Over the shorter of the terms of the relevant leases
	or 50 years
Furniture, machinery and equipment	4% to 25%
Motor vehicles	20% to 25%

The gain or loss arising from the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the income statement.

Impairment

At each balance sheet date, the Group reviews the carrying amounts of its assets to determine whether there is any indication that those assets have suffered an impairment loss. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. Impairment loss is recognised as an expense immediately, unless the relevant asset is carried a revalued amount under another SSAP, in which case the impairment loss is treated as revaluation decrease under that SSAP.

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FINANCIAL INFORMATION OF THE I-CHINA GROUP

APPENDIX I

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, such that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised as income immediately, unless the relevant asset is carried at a revalued amount under another SSAP, in which case the reversal of the impairment loss is treated as a revaluation increase under that SSAP.

Assets held under finance leases

Leases are classified as finance leases when the terms of the lease transfer substantially all the risks and rewards of ownership of the assets concerned to the Group. Assets held under finance leases are capitalised at their fair values at the date of acquisition. The corresponding liability to the lessor, net of interest charges, is included in the balance sheet as a finance lease obligation. Finance costs, which represent the difference between the total leasing commitments and the fair value of the assets acquired, are charged to the income statement over the period of the relevant lease so as to produce a constant periodic rate of charge on the remaining balance of the obligations for each accounting period.

All other leases are classified as operating leases and the rentals payable are charged to the income statement on a straight line basis over the relevant lease term.

Taxation

The charge for taxation is based on the results for the year as adjusted for items which are nonassessable or disallowed. Timing differences arise from the recognition for tax purposes of certain items of income and expense in a different accounting period from that in which they are recognised in the financial statements. The tax effect of the resulting timing differences, computed under the liability method, is recognised as deferred taxation in the financial statements to the extent that it is probable that a liability or an asset will crystallise in the foreseeable future.

Foreign currencies

Transactions in currencies other than Hong Kong dollars are translated into Hong Kong dollars at the rates of exchange ruling on the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are re-translated into Hong Kong dollars at the rates ruling on the balance sheet date. Gains and losses arising on exchange are dealt with in the income statement.

In preparing consolidated financial statements, the assets and liabilities of subsidiaries and associates which are denominated in currencies other than Hong Kong dollars are translated into Hong Kong dollars at the rates ruling on the balance sheet date. Income and expense items are translated at the average exchange rates for the period. Exchange differences, if any, are classified as equity and transferred to the Group’s translation reserve. Such translation differences are recognised as income or as expenses in the period in which the subsidiaries or associates are disposed of.

Retirement benefit scheme

The retirement benefit costs charged in the income statement represent the contributions payable in respect of the current year to the Group’s defined contribution retirement scheme and Mandatory Provident Fund Scheme (“MPF”).

5. Segmental Information

The sole principal activity of the Group for two years ended 31 March 2003 and 2002 is the hiring of motor vehicles in Hong Kong and accordingly, no analyses of business and geographical segment is presented.

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APPENDIX I FINANCIAL INFORMATION OF THE I-CHINA GROUP

6.
Other Operating Income
Included in other operating income for the year ended 31 March 2002 w
HK$36,000.
7.
Other Operating Expenses
Other operating expenses include the following items:
Allowances for bad and doubtful debts
Deficit arising on revaluation of investment properties
Deficit arising on revaluation of land and buildings
Loss on disposal of investment properties
Net realised and unrealised holding losses on other investments
Investment properties in the People’s Republic of China (the “PRC”)
written off
8.
Loss From Operations
Loss from operations has been arrived at after charging:
Auditors’ remuneration:
Current year
Overprovision in prior years
Depreciation and amortisation:
Owned assets
Assets held under finance leases
Loss on disposal of property, plant and equipment
Minimum lease payment for premises under operating leases
Staff costs:
Directors’ remuneration
Contributions to retirement benefit scheme and MPF
Other staff costs
and after crediting:
Rental income received and receivable under operating leases
in respect of:
Motor vehicles from outsiders
Motor vehicles from associates

as other interest income of
2003
2002
HK$’000
HK$’000
—
1,109
—
6,222
—
16
1,100
2,154
—
337
147,800
—
2003
2002
HK$’000
HK$’000
—
336
—
(544)
560
1,352
372
240
678
990
98
—
7,216
72
28
(18)
725
607
7,969
661
2,544
3,369
—
68

Auditors’ remuneration for the current year is borne by Wai Kee pursuant to the Restructuring Agreement.

— 98 —

APPENDIX I FINANCIAL INFORMATION OF THE I-CHINA GROUP

9. Finance Costs

Interest payable on: Bank and other borrowings wholly repayable within five years Amounts due to associates Obligations under finance leases 10. Directors’ Remuneration	2003 HK$’000 23,580 126 17 23,723	2002 HK$’000 69,695 419 36
		70,150

Particulars of the emoluments of the directors are as follows:

Fees: Executive directors Non-executive director Independent non-executive directors Other emoluments: Salaries and other benefits Contributions to retirement benefit scheme and MPF	2003 HK$’000 16 — — 16 7,200 — 7,200 7,216	2002 HK$’000 48 12 12
		72
		— —
		—
		72

The emoluments of the directors are within the following bands:

	Number of	Directors
	2003	2002
Nil to HK$1,000,000	5	8
HK$3,500,001 to HK$4,000,000	2	—

The above disclosures in respect of directors’ emoluments are based on the information available together with the Notices of Claim received by the Provisional Liquidators from the directors of the Company. The Provisional Liquidators are currently reviewing the validity of the claims.

— 99 —

APPENDIX I FINANCIAL INFORMATION OF THE I-CHINA GROUP

11. Employees’ Emoluments

Of the five individuals with highest paid in the Group, two (2002: Nil) are directors of the Company whose emoluments are set out in note 10 above. The emoluments of the remaining three (2002: five) individuals are as follows:

Salaries and other benefits Contributions to retirement benefit scheme and MPF	2003 HK$’000 725 28 753	2002 HK$’000 570 19
		589

The emoluments of the above employees are within the band of Nil to HK$1,000,000.

During the years ended 31 March 2003 and 2002, no emoluments were paid by the Group to the five highest paid individuals, as an inducement to join or upon joining the Group or as compensation for loss of office.

12. Taxation

The amount represents an underprovision of Hong Kong Profits Tax in respect of prior years. No provision for Hong Kong Profits Tax has been made in the financial statements as the Company and its subsidiaries did not have any estimated assessable profits for both years.

13. Loss Per Share

The calculation of the basic loss per share is based on the net loss for the year of HK$183,725,000 (2002: HK$222,307,000) and on 508,339,764 (2002: 508,339,764) shares in issue during the year.

14. Investment Properties

At beginning of the year Disposals Deficit on revaluation Written off At end of the year	The Group 2003 2002 HK$’000 HK$’000 150,900 195,340 (3,100) (26,940 — (17,500 (147,800) — — 150,900	The Group 2003 2002 HK$’000 HK$’000 150,900 195,340 (3,100) (26,940 — (17,500 (147,800) — — 150,900
		150,900

— 100 —

FINANCIAL INFORMATION OF THE I-CHINA GROUP

APPENDIX I

The carrying value of the Group’s investment properties at the balance sheet date comprises:

Held in the other regions of the PRC under: Long lease Medium-term lease Held in Hong Kong under: Long lease	The Group 2003 2002 HK$’000 HK$’000 — 141,000 — 6,800 — 3,100 — 150,900	The Group 2003 2002 HK$’000 HK$’000 — 141,000 — 6,800 — 3,100 — 150,900
		150,900

The Group’s investment properties situated in the PRC were revalued as at 31 March 2002 by Chesterton Petty Limited, international property consultants, on an open market existing use basis amounting to HK$147,800,000. According to the Company’s annual report for the year ended 31 March 2002, the Group was in the process of obtaining Certificate for Housing Ownership of these properties.

Since their appointment, the Provisional Liquidators have appointed PRC legal advisors to ascertain the status in respect of the Group’s titles to the investment properties. The PRC legal advisors indicate that the Group does not have the legal titles to the investment properties. As a result, the Provisional Liquidators have written off the Group’s investment properties during the year ended 31 March 2003.

— 101 —

FINANCIAL INFORMATION OF THE I-CHINA GROUP

APPENDIX I

15. Property, Plant and Equipment

THE GROUP COST OR VALUATION At 1 April 2002 Additions Disposals At 31 March 2003 Comprising: At cost At valuation — 2001 DEPRECIATION AND AMORTISATION At 1 April 2002 Provided for the year Eliminated on disposals At 31 March 2003 NET BOOK VALUES At 31 March 2003 At 31 March 2002	Land and buildings HK$’000 6,340 — (1,440) 4,900 — 4,900 4,900 — 21 (21) — 4,900 6,340	Furniture, machinery and equipment HK$’000 33,117 28 — 33,145 33,145 — 33,145 33,077 24 — 33,101 44 40	Motor vehicles HK$’000 7,270 — (2,597) 4,673 4,673 — 4,673 5,330 887 (2,270) 3,947 726 1,940	Total HK$’000 46,727 28 (4,037) 42,718 37,818 4,900 42,718 38,407 932 (2,291) 37,048 5,670 8,320

The Group’s land and buildings are situated in Hong Kong and are held on medium-term lease.

The Group’s land and buildings were revalued as at 23 March 2001 by Chesterton Petty Limited, international property consultants, on an open market existing use basis amounting to HK$4,900,000. The fair value of these properties as at 31 March 2002 were valued by the directors of the Company, which were not significant different from the valuation as at 23 March 2001.

The Group’s land and buildings were foreclosed by a secured creditor on 27 July 2001. Accordingly, no valuation was performed as at 31 March 2003.

At 31 March 2003, the net book value of the property, plant and equipment of the Group includes an amount of HK$233,000 (2002: HK$605,000) in respect of assets held under finance leases.

At 31 March 2003, the Group’s motor vehicles are held for rental purposes under operating leases.

— 102 —

APPENDIX I FINANCIAL INFORMATION OF THE I-CHINA GROUP

16. Long-Term Deposits

Deposits for acquisition of: — an investment property — an investment project — a property development project _Less:_Allowances	The Group And The Company 2003 2002 HK$’000 HK$’000 15,495 15,495 38,728 38,728 158,830 158,830 213,053 213,053 (213,053) (213,053) — —

At 31 March 2002, the deposits represented the full amount of consideration paid for the acquisition of an investment property and a property development project under an agreement (the “Agreement”) entered into with China Merchants Bank (“CMB”) and certain third parties (the “Third Parties”) in December 1998 and for an investment project under a separate agreement also in December 1998. The investment property, the property development project and the investment project are all situated in the PRC. However, the directors of the Company have objected to the validity of the Agreement in respect of the investment property and the property development project. The Company was seeking legal advice on further appropriate course of action.

As provided in the Agreement in respect of the investment project, the Group may agree with the Third Parties on the manner of the Group’s investment in the project or on a repayment schedule of the amount paid. However, the Group was unable to reach any agreement with the Third Parties up to the date of this report.

Against these background, the directors of the Company have considered it is appropriate to make full provision in respect of the deposits in the financial statements for the year ended 31 March 2000.

As explained in note 32, there is no progress in relation to the proceeding between the Company and CMB after the date of appointment of Provisional Liquidators on 5 December 2002 up to the date of this report.

17. Interests in Subsidiaries

Unlisted shares, at cost Amounts due from subsidiaries _Less:_Impairment loss recognised	The Company 2003 2002 HK$’000 HK$’000 482,322 482,322 607,691 590,092 1,090,013 1,072,414 (1,090,013) (1,072,414) — —

— 103 —

FINANCIAL INFORMATION OF THE I-CHINA GROUP

APPENDIX I

Particulars of the Company’s principal subsidiaries as at 31 March 2003 are set out in note 34.

During the year ended 31 March 2002, the directors had reviewed and examined the operations of the subsidiaries and were of the opinion that the carrying amount of the Company’s interests in subsidiaries was not recoverable. Accordingly, an impairment loss had been recognised in respect of the Company’s interests in subsidiaries.

The amounts due from subsidiaries are unsecured, interest-free and have no fixed terms of repayment. In the opinions of the Provisional Liquidators, the amounts will not be repayable within twelve months from the balance sheet date and are therefore shown as non-current.

None of the subsidiaries had any debt securities outstanding at the end of the year or at any time during the year.

18. Interests in Associates

Share of net assets Interests in associates represent: Listed shares in Hong Kong — Share of net assets — Market value at 31 March	The Group 2003 2002 HK$’000 HK$’000 — — — — — —	The Group 2003 2002 HK$’000 HK$’000 — — — — — —

		—

		—

At 31 March 2003, the Group held 27.55% equity interest in Seapower Resources International Limited (“SRI”), a principal associate of the Group, which is principally engaged in cold storage warehousing, logistic management and property investment.

Pursuant to the Orders of the Court of First Instance of the High Court dated 31 December 2001, provisional liquidators were appointed to SRI (“SRI Provisional Liquidators”) with effect from 31 December 2001.

On 14 May 2003, SRI has entered into a conditional restructuring agreement, amongst others, with an investor, regarding a restructuring proposal for SRI (the “SRI Restructuring Proposal”). The SRI Restructuring Proposal involves, amongst other things, the capital restructuring, debt restructuring and the subscription of new shares and warrants by the investor. Upon completion of the SRI Restructuring Proposal, the Group’s equity interest in SRI is estimated to be diluted from 27.55% to 0.53%.

On 5 December 2003, the SRI New Restructuring Proposal was completed and the SRI Provisional Liquidators have been released and discharged as joint and several provisional liquidators of SRI in accordance with the orders of the High Court.

— 104 —

APPENDIX I FINANCIAL INFORMATION OF THE I-CHINA GROUP

Extracts from the consolidated operating results and financial position of SRI for the years ended 31 March 2003 and 2002, which are based on its audited financial statements (note) below, are as follows:

Results for the year ended 31 March 2003 and 2002:

Turnover Loss from operations Finance costs Loss before taxation Loss after taxation and minority interests Loss before taxation attributable to the Group Financial position as at 31 March 2003 and 2002: Non-current assets Current assets Current liabilities Minority interests Non-current liabilities Net liabilities Net liabilities attributable to the Group	2003 HK$’000 16,881 (4,902) (45,948) (50,850) (47,650) (13,984) 2003 HK$’000 20,298 23,100 (1,346,979) (509) — (1,304,090) (358,625)	2002 HK$’000 165,272 (1,394,221) (91,046) (1,485,267) (1,516,491) (410,530) 2002 HK$’000 39,368 44,165 (1,335,062) (509) (217) (1,252,255) (344,370)

The auditors’ reports of SRI for the years ended 31 March 2003 and 2002 are qualified in respect of limitations in scope, arising from the audit of the financial statements of SRI:

(a) For the year ended 31 March 2001 in relation to:
(i) the validity of disposal of a former subsidiary which resulted in a recorded loss on disposal of HK$3 million;
(ii) the appropriateness of a full allowance of HK$27 million being made against the outstanding receivable; and
(iii) the valuation of property under development of HK$54 million.

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FINANCIAL INFORMATION OF THE I-CHINA GROUP

APPENDIX I

(b) For the years ended 31 March 2003 and 2002 in relation to:
(i) the appropriateness of full provision of HK$53.1 million on property under development and the written off of related translation reserve of HK$6.9 million to income statement for the year ended 31 March 2002;
(ii) the appropriates of full allowance of HK$27 million being made against during the year ended 31 March 2002 against the outstanding receivable;
(iii) the completeness, accuracy and valuation of certain margin and other loans receivable of HK$240 million and the appropriateness of the full provision being made in previous years;
(iv) the existence, ownership and valuation of interests in an associate of HK$53 million and the appropriateness of the full provision being made in previous years; and
(v) the validity and valuation of deposits paid for investments in two companies of HK$34.5 million and the appropriateness of the full provision being made in previous years.

19. Short-Term Receivables

The Group

As explained in note 32(a), CMB has been granted an injunction restricting the Group from dealing with the sales proceeds balance arising from disposal of a property. At the balance sheet date, an amount of HK$6,483,000 (2002: HK$6,483,000) after deducting the mortgage outstanding and related expenses was put under the custody of the High Court.

20. Trade and other Receivables

The Group allows an average credit period of 30 days to its trade customers.

Included in trade and other receivables are trade receivable (net of allowance for bad and doubtful debts) with the aged analysis as follows:

Trade receivables 0 — 30 days 31 — 60 days More than 60 days Other receivables	The Group 2003 2002 HK$’000 HK$’000 102 145 46 99 75 36 223 280 2,861 — 3,084 280	The Group 2003 2002 HK$’000 HK$’000 102 145 46 99 75 36 223 280 2,861 — 3,084 280
		280 —
		280

— 106 —

APPENDIX I FINANCIAL INFORMATION OF THE I-CHINA GROUP

21. Amounts due from associates

		The Group
	Balance	Balance	Maximum amount
	at	at	outstanding
	31.3.2003	31.3.2002	during the year
	HK$’000	HK$’000	HK$’000
Amounts due from associates	31	—	31

The amounts are unsecured, interest free and have no fixed terms of repayment.

22. Trade and other Payables

Included in trade and other payables are trade payable with aged analysis as follows:

Trade payables 31 — 60 days More than 60 days Other payables	The Group 2003 2002 HK$’000 HK$’000 — 13 — 13 — 26 129,056 116,352 129,056 116,378	The Group 2003 2002 HK$’000 HK$’000 — 13 — 13 — 26 129,056 116,352 129,056 116,378
		26 116,352
		116,378

23. Amounts due to associates

Particulars of the amount due to associates are as follows:

Nature Interest bearing Secured_(note)_ Unsecured Interest free Unsecured	The Group 2003 2002 HK$’000 HK$’000 1,655 1,655 4,465 4,465 4,164 3,716 10,284 9,836	The Company 2003 2002 HK$’000 HK$’000 — — 4,465 4,465 936 813 5,401 5,278	The Company 2003 2002 HK$’000 HK$’000 — — 4,465 4,465 936 813 5,401 5,278
			5,278

Note: The loans bear interest at prevailing market rate and are secured by collateral of certain of the Group’s investment in an associate.

The amounts due to associates have no fixed terms of repayment.

— 107 —

APPENDIX I FINANCIAL INFORMATION OF THE I-CHINA GROUP

24. Amounts due to Subsidiaries

The Company

The amounts are unsecured, interest-free and have no fixed terms of repayment.

25. Obligations Under Finance Leases

Amounts payable under finance leases due within one year _Less:_Future finance charges Present value of lease obligations due for settlement within one year	The Group Present value of Minimum minimum lease payments lease payments 2003 2002 2003 2002 HK$’000 HK$’000 HK$’000 HK$’000 137 359 123 328 (14) (31) — — 123 328 123 328	The Group Present value of Minimum minimum lease payments lease payments 2003 2002 2003 2002 HK$’000 HK$’000 HK$’000 HK$’000 137 359 123 328 (14) (31) — — 123 328 123 328
		328

It is the Group’s policy to lease certain of its motor vehicles under finance leases. The average lease term is about 3 years. For the year ended 31 March 2003, the average effective borrowing rate was at prime rate plus 0.5% (2002: prime rate plus 0.5%). Interest rates are fixed at the contract date. All leases are on a fixed repayment basis and no arrangements have been entered into for contingent rental payments.

The Group’s obligations under finance leases are secured by the lessors’ charge over the leased assets.

26. Bank and other Borrowings

Bank and other borrowings comprise: Bank loans Bank overdrafts Other borrowings Analysed as: Secured Unsecured	The Group 2003 2002 HK$’000 HK$’000 354,260 354,260 53,833 53,228 141,231 131,320 549,324 538,808 272,544 262,028 276,780 276,780 549,324 538,808	The Company 2003 2002 HK$’000 HK$’000 354,260 354,260 53,833 35,941 — — 408,093 390,201 113,748 113,421 294,345 276,780 408,093 390,201	The Company 2003 2002 HK$’000 HK$’000 354,260 354,260 53,833 35,941 — — 408,093 390,201 113,748 113,421 294,345 276,780 408,093 390,201
			390,201

			113,421 276,780
			390,201

The Group’s and the Company’s borrowings were not repaid in accordance with the repayment schedules set by the bank and other borrowers and, consequently, the outstanding amounts were due for immediate repayment.

— 108 —

APPENDIX I FINANCIAL INFORMATION OF THE I-CHINA GROUP

27. Share Capital

Number of shares Authorised: At 1 April 2001, ordinary shares of HK$0.10 each 800,000,000 Adjustment of nominal value of shares 7,200,000,000 At 31 March 2002 and 2003, ordinary shares of HK$0.01 each 8,000,000,000 Issued and fully paid: At 1 April 2001, ordinary shares of HK$0.10 each 508,339,764 Capital reduction — At 31 March 2002 and 2003, ordinary shares of HK$0.01 each 508,339,764	Value HK$’000 80,000 —
	80,000

	50,834 (45,751)
	5,083

28. Share Options

The share options granted by the Company to the directors and eligible employees of the Group to subscribe for shares in the Company under the share option scheme of the Company was adopted on 30 September 1999. The options were granted on 22 November 1999 at a consideration of HK$1 for each grantee and can be exercised at any time during the period of four and a half years, commencing six months after their respective dates of acceptance at an exercise price of HK$0.23 per share, subject to adjustment.

2003

Directors Employees and others 2002 Directors Employees and others	Number of share options Outstanding Outstanding at Lapsed at 1 April 2002 during the year 31 March 2003 34,000,000 (34,000,000) — 15,360,000 (15,360,000) — 49,360,000 (49,360,000) — Number of share options Outstanding Outstanding at Lapsed at 1 April 2001 during the year 31 March 2002 34,000,000 — 34,000,000 16,580,000 (1,220,000) 15,360,000 50,580,000 (1,220,000) 49,360,000	Number of share options Outstanding Outstanding at Lapsed at 1 April 2002 during the year 31 March 2003 34,000,000 (34,000,000) — 15,360,000 (15,360,000) — 49,360,000 (49,360,000) — Number of share options Outstanding Outstanding at Lapsed at 1 April 2001 during the year 31 March 2002 34,000,000 — 34,000,000 16,580,000 (1,220,000) 15,360,000 50,580,000 (1,220,000) 49,360,000
		49,360,000

— 109 —

APPENDIX I FINANCIAL INFORMATION OF THE I-CHINA GROUP

Due to the financial difficulties of the Group, the known employment contracts of the directors and certain employees were terminated and accordingly have ceased to be eligible employees under the share option scheme. The outstanding options previously granted to the eligible employees were not exercised and thus lapsed in accordance with the share option scheme.

29. Reserves

THE COMPANY At 1 April 2001 Effect of capital reduction Net loss for the year At 31 March 2002 and 1 April 2002 Net loss for the year At 31 March 2003	Share premium HK$’000 414,978 (414,978) — — — —	Capital redemption Contributed reserve surplus HK$’000 HK$’000 115 419,212 — — — — 115 419,212 — — 115 419,212	Deficit HK$’000 (1,302,812) 460,729 (95,410) (937,493) (40,569) (978,062)	Total HK$’000 (468,507) 45,751 (95,410) (518,166) (40,569) (558,735)

The contributed surplus of the Company represents the difference between the consolidated shareholders’ funds of subsidiaries when they were acquired by the Company and the nominal amount of Company’s share capital issued for the acquisition.

Under the Companies Act 1981 of Bermuda (as amended), the contributed surplus account of a company is available for distribution to shareholders. However, a company cannot declare or pay a dividend, or make a distribution out of contributed surplus account, if:

(a) the company is, or would after the payment be, unable to pay its liabilities as they become due; or
(b) the realisable value of the company’s assets would thereby be less than the aggregate of its liabilities and its issued share capital and share premium accounts.

There were no reserves available for distribution to the shareholders of the Company as at 31 March 2003 and 2002.

30. Major Non-Cash Transactions

(a) During the year, investment properties of the Group amounting to HK$3,100,000 (2002: HK$26,940,000) were seized and disposed by certain financial creditors and the sale proceeds amounting to HK$2,000,000 (2002: HK$24,786,000) were applied to reduce the associated bank and other borrowings of the Group.
(b) During the year ended 31 March 2002, the Group entered into financial lease arrangement in respect of assets with a total capital value at the inception of the leases of HK$486,000.
(c) During the year ended 31 March 2002, the sale proceeds on partial disposal of the Group’s interest in an associate of HK$10,409,000 were applied to reduce the associated bank and other borrowings of the Group.

— 110 —

APPENDIX I FINANCIAL INFORMATION OF THE I-CHINA GROUP

31. Operating Lease Commitments

At the balance sheet date, the Group’s commitment for future minimum lease payments under noncancellable operating leases which fall due within one year is HK$24,000 (2002: nil).

The Company did not have any significant operating lease commitments at the balance sheet date.

32. Litigation

(a) In December 1998, the Company entered into the Agreement with CMB and the Third Parties. Under the terms of the Agreement, a loan of US$22.5 million from CMB to the Third Parties was to be assumed by the Group in consideration for the transfer of certain debts owed to the Third Parties, certain shares, properties and land use rights in the PRC. In early 2000, the directors of the Company challenged the validity of the Agreement and since then, the Group has withheld all the repayments to CMB. On 20 July 2000, CMB issued a writ of summons against the Group, claiming immediate repayment of all amounts due from the Group including interest and costs pursuant to the Agreement and a separate loan agreement. The directors of the Company filed a counterclaim against CMB and the Third Parties.

On 28 December 2000, CMB was granted an injunction by the court restricting, among other things, the following:

(i) The Group from dealing with the balance of the proceeds of HK$24,120,000 arising from the disposal of a property save for effecting payment for the discharge of the outstanding mortgage and related expenses without the approval of the High Court (after discharge of the mortgage and payment of costs and expenses, a sum of HK$6,482,500 was paid into court on 5 January 2001 pursuant to the order); and
(ii) a subsidiary of the Company, Seapower Consortium Company Limited, from disposing or dealing with or diminishing the value of its assets up to the value of US$10 million (2002: US$10 million).

On 15 June 2001, the High Court dismissed CMB’s application for summary judgment against the Group. As at the date of the appointment of the Provisional Liquidators, the total amount of outstanding principal plus interest due to CMB (including the amount in dispute) was approximately HK$462 million.

(b) On 20 December 2001, Peregrine Brokerage Limited (“Peregrine”) obtained judgment against a subsidiary of the Company for the sum of approximately HK$109 million and interest thereon, being the amount due and payable under the facilities granted pursuant to a margin agreement dated 4 September 1997 entered into between Peregrine and the subsidiary. There were no other corporate guarantees by other members of the Group. The margin facilities were secured by 159,315,000 shares of SRI (before the capital restructuring of SRI). The judgment remains unpaid as at the date of this report and continues to accrue interest at the rate prescribed from time to time by the High Court.
(c) As disclosed in the Annual Report for the financial year ended 31 March 2002, in July 2000, the Group commenced a lawsuit at High People’s Court, Hubei Province, the PRC against Huangshi Kangsai Group Co., Ltd. (“Huangshi Kangsai”) claiming for an amount of HK$23 million pursuant to an undertaking given by Huangshi Kangsai. On 6 September 2000, the High People’s Court, Hubei Province, the PRC granted an order in favour of the Group to freeze the assets of Huangshi Kangsai for such value as equivalent to approximately HK$30 million. Due to the limited books and records available to the Provisional Liquidators, there is insufficient information for the Provisional Liquidators to determine the status of this litigation at this stage and accordingly, no amount has been accounted for in the financial statements.

— 111 —

APPENDIX I

FINANCIAL INFORMATION OF THE I-CHINA GROUP

(d) As disclosed in the Annual Report for the financial year ended 31 March 2002, in July 2000, the Group commenced proceedings against New Era Group (H.K.) Limited (“New Era”) and Cross Union Development Limited (“Cross Union”) at Middle People’s Court, Shenzhen, the PRC claiming for the amount of US$800,000 (equivalent to approximately HK$6.2 million) and interests of US$100,000 (equivalent to approximately HK$780,000 thereon, being deposit paid by the Group for the acquisition of the entire issued share capital of an associate of New Era in respect of an agreement dated 3 April 1995, as supplemented by a supplemental agreement dated 19 May 1995. The amounts have been fully provided for in the accounts in previous years. Due to limited books and records available to the Provisional Liquidators, there is insufficient information for the Provisional Liquidators to determine the status of this litigation at this stage.

Pursuant to section 186 of the Hong Kong Companies Ordinance and section 167(4) of the Companies Act 1981 of Bermuda, upon the appointment of Provisional Liquidators to the Company, no action or proceedings shall be proceeded with or commenced against the Company except by the Courts. As at the date of this report, no party has sought leave of the Courts to continue any of the above actions involving the Company. Accordingly, there is no progress in relation to the proceedings between the Company and CMB as noted in (a) above. There is also no progress in relation to the proceedings between the Group and Huangshi Kangsai, the proceedings between the Group and Peregrine and the proceedings between the Group and New Eva as noted in (b), (c) and (d) above respectively. The liabilities and contingent liabilities, if any, arising from the actions above will be dealt with under the proposed scheme of arrangement as referred to in note 33(b) to this financial statements.

Other than the above, based on the books and records available to the Provisional Liquidators, the Group and the Company did not have any significant outstanding claims, counterclaims and threatened litigations with other parties as at 31 March 2003.

33. Post Balance Sheet Event

On 20 November 2003, the Company, acting through the Provisional Liquidators, entered into the Restructuring Agreement, amongst others, with Wai Kee.

The following transactions of the Restructuring Agreement are proposed:

(a) The capital restructuring (“Capital Restructuring”)

The existing authorised share capital of the Company is HK$80,000,000 divided into 8,000,000,000 ordinary shares, of which 508,339,764 ordinary shares are issued and credited as fully paid up. Under the Proposed Restructuring, the Company’s share capital will be reorganised as follows:

(i) approximately the issued share capital of approximately HK$5,083,000 will be reduced by approximately HK$3,813,000 to approximately HK$1,270,000 by cancelling the paid-up capital to the extent of HK$0.0075 on each of the 508,339,764 issued shares of HK$0.01 each so that each of such issued shares shall be treated as one fully paid share of HK$0.0025. The credit of approximately HK$3,813,000 arising from the capital reduction will be applied to eliminate an equivalent amount of the Company’s deficit;
(ii) every four issued shares reduced pursuant to (i) above will be consolidated into one new share of HK$0.01. Accordingly, 508,339,764 issued shares of HK$0.0025 will be consolidated into 127,084,941 issued new shares of HK$0.01 each;

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FINANCIAL INFORMATION OF THE I-CHINA GROUP

APPENDIX I

(iii) the unissued share capital of approximately HK$74,917,000 in the authorised share capital of HK$80,000,000 of the Company will be cancelled and diminished resulting in an authorised and issued share capital of approximately HK$1,270,000; and
(iv) the authorised share capital of the Company will be increased from approximately HK$1,270,000 to HK$200,000,000 divided into ordinary shares of HK$170,000,000 and preference shares of HK$30,000,000, including 6,314,084,941 issued new shares and 10,685,915,059 unissued new shares and 3,000,000,000 issued preference shares upon completion.

(b) The debt restructuring

Pursuant to the proposed schemes of arrangement under section 99 of the Companies Act 1981 of Bermuda and section 166 of the Hong Kong Companies Ordinance between the Company and creditors to whom the Company owes a claim other than the preferential creditors of the Company and Wai Kee (“Creditors”) to be approved by or imposed by the Courts, with or without any modification (the “Schemes”), in consideration of the Creditors’ discharging and waiving all their claims against the Company, the Schemes’ administrators will receive the following with an estimated value of HK$24 million for distribution to the Creditors:

(i) HK$22 million in cash from the proceeds of subscription as described in note 33(c) to be paid by Wai Kee upon completion;
(ii) 200,000,000 new ordinary shares of HK$0.01 each (representing approximately 3.2% of the issued share capital of the Company upon completion of the Restructuring Agreement and subscription of new shares by Wai Kee but before the distribution and conversion of the Company’s preference shares); and
(iii) the granting of put option by Wai Kee to the Creditors and/or the Schemes’ administrators to sell all or part of the 200,000,000 new ordinary shares to Wai Kee at a price of HK$0.01 per new share exercisable within 90 days after the expiry of two years following completion. The put option is exercisable by the Creditors at their sole discretion.
(iv) any cash held by the Company as at the date of Completion of the Restructuring Agreement and the subscription agreement.

(c) The subscription (“Subscription”)

Immediately after the implementation of the Capital Restructuring, Wai Kee shall subscribe and the Company shall allot and issue 5,987,000,000 new ordinary shares at HK$0.01 each and 3,000,000,000 new preference shares of HK$0.01 each in accordance to the terms of the Restructuring Agreement and the subscription agreement.

The total consideration for the subscription of new shares payable by Wai Kee is HK$89.87 million, which will be satisfied as follows:

HK$29.87 million in cash; and
HK$60 million by way of the injection of assets as described in note 33(e) by Wai Kee into the Company.

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FINANCIAL INFORMATION OF THE I-CHINA GROUP

APPENDIX I

The aggregate cash proceeds from the subscription of new shares of HK$29.87 million will be applied as follows:

HK$22 million for the cash payment to the Creditors under the Schemes; and
the balance of HK$7.87 million for the settlement of the restructuring costs and expenses to be incurred in relation to the implementation of the Proposed Restructuring.

(d) Group reorganisation

Pursuant to the Proposed Restructuring, all the subsidiaries of the Company other than Trinity Rent-A-Car Limited (“Trinity”) will be transferred to the Provisional Liquidators or Schemes’ administrators (or their nominees) at a nominal consideration of HK$1. The shares of the subsidiaries other than Trinity shall be held on trust for the Creditors.

Wai Kee has also been provided with an option (the “Trinity Option”), exercisable at its sole discretion before completion of the Restructuring Agreement and subscription of new shares by Wai Kee, to transfer the entire issued share capital of Trinity to the Provisional Liquidators or the Schemes’ administrators (or their nominees) on trust for the Creditors at the nominal value of HK$1. The Trinity Option is to allow time for Wai Kee to finalise their future plans for restructuring of the Group.

(e) Injection of assets

Pursuant to the restructuring proposal dated 11 August 2003, entered into among the Provisional Liquidators, Wai Kee and RSM Nelson Wheeler Corporate Advisory Services Limited, Wai Kee will inject certain companies (the “Injected Assets”), into the Company for a total consideration of HK$60 million. The principal activities of the Injected Assets are the undertaking of civil construction projects mainly for the public sector in Hong Kong, the PRC and Taiwan.

Further details of the above were set out in the announcement jointly made by the Company and Wai Kee dated 18 December 2003.

34. Particulars of Principal Subsidiaries

Particulars of the Company’s principal subsidiaries as at 31 March 2003 are as follows:

			Percentage of	Percentage of
			issued share capital
	Place of	Issued and	held by the	attributable
	incorporation/	fully paid	*Company/**		to
Name of subsidiary	operation	share capital	subsidiaries	the	Group	Principal activities
			%		%
China Rich Investments	British Virgin	US$100	100	100		Property holding
Limited_(note 1)_	Islands (“BVI”)/	ordinary shares
	PRC
Felcasa International	BVI	US$1	100	100		Investment holding
Limited		ordinary share

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FINANCIAL INFORMATION OF THE I-CHINA GROUP

APPENDIX I

			Percentage of	Percentage of
			issued share capital
	Place of	Issued and	held by the	attributable
	incorporation/	fully paid	*Company/**	to
Name of subsidiary	operation	share capital	subsidiaries	the Group	Principal activities
			%	%
Fordit Limited	Hong Kong	HK$100	100	100	Investment holding
		ordinary shares
		HK$2
		deferred shares
		(note 3)
Pan’s Motors Limited	Hong Kong	HK$50,000	100	100	Property holding
		ordinary shares
		HK$500,000
		deferred shares
		(note 3)
Seapower Consortium	Hong Kong	HK$1,000	100	100	Investment holding
Company Limited		ordinary shares
Seapower International	BVI	HK$1,000	100*	100	Investment holding
(B.V.I.) Limited		ordinary shares
Seapower International	BVI/PRC	US$1	100	100	Property holding
Investments Limited		ordinary share
(note 2)
Seapower Trading	Hong Kong	HK$5,000,000	100	100	Property holding
Company Limited		ordinary shares
Sparkcom Limited	Hong Kong	HK$2	100	100	Investment holding
		ordinary shares
Sun Shine Express	Hong Kong	HK$400,000	100	100	Vehicles trading
Limited		ordinary shares
Tak Sum Development	Hong Kong	HK$20	100	100	Property holding
Limited		ordinary shares
Treasure Victory	Hong Kong	HK$2	100	100	Property holding
Properties Limited		ordinary shares
Trinity Rent-A-Car	Hong Kong	HK$13,000,000	100	100	Car rental
Limited		ordinary shares
Wing Cheong Loong	Hong Kong	HK$2	100	100	Money lending
Company Limited		ordinary shares

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APPENDIX I FINANCIAL INFORMATION OF THE I-CHINA GROUP

Notes:

China Rich Investments Limited was struck off by the BVI Government Register with effect from 1 November 2002.
Seapower International Investments Limited was struck off by the BVI Government Register with effect from 1 May 2003.
The deferred shares practically carry no rights to dividends or to receive notice of or to attend or vote at any general meeting of the respective companies or to participate in any distribution on winding up.

The above table lists the subsidiaries of the Company which, in the opinion of the Provisional Liquidators, principally affected the results for the year or formed a substantial portion of the net liabilities of the Group. To give details of other subsidiaries would, in the opinion of the Provisional Liquidators, result in particulars of excessive length.

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APPENDIX I FINANCIAL INFORMATION OF THE I-CHINA GROUP

4. FINANCIAL STATEMENTS OF I-CHINA FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2003

The following information is extracted from the unaudited interim report of I-China for the six months ended 30 September 2003.

Condensed Consolidated Income Statement

For the six months ended 30 September 2003

Notes Turnover Direct operating expenses Other operating income Selling and administrative expenses Other operating expenses Loss from operations 5 Finance costs Loss before taxation Taxation 6 Net loss for the period Loss per share — basic 7	Six months ended 30 September 2003 2002 HK$’000 HK$’000 (Unaudited) (Unaudited) 359 1,430 (455) (1,049) 427 499 (353) (2,629) — (148,900) (22) (150,649) (15,801) (5,352) (15,823) (156,001) — — (15,823) (156,001) (3.11 cent) (30.69 cents)

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APPENDIX I FINANCIAL INFORMATION OF THE I-CHINA GROUP

Condensed Consolidated Balance Sheet

At 30 September 2003

Notes Non-current assets Investment properties 8 Property, plant and equipment Interests in associates 9 Current assets Short-term receivables Trade and other receivables 10 Amounts due from associates Taxation recoverable Bank balances and cash Current liabilities Other payables Amounts due to associates Amounts due to directors Taxation payable Obligations under finance leases Bank and other borrowings Net current liabilities Capital and reserves Share capital Reserves	30.9.2003 HK$’000 (Unaudited) — 5,112 — 5,112 6,483 2,895 31 — 1,450 10,859 143,027 10,334 7,663 1,142 52 550,969 713,187 (702,328) (697,216) 5,083 (702,299) (697,216)	31.3.2003 HK$’000 (Audited) — 5,670 — 5,670 6,483 3,084 31 — 931 10,529 129,056 10,284 7,663 1,142 123 549,324 697,592 (687,063) (681,393) 5,083 (686,476) (681,393)

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FINANCIAL INFORMATION OF THE I-CHINA GROUP

APPENDIX I

Condensed Consolidated Statement of Changes in Equity

For the six months ended 30 September 2003

Capital			Asset
Share redemption	Special	Capital	revaluation	Translation
capital reserve	reserve	reserve	reserve	reserve			Deficit		Total
HK$’000 HK$’000	HK$’000	HK$’000	HK$’000	HK$’000			HK$’000		HK$’000
At 1 April 2002 5,083 115	168,788	54,605	223,734	(454)			(949,539)		(497,668)
Net loss for the period — —	—	—	—	—			(156,001)		(156,001)
At 30 September 2002
and 1 October 2002 5,083 115	168,788	54,605	223,734	(454)		(1,105,540)			(653,669)
Net loss for the period — —	—	—	—	—			(27,724)		(27,724)
At 31 March 2003 and
1 April 2003 5,083 115	168,788	54,605	223,734	(454)		(1,133,264)			(681,393)
Net loss for the period — —	—	—	—	—			(15,823)		(15,823)
At 30 September 2003 5,083 115	168,788	54,605	223,734	(454)		(1,149,087)			(697,216)

Condensed Consolidated Cash Flow Statement
For the six months ended 30 September 2003
				Six months ended
				30	September
				2003					2002
				HK$’000				HK$’000
				(Unaudited)			(Unaudited)
NET CASH (USED IN) FROM
OPERATING ACTIVITIES				(181)					221
NET CASH FROM INVESTING ACTIVITIES				774					573
NET CASH USED IN FINANCING ACTIVITIES				(74)					(722)
INCREASE IN CASH AND CASH EQUIVALENTS				519					72
CASH AND CASH EQUIVALENTS
AT BEGINNING OF THE PERIOD				931					1,016
CASH AND CASH EQUIVALENTS
AT END OF THE PERIOD,
represented by bank balances and cash				1,450					1,088

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APPENDIX I FINANCIAL INFORMATION OF THE I-CHINA GROUP

Notes to the Condensed Consolidated Financial Statements

For the six months ended 30 September 2003

1. General

2. Basis of Preparation

(a) The condensed consolidated financial statements have been prepared in accordance with the applicable disclosure requirements of Appendix 16 to the Rules Governing the Listing of Securities of The Stock Exchange of Hong Kong Limited and with Statement of Standard Accounting Practice (“SSAP”) 25 “Interim financial reporting” issued by the Hong Kong Society of Accountants.

In preparing the condensed consolidated financial statements, the Provisional Liquidators have given careful consideration to the future liquidity of the Group in the light of the Group’s net liabilities of HK$697 million (31 March 2003: HK$681 million) as at 30 September 2003.

As explained in note 12, the Company, acting through the Provisional Liquidators, entered into an agreement for the implementation of a restructuring proposal (the “Restructuring Agreement”), amongst others, with Wai Kee Holdings Limited (“Wai Kee”, a company incorporated in Bermuda with limited liability and the shares of which are listed on the Stock Exchange) on 20 November 2003. The restructuring proposal includes, inter alia, a capital restructuring, debt restructuring involving schemes of arrangement and a subscription of new shares and the injection of certain assets (the “Proposed Restructuring”).

As at the date of this report, completion of the Restructuring Agreement will require the fulfillments of certain conditions including relevant approvals from the Stock Exchange, the Securities and Futures Commission as well as the Supreme Court of Bermuda and the Court of First Instance of the High Court of Hong Kong (the “Courts”).

The Provisional Liquidators have prepared the condensed consolidated financial statements on a going concern on the basis that the Restructuring Agreement will be implemented in full on completion and the restructured Group will be able to meet in full its financial obligations as they fall due for the foreseeable future.

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APPENDIX I

FINANCIAL INFORMATION OF THE I-CHINA GROUP

(b) These condensed consolidated financial statements were prepared based on the limited books and records and other latest information and records available to the Provisional Liquidators. The Provisional Liquidators have used their best endeavour to assess all the financial and business records of the Group. As the Provisional Liquidators did not exercise any control over the business, property and affairs of the Group prior to their appointment on 5 December 2002, they do not have the same level of knowledge of the financial affairs of the Company and the Group as the Company’s directors. The key management and staff responsible for maintaining the books and records of the Group had left the Group and the Provisional Liquidators do not have all books and records of the Group. The information available to the Provisional Liquidators is limited. As a result, the Provisional Liquidators are unable to represent that all transactions entered into by the Company and its subsidiaries prior to their appointment are reflected in the books and records and in the condensed consolidated financial statements. Accordingly, the Provisional Liquidators were unable to satisfy themselves as to the completeness of identification and the appropriateness of the disclosure in respect of the potential claims, the commitments, the contingent liabilities and the pledge of assets in the condensed consolidated financial statements as at 30 September 2003.

In addition, the Provisional Liquidators were unable to obtain sufficient documentary information to satisfy themselves regarding the matters described below.

(i) Due to the limited book and records available to the Provisional Liquidators, the Provisional Liquidators were unable to assess whether any allowance for doubtful debt is required in respect of short-term receivables of HK$6,483,000 as at 30 September 2003. Accordingly, the Provisional Liquidators were unable to satisfy themselves as to whether these short-term receivables in the condensed consolidated balance sheet as at 30 September 2003 were free from material misstatement.
(ii) Due to the limited book and records available to the Provisional Liquidators, the Provisional Liquidators were unable to obtain sufficient evidence to satisfy themselves as to the validity of other receivables of HK$2,797,000 in the condensed consolidated balance sheet nor to assess whether any allowance for doubtful debt is required to be made in respect of these receivables. Accordingly, the Provisional Liquidators were unable to satisfy themselves as to whether these receivables in the condensed consolidated balance sheet as at 30 September 2003 were free from material misstatement.
(iii) Due to the limited books and records available to the Provisional Liquidators, the Provisional Liquidators were unable to obtain bank statements or other documentary evidence in respect of bank balances and cash of HK$1,450,000 as at 30 September 2003. Accordingly, the Provisional Liquidators were unable to satisfy themselves as to whether these bank balances and cash in the condensed consolidated balance sheet as at 30 September 2003 were free from material misstatement.
(iv) Due to the limited books and records available to the Provisional Liquidators, the Provisional Liquidators were unable to obtain sufficient documentary evidence in respect of the amounts of HK$141,231,000 included in the item of “bank and other borrowings” as at 30 September 2003. Accordingly, the Provisional Liquidators were unable to satisfy themselves as to whether these borrowings in the condensed consolidated balance sheet as at 30 September 2003 were free from material misstatement.

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FINANCIAL INFORMATION OF THE I-CHINA GROUP

APPENDIX I

(v) Due to the limited books and records available to the Provisional Liquidators, the Provisional Liquidators were unable to obtain sufficient documentary evidence in respect of the amount of HK$1,513,000 included in the item of “amounts due to associates” as at 30 September 2003. Accordingly, the Provisional Liquidators were unable to satisfy themselves as to whether these amounts due to associates in the condensed consolidated balance sheet as at 30 September 2003 were free from material misstatement.
(vi) Due to the limited books and records available to the Provisional Liquidators, the Provisional Liquidators were unable to obtain sufficient documentary evidence in respect of amounts due to directors of HK$7,663,000 as at 30 September 2003. Accordingly, the Provisional Liquidators were unable to satisfy themselves as to whether these amounts due to directors in the condensed consolidated balance sheet as at 30 September 2003 were free from material misstatement.
(vii) Due to the limited books and records available to the Provisional Liquidators, the Provisional Liquidators were unable to determine the appropriate amount to be transferred from the asset revaluation reserve account to deficit account as a result of the realisation of asset revaluation reserve upon disposal of the properties held by associates during the year ended 31 March 2002. Accordingly, the Provisional Liquidators were unable to satisfy themselves as to whether the asset revaluation reserve of HK$223,734,000 as at 30 September 2003 and 31 March 2003; and the deficit of HK$1,149,087,000 and HK$1,133,264,000 as at 30 September 2003 and 31 March 2003 respectively in the condensed consolidated balance sheet were free from material misstatement.

3. Principal Accounting Policies

The condensed consolidated financial statements have been prepared under the historical cost convention as modified for the revaluation of properties.

The accounting policies adopted are consistent with those followed in the preparation of the Group’s annual financial statements for the year ended 31 March 2003, except for the adoption of SSAP 12 (Revised) “Income taxes”. The principal effect of the implementation of SSAP 12 (Revised) is in relation to deferred tax. In previous years, partial provision was made for deferred tax using the income statement liability method under which a liability was recognised in respect of timing differences arising, except where those timing differences were not expected to reverse in the foreseeable future. SSAP 12 (Revised) requires the adoption of a balance sheet liability method, whereby deferred tax is recognised in respect of all temporary differences between the carrying amounts of assets and liabilities in the condensed consolidated financial statements and the corresponding tax bases used in the computation of taxable profit with limited exceptions. In the absence of any specific transitional requirements in SSAP 12 (Revised), the new accounting policy has been applied retrospectively. This change in accounting policy has not had any material effect on the results for the current and prior accounting periods. Accordingly, no prior period adjustment has been required.

4. Segment Information

All of the Group’s turnover and contribution to results from operations are attributable to the hiring of motor vehicles in Hong Kong.

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APPENDIX I FINANCIAL INFORMATION OF THE I-CHINA GROUP

5. Loss From Operations

	Six months ended	Six months ended
	30 September
	2003	2002
	HK$’000	HK$’000
Loss for operations has been arrived
at after charging (crediting):
Depreciation and amortisation of property,
plant and equipment	211	577
Loss on disposal of investment properties	—	1,100
Investment properties in the People’s Republic of
China (the “PRC”) written off	—	147,800
Gain on disposal of property, plant and equipment	(427)	(311)

6. Taxation

No provision for Hong Kong Profits Tax has been made in the condensed consolidated financial statements as the Company and its subsidiaries did not have any estimated assessable profits for both periods.

7. Loss Per Share

The calculation of the basic loss per share is based on the loss for the period of HK$15,823,000 (2002: HK$156,001,000) and on 508,339,764 (2002: 508,339,764) shares in issue during the period.

8. Investment Properties

Since their appointment, the Provisional Liquidators have appointed PRC legal advisors to ascertain the status in respect of the Group’s titles to the investment properties. The PRC legal advisors indicate that the Group does not have legal titles to the investment properties. As a result, the Provisional Liquidators have written off the Group’s investment properties during the six months ended 30 September 2002.

9. Interests in Associates

At 30 September 2003, the Group held 27.55% equity interest in Seapower Resources International Limited (“SRI”), a principal associate of the Group, which is principally engaged in cold storage warehousing, logistic management and property investment.

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FINANCIAL INFORMATION OF THE I-CHINA GROUP

APPENDIX I

On 5 December 2003, the SRI Restructuring Proposal was completed and the SRI Provisional Liquidators have been released and discharged as joint and several provisional liquidators of SRI in accordance with the orders of the High Court.

10. Trade and Other Receivables

The Group allows an average credit period of 30 days to its trade customers.

Included in trade and other receivables are trade receivable (net of allowance for bad and doubtful debts) with the aged analysis as follows:

30 September 2003 HK$’000 Trade receivables 0-30 days 12 31-60 days — More than 60 days 86 98 Other receivables 2,797 2,895	31 March 2003 HK$’000 102 46 75
	223 2,861
	3,084

11. Litigation

(a) In December 1998, the Company entered into an agreement (the “Agreement”) with China Merchants Bank (“CMB”) and certain third parties (the “Third Parties”). Under the terms of the Agreement, a loan of US$22.5 million from CMB to the Third Parties was to be assumed by the Group in consideration for the transfer of certain debts owed to the Third Parties, certain shares, properties and land use rights in the PRC. In early 2000, the directors of the Company challenged the validity of the Agreement and since then, the Group has withheld all the repayments to CMB. On 20 July 2000, CMB issued a writ of summons against the Group, claiming immediate repayment of all amounts due from the Group including interest and costs pursuant to the Agreement and a separate loan agreement. The directors of the Company filed a counterclaim against CMB and the Third Parties.

On 28 December 2000, CMB was granted an injunction by the court restricting, among other things, the following:

(i) The Group from dealing with the balance of the proceeds of HK$24,120,000 arising from the disposal of a property save for effecting payment for the discharge of the outstanding mortgage and related expenses without the approval of the High Court (after discharge of the mortgage and payment of costs and expenses, a sum of HK$6,482,500 was paid into court on 5 January 2001 pursuant to the order); and
(ii) a subsidiary of the Company, Seapower Consortium Company Limited, from disposing or dealing with or diminishing the value of its assets up to the value of US$10 million (2002: US$10 million).

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FINANCIAL INFORMATION OF THE I-CHINA GROUP

APPENDIX I

(b) On 20 December 2001, Peregrine Brokerage Limited (“Peregrine”) obtained judgment against a subsidiary of the Company for the sum of approximately HK$109 million and interest thereon, being the amount due and payable under the facilities granted pursuant to a margin agreement dated 4 September 1997 entered into between Peregrine and the subsidiary. There were no other corporate guarantees by other members of the Group. The margin facilities were secured by 159,315,000 shares of SRI (before the capital restructuring of SRI). The judgment remains unpaid as at the date of this report and continues to accrue interest at the rate prescribed from time to time by the High Court.
(c) As disclosed in the Annual Report for the financial year ended 31 March 2002, in July 2000, the Group commenced a lawsuit at High People’s Court, Hubei Province, the PRC against Huangshi Kangsai Group Co., Ltd. (“Huangshi Kangsai”) claiming for an amount of HK$23 million pursuant to an undertaking given by Huangshi Kangsai. On 6 September 2000, the High People’s Court, Hubei Province, the PRC granted an order in favour of the Group to freeze the assets of Huangshi Kangsai for such value as equivalent to approximately HK$30 million. Due to the limited books and records available to the Provisional Liquidators, there is insufficient information for the Provisional Liquidators to determine the status of this litigation at this stage and accordingly, no amount has been accounted for in the financial statements.
(d) As disclosed in the Annual Report for the financial year ended 31 March 2002, in July 2000, the Group commenced proceedings against New Era Group (H.K.) Limited (“New Era”) and Cross Union Development Limited (“Cross Union”) at Middle People’s Court, Shenzhen, the PRC claiming for the amount of US$800,000 (equivalent to approximately HK$6.2 million) and interests of US$100,000 (equivalent to approximately HK$780,000 thereon, being deposit paid by the Group for the acquisition of the entire issued share capital of an associate of New Era in respect of an agreement dated 3 April 1995, as supplemented by a supplemental agreement dated 19 May 1995. The amounts have been fully provided for in the accounts in previous years. Due to limited books and records available to the Provisional Liquidators, there is insufficient information for the Provisional Liquidators to determine the status of this litigation at this stage.

Pursuant to section 186 of the Hong Kong Companies Ordinance and section 167(4) of the Companies Act 1981 of Bermuda, upon the appointment of Provisional Liquidators to the Company, no action or proceedings shall be proceeded with or commenced against the Company except by leave of the Courts. As at the date of this report, no party has sought leave of the Courts to continue any of the above actions involving the Company. Accordingly, there is no progress in relation to the proceedings between the Company and CMB as noted in (a) above. There is also no progress in relation to the proceedings between the Group and Huangshi Kangsai, the proceedings between the Group and Peregrine and the proceedings between the Group and New Eva as noted in (b), (c) and (d) above respectively. The liabilities and contingent liabilities, if any, arising from the actions above will be dealt with under the proposed schemes of arrangement as referred in note 12(b).

Other than the above, based on the books and records available to the Provisional Liquidators, the Group did not have any significant outstanding claims, counterclaims and threatened litigations with other parties as at 30 September 2003.

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APPENDIX I FINANCIAL INFORMATION OF THE I-CHINA GROUP

12. Post Balance Sheet Event

On 20 November 2003, the Company, acting through the Provisional Liquidators, entered into the Restructuring Agreement, amongst others, with Wai Kee.

The following transactions of the Restructuring Agreement are proposed:

(a) The capital restructuring (“Capital Restructuring”)

(i) the issued share capital of approximately HK$5,083,000 will be reduced by approximately HK$3,813,000 to approximately HK$1,270,000 by cancelling the paidup capital to the extent of HK$0.0075 on each of the 508,339,764 issued shares of HK$0.01 each so that each of such issued shares shall be treated as one fully paid share of HK$0.0025. The credit of approximately HK$3,813,000 arising from the capital reduction will be applied to eliminate an equivalent amount of the Company’s deficit;
(ii) every four issued shares reduced pursuant to (i) above will be consolidated into one new share of HK$0.01. Accordingly, 508,339,764 issued shares of HK$0.0025 will be consolidated into 127,084,941 issued new shares of HK$0.01 each;
(iii) the unissued share capital of approximately HK$74,917,000 in the authorised share capital of HK$80,000,000 of the Company will be cancelled and diminished resulting in an authorised and issued share capital of approximately HK$1,270,000; and
(iv) the authorised share capital of the Company will be increased from approximately HK$1,270,000 to HK$200,000,000 divided into ordinary shares of HK$170,000,000 and preference shares of HK$30,000,000, including 6,314,084,941 issued new shares and 10,685,915,059 unissued new shares Shares and 3,000,000,000 issued preference shares upon completion.

(b) The debt restructuring

(i) HK$22 million in cash from the proceeds of subscription as described in note 12(c) to be paid by Wai Kee upon completion;
(ii) 200,000,000 new ordinary shares of HK$0.01 each (representing approximately 3.2% of the issued share capital of the Company upon completion of the Restructuring Agreement and subscription of new shares by Wai Kee but before the distribution and conversion of the Company’s preference shares); and

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FINANCIAL INFORMATION OF THE I-CHINA GROUP

APPENDIX I

(iii) the granting of put option by Wai Kee to the Creditors and/or the Schemes’ administrators to sell all or part of the 200,000,000 new ordinary shares to Wai Kee at a price of HK$0.01 per new share exercisable within 90 days after the expiry of two years following completion. The put option is exercisable by the Creditors at their sole discretion.
(iv) any cash held by the Company as at the date of Completion of the Restructuring Agreement and the subscription agreement.

(c) The subscription (“Subscription”)

The total consideration for the subscription of new shares payable by Wai Kee is HK$89.87 million, which will be satisfied as follows:

HK$29.87 million in cash; and
HK$60 million by way of the injection of assets as described in note 12(e) by Wai Kee into the Company.

The aggregate cash proceeds from the subscription of new shares of HK$29.87 million will be applied as follows:

HK$22 million for the cash payment to the Creditors under the Schemes; and
the balance of HK$7.87 million for the settlement of the restructuring costs and expenses to be incurred in relation to the implementation of the Proposed Restructuring.

(d) Group reorganisation

(e) Injection of assets

Further details of the above were set out in the announcement jointly made by the Company and Wai Kee dated 18 December 2003.

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APPENDIX I FINANCIAL INFORMATION OF THE I-CHINA GROUP

5. AUDITORS’ REPORTS FOR THE FINANCIAL YEARS ENDED 31 MARCH 2001 AND 31 MARCH 2002

The following information is extracted from the auditors’ reports on the financial statements of I-China for the years ended 31 March 2001 and 2002. References to page numbers are to page numbers of such audited financial statements of I-China for the years ended 31 March 2001 and 2002.

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To the shareholders

I-CHINA HOLDINGS LIMITED

(FORMERLY KNOWN AS SEAPOWER INTERNATIONAL HOLDINGS LIMITED)

(incorporated in Bermuda with limited liability)

We have audited the financial statements on pages 24 to 70 which have been prepared in accordance with accounting principles generally accepted in Hong Kong.

Respective responsibilities of Directors and auditors

The Company’s Directors are responsible for the preparation of financial statements which give a true and fair view. In preparing financial statements which give a true and fair view it is fundamental that appropriate accounting policies are selected and applied consistently.

It is our responsibility to form an independent opinion, based on our audit, on those statements and to report our opinion to you.

Basis of opinion

We conducted our audit in accordance with Statements of Auditing Standards issued by the Hong Kong Society of Accountants, except that the scope of our work was limited as explained below.

An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgments made by the Directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the circumstances of the Company and of the Group, consistently applied and adequately disclosed.

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FINANCIAL INFORMATION OF THE I-CHINA GROUP

APPENDIX I

We planned our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance as to whether the financial statements are free from material misstatement. However, the evidence available to us was limited as the auditors’ report of Seapower Resources International Limited (“SRI”), in which the Group has a 36% interest, is qualified in respect of limitations in scope relating to a loss on disposal of a subsidiary of approximately HK$3 million and related provision on the outstanding receivable arising from the disposal of approximately HK$27 million and in respect of the revaluation of properties held for development of approximately HK$54 million.

Accordingly, we were unable to satisfy ourselves as to whether the Group’s share of post-acquisition net assets of SRI of HK$126,918,000 as at 31 March 2001 and the Group’s share of results of HK$87,138,000 for the year then ended are fairly stated in the consolidated financial statements.

In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. We believe that our audit provides a reasonable basis for our opinion.

Fundamental uncertainties relating to litigation and to the going concern basis

In forming our opinion, we have considered the adequacy of the disclosures made in note 2 to the financial statements which explains the current liquidity difficulties of the Group and which also explains that the Group is currently engaged in litigation with China Merchants Bank (“CMB”) and Peregrine Brokerage Limited (“Peregrine”).

All the Group’s principal borrowings, including those from CMB and Peregrine, have become due for repayment. Against this background, the Directors are in the process of exploring with the Group’s bankers and other lenders (together the “Financial Institutions”) ways to restructure the Group’s borrowings. As mentioned in note 41(c) to the financial statements, it is the intention of the Group to dispose certain assets (the “Disposals”) and apply the proceeds from the Disposals to reduce the amounts due to secured lenders, to acquire certain assets and to provide general working capital for the Group.

Provided that the Financial Institutions, including CMB and Peregrine, continue to support the Group until such time as agreement can be reached for the restructuring of the Group’s borrowings and provided that there are no significant cash outflows arising from the proceedings in the litigation with CMB, the Directors consider that after taking into account the anticipated proceeds from the Disposals, the Group will have sufficient financial resources to meet in full its financial obligations as they fall due for the foreseeable future.

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APPENDIX I FINANCIAL INFORMATION OF THE I-CHINA GROUP

The financial statements have been prepared on a going concern basis, the validity of which depends upon sufficient future funding being available. The financial statements do not include any adjustments that may result from the failure to obtain such funding. We consider that appropriate disclosures have been made. However, in view of the extent of the uncertainties relating to the future support of the Financial Institutions for the Group and the litigation with CMB, we disclaim our opinion in respect of the fundamental uncertainties relating to litigation and to the going concern basis.

Disclaimer of opinion

Because of the significance of the possible effect of the limitations in evidence available to us as set out in the basis of opinion section of this report and because of the significance of the fundamental uncertainties relating to litigation and to the going concern basis, we are unable to form an opinion as to whether the financial statements give a true and fair view of the state of affairs of the Company and of the Group as at 31 March 2001 or of the loss and cash flows of the Group for the year then ended and as to whether the financial statements have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.

In respect alone of the limitations on our work set out in the basis of opinion section of this report, we have not obtained all the information and explanations that we considered necessary for the purpose for our audit.

Deloitte Touche Tohmatsu

Certified Public Accountants

Hong Kong, 26 July 2001

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FINANCIAL INFORMATION OF THE I-CHINA GROUP

APPENDIX I

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TO THE SHAREHOLDERS OF I-CHINA HOLDINGS LIMITED

(incorporated in Bermuda with limited liability)

We have audited the financial statements on pages 22 to 67 which have been prepared in accordance with accounting principles generally accepted in Hong Kong.

Respective Responsibilities of Directors and Auditors

I-China’s Directors are responsible for the preparation of financial statements which give a true and fair view. In preparing financial statements which give a true and fair view it is fundamental that appropriate accounting policies are selected and applied consistently.

It is our responsibility to form an independent opinion, based on our audit, on those statements and to report our opinion to you.

Basis of Opinion

We conducted our audit in accordance with Statements of Auditing Standards issued by the Hong Kong Society of Accountants, except that the scope of our work was limited as explained below.

An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgments made by the Directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the circumstances of I-China and of the Group, consistently applied and adequately disclosed.

— 131 —

APPENDIX I FINANCIAL INFORMATION OF THE I-CHINA GROUP

As explained in our report dated 26 July 2001 on the financial statements of the Group for the year ended 31 March 2001, we were unable to obtain evidence to assess whether the Group’s share of net assets of its associate, Seapower Resources International Limited (“SRI”), of HK$126,918,000 was fairly stated as at 31 March 2001. In respect of the year ended 31 March 2002, we were unable to obtain sufficient evidence to satisfy ourselves as to whether the share of loss of SRI amounting to HK$100,738,000, the loss on the partial disposal of SRI of HK$37,338,000 and the share of post-acquisition reserve movements of SRI amounting to HK$1,440,000 were fairly stated. Any adjustments to the Group’s share of net assets of SRI as at 1 April 2001 would affect the opening deficit of the Group as at 1 April 2001 and the loss of the Group for the year ended 31 March 2002. Any adjustments to either the share of loss of SRI or the loss on the partial disposal of SRI would affect the classification of the consolidated income statement for the year ended 31 March 2002 on page 22 as between these amounts and the share of post-acquisition reserves of SRI as stated in note 30 to the financial statements.
We were unable to obtain sufficient documentary evidence to satisfy ourselves regarding the Group’s ownership in the investment properties with an aggregate carrying value of HK$147,800,000. Accordingly, we were unable to satisfy ourselves that the Group’s investment properties were fairly stated in the consolidated balance sheet as at 31 March 2002.
As explained in note 15, certain investment properties of the Group amounting to HK$6,400,000 were seized by financial creditors during the year. The Directors have informed us that these seized properties have now been sold by the financial creditors for amounts in the aggregate of HK$5,330,000, with bank and other borrowings being reduced by the same amount and resulting loss on disposal of HK$1,070,000 being recognised in the consolidated income statement. However, we have been unable to obtain sufficient evidence to satisfy ourselves as to the validity of these disposals and the amount of the proceeds. Accordingly, we were unable to satisfy ourselves regarding the treatment adopted by the Directors in respect of these properties.

— 132 —

FINANCIAL INFORMATION OF THE I-CHINA GROUP

APPENDIX I

As explained in note 2(b), during the year, certain of the Group’s investment properties amounting to HK$20,540,000 were seized and disposed by the financial creditors and the proceeds of HK$19,456,000 applied to reduce the balance of the borrowings owed by the Group to these financial creditors. However, the Directors were unable to obtain evidence regarding the selling and related expenses arising on these disposals. Accordingly, the Directors were unable to satisfy themselves as to whether the loss on disposal of such properties of HK$1,084,000 for the year ended 31 March 2002 and the residual balance of the bank and other borrowings of HK$35,941,000 as at that date were fairly stated.
As explained in note 2(c) to the financial statements, included in the consolidated balance sheet were investment properties amounting to HK$3,100,000 and land and buildings amounting to HK$4,900,000 have been seized by the Group’s financial creditors. However, the Directors were unable to ascertain whether these seized properties have been disposed by the financial creditors during the year and the proceeds applied to reduce the associated bank and other borrowings of the Group. Accordingly, the Directors were unable to satisfy themselves as to whether these properties were fairly stated in the consolidated balance sheet as at 31 March 2002 and as to whether the residual balance of the bank and other borrowings of HK$48,690,000 were fairly stated as at that date.
We were unable to obtain direct confirmation or other documentary evidence to satisfy ourselves as to whether the Group’s outstanding bank and other borrowings of HK$521,936,000 as at 31 March 2002, the related interest expenses of HK$67,314,000 for the year ended 31 March 2002 and the balance of interest accrual of HK$109,295,000 included in the item of “trade and other payables” in the consolidated balance sheet as at 31 March 2002 were fairly stated.

Any adjustments to the above figures would as appropriate affect the net liabilities of the Group and of I-China as at 31 March 2002 and the loss and cash flows of the Group for the year then ended.

In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. We believe that our audit provides a reasonable basis for our opinion.

Fundamental Uncertainties Relating to Litigation and to the Going Concern Basis

In forming our opinion, we have considered the adequacy of the disclosures made in note 2(a) to the financial statements which explains the current liquidity difficulties of the Group and which also explains that the Group is currently engaged in litigation with China Merchants Bank (“CMB”) and Peregrine Brokerage Limited (“Peregrine”).

— 133 —

FINANCIAL INFORMATION OF THE I-CHINA GROUP

APPENDIX I

All the Group’s principal borrowings, including those from CMB and Peregrine, have become due for repayment. Against this background, the Directors are in the process of exploring with the Group’s bankers and other lenders (together the “Financial Institutions”) ways to restructure the Group’s borrowings. Provided that the Financial Institutions, including CMB and Peregrine, continue to support the Group, and provided that there are no significant cash outflows arising from the proceedings in the litigation with CMB, the Directors consider that the Group will have sufficient financial resources to meet in full its financial obligations as they fall due for the foreseeable future.

Disclaimer of Opinion

Because of the significance of the possible effect of the limitations in evidence available to us as set out in the basis of opinion section of this report and because of the significance of the fundamental uncertainties relating to litigation and to the going concern basis, we are unable to form an opinion as to whether the financial statements give a true and fair view of the state of affairs of I-China and of the Group as at 31 March 2002 or of the loss and cash flows of the Group for the year then ended and as to whether the financial statements have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.

In respect alone of the limitations on our work set out in the basis of opinion section of this report:

we have not obtained all the information and explanations that we considered necessary for the purpose for our audit; and
we were unable to determine whether proper books of accounts have been kept.

Deloitte Touche Tohmatsu

Certified Public Accountants

Hong Kong, 30 August 2002

— 134 —

ACCOUNTANTS’ REPORT ON THE TOP TACTIC GROUP

APPENDIX II

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24 February 2004

The Joint and Several Provisional Liquidators

I-CHINA HOLDINGS LIMITED (provisional liquidators appointed)

Dear Sirs,

We set out below our report on the combined financial information relating to Top Tactic Holdings Limited (“Top Tactic”) and the companies which will become its subsidiaries under the proposed restructuring referred to below (hereinafter collectively referred to as the “Top Tactic Group”) for the two years ended 31 March 2002, the nine months ended 31 December 2002 and the ten months ended 31 October 2003 (the “Relevant Periods”) for inclusion in the document dated 24 February 2004 jointly issued by I-China Holdings Limited (provisional liquidators appointed) (“I-China”) and Wai Kee Holdings Limited (“Wai Kee”) in relation to the restructuring of I-China involving, inter alia, capital restructuring, debt restructuring involving creditors’ schemes of arrangement under section 99 of the Companies Act and section 166 of the Companies Ordinance, subscription of new restructured shares (“New I-China Shares”) and preference shares of I-China, injection of the Top Tactic Group and whitewash waiver (the “Document”).

During the period from 1 April 2001 to 31 December 2002, the companies comprising Top Tactic Group changed their financial year end date from 31 March to 31 December in order to facilitate the preparation of accounts of Wai Kee.

Pursuant to a conditional agreement (the “Restructuring Agreement”) entered into by I-China, acting through the joint and several provisional liquidators of I-China (the “Provisional Liquidators”) and amongst others, Wai Kee and RSM Nelson Wheeler Corporate Advisory Services Limited (the “Escrow Agent”) dated 20 November 2003, Wai Kee shall subscribe and I-China shall allot and issue 5,987,000,000 new I-China Shares at HK$0.01 each and 3,000,000,000 preference shares of HK$0.01 each. HK$60 million of the total consideration for the subscription payable by Wai Kee will be satisfied by way of injecting the Top Tactic Group into I-China.

Top Tactic was incorporated with limited liability in the British Virgin Islands on 28 November 2003 under the International Business Companies Act (Cap 291) of the British Virgin Islands. Top Tactic is principally engaged in investment holding. After the restructuring to be implemented by Wai Kee prior to the completion of the Restructuring Agreement, Top Tactic will become the holding company of the Top Tactic Group. Other than the proposed restructuring, Top Tactic has not commenced any other activity and has remained inactive.

— 135 —

ACCOUNTANTS’ REPORT ON THE TOP TACTIC GROUP

APPENDIX II

After the restructuring, Top Tactic will have the following subsidiaries:

					Proportion
					of nominal
					value of issued
				Issued and	ordinary share
				fully paid	capital held
	Place of	Place of	Date of	ordinary	by the Top	Principal
Name	incorporation	operation	incorporation	share capital	Tactic Group	activities
					%
Absolute Achieve	British Virgin	Hong Kong	18 June 2003	US$1	100	Investment
Holdings Limited	Islands (“BVI”)					holding
Allied Wise Limited	Hong Kong	Hong Kong	28 November 1996	HK$2	100	Inactive
Amazing Reward	BVI	Hong Kong	12 February 2002	US$1,000,000	100	Investment
Group Limited						holding
Cheuk Wah	Hong Kong	Hong Kong	9 June 1994	HK$10,000	60	Civil
Construction				(note 1)		engineering
Engineering Limited
(“Cheuk Wah”)
Eastar Construction	Hong Kong	Hong Kong	19 May 1994	HK$10,000	80	Investment
Engineering						holding
Limited (“Eastar”)
Expert Focus Limited	BVI	Hong Kong	21 March 2002	US$1	100	Investment
						holding
Heavy Gain Investments	BVI	Hong Kong	8 October 2001	US$1	100	Investment
Limited						holding
Hsin Lung Construction	Republic of	Republic of	8 October 1991	NT$175,000,000	100	Civil
Company Limited	China	China				engineering
(“Hsin Lung”)
Huge Host Engineering	Hong Kong	Hong Kong	28 July 1992	HK$10,000	70	Inactive
Limited
Ideal Achieve Investments	BVI	Hong Kong	15 April 2003	US$1	100	Inactive
Limited

— 136 —

ACCOUNTANTS’ REPORT ON THE TOP TACTIC GROUP

APPENDIX II

					Proportion	Proportion
					of nominal
					value of issued
				Issued and	ordinary share
				fully paid	capital held
	Place of	Place of	Date of	ordinary	by the Top		Principal
Name	incorporation	operation	incorporation	share capital	Tactic Group		activities
						%
Leader Civil Engineering	Hong Kong	Hong Kong	9 May 1975	HK$25,200,000		100	Civil
Corporation Limited				Ordinary shares			engineering
				HK$24,000,000		100
				Non-voting
				deferred shares
Leader Construction	Hong Kong	Hong Kong	4 March 2002	HK$2		100	Provision of
Company Limited							administrative
							and
							management
							services to
							group
							companies
Leader Construction	BVI	Hong Kong	26 November 2001	US$1		100	Investment
Company Limited							holding
Leader Construction	Hong Kong	Hong Kong	5 July 1994	HK$2		100	Investment
Overseas Limited							holding
Leader Construction	Hong Kong	Hong Kong	2 April 1997	HK$2		100	Investment
(Taiwan) Limited							holding
Leader Marine	Hong Kong	Hong Kong	2 May 1991	HK$200,000		100	Marine
Contractors Limited							engineering
							and provision
							of transportation
							services
Modern Source	Hong Kong	Hong Kong	30 July 1997	HK$2		100	Inactive
Development Limited
Power Achieve	BVI	Hong Kong	6 November 2003	US$1		100	Inactive
Holdings Limited

— 137 —

ACCOUNTANTS’ REPORT ON THE TOP TACTIC GROUP

APPENDIX II

					Proportion	Proportion
					of nominal
					value of issued
				Issued and	ordinary share
				fully paid	capital held
	Place of	Place of	Date of	ordinary	by the Top		Principal
Name	incorporation	operation	incorporation	share capital	Tactic Group		activities
						%
Profound Success Limited	BVI	Hong Kong	23 January 2002	US$1		100	Investment
							holding
Smart Start Investments	Hong Kong	Hong Kong	31 October 2003	HK$2		100	Investment
Limited							holding
Wai Kee China	Hong Kong	Hong Kong	23 November 2001	HK$10,000,000		100	Civil engineering
Construction
Company Limited
Wai Kee (Zens)	Hong Kong	Hong Kong	9 April 1980	HK$2		100	Civil engineering
Construction &				Ordinary shares
Transportation				HK$14,800,000		100
Company Limited				Non-voting
				deferred shares
				HK$5,200,000		—
				Non-voting
				deferred shares
				(note 2)
Yajian Investment	Republic of	Republic of	3 June 1998	NT$25,000,000		100	Investment
Co., Ltd.	China	China					holding
(“Yajian Investment”)
Zen Pacific	BVI	Hong Kong	27 March 1996	US$1,000		100	Investment
Construction Limited							holding
Zen Pacific Civil	Hong Kong	Hong Kong	13 November 1984	HK$1,000		100	Civil engineering
Contractors Limited				Ordinary shares
				HK$39,499,800		100
				Non-voting
				deferred shares
ZPC Nominees Limited	Hong Kong	Hong Kong	30 December 1996	HK$2		100	Provision of
							nominee
							services to
							group
							companies

— 138 —

ACCOUNTANTS’ REPORT ON THE TOP TACTIC GROUP

APPENDIX II

Notes:

Eastar has 60% interests in Cheuk Wah and accordingly Cheuk Wah is classified as a subsidiary.
These deferred shares, which are not held by the Top Tactic Group, practically carry minimal rights to dividends and no rights to receive notice of or to attend or vote at any general meeting of respective companies. On winding up, the holders of the deferred shares are entitled to a distribution out of the remaining assets of the respective companies only after the distribution of substantial amounts as specified in the Articles of Associations to holders of ordinary shares of the respective companies.

No audited financial statements have been issued for companies incorporated in BVI where there were no statutory audit requirements.

We have acted as auditors of all the companies incorporated in Hong Kong for the Relevant Periods, or since the respective date of incorporation, where there is a shorter period which are prepared under accounting principles generally accepted in Hong Kong.

No audited financial statements have been prepared for Top Tactic since the date of incorporation as it is newly incorporated in a country where there are no statutory requirements and have not carried on any business. We have, however reviewed all relevant transactions of Top Tactic since its date of incorporation.

Our examination was made in accordance with the Auditing Standards issued by the Hong Kong Society of Accountants (the “HKSA”), and have carried out such additional procedures as we consider necessary in accordance with the Auditing Guideline “Prospectuses and the Reporting Accountants” as recommended by HKSA.

The combined financial information of the Top Tactic Group for the Relevant Periods set out in this report have been prepared from the audited financial statements and management accounts (the “Underlying Financial Statements”) of the companies comprising the Top Tactic Group, after making such adjustments as we consider appropriate for the purpose of preparing our report for inclusion in the Document on the basis set out in note 1 below.

The Underlying Financial Statements are the responsibility of the directors of those companies who approve their issue. The Provisional Liquidators are responsible for the contents of the Document in which this report is included, other than that relating to Wai Kee and its subsidiaries. The directors of Wai Kee are responsible for the contents of the Document in which this report is included to the extent that they are related to Wai Kee and its subsidiaries. It is our responsibility to compile the financial information set out in this report from the Underlying Financial Statements, to form an opinion on the financial information and to report our opinion to you.

In our opinion, on the basis of presentation set out in note 1 below, the combined financial information gives, for the purpose of this report, a true and fair view of the state of affairs of the Top Tactic Group as at the period end of each of the Relevant Periods, and of the combined results and cash flows of the Top Tactic Group for each of the Relevant Periods.

— 139 —

ACCOUNTANTS’ REPORT ON THE TOP TACTIC GROUP

APPENDIX II

A. FINANCIAL INFORMATION

The following are the combined income statements and combined cash flow statements of the Top Tactic Group for each of the periods referred to in this report and the combined balance sheets of the Top Tactic Group as at 31 March 2001, 31 March 2002, 31 December 2002 and 31 October 2003 prepared on the basis set out in note 1 below, after making such adjustments as we consider appropriate:

Combined Income Statements

Notes Combined turnover and share of turnover of jointly controlled entities Less:_Share of turnover of jointly controlled entities Combined turnover Cost of sales Gross profit Other operating income _4 Administrative expenses Share of profits less losses of jointly controlled entities Profit from operations 5 Finance costs 6 Share of profits less losses of associates less goodwill (Loss) profit before taxation Taxation credit (charge) 9 Profit before minority interests Minority interests (Loss) profit for the year/period Dividends 10	1.4.2000 to 31.3.2001 HK$’000 2,270,043 940,372 1,329,671 (1,329,584) 87 12,933 (90,533) 77,775 262 (8,925) 342 (8,321) 9,427 1,106 (9,687) (8,581) 70,000	1.4.2001 to 31.3.2002 HK$’000 2,132,783 1,064,725 1,068,058 (994,632) 73,426 20,653 (85,632) 22,802 31,249 (3,057) (12,763) 15,429 (6,826) 8,603 15,735 24,338 —	1.4.2002 to 31.12.2002 HK$’000 1,047,359 523,707 523,652 (494,792) 28,860 10,862 (70,945) 35,550 4,327 (1,314) 871 3,884 7,963 11,847 (2,593) 9,254 —	1.1.2003 to 31.10.2003 HK$’000 1,053,814 500,199 553,615 (526,249) 27,366 3,750 (78,838) 92,895 45,173 (1,968) 884 44,089 (14,364) 29,725 (7,767) 21,958 —

— 140 —

ACCOUNTANTS’ REPORT ON THE TOP TACTIC GROUP

APPENDIX II

Combined Balance Sheets

Notes Non-current assets Property, plant and equipment 12 Interests in associates 13 Interests in jointly controlled entities 14 Investment in securities 15 Current assets Amount due from customers for contract work 16 Debtors, deposits and prepayments 17 Amounts due from associates Amounts due from jointly controlled entities Amount due from ultimate holding company 18 Amount due from immediate holding company 18 Amounts due from fellow subsidiaries 18 Tax recoverable Bank deposits pledged 31 Bank balances and cash	31.3.2001 HK$’000 60,511 (2,372) 131,553 — 189,692 153,894 304,402 4,844 4,668 110,196 — 8,744 2,209 10,798 59,362 659,117	31.3.2002 HK$’000 43,352 21,868 75,901 — 141,121 107,577 263,897 907 2,952 178 3,934 12 906 40,933 18,637 439,933	31.12.2002 HK$’000 37,352 22,632 60,185 — 120,169 39,807 197,499 2,121 4,028 155 47,141 — 2,820 41,042 29,290 363,903	31.10.2003 HK$’000 26,307 10,953 79,591 28,302
				145,153
				23,778 181,842 348 5,977 155 117,055 — 2,820 50,956 29,621
				412,552

— 141 —

ACCOUNTANTS’ REPORT ON THE TOP TACTIC GROUP

APPENDIX II

Notes Current liabilities Amount due to customers for contract work 16 Creditors and accrued charges 19 Provision for piling incident 20 Other payable — due within one year 21 Amounts due to jointly controlled entities 22 Amounts due to associates Amounts due to minority shareholders Amount due to ultimate holding company 23 Amount due to immediate holding company 23 Amounts due to fellow subsidiaries 23 Taxation Secured bank loans Obligations under finance leases 24 Bank overdrafts, secured Net current (liabilities) assets Total assets less current liabilities Minority interests Non-current liabilities Amounts due to jointly controlled entities 25 Amounts due to associates 26 Deferred taxation 27 Other payable — due after one year 21 Capital and reserves Paid-in capital 28 Reserves	31.3.2001 HK$’000 207,917 338,884 60,000 — 46,099 11,330 2,794 — 58,000 7,034 2,818 19,463 3,665 8,256 766,260 (107,143) 82,549 19,310 35,948 30,913 — — 66,861 (3,622) 8 (3,630) (3,622)	31.3.2002 HK$’000 101,156 265,493 60,000 — 14,912 6,819 2,794 1,113 17,808 221 7,209 14,889 — 1,131 493,545 (53,612) 87,509 3,575 10,882 48,148 1,400 — 60,430 23,504 8 23,496 23,504	31.12.2002 HK$’000 18,159 168,835 60,000 — 1,212 2,044 2,794 1,113 70,427 21,415 5,802 30,000 — — 381,801 (17,898) 102,271 6,168 3,070 51,075 1,400 — 55,545 40,558 7,808 32,750 40,558	31.10.2003 HK$’000 27,004 163,101 — 30,000 7,854 — 2,794 — 112,045 221 8,137 43,089 — — 394,245 18,307 163,460 (1,215) 19,000 33,159 — 50,000 102,159 62,516 7,808 54,708 62,516

— 142 —

ACCOUNTANTS’ REPORT ON THE TOP TACTIC GROUP

APPENDIX II

Combined Statements Of Changes In Equity

At 1 April 2000 Exchange difference arising on translation of the financial statements of overseas operations not recognised in the combined income statement Dividends paid Loss for the year At 31 March 2001 Exchange difference arising on translation of the financial statements of overseas operations not recognised in the combined income statement Profit for the year At 31 March 2002 Issue of shares Profit for the period At 31 December 2002 Profit for the period At 31 October 2003	Paid-in Translation capital reserve HK$’000 HK$’000 8 156 — (239) — — — — 8 (83) — 2,788 — — 8 2,705 7,800 — — — 7,808 2,705 — — 7,808 2,705	Retained profits (deficit) HK$’000 75,034 — (70,000) (8,581) (3,547) — 24,338 20,791 — 9,254 30,045 21,958 52,003	Total HK$’000 75,198 (239) (70,000) (8,581) (3,622) 2,788 24,338 23,504 7,800 9,254 40,558 21,958 62,516

— 143 —

ACCOUNTANTS’ REPORT ON THE TOP TACTIC GROUP

APPENDIX II

Combined Cash Flow Statements

1.4.2000 to 31.3.2001 HK$’000 Operating activities Profit from operations 262 Adjustments for: Share of profits less losses of jointly controlled entities (77,775) Impairment loss on property, plant and equipment — Impairment loss on investment in securities 800 Depreciation of property, plant and equipment 4,353 Interest income (7,318) Provision for piling incident — (Gain) loss on disposal of property, plant and equipment (1,481) Operating cash flows before movements in working capital (81,159) Decrease in amount due from customers for contract work 169,175 Decrease in debtors, deposits and prepayments 210,945 (Decrease) increase in amount due to customers for contract work (248,651) Decrease in creditors and accrued charges (31,413) Exchange realignment (897) Cash generated from (used in) operations 18,000 Interest received 7,318 Interest paid (8,925) Hong Kong Profits Tax paid (7,460) Hong Kong Profits Tax refunded 5,340 Tax arising in other jurisdictions paid (704) Tax arising in other jurisdictions refunded — Net cash from (used in) operating activities 13,569	1.4.2001 to 31.3.2002 HK$’000 31,249 (22,802) — — 12,545 (1,174) — 891 20,709 50,284 40,505 (106,761) (73,391) 5,073 (63,581) 1,174 (3,057) (4,725) 5,562 — 816 (63,811)	1.4.2002 to 31.12.2002 HK$’000 4,327 (35,550) — — 5,156 (210) — (1,001) (27,278) 69,868 66,398 (82,997) (96,658) — (70,667) 210 (1,314) (2,257) 10,367 — — (63,661)	1.1.2003 to 31.10.2003 HK$’000 45,173 (92,895) 5,010 — 4,000 (2,141) 20,000 25 (20,828) 18,281 15,657 8,845 (5,734) — 16,221 2,141 (1,968) (6,905) 625 — — 10,114

— 144 —

ACCOUNTANTS’ REPORT ON THE TOP TACTIC GROUP

APPENDIX II

Investing activities Distribution of profits from jointly controlled entities Proceeds from disposal of property, plant and equipment Advances to immediate holding company Repayment from (advances to) associates Repayment from (advances to) jointly controlled entities Repayment from ultimate holding company (Advances to) repayment from fellow subsidiaries Purchase of property, plant and equipment Decrease in bank deposits to secure banking facilities Increase in investments in associates Increase in investments in jointly controlled entities Increase in investments in securities Net cash generated from (used in) investing activities Financing activities Proceeds on increase in paid-up capital New bank loans raised Repayment of bank loans Repayment of obligations under finance leases (Repayment to) advances from associates Dividends paid Dividends paid to minority shareholders	1.4.2000 to 31.3.2001 HK$’000 — 1,659 — 14,081 3,097 187,777 (8,744) (11,468) (10,798) — — — 175,604 — 14,986 — (3,220) (9,813) (70,000) —	1.4.2001 to 31.3.2002 HK$’000 77,119 791 (3,934) (16,065) 1,716 110,018 8,732 (2,846) (30,135) (17,092) — — 128,304 — — (3,778) (3,665) 12,724 — —	1.4.2002 to 31.12.2002 HK$’000 54,675 3,295 (43,207) (1,107) (1,076) 23 12 (2,210) (109) — (8,215) — 2,081 7,800 30,000 (14,889) — (1,848) — —	1.1.2003 to 31.10.2003 HK$’000 66,389 — (69,914) 14,287 (1,949) — — (242) (9,914) — — (28,302) (29,645) — 13,089 — — (19,960) — (15,150)

— 145 —

ACCOUNTANTS’ REPORT ON THE TOP TACTIC GROUP

APPENDIX II

Advances from (repayment to) jointly controlled entities Advances from (repayment to) ultimate holding company Advances from (repayment to) immediate holding company (Repayment to) advance from fellow subsidiaries Net cash (used in) from financing activities Increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of the year/period Effect of foreign exchange rate changes Cash and cash equivalents at end of the year/period Analysis of the balances of cash and cash equivalents Bank balances and cash Bank overdrafts, secured	1.4.2000 to 31.3.2001 HK$’000 25,909 — 58,000 (165,719) (149,857) 39,316 11,563 227 51,106 59,362 (8,256) 51,106	1.4.2001 to 31.3.2002 HK$’000 (56,253) 1,113 (40,192) (6,813) (96,864) (32,371) 51,106 (1,229) 17,506 18,637 (1,131) 17,506	1.4.2002 to 31.12.2002 HK$’000 (21,512) — 52,619 21,194 73,364 11,784 17,506 — 29,290 29,290 — 29,290	1.1.2003 to 31.10.2003 HK$’000 22,572 (1,113) 41,618 (21,194) 19,862 331 29,290 — 29,621 29,621 — 29,621

— 146 —

APPENDIX II ACCOUNTANTS’ REPORT ON THE TOP TACTIC GROUP

NOTES TO THE FINANCIAL INFORMATION

1. BASIS OF PRESENTATION OF FINANCIAL INFORMATION

The combined income statements and combined cash flow statements include the results and cash flows of the companies comprising the Top Tactic Group as if those companies has been subsidiaries of the Top Tactic throughout the Relevant Periods, or since their respective dates of incorporation, where this is a shorter period.

The combined balance sheets of the Top Tactic Group as at 31 March 2001, 31 March 2002, 31 December 2002 and 31 October 2003 have been prepared to present the assets and liabilities of the Top Tactic Group as if the current group structure had been in existence as at those dates.

All significant intra-group transactions and balances are eliminated on combination.

Share of turnover of jointly controlled entities is disclosed in the combined income statements so as to provide additional information in respect of the financial position and financial performance of the Top Tactic Group. The information provided are solely for internal purpose.

2. SIGNIFICANT ACCOUNTING POLICIES

The financial information have been prepared under the historical cost convention and in accordance with principal accounting policies set out in this report which conform with accounting principles generally accepted in Hong Kong:

Goodwill

Goodwill arising on consolidation represents the excess of the purchase consideration over the fair value of the Top Tactic Group’s share of the identifiable assets and liabilities of subsidiaries, associates or jointly controlled entities at the date of acquisition. Goodwill is recognised as an asset in the combined balance sheet and amortised on a straight-line basis over its estimated useful life.

Goodwill arising on the acquisition of associates or jointly controlled entities is included within the carrying amount of the associates or jointly controlled entities. Goodwill arising on the acquisition of subsidiaries is presented separately in the combined balance sheet.

Negative goodwill

Negative goodwill represents the excess of the fair value of the Top Tactic Group’s share of the identifiable assets and liabilities of subsidiaries, associates or jointly controlled entities at the date of acquisition over the cost of acquisition. Negative goodwill is presented as a deduction from assets in the combined balance sheet. Negative goodwill will be released to income based on an analysis of the circumstances from which the balance resulted.

Negative goodwill arising on the acquisition of associates or jointly controlled entities is deducted from the carrying amount of those associates or jointly controlled entities. Negative goodwill arising on the acquisition of subsidiaries is presented separately in the combined balance sheet as a deduction from assets.

— 147 —

ACCOUNTANTS’ REPORT ON THE TOP TACTIC GROUP

APPENDIX II

Revenue recognition

When the outcome of a construction contract can be estimated reliably, revenue from fixed price construction contracts is recognised on the percentage of completion method, measured by reference to the value of work performed during the year/period.

When the outcome of a construction contract cannot be estimated reliably, revenue is recognised only to the extent of contract costs incurred that it is probable will be recoverable.

Interest income is accrued on a time basis by reference to the principal outstanding and at the interest rate applicable.

Rental income, including rental invoiced in advance from properties let under operating leases, is recognised on a straight-line basis over the terms of the relevant leases.

Tendering service fee income is recognised when services are rendered.

Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and any identified impairment loss.

The gain or loss arising from disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the income statement.

Depreciation is provided to write off the cost of property, plant and equipment over their estimated useful lives, using the straight-line method, at the following rates per annum:

Leasehold improvements	331/3% or over the terms of the relevant leases,
	whichever is shorter
Plant and machinery	10% — 25%
Furniture, fixtures and equipment	25%
Motor vehicles	25%
Vessels	10% — 15%

Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, the terms of the leases.

Interests in associates

The combined income statement includes the Top Tactic Group’s share of the post-acquisition results of its associates for the year/period. In the combined balance sheet, interests in associates are stated at the Top Tactic Group’s share of the net assets of the associates plus goodwill and less negative goodwill on acquisition in so far as it has not already been written off or amortised or released to income, and less any identified impairment loss.

— 148 —

ACCOUNTANTS’ REPORT ON THE TOP TACTIC GROUP

APPENDIX II

Jointly controlled entities

Joint venture arrangements which involve the establishment of a separate entity in which each venturer has an interest are referred to as jointly controlled entities.

The Top Tactic Group’s share of post-acquisition results of jointly controlled entities is included in the combined income statement. The Top Tactic Group’s interests in jointly controlled entities are included in the combined balance sheet at the Top Tactic Group’s share of net assets of the jointly controlled entities plus goodwill and less negative goodwill on acquisition in so far as it has not already been written off or amortised or released to income, and less any identified impairment loss.

Impairment

At each balance sheet date, the Top Tactic Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. Impairment losses are recognised as an expense immediately.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised as income immediately.

Construction contracts

When the outcome of a construction contract can be estimated reliably, contract costs are charged to the income statement by reference to the stage of completion of the contract activity at the balance sheet date on the same basis as the contract revenue recognised.

When it is probable the total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately.

When the outcome of a construction contract cannot be estimated reliably, contract costs are recognised as an expense in the period in which they are incurred.

Construction contracts in progress at the balance sheet date are recorded in the combined balance sheet at the net amount of costs incurred plus recognised profits less recognised losses and progress billings, and are presented in the combined balance sheet as “Amount due from customers for contract work” or “Amount due to customers for contract work”, as appropriate. Amounts billed, but not yet paid by the customers, for work performed on contracts are included in the balance sheet under “Debtors, deposits and prepayments”.

Investments in securities

Investments in securities are recognised on a trade date basis and are initially measured at cost.

At subsequent reporting dates, debt securities that the Top Tactic Group has the expressed intention and ability to hold to maturity (held-to-maturity securities) are measured at amortised cost, less any identified impairment loss recognised to reflect irrecoverable amounts. Any discount or premium on the acquisition of a held-to-maturity security is aggregated with other investment income receivable over the term of the instrument so that the revenue recognised in each period represents a constant yield on the investment.

Investments other than held-to-maturity debt securities are classified as investment securities and other investments.

Investment securities, which are securities held for an identified long-term strategic purpose, are measured at subsequent reporting dates at cost less any identified impairment loss.

Other investments are measured at fair value, with unrealised gains and losses included in the profit for the year/period.

— 149 —

ACCOUNTANTS’ REPORT ON THE TOP TACTIC GROUP

APPENDIX II

Foreign currencies

Transactions in currencies other than Hong Kong dollars are initially recorded at the rates of exchange prevailing on the dates of the transactions. Monetary assets and liabilities denominated in such currencies are re-translated at the rates prevailing on the balance sheet date. Gains and losses arising on exchange are dealt with in the income statement.

On consolidation, the assets and liabilities of the Top Tactic Group’s overseas operations which are denominated in currencies other than Hong Kong dollars, are translated at exchange rates prevailing on the balance sheet date. Income and expense items, which are denominated in currencies other than Hong Kong dollars, are translated at the average exchange rates for the period. Exchange differences arising, if any, are classified as equity and transferred to the Top Tactic Group’s translation reserve. Such translation differences are recognised as income or as expenses in the period in which the operation is disposed of.

Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year/period. Taxable profit differs from net profit as reported in the combined income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Top Tactic Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet dates.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount of assets and liabilities in the combined financial statements and the corresponding tax basis used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences, and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary differences arises from goodwill (or negative goodwill) or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in jointly controlled entities where the Top Tactic Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised. Deferred tax is charged or credited in the combined income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

Deferred tax assets and liabilities are offset when they related to income taxes levied by the same taxation authority and the Top Tactic Group intends to settle its current tax assets and liabilities on a net basis.

— 150 —

ACCOUNTANTS’ REPORT ON THE TOP TACTIC GROUP

APPENDIX II

Retirement benefit schemes contributions

The contributions payable to the Top Tactic Group’s Mandatory Provident Fund Schemes are charged as expenses.

3. SEGMENTAL INFORMATION

(a) Business segments

The Top Tactic Group is mainly engaged in civil engineering work. Accordingly, no business segments analysis of financial information is provided.

(b) Geographical segments

The Top Tactic Group’s civil construction business is principally located in Hong Kong and Republic of China. The Top Tactic Group reports its segment information on geographical location of its customers and the segment information about these geographical markets is presented below:

Year ended 31 March 2001 Results Segment turnover Share of turnover of jointly controlled entities Segment turnover and share of turnover of jointly controlled entities Segment result Share of profits less losses of jointly controlled entities Profit (loss) from operations Finance costs Share of profits less losses of associates less goodwill Loss before taxation Taxation Profit before minority interests Minority interests Loss for the year At 31 March 2001 Assets Segment assets Interests in associates Interests in jointly controlled entities Total combined assets Liabilities Segment liabilities Other information Capital additions Depreciation of property, plant and equipment	Hong Kong HK$’000 1,114,318 940,372 2,054,690 (51,160) 75,764 24,604 577,703 (2,372) 115,126 740,244 9,767 4,101	Republic of China HK$’000 215,353 — 215,353 (25,674) 2,011 (23,663) 141,656 — 6,866 58,652 1,701 169	Others HK$’000 — — — (679) — (679) 269 — 9,561 23 — 83	Total HK$’000 1,329,671 940,372 2,270,043 (77,513) 77,775 262 (8,925) 342 (8,321) 9,427 1,106 (9,687) (8,581) 719,628 (2,372) 131,553 848,809 798,919 11,468 4,353

— 151 —

ACCOUNTANTS’ REPORT ON THE TOP TACTIC GROUP

APPENDIX II

Year ended 31 March 2002 Results Segment turnover Share of turnover of jointly controlled entities Segment turnover and share of turnover of jointly controlled entities Segment result Share of profits less losses of jointly controlled entities Profit (loss) from operations Finance costs Share of profits less losses of associates less goodwill Profit before taxation Taxation Profit before minority interests Minority interests Profit for the year At 31 March 2002 Assets Segment assets Interests in associates Interests in jointly controlled entities Total combined assets Liabilities Segment liabilities Other information Capital additions Depreciation of property, plant and equipment	Hong Kong HK$’000 853,501 1,010,509 1,864,010 12,350 19,153 31,503 352,228 21,868 65,021 478,370 1,285 12,300	Republic of China HK$’000 214,557 — 214,557 (3,379) 1,206 (2,173) 130,350 — — 50,966 1,550 164	Others HK$’000 — 54,216 54,216 (524) 2,443 1,919 707 — 10,880 10 11 81	Total HK$’000 1,068,058 1,064,725 2,132,783 8,447 22,802 31,249 (3,057) (12,763) 15,429 (6,826) 8,603 15,735 24,338 483,285 21,868 75,901 581,054 529,346 2,846 12,545

— 152 —

ACCOUNTANTS’ REPORT ON THE TOP TACTIC GROUP

APPENDIX II

Hong Kong HK$’000 Nine months ended 31 December 2002 Results Segment turnover 465,705 Share of turnover of jointly controlled entities 495,967 Segment turnover and share of turnover of jointly controlled entities 961,672 Segment result (17,004) Share of profits less losses of jointly controlled entities 31,673 Profit (loss) from operations 14,669 Finance costs Share of profits less losses of associates less goodwill Profit before taxation Taxation Profit before minority interests Minority interests Profit for the period At 31 December 2002 Assets Segment assets 313,196 Interests in associates 22,632 Interests in jointly controlled entities 39,679 Total combined assets Liabilities Segment liabilities 374,020 Other information Capital additions 2,172 Depreciation of property, plant and equipment 4,647	Republic of China HK$’000 57,947 4,932 62,879 (13,780) — (13,780) 87,815 — — 23,054 4 500	Others HK$’000 — 22,808 22,808 (439) 3,877 3,438 244 — 20,506 3,070 34 9	Total HK$’000 523,652 523,707 1,047,359 (31,223) 35,550 4,327 (1,314) 871 3,884 7,963 11,847 (2,593) 9,254 401,255 22,632 60,185 484,072 400,144 2,210 5,156

— 153 —

ACCOUNTANTS’ REPORT ON THE TOP TACTIC GROUP

APPENDIX II

Ten months ended 31 October 2003 Results Segment turnover Share of turnover of jointly controlled entities Segment turnover and share of turnover of jointly controlled entities Segment result Share of profits less losses of jointly controlled entities Profit from operations Finance costs Share of profits less losses of associates less goodwill Profit before taxation Taxation Profit before minority interests Minority interests Profit for the period At 31 October 2003 Assets Segment assets Interests in associates Interests in jointly controlled entities Total combined assets Liabilities Segment liabilities Other information Capital additions Depreciation of property, plant and equipment	Hong Kong HK$’000 495,951 487,982 983,933 (23,404) 90,906 67,502 403,301 10,953 57,099 425,620 93 3,804	Republic of China HK$’000 57,664 12,112 69,776 (22,989) 2,449 (20,540) 63,166 — 2,449 15,489 149 175	Others HK$’000 — 105 105 (1,329) (460) (1,789) 694 — 20,043 4,069 — 21	Total HK$’000 553,615 500,199 1,053,814 (47,722) 92,895 45,173 (1,968) 884 44,089 (14,364) 29,725 (7,767) 21,958 467,161 10,953 79,591 557,705 445,178 242 4,000

— 154 —

ACCOUNTANTS’ REPORT ON THE TOP TACTIC GROUP

APPENDIX II

4. OTHER OPERATING INCOME

Other operating income includes the following: Interest on bank deposits Interest on amounts due from group companies Interest on other receivable Interest on amount due from an associate Rental income from sublease of rented premises Management fee income Gain on disposal of property, plant and equipment	1.4.2000 to 31.3.2001 HK$’000 2,674 4,644 — — 1,353 — 1,481	1.4.2001 to 31.3.2002 HK$’000 544 630 — — 2,059 — —	1.4.2002 to 31.12.2002 HK$’000 210 — — — 1,154 360 1,001	1.1.2003 to 31.10.2003 HK$’000 27 — 114 2,000 — — —

— 155 —

ACCOUNTANTS’ REPORT ON THE TOP TACTIC GROUP

APPENDIX II

5. PROFIT FROM OPERATIONS

1.4.2000 to 31.3.2001 HK$’000 Profit from operations has been arrived at after charging: Auditors’ remuneration Provision for the current year/period 800 Under(over)provision in prior years/periods — 800 Depreciation Own assets 14,407 Assets held under finance lease 1,425 15,832 Less:_Amount attributable to construction contracts (11,479) 4,353 Impairment loss on property, plant and equipment — Impairment loss on investment in securities 800 Hire charges for plant and machinery 22,507 _Less:_Amount attributable to construction contracts (22,191) 316 Staff costs: Directors’ remuneration(note 7)_ 13,268 Other staff costs 206,372 Retirement benefits scheme contributions, excluding amounts included in directors’ remuneration 8,413 228,053 _Less:_Amount attributable to construction contracts (186,402) 41,651 Operating lease rentals in respect of land and buildings 9,682 _Less:_Amount attributable to construction contracts (276) 9,406 Loss on disposal of property, plant and equipment — Provision for piling incident —	1.4.2001 to 31.3.2002 HK$’000 1,089 — 1,089 15,685 827 16,512 (3,967) 12,545 — — 45,795 (45,795) — 11,624 219,316 4,225 235,165 (201,929) 33,236 6,617 — 6,617 891 —	1.4.2002 to 31.12.2002 HK$’000 884 551 1,435 7,254 — 7,254 (2,098) 5,156 — — 35,033 (35,033) — 4,089 124,078 4,438 132,605 (89,808) 42,797 3,853 (33) 3,820 — —	1.1.2003 to 31.10.2003 HK$’000 906 (216) 690 6,252 — 6,252 (2,252) 4,000 5,010 — 22,415 (22,415) — 2,508 97,210 5,462 105,180 (80,679) 24,501 1,463 — 1,463 25 20,000

— 156 —

ACCOUNTANTS’ REPORT ON THE TOP TACTIC GROUP

APPENDIX II

6. FINANCE COSTS

FINANCE COSTS
Interest on: Bank and other borrowings wholly repayable within five years Amounts due to group companies Amount due to a jointly controlled entity Finance leases	1.4.2000 to 31.3.2001 HK$’000 4,034 3,536 925 430 8,925	1.4.2001 to 31.3.2002 HK$’000 937 — 2,039 81 3,057	1.4.2002 to 31.12.2002 HK$’000 891 44 379 — 1,314	1.1.2003 to 31.10.2003 HK$’000 1,048 866 54 —
				1,968

7. DIRECTORS’ REMUNERATION

Details of emoluments paid by the Top Tactic Group to the directors during the Relevant Periods are as follows:

Fees Salaries and other benefits Performance related incentive payments Retirement benefits scheme contributions	1.4.2000 to 31.3.2001 HK$’000 — 10,221 2,565 482 13,268	1.4.2001 to 31.3.2002 HK$’000 — 9,794 1,329 501 11,624	1.4.2002 to 31.12.2002 HK$’000 — 3,130 764 195 4,089	1.1.2003 to 31.10.2003 HK$’000 — 2,285 — 223
				2,508

Remuneration of the directors were within the following bands:

Nil to HK$1,000,000 HK$1,000,001 to HK$1,500,000 HK$1,500,001 to HK$2,000,000 HK$2,000,001 to HK$2,500,000 HK$2,500,001 to HK$3,000,000	1.4.2000 to 31.3.2001 6 1 — 3 1 11	Number of directors 1.4.2001 1.4.2002 to to 31.3.2002 31.12.2002 3 3 — 1 — 1 2 — 2 — 7 5	1.1.2003 to 31.10.2003 3 — 1 — —
			4

During the Relevant Periods, no emoluments were paid by the Top Tactic Group to these directors as an inducement to join or upon joining the Top Tactic Group or as compensation for loss of office and no director had waived their emoluments.

— 157 —

ACCOUNTANTS’ REPORT ON THE TOP TACTIC GROUP

APPENDIX II

8. EMPLOYEES’ EMOLUMENTS

The five highest paid individuals included four directors for the two years ended 31 March 2001 and 31 March 2002 and two directors for the nine months ended 31 December 2002 and one director for the ten months ended 31 October 2003, details of whose emoluments are set out in note 7. The emoluments of the remaining one highest paid individual for the two years ended 31 March 2001 and 31 March 2002 and three highest paid individuals for the nine months ended 31 December 2002 and four highest paid individuals for the ten months ended 31 October 2003 are as follows:

1.4.2000 to 31.3.2001 HK$’000 Salary and other benefits 1,759 Performance related incentive payments 276 Retirement benefits scheme contributions 124 2,159 The emoluments were within the following bands: 1.4.2000 to 31.3.2001 HK$1,000,001 to HK$1,500,000 — HK$1,500,001 to HK$2,000,000 — HK$2,000,001 to HK$2,500,000 1 1 9. TAXATION (CREDIT) CHARGE 1.4.2000 to 31.3.2001 HK$’000 Provision for the year/period Hong Kong 2,572 Other jurisdictions 56 (Over)underprovision in prior years Hong Kong (23,505) Other jurisdictions (727) Deferred taxation_(note 27)_ — Share of tax on results of associates 55 Share of tax on results of jointly controlled entities 12,122 (9,427)	1.4.2001 to 31.3.2002 HK$’000 1,614 218 12 1,844 Number of 1.4.2001 to 31.3.2002 — 1 — 1 1.4.2001 to 31.3.2002 HK$’000 8,140 104 (4,271) 27 1,400 91 1,335 6,826	1.4.2002 to 31.12.2002 HK$’000 3,549 426 216 4,191 employees 1.4.2002 to 31.12.2002 2 1 — 3 1.4.2002 to 31.12.2002 HK$’000 2,622 341 (14,394) — — — 3,468 (7,963)	1.1.2003 to 31.10.2003 HK$’000 5,137 868 312 6,317 1.1.2003 to 31.10.2003 3 — 1 4 1.1.2003 to 31.10.2003 HK$’000 7,735 15 865 — (1,400) 49 7,100 14,364

— 158 —

ACCOUNTANTS’ REPORT ON THE TOP TACTIC GROUP

APPENDIX II

The (credit) charge for the year/period can be reconciled to the (loss) profit per the combined income statements as follows:

(Loss) profit before taxation Tax at the applicable rate Tax effect of expenses that are not deductible in determining taxable profit Tax effect on losses not recognised Tax effect of income that are not taxable in determining taxable profit Tax effect of utilisation of tax losses not previously recognised Effect of different tax rates of subsidiaries operating in other jurisdictions (Over)underprovision in prior years/periods Taxation (credit) charge	1.4.2000 to 31.3.2001 HK$’000 (8,321) (1,331) 8,275 13,774 (3,004) (2,909) — (24,232) (9,427)	1.4.2001 to 31.3.2002 HK$’000 15,429 2,469 5,789 6,059 (1,511) (1,840) 104 (4,244) 6,826	1.4.2002 to 31.12.2002 HK$’000 3,884 622 3,792 7,910 (2,841) (3,049) (3) (14,394) (7,963)	1.1.2003 to 31.10.2003 HK$’000 44,089

				7,716 3,441 13,382 (9,411 (1,629 — 865
				14,364

Hong Kong Profits Tax is calculated at 16 per cent for the two years ended 31 March 2002 and nine months ended 31 December 2002, and at 17.5 per cent for the ten months ended 31 October 2003 on the estimated assessable profit for the year/period.

Taxation arising in other jurisdictions is calculated at the rates prevailing in the relevant jurisdictions.

10. DIVIDENDS Final dividend paid for the year ended 31 March 2000: HK$70,000,000 per share	1.4.2000 to 31.3.2001 HK$’000 70,000	1.4.2001 to 31.3.2002 HK$’000 —	1.4.2002 to 31.12.2002 HK$’000 —	1.1.2003 to 31.10.2003 HK$’000 —

11. (LOSS) EARNINGS PER SHARE

(Loss) earnings per share is not presented as such information is not meaningful having regard to the purpose of this report.

— 159 —

ACCOUNTANTS’ REPORT ON THE TOP TACTIC GROUP

APPENDIX II

12. PROPERTY, PLANT AND EQUIPMENT

Leasehold improvements HK$’000 COST At 1 April 2000 7,884 Exchange realignment — Additions 66 Disposals (2,089) At 31 March 2001 5,861 Exchange realignment — Additions — Disposals — At 31 March 2002 5,861 Additions 1,755 Disposals — At 31 December 2002 7,616 Additions 16 Disposals — At 31 October 2003 7,632 DEPRECIATION AND IMPAIRMENT At 1 April 2000 4,687 Exchange realignment — Provided for the year 1,645 Eliminated on disposals (2,089) At 31 March 2001 4,243 Exchange realignment — Provided for the year 1,519 Eliminated on disposals — At 31 March 2002 5,762 Provided for the period 245 Eliminated on disposals — At 31 December 2002 6,007 Provided for the period 489 Impairment loss recognised for the period — Eliminated on disposals — At 31 October 2003 6,496 NET BOOK VALUES At 31 March 2001 1,618 At 31 March 2002 99 At 31 December 2002 1,609 At 31 October 2003 1,136	Plant and machinery HK$’000 119,180 108 1,198 (94,242) 26,244 (484) 900 (30) 26,630 — (2,078) 24,552 — (6,108) 18,444 104,656 20 3,146 (94,204) 13,618 (371) 2,692 (6) 15,933 1,035 (1,290) 15,678 1,013 5,010 (6,108) 15,593 12,626 10,697 8,874 2,851	Furniture, fixtures and equipment HK$’000 19,562 23 632 (773) 19,444 (130) 133 (12) 19,435 374 (196) 19,613 226 (46) 19,793 14,885 4 1,886 (734) 16,041 (37) 1,664 (6) 17,662 819 (116) 18,365 601 — (46) 18,920 3,403 1,773 1,248 873	Motor vehicles HK$’000 12,657 100 167 (3,912) 9,012 (415) 312 (816) 8,093 81 (375) 7,799 — (74) 7,725 8,587 7 871 (3,881) 5,584 (98) 837 (397) 5,926 449 (287) 6,088 471 — (49) 6,510 3,428 2,167 1,711 1,215	Vessels HK$’000 79,120 696 9,405 (815) 88,406 (1,618) 1,501 (4,029) 84,260 — — 84,260 — — 84,260 41,104 327 8,284 (745) 48,970 (330) 9,800 (2,796) 55,644 4,706 — 60,350 3,678 — — 64,028 39,436 28,616 23,910 20,232	Total HK$’000 238,403 927 11,468 (101,831) 148,967 (2,647) 2,846 (4,887) 144,279 2,210 (2,649) 143,840 242 (6,228) 137,854 173,919 358 15,832 (101,653) 88,456 (836) 16,512 (3,205) 100,927 7,254 (1,693) 106,488 6,252 5,010 (6,203) 111,547 60,511 43,352 37,352 26,307

— 160 —

ACCOUNTANTS’ REPORT ON THE TOP TACTIC GROUP

APPENDIX II

For the ten months ended 31 October 2003, the directors of Top Tactic Group reviewed the carrying amounts of the assets and determined that certain plant and machinery of a subsidiary are impaired since the assets are not able to generate positive cash flows to the Top Tactic Group in the future. Accordingly, an impairment loss has been recognised.

The net book value of plant and machinery in respect of assets held under:

31.3.2001 HK$’000 Finance leases 827 13. INTERESTS IN ASSOCIATES 31.3.2001 HK$’000 Share of net liabilities of associates (2,372) Goodwill_(note a) — Amount due from an associate(note b)_ — (2,372)	31.3.2002 HK$’000 — 31.3.2002 HK$’000 (8,718) 10,584 20,002 21,868	31.12.2002 HK$’000 — 31.12.2002 HK$’000 (7,450) 10,187 19,895 22,632	31.10.2003 HK$’000 —

			31.10.2003 HK$’000 (6,174 9,746 7,381
			10,953

Details of associates of the Top Tactic Group as at 31 October 2003 are as follows:

				Proportion of
				nominal value
				of issued
				ordinary
	Form of			capital
	business	Place of	Place of	held by	Principal
Name	structure	incorporation	operation	the Group	activities
				%
Hong Kong Landfill	Incorporated	Hong Kong	Hong Kong	23.0	Civil engineering
Restoration Group
Limited
Kier Hong Kong Limited	Incorporated	England	Hong Kong	49.5	Civil engineering
Kong On Waste	Incorporated	Hong Kong	Hong Kong	50.0	Environmental
Management Limited					and waste
					management

— 161 —

ACCOUNTANTS’ REPORT ON THE TOP TACTIC GROUP

APPENDIX II

Notes:

Movements in the goodwill	included in interests in associates are as follows:	included in interests in associates are as follows:	included in interests in associates are as follows:	included in interests in associates are as follows:
	31.3.2001	31.3.2002	31.12.2002	31.10.2003
	HK$’000	HK$’000	HK$’000	HK$’000
GROSS AMOUNT
Balance at beginning
of the year/period	—	—	10,584	10,584
Arising upon acquisition
of an associate	—	10,584	—	—
Balance at end of
the year/period	—	10,584	10,584	10,584
AMORTISATION
Balance at beginning
of the year/period	—	—	—	397
Charge for the year/period	—	—	397	441
Balance at end of
the year/period	—	—	397	838
CARRYING AMOUNT	—	10,584	10,187	9,746

(b) The amounts due from associates are unsecured and interest free, except for an amount of HK$7,381,000 as at 31 October 2003 which bears interest at HIBOR. The Top Tactic Group will not demand the repayment within twelve months from the balance sheet date and accordingly the amount is shown as a non-current asset.

14. INTERESTS IN JOINTLY CONTROLLED ENTITIES

	31.3.2001	31.3.2002	31.12.2002	31.10.2003
	HK$’000	HK$’000	HK$’000	HK$’000
Share of net assets of jointly
controlled entities	131,553	75,901	60,185	79,591

— 162 —

ACCOUNTANTS’ REPORT ON THE TOP TACTIC GROUP

APPENDIX II

At 31 October 2003, the Top Tactic Group had interests in the following jointly controlled entities:

	Form of	Place of	Attributable
	business	registration/	interest	Principal
Name	structure	operation	to the Group	activities
			%
Balfour Beatty — Zen	Unincorporated	Hong Kong	50	Civil engineering
Pacific Joint Venture
Barclay Mowlem — Zen	Unincorporated	Hong Kong	35	Civil engineering
Pacific — China Civil
Joint Venture
Barclay Mowlem — Zen	Unincorporated	Hong Kong	40	Civil engineering
Pacific Joint Venture
China State — Zen Pacific	Unincorporated	Hong Kong	30	Civil engineering
Joint Venture
Dragages — Zen Pacific	Unincorporated	Hong Kong	25	Civil engineering
Joint Venture
Dragages (HK) Joint	Unincorporated	Hong Kong	14	Civil engineering
Venture			(note)
E & M 404 Joint Venture	Unincorporated	Hong Kong	12.5	Civil engineering
			(note)
Kier/Zen Pacific	Unincorporated	Hong Kong	50	Civil engineering
Joint Venture
Shanxi Jin-Ya Road and	Incorporated	The People’s	51	Road construction
Bridge Construction		Republic
Limited		of China
Taiwan Track Partners	Unincorporated	Republic of	8	Civil engineering
Joint Venture		China	(note)

The above table lists the jointly controlled entities of the Top Tactic Group which, in the opinion of the directors, principally affect the results of the year/period or constituted a substantial portion of the net assets of the Top Tactic Group. To give details of other jointly controlled entities would, in the opinion of the directors, result in particulars of excessive length.

Note: The Top Tactic Group holds less than 20% interests in the entities. However, under the joint venture agreements, the entities are jointly controlled by the Top Tactic Group and the other significant joint venture partners. Therefore, the entities are classified as jointly controlled entities.

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APPENDIX II ACCOUNTANTS’ REPORT ON THE TOP TACTIC GROUP

15. INVESTMENT IN SECURITIES

	31.3.2001	31.3.2002	31.12.2002	31.10.2003
	HK$’000	HK$’000	HK$’000	HK$’000
Unlisted equity securities
— Investment securities, at cost	—	—	—	28,302

The investment represents a 6.25% holding of the registered shares of Shanghai Environment Investment Company Limited, a company incorporated in the People’s Republic of China.

The Company is an investment holding company whose investment targets are companies undertaking waste management projects in PRC, including incinerators and landfill.

16. AMOUNT DUE FROM (TO) CUSTOMERS FOR CONTRACT WORK 31.3.2001 31.3.2002 31.12.2002 HK$’000 HK$’000 HK$’000 Contracts in progress at balance sheet date: Contract costs incurred plus recognised profits less recognised losses 7,644,799 8,079,443 3,078,597 Less:_Progress billings 7,698,822 8,073,022 3,056,949 (54,023) 6,421 21,648 Represented by: Due from customers included in current assets 153,894 107,577 39,807 Due to customers included in current liabilities (207,917) (101,156) (18,159) (54,023) 6,421 21,648 17. DEBTORS, DEPOSITS AND PREPAYMENTS 31.3.2001 31.3.2002 31.12.2002 _HK$’000 HK$’000 HK$’000 Trade debtors (aged analysis): 0 to 60 days 100,770 91,204 104,809 61 to 90 days — 56 — Over 90 days — 28,637 390 100,770 119,897 105,199 Retentions receivable 122,320 108,402 53,060 Other debtors, deposits and prepayments 81,312 35,598 39,240 304,402 263,897 197,499	31.10.2003 HK$’000 4,817,328 (4,820,554
	(3,226

	23,778 (27,004
	(3,226

	31.10.2003 HK$’000 78,469 — 250
	78,719 62,170 40,953
	181,842

The Top Tactic Group allows an average credit period of 60 days to its trade customers. For retention receivables in respect of construction contracts, the due dates are usually one year after the completion of the construction work.

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ACCOUNTANTS’ REPORT ON THE TOP TACTIC GROUP

APPENDIX II

18. AMOUNTS DUE FROM ULTIMATE HOLDING COMPANY, IMMEDIATE HOLDING COMPANY AND FELLOW SUBSIDIARIES

The amounts are unsecured, bearing interests at saving deposit rates and have been settled after 31 October 2003.

19. CREDITORS AND ACCRUED CHARGES

Trade creditors (aged analysis): 0 to 60 days 61 to 90 days Over 90 days Retentions payable Accrued project costs Other creditors and accrued charges	31.3.2001 HK$’000 52,505 6,557 8,588 67,650 75,228 167,226 28,780 338,884	31.3.2002 HK$’000 37,307 1,594 6,137 45,038 48,341 110,696 61,418 265,493	31.12.2002 HK$’000 28,223 984 7,028 36,235 25,824 89,561 17,215 168,835	31.10.2003 HK$’000 28,972 49 2,363
				31,384 26,610 77,024 28,083
				163,101

20. PROVISION FOR PILING INCIDENT

In respect of a claim made against Zen Pacific Civil Contractors Limited (“ZPCCL”), a wholly owned subsidiary of the Top Tactic Group, by the Housing Authority (“HA”) in relation to a piling project which was discovered to be sub-standard in late 1999, both parties agreed to settle the claims through arbitration in 2001. An interim award (“Interim Award”) in the arbitration proceedings was made against ZPCCL in favour of HA. Subsequent to the Interim Award, ZPCCL, Wai Kee Holdings Limited and HA entered into an agreement on 24 September 2003 (the “Agreement”), pursuant to which ZPCCL will pay HK$80 millions to HA for final settlement of the Interim Award and Wai Kee guarantees to HA the performance of ZPCCL of its obligations under the Agreement.

In the audited financial statements for the year ended 31 March 2000, ZPCCL has made a provision of HK$60 millions, being the directors’ estimate of the cost of carrying out remedial work and legal and consultants’ cost. Therefore, an additional amount of HK$20 millions was recognised in the financial statements for the ten months ended 31 October 2003 of the Top Tactic Group and the amount of HK$80 millions in aggregate is reclassified as other payable as mentioned in note 21.

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ACCOUNTANTS’ REPORT ON THE TOP TACTIC GROUP

APPENDIX II

21. OTHER PAYABLE

The maturity of the other payable is as follows:

Under one year In the second to fifth year inclusive _Less:_Amount payable within one year shown under current liabilities Other payable due after one year	31.3.2001 HK$’000 — — — — —	31.3.2002 HK$’000 — — — — —	31.12.2002 HK$’000 — — — — —	31.10.2003 HK$’000 30,000 50,000
				80,000 (30,000
				50,000

22. AMOUNTS DUE TO JOINTLY CONTROLLED ENTITIES

The amounts are unsecured, repayable on demand and interest free, except for amounts of HK$29,678,000 and HK$12,268,000 at 31 March 2001 and 31 March 2002 respectively which carried interest at prevailing market rate.

23. AMOUNTS DUE TO ULTIMATE HOLDING COMPANY, IMMEDIATE HOLDING COMPANY AND FELLOW SUBSIDIARIES

The amounts are unsecured, bearing interest at saving deposit rate and have been settled after 31 October 2003.

24. OBLIGATIONS UNDER FINANCE LEASES

The maturity of obligations under finance leases is as follows:

Within one year Less Future finance charges Present value of lease obligations	Present value of minimum lease payment 31.3.2001 31.3.2002 31.12.2002 31.10.2003 HK$’000 HK$’000 HK$’000 HK$’000 3,665 — — —	Minimum lease payments 31.3.2001 31.3.2002 31.12.2002 31.10.2003 HK$’000 HK$’000 HK$’000 HK$’000 3,887 — — — (222) — — — 3,665 — — —	Minimum lease payments 31.3.2001 31.3.2002 31.12.2002 31.10.2003 HK$’000 HK$’000 HK$’000 HK$’000 3,887 — — — (222) — — — 3,665 — — —
			—

25. AMOUNTS DUE TO JOINTLY CONTROLLED ENTITIES

The amounts are unsecured, interest free and have no fixed repayment terms. The jointly controlled entities have agreed not to demand repayment within twelve months from the balance sheet date and the amounts are therefore shown as non-current liability.

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ACCOUNTANTS’ REPORT ON THE TOP TACTIC GROUP

APPENDIX II

26. AMOUNTS DUE TO ASSOCIATES

The amounts are unsecured, interest free and have no fixed repayment terms. The associates have agreed not to demand repayment within twelve months from the balance sheet date and the amounts are therefore shown as non-current liability.

27. DEFERRED TAXATION

The following are the deferred tax liabilities in respect of accelerated tax depreciation recognised by the Top Tactic Group and movements thereon during the current and prior year/period:

Balance at beginning of the year/period Charge (credit) to income for the year/period Balance at end of the year/period	31.3.2001 HK$’000 — — —	31.3.2002 HK$’000 — 1,400 1,400	31.12.2002 HK$’000 1,400 — 1,400	31.10.2003 HK$’000 1,400 (1,400
				—

At each balance sheet date, the Top Tactic Group has unutilised tax losses carried forward, the utilisation of which to offer future profits will expire in the following:

Tax losses: To be expired in 2005 To be expired in 2006 To be expired in 2007 To be expired in 2008 Carried forward indefinitely	31.3.2001 HK$’000 18,000 — — — 54,000 72,000	31.3.2002 HK$’000 18,000 4,000 — — 76,000 98,000	31.12.2002 HK$’000 18,000 4,000 14,000 — 92,000 128,000	31.10.2003 HK$’000 18,000 4,000 14,000 21,000 138,000
				195,000

No deferred tax asset has been recognised in respect of unused tax losses due to the unpredictability of future profit streams.

28. PAID-IN CAPITAL

For the purpose of this report, the paid-in capital at 31 March 2001, 31 March 2002, 31 December 2002 and 31 October 2003 represented the aggregate amount of the nominal value of the share capital of the companies comprising the Top Tactic Group as at the respective dates.

29. SHARE OPTION SCHEME

The share option scheme of Wai Kee adopted on 7 August 1992 (the “Old Share Option Scheme”) was terminated and a new share option scheme (the “New Share Option Scheme”) was adopted by Wai Kee at the annual general meeting held on 18 September 2002 to comply with Chapter 17 of the Rules Governing the Listing of Securities on the Stock Exchange. As a result, Wai Kee may no longer grant further options under the Old Share Option Scheme. However, all options granted prior to the termination of the Old Share Option Scheme shall remain in full force and effect. No option was granted under the New Share Option Scheme during the period.

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ACCOUNTANTS’ REPORT ON THE TOP TACTIC GROUP

APPENDIX II

The purpose of the New Share Option Scheme is to enable Wai Kee to grant options to selected participants as incentives or rewards for their contribution to Wai Kee and/or its subsidiaries. The participants include any full-time employees, executives or officers and directors (executive and non-executive directors) of Wai Kee and /or any of its subsidiaries.

Under the Old Share Option Scheme, the directors of Wai Kee may, at their discretion, invite employees of Wai Kee and its subsidiaries, including the directors of Wai Kee, to take up options to subscribe for shares of Wai Kee at a price not less than 80% of the average closing price of the shares on the Stock Exchange on the five trading days immediately preceding the date of offer of the option or the nominal value of a share, whichever is the higher. The maximum number of shares in respect of which options may be granted under the scheme may not exceed 10% of the issued capital of Wai Kee, excluding any shares issued pursuant to the scheme from time to time. An option may be exercised at any time after one year from the date on which the option is deemed to be granted and accepted and prior to expiry of four years from that date.

Under the New Share Option Scheme and any other schemes of Wai Kee , the total number of shares which may be issued must not in aggregate exceed 10% (the “10% Limit”) of the shares in issue as at the date of adoption of the New Share Option Scheme less the aggregate of exercised, cancelled and outstanding options. The 10% Limit may be refreshed with the approval of shareholders of Wai Kee. The maximum number of shares may be issued upon exercise of all outstanding options granted and yet to be exercised under the New Share Option Scheme and any other schemes must not exceed 30% of the shares in issue from time to time. The total number of shares issued and to be issued upon exercise of the options granted to each participant (including exercised, cancelled and outstanding options) in any 12 months period must not exceed 1% of the shares in issue unless the same is approved by shareholders of Wai Kee.

The option period commences on the first anniversary of the commencement date (the date upon which the options are deemed to be granted and accepted) of such options and ends on the fourth anniversary of the commencement date. The option must be held by the participant for a year before it can be exercised. Each participant must pay HK$1 as consideration for the grant of option within 30 days from the date of offer.

The exercise price shall be determined by the directors of Wai Kee, being not less than the highest of (a) the closing price of the shares as stated in the Stock Exchange’s daily quotation sheet on the date of offer; and (b) the average of the official closing prices of the shares stated in the Stock Exchange’s daily quotation sheets for the 5 business days immediately preceding the date of offer.

The New Share Option Scheme shall be valid and effective for a period of 10 years commencing on the adoption date, i.e. 18 September 2002.

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ACCOUNTANTS’ REPORT ON THE TOP TACTIC GROUP

APPENDIX II

The following tables disclose details of Wai Kee’s share options held by the employees (including directors) under the Old Share Option Scheme and movement in such holdings during the year/period.

Exercise Exercisable price Date granted period per share HK$ Directors: 8 July 1996 8 July 1997 to 1.60 7 July 2000 29 November 2000 29 November 2001 to 0.34 28 November 2004 Employees: 12 December 1996 12 December 1997 to 1.50 11 December 2000 12 November 1997 12 November 1998 to 1.30 11 November 2001 1 December 1997 12 December 1998 to 1.30 11 December 2001 9 November 1998 9 November 1999 to 0.96 8 November 2002 11 November 1999 1 December 2000 to 1.28 30 November 2003 29 November 2000 29 November 2001 to 0.34 28 November 2004	Balance at 1.4.2000 3,000,000 — 200,000 150,000 50,000 50,000 500,000 —	Granted during the year — 14,000,000 — — — — — 5,400,000	Number of share options Other Exercised Expired Cancelled changes Balance during during during during at the year the year the year the year 31.3.2001 — (3,000,000) — — — — — — — 14,000,000 — (200,000) — — — — — (50,000) — 100,000 — — — — 50,000 — — — — 50,000 — — — — 500,000 — — (100,000) (100,000) 5,200,000 (note a)	Number of share options Other Exercised Expired Cancelled changes Balance during during during during at the year the year the year the year 31.3.2001 — (3,000,000) — — — — — — — 14,000,000 — (200,000) — — — — — (50,000) — 100,000 — — — — 50,000 — — — — 50,000 — — — — 500,000 — — (100,000) (100,000) 5,200,000 (note a)
	3,950,000	19,400,000	—	(3,200,000) (150,000) (100,000) 19,900,000

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ACCOUNTANTS’ REPORT ON THE TOP TACTIC GROUP

APPENDIX II

Exercise Exercisable price Date granted period per share HK$ Directors: 29 November 2000 29 November 2001 to 0.34 28 November 2004 Employees: 12 November 1997 12 November 1998 to 1.30 11 November 2001 1 December 1997 12 December 1998 to 1.30 11 December 2001 9 November 1998 9 November 1999 to 0.96 8 November 2002 11 November 1999 1 December 2000 to 1.28 30 November 2003 29 November 2000 29 November 2001 to 0.34 28 November 2004	Balance at 1.4.2001 14,000,000 100,000 50,000 50,000 500,000 5,200,000	Granted during the year — — — — — —	Number of share options Other Exercised Expired Cancelled changes Balance during during during during at the year the year the year the year 31.3.2002 — — — (2,000,000) 12,000,000 (note b) — (100,000) — — — — (50,000) — — — — — (50,000) — — — — — — 500,000 (400,000 ) — (900,000) 1,000,000 4,900,000 (note c)	Number of share options Other Exercised Expired Cancelled changes Balance during during during during at the year the year the year the year 31.3.2002 — — — (2,000,000) 12,000,000 (note b) — (100,000) — — — — (50,000) — — — — — (50,000) — — — — — — 500,000 (400,000 ) — (900,000) 1,000,000 4,900,000 (note c)
	19,900,000	—	(400,000	) (150,000) (950,000) (1,000,000) 17,400,000

Exercise Exercisable price Date granted period per share HK$ Directors: 29 November 2000 29 November 2001 to 0.34 28 November 2004 Employees: 11 November 1999 1 December 2000 to 1.28 30 November 2003 29 November 2000 29 November 2001 to 0.34 28 November 2004	Balance at 1.4.2002 12,000,000 500,000 4,900,000	Granted during the period — — —	Number of share options Other Exercised Expired Cancelled changes Balance during during during during at the period the period the period the period 31.12.2002 (500,000 ) — — (500,000) 11,000,000 (note d) — — (100,000) — 400,000 (1,700,000 ) — (200,000) — 3,000,000	Number of share options Other Exercised Expired Cancelled changes Balance during during during during at the period the period the period the period 31.12.2002 (500,000 ) — — (500,000) 11,000,000 (note d) — — (100,000) — 400,000 (1,700,000 ) — (200,000) — 3,000,000	Number of share options Other Exercised Expired Cancelled changes Balance during during during during at the period the period the period the period 31.12.2002 (500,000 ) — — (500,000) 11,000,000 (note d) — — (100,000) — 400,000 (1,700,000 ) — (200,000) — 3,000,000
	17,400,000	—	(2,200,000	) —	(300,000) (500,000) 14,400,000

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ACCOUNTANTS’ REPORT ON THE TOP TACTIC GROUP

APPENDIX II

==> picture [341 x 249] intentionally omitted <==

----- Start of picture text -----

Number of share options
Other
Exercise Balance Granted Exercised Expired Cancelled changes Balance
Exercisable price at during during during during during at
Date granted period per share 1.1.2003 the period the period the period the period the period 31.10.2003
HK$
Directors:
29 November 2000 29 November 2001 to 0.34 11,000,000 — (6,000,000 ) — — — 5,000,000
28 November 2004
Employees:
11 November 1999 1 December 2000 to 1.28 400,000 — — — (50,000) — 350,000
30 November 2003
29 November 2000 29 November 2001 to 0.34 3,000,000 — (1,600,000 ) — (100,000) — 1,300,000
28 November 2004
14,400,000 — (7,600,000 ) — (150,000) — 6,650,000
----- End of picture text -----

Notes:

a. An employee was transferred and under employment by a fellow subsidiary.
b. Two directors resigned during the year.
c. A resigned director as mentioned in (b) remained as an employee of Top Tactic Group.
d. A director resigned during the year.

30. OPERATING LEASE COMMITMENTS

Lessor

At each balance sheet date, the Top Tactic Group has subleased the rented properties and contracted with tenants for the following future minimum lease payments:

Within one year In the second to fifth year inclusive	31.3.2001 HK$’000 2,059 1,115 3,174	31.3.2002 HK$’000 1,115 — 1,115	31.12.2002 HK$’000 — — —	31.10.2003 HK$’000 — —
				—

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ACCOUNTANTS’ REPORT ON THE TOP TACTIC GROUP

APPENDIX II

Lessee

At each balance sheet date, the Top Tactic Group had outstanding commitments for future minimum lease payments under non-cancellable operating leases in respect of land and buildings which fall due as follows:

Within one year In the second to fifth year inclusive	31.3.2001 HK$’000 1,068 13,957 15,025	31.3.2002 HK$’000 4,030 — 4,030	31.12.2002 HK$’000 1,687 2,351 4,038	31.10.2003 HK$’000 1,677 1,321
				2,998

Operating lease payments represent rental payable by the Top Tactic Group for certain of its office premises and carparks. Leases are negotiated for terms ranging from one to three years and rentals are fixed at the time of entering the respective leases.

31. PLEDGE OF ASSETS

(a) At each balance sheet date, the Top Tactic Group has pledged the following assets to secure the banking facilities granted to the Top Tactic Group.

	31.3.2001 31.3.2002 31.12.2002 31.10.2003
	HK$’000 HK$’000 HK$’000 HK$’000
	Bank deposits 10,798 40,933 41,042 50,956

(b)	During the ten months ended 31 October 2003, a subsidiary of the Top Tactic Group
	created a floating charge over all of its assets and undertakings to amount owing to
	the ultimate holding company. The respective loan has been repaid before 31 October
	2003 and the charges has been released after 31 October 2003.

32. CONTINGENT LIABILITIES

Cross guarantees given to financial institutions in respect of banking and other facilities granted to an associate and ultimate holding company Outstanding performance/retention bonds in respect of construction contracts	31.3.2001 HK$’000 — 460,070	31.3.2002 HK$’000 — 511,266	31.12.2002 HK$’000 — 516,381	31.10.2003 HK$’000 285,000

				470,342

— 172 —

ACCOUNTANTS’ REPORT ON THE TOP TACTIC GROUP

APPENDIX II

33. RETIREMENT BENEFITS SCHEME

The Top Tactic Group operates two MPF Schemes for all eligible employees in Hong Kong. These MPF Schemes are registered with the Mandatory Fund Schemes Authority (“MPFA”) in accordance with the Mandatory Provident Fund Schemes Ordinance (“MPF Schemes Ordinance”).

The assets of the MPF Schemes are held separately from those of the Top Tactic Group under the control of independent trustees approved by the MPFA.

In addition to the mandatory contributions specified under the MPF Schemes Ordinance the Top Tactic Group provides additional contributions for certain qualifying employees as specified in the rules of the Top Tactic Group’s MPF Schemes. Employees leaving the MPF Schemes prior to stipulated service periods may forfeit part of their benefits relating to the Top Tactic Group’s voluntary contributions and these amounts may be applied to reduce future voluntary contributions payable by the Top Tactic Group.

The amount charged to the combined income statement represents contributions payable to the retirement benefit schemes by the Top Tactic Group at the rates specified in the rules of the MPF Schemes reduced by the aforesaid amount of forfeited benefits outstanding at the commencement of the financial year/period.

34. RELATED PARTY TRANSACTIONS

Notes Ultimate holding company Interest expenses (a) Corporate guarantee provided Immediate holding company Interest income (a) Interest expenses (a) Corporate guarantee fee (b) Management fee paid (b) Revenue from MIS Services (b) Fellow subsidiaries Value of construction work certified (b) Purchase of goods (b) Plant hire income (b) Interest income (a) Management fee paid (b) Interest expenses (a) Revenue from office licence (b) Revenue from MIS Services (b)	1.4.2000 to 31.3.2001 HK$’000 — 324,846 — 172 — — — 13,817 971 1,384 4,644 2,488 3,364 2,080 1,136	1.4.2001 to 31.3.2002 HK$’000 — 299,673 106 — — — 140 25,490 2,786 — 524 3,252 — 1,014 496	1.4.2002 to 31.12.2002 HK$’000 — 298,519 — 44 4,398 1,869 98 — 8,343 — — 2,000 — — —	1.1.2003 to 31.10.2003 HK$’000 866 451,749

				— — 4,405 2,662 98

				— 3,104 — — — — — —

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ACCOUNTANTS’ REPORT ON THE TOP TACTIC GROUP

APPENDIX II

Notes Jointly controlled entities Interest expenses (c) Sales of property, plant and equipments (b) Value of construction work certified (e) Associates Value of construction work certified (b) Consultancy fee paid (b) Sales of projects scraps (b) Interest income (d) Related company Value of construction work certified (f) Revenue from office licence (f) Revenue from MIS Services (f) Revenue from technical consultancy services (b)	1.4.2000 to 31.3.2001 HK$’000 925 — 8,242 — — — — — — — —	1.4.2001 to 31.3.2002 HK$’000 2,039 — 3,664 — — — — 3,605 955 66 —	1.4.2002 to 31.12.2002 HK$’000 379 3,292 — — — — — — 1,068 122 —	1.1.2003 to 31.10.2003 HK$’000 54 — —

				518 8,491 3,220 2,000

				— — 58 449

The related company is a subsidiary of a substantial shareholder of one of the substantial shareholder of ultimate holding company.

Notes:

(a) Interest income and expenses are calculated at 2% over prime rate as quoted by a financial institution for balance with ultimate holding company and at saving deposit rate for the balances with immediate holding company, fellow subsidiaries and associates.
(b) The transactions were charged at the terms determined and agreed by both parties.
(c) Interest expenses are calculated at 2% over HIBOR as quoted by a financial institution.
(d) Interest incomes are calculated at HIBOR as quoted by a financial institution.

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ACCOUNTANTS’ REPORT ON THE TOP TACTIC GROUP

APPENDIX II

(e) The transactions were charged at cost plus a percentage of profit mark-up.
(f) As disclosed in the circular dated 5 June 2001 issued by the ultimate holding company to the shareholders, these transactions have been continuing after the disposal of Ngo Kee Construction Company Limited (“Ngo Kee”), a former subsidiary of the ultimate holding company. The revenue was charged in accordance with respective agreements entered between Ngo Kee and the ultimate holding company and its subsidiaries.

In addition, during the Relevant Periods, certain listed shares of Road King Infrastructure Limited, an associate of the ultimate holding company, held by fellow subsidiaries were pledged to secure the banking and other facilities granted to the Top Tactic Group.

B. ULTIMATE HOLDING COMPANY

As at 31 October 2003, Top Tactic’s ultimate holding company is Wai Kee Holdings Limited, a company incorporated in Bermuda as an exempted company with limited liability and its shares are listed on The Stock Exchange of Hong Kong Limited.

C. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared for any companies comprising the Top Tactic Group in respect of any period subsequent to 31 October 2003.

Yours faithfully,

Deloitte Touche Tohmatsu Certified Public Accountants Hong Kong

— 175 —

FINANCIAL INFORMATION OF THE I-CHINA GROUP UPON COMPLETION

APPENDIX III

1. PRO FORMA UNAUDITED ADJUSTED CONSOLIDATED NET TANGIBLE ASSETS OF THE I-CHINA GROUP UPON COMPLETION

Set out below is a statement of the pro forma unaudited adjusted net tangible assets of the I-China Group upon Completion, which is prepared based on the audited negative net tangible assets of the I-China Group as at 31 March 2003.

Audited consolidated negative net tangible assets of I-China Group
as at 31 March 2003
Add:_unaudited net loss of I-China Group for the six months ended
30 September 2003
Unaudited consolidated negative net tangible assets of
I-China Group as at 30 September 2003
_Add:_Subscription of I-China Preference Shares by Wai Kee
_Less:_Restructuring costs and expenses
_Add:_Indebtedness of I-China to be compromised and
discharged under the Debt Restructuring upon Completion
_Add:_Net liabilities of I-China Group Companies
to be excluded from the Proposed Restructuring
Pro forma negative net tangible assets of I-China Group
immediately before acquiring Top Tactic Group
_Add:_Audited net assets of Top Tactic Group
as at 31 October 2003
_Less:_Goodwill arising on acquisition of associates included
in the net assets of Top Tactic Group
Pro forma unaudited adjusted consolidated net tangible
assets of I-China Group upon Completion(Notes 1, 2)_
Audited consolidated negative net tangible assets per
I-China Share as at 31 March 2003
(based on 508,339,764 I-China Shares of HK$0.01 each
as at the Latest Practicable Date)
Pro forma unaudited adjusted consolidated net tangible
asset value per New I-China Share immediately following Completion
(based on 6,314,084,941 New I-China Shares of HK$0.01 each)
Pro forma unaudited adjusted consolidated net tangible
asset value per New I-China Share following Completion
and full conversion of I-China Preference Shares
(based on 9,314,084,941 New I-China Shares of HK$0.01 each)

HK$’000
(681,393)
(15,823)
(697,216)
30,000
(7,870)
538,111
130,597
(6,378)
62,516
(9,746)
46,392
(HK$1.34)
0.7 cent
0.5 cent

Notes: 1. A dividend will be declared by the Top Tactic Group prior to Completion but the payment of which will not be made until 12 months after the Completion and unless the new executive I-China Directors when deciding to make the payment of such dividend, have consulted their financial advisers and be satisfied that I-China will remain solvent for at least 12 months after such payment. “Solvent” means that the I-China Group will have a positive net asset value at the time of and after paying the dividend, and will be able to meet payments and debts in full as they fall due notwithstanding the payment of the dividend. Wai Kee has undertaken to I-China that the pro forma unaudited adjusted consolidated net tangible asset value of the restructured I-China Group upon Completion will not be less than HK$40 million.
The above pro forma unaudited consolidated net tangible assets of the I-China Group upon Completion have been prepared on the assumption that the Trinity Option is not exercised.

—176 —

APPENDIX III FINANCIAL INFORMATION OF THE I-CHINA GROUP UPON COMPLETION

2. PRO FORMA UNAUDITED CONSOLIDATED BALANCE SHEET OF THE I- CHINA GROUP UPON COMPLETION

The following pro forma unaudited consolidated balance sheet of the I-China Group, is based on the audited consolidated balance sheet of the I-China Group as at 31 March 2003 after taking into account the interim results for the six months ended 30 September 2003, which was prepared on a basis consistent with the accounting policies normally adopted by the I-China Group, and adjusted to reflect the financial effect of the Restructuring Proposal.

Non-current assets Property, plant and equipment Goodwill Interests in subsidiaries Interests in associate of Top Tactic Group Interests in jointly controlled entities of Top Tactic Group Investment in securities Total non-current assets Current assets Short term receivables Trade and other receivables Debtors, deposits and prepayment Amounts due from associates of I-China Group Amounts due from associates of Top Tactic Group Amounts due from jointly controlled entities of Top Tactic Group Amount due from ultimate holding company of Top Tactic Group Amount due from immediate holding company of Top Tactic Group Taxation recoverable Bank deposits pledged Bank and cash balances Total current assets	Unaudited consolidated balance sheet of I-China Group as at 30 September 2003 HK$’000 5,112 — — — — — 5,112 6,483 2,895 s — 31 — — — — — — 1,450 10,859	Capital Reduction of I-China Group HK$’000 — — — — — — — — — — — — — — — — — — —	I-China Group Companies to Subscription be excluded of Restructuring under the preference costs and Debt Proposed shares expenses Restructuring Restructuring HK$’000 HK$’000 HK$’000 HK$’000 (Note 1) (Note 2) — — — (4,929) — — — — — — — — — — — — — — — — — — — — — — — (4,929) — — — (6,483) — — — (2,660) — — — — — — — (31) — — — — — — — — 130 — — — — — — — — — — — — — — — 29,870 (7,870) (22,000) (513) 30,000 (7,870) (22,000) (9,687)	Pro forma net assets of I-China Group immediately before acquiring Top Tactic Group HK$’000 183 — — — — — 183 — 235 — — — — 130 — — — 937 1,302	Subscription of ordinary shares HK$’000 — — 60,000 — — — 60,000 — — — — — — (130) — — — — (130)	Audited net assets of Top Tactic Group as at 31 October 2003 HK$’000 (Note 3) 26,307 — — 10,953 79,591 28,302 145,153 — 23,778 181,842 — 348 5,977 155 117,055 2,820 50,956 29,621 412,552	Goodwill arising on consolidation HK$’000 — 39,526 (60,000) — — — (20,474) — — — — — — 130 — — — — 130	Pro forma net assets of I-China Group upon Completion HK$’000 26,490 39,526 — 10,953 79,591 28,302 184,862 — 24,013 181,842 — 348 5,977 285 117,055 2,820 50,956 30,558 413,854

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FINANCIAL INFORMATION OF THE I-CHINA GROUP UPON COMPLETION

APPENDIX III

Current liabilities Trade and other payables Creditors and accrued charges Other payable-due within one yea Amounts due to asscoiates of I-China Group Amounts due to jointly controlled entities of Top Tactic Group Amounts due to miniorty shareholders of Top Tactic Group Amount due to immediate holding company of Top Tactic Group Amounts due to fellow subisidairies of Top Tactic Group Amounts due to directors Taxation payable Obligations under finance leases Bank and other borrowings Total current liabilities Net current assets (liabilities) Total assets less current liabiliti Non-current liabilities Amounts due to jointly controlled entities of Top Tactic Group Amounts due to associates of Top Tactic Group other payable-due after one year Total non-current liabilities Minority interests Net assets (liabilities)	Unaudited consolidated balance sheet of I-China Group as at 30 September 2003 HK$’000 143,027 — r — 10,334 — — — — 7,663 1,142 52 550,969 713,187 (702,328) es (697,216) — — — — — (697,216)	Capital Reduction of I-China Group HK$’000 — — — — — — — — — — — — — — — — — — — — —	I-China Group Companies to Subscription be excluded of Restructuring under the preference costs and Debt Proposal shares expenses Restructuring Restructuring HK$’000 HK$’000 HK$’000 HK$’000 (Note 1) (Note 2) — — (137,228) (98) — — — — — — — — — — (5,401) (4,478) — — — — — — — — — — — — — — — — — — (7,361) (302) — — (384) (758) — — — — — — (409,737) (139,577) — — (560,111) (145,213) 30,000 (7,870) 538,111 135,526 30,000 (7,870) 538,111 130,597 — — — — — — — — — — — — — — — — — — — — 30,000 (7,870) 538,111 130,597	Pro forma net assets of I-China Group immediately before acquiring Top Tactic Group HK$’000 5,701 — — 455 — — — — — — 52 1,655 7,863 (6,561) (6,378) — — — — — (6,378)	Subscription of ordinary shares HK$’000 — — — — — — — — — — — — — (130) 59,870 — — — — — 59,870	Audited net assets of Top Tactic Group as at 31 October 2003 HK$’000 (Note 3) 27,004 163,101 30,000 — 7,854 2,794 112,045 221 — 8,137 — 43,089 394,245 18,307 163,460 19,000 33,159 50,000 102,159 (1,215) 62,516	Goodwill arising on consolidation HK$’000 — — — — — — — — — — — — — 130 (20,344) — — — — — (20,344)	Pro forma net assets of I-China Group upon Completion HK$’000 32,705 163,101 30,000 455 7,854 2,794 112,045 221 — 8,137 52 44,744 402,108 11,746 196,608 19,000 33,159 50,000 102,159 (1,215) 95,664

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FINANCIAL INFORMATION OF THE I-CHINA GROUP UPON COMPLETION

APPENDIX III

Unaudited consolidated balance sheet of I-China Group as at 30 September 2003 HK$’000 Represented by: Preference share capital — Ordinary share capital 5,083 Reserves (702,299) Shareholders’ fund/(Deficiency in shareholders’ fund) (697,216)	Capital Reduction of I-China Group HK$’000 — (3,813) 3,813 —	I-China Group Companies to Subscription be excluded of Restructuring under the preference costs and Debt Proposed shares expenses Restructuring Restructuring HK$’000 HK$’000 HK$’000 HK$’000 (Note 1) (Note 2) 30,000 — — — — — 2,000 — — (7,870) 536,111 130,597 30,000 (7,870) 538,111 130,597	Pro forma net assets of I-China Group immediately before acquiring Top Tactic Group HK$’000 30,000 3,270 (39,648) (6,378)	Subscription of ordinary shares HK$’000 — 59,870 — 59,870	Audited net assets of Top Tactic Group as at 31 October 2003 HK$’000 (Note 3) — 7,808 54,708 62,516	Goodwill arising on consolidation HK$’000 — (7,808) (12,536) (20,344)	Pro forma net assets of I-China Group upon Completion HK$’000 30,000 63,140 2,524 95,664

Notes:

This reflects full settlement of Creditors’ Indebtedness pursuant to the Schemes.
This reflects removal of the assets and liabilities of I-China Group Companies that will not remain with the I-China Group post Completion.

3. A dividend will be declared by the Top Tactic Group prior to Completion but the payment of which will not be made until 12 months after the Completion and unless the new executive I- China Directors when deciding to make the payment of such dividend, have consulted their financial advisers and be satisfied that I-China will remain solvent for at least 12 months after such payment. “Solvent” means that the I-China Group will have a positive net asset value at the time of and after paying the dividend, and will be able to meet payments and debts in full as they fall due notwithstanding the payment of the dividend. Wai Kee has undertaken to I- China that the pro forma unaudited adjusted consolidated net tangible asset value of the restructured I-China Group upon Completion will not be less than HK$40 million.

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FINANCIAL INFORMATION OF THE I-CHINA GROUP UPON COMPLETION

APPENDIX III

3. WORKING CAPITAL

I. Basis and assumptions:

The proposed new executive directors of I-China and the Wai Kee Directors are of the opinion that, in the absence of unforeseen circumstances as well as taking into account the present working capital and the available banking facilities of the Top Tactic Group, the I-China Group will have sufficient working capital for the 12-month period after Completion from 1 April 2004 to 31 March 2005 (“Projection Period”).

The cashflow projections have been prepared by the Wai Kee Directors and the proposed new executive directors of I-China for the Projection Period on the basis of the assumptions as set out below, taking into account the results of the I- China Group for the period from 1 October 2003 to 31 March 2004 prepared by the Provisional Liquidators and based on the latest books and records available to them and the future intentions of Wai Kee in respect of the I-China Group upon Completion as set out on pages 37 to 38 of this document. The assumptions are set out as follows:

the Proposed Restructuring is successfully implemented;
the Proposed Restructuring will be completed on or before the end of March 2004;
Trinity will continue to engage in its existing business upon Completion. The cashflow projections for Trinity are prepared with reference to the management accounts and operational review by Wai Kee post Completion;
the receipts and payments of the Top Tactic Group are based on secured contract works on hand and Wai Kee Directors’ best estimate of the expected timing of the receipts and payments (Note) ;
the Top Tactic Group’s existing banking facility of HK$45 million will continue to be available during the Projection Period;
Wai Kee will advance up to HK$1 million, if necessary, to meet the I-China Group’s future working capital requirements after Completion;
no new construction projects will be awarded during the Projection Period (Note) ;

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FINANCIAL INFORMATION OF THE I-CHINA GROUP UPON COMPLETION

APPENDIX III

no dividends will be received from the associated companies of the Top Tactic Group during the Projection Period;
there will be no material changes in existing political, legal, foreign trade or economic conditions in Hong Kong or other countries in which the I- China Group carries or intends to carry on business after Completion;
there will be no material changes in the bases or rates of taxation applicable to the activities of the I-China Group and the Top Tactic Group;
there will be no material changes in interest rates and foreign exchange rates from those currently prevailing;
there will be no disasters, natural, political or otherwise, which would materially disrupt the business or operations of the I-China Group and the Top Tactic Group or cause substantial loss, damage or destruction to its facilities; and
the Top Tactic Group will receive its entitlement of approximately HK$45 million in March 2004 from a 50% owned joint venture after taking into account the expected final outcome of the value of claims and variation orders to be agreed by the employer of the joint venture.
Note: The exclusion of any cashflow to be generated from unsecured contracts is to demonstrate that the restructured I-China Group will have sufficient working capital for the 12 month period following Completion relying on the existing contracts on-hand alone. This assumption does not represent that the Wai Kee Directors are not confident that the restructured I-China Group would be able to secure new construction contracts during the Projection Period.

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APPENDIX III FINANCIAL INFORMATION OF THE I-CHINA GROUP UPON COMPLETION

II. Cash Flow Projections:

The following is the summary of the cash flow projections of the restructured I- China Group for the 12-month period after Completion from 1 April 2004 to 31 March 2005 after taking into account the results of the I-China Group for the period from 1 October 2003 to 31 March 2004:

Cash balance of the I-China Group as at 1 October 2003
_Less:_expected cash balances of the I-China Group
Companies and I-China to be excluded from the
restructured I-China Group as at 1 October 2003
_Add:_expected cash balance of the Top Tactic Group
as at 31 March 2004
Expected net cash outflow from operating
activities for the period from 1 October 2003 to 31 March 2005
Distribution from joint venture construction projects
Proceeds from the Subscription
Payment to the Creditors under the Proposed Restructuring
Payment of restructuring costs and expenses
Dividend to Wai Kee under the terms of
the I-China Preference Shares
Payment to HKHA in relation to the Arbitration Settlement
Expected cash balance at the end of the Projection Period
Available banking facilities

HK$’000
1,450
(513)
100,534
(39,141)
14,000
29,870
(22,000)
(7,870)
(600)
(70,000)
5,730
45,000

Note: A dividend will be declared by the Top Tactic Group prior to Completion but the payment of which will not be made until 12 months after Completion and unless the new executive I-China Directors when deciding to make the payment of such dividend, have consulted their financial advisers and be satisfied that I-China will remain solvent for at least 12 months after such payment. “Solvent” means that the I-China Group will have a positive net asset value at the time of and after paying the dividend, and will be able to meet payments and debts in full as they fall due notwithstanding the payment of the dividend. Wai Kee has undertaken to I-China that the pro forma unaudited adjusted consolidated net tangible asset value of the restructured I-China Group upon Completion will not be less than HK$40 million.

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FINANCIAL INFORMATION OF THE I-CHINA GROUP UPON COMPLETION

APPENDIX III

4. COMFORT LETTERS FOR THE WORKING CAPITAL ADEQUACY OF I-CHINA GROUP POST COMPLETION

(a) Letter from DTT

Set out below is the text of the letter from DTT in connection with I-China Group’s working capital adequacy post Completion and is prepared for the purpose of inclusion in this document.

==> picture [184 x 55] intentionally omitted <==

==> picture [83 x 57] intentionally omitted <==

24 February 2004

Joint and Several Provisional Liquidators I-China Holdings Limited (Provisional Liquidators Appointed) c/o 7/F Allied Kajima Building 138 Gloucester Road Wanchai Hong Kong The Directors Wai Kee Holdings Limited Unit 702B, 7/F East Ocean Centre 98 Granville Road Tsimshatsui Kowloon Hong Kong

Dear Sirs,

I-China Holdings Limited (Provisional Liquidators Appointed) (“I-China”) and its subsidiaries (together hereinafter referred to as the “I-China Group”) and Top Tactic Holdings Limited and its subsidiaries (the “Top Tactic Group” together with the I-China Group hereinafter referred to as the “I-China Group Upon Completion”).

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FINANCIAL INFORMATION OF THE I-CHINA GROUP UPON COMPLETION

APPENDIX III

We refer to the document dated 24 February 2004 jointly issued by the I-China and Wai Kee Holdings Limited (“Wai Kee”) in connection with the restructuring of I-China involving, inter alia, capital restructuring, debt restructuring involving creditors’ schemes of arrangement under Section 99 of the Companies Act and Section 166 of the Companies Ordinance, subscription of new restructured shares (“New I-China Shares”) and preference shares in I-China, injection of the Top Tactic Group and whitewash waiver and general mandates to issue and repurchase New I-China Shares (the “Document”).

In accordance with the instructions of the joint and several provisional liquidators of I-China (the “Provisional Liquidators”) and the directors of Wai Kee, we have reviewed the compilation of the cash flow projections of the I-China Group Upon Completion for the 12-month period after the Completion (as defined in the Document) from 1 April 2004 to 31 March 2005 (the “Cash Flow Projections”) and the cash flow requirements of the I-China Group Upon Completion for the same period, taking into account the future intentions of Wai Kee in respect of the I-China Group Upon Completion as set out on pages 37 and 38 of the Document. The Cash Flow Projections have been compiled on the basis of certain principal assumptions (the “Assumptions”) as set out on pages 180 and 181 of the Document, made by the proposed new executive directors of I-China and the directors of Wai Kee, after taking into account I-China’s expected cash position on Completion prepared by the Provisional Liquidators based on the available books and records of I-China.

We also understand that the proposed new executive directors of I-China and the directors of Wai Kee propose to make the following statement on page 180 of the Document:

“The proposed new executive directors of I-China and the Wai Kee Directors are of the opinion that, in the absence of unforeseen circumstances as well as taking into account the present working capital and the available banking facilities of the Top Tactic Group, the I-China Group will have sufficient working capital for the 12-month period after Completion from 1 April 2004 to 31 March 2005.”

We emphasise that Cash Flow Projections and the Assumptions on which they are based relate to the future and actual cash flows are likely to be different since anticipated events frequently do not occur as expected and the variation may be material. Accordingly, Cash Flow Projections cannot be relied upon to the same extent as information derived from the audited financial statements for completed financial accounting periods.

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FINANCIAL INFORMATION OF THE I-CHINA GROUP UPON COMPLETION

APPENDIX III

In compiling the Cash Flow Projections, the proposed new executive directors of I-China and the directors of Wai Kee have considered the estimated results of and cash distribution from a joint venture (“Joint Venture”), of which the I-China Group Upon Completion has a 50% interest in the Joint Venture. The cash flow projection of the Joint Venture is prepared based on the estimated profit, which has taken into account the expected final outcome of the value of claims and variation orders to be agreed by the employer of the Joint Venture. The proposed new executive directors of I-China and the directors of Wai Kee have estimated that approximately HK$45 million will be distributed from the Joint Venture in March 2004.

However, in as much as the Cash Flow Projections and the Assumptions on which they are based relate to the future, including the above uncertainty relating to the claims and variation orders and timing of subsequent cash distribution from the Joint Venture, we express no opinion on how closely the cash flows eventually achieved will correspond with the Cash Flow Projections.

In our opinion, based on our review, so far as the calculations are concerned, the Cash Flow Projections for which the proposed new executive directors of I-China and the directors of Wai Kee are solely responsible have been properly compiled on the basis of the Assumptions and the above statement as to the sufficiency of working capital made by the proposed new executive directors of I-China and the directors of Wai Kee has been made with due care and consideration and that institution providing finance has stated in writing that such facilities exist.

Yours faithfully, Deloitte Touche Tohmatsu

Certified Public Accountants Hong Kong

—185 —

APPENDIX III FINANCIAL INFORMATION OF THE I-CHINA GROUP UPON COMPLETION

(b) Letter from Quam Capital

Set out below is the text of the letter received from Quam Capital in connection with the I-China Group’s working capital adequacy and is prepared for the purpose of inclusion in this document.

Quam Capital Limited 華富嘉洛證券融資有限公司

Financial Services Group A Member of The Quam Group

24 February 2004

Joint and Several Provisional Liquidators of I-China Holdings Limited (Provisional Liquidators Appointed) c/o 7/F Allied Kajima Building 138 Gloucester Road Wan Chai Hong Kong

The directors of Wai Kee Holdings Limited Unit 702B, 7th Floor East Ocean Centre 98 Granville Road Tsimshatsui Kowloon Hong Kong

Dear Sirs,

We refer to the statement made by the proposed new executive directors of I- China and the Wai Kee Directors as set out on page 180 of the document dated 24 February 2004 (the “Document”) that based on the cash flow projection of the I- China Group for the 12 months period after Completion from 1 April 2004 to 31 March 2005 (the “Working Capital Forecast”), the proposed new executive directors of I-China and the Wai Kee Directors are of the opinion that in the absence of unforeseen circumstances and subject to Completion, the I-China Group has sufficient working capital for the 12 months period after Completion from 1 April 2004 to 31 March 2005. Terms used in this letter shall have the same meanings as defined in the Document unless the context otherwise requires.

We have discussed with the proposed new executive directors of I-China and the Wai Kee Directors the basis for the Working Capital Forecast and have considered the letter dated 24 February 2004 addressed to the Provisional Liquidators and the Wai Kee Directors from DTT, the auditors of Wai Kee. On the basis of the Working Capital Forecast and the assumptions made by the Wai Kee Directors, which we consider reasonable, we are satisfied that the statement in the Document as to the adequacy of working capital for which the proposed new executive directors of I-China and the Wai Kee Directors are responsible has been made after due care and consideration and that institution providing banking facilities has stated in writing that such facilities exist.

Yours faithfully, For and on behalf of

Quam Capital Limited Richard D. Winter Managing Director

—186 —

EXPLANATORY STATEMENT

APPENDIX IV

LISTING RULES FOR REPURCHASE OF SECURITIES

The Listing Rules permit companies whose primary listings are on the Stock Exchange to repurchase their securities on the Stock Exchange subject to certain restrictions amongst which the Listing Rules provide that the shares proposed to be repurchased by a company must be fully paid-up and all repurchases of shares by a company with a primary listing on the Stock Exchange must be approved in advance by an ordinary resolution of shareholders, either by way of a specific approval or a general mandate to the directors to make such repurchases.

The information set out below serves as the explanatory statement required under Rule 10.06(1)(b) of the Listing Rules to provide I-China Shareholders with all the information reasonably necessary for them to make an informed decision on whether to vote for or against the ordinary resolution approving the repurchase mandate and constitutes the memorandum of the terms of the proposed repurchases required under the Memorandum of Association and Bye-Laws of I-China.

SHARE CAPITAL OUTSTANDING

As at the Latest Practicable Date, the aggregate nominal amount of issued share capital of I-China was HK$5,083,397.64 comprising 508,339,764 I-China Shares. Immediately upon Completion but before the conversion of I-China Preference Shares, the aggregate nominal amount of issued share capital of I-China will be HK$63,140,849.41 comprising 6,314,084,941 New I-China Shares. Subject to Completion and the passing of the relevant ordinary resolution approving the repurchase mandate at the SGM and no further New I-China Shares are issued prior to the SGM, I-China will be allowed under the repurchase mandate to repurchase a maximum of 631,408,494 New I-China Shares immediately following Completion.

REASONS FOR REPURCHASES

The proposed new I-China Directors believe that the repurchase mandate is in the interests of I-China and the I-China Shareholders since it will give the restructured I-China the flexibility to do so if and when appropriate. Such repurchases may, depending on market conditions and funding arrangements at the time, lead to an enhancement of the net asset value per New I-China Share and/or its earnings per New I-China Share. The proposed new I-China Directors of the restructured I-China Group will only exercise such power in such circumstances that they believe such repurchase will benefit I-China and the I-China Shareholders.

FUNDING OF REPURCHASE

Repurchases of I-China’s securities must be funded out of funds legally available for the purpose in accordance with the Memorandum of Association and Bye-Laws of I-China and the applicable laws of Bermuda.

— 187 —

EXPLANATORY STATEMENT

APPENDIX IV

There may be a material adverse impact on the working capital or gearing position of I-China (as compared with the position disclosed in the latest published audited financial statement as at 31 March 2003) in the event that the repurchase mandate is exercised in full. However, the proposed new I-China Directors do not propose to exercise the repurchase mandate to such an extent as would, in the circumstances, have a material adverse effect on the working capital requirements of I-China or the gearing levels which in the opinion of the proposed new I- China Directors are from time to time appropriate for I-China.

DISCLOSURE OF INTEREST

None of the proposed new I-China 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 securities to I-China if the repurchase mandate is approved by the I-China Shareholders.

No connected person (as defined in the Listing Rules) of I-China has notified I-China that he/ she has a present intention to sell securities to I-China, or has undertaken not to do so, in the event that I-China is authorised to make repurchases of its own securities.

UNDERTAKING OF THE PROPOSED NEW I-CHINA DIRECTORS

The proposed new I-China Directors will undertake to the Stock Exchange upon their appointment to the I-China Board that they will exercise the power of I-China to make repurchases pursuant to the repurchase mandate in accordance with the Listing Rules, the laws of Bermuda, the Memorandum of Association and Bye-Laws of I-China. The Provisional Liquidators emphasise that they have no control or influence on the future operations and management of the I-China Group post Completion as the Provisional Liquidators will leave office, subject to the Courts approval, on Completion.

During each of the six months preceding the date of this document, I-China has not repurchased any of its own securities.

SHARE PRICES

Trading in I-China Shares has been suspended at the request of I-China since 10:00 a.m. on 15 January 2002. The closing price before the suspension of trading was HK$0.031 per I-China Share.

— 188 —

EXPLANATORY STATEMENT

APPENDIX IV

The highest and lowest closing prices at which the I-China Shares were traded on the Stock Exchange during each of the previous 12 calendar months preceding the suspension were as follows:

	Highest	Lowest
	HK$	HK$
2001
January	0.100	0.098
February	0.105	0.070
March	0.069	0.024
April	0.055	0.032
May	0.083	0.041
June	0.079	0.048
July	0.051	0.032
August	0.038	0.026
September	0.042	0.026
October	0.040	0.022
November	0.044	0.022
December	0.048	0.024
2002
1 to 14 January	0.036	0.028

Trading in I-China Shares has been suspended since 10:00 a.m. on 15 January 2002 and the closing price before suspension was HK$0.031 per I-China Share which is therefore the closing price immediately preceding the date of the Announcement and that of the Latest Practicable Date.

GENERAL

If as a result of a repurchase of the New I-China Shares, an I-China Shareholder’s proportionate interest in the voting rights of I-China increases, such increase will be treated as an acquisition for the purpose of the Takeovers Code. As a result, an I-China Shareholder or a group of I-China Shareholders, acting in concert with each other could, depending on the level of increase of the I-China Shareholders’ interest, obtain or consolidate control of I-China and become obliged to make a mandatory offer in accordance with Rule 26 of the Takeovers Code. The proposed new I-China Directors have no intention to exercise the repurchase mandate to such an extent that will result in a requirement of an I-China Shareholder, or a group of I-China Shareholders acting in concert, to make a general offer under the Takeovers Code.

As at the Latest Practicable Date, there is no controlling I-China Shareholder who is beneficially interested in more than 30% of the existing share capital of I-China. Immediately upon Completion but before the Distribution, the exercise of the Creditors Put Option and the

— 189 —

EXPLANATORY STATEMENT

APPENDIX IV

conversion of the I-China Preference Shares, Wai Kee together with parties acting in concert with it will be interested in approximately 94.8% of the enlarged issued share capital of I- China. The proposed new I-China Directors are not aware of any consequences which would arise under the Takeovers Code as a result of any repurchases pursuant to the repurchase mandate.

The Listing Rules prohibit a company from making repurchase on the Stock Exchange if the result of the repurchase would be less than 25% (or such other prescribed minimum percentage as determined by the Stock Exchange) of the issued share capital would be in public hands. The proposed new I-China Directors do not propose to repurchase New I-China Shares which would result in less than the prescribed minimum percentage of New I-China Shares in public hands.

— 190 —

GENERAL INFORMATION

APPENDIX V

1. RESPONSIBILITY STATEMENTS

This document includes particulars given in compliance with the Takeovers Code and the Listing Rules for the purpose of giving information with regard to I-China and Wai Kee. The Provisional Liquidators jointly and severally accept full responsibility for the accuracy of the information contained in this document (other than that relating to the Wai Kee Group) and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief, opinions expressed in this document (other than those expressed by the Wai Kee Group) have been arrived at after due and careful consideration and there are no other facts not contained in this document the omission of which would make any statement in this document misleading.

The information contained in this document relating to Wai Kee has been supplied by Wai Kee and its directors. Wai Kee and its directors accept full responsibility for the accuracy of information contained in this document (other than that relating to the I- China Group) and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief, the opinions expressed in this document (other than those expressed by the I-China Group) have been arrived at after due and careful consideration and there are no other facts not contained in this document, the omission of which would make any statement in this document misleading.

2. MARKET PRICES

Trading in I-China Shares has been suspended since 10:00 a.m. on 15 January 2002 and will remain suspended until Completion and sufficient public float has been restored. The closing price before suspension was HK$0.031 per I-China Share which is therefore the closing price prior to the date of the Announcement and the Latest Practicable Date.

As the trading in I-China Shares has been suspended since 15 January 2002, information about the closing prices of the I-China Shares on the Stock Exchange at the end of each of the six calendar months preceding the date of the Announcement are not available, and so are the highest and lowest closing prices of the I-China Shares during the Relevant Period.

— 191 —

GENERAL INFORMATION

APPENDIX V

3. INTEREST IN SECURITIES OF I-CHINA

(a) Interest and short positions of the I-China Directors in the share capital of I-China and its associated corporations

As at the Latest Practicable Date, the interest of the I-China Directors in the securities of I-China and its associated corporations were as follows:

Long position in the I-China Shares:

		Number of the	Percentage of
Name	Capacity	I-China Shares	issue share capital
Mr. Choi Sai Leung	Other interests	127,144,278	25.01%
(Note 1)

Notes:

Mr. Choi Sai Leung (“Mr. Choi”) was declared bankrupt by the High Court of Hong Kong on 3 April 2002.
Based on the books and records available to the Provisional Liquidators, this represents the deemed interest of Mr. Choi in 127,144,278 shares in I-China held by Norham as at 31 March 2002. Norham was the asset of a discretionary trust, the Celleroy Trust. Mr. Choi, being the sole shareholder and sole director of the trustee, Celleroy was deemed to have an interest in these shares.
The above information is based on I-China’s record as at the Latest Practicable Date.

Save as disclosed above, as at the Latest Practicable Date, none of the chief executive of I-China or the I-China Directors had any interest or short position in any shares, underlying shares or debentures of I-China or any associated corporations (as defined in Part XV of the SFO) which would be required to be: (i) notified to I-China and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which a director or a chief executive would be taken or deemed to have under such provisions of the SFO); (ii) entered in the register kept by I-China pursuant to section 352 of the SFO; or (iii) notified to I-China and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies.

(b) Interest and short positions of substantial shareholders in the share capital of I-China

Save as disclosed below, as at the Latest Practicable Date, the Provisional Liquidators are not aware of any person (other than the I-China Directors or chief executive of I-China) who had an interest or short position in the shares and

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underlying shares of I-China which would fall to be disclosed to I-China under the Provisions of Divisions 2 and 3 of Part XV of the SFO, or, who is, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the I-China Group, or options to subscribe for 10% or more of the nominal value of such capital:

Number of I-China Shares held

				Percentage of
	Direct	Deemed	Total	issued
Name of shareholders	interest	interest	interest	share capital
Upyear_(Note 1)_	69,301,600	—	69,301,600	13.63
Norham	—	127,144,278	127,144,278	25.01
Celleroy (as trustee of
the Celleroy Trust)
(Note 2)	—	127,144,278	127,144,278	25.01
Mr. Chung Wai Kuen	40,020,000	—	40,020,000	7.87
Bayerische Hypo-und
Vereinsbank AG	25,662,000	—	25,662,000	5.05

Notes:

Upyear is a wholly owned subsidiary of Norham and the interest of Norham included its deemed interest in the 69,301,600 shares in I-China held by Upyear.
Celleroy as trustee of the Celleroy Trust was deemed to be interested in 127,144,278 shares in I-China held by Norham by virtue of the Celleroy Trust’s interest in Norham.

(c) Wai Kee

As at the Latest Practicable Date, except for Mr. Wong Che Ming, Steve, who is an independent non-executive director of Wai Kee and holds 129,000 I-China Shares, none of Wai Kee together with the Wai Kee Directors and its Concert Parties had any interest in the securities of I-China, other than the agreement to subscribe for the New I-China Shares and I-China Preference Shares by Wai Kee pursuant to the Restructuring Agreement and the Subscription Agreement.

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(d) Others

As at the Latest Practicable Date, to the best of the knowledge of the Provisional Liquidators having made all reasonable enquiries indicate the following:

(i) none of the subsidiaries or associates of I-China, nor any pension funds of I-China or of any of its subsidiaries, nor the Provisional Liquidators, advisers to I-China including Asian Capital, AMS and DTT or any of their respective holding companies or subsidiaries had any interest in the securities of I-China.
(ii) no person who had any arrangement of the kind referred to in Note 8 to Rule 22 of the Takeovers Code with I-China, Wai Kee, their respective Concert Parties or with any person who is an associate of I-China by virtue of classes (1), (2), (3) and (4) of the definition of associates as defined in the Takeovers Code had any interest in the securities of I-China.
(iii) no shareholding in I-China is managed on a discretionary basis by fund managers connected with I-China.
(iv) No person, who, prior to the posting of this document, has irrevocably committed themselves to accept or reject the Restructuring Proposal had any interest in any securities of I-China.

4. DEALINGS IN SECURITIES OF I-CHINA

(a) The I-China Directors

To the best of the knowledge of the Provisional Liquidators, having made all reasonable enquiries, none of the I-China Directors nor its Concert Parties had dealt in any securities of I-China during the Relevant Period.

(b) Wai Kee

None of Wai Kee together with the Wai Kee Directors and its Concert Parties had dealt in any securities of I-China during the Relevant Period.

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(c) Others

During the Relevant Period, to the best of the knowledge of the Provisional Liquidators, having made all reasonable enquiries,

(i) none of the subsidiaries or associates of I-China, nor any pension funds of I-China or of any of its subsidiaries, nor the Provisional Liquidators, the advisers to I-China including Asian Capital, AMS, and DTT or any of their respective holding companies or respective subsidiaries had dealt in any interest in the securities of I-China;
(ii) no person who had any arrangement of the kind referred to in Note 8 to Rule 22 of the Takeovers Code with I-China, Wai Kee, their respective Concert Parties or with any person who is an associate of I-China by virtue of classes (1), (2), (3) and (4) of the definition of associates as defined in the Takeovers Code, had dealt in any securities of I-China;
(iii) no person, including I-China Directors, who, prior to the posting of this document, has irrevocably committed themselves to accept or reject the Restructuring Proposal had dealt in any securities of I-China; and
(iv) no fund managers connected with I-China or any of its subsidiaries had dealt in any securities of I-China.

5. INTERESTS AND DEALINGS IN WAI KEE

The Provisional Liquidators have written to each of the existing I-China Directors to enquire as to whether he or she or its concert parties had any interest in the securities of Wai Kee and had dealt in the securities of Wai Kee during the Relevant Period. In his reply dated 12 February 2004, Mr. Vincent Cheung Wing Hung confirmed that he had no interest in the securities of Wai Kee and had not dealt in the securities of Wai Kee during the Relevant Period. Save for Mr. Vincent Cheung Wing Hung, the Provisional Liquidators have not received responses from other existing I-China Directors as at the Latest Practicable Date.

6. ARRANGEMENTS AFFECTING I-CHINA DIRECTORS

To the best of the knowledge of the Provisional Liquidators, having made all reasonable enquiries,

(a) none of the I-China Directors have any service contract with any member of the I-China Group which (excluding contracts expiring or determinable by the employer) is not terminable within one year without payment of compensation (other than statutory compensation) and no service contract has been entered into or amended within six months before the Announcement;
(b) since 31 March 2003 (being the date to which the latest published audited accounts of I-China were made up), none of the I-China Directors nor the proposed new I- China Directors as set out in the “Letter from Wai Kee” of this document have any interest, direct or indirect, in any assets which have been acquired or disposed of by or leased to any member of the I-China Group, or are proposed to be acquired or disposed of by or leased to any member of the I-China Group;

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(c) except for the Restructuring Agreement, there is no agreement or arrangement between Wai Kee or its respective Concert Parties and any of the I-China Directors or recent directors, I-China Shareholders or recent I-China Shareholders which is conditional on or dependent upon the outcome of the Restructuring Proposal or otherwise in connection therewith;
(d) there is no agreement or arrangement between any of I-China Directors and any other person which is conditional on or dependent upon the outcome of the Restructuring Proposal or otherwise in connection therewith;
(e) except for the Restructuring Agreement, there is no material contract or arrangement entered into by any of the Provisional Liquidators, I-China Directors and Wai Kee or their respective Concert Parties in which any of the Provisional Liquidators or I-China Directors have a material personal interest and which is significant in relation to the business of the I-China Group; and
(f) no other benefits have been or will be given to I-China Directors as compensation for loss of office or otherwise in connection with the Restructuring Agreement.

7. EXPERTS

(a) The following are the qualifications of the experts who have given an opinion or advice which is contained or referred to in this document:

Name Qualification

Asian Capital a licensed corporation under the SFO Quam Capital a deemed licensed corporation under the SFO DTT

Certified Public Accountants, Hong Kong

AMS a deemed licensed corporation under the SFO
(b) Each of the Provisional Liquidators, Asian Capital, Quam Capital, AMS and DTT (i) has no shareholding in any member of the I-China Group nor any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the I-China Group; (ii) has given and has not withdrawn its written consent to the issue of this document with the inclusion of its respective letter and references to its name, as the case may be, in the form and context in which they respectively appear; and (iii) does not have any direct or indirect interest in any assets which have been, since 31 March 2003, the date to which the latest published audited accounts of the I-China Group were made up, acquired or disposed of by or leased to any member of the I-China Group, or are proposed to be acquired or disposed of by or leased to any member of the I- China Group.

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8. MATERIAL LITIGATION

Save as disclosed below, to the best knowledge of the Provisional Liquidators having made all reasonable enquiries, neither I-China nor any other members of the I-China Group is engaged in any litigation or arbitration of material importance and no material litigation or claim of material importance is pending or threatened against any member of the I-China Group as at the Latest Practicable Date. In any event, pursuant to section 186 of the Companies Ordinance and section 167(4) of the Companies Act, upon the appointment of the Provisional Liquidators to I-China, no action or proceeding shall be proceeded with or commenced against I-China except by leave of the Courts. As at the Latest Practicable Date, no party has sought leave of the Courts to continue any of the following actions involving I-China. All contingent liabilities of I-China arising from the actions as set out below will be dealt with under the Schemes. Under the Schemes, admissible claims include contingent liabilities (subject to formal adjudication by the Scheme Administrators) and creditors with the benefit of claims against I-China that arose on or before the Schemes becomes effective. Accordingly, parties with contingent liabilities may participate in the Schemes. If the Proposed Restructuring is successfully implemented, all of the contingent claims against I-China will be released and discharged pursuant to the Schemes.

(i) In December 1998, I-China entered into an agreement with China Merchants Bank (“CMB”) and the PRC third parties (the “Agreement”). Under the terms of the Agreement, a loan of US$22.5 million from CMB to the PRC third parties was to be assumed by the I-China Group in consideration for the transfer of certain debts owed to the PRC third parties, certain shares, properties and land use rights in the PRC. In early 2000, the I-China Directors challenged the validity of the Agreement and since then, the I-China Group has withheld all the repayments to CMB. On 20 July 2000, CMB issued a writ of summons against the I-China Group, claiming immediate repayment of all amounts due from the I-China Group including interest and costs pursuant to the Agreement and a separate loan agreement. The I-China Directors filed a counterclaim against CMB and the PRC third parties.

On 28 December 2000, CMB was granted an injunction by the court restricting, amongst other things, the following:

(a) The Group from dealing with the balance of the proceeds of HK$24,120,000 arising from the disposal of a property save for effecting payment for the discharge of the outstanding mortgage and related expenses without the approval of the High Court (after discharge of the mortgage and payment of costs and expenses, a sum of HK$6,482,500 was paid into court on 5 January 2001 pursuant to the order); and

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(b) a subsidiary of I-China, Seapower Consortium Company Limited, from disposing or dealing with or diminishing the value of its assets up to the value of US$10 million.

On 15 June 2001, the High Court of Hong Kong dismissed CMB’s application for summary judgment against the I-China Group. As at the date of the appointment of the Provisional Liquidators, the total amount of outstanding principal and interests due to CMB (including the amount in dispute) was approximately HK$462 million.

(ii) On 20 December 2001, Peregrine Brokerage Limited (“Peregrine”) obtained judgment against a subsidiary of I-China for the sum of approximately HK$109 million plus interest thereon, being the amount due and payable under the facilities granted pursuant to a margin agreement dated 4 September 1997 entered between Peregrine and the subsidiary. There were no other corporate guarantees by other members of the I-China Group. The margin facilities were secured by 159,315,000 shares of Seapower Resources International Limited (before the capital restructuring). The judgment remains unpaid as at the Latest Practicable Date and continues to accrue interest at the rate prescribed from time to time by the High Court of Hong Kong.
(iii) As disclosed in I-China’s annual report for the financial year ended 31 March 2002, in July 2000, the I-China Group commenced a lawsuit at High People’s Court, Hubei Province, the PRC against Huangshi Kangsai Group Co., Ltd. (“Huangshi Kangsai”) claiming for an amount of HK$23 million pursuant to an undertaking given by Huangshi Kangsai. On 6 September 2000, the High People’s Court, Hubei Province, the PRC granted an order in favour of the Group to freeze the assets of Huangshi Kangsai for such value as equivalent to approximately HK$30 million. Due to the limited books and records available to the Provisional Liquidators, there is insufficient information for the Provisional Liquidators to determine the status of this litigation at this stage.
(iv) As disclosed in I-China’s annual report for the financial year ended 31 March 2002, in July 2000, the I-China Group commenced proceedings against New Era Group (H.K.) Limited (“New Era”) and Cross Union Development Limited (“Cross Union”) at Middle People’s Court, Shenzhen, the PRC claiming for the amount of US$800,000 (equivalent to approximately HK$6.2 million) and interests of US$100,000 (equivalent to approximately HK$780,000) thereon, being deposit paid by the I-China Group for the acquisition of the entire issued share capital of an associate of New Era in respect of an agreement dated 3 April 1995, as supplemented by a supplemental agreement dated 19 May 1995. The amounts have been fully provided for in the accounts in previous years. Due to limited books and records available to the Provisional Liquidators, there is insufficient information for the Provisional Liquidators to determine the status of this litigation at this stage.

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9. MATERIAL CONTRACTS

Save for the Restructuring Agreement, to the best of the knowledge of the Provisional Liquidators, having made all reasonable enquiries, neither I-China nor any other members of the I-China Group have entered into any material contracts (not being contracts entered into in the ordinary course of business carried out by the I-China Group) within the two years preceding the Latest Practicable Date.

10. MATERIAL CHANGES IN THE FINANCIAL OR TRADING POSITION

To the best of the knowledge of the Provisional Liquidators having made all reasonable enquiries, as at the Latest Practicable Date, there is no material change in the financial or trading position or prospects of the I-China Group subsequent to the last published audited accounts of I-China for the year ended 31 March 2003.

11. MISCELLANEOUS

(a) As at the Latest Practicable Date, there are no agreements, arrangements or understanding as to the transfer of any New I-China Shares to be acquired by Wai Kee or its Concert Parties pursuant to the Restructuring Agreement to any other persons.
(b) The Hong Kong branch share registrar of I-China is Progressive Registration Limited at Ground Floor, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong.
(c) The registered office of I-China is Argyle House, 41A Cedar Avenue, P.O. Box HM1179, Hamilton, Bermuda.
(d) The registered office of Wai Kee is Clarendon House, Church Street, Hamilton, HM11, Bermuda.
(e) The registered office of Asian Capital is Suite 1006, Bank of American Tower, 12 Harcourt Road, Central, Hong Kong.
(f) The registered office of Quam Capital is Room 3308, Gloucester Tower, The Landmark, 11 Pedder Street, Central, Hong Kong.
(g) The registered office of AMS is 20/F., Hong Kong Diamond Exchange Building, 8-10 Duddell Street, Central, Hong Kong.

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(h) The registered office of DTT is 26/F, Wing On Centre, 111 Connaught Road Central, Hong Kong.
(i) The English text of this document and form of proxy shall prevail over the Chinese text in the case of any inconsistency.

12. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours at the office of the Provisional Liquidators at 7th Floor, Allied Kajima Building, 138 Gloucester Road, Wanchai, Hong Kong up to and including 17 March 2004:

(a) the Memorandum of Association and Bye-Laws of I-China;
(b) the Memorandum of Association and Bye-Laws of Wai Kee;
(c) the annual reports of I-China for the two financial years ended 31 March 2002;
(d) the auditors’ report and financial statements of the I-China Group for the year ended 31 March 2003 and the auditors’ review reports and financial statements of the I-China Group for the six months ended 30 September 2002 and the six months ended 30 September 2003 respectively;
(e) the Restructuring Agreement;
(f) the accountants’ report on the Top Tactic Group;
(g) the statement of adjustments on the accounts of the Top Tactic Group;
(h) the comfort letter from each of DTT and Quam Capital;
(i) the letter of advice from AMS, the text of which is set out on pages 41 to 74 of this document;
(j) the letter from the Provisional Liquidators, the text of which are set out on pages 9 to 35 of this document;
(k) the letter from Wai Kee, the text of which are set out on pages 36 to 40 of this document; and
(l) the written consents referred to in the paragraph 7 headed “Experts” in this Appendix.

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NOTICE OF SPECIAL GENERAL MEETING

I-CHINA HOLDINGS LIMITED

(Provisional Liquidators Appointed)

(Incorporated in Bermuda with limited liability)

NOTICE IS HEREBY GIVEN that a special general meeting of I-China Holdings Limited (Provisional Liquidators Appointed) (“I-China”) will be held at 10:00 a.m., on 18 March 2004, at Plaza IV, Novotel Century Hong Kong, 238 Jaffe Road, Wanchai, Hong Kong for the purpose of considering and, if though fit, passing, with or without modification, the resolutions numbered 1, 3 and 10 as special resolutions and the resolutions numbered from 2, 4 to 9 as ordinary resolutions, as set out below:

SPECIAL RESOLUTION

CAPITAL REORGANISATION OF I-CHINA

“ THAT , conditional upon approval of resolutions numbered 4 to 6 set out in the notice dated 24 February 2004 (“Notice”) convening the special general meeting (“SGM”) of I-China and conditional upon the Listing Committee of The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) granting its approval to the listing of, and permission to deal in, the new ordinary shares of I-China of HK$0.01 each (“New I- China Shares”) resulting from the reorganisation of the share capital of I-China (“Capital Reorganisation”) to be effected pursuant to the restructuring agreement dated 20 November 2003 as may be amended from time to time (“Restructuring Agreement”) and in compliance with the Companies Act 1981 of Bermuda as amended (“Companies Act”),
(a) the issued share capital of HK$5,083,397.64 be reduced by HK$3,812,548.23 to HK$1,270,849.41 by cancelling the paid-up capital to the extent of HK$0.0075 on each of the 508,339,764 issued shares of HK$0.01 each so that each of such issued shares shall be treated as one fully paid share of HK$0.0025;
(b) the surplus which will arise as a result of the reduction of the issued share capital of I-China to be effected pursuant to resolution numbered 1(a) above in the amount of HK$3,812,548.23 shall be applied to eliminate the same amount of I- China’s accumulated losses on a dollar for dollar basis and the future I-China Directors appointed pursuant to resolution numbered 9 as set out in the Notice (the “Future Directors”) be and are hereby authorised to apply such surplus in such manner as may be permitted by the Bye-Laws of I-China; and
(c) the provisional liquidators of I-China (“Provisional Liquidators”) and the Future Directors be and are hereby authorised generally to do all things appropriate to effect and implement any of the foregoing.”

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NOTICE OF SPECIAL GENERAL MEETING

ORDINARY RESOLUTION

“ THAT , conditional upon approval of resolution numbered 1 set out in the Notice of which this resolution forms part:
(a) (i) every four (4) issued shares of par value HK$0.0025 each in the capital of the Company (“Reduced Shares”) be consolidated into one (1) new share of HK$0.01 (“New Shares”) (the “Share Consolidation”);
- (ii) any fractions of New Shares arising on the Share Consolidation pursuant to paragraph (a)(i) of this resolution shall not be allocated to the holders of the Reduced Shares otherwise entitled thereto but such fractions shall be aggregated and sold for the benefit of I-China;
- (iii) for the purposes of implementing the Share Consolidation, the Provisional Liquidators and the Future Directors (as defined in resolution numbered 1 set out in the Notice of which this resolution forms part) be and are hereby authorised to appoint some other persons to execute transfers or renunciations on behalf of persons otherwise entitled to any such fractions and generally may make all arrangements which appear to them necessary or appropriate for the settlement and disposal of fractional entitlement; and
- (iv) all of the New Shares resulting from the Share Consolidation shall rank pari passu in all respects and have the same rights and privileges and be subject to the restrictions contained in the Bye-Laws of I-China;
(b) subsequent to paragraph (a) above, the unissued share capital of HK$74,916,602.36 in the authorised share capital of HK$80,000,000 of I-China be cancelled and diminished resulting in an authorised and issued share capital of HK$1,270,849.41;
(c) subsequent to paragraphs (a) and (b) above, the authorised share capital of I- China be increased from HK$1,270,849.41 to HK$200,000,000 divided into 17,000,000,000 New Shares and 3,000,000,000 new preference shares of HK$0.01 each having the rights and being subject to the restrictions set out in the Bye-Law proposed to be adopted pursuant to resolution 3 below in the capital of I-China;
(d) all of the New Shares of HK$0.01 each in the capital of I-China after completion of the Capital Reorganisation shall rank pari passu in all respects with each other (including for the avoidance of doubt the New Shares created following the Share Conversion) and have the same rights and privileges and be subject to the restrictions contained in the Bye-Laws of I-China; and
(e) the Provisional Liquidators and the Future Directors be and are hereby authorised generally to do all things appropriate to effect and implement any of the foregoing.”

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NOTICE OF SPECIAL GENERAL MEETING

SPECIAL RESOLUTION

“ THAT the Bye-Laws of I-China be and they are hereby amended by:
(a) the deletion of Bye-Law 3(A) of I-China’s existing Bye-Laws and by replacement with the following provision:
- “3(A) The authorised share capital of the Company is HK$200,000,000 divided into 17,000,000,000 shares of a par value of HK$0.01 and 3,000,000,000 preference shares of a par value of HK $0.01.”;
(b) the addition of a new Bye-Law 3(B) in the form of the annexed draft, initialled by the chairman for the purpose of identification; and
(c) that existing Bye-Law 3(B) by renumbered as Bye-Law 3(C).”

ORDINARY RESOLUTIONS

IMPLEMENTATION OF I-CHINA’S RESTRUCTURING PROPOSAL

“ THAT , conditional upon approval of resolution numbered 6 set out in the Notice,
(a) the entry by I-China into the Restructuring Agreement as defined in the resolution numbered 1 as set out in the Notice, a copy of which together with a copy of the document sent to the I-China Shareholders dated 24 February 2004 (“Document”) have been produced to the SGM marked “A” and “B” respectively and in each case signed by the chairman of the SGM for identification purposes, the transactions contemplated by the Restructuring Agreement and the performance thereof by I-China, be and are hereby confirmed, ratified and approved; and
(b) the Provisional Liquidators and the Future Directors appointed pursuant to resolution numbered 9 as set out in the Notice be and are hereby authorised to the extent of their authority so to act, to do all such things and take all such action as they may consider to be necessary or desirable to give effect to the terms of the Restructuring Agreement including, without limiting the foregoing, to complete the transactions contemplated by the Restructuring Agreement.”
“ THAT , conditional upon approval of resolution numbered 6 set out in the Notice,
(a) the entry by I-China into the Subscription Agreement (as defined in the Document referred to in resolution numbered 4 as set out in the Notice), a copy of which has been produced to the SGM marked “C” and signed by the chairman of the SGM for identification purposes, the transactions contemplated by the Subscription Agreement and the performance thereof by I-China, be and are hereby confirmed ratified and approved;

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NOTICE OF SPECIAL GENERAL MEETING

(b) conditional upon the Capital Reorganisation (as defined in resolution numbered 1 of the Notice) being effected and the approval from the Bermuda Monetary Authority, the Provisional Liquidators and the Future Directors appointed pursuant to resolution numbered 9 as set out in the Notice be and are hereby authorised to allot and issue the New I-China Shares (as defined in resolution numbered 1 of the Notice) and the I-China Preference Shares (as defined in the Document) pursuant to the terms of the Subscription Agreement and upon conversion of the I-China Preference Shares in accordance with the Bye-laws of I-China; and
(c) the Future Directors appointed pursuant to resolution numbered 9 as set out in the Notice be and are hereby authorised from time to time to issue New I-China Shares upon conversion of the I-China Preference Shares by the holders thereof subject to the terms of the I-China Preference Shares and to take all such actions as they may consider to be necessary or desirable to give effect to the terms of the I-China Preference Shares.”

WHITEWASH WAIVER

“ THAT , the waiver (“Whitewash Waiver”) granted or to be granted by the Executive Director of the Corporate Finance Division of the Securities and Futures Commission pursuant to Note 1 on dispensations from Rule 26 of the Hong Kong Code on Takeovers and Mergers waiving any obligation on the part of Wai Kee and parties acting in concert with it, to make a general offer for all the shares of I-China not already owned by it or agreed to be acquired upon Completion (as defined in the Document referred to in resolution numbered 4), including without limitation, upon the conversion of the I- China Preference Shares, be and is hereby approved and the Provisional Liquidators and future I-China Directors appointed pursuant to resolution numbered 9 as set out in the Notice be and are hereby authorised to do all such things and take all such action as they may consider to be necessary or desirable to give effect to any of the matters relating to, or incidental to, the Whitewash Waiver.”

GENERAL MANDATE TO ALLOT, ISSUE AND DEAL WITH ADDITIONAL NEW I-CHINA SHARES

“ THAT , conditional upon Completion (as defined in the Document referred to in resolution numbered 4):
(a) subject to paragraph (b) below, the Future Directors appointed pursuant to resolution numbered 9 as set out in the Notice be and are hereby generally and unconditionally authorised to exercise during the Relevant Period (as defined below) all the powers of I-China to allot, issue and deal with additional New I- China Shares and to make or grant offers, agreements and options (including warrants, bonds and debentures, notes and any securities which carry rights to

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NOTICE OF SPECIAL GENERAL MEETING

subscribe for or are convertible into ordinary shares of I-China) which would or might require the exercise of any of such powers during or after the end of the Relevant Period;

(b) the aggregate nominal amount of the New I-China Shares allotted, issued or otherwise dealt with or agreed conditionally or unconditionally to be allotted, issued or otherwise dealt with (whether pursuant to an option or otherwise) by the Future Directors appointed pursuant to resolution numbered 9 as set out in the Notice pursuant to approval of paragraph (a) above, other than pursuant to (i) a Rights Issue (as defined below); or (ii) an issue of ordinary shares of I-China upon the exercise of rights of subscription or conversion under the terms of any preference shares of I-China or any securities which are convertible into ordinary shares of I-China ; or (iii) an issue of ordinary shares of I-China by way of scrip dividend pursuant to the Bye-laws of I-China from time to time; or (iv) the exercise of any option granted under any option scheme or similar arrangement for the time being adopted for the grant or issue to eligible participants of I-China and/or its subsidiaries, of options to subscribe for, or rights to acquire, shares of I-China, shall not in total exceed 20% of the aggregate nominal amount of the share capital of I-China in issue immediately following Completion (as defined in the Document referred to in resolution numbered 4);
(c) for the purpose of this resolution, “Relevant Period” means the period from Completion (as defined in the Document referred to in resolution numbered 4) until whichever is the earliest of:
(i) the conclusion of the next annual general meeting of I-China; or
(ii) the revocation of variation of the authority given under this resolution by ordinary resolution of the shareholders in general meeting; and

the expiration of the period within which the next annual general meeting of I- China is required by the Bye-laws of I-China, or any applicable laws, to be held.”

“Rights Issue” means an offer of shares for subscription open for a fixed period by I-China to holders of shares on the register of members of I-China on a fixed record date in proportion to their holdings of shares (subject to such exclusion or other arrangements as the future I-China Directors appointed pursuant to resolution numbered 9 as set out in the Notice 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 outside Hong Kong).”

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NOTICE OF SPECIAL GENERAL MEETING

GENERAL MANDATE TO PURCHASE NEW I-CHINA SHARES

“ THAT , conditional upon Completion (as defined in the Document referred to in resolution numbered 4),
(a) the future I-China Directors appointed pursuant to resolution numbered 9 as set out in the Notice be and are hereby generally and unconditionally authorised to exercise during the Relevant Period (as defined below) all the powers of I-China to purchase its New I-China Shares in the capital of I-China, subject to and in accordance with applicable laws;
(b) the aggregate nominal amount of the New I-China Shares which may be purchased pursuant to the approval in paragraph (a) above shall not in total exceed 10% of the aggregate nominal amount of the share capital of I-China in issue immediately following Completion (as defined in the Document referred to in resolution numbered 4);
(c) for the purpose of this resolution, “Relevant Period” means the period from Completion (as defined in the Document referred to in resolution numbered 4) until whichever is the earliest of:
- (i) the conclusion of the next annual general meeting of I-China; or
- (ii) the revocation or variation of the authority given under this resolution by ordinary resolution of the shareholders in general meeting; and

the expiration of the period within which the next annual general meeting of I-China is required by the Bye-laws of I-China, or any applicable laws, to be held.”

APPOINTMENT OF EXECUTIVE DIRECTORS AND INDEPENDENT NONEXECUTIVE DIRECTORS

“ THAT , with effect from Completion (as defined in the Document referred to in resolution numbered 4) in the place of Ms Shirley Choi Siu Lui, and Messrs. Choi Sai Leung, Norman Choi Sung Fung, Ou Yirong, Vincent Cheung Wing Hung and Ronald Lau Kin Hon:
(a) each of Messrs. Derek Wei Peu Zen and Sai Yen Yu or such other nominees to be determined by Wai Kee upon Completion (as defined in the Document referred to in resolution numbered 4) be appointed as executive directors of I-China; and

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NOTICE OF SPECIAL GENERAL MEETING

(b) such other nominees to be determined by Wai Kee upon Completion (as defined in the Document referred to in resolution numbered 4) be appointed as independent non-executive directors of I-China,

and that the future directors appointed pursuant to this resolution be and are hereby generally and unconditionally authorised to appoint such other new executive directors, new non-executive directors and new independent nonexecutive directors of I-China during the Relevant Period (such number of new executive, new non-executive and new independent non-executive directors to be determined by the future directors of I-China appointed pursuant to this resolution during the Relevant Period.

(c) for the purpose of this resolution, “Relevant Period” means the period from Completion (as defined in the Document referred to in resolution numbered 4) until whichever is the earliest of:
(i) the conclusion of the next annual general meeting of I-China; or
(ii) the revocation or variation of the authority given under this resolution by ordinary resolution of the shareholders in general meeting; and

the expiration of the period within which the next annual general meeting of I- China is required by the Bye-laws of I-China, or any applicable laws, to be held.”

SPECIAL RESOLUTION

REMOVAL OF CURRENT DIRECTORS

“ THAT , with effect from Completion (as defined in the Document referred to in resolution numbered 4), each of Ms Shirley Choi Siu Lui, and Messrs. Choi Sai Leung, Norman Choi Sung Fung, Ou Yirong, Vincent Cheung Wing Hung and Ronald Lau Kin Hon be removed as I-China Directors with effect from Completion.”

For and on behalf of

I-CHINA HOLDINGS LIMITED (Provisional Liquidators Appointed) Cosimo Borrelli

Fan Wai Kuen

R. Craig Christensen

Joint and Several Provisional Liquidators

Hong Kong, 24 February 2004

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NOTICE OF SPECIAL GENERAL MEETING

Notes:

A member entitled to attend and vote at the SGM by the above notice is entitled to appoint another person as his proxy to attend and vote on his behalf. A member may appoint more than one proxy to attend the SGM or any adjournment thereof. A proxy need not be a member of I-China.
In order to be valid, the form of proxy, together with the power of attorney or other authority (if any) under which it is signed, or a notorially certified copy of such power of attorney or authority, MUST be deposited at the office of the Provisional Liquidators, at 7th Floor, Allied Kajima Building, 138 Gloucester Road, Wanchai, Hong Kong, not less than 48 hours before the time appointed for holding the SGM or any adjournment thereof. Under Bye-Law 90 of the Bye-Laws of I-China, a vote given in accordance with the terms of the proxy shall be valid notwithstanding the previous death or insanity of the principal or revocation of the proxy or power of attorney or other authority under which the proxy was executed or the transfer of share in respect of which the proxy is given, provided that no intimation in writing of such death, insanity, revocation or transfer as aforesaid shall have been received by I-China at 7th Floor, Allied Kajima Building, 138 Gloucester Road, Wanchai, Hong Kong not less than two hours before the holding of the SGM or any adjourned SGM.
Where there are joint holders of any I-China Share, any one of such persons may vote at the SGM either personally or by proxy in respect of such Share as if he were solely entitled thereto, but if more than one of such joint holders be present at the SGM personally or by proxy, the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders, and for this purpose seniority shall be determined by the order in which the names stand in the register of members of I-China in respect of such joint holding.
A form of proxy for use in connection with the SGM is enclosed.
Resolutions numbered 1 to 10 shall be voted by way of a poll of the Independent I-China Shareholders (as defined in the Document in which the notice convening this meeting is contained).

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BYE-LAW 3(B)

(B) The convertible preference shares of HK$0.01 each (“ Preference Shares ”) to be issued by the Company which are convertible into new ordinary shares of HK$0.01 each (“ Ordinary Shares ”) in the capital of the Company at a conversion price of HK$0.01 per Ordinary Share shall have the following rights, privileges and restrictions:-
(1) Dividends. The holders of Preference Shares shall be entitled to receive dividends at the rate of 2% per annum at its issue price. The holders of Preference Shares shall be entitled to receive dividends prior to and in preference to the holders of Ordinary Shares. No dividend, whether in cash, in property or in shares of the Company, shall be allowed to be paid on any other class or series of shares of the Company unless and until the dividend payable to holders of the Preference Shares was first paid or granted in full on the Preference Shares. The dividends payable to the holders of Preference Shares shall be cumulative.
(2) Liquidation. In the event of any liquidation, dissolution, winding up of the Company, or a return of capital (other than upon conversion, redemption or repurchase of shares or with respect to a dividend) whether voluntary or not, or a sale of all or substantially all of the assets of the Company (each a “ Liquidation Event ”) distributions to the members of the Company shall be made in the following manner:
(A) Each holder of Preference Shares shall be entitled to receive, prior and in preference to any distribution of any assets, surplus or funds of the Company to the holders of the Ordinary Shares or any other class or series of shares of the Company by reason of their ownership of such shares, an amount per Preference Share held by him which shall equal to (i) the aggregate amount of the issue price of all Preference Shares then in issue and outstanding divided by (ii) the total number of all Preference Shares then in issue and outstanding, for each Preference Share then held by such holder, plus all declared but unpaid dividends and distributions on such Preference Shares (collectively, the “ Preference Amount ”). All declared but unpaid dividends and distributions on Preference Shares shall be calculated up to and including the date of commencement of the Liquidation Event. If, upon the occurrence of a Liquidation Event, the assets and funds available to be distributed among the holders of Preference Shares shall be insufficient to permit the payment to such holders of the Preference Amount, then the entire assets and funds of the Company legally available for distribution to such holders shall be distributed rateably among the holders of the Preference Shares in proportion to the aggregate Preference Amount for the Preference Shares owned by each such holder.
(B) After payment has been made to the holders of Preference Shares of the full Preference Amount to which they are entitled pursuant to paragraph (A) of this section (2), the remaining assets and funds of the Company available for distribution to members shall be distributed among the holders of Ordinary Shares

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BYE-LAW 3(B)

in proportion to their respective Shareholding Proportions only. “ Shareholding Proportion ” in respect of each shareholder means the proportion which the aggregate number of Ordinary Shares held by such shareholder bears to the aggregate number of all Ordinary Shares held by all shareholders.

(C) If the consideration received by the Company is other than cash or partly in cash, the value of securities and property paid or distributed pursuant to this section (2) shall be computed at fair market value at the time of payment to the Company or at the time made available to members, all as determined by the Board of Directors of the Company (“ Board ”) in good faith and in its reasonable business judgement, provided that (i) if such securities are listed on any established stock exchange or a national market system, their fair market value shall be the closing sales price for such securities as quoted on such system or exchange (or the largest such exchange) for the date the value is to be determined (or if there are no sales for such date, then for the last preceding business day on which there were sales), as reported in the newspaper; and (ii) if such securities are regularly quoted by a recognised securities dealer but selling prices are not reported, their fair market value shall be the average of the high bid and low asked prices for such securities on the date the value is to be determined (or if there are no quoted prices for such date, then for the last preceding business day on which there were quoted prices).
(D) Nothing herein shall affect in any way the right of each holder of Preference Shares to convert such shares at any time and from time to time into Ordinary Shares in accordance with section (4) hereof. Any holder may expressly condition any such conversion upon the closing or consummation of a specific anticipated Liquidation Event, in which case the conversion shall take effect immediately prior to and conditional upon such closing or consummation.
(3) Voting Rights. The holder of each Preference Share shall not have any voting rights.
(4) Conversion. The holders of Preference Shares shall have conversion rights as follows:
(A) Right to Convert. Each Preference Share shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share but before the seventh anniversary thereof, into such number of fully-paid Ordinary Shares to be determined by the issue price of such Preference Shares divided by the conversion price (the “ Conversion Price ”) of HK$0.01 per Ordinary Share. The initial Conversion Price shall be subject to adjustment as provided in accordance with section (4)(D). For the avoidance of doubt, no payment shall be made by the holder of Preference Shares to the Company upon or in connection with the conversion of Preference Shares into Ordinary Shares.

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BYE-LAW 3(B)

(B) Mandatory Conversion. Each Preference Share shall automatically be converted into such number of Ordinary Shares to be determined by the issue price of such Preference Shares divided by the then effective applicable Conversion Price on the seventh anniversary of the date of issuance of the Preference Share (such event being referred to herein as the “ Mandatory Conversion ”).
(C) Mechanics of Conversion. No fractional Ordinary Shares shall be issued upon conversion of the Preference Shares. All Ordinary Shares (including any fractions thereof) issuable upon conversion of more than one Preference Share by a holder thereof shall be aggregated for purposes of determining whether the issuance would result in the issuance of any fractional share. Any holder of Preference Shares shall, to the extent possible, convert the Preference Shares in board lots of Ordinary Shares. One Ordinary Share shall be issued and allotted in respect of any fractional Ordinary Share arising on conversion of the Preference Shares being converted by a holder. For the purpose of the conversion hereunder, if the par value of the Ordinary Shares to be issued on the conversion of any Preference Shares have an aggregate par value greater than the aggregate par value of the Preference Shares being converted, the Company shall, subject to applicable laws, capitalise any part of the surplus and apply the same in paying up at par the requisite number of Ordinary Shares or, where there is insufficient surplus, effect a fresh issue of Shares at a premium and apply the proceeds thereof in paying up at par the required number of additional Ordinary Shares to be issued on the conversion of the Preference Shares so as to satisfy the provisions hereunder. All Ordinary Shares so issued shall rank pari passu in all respect to the Ordinary Shares then in issue.

Before any holder of Preference Shares shall be entitled to convert the same into Ordinary Shares and to receive certificates therefor, such holder shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Company in Hong Kong and shall give written notice to the Company at such office that he or she elects to convert the same; provided, however, that in the event of the Mandatory Conversion pursuant to Section (4)(B), the outstanding Preference Shares shall be converted mandatorily without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Company and provided further that the Company shall not be obligated to issue certificates evidencing the Ordinary Shares issuable upon the Mandatory Conversion unless the certificates evidencing such Preference Shares are either delivered to the Company as provided above, or the holder notifies the Company that such certificates have been lost, stolen, or destroyed and provides such indemnity as may be reasonably required by the Company.

The Company shall, as soon as practicable after such delivery, or such notification in the case of a lost, stolen, or destroyed certificate, issue and deliver at such

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BYE-LAW 3(B)

office to such holder of the Preference Shares, a certificate or certificates for the number of Ordinary Shares to which such holder shall be entitled as aforesaid. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the Preference Shares to be converted, or in the case of Mandatory Conversion, on the seventh anniversary of the issue of the Preference Shares, and the person or persons entitled to receive the Ordinary Shares issuable upon such conversion shall be treated for all purposes as the record holder or holders of such Ordinary Shares at such time. For the avoidance of doubt, no conversion shall prejudice the right of a holder of Preference Shares to receive dividends and other distributions declared but not paid as at the date of conversion on the Preference Shares being converted.

(D) Adjustments to Conversion Price.

The adjustments to the Conversion Price is to ensure that the shareholding of the holders of the Preference Shares shall not be affected by any change in the share capital of the Company.

(a) Adjustments for Dividends, Splits, Subdivisions, Combinations, or Consolidation of Ordinary Shares. In the event the outstanding Ordinary Shares shall be increased by a share dividend payable in Ordinary Shares, share split, subdivision, or other similar transaction into a greater number of Ordinary Shares, the Conversion Price then in effect shall, concurrently with the effectiveness of such event, be decreased in proportion to the percentage increase in the outstanding number of Ordinary Shares. In the event the outstanding Ordinary Shares shall be decreased by a reverse share split, combination, consolidation, or other similar transaction into a smaller number of Ordinary Shares, the Conversion Price then in effect shall, concurrently with the effectiveness of such event, be increased in proportion to the percentage decrease in the outstanding number of Ordinary Shares.

Except to the limited extent provided for in the case of a reverse share split, combination, consolidation or other similar transaction, no adjustment of the Conversion Price pursuant to this section (4)(D) shall have the effect of increasing the Conversion Price above the Conversion Price in effect immediately prior to such adjustment.

(b) Adjustments for Reclassification, Exchange and Substitution. If the Ordinary Shares issuable upon conversion of the Preference Shares shall be changed into the same or a different number of shares of any other class or classes of shares, whether by capital reorganisation, reclassification, or otherwise (other than a subdivision or combination of shares provided for above), the Conversion Price then in effect shall, concurrently with the effectiveness of

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BYE-LAW 3(B)

such reorganisation or reclassification, be proportionately adjusted such that the Preference Shares shall be convertible into, in lieu of the number of Ordinary Shares which the holders would otherwise have been entitled to receive, a number of shares of such other class or classes of shares equivalent to the number of shares of such other class or classes of shares in the capital of the Company into which the Ordinary Shares that would have been subject to receipt by the holders of Preference Shares upon conversion of such Preference Shares immediately before that change would have been changed into.

(c) Adjustments on Lower Price Issuance.
(i) If and whenever the Company shall issue any “Additional Shares” (as defined below) at any time after the date of completion (the “Completion Date”) of the proposed restructuring of the Company as set out in the document issued by the Company on 24 February, 2004 (the “ Document ”) for a consideration per share less than the Conversion Price in effect on the date and immediately prior to such issue, then and in each such event, the Conversion Price then in effect shall be reduced, concurrently with such issue, to the price per share received by the Company pursuant to the issue of such Additional Shares.
(ii) For purposes of this section (4)(D)(c)(i), “ Additional Shares ” shall mean all equity securities of the Company (“ Equity Securities ”) issued after the Completion Date other than (I) Ordinary Shares issued or issuable at any time upon conversion of any Preference Shares; (II) Ordinary Shares issued or issuable as part of the proposed restructuring of the Company as set out in the Document; (III) Equity Securities issued or issuable as a dividend or distribution with respect to any shares in the capital of the Company; (IV) Equity Securities issued or issuable at any time upon exercise of any rights or options to subscribe for Equity Securities where the Conversion Price in effect immediately prior to the issuance of such rights or options has already been adjusted as a result of and in accordance with this section (4); (V) Equity Securities issued or issuable pursuant to the consent in writing of all the members of the Company; and (VI) Equity Securities issued or issuable as a result of any share split or share consolidation or the like which does not affect the total amount of issued share capital in the Company.

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BYE-LAW 3(B)

(iii) For the purpose of making any adjustment to the Conversion Price as provided in section (4)(D)(c)(i) above, the consideration received by the Company for any issue of Additional Shares shall be computed:
(I) to the extent it consists of cash, as to the amount of cash received by the Company (before deduction of any offering expenses payable by the Company and any underwriting or similar commissions, compensation, or concessions paid or allowed by the Company negotiated on an arm’s length basis by the Company with such underwriting agent) in connection with such issue;
(II) to the extent it consists of property other than cash, at the fair market value of that property as reasonably determined in good faith by an independent valuer appointed by the Board;
(III) if Additional Shares are issued together with other stock or securities or other assets of the Company for a consideration which covers both, as the portion of the consideration so received that may be reasonably determined in good faith by the Board to be allocable to such Additional Shares; and
(IV) if Additional Shares are issued in connection with any merger in which the Company is the amalgamated company, the amount of consideration therefor will be deemed to be the fair market value (as reasonably determined in good faith by the Board) of such portion of the net assets and business of the nonamalgamated company as is attributable to such Additional Shares.

If the Additional Shares comprise any rights or options to subscribe for, purchase, or otherwise acquire Ordinary Shares, or any security convertible or exchangeable into Ordinary Shares, then, in each case, the price per share received by the Company upon new issue of such Additional Shares will be determined by dividing the total amount, if any, received or receivable by the Company as consideration for the granting of the rights or options or the issue of the convertible securities, plus the minimum aggregate amount of additional consideration payable to the Company on exercise or conversion of the securities, by the maximum number of Ordinary Shares issuable on such exercise or conversion. Such granting or issue will be considered to be an issue for cash of the maximum number of

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BYE-LAW 3(B)

Ordinary Shares issuable on exercise or conversion at the price per share determined hereunder, and the Conversion Price, will be adjusted as above provided to reflect (on the basis of that determination) the issue. No further adjustment of such Conversion Price will be made as a result of the actual issuance of Ordinary Shares on the exercise of any such rights or options or the conversion of any such convertible securities.

Upon the redemption or repurchase of any such securities or the expiration or termination of the right to convert into, exchange for, or exercise with respect to, Ordinary Shares, the Conversion Price will be readjusted to such price as would have been obtained had the adjustment made upon their issuance been made upon the basis of the issuance of only the number of such securities as were actually converted into, exchanged for, or exercised with respect to, Ordinary Shares. If the purchase price or conversion or exchange rate provided for in any such security changes at any time, then, upon such change becoming effective, the Conversion Price then in effect will be readjusted forthwith to such price as would have been obtained had the adjustment made upon the issuance of such securities been made upon the basis of (I) the issuance of only the number of Ordinary Shares theretofore actually delivered upon the conversion, exchange or exercise of such securities, and the total consideration received therefor, and (II) the granting or issuance, at the time of such change, of any such securities then still outstanding for the consideration, if any, received by the Company therefor and to be received on the basis of such changed price or rate.

(iv) Adjustments for Other Distributions. In the event the Company at any time or from time to time makes, or fixes a record date for the determination of holders of Ordinary Shares entitled to receive, any distribution payable in securities of the Company other than Ordinary Shares and other than as adjusted elsewhere in this section (4), then and in each such event provision shall be made so that the holders of Preference Shares shall receive upon conversion thereof, in addition to the number of Ordinary Shares receivable thereupon, the amount of securities of the Company which they would have received had their Preference Shares been converted into Ordinary Shares immediately prior to such record date or on the date of such event and had they thereafter, during the period from the date of such event to and including the date of conversion, retained such securities

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BYE-LAW 3(B)

receivable by them as aforesaid during such period, subject to all other adjustments called for during such period under this section (4) with respect to the rights of the holders of Preference Shares. If the Company shall declare a distribution payable in securities of other persons, evidence of indebtedness of the Company or other persons, assets (excluding cash dividends) or options or rights not referred to in section (4)(D)(d), the holders of Preference Shares shall be entitled to a proportionate share of any such distribution as though they were the holders of the number of Ordinary Shares into which their Preference Shares are convertible as of the record date fixed for determination of the holders of Ordinary Shares entitled to receive such distribution.

(d) Save as expressly provided in this section (4), there shall be no other adjustment in the Conversion Price.
(e) Extension of General Offer. So long as any Preference Shares are outstanding and the Company becomes aware that an offer is made or an invitation is extended to all holders of Ordinary Shares generally to acquire all or some of the Ordinary Shares or any scheme or arrangement is proposed for that acquisition, the Company shall forthwith give notice to all holders of Preference Shares and the Company shall use its best endeavours to ensure that there is made or extended at the same time a similar offer or invitation, or that the scheme or arrangement is extended, to each holder of Preference Shares, as if its conversion rights had been fully exercised on a date which is immediately before the record date for the offer or invitation or the scheme or arrangement at the Conversion Price applicable at that time.
(E) No Impairment. The Company shall not, by amendment of its memorandum of association, its bye-laws or through any reorganisation, transfer of assets, consolidation, merger, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company but shall at all times in good faith assist in the carrying out of all the provisions of this section (4) and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights of the holders of Preference Shares against impairment.
(F) Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Price pursuant to this section (4), the Company, at its expense, shall promptly compute such adjustment or readjustment in accordance with the terms hereof, and furnish to each holder of Preference Shares subject to such adjustment or readjustment, a certificate setting forth such adjustment or

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BYE-LAW 3(B)

readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Company shall, upon the written request of any holder of Preference Shares, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, (ii) the applicable Conversion Price then in effect, and (iii) the number of shares of Ordinary Shares and the amount, if any, of other property which at the time would be received upon the conversion of the Preference Shares.

(G) Notices of Record Date. In the event that the Company shall propose at any time to:
(a) declare any dividend or distribution upon the Ordinary Shares or other class or series of shares, whether in cash, property, share, or other securities, and whether or not a regular cash dividend;
(b) offer for subscription pro rata to the holders of any class or series of its capital any additional shares of any class or series or other rights;
(c) effect any reclassification or recapitalisation of the Ordinary Shares outstanding involving a change in the Ordinary Shares; or
(d) merge or consolidate with or into any other corporation, or sell, lease, or convey all or substantially all its property, assets or business, or a majority of the capital of the Company, or to liquidate, dissolve, or wind up;

then, in connection with each such event, the Company shall send to the holders of Preference Shares:

(i) at least 14 days’ prior written notice of the date on which a record shall be taken for such dividend, distribution, or subscription rights (and specifying the date on which the holders of Ordinary Shares shall be entitled thereto) or for determining rights to vote in respect of the matters referred to in subparagraphs (a) to (c) of this section (4)(G); and
(ii) in the case of the matters referred to in subparagraphs (a) to (d) of this section (4)(G), at least 14 days’ prior written notice of the date when the same shall take place (and specifying the date on which the holders of Ordinary Shares shall be entitled to exchange their Ordinary Shares for securities or other property deliverable upon the occurrence of such event or the record date for the determination of such holders if such record date is earlier).

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BYE-LAW 3(B)

Each such written notice shall be delivered personally or given by first class mail, postage prepaid, addressed to the holders of Preference Shares at the address for each such holder as shown on the share register of the Company.

(H) Issue Taxes. The Company shall pay any and all issue and other taxes (other than income taxes) that may be payable in respect of any issue or delivery of shares of Ordinary Shares on conversion of the Preference Shares pursuant hereto; provided, however, that the Company shall not be obligated to pay any transfer taxes resulting from any transfer requested by any holder in connection with any such conversion.
(I) Reservation of Ordinary Shares Issuable Upon Conversion. The Company shall at all times reserve and keep available out of its authorised but unissued Ordinary Shares, solely for the purpose of effecting the conversion of the Preference Shares, such number of Ordinary Shares as shall from time to time be sufficient to effect the conversion of all outstanding Preference Shares, and if at any time the number of authorised but unissued Ordinary Shares shall not be sufficient to effect the conversion of all then outstanding Preference Shares, the Company will take such corporate action as may be necessary to increase its authorised but unissued Ordinary Shares to such number of shares as shall be sufficient for such purpose, including, without limitation, engaging in best efforts to obtain the requisite member approval of any necessary amendment to its memorandum of association or its bye-laws.

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AI assistant

Build King Holdings Limited — Proxy Solicitation & Information Statement 2004

49060_rns_2004-02-24_cc60b761-9785-4138-bbfe-8b61b0ceae55.pdf

I-CHINA HOLDINGS LIMITED

AMS Corporate Finance Limited

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

1. INTRODUCTION AND BACKGROUND

The Provisional Liquidators have received in-principle support for the Restructuring Proposal from the Creditors representing approximately 87% of the total estimated indebtedness of I-China as at the Latest Practicable Date.

2. EXISTING BUSINESS OF THE I-CHINA GROUP

3. THE PROPOSED RESTRUCTURING

(A) The Capital Restructuring

(B) The Debt Restructuring

(C) The Subscription

(D) Group reorganisation

Before Completion

(E) Injection of the Top Tactic Group

The Arbitration Settlement

LETTER FROM THE PROVISIONAL LIQUIDATORS

Financial information of the Top Tactic Group

4. CONDITIONS PRECEDENT TO COMPLETION

5. PRINCIPAL TERMS OF THE I-CHINA PREFERENCE SHARES

6. EFFECTS OF THE PROPOSED RESTRUCTURING

(a) Share Capital

(b) Shareholding Structure

(c) Working capital

Interim working capital of the I-China Group before Completion

Post Completion Working Capital

(d) Indebtedness

(e) Net Assets

7. USE OF PROCEEDS FROM THE SUBSCRIPTION

8. DIRECTORS AND MANAGEMENT

9. INTENTIONS OF WAI KEE

10. REASONS FOR THE PROPOSED RESTRUCTURING

11. MAINTAINING THE LISTING STATUS OF I-CHINA

12. POSSIBLE ON-GOING CONNECTED TRANSACTIONS

Exempted connected transactions

Other possible ongoing connected transactions

13. GENERAL MANDATES TO ISSUE AND REPURCHASE NEW I-CHINA SHARES

14. LISTING AND DEALINGS

15. TRADING ARRANGEMENTS

(a) Documents of Title

(b) Facilities for odd lot holders

(c) Taxation

16. THE SGM

17. GENERAL

18. RECOMMENDATIONS

19. ADDITIONAL INFORMATION

WAI KEE HOLDINGS LIMITED

1. INTRODUCTION

2. INFORMATION ON WAI KEE

3. FUTURE INTENTIONS OF WAI KEE

(A) Business

(B) Directors and management

Executive I-China Directors

Independent non-executive I-China Directors

4. WHITEWASH WAIVER

LETTER FROM WAI KEE

5. GENERAL INFORMATION

LETTER FROM AMS

PRINCIPAL FACTORS AND REASONS CONSIDERED

A. THE PROPOSED RESTRUCTURING

(i) Background

(ii) Current financial position of the I-China Group

(a) Results of operations

Six months ended

LETTER FROM AMS

LETTER FROM AMS

(b) Net assets

(c) Indebtedness of the I-China Group

LETTER FROM AMS

(iii) The Proposed Restructuring

(a) Capital Restructuring

(b) Debt Restructuring

The Schemes

Build King Holdings Limited Proxy Solicitation & Information Statement 2004