China Sci-Tech Industrial Investment Group Limited — Proxy Solicitation & Information Statement 2002

Sep 19, 2002

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in doubt as to any aspect of this circular, you should consult your stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in Lai Sun Garment (International) Limited, you should at once hand this circular and the accompanying proxy form to the purchaser or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

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

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L A I S U N G A R M E N T Lai Sun Garment (International) Limited (Incorporated in Hong Kong with limited liability)

DISCLOSEABLE AND CONNECTED TRANSACTIONS

FAMILY ARRANGEMENT INVOLVING SHAREHOLDINGS IN LAI SUN GARMENT (INTERNATIONAL) LIMITED AND LAI SUN DEVELOPMENT COMPANY LIMITED

Independent Financial Adviser to the Independent Board Committee of Lai Sun Garment (International) Limited

AMS Corporate Finance Limited

A letter from the board of directors of Lai Sun Garment (International) Limited (the ‘‘Company’’) is set out on pages 4 to 13 of this circular and a letter from the independent board committee of the Company is set out on pages 14 to 15 of this circular. A letter from AMS Corporate Finance Limited containing its advice and recommendations to the independent board committee of the Company is set out on pages 16 to 25 of this circular.

A notice convening an extraordinary general meeting of the Company to be held at 10: 00 a.m. on Wednesday, 4th September, 2002 at The Chater Room III, Basement 1, The Ritz-Carlton Hong Kong, 3 Connaught Road Central, Hong Kong is set out on pages 31 to 32 of this circular. Whether or not you are able to attend the meeting, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and return it to the Company’s Registrars, Tengis Limited, at 4th Floor, Hutchison House, 10 Harcourt Road, Central, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for holding such meeting. Completion and return of the form of proxy shall not preclude you from attending and voting in person at such meeting or at any adjourned meeting should you so wish.

15th August, 2002

CONTENTS

	Pages
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board of Directors
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
Deed of Gift . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Sale and Purchase Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
Asset Swap Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Supplemental Deed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
Shareholding Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Reasons for and Benefits of the Reorganisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Financial Effects of the Reorganisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
Information on LSD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
Information on LSG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
Connection between Parties and the Requirement of
Independent Shareholders’ Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
Extraordinary General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
Letter from AMS Corporate Finance Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
Appendix — General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	26
Notice of Extraordinary General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	31

— i —

DEFINITIONS

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

‘‘AMS Corporate Finance’’	AMS Corporate Finance Limited, an investment adviser registered with the
	Securities and Futures Commission under the Securities Ordinance (Chapter
	333 of the Laws of Hong Kong);
‘‘Asset Swap Agreement’’	a conditional sale and purchase agreement dated 25th July, 2002 between
	Mr. Lim and Mr. Peter Lam whereby Mr. Peter Lam agrees to acquire
	197,859,550 shares of LSD, representing approximately 5.28% of the issued
	share capital of LSD, in consideration of the transfer and the assignment of
	110,794,951 shares in LSG, representing approximately 7.71% of the issued
	share capital of LSG, beneficially owned by Mr. Peter Lam to Mr. Lim
	subject to the terms and conditions contained therein;
‘‘Board’’	the board of directors of the Company;
‘‘Crocodile’’	Crocodile Garments Limited, a company incorporated in Hong Kong, the
	shares of which are listed on the Stock Exchange;
‘‘Deed of Assignment’’	a deed of assignment dated 30th April, 2002 entered into between Mr. Lim,
	LSD and LSG in relation to the assignment of the full rights, interest, benefit
	and title of LSD in and to the Loan to Mr. Lim;
‘‘Deed of Gift’’	a conditional deed of gift dated 25th July, 2002 executed by Mr. Lim in
	favour of his son, Mr. Peter Lam, whereby Mr. Lim agrees to gift over a sum
	of HK$200 million to Mr. Peter Lam subject to the terms and conditions
	contained therein;
‘‘Directors’’	the directors of the Company;
‘‘Extraordinary General	the extraordinary general meeting of the Company to be held at 10: 00 a.m.
Meeting’’	on Wednesday, 4th September, 2002 at The Chater Room III, Basement 1,
	The Ritz-Carlton Hong Kong, 3 Connaught Road Central, Hong Kong, a
	notice of which is set out on pages 31 to 32 of this circular, or any
	adjournment hereof;
‘‘Hong Kong’’	the Hong Kong Special Administrative Region of the People’s Republic of
	China;
‘‘Independent Board	an independent committee of the Board comprising Mr. Wan Yee Hwa,
Committee’’	Edward and Mr. Leung Shu Yin, William, which has been constituted to
	advise the Independent Shareholders in respect of the Sale and Purchase
	Agreement and the Supplemental Deed;
‘‘Independent	shareholders of LSG excluding the Lim Family;
Shareholders’’
‘‘Joy Mind’’	Joy Mind Limited, a company incorporated in Hong Kong which is a wholly-
	owned subsidiary of LSG;

— 1 —

DEFINITIONS

• ‘‘Lai Fung’’ Lai Fung Holdings Limited, a company incorporated in the Cayman Islands, the shares of which are listed on the Stock Exchange;

• ‘‘Lai Fung Group’’ Lai Fung and its subsidiaries; ‘‘Lai Fung Share(s)’’ ordinary share(s) of HK$0.10 each in the ordinary share capital of Lai Fung; ‘‘Latest Practicable Date’’ 7th August, 2002, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining certain information for inclusion in this circular;

• ‘‘Lim Family’’ Mr. Lim, Madam U Po Chu (being a spouse of Mr. Lim), Madam Lai Yuen Fong (being a spouse of Mr. Lim) and Mr. Peter Lam (being a son of Mr. Lim) together with their respective associates;

• ‘‘Listing Rules’’ the Rules Governing the Listing of Securities on the Stock Exchange; ‘‘Loan’’ the loan in the aggregate amount of HK$225,200,000 being the subject matter of the Loan Note;

• ‘‘Loan Note’’ a loan note dated 30th April, 2002 issued by LSG in favour of LSD in the amount of the Loan, where the full rights, interest, benefit and title of LSD in and to the Loan was assigned to Mr. Lim by virtue of the Deed of Assignment;

• ‘‘LSD’’ Lai Sun Development Company Limited, a company incorporated in Hong Kong, the shares of which are listed on the Stock Exchange;

• ‘‘LSD Group’’ LSD and its subsidiaries;

• ‘‘LSG’’ or the ‘‘Company’’ Lai Sun Garment (International) Limited, a company incorporated in Hong Kong, the shares of which are listed on the Stock Exchange;

• ‘‘LSG Group’’ the Company and its subsidiaries;

• ‘‘Mr. Lim’’ Mr. Lim Por Yen; ‘‘Mr. Peter Lam’’ Mr. Lam Kin Ngok, Peter; ‘‘PRC’’ the People’s Republic of China (for the purpose of this circular excluding Hong Kong);

• ‘‘Sale and Purchase a conditional sale and purchase agreement dated 25th July, 2002 between Agreement’’ LSG, Joy Mind and Mr. Peter Lam whereby Mr. Peter Lam agrees to acquire an aggregate of 1,582,869,192 shares in LSD, representing approximately 42.25% of the issued share capital of LSD, from LSG and Joy Mind at the aggregate consideration of HK$200 million subject to the terms and conditions contained therein;

‘‘SDI Ordinance’’ the Securities (Disclosure of Interests) Ordinance (Chapter 396 of the Laws of Hong Kong);

— 2 —

DEFINITIONS

‘‘SFC’’ the Securities and Futures Commission of Hong Kong; ‘‘Share(s)’’ ordinary share(s) of HK$0.50 each in the ordinary share capital of the Company; ‘‘Shareholders’’ holders of Shares; ‘‘Stock Exchange’’ The Stock Exchange of Hong Kong Limited; ‘‘Supplemental Deed’’ a conditional deed dated 25th July, 2002 between Mr. Lim and LSG whereby the Loan Note is supplemented and amended to the effect that LSG shall have the right at any time after the date of the Loan Note to prepay the Loan or any amount thereof and undertakes further to prepay a sum of HK$200 million to Mr. Lim subject to the terms and conditions contained therein; ‘‘Takeovers Code’’ Hong Kong Code on Takeovers and Mergers; ‘‘HK$’’ Hong Kong dollars; ‘‘RMB’’ Renminbi, the lawful currency of the PRC; and ‘‘%’’ per cent.

— 3 —

LETTER FROM THE BOARD

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L A I S U N G A R M E N T

Directors:

Lim Por Yen (Chairman and Managing Director) Lam Kin Ngok, Peter (Deputy Chairman) Lam Kin Ming (Deputy Chairman) Chiu Wai Shiu Kai Wah Lee Po On Lam Kin Hong, Matthew U Po Chu Lai Yuen Fong Lam Wai Kei, Vicky[#] Wan Yee Hwa, Edward[] Leung Shu Yin, William[]

Registered Office: 11th Floor Lai Sun Commercial Centre 680 Cheung Sha Wan Road Kowloon Hong Kong

• Alternate director to Madam Lai Yuen Fong * Independent Non-executive Director

15th August, 2002

To the Shareholders

Dear Sir or Madam,

DISCLOSEABLE AND CONNECTED TRANSACTIONS

FAMILY ARRANGEMENT INVOLVING SHAREHOLDINGS IN LAI SUN GARMENT (INTERNATIONAL) LIMITED AND LAI SUN DEVELOPMENT COMPANY LIMITED

INTRODUCTION

On 25th July, 2002, the Directors and the directors of LSD jointly announced that on 25th July, 2002, the following agreements/deeds were executed:

• (1) a conditional deed of gift executed by Mr. Lim in favour of his son, Mr. Peter Lam, whereby Mr. Lim agrees to gift over a sum of HK$200 million to Mr. Peter Lam subject to the terms and conditions contained therein;

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LETTER FROM THE BOARD

• (2) a conditional sale and purchase agreement between LSG, Joy Mind and Mr. Peter Lam whereby Mr. Peter Lam agrees to acquire an aggregate of 1,582,869,192 shares in LSD, representing approximately 42.25% of the issued share capital of LSD, from LSG and Joy Mind at the aggregate consideration of HK$200 million subject to the terms and conditions contained therein;

• (3) a conditional sale and purchase agreement between Mr. Lim and Mr. Peter Lam whereby Mr. Peter Lam agrees to acquire 197,859,550 shares of LSD, representing approximately 5.28% of the issued share capital of LSD, in consideration of the transfer and the assignment of 110,794,951 shares in LSG, representing approximately 7.71% of the issued share capital of LSG, beneficially owned by Mr. Peter Lam to Mr. Lim subject to the terms and conditions contained therein; and

• (4) a conditional deed between Mr. Lim and LSG whereby the Loan Note is supplemented and amended to the effect that LSG shall have the right at any time after the date of the Loan Note to prepay the Loan or any amount thereof and undertakes further to prepay a sum of HK$200 million to Mr. Lim subject to the terms and conditions contained therein.

All the above agreements and deeds shall be completed simultaneously with the others so that if any of these agreements/deeds shall not or cannot be completed for any reason, the parties under all these agreements/deeds will not be obliged to complete any of the agreements/deeds.

DEED OF GIFT

Date

25th July, 2002

Parties

• (1) Mr. Lim

• (2) Mr. Peter Lam

• Key Terms

Mr. Lim shall give to Mr. Peter Lam HK$200 million by way of a gift out of affection and love.

Condition

Effectuation of the gift under the Deed of Gift is conditional upon the entering into of the Sale and Purchase Agreement and the Sale and Purchase Agreement having become unconditional in all respects in accordance with its terms.

Completion

Effectuation of the gift under the Deed of Gift shall take place simultaneously with completion of the Asset Swap Agreement and the Sale and Purchase Agreement, so that if either the Asset Swap Agreement or the Sale and Purchase Agreement shall not or cannot be completed on the date of completion of the Deed of Gift for any reason, Mr. Lim shall not be obliged to effectuate the gift of HK$200 million to Mr. Peter Lam to complete the Deed of Gift.

— 5 —

LETTER FROM THE BOARD

SALE AND PURCHASE AGREEMENT

Date

25th July, 2002

Parties

• (1) LSG

• (2) Joy Mind

• (3) Mr. Peter Lam

Key Term

Mr. Peter Lam shall acquire:

• (i) 1,433,773,126 ordinary shares of LSD, representing approximately 38.27% of the issued share capital of LSD from LSG at the consideration of HK$181,161,290.30 payable in cash on completion; and

• (ii) 149,096,066 ordinary shares of LSD, representing approximately 3.98% of the issued share capital of LSD from Joy Mind at the consideration of HK$18,838,709.70 payable in cash on completion.

The aggregate consideration of HK$200 million will be satisfied by Mr. Peter Lam by using the HK$200 million gifted to him by Mr. Lim pursuant to the Deed of Gift.

The consideration of approximately HK$0.126 per LSD share payable by Mr. Peter Lam under the Sale and Purchase Agreement represents a 57.5% premium on the closing price of LSD shares of HK$0.08 on 25th July, 2002. Based on the closing price of LSD shares of HK$0.08 on 25th July, 2002, the aggregate value of 1,582,869,192 LSD shares to be acquired by Mr. Peter Lam is HK$126,629,535.36.

Conditions

Completion of the Sale and Purchase Agreement is conditional upon the approval of the Sale and Purchase Agreement and the transactions contemplated therein by the Shareholders at a general meeting of LSG (at which Mr. Lim, Mr. Peter Lam, their respective associates and such other persons or entities as may be directed by the Stock Exchange shall abstain from voting).

Each of LSG, Joy Mind and Mr. Peter Lam shall use its/his best endeavours to procure the fulfilment of the condition on or before 30th September, 2002 or such later date as may be agreed between LSG, Joy Mind and Mr. Peter Lam. If the condition has not been fulfilled on or before 30th September, 2002 or such later date as may be agreed between LSG, Joy Mind and Mr. Peter Lam, the Sale and Purchase Agreement shall be automatically terminated and no party shall have any claim against any other party save in respect of any antecedent breach.

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LETTER FROM THE BOARD

Completion

Completion of the Sale and Purchase Agreement shall take place simultaneously with completion of the Deed of Gift and the Asset Swap Agreement so that if either the Deed of Gift or the Asset Swap Agreement shall not or cannot be completed on the date of completion of the Sale and Purchase Agreement for any reason, the parties to the Sale and Purchase Agreement shall not be obliged to complete the Sale and Purchase Agreement.

ASSET SWAP AGREEMENT

Date

25th July, 2002

Parties

• (1) Mr. Lim

• (2) Mr. Peter Lam

Key Terms

Mr. Peter Lam shall acquire 197,859,550 ordinary shares of LSD, representing approximately 5.28% of the issued share capital of LSD from Mr. Lim in consideration of the transfer and assignment of 110,794,951 ordinary shares of LSG, representing approximately 7.71% of the issued share capital of LSG, by Mr. Peter Lam to Mr. Lim.

Based on the closing price of LSD shares of HK$0.08 on 25th July, 2002, the aggregate value of 197,859,550 LSD shares to be acquired by Mr. Peter Lam under the Asset Swap Agreement is HK$15,828,764.

Condition

Completion of the Asset Swap Agreement is conditional upon the Sale and Purchase Agreement being entered into and having become unconditional in all respects in accordance with its terms.

Each of Mr. Lim and Mr. Peter Lam shall use his best endeavours to procure the fulfilment of the condition on or before 30th September, 2002 or such later date as may be agreed between Mr. Lim and Mr. Peter Lam. If the condition has not been fulfilled on or before 30th September, 2002 or such later date as may be agreed between Mr. Lim and Mr. Peter Lam, the Asset Swap Agreement shall be automatically terminated and no party shall have any claim against the other party save in respect of any antecedent breach.

Completion

Completion of the Asset Swap Agreement shall take place simultaneously with completion of the Deed of Gift and the Sale and Purchase Agreement, so that if either the Deed of Gift or the Sale and Purchase Agreement shall not or cannot be completed on the date of completion for any reason, the parties to the Asset Swap Agreement shall not be obliged to complete the Asset Swap Agreement.

— 7 —

LETTER FROM THE BOARD

SUPPLEMENTAL DEED

Date

25th July, 2002

Parties

• (1) Mr. Lim

• (2) LSG

• Key Terms

• (i) The Loan Note shall be supplemented and amended to the effect that LSG shall have the right at any time after the date of the Loan Note to prepay the Loan or any amount thereof.

• (ii) LSG undertakes further to prepay a sum of HK$200 million to Mr. Lim.

The prepayment of HK$200 million to Mr. Lim will be satisfied by using the aggregate consideration of HK$200 million received by LSG and Joy Mind pursuant to the Sale and Purchase Agreement.

Conditions

The Supplemental Deed shall only take effect upon fulfilment of the following conditions:

• (i) the Sale and Purchase Agreement becoming unconditional in all respects in accordance with its terms; and

• (ii) the approval of the Supplemental Deed and the transactions contemplated thereunder by the Shareholders at a general meeting of LSG (at which Mr. Lim, his associates and such other persons or entities as may be directed by the Stock Exchange shall abstain from voting) being obtained.

Each of Mr. Lim and LSG shall use his/its best endeavours to procure the fulfilment of the conditions on or before 30th September, 2002 or such later date as may be agreed between Mr. Lim and LSG. If the conditions have not been fulfilled on or before 30th September, 2002 or such later date as may be agreed between Mr. Lim and LSG, the Supplemental Deed shall be automatically terminated and no party shall have any claim against the other party save in respect of any antecedent breach.

Completion

The Supplemental Deed shall only take effect simultaneously upon completion of the Sale and Purchase Agreement so that if the Sale and Purchase Agreement shall not or cannot be completed for any reason, the amendments to the Loan Note under the Supplemental Deed to provide for LSG’s right of prepayment of the Loan shall not take effect and LSG shall not be obliged to prepay HK$200 million to Mr. Lim under the Supplemental Deed.

— 8 —

LETTER FROM THE BOARD

SHAREHOLDING STRUCTURE

The shareholding structure of LSG and LSD held by members of the Lim Family before and after completion of the above agreements and deeds are as follows:

Before

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

Mr. Lim Mr. Peter Lam
Madam U Madam Lai
Po Chu Yuen Fong
0.02% 0.26% 0.31% 33.73% 7.71% 0.27%
LSG
5.28%
42.25%
LSD
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----- Start of picture text -----

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

Mr. Lim Mr. Peter Lam
41.44%
Madam Lai Madam U
Yuen Fong Po Chu
0.31% 0.26% 0.02% 47.80%
LSG LSD
----- End of picture text -----

REASONS FOR AND BENEFITS OF THE REORGANISATION

The reorganisation is a family arrangement to effect a redistribution of the listed assets directly owned by the members of the Lim Family. Insofar as LSG is concerned, LSD has been suffering from substantial financial losses in the past several years, and has been unable to declare any dividend over this period. The disposal of LSG’s shareholding interests in LSD at a premium to trading value represents therefore an opportunity for the LSG Group to realise a substantial value on its investment in LSD. More importantly, the rationalisation enables LSG to eliminate any future group losses contributed by LSD on consolidation. Finally, the realisation of proceeds will enable the LSG Group to reduce its indebtedness to Mr. Lim by HK$200 million, further lowering the group’s debt exposure.

— 9 —

LETTER FROM THE BOARD

FINANCIAL EFFECTS OF THE REORGANISATION

Pro Forma Net Tangible Assets of the LSG Group

Upon the completion of the disposal of approximately 42.25% interest in LSD, the pro forma net tangible asset value of the LSG Group will, subject to audit confirmation, decrease by approximately HK$718 million from HK$3,633 million to HK$2,915 million.

Net assets of the LSG Group based on unaudited net assets of the LSG Group as at 31st January, 2002 shown in the interim report of LSG for the six months ended 31st January, 2002 Less: Goodwill on consolidation of subsidiaries Net tangible asset value based on the unaudited consolidated balance sheet of LSG Group as at 31st January, 2002 Less: Changes in LSG Group’s share of 42.25% of the net asset value of LSD Group immediately after the Lai Fung Transaction (as defined in the circular dated 16th January, 2002 issued to the Shareholders) Add: Attributable share of 25.4% of the net asset value of the Lai Fung Group by LSG (calculated based on the unaudited net asset value of the Lai Fung Group as at 31st January, 2002) immediately after the Lai Fung Transaction Less: Negative goodwill arising on the acquisition of 25.4% equity interest in the Lai Fung Group Less: The amount of the Loan Note Adjusted net tangible asset value of the LSG Group upon completion of the Lai Fung Transaction on 30th April, 2002 before adding back the negative goodwill Add: Negative goodwill arising on acquisition of 25.4% equity interest in Lai Fung Adjusted net tangible asset value of the LSG Group immediately before the disposal of 42.25% interest in LSD Add: Consideration receivable for the disposal of 42.25% interest in LSD Less: Attributable share of net assets of approximately 42.25% interest in LSD to be disposed of (Note 1) Unaudited adjusted net tangible asset value of the LSG Group immediately after the disposal of 42.25% interest in LSD

HK$ million 3,043 (117) 2,926 (517) 1,449 (889) (225) 2,744 889 3,633 200 (918) 2,915

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LETTER FROM THE BOARD

Note 1:

Unaudited net assets of the LSD Group as at 31st January, 2002 Decrease in pro forma net assets upon completion of the Lai Fung Transaction on 30th April, 2002 Unaudited adjusted net assets of the LSD Group Attributable share of net assets of approximately 42.25% interest in LSD to be disposed of	HK$ million 3,397 (1,223) 2,174 918

Earnings

Despite a decrease in the net asset value of the LSG Group will occur upon the completion of the disposal of 42.25% interest in LSD, a net profit of approximately HK$2,634 million will be credited to the profit and loss account of the LSG Group due to the release upon such disposal of the various reserves attributed to the LSD Group.

INFORMATION ON LSD

LSD is a company incorporated in Hong Kong whose shares are listed on the Stock Exchange. The principal businesses of LSD include property investment and development and its principal investments comprise various property holdings in Hong Kong that are held for rental purposes, as well as its shareholding interests in eSun Holdings Limited, a company incorporated in Bermuda whose shares are also listed on the Stock Exchange.

The unaudited consolidated net loss before and after taxation and minority interests of LSD for the six months ended 31st January, 2002 amounted to approximately HK$266,990,000 and HK$289,557,000 respectively. The unaudited net asset value of LSD was approximately HK$3,397,302,000 as at 31st January, 2002. The audited consolidated net loss before taxation and minority interests of LSD amounted to approximately HK$1,155,522,000 and HK$3,524,199,000 for the years ended 31st July, 2001 and 2000 respectively. The audited consolidated net loss after taxation and minority interests of LSD amounted to approximately HK$1,196,182,000 and HK$2,757,982,000 for the years ended 31st July, 2001 and 2000 respectively. The audited net asset value of LSD was approximately HK$3,866,315,000 and HK$6,382,428,000 as at 31st July, 2001 and 2000 respectively.

INFORMATION ON LSG

LSG is a company incorporated in Hong Kong whose shares are listed on the Stock Exchange. LSG is a holding company and its principal investments comprise its shareholding interests in LSD, Lai Fung and Crocodile whose shares are also listed on the Stock Exchange.

The unaudited consolidated net loss before and after taxation and minority interests of LSG for the six months ended 31st January, 2002 amounted to approximately HK$204,259,000 and HK$214,459,000 respectively. The unaudited net asset value of LSG was approximately HK$3,042,944,000 as at 31st January, 2002. The audited consolidated net loss before taxation and minority interests of LSG amounted to approximately HK$608,191,000 and HK$3,035,468,000 for the years ended 31st July, 2001 and 2000 respectively. The audited consolidated net loss after taxation and minority interests of LSG amounted to approximately HK$629,436,000 and HK$1,055,830,000 for the years ended 31st July, 2001 and 2000 respectively. The audited net asset value of LSG was approximately HK$3,258,486,000 and HK$3,260,534,000 as at 31st July, 2001 and 2000 respectively.

— 11 —

LETTER FROM THE BOARD

CONNECTION BETWEEN PARTIES AND THE REQUIREMENT OF INDEPENDENT SHAREHOLDERS’ APPROVAL

The Lim Family is currently interested in 603,907,491 Shares (approximately 42% of the issued share capital of LSG), among which, Mr. Lim owns 484,991,750 Shares (approximately 33.73%), Mr. Peter Lam owns 110,794,951 Shares (approximately 7.71%), Madam Lai Yuen Fong (a spouse of Mr. Lim) owns 4,451,790 Shares (approximately 0.31%) and Madam U Po Chu (a spouse of Mr. Lim) owns 3,669,000 Shares (approximately 0.26%).

The Lim Family is also currently interested in 208,592,535 shares of LSD (approximately 5.57% of the issued share capital of LSD), among which Mr. Lim owns 197,859,550 shares (approximately 5.28%), Mr. Peter Lam owns 10,099,585 shares (approximately 0.27%), and Madam U Po Chu owns the remaining 633,400 shares (approximately 0.02%).

Mr. Lim is the Chairman, managing director and a substantial shareholder (as defined under the Listing Rules) of LSG and the Honorary Chairman of LSD. Mr. Peter Lam is the Deputy Chairman of LSG and the Chairman and President of LSD. Mr. Lim and Mr. Peter Lam are therefore regarded as connected persons of LSG under the Listing Rules. The transactions contemplated under the Sale and Purchase Agreement constitute discloseable and connected transactions for LSG under the Listing Rules and the transactions contemplated under the Supplemental Deed constitute connected transactions for LSG under the Listing Rules. Therefore, the Sale and Purchase Agreement and the Supplemental Deed and the transactions contemplated thereunder are subject to the approval of the Independent Shareholders at the Extraordinary General Meeting, at which members of the Lim Family who hold Shares shall abstain from voting at the Extraordinary General Meeting in respect of the relevant resolution.

After completion of the Sale and Purchase Agreement and the Asset Swap Agreement, Mr. Peter Lam’s shareholding interest in LSD will increase to more than 30% of the issued share capital of LSD. After completion of the Asset Swap Agreement, Mr. Lim’s shareholding interest in LSG will increase by more than 2% of the issued share capital of LSG. A waiver has been granted by the SFC under Note 6(a) to Rule 26.1 of the Takeovers Code. Accordingly, (i) no general offer is required to be made by Mr. Peter Lam or any parties acting in concert with him to the shareholders of LSD to acquire shares of LSD other than those held by Mr. Peter Lam and parties acting in concert with him; and (ii) no general offer is required to be made by Mr. Lim or any parties acting in concert with him to the Shareholders to acquire Shares other than those held by Mr. Lim and parties acting in concert with him.

EXTRAORDINARY GENERAL MEETING

A notice of Extraordinary General Meeting to be held at 10: 00 a.m. on Wednesday, 4th September, 2002 at The Chater Room III, Basement 1, The Ritz-Carlton Hong Kong, 3 Connaught Road Central, Hong Kong, is set out on pages 31 to 32 of this circular. An ordinary resolution will be proposed at the Extraordinary General Meeting to approve the Sale and Purchase Agreement and the Supplemental Deed and the transactions contemplated thereunder. The Independent Board Committee has been formed to advise the Independent Shareholders in respect of the Sale and Purchase Agreement and the Supplemental Deed. Mr. Lim, Madam U Po Chu (being a spouse of Mr. Lim), Madam Lai Yuen Fong (being a spouse of Mr. Lim) and Mr. Peter Lam (being a son of Mr. Lim) together with their respective associates will abstain from voting on the ordinary resolution at the Extraordinary General Meeting.

A form of proxy for use at the Extraordinary General Meeting is enclosed. Whether or not you are able to attend the meeting, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and return it to the Company’s Registrars, Tengis Limited, at 4th Floor, Hutchison House, 10 Harcourt Road, Central, Hong Kong as soon as possible and in any event not less than

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LETTER FROM THE BOARD

48 hours before the time appointed for holding the Extraordinary General Meeting. Completion and return of the form of proxy shall not preclude you from attending and voting in person at the Extraordinary General Meeting should you so wish.

RECOMMENDATION

As stated in its letter, which is set out on pages 14 to 15 of this circular, the Independent Board Committee, having taken into account the advice of AMS Corporate Finance, considers that the terms of the Sale and Purchase Agreement and the Supplemental Deed are fair and reasonable so far as the interests of the Company and the Independent Shareholders taken as a whole are concerned and recommends the Independent Shareholders to vote in favour of the ordinary resolution to be proposed at the Extraordinary General Meeting. The letter of advice from AMS Corporate Finance is set out on pages 16 to 25 of this circular.

ADDITIONAL INFORMATION

Your attention is drawn to the text of the letter from the Independent Board Committee set out on pages 14 to 15 of this circular which contains its recommendation to the Independent Shareholders as to voting on the ordinary resolution to be proposed at the Extraordinary General Meeting for approving the Sale and Purchase Agreement and the Supplemental Deed, the letter from AMS Corporate Finance set out on pages 16 to 25 of this circular which contains, amongst other matters, its advice to the Independent Board Committee as regards the Sale and Purchase Agreement and the Supplemental Deed together with the principal factors for its advice. Your attention is also drawn to the general information set out in the Appendix to this circular.

Yours faithfully, For and on behalf of the Board of Lai Sun Garment (International) Limited Lam Kin Ming Deputy Chairman

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

The following is the text of the letter from the Independent Board Committee giving its advice to the Independent Shareholders.

==> picture [42 x 63] intentionally omitted <==

L A I S U N G A R M E N T

15th August, 2002

To the Independent Shareholders

Dear Sir or Madam,

DISCLOSEABLE AND CONNECTED TRANSACTIONS

FAMILY ARRANGEMENT INVOLVING SHAREHOLDINGS IN LAI SUN GARMENT (INTERNATIONAL) LIMITED AND LAI SUN DEVELOPMENT COMPANY LIMITED

We refer to the circular (the ‘‘Circular’’) dated 15th August, 2002 issued by the Company to its Shareholders, of which this letter forms part. The terms defined in the Circular shall have the same meanings when used in this letter, unless the context requires otherwise.

We have been appointed by the Board to constitute the Independent Board Committee to advise the Independent Shareholders on the Sale and Purchase Agreement and the Supplemental Deed and to make a recommendation as to voting at the Extraordinary General Meeting. AMS Corporate Finance has been appointed as independent financial adviser to advise the Independent Board Committee on the fairness and reasonableness of the terms of the Sale and Purchase Agreement and the Supplemental Deed so far as the Independent Shareholders are concerned.

Your attention is drawn to the letter from the Board set out on pages 4 to 13 of the Circular and the letter from AMS Corporate Finance set out on pages 16 to 25 of the Circular which contains, amongst other things, its advice and recommendation to us regarding the Sale and Purchase Agreement and the Supplemental Deed together with principal factors and reasons for its advice and recommendation.

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Having taken into account the advice and recommendation of AMS Corporate Finance, we consider that the terms of the Sale and Purchase Agreement and the Supplemental Deed are fair and reasonable and in the interests of the Company and the Independent Shareholders taken as a whole. Accordingly, we recommend that the Independent Shareholders should vote in favour of the resolution to be proposed at the Extraordinary General Meeting for approving the Sale and Purchase Agreement, the Supplemental Deed and the transactions contemplated thereunder.

Yours faithfully, For and on behalf of

the Independent Board Committee of Lai Sun Garment (International) Limited Wan Yee Hwa, Edward Leung Shu Yin, William Director Director

— 15 —

LETTER FROM AMS CORPORATE FINANCE LIMITED

The following is the text of the letter from AMS Corporate Finance in connection with the Sale and Purchase Agreement and the Supplemental Deed and is prepared for the purpose of incorporation in this circular.

20th Floor

Hong Kong Diamond Exchange Building 8–10 Duddell Street Central Hong Kong

15th August, 2002

• To the Independent Board Committee of Lai Sun Garment (International) Limited

Dear Sirs,

DISCLOSEABLE AND CONNECTED TRANSACTIONS:

SALE AND PURCHASE AGREEMENT AND SUPPLEMENTAL DEED

INTRODUCTION

We refer to our appointment to advise the Independent Board Committee in respect of the Sale and Purchase Agreement and the Supplemental Deed, details of which are set out in the circular dated 15th August, 2002 issued to the Shareholders (the ‘‘Circular’’), of which this letter forms part. Terms used in this letter shall have the same meanings as defined in the Circular unless the context requires otherwise.

It was announced jointly by the Company and LSD that the Deed of Gift, the Sale and Purchase Agreement, the Asset Swap Agreement and the Supplemental Deed (the ‘‘Four Instruments’’) were executed on 25th July, 2002. In summary, the Four Instruments aim to effect a redistribution of listed assets owned by members of the Lim Family as follows:

• (i) Deed of Gift

• Mr. Lim shall give to Mr. Peter Lam HK$200 million by way of a gift.

• (ii) Sale and Purchase Agreement Mr. Peter Lam shall use the HK$200 million gifted to him under the Deed of Gift to acquire from the Company and Joy Mind an aggregate of 1,582,869,192 ordinary shares of LSD.

• (iii) Asset Swap Agreement

• Mr. Peter Lam shall transfer to Mr. Lim 110,794,951 ordinary shares of the Company held by him in exchange for 197,859,550 ordinary shares of LSD held by Mr. Lim.

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LETTER FROM AMS CORPORATE FINANCE LIMITED

(iv) Supplemental Deed

• The Loan Note shall be amended to the effect that the Company shall have the right at any time to prepay any amount of the Loan and that, using the HK$200 million receivable from Mr. Peter Lam under the Sale and Purchase Agreement, the Company undertakes to prepay a sum of HK$200 million to Mr. Lim.

Details of the Four Instruments and their effects on the shareholding structure of the Company and LSD are set out in the Letter from the Board contained in the Circular. Completion of the transactions contemplated under the Four Instruments are inter-conditional and shall take place simultaneously with one another. In particular, the Sale and Purchase Agreement constitutes a discloseable and connected transaction of the Company under the Listing Rules and the Supplemental Deed constitutes a connected transaction of the Company under the Listing Rules. Therefore, both the Sale and Purchase Agreement and the Supplemental Deed are subject to approval of the Independent Shareholders at a general meeting of the Company, at which members of the Lim Family who hold Shares shall abstain from voting in respect of the relevant resolution.

This letter contains our advice to the Independent Board Committee as to whether the terms of each of the Sale and Purchase Agreement and the Supplemental Deed are fair and reasonable as far as the Independent Shareholders are concerned.

In formulating our opinion, we have relied on the information and representations contained or referred to in the Circular and the information and representations provided to us by the Company and the Directors. We have assumed that all information and representations contained or referred to in the Circular and all information and representations which have been provided by the Company and the Directors, for which they are solely and wholly responsible, were true and accurate at the time when they were made and continue to be true and accurate at the date hereof. The Directors have confirmed, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed in the Circular have been arrived at after due and careful consideration and there are no other facts not contained in the Circular the omission of which would make any statement in the Circular, including this letter, misleading.

We consider that we have reviewed sufficient information to reach an informed view, to justify our reliance on the information provided to us and to provide a reasonable basis for our opinion. We have no reason to suspect that any relevant information has been withheld, nor are we aware of any facts or circumstances which would render the information provided and the representations made to us untrue, inaccurate or misleading. We have not, however, carried out any independent verification of the information provided, nor have we conducted any form of in-depth investigation into the business and affairs of the Company or LSD or any of their respective subsidiaries.

SALE AND PURCHASE AGREEMENT

Factors considered

In formulating our opinion regarding the Sale and Purchase Agreement, we have taken into consideration the following principal factors and reasons:

1. Consideration

Under the Sale and Purchase Agreement, Mr. Peter Lam shall acquire:

• 1,433,773,126 ordinary shares of LSD (each an ‘‘LSD Share’’) from LSG at the consideration of HK$181,161,290.30; and

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LETTER FROM AMS CORPORATE FINANCE LIMITED

• 149,096,066 LSD Shares from Joy Mind at the consideration of HK$18,838,709.70;

in each case, representing approximately HK$0.126 per LSD Share (the ‘‘Consideration per LSD Share’’).

The Consideration per LSD Share represents a 57.5% premium on the closing price of HK$0.08 per LSD Share on 25th July, 2002, being the date of the Sale and Purchase Agreement.

Compared to historical market price

The following chart illustrates the trend of the closing prices of the LSD Shares during the 12-month period up to 25th July, 2002, being the date of the Sale and Purchase Agreement.

==> picture [364 x 175] intentionally omitted <==

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

0.30
0.25
0.20
Consideration per LSD Share (HK$0.126)
0.15
0.10
0.05
0
Jun-01 Jul-01 Aug-01 Sep-01 Oct-01 Nov-01 Dec-01 Jan-02 Feb-02 Mar-02 Apr-02 May-02 Jun-02 Jul-02
Closing price per Share (HK$)
----- End of picture text -----

Set out below are the highest, lowest and average closing price of the LSD Shares of each month of the period from 26th July, 2001 to 25th July, 2002.

	Highest	Lowest	Average
	closing	closing	closing	Premium/
Month	price	price	price	(Discount)
	(HK$)	(HK$)	(HK$)	(%)
				(Note)
2001
July (from 26th)	0.182	0.179	0.1808	(30.31)
August	0.180	0.145	0.1637	(23.03)
September	0.148	0.106	0.1261	(0.08)
October	0.125	0.112	0.1188	6.06
November	0.136	0.110	0.1231	2.36
December	0.166	0.128	0.1486	(15.21)

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LETTER FROM AMS CORPORATE FINANCE LIMITED

	Highest	Lowest	Average
	closing	closing	closing	Premium/
Month	price	price	price	(Discount)
	(HK$)	(HK$)	(HK$)	(%)
				(Note)
2002
January	0.158	0.121	0.1356	(7.08)
February	0.120	0.105	0.1117	12.80
March	0.125	0.105	0.1125	12.00
April	0.112	0.096	0.1055	19.43
May	0.143	0.118	0.1342	(6.11)
June	0.126	0.103	0.1169	7.78
July (up to 25th)	0.151	0.078	0.1010	24.75
Yearly average			0.1266	(0.47)

Note: Premium/Discount as represented by the Consideration per LSD Share over the average closing price of the relevant month or period.

As indicated in the table above, during the 12 months prior to the date of the Sale and Purchase Agreement, the LSD Shares have been traded at around or below the Consideration per LSD Share for roughly half of the time, with the rest above. The Consideration per LSD Share is almost at par with the 12-month average closing price of the LSD Shares.

Compared to net tangible asset value

The Consideration per LSD Share represents:

• a discount of approximately 87.79% to the audited consolidated net tangible asset value of LSD as at 31st July, 2001 of approximately HK$1.032 per LSD Share (based on HK$3,866,315,000 divided by 3,746,002,000 LSD Shares);

• a discount of approximately 86.11% to the unaudited consolidated net tangible asset value of LSD as at 31st January, 2002 of approximately HK$0.907 per LSD Share (based on HK$3,397,302,000 divided by 3,746,002,000 LSD Shares); and

• a discount of approximately 77.58% to the unaudited pro forma adjusted consolidated net tangible asset value of LSD after completion of the exchange of shares in Lai Fung and Asia Television Limited of approximately HK$0.562 per LSD Share (based on HK$2,104,000,000 as disclosed in the circular issued by LSD on 16th January, 2002 divided by 3,746,002,000 LSD Shares).

— 19 —

LETTER FROM AMS CORPORATE FINANCE LIMITED

For comparison purposes, we have reviewed two categories of companies which are listed on the Stock Exchange: (i) those which are principally engaged in property investment and development in Hong Kong and hotel investment and operation (the ‘‘Reference Property Companies’’); and (ii) those constituent stocks of the Hang Seng Index which are principally engaged in property development and/or investment (the ‘‘HS Property Companies’’). Set out below are the discount percentages as represented by the share price to the net tangible asset value of the respective companies:

	Discount percentage of
	share price (note i)
	to net tangible asset
Name of Reference Property Companies	value per share (note ii)
Miramar Hotel & Investment Co., Ltd.	55.72%
Winfair Investment Company Limited	62.64%
Far East Hotel and Entertainment Limited	72.77%
Tai Sang Land Development Limited	73.22%
Wah Ha Realty Company Limited	81.42%
Tai Cheung Holdings Limited	83.79%
LSD	77.58%
Name of HS Property Companies
Sun Hung Kai Properties Limited	Premium 3.20%
Henderson Land Development Company Limited	11.15%
Hang Lung Properties Limited	12.98%
Cheung Kong (Holdings) Limited	17.07%
Sino Land Company Limited	61.09%
Hysan Development Company Limited	67.27%
Great Eagle Holdings Limited	73.09%
New World Development Company Limited	78.93%

Notes:

• i. Share price represents the closing price per share as quoted by the Stock Exchange on 25th July, 2002, being the date of the Sale and Purchase Agreement.

• ii. Net tangible asset value per share represents the net tangible asset value as indicated in the latest published financial statements divided by the total number of shares in issue as at the year/period end.

As shown above, the discount percentages of the Reference Property Companies range from approximately 55.72% to 83.79%. In respect of the HS Property Companies, the discount percentages range from approximately 11.15% to 78.93%, with one HS Property Company commanding a slight premium of approximately 3%.

While we could not identify any conclusive reasons for the discounts as indicated above, it appears as general market expectation in Hong Kong for property stocks, including blue-chip stocks, to be traded at a substantial discount to their net tangible asset value. In the case of LSD, we consider that the discount as represented by the share price of LSD to its net tangible asset

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LETTER FROM AMS CORPORATE FINANCE LIMITED

value may be attributable to its unfavourable operating performance and the deteriorating financial position (as described below under the paragraph headed ‘‘Realisation of equity stake in LSD’’).

In view of the fact that (i) most property stocks, including the blue chips, in Hong Kong have been trading at a substantial discount to their net tangible asset value; (ii) the discount of approximately 77.58% as represented by the Consideration per LSD Share to the unaudited pro forma adjusted consolidated net tangible asset value of LSD after completion of the exchange of shares in Lai Fung and Asia Television Limited of approximately HK$0.562 per LSD Share is within the range of the above-mentioned discount percentages of the Reference Property Companies; and (iii) the Consideration per LSD Share is almost at par with the average historical market price of the LSD Share during the year prior to the date of the Sale and Purchase Agreement, we are of the view that the consideration receivable by the Company and Joy Mind under the Sale and Purchase Agreement is fair and reasonable so far as the Independent Shareholders are concerned.

2. Payment terms

Under the Sale and Purchase Agreement, the total consideration of HK$200 million payable by Mr. Peter Lam to the Company and Joy Mind will be settled in cash on completion.

3. Reason for the Sale and Purchase Agreement

Redistribution of listed assets owned by the Lim Family

As indicated in the Letter from the Board in the Circular, the Four Instruments, including the Sale and Purchase Agreement, aim to effect a redistribution of listed assets owned by members of the Lim Family.

Realisation of equity stake in LSD

Insofar as the Company is concerned, the Sale and Purchase Agreement provides an opportunity for the Company to realize its entire equity interest in LSD at a premium over its trading value.

LSD is a company incorporated in Hong Kong whose shares are listed on the Stock Exchange. The principal businesses of the LSD Group include property investment and development and its principal investments comprise various property holdings in Hong Kong that are held for rental purposes, as well as its shareholding interests in eSun Holdings Limited, a company incorporated in Bermuda whose shares are also listed on the Stock Exchange.

— 21 —

LETTER FROM AMS CORPORATE FINANCE LIMITED

The LSD Group has reported net loss for over three financial years. Set out below are some financial highlights of the LSD Group:

				Six months
				ended
	Year ended 31st July,			31st January,
	1999	2000	2001	2002
	Audited	Audited	Audited	Unaudited
	HK$’million	HK$’million	HK$’million	HK$’million
Turnover	1,752	4,660	1,900	547
Net (loss) attributable to
Shareholders	(6,832)	(2,758)	(1,196)	(290)
	As at year/period		end
Net asset value	8,709	6,382	3,866	3,397

As indicated above, the LSD Group has reported audited net loss attributable to shareholders consecutively for three financial years. The audited consolidated net asset value of the LSD Group has also dwindled by over 55% in two years from about HK$8,709 million as at 31st July, 1999 to about HK$3,866 million as at 31st July, 2001.

It was mentioned in LSD’s interim report for the six months ended 31st January, 2002 (the ‘‘Interim Report’’) that the LSD Group has suffered from a decline in rental income as a result of the weakening economic confidence and dwindling income, both on the corporate and personal fronts, in Hong Kong. Following the 911 incident, the LSD Group’s hotel operations have experienced a considerable drop. The LSD Group also shared a significant loss incurred by its 49.9%-owned associate, eSun Holdings Limited, which has been striving for transforming into a multimedia production house.

As shown in the Interim Report, the LSD Group’s net current liabilities had increased by almost five times from about HK$975 million as at 31st July, 2001 to about HK$5,781 million as at 31st January, 2002. In addition, the LSD Group’s non-current liabilities amounted to over HK$2,069 million as at 31st January, 2002. Such substantial amount of liabilities, especially net current liabilities, may suggest a liquidity problem. In fact, it was stated in the Interim Report that the LSD Group would execute an asset disposal programme with a view to generating working capital to finance its operations and reducing its indebtedness. The LSD Group has also been working closely with its legal and financial advisers in formulating a plan for repayment and/or refinancing of its outstanding indebtedness.

On 30th April, 2002, LSD completed an acquisition to increase its shareholding in Asia Television Limited to approximately 32.75%. However, on 10th July, 2002, LSD announced that it has entered into a memorandum of understanding with an independent third party in relation to the sale of its entire interest in Asia Television Limited. As at the Latest Practicable Date, no further announcement regarding the development of this transaction had been announced by LSD. As such transaction is subject to a number of conditions and may or may not proceed, the prospects of the LSD Group’s media business remain uncertain.

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LETTER FROM AMS CORPORATE FINANCE LIMITED

In view of the uncertainties surrounding the future of the LSD Group and, particularly, in respect of its deteriorating financial position and the depressed general property market condition in Hong Kong, we concur with the Board’s view that the Sale and Purchase Agreement provides an opportunity for the LSG Group to realise its equity investment in LSD.

Remaining businesses of the LSG Group

Following the disposals under the Sale and Purchase Agreement, the LSG Group will continue to hold its principal investments in Crocodile and Lai Fung, the shares of both companies are listed on the Stock Exchange. Crocodile is principally engaged in the manufacture and sale of garments, and Lai Fung is principally engaged in property development and investment in the PRC.

The assets being disposed under the Sale and Purchase Agreement represent the LSG Group’s entire interest in an associated company, and are not a major part of the LSG Group’s business activities and the disposal of which is not expected to have a material impact on the LSG Group’s remaining business operations. The financial effects of the disposals under the Sale and Purchase Agreement are described in the paragraphs below. Although such disposals will not directly bring about any positive or negative impact on the remaining businesses of the LSG Group, we concur with the Board’s view that the rationalization of the LSG Group enables it to eliminate further losses contributed by the LSD Group given the current operating performance and financial position of the LSD Group. Furthermore, we consider that the rationalization also enables the LSG Group to focus its resources on its remaining businesses.

4. Financial effects on the LSG Group

Net tangible asset value

As indicated in the pro forma statement of the net tangible assets of the LSG Group in the Letter from the Board, the unaudited adjusted net tangible asset value of the LSG Group will, subject to audit confirmation, be reduced by approximately HK$718 million from HK$3,633 million to HK$2,915 million as a result of the disposals under the Sale and Purchase Agreement. Such reduction represents an amount of approximately HK$0.50 per Share based on 1,437,709,710 Shares in issue as at the Latest Practicable Date. Such reduction is due to the discount as represented by the consideration for disposals under the Sale and Purchase Agreement to the LSG Group’s attributable share of the net assets of the LSD Group. Despite such negative impact, Independent Shareholders are advised to consider other financial effects of the disposals under the Sale and Purchase Agreement on the LSG Group as described below.

Earnings

Despite the reduction in the net tangible asset value as a result of the disposals under the Sale and Purchase Agreement, it was stated in the letter from the Board in the Circular that a net profit of approximately HK$2,634 million would be credited to the profit and loss account of the LSG Group due to the release upon disposal of 42.25% interest in LSD of the various reserves attributed to the LSD Group. In view of its accounting and non-recurrent nature, we do not consider such profit of meaningful value as far as the Independent Shareholders are concerned.

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LETTER FROM AMS CORPORATE FINANCE LIMITED

Liquidity and indebtedness

As mentioned earlier, the consideration under the Sale and Purchase Agreement will be settled in cash upon completion. Therefore, the cash position of the LSG Group is expected to increase by HK$200 million as a result of the disposals under the Sale and Purchase Agreement. However, it should be noted that completion of the Sale and Purchase Agreement will take place simultaneously with the other transactions under the Deed of Gift, the Asset Swap Agreement and the Supplemental Deed. Under the Supplemental Deed, the Company undertakes to prepay a sum of HK$200 million to Mr. Lim. Accordingly, there will not be any change on the LSG Group’s cash position following completion of the Sale and Purchase Agreement simultaneously with the Supplemental Deed. Nonetheless, the indebtedness of the LSG Group will be reduced by HK$200 million as a result of completion of the Supplemental Deed.

Conclusion

Having considered the above principal factors and, in particular, the operating performance and financial position of the LSD Group, we concur with the Board’s view that the Sale and Purchase Agreement provides an opportunity for the LSG Group to realize its interests in LSD at a premium over its trading value and enables the LSG Group to eliminate the share of any losses that may be incurred by the LSD Group given the uncertainties surrounding its future as described under the paragraph headed ‘‘Realisation of equity stake in LSD’’ above. We also consider the terms of the Sale and Purchase Agreement to be fair and reasonable so far as the Independent Shareholders are concerned.

SUPPLEMENTAL DEED

Factors considered

1. Key terms of the Supplemental Deed

• (i) To amend the Loan Note to the effect that the Company shall have the right at any time to prepay the Loan or any amount thereof

While this amendment facilitates the performance of Mr. Lim’s undertaking given under the Supplemental Deed, it also gives the Company the flexibility to prepay the Loan for any amount and at any time as it desires.

• (ii) The Company undertakes to prepay a sum of HK$200 million to Mr. Lim

Since the prepayment of HK$200 million to Mr. Lim will be satisfied by using the aggregate consideration of HK$200 million to be received from Mr. Peter Lam by the LSG Group under the Sale and Purchase Agreement, there will not be any negative impact on the LSG Group’s financial position as a result of the Supplemental Deed.

2. Conditional on the Sale and Purchase Agreement

The Supplemental Deed shall only take effect upon, among other things, the Sale and Purchase Agreement becoming unconditional. Therefore, if the Supplemental Deed is not approved by the Independent Shareholders, the Sale and Purchase Agreement will not proceed, and vice versa.

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LETTER FROM AMS CORPORATE FINANCE LIMITED

We consider that the undertaking of prepayment under the Supplemental Deed facilitates Mr. Lim to gift a sum of HK$200 million to Mr. Peter Lam under the Deed of Gift. Such arrangements operate as ‘‘round robin’’ financing to provide Mr. Peter Lam with the funding for the consideration payable under the Sale and Purchase Agreement. For reasons as discussed under the section headed ‘‘Sale and Purchase Agreement’’ above, we consider the terms of the Sale and Purchase Agreement to be fair and reasonable. As the amount to be prepaid by the Company to Mr. Lim under the Supplemental Deed will be funded by the proceeds to be received under the Sale and Purchase Agreement, there will not be any negative impact on the LSG Group’s cash position following completion of the Sale and Purchase Agreement simultaneously with the Supplemental Deed. Accordingly, the Supplemental Deed is not expected to have any negative impact on the Company, and hence the Independent Shareholders. For the purpose of the disposals under the Sale and Purchase Agreement, the completion of which is conditional upon the Supplemental Deed taking effect, we are of the view that the arrangements under the Supplemental Deed are fair and reasonable so far as the Independent Shareholders are concerned.

3. Loan Note approved by Independent Shareholders

Independent Shareholders are reminded that the Loan Note, which is the subject matter of the Supplemental Deed, was approved by Independent Shareholders at the extraordinary general meeting of the Company held on 7th February, 2002 and details of which were set out in the circular issued to the Shareholders on 16th January, 2002.

Conclusion

Having considered the above factors, we consider that the terms of the Supplemental Deed are fair and reasonable so far as the Independent Shareholders are concerned.

RECOMMENDATION

Having considered the above principal factors and, in particular, the operating performance and financial position of the LSD Group, we consider that the Sale and Purchase Agreement is in the interest of the Company and the Shareholders taken as a whole and the terms of which are fair and reasonable as far as the Independent Shareholders are concerned. We also consider that the Supplemental Deed, which shall take effect simultaneously with the completion of the Sale and Purchase Agreement, is fair and reasonable so far as the Independent Shareholders are concerned. Accordingly, we recommend the Independent Board Committee to advise the Independent Shareholders to vote in favour of the resolution to approve the Sale and Purchase Agreement and the Supplemental Deed at the Extraordinary General Meeting.

Yours faithfully, For and on behalf of AMS Corporate Finance Limited Jinny Mok Director

— 25 —

GENERAL INFORMATION

APPENDIX

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the LSG Group. The Directors collectively and individually accept full responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief, there are no other facts not contained herein the omission of which would make any statement contained in this circular misleading.

2. DISCLOSURE OF INTERESTS BY DIRECTORS

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

(a) The Company

			Number of Shares	Held
	Personal	Family	Corporate	Other
	Interests	Interests	Interests	Interests	Total
Mr. Lim	484,991,750	Nil	Nil	Nil	484,991,750
Mr. Peter Lam	110,794,951	Nil	Nil	Nil	110,794,951
Chiu Wai	199,600	Nil	Nil	Nil	199,600
U Po Chu	3,669,000	Nil	Nil	Nil	3,669,000
Lai Yuen Fong	4,451,790	Nil	Nil	Nil	4,451,790

(b) Associated corporations

(i) LSD

		Number	of LSD Ordinary	Shares Held	Shares Held
	Personal	Family	Corporate	Other
	Interests	Interests	Interests	Interests	Total
Mr. Lim	197,859,550	Nil	1,582,869,192	Nil	1,780,728,742
			(Note)
Mr. Peter Lam	10,099,585	Nil	Nil	Nil	10,099,585
Chiu Wai	195,500	Nil	Nil	Nil	195,500
U Po Chu	633,400	Nil	Nil	Nil	633,400
Lam Wai Kei,	100,000	Nil	Nil	Nil	100,000
Vicky

Note: The Company and its wholly-owned subsidiary beneficially owned 1,582,869,192 ordinary shares in LSD. Mr. Lim was deemed to be interested in such shares by virtue of his interest (and those of his associates) of approximately 34.3% in the issued share capital of the Company. Mr. Lim, Mr. Peter Lam, Madam U Po Chu and Madam Lai Yuen Fong were Directors and held an interest of approximately 42% in aggregate in the issued share capital of the Company.

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GENERAL INFORMATION

APPENDIX

(ii) Lai Fung

			Number of Lai Fung	Number of Lai Fung	Shares Held
		Personal	Family	Corporate	Other
		Interests	Interests	Interests	Interests	Total
Mr.	Lim	Nil	Nil	1,767,125,360	Nil	1,767,125,360
				(Note)

Note: The Company and its wholly-owned subsidiary beneficially owned 1,767,125,360 shares in Lai Fung. Mr. Lim was deemed to be interested in such shares by virtue of his interest (and those of his associates) of approximately 34.3% in the issued share capital of the Company. Mr. Lim, Mr. Peter Lam, Madam U Po Chu and Madam Lai Yuen Fong were Directors and held an interest of approximately 42% in aggregate in the issued share capital of the Company.

(iii) Crocodile

			Number of	Crocodile Ordinary Shares	Crocodile Ordinary Shares	Held
		Personal	Family	Corporate	Other
		Interests	Interests	Interests	Interests	Total
Mr.	Lim	Nil	Nil	338,982,809	Nil	338,982,809
				(Note)
Lee	Po On	6,194,000	Nil	Nil	Nil	6,194,000

Note: The Company and its wholly-owned subsidiary beneficially owned 338,982,809 shares in Crocodile. Mr. Lim was deemed to be interested in such shares by virtue of his interest (and those of his associates) of approximately 34.3% in the issued share capital of the Company. Mr. Lim, Mr. Peter Lam, Madam U Po Chu and Madam Lai Yuen Fong were Directors and held an interest of approximately 42% in aggregate in the issued share capital of the Company.

In addition to the above, a Director held a non-beneficial interest in the share capital of a subsidiary of the Company as nominee shareholder, for the purpose of complying with the statutory requirement for a minimum number of shareholders for such subsidiary.

Save as disclosed herein, as at the Latest Practicable Date, none of the Directors or chief executive of the Company or their respective associates had any interests in the equity or debt securities of the Company or any of its associated corporations which were required to be notified to the Company and the Stock Exchange pursuant to section 28 of the SDI Ordinance (including the interests which they were deemed or taken to have under section 31 or Part I of the Schedule to the SDI Ordinance) or pursuant to the Code for Securities Transactions by Directors adopted by the Company or which were required, pursuant to section 29 of the SDI Ordinance, to be entered in the register referred to therein.

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GENERAL INFORMATION

APPENDIX

3. SUBSTANTIAL SHAREHOLDER

As at the Latest Practicable Date, according to the register kept by the Company pursuant to section 16 of the SDI Ordinance and so far as is known to, or can be ascertained after reasonable enquiry by the Directors or the chief executive of the Company, the following person was directly or indirectly interested in 10% or more of the issued share capital of the Company:

Name

Number of Shares Held

Mr. Lim

493,112,540 (Note)

Note: Mr. Lim’s interest in the said 493,112,540 Shares included 4,451,790 Shares and 3,669,000 Shares respectively held by Madam Lai Yuen Fong and Madam U Po Chu, the spouses of Mr. Lim, who were also deemed under the SDI Ordinance to have interest in Mr. Lim’s interest in the share capital of the Company.

Save for the person disclosed in this section, as at the Latest Practicable Date, no other person was recorded in the register kept pursuant to section 16 of the SDI Ordinance as having an interest in 10% or more of the issued share capital of the Company. The Directors are not aware of any person, other than the person (including his personal, family and corporate interests) as aforesaid, who was, directly or indirectly, interested in 10% or more of the issued share capital of the Company as at the Latest Practicable Date.

4. DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had entered or was proposing to enter into any service contract with the Company or any of its subsidiaries which does not expire or is not determinable by the employing company within one year without payment of compensation, other than statutory compensation.

5. DIRECTORS’ AND EXPERT’S INTERESTS IN ASSETS/CONTRACTS AND OTHER INTERESTS

On 22nd November, 2000, Mr. Lim entered into a loan agreement with the Company. Pursuant to the loan agreement, Mr. Lim agreed to make available to the Company a revolving loan facility of up to a maximum principal amount of HK$100 million. The loan facility was unsecured, interest-bearing at the best lending rate quoted by The Hongkong and Shanghai Banking Corporation Limited and was due for repayment on 30th November, 2002.

Save as disclosed above, no Director is materially interested in any contract or arrangement entered into by any member of the LSG Group subsisting at the date of this circular which is significant in relation to the business of the LSG Group.

AMS Corporate Finance does not have any shareholding, directly or indirectly, in any member of the LSG Group or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the LSG Group.

None of the Directors or AMS Corporate Finance has any direct or indirect interest in any assets which have been, since 31st July, 2001, being the date up to which the latest published audited consolidated accounts of the Company were made up, acquired or disposed of by or leased to any member of the LSG Group or are proposed to be acquired or disposed of by or leased to any member of the LSG Group.

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GENERAL INFORMATION

APPENDIX

6. MATERIAL ADVERSE CHANGE

Save as disclosed in this circular and previously publicly disclosed, the Directors are not aware of any material adverse change in the financial and trading position of the LSG Group since 31st July, 2001 (being the date up to which the latest published audited consolidated accounts of the Company were made up).

7. LITIGATION

As disclosed in the second paragraph of note 29 to the latest audited consolidated financial statements of the LSG Group as at 31st July, 2001 (the ‘‘Financial Statements’’) as published in the Company’s 2000– 2001 Annual Report, Crocodile, a subsidiary of the Company, is involved in legal disputes with a supplier, who alleges that Crocodile has infringed its trademark in the PRC and is seeking orders from the courts in the PRC for compensation of RMB3,500,000. In the opinion of the Directors, having taken legal advice, the claim for compensation against Crocodile is unlikely to be successful and, therefore, no provision has been made in the Financial Statements.

Save as disclosed above, neither the Company nor any of its subsidiaries is engaged in any litigation or arbitration of material importance and, so far as the Directors are aware, no litigation or arbitration of material importance is pending or threatened against the Company or any of its subsidiaries.

8. QUALIFICATION OF EXPERT

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

Name Qualification

AMS Corporate Finance an investment adviser registered under the Securities Ordinance (Chapter 333 of the Laws of Hong Kong)

9. CONSENT

AMS Corporate Finance has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter, report or opinion (as the case may be) and reference to its name in the form and context in which it appears.

10. GENERAL

• (a) The secretary of the Company is Mr. Yeung Kam Hoi, who is an Associate Member of The Institute of Chartered Secretaries and Administrators and The Hong Kong Institute of Company Secretaries and a member of Hong Kong Securities Institute.

• (b) The registered office of the Company is situated at 11th Floor, Lai Sun Commercial Centre, 680 Cheung Sha Wan Road, Kowloon, Hong Kong.

• (c) The Registrars and the transfer office of the Company are Tengis Limited at 4th Floor, Hutchison House, 10 Harcourt Road, Central, Hong Kong.

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

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GENERAL INFORMATION

APPENDIX

11. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during normal business hours at Room 903, Lai Sun Commercial Centre, 680 Cheung Sha Wan Road, Kowloon, Hong Kong on any business day from the date of this circular up to and including 4th September, 2002:

• (a) the Deed of Gift;

• (b) the Sale and Purchase Agreement;

• (c) the Asset Swap Agreement;

• (d) the Supplemental Deed;

• (e) the letter from the Independent Board Committee, the text of which is set out in this circular;

• (f) the letter from AMS Corporate Finance, the text of which is set out in this circular; and

• (g) the written consent from AMS Corporate Finance.

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NOTICE OF EXTRAORDINARY GENERAL MEETING

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L A I S U N G A R M E N T

NOTICE IS HEREBY GIVEN that the Extraordinary General Meeting of the Company will be held at The Chater Room III, Basement 1, The Ritz-Carlton Hong Kong, 3 Connaught Road Central, Hong Kong on Wednesday, 4th September, 2002 at 10: 00 a.m. for the purpose of considering and, if thought fit, passing, with or without modifications, the following resolution as an Ordinary Resolution:

ORDINARY RESOLUTION

‘‘THAT:

• (a) the sale and purchase agreement (the ‘‘Sale and Purchase Agreement’’) dated 25th July, 2002 entered into between Lai Sun Garment (International) Limited (the ‘‘Company’’), Joy Mind Limited and Mr. Lam Kin Ngok, Peter, a copy of which has been produced to this meeting marked ‘‘A’’ and signed by the chairman of this meeting for the purpose of identification, and the transactions contemplated thereunder be and are hereby approved, confirmed and ratified;

• (b) the supplemental deed (the ‘‘Supplemental Deed’’) dated 25th July, 2002 entered into between the Company and Mr. Lim Por Yen, a copy of which has been produced to this meeting marked ‘‘B’’ and signed by the chairman of this meeting for the purpose of identification, and the transactions contemplated thereunder be and are hereby approved, confirmed and ratified; and

• (c) the directors of the Company be and are hereby authorised on behalf of the Company (i) to sign, seal, execute, perfect, deliver and do all such documents, deeds, acts, matters and things as they may in their discretion consider necessary or desirable for the purpose of or in connection with the implementation of the Sale and Purchase Agreement and the Supplemental Deed and the exercise or enforcement of any of the Company’s rights under the Sale and Purchase Agreement and the Supplemental Deed including, inter alia, upon the Sale and Purchase Agreement and the Supplemental Deed becoming unconditional, the authority to complete the Sale and Purchase Agreement and the Supplemental Deed and/or to procure completion of the same, and (ii) to make and agree to such variations of a non-material nature in the terms of the Sale and Purchase Agreement and the Supplemental Deed as they may in their discretion consider to be desirable and in the interests of the Company.’’

By Order of the Board Yeung Kam Hoi Company Secretary

Hong Kong, 15th August, 2002

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NOTICE OF EXTRAORDINARY GENERAL MEETING

Registered Office: 11th Floor Lai Sun Commercial Centre 680 Cheung Sha Wan Road Kowloon Hong Kong

Notes:

1. Any member of the Company entitled to attend and vote at the meeting is entitled to appoint one or more proxies to attend and, on a poll vote in his stead. A proxy need not be a member of the Company.

2. Where there are joint registered holders of any share, any one of such persons may vote at the meeting, either personally or by proxy, in respect of such shares as if he were solely entitled thereto, but if more than one of such joint holders be present at the meeting personally or by proxy, that one of the said persons so present whose name stands first on the register of members in respect of such shares shall alone be entitled to vote in respect thereof.

3. A form of proxy for use at the meeting is enclosed.

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

5. Completion and return of the form of proxy will not preclude members from attending and voting in person at the meeting or at any adjourned meeting should they so wish.

6. Mr. Lim Por Yen, Mr. Lam Kin Ngok, Peter, Madam U Po Chu and Madam Lai Yuen Fong together with their respective associates (within the meaning of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited) will abstain from voting on the Ordinary Resolution.

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