Emperor Capital Group Ltd. — Proxy Solicitation & Information Statement 2005

Aug 4, 2005

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold all your shares in LUKS INDUSTRIAL (GROUP) LIMITED, you should at once hand this circular to the purchaser or transferee or to the bank, a stockbroker or other registered dealer in securities or other agent through whom the sale 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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LUKS INDUSTRIAL (GROUP) LIMITED 陸氏實業（集團）有限公司

(incorporated in Bermuda with limited liability)

(Stock Code: 366)

DISCLOSEABLE & CONNECTED TRANSACTION INVOLVING PROPOSED ACQUISITION OF 12.5% INTERESTS IN A NON-WHOLLY OWNED SUBSIDIARY

Financial Adviser

Polaris Securities (Hong Kong) Limited

Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders

A letter from the Board is set out on pages 4 to 10 of this circular and a letter from the Independent Board Committee is set out on page 11 of this circular. A letter from AMS, the independent financial adviser, containing its advice in respect of the Acquisition to the Independent Board Committee and the Independent Shareholders is set out on pages 12 to 25 of this circular.

4 August 2005

CONTENTS

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
The Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Shareholding structure of the Group before and
after completion of the Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Information on the Vendor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
Information on Luks Cement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
Reasons for the Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Listing Rules Implication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Major Shareholders’ consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
Additional information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
Letter from AMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
General Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	26

– i –

DEFINITIONS

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

• “Acquisition” the proposed acquisition by Luks Vietnam of the entire 12.5% equity interest in Luks Cement currently held by VFF

• “Agreement” the sale and purchase agreement dated 7 July 2005 entered into between Luks Vietnam and VFF pursuant to which Luks Vietnam has conditionally agreed to acquire the entire 12.5% equity interest in Luks Cement currently held by VFF

• “AMS” AMS Corporate Finance Limited, a corporation licensed under the SFO to carry on type 4, (advising on securities), type 6 (advising on corporate finance) and type 9 (asset management) regulated activities and the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the Acquisition

• “Board” the board of Directors “Company” Luks Industrial (Group) Limited, a company incorporated in Bermuda with limited liability, the shares of which are listed on the Stock Exchange

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

• “Consideration” US$2.5 million (equivalent to approximately HK$19.5 million) payable to VFF in respect of the Acquisition pursuant to the terms and conditions of the Agreement

• “Director(s)” the director(s) of the Company

• “Group” the Company and its subsidiaries

• “HKGAAP’’

• Hong Kong generally accepted accounting principles

• “HKSAR”

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

• “Independent Board Committee” the independent committee of the Board comprising Mr. Liu Li Yuan, Mr. Liang Fang and Mr. Chan Yuk Tong, all of them are independent non-executive Directors of the Company

– 1 –

DEFINITIONS

• “Independent Shareholder(s)” Shareholder(s) other than those who have interest in the Acquisition and are required to abstain from voting in the SGM, if convened

• “Independent Third Party” to the best of the Director’s knowledge, information and belief having made all reasonable enquiry, a third party independent of the Company and its connected persons

• “Latest Practicable Date”

• 1 August 2005, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining and collation of relevant information

• “Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange

• “Luks Cement” Luks Cement Company Limited, a company incorporated in the British Virgin Islands with limited liability and owned as to 87.5% by Luks Vietnam and as to 12.5% by VFF

• “Luks Cement (Vietnam)” Luks Cement (Vietnam) Limited (formerly known as Luks-Vaxi), a limited company incorporated and operating in accordance with the laws of Vietnam and owned as to 77.83% by Luks Cement and as to 22.17% by Luks Vietnam

• “Luks Industrial” Luks Industrial Company Limited, a company incorporated in Hong Kong with limited liability and an indirect wholly owned subsidiary of the Company

• “Luks-Vaxi”

• Luks Thua Thien Hue Company Limited (later renamed as Luks Cement (Vietnam)), a limited company incorporated and operating in accordance with the laws of Vietnam and owned as to 77.83% by Luks Cement and as to 22.17% by Luks Vietnam

• “Luks Vietnam” Luks Vietnam Company Limited, a company incorporated in the British Virgin Islands with limited liability and wholly owned by the Company

• “Mr. Luk”

• Mr. Luk King Tin, a Director and the husband of Ms. Cheng, having a personal and corporate interest of 224,455,357 Shares, representing approximately 45.74% in the issued share capital of the Company as at the Latest Practicable Date

• “Ms. Cheng”

• Ms. Cheng Cheung, a Director and the wife of Mr. Luk, having a personal and corporate interest of 49,368,827 Shares, representing approximately 10.06% in the issued share capital of the Company as at the Latest Practicable Date

– 2 –

DEFINITIONS

“SGM”

the special general meeting of the Company, if convened, for the purpose of approving the Acquisition

• “Shares”

the ordinary share(s) of HK$0.01 each in the issued share capital of the Company

“Shareholder(s)”

holder(s) of the Shares

• “Stock Exchange”

The Stock Exchange of Hong Kong Limited

• “TCC”

• Thua Thien Hue Construction Corporation, a company incorporated and operating in accordance with laws of Vietnam and wholly owned by the Thua Thien Hua Provincial Government

• “VFF”

• Vietnam Frontier Fund (In Liquidation), a Vietnam investment fund, currently in voluntary liquidation and Mr. Eugene S. Davis has been appointed as its liquidator

• “Vietnam”

The Socialist Republic of Vietnam

• “Written Approval”

• the written approval on the Acquisition obtained from Mr. Luk and Ms. Cheng, who are the Directors and a married couple and are considered a closely allied group of Shareholders collectively holding an aggregate of 273,824,184 Shares, representing approximately 55.80% in nominal value of the Shares in issue as at the date of the announcement of the Company dated 13 July 2005 in connection with the Acquisition giving them the right to attend and vote at the SGM (if the Company were to convene one)

• “HK$”

Hong Kong dollars, the lawful currency of Hong Kong

• “US$”

• United States dollars, the lawful currency of the United States

• “VND”

• Vietnam Dong, the lawful currency of Vietnam

• “%” Per cent.

Unless otherwise specified in this circular, amounts denominated in VND and US$ have been translated, for the purpose of illustration only, into HK$ at the following exchange rates of HK$1=VND2,039.6, US$1=VND15,908.9; and US$1=HK$7.8, respectively.

– 3 –

LETTER FROM THE BOARD

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LUKS INDUSTRIAL (GROUP) LIMITED 陸氏實業（集團）有限公司

(incorporated in Bermuda with limited liability)

Executive Directors: Mr. Luk King Tin Ms. Cheng Cheung Mr. Luk Yan Mr. Fan Chiu Tat, Martin

Registered Office: Clarendon House 2 Church Street Hamilton HM11 Bermuda

Independent non-executive Directors: Mr. Liu Li Yuan Mr. Liang Fang Mr. Chan Yuk Tong

Principal place of business in Hong Kong: 5th Floor Cheong Wah Factory Building 39-41 Sheung Heung Road Tokwawan Kowloon Hong Kong

4 August 2005

To the Shareholders

Dear Sir or Madam,

DISCLOSEABLE & CONNECTED TRANSACTION INVOLVING PROPOSED ACQUISITION OF 12.5% INTERESTS IN A NON-WHOLLY OWNED SUBSIDIARY

INTRODUCTION

On 13 July 2005, the Company announced that on 7 July, 2005, Luks Vietnam, a wholly owned subsidiary of the Company, entered into the Agreement with VFF to acquire its entire 12.5% equity interest in Luks Cement at a total consideration of US$2.5 million (equivalent to approximately HK$19.5 million) subject to the terms and conditions set out in the Agreement.

Currently Luks Cement is owned as to 87.5% by Luks Vietnam and as to 12.5% by VFF. Upon completion of the Acquisition, Luks Cement will become an indirect wholly owned subsidiary of the Company.

The main purpose of this circular is to provide you with details of the Agreement.

– 4 –

LETTER FROM THE BOARD

THE AGREEMENT

Date:

7 July 2005

Parties: Luks Vietnam, a wholly owned subsidiary of the Company, as the purchaser; and

VFF as the vendor

Interest being acquired: the entire 12.5% equity interest in Luks Cement being held by VFF

Consideration and US$2.5 million (equivalent to approximately HK$19.5 million) which payment mechanism: will be satisfied by payments in cash as follows:

• (1) US$100,000 (equivalent to approximately HK$780,000) was paid upon signing of the Agreement;

• (2) US$600,000 (equivalent to approximately HK$4,680,000) is payable upon the resolution of the Independent Shareholders to approve the Agreement having been passed at the SGM, if convened or a waiver from convening the SGM having been granted by the Stock Exchange to the Company;

• (3) US$600,000 (equivalent to approximately HK$4,680,000) is payable after six months from the date of payment under (2) above;

• (4) US$600,000 (equivalent to approximately HK$4,680,000) is payable after six months from the date of payment under (3) above; and

• (5) the balance of US$600,000 (equivalent to approximately HK$4,680,000) is payable after six months from the date of payment under (4) above.

It has been agreed under the Agreement that VFF shall transfer to Luks Vietnam the entire 12.5% equity interests in Luks Cement upon its receipt of a total payment of US$700,000 (equivalent to approximately HK$5,460,000) from Luks Vietnam and a letter of undertaking given by the Company guaranteeing the payment by Luks Vietnam of the balance of the Consideration in the total sum of US$1.8 million (equivalent to approximately HK$14,040,000), by three instalments in accordance with the payment mechanism of (3) to (5) above.

– 5 –

LETTER FROM THE BOARD

On the basis of the Consideration of US$2.5 million (equivalent to approximately HK$19.5 million) payable for the Acquisition of 12.5% interests in Luks Cement, the Consideration would imply a valuation of the entire issued share capital of Luks Cement at US$20 million (equivalent to approximately HK$156 million). Such valuation represents a historical price-earning multiple of approximately 4.9 times based on the audited consolidated profit after taxation and minority interests of Luks Cement of approximately HK$31.7 million for the year ended 31 December 2004. The Consideration will be financed by the Company’s internal resources.

The Consideration was arrived at arm’s length negotiation between the relevant parties and on normal commercial terms, and by reference to the historic price-earning multiples of certain comparable companies listed on the Stock Exchange to Luks Cement ranging from 9.5 times to 15.4 times. Based on the above, the Directors are of the view that the Consideration was determined on a fair and reasonable basis.

• Conditions and completion:

The Agreement is conditional upon fulfilment of, inter alia, the following:

• (i) Independent Shareholders having passed a resolution at a SGM, if convened, to approve the Acquisition or a waiver from the Stock Exchange to convene the SGM based on the application made by the Company after having obtained the Written Approval; and

• (ii) all relevant regulatory requirements (including but not limited to those under the Listing Rules) having been complied with and satisfied.

Completion of the Agreement shall take place on the seventh day following the day on which the conditions under the Agreement are satisfied or waived in full, or such other date as the parties agree in writing.

In the event that any of the conditions of the Agreement is not fulfilled within 90 days from the date of the Agreement or such other date as agreed between Luks Vietnam and VFF, the Agreement will lapse and shall become null and void and of no further force and effect, and any payment having been received by VFF under the Agreement will be refunded to Luks Vietnam in full without interest if such refund is made within 14 days from the date on which the Agreement lapses.

– 6 –

LETTER FROM THE BOARD

SHAREHOLDING STRUCTURE OF THE GROUP BEFORE AND AFTER COMPLETION OF THE ACQUISITION

The shareholding structure of the Group before the Acquisition:

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

The Company
100%
Luks Vietnam VFF
22.17% 87.5% 12.5%
Luks Cement
77.83%
Luks Cement
(Vietnam)
----- End of picture text -----

The shareholding structure of the Group after completion of the Acquisition:

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

The Company
100%
Luks Vietnam
22.17% 100%
Luks Cement
77.83%
Luks Cement
(Vietnam)
----- End of picture text -----

INFORMATION ON THE VENDOR

VFF is a Vietnam investment fund and has been under voluntary liquidation since July 2004. Mr. Eugene S. Davis, a director of Luks Cement, has been appointed as its liquidator. According to the legal opinion from a legal counsel who acted as Cayman Islands counsel to VFF, the said appointment was made in accordance with both the Articles of Association of VFF and the Companies Law of the Cayman Islands. So far as the Directors are aware, other than being a substantial shareholder of Luks Cement, an indirect non wholly owned subsidiary of the Company, VFF does not hold any equity interest in the Company. According to the opinion from a legal counsel of the Cayman Islands, as VFF was incorporated in the Cayman Islands, its register of members is confidential and hence the identities of its ultimate beneficial owners are unknown.

– 7 –

LETTER FROM THE BOARD

As VFF is currently under voluntary liquidation, the liquidator who has been appointed is under a duty to sell all the remaining assets of VFF for distribution to its creditors and members. The Company did not initiate the Acquisition but it was approached by the liquidator of VFF to acquire its entire equity interests in Luks Cement currently held by VFF. Under the transfer agreement entered into between Luks Industrial, the then holding company of Luks Cement and VFF in 1994 regarding the transfer of 12.5% interests in Luks Cement to VFF, Luks Industrial, now a subsidiary of the Company following a scheme of reorganization in 2001, was granted the right of first refusal to purchase the said interests in the event that VFF desired to transfer such interests to a third party. The Company is solely exercising such right for the purpose of the Acquisition.

INFORMATION ON LUKS CEMENT

Luks Cement is a company incorporated in the British Virgin Islands with limited liability on 12 July 1994. At the time of its incorporation, Luks Cement was a direct wholly owned subsidiary of Luks Industrial and its issued share capital was US$50,000. In 1994, VFF and Luks Industrial entered into a transfer agreement pursuant to which VFF had acquired the 12.5% interest in Luks Cement. As advised by the Directors, such transfer was to satisfy the then funding needs of the Group. Luks Cement is currently owned as to 87.5% by Luks Vietnam and as to 12.5% by VFF. The sole asset of Luks Cement has been the 77.83% interests in Luks Cement (Vietnam) since its incorporation.

Luks Cement (Vietnam) is a joint venture company set up by Luks Industrial and Construction Material Production Company, the predecessor of TCC, on 20 November 1991, with an initial issued share capital of US$31,000,000 in the proportion of 80% and 20% respectively. Luks Cement (Vietnam) is principally engaged in the manufacture and sale of cement for use in the construction industry in Vietnam. Prior to completion of the Acquisition, Luks Cement (Vietnam) is owned as to approximately 90.27% indirectly by the Company and as to approximately 9.73% indirectly by VFF. Upon completion of the Acquisition, Luks Cement and Luks Cement (Vietnam) will become indirect wholly owned subsidiaries of the Company. As referred to in the circular of the Company dated 18 November 2004 in connection with the major and connected transaction on the proposed acquisition of interests in a joint venture company in Vietnam, Luks Vietnam had acquired 22.17% equity interest in Luks Cement (Vietnam) from TCC. So far as the Directors are aware, TCC and its beneficial owners are independent third parties of VFF.

The table below sets out the selected financial information on Luks Cement based on the consolidated audited profit and loss accounts (prepared in accordance with HKGAAP) for the year ended 31 December 2003 and 31 December 2004 respectively:

	For the year ended	31 December
	2003	2004
	HK$ (million)	HK$ (million)
Turnover	194.6	212.0
Profit from operation	55.8	58.7
Profit before taxation and minority interest	37.0	44.0
Taxation	1.9	3.4
Minority interest	8.3	8.9
Profit after taxation and minority interest	26.8	31.7

– 8 –

LETTER FROM THE BOARD

The table below sets out the selected items of the consolidated audited balance sheet (prepared in accordance with HKGAAP) of Luks Cement as at 31 December 2003 and 31 December 2004 respectively:

mber 2004 respectively:
	As at 31	December
	2003	2004
	HK$ (million)	HK$ (million)
Total assets	497.8	508.0
Net assets	33.9	64.9

REASONS FOR THE ACQUISITION

The Group is principally engaged in (i) manufacture and sale of cement products; (ii) manufacture and sale of holistic healthcare products; (ii) sale of electronic products and plywood products; (iv) property investment; and (iv) investment holding.

In line with Vietnam’s strong economic growth rate in the first half of 2005 as compared to the same period of the previous year, the Directors believe that the demand for the cement products in Vietnam is on an upward trend. The audited profit after tax and minority interest of Luks Cement increased by approximately 18.3% from approximately HK$26.8 million in 2003 to approximately HK$31.7 million in 2004. The Directors believe that the underlying business of Luks Cement (i.e. Luks Cement (Vietnam)) would continue to grow and thus the Group could enhance its earnings base by increasing its effective interest in Luks Cement (Vietnam) from approximately 90.27% to 100% through the Acquisition. As set out in the Agreement, the payment mechanism of the Consideration (equivalent to approximately HK$19.5 million) has been structured over a period of more than 18 months commencing from the date of the Agreement, the Directors believe that there is no material impact on the cashflow position of the Group. As at 31 December 2004, being the date to which the latest published audited financial statements of the Company were made up, the Group had cash and cash equivalent of approximately HK$159.83 million. Moreover, as the Consideration is financed by the Company’s internal resources, no additional liability will be incurred by the Company by reasons of the Acquisition.

The Directors (including the independent non-executive Directors) consider the terms and conditions of the Acquisition to be fair and reasonable and are in the interests of the Company and the Shareholders as a whole.

LISTING RULES IMPLICATION

Since the relevant percentage ratios (as defined under the Listing Rules) exceed 5% but are less than 25%, the Acquisition constitutes a discloseable transaction under the Listing Rules. As VFF is a substantial shareholder of Luks Cement, it is therefore a connected person of the Company under the Listing Rules. Thus, the Acquisition also constitutes a connected transaction for the Company under the Listing Rules and is therefore subject to Independent Shareholders’ approval at a SGM.

Since no Shareholder is required to abstain from voting if the Company were to convene the SGM because the interest of the substantial Shareholders and the Directors in the Acquisition are no different from that of the other Shareholders and the Written Approval has

– 9 –

LETTER FROM THE BOARD

been obtained, an application has been made by the Company to the Stock Exchange for a waiver from strict compliance with the requirement of obtaining shareholders’ approval at the SGM for the Acquisition pursuant to Rule 14A.18 and Rule 14A.43 of the Listing Rules.

MAJOR SHAREHOLDERS’ CONSENT

Since no Shareholder is required to abstain from voting if the Company were to convene the SGM because the interests of the substantial Shareholders and the Directors in the Acquisition are no different from that of the other Shareholders and a written approval on the Acquisition had been obtained from Mr. Luk and Ms. Cheng, who are the Directors and a married couple and thus are considered a closely allied group of Shareholders collectively holding an aggregate of 273,824,184 Shares, representing approximately 55.80% in nominal value of the Shares in issue as at the date of the announcement of the Company dated 13 July 2005 in connection with the Acquisition and are entitled to exercise the control over the voting rights of these shares giving them the right to attend and vote at the SGM (if the Company were to convene one), an application has been made by the Company to the Stock Exchange for a waiver from strict compliance with the requirement of obtaining shareholders’ approval at the SGM for the Acquisition pursuant to Rule 14A.18 and Rule 14A.43 of the Listing Rules.

RECOMMENDATIONS

Your attention is drawn to:

• (a) the letter from the Independent Board Committee set out on page 11 of this circular, which contains its recommendation concerning the Acquisition; and

• (b) the letter from AMS, set out on pages 12 to 25 of this circular, which contains its advice to the Independent Board Committee and the Independent Shareholders.

The Directors (including the independent non-executive Directors) consider the terms and conditions of the Acquisition to be fair and reasonable and are in the interests of the Company and the Shareholders as a whole.

ADDITIONAL INFORMATION

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

By order of the Board LUKS INDUSTRIAL (GROUP) LIMITED Luk King Tin Chairman

– 10 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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LUKS INDUSTRIAL (GROUP) LIMITED 陸氏實業（集團）有限公司

(incorporated in Bermuda with limited liability)

4 August 2005

To the Independent Shareholders

Dear Sir or Madam,

DISCLOSEABLE & CONNECTED TRANSACTION INVOLVING PROPOSED ACQUISITION OF 12.5% INTERESTS IN A NON-WHOLLY OWNED SUBSIDIARY

We refer to the circular dated 4 August 2005 issued by the Company to the Shareholders (the “Circular”) of which this letter forms part. Unless the context otherwise requires, terms used in this letter shall have the same meanings given to them in the Circular.

The Independent Board Committee has been formed to advise the Independent Shareholders as to whether the Acquisition is in the interests of the Company and its Shareholders as a whole and whether the terms of the Acquisition are fair and reasonable so far as the Independent Shareholders are concerned. AMS has been appointed as the independent financial adviser by the Board to advise the Independent Board Committee and the Independent Shareholders.

We wish to draw your attention to the “Letter from AMS” as set out on pages 12 to 25 of the Circular. We have considered the terms and conditions of the Agreement, the advice of AMS and the other factors contained in the “Letter from the Board” as set out on pages 4 to 10 of the Circular.

Having taken into account the advice of AMS, we consider that the terms of the Acquisition are fair and reasonable so far as the Independent Shareholders are concerned and the Acquisition is in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the resolution to be proposed at the SGM (if convened) to approve the Agreement.

Yours faithfully, Independent Board Committee Liang Fang Liu Li Yuan Chan Yuk Tong Independent Non-executive Directors

– 11 –

LETTER FROM AMS

The following is the text of the letter from AMS to the Independent Board Committee and the Independent Shareholders prepared for the purpose of incorporation in this circular.

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4 August 2005

To the Independent Board Committee and the Independent Shareholders of Luks Industrial (Group) Limited

Dear Sirs,

CONNECTED TRANSACTION

I. INTRODUCTION

We refer to our appointment to advise the Independent Board Committee and the Independent Shareholders in respect of the Acquisition, details of which are set out in the circular to the Shareholders dated 4 August 2005 (the “Circular”) of which this letter forms part. This letter contains our advice to the Independent Board Committee and the Independent Shareholders in respect of the Acquisition. Terms defined in the Circular have the same meanings when used herein unless the context otherwise requires.

The Board announced that on 7 July 2005, a wholly owned subsidiary of the Company, Luks Vietnam, entered into the Agreement to acquire from VFF its entire equity interest of 12.5% in Luks Cement at a consideration of US$2.5 million (approximately HK$19.5 million). At present, Luks Cement, which is owned as to 87.5% by Luks Vietnam and 12.5% by VFF, holds 77.83% of the equity interest of Luks Cement (Vietnam). Upon completion of the Acquisition, Luks Cement will be indirectly wholly owned by the Company. As VFF is a substantial shareholder of Luks Cement, a non-wholly owned subsidiary of the Company, VFF is a connected person of the Company under the Listing Rules and accordingly the Acquisition constitutes a connected transaction of the Company under the Listing Rules. Pursuant to the Listing Rules, the Agreement is required to be subject to the approval by poll of the Independent Shareholders at a general meeting of the Company. The Company has applied to the Stock Exchange for a waiver from convening a special general meeting to approve the Acquisition. The reasons for such waiver are set out in the letter from the Board.

We have been appointed to advise the Independent Board Committee and the Independent Shareholders as to (i) whether or not the Acquisition is in the interests of the Company and its shareholders as a whole; (ii) whether or not the terms of the Acquisition are fair and reasonable so far as the Independent Shareholders are concerned; and (iii) how the Independent Shareholders should vote in respect of the resolution to approve the Agreement.

– 12 –

LETTER FROM AMS

In formulating our opinion, we have relied on the statements, information and representations contained in the Circular and the information and representations provided to us by the Company, its advisers and the Directors. We have assumed that all information and representations contained or referred to in the Circular which have been provided by the Directors and for which they are solely responsible, are true and accurate at the time they were made and continue to be so at the date hereof. We consider that we have reviewed sufficient information which enables us to form 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. The Directors have further confirmed, having made all reasonable enquiries, that to the best of their knowledge and belief, there are no other facts or representations the omission of which would make any statement in the Circular, including this letter, misleading. We have not, however, conducted any independent verification of the information provided, nor have we carried out any in-depth investigation into the business and affairs of the Group or the market in which it operates.

II. INFORMATION ON THE GROUP

The Group is principally engaged in (i) the manufacture and sale of cement products in Vietnam; (ii) the manufacture and sale of holistic health care products; (iii) the sale of electronic products and plywood products; (iv) property investment; and (v) investment holding.

All of the Group’s cement business has been conducted through Luks-Vaxi since the incorporation of Luks-Vaxi in 1992. Luks-Vaxi was later renamed as Luks Cement (Vietnam) in 2005. We notice that the cement business has been the major contributor to the Group’s turnover as well as operating profit for 2002, 2003 and 2004 and all of the Group’s cement products were sold in Vietnam.

– 13 –

LETTER FROM AMS

The following table sets out a summary of the Group’s audited results of operations by business segments for each of the three years ended 31 December 2002, 2003 and 2004 (prepared in accordance with HKGAAP), which are extracted from the Company’s 2003 and 2004 annual reports.

					Sale of
					electronic
		Health			and
	Cement	care	Property		wood
	products	products	investment	Investment	products	Total
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
For the year ended
31 December 2002
(audited)
Segment revenue	173,780	–	38,485	–	5,455	217,720
Segment profit/(loss)	41,440	–	9,414	18,477	(56)	69,275
Net profit attributable
to Shareholders						52,358
For the year ended
31 December 2003
(audited)
Segment revenue	194,634	2,985	48,270	–	4,406	250,295
Segment profit/(loss)	58,709	(36,809)	36,970	(1,354)	(540)	56,976
Net profit attributable
to Shareholders						20,183
For the year ended
31 December 2004
(audited)
Segment revenue	211,954	4,629	56,967	–	4,594	278,144
Segment profit/(loss)	58,433	(45,804)	25,986	(4,554)	226	34,287
Net profit attributable
to Shareholders						30,632

For the year ended 31 December 2002, the Group reported an audited turnover of approximately HK$217.7 million with audited net profit attributable to Shareholders of approximately HK$52.4 million. The manufacture and sale of cement products accounted for approximately 79.8% of the Group’s total turnover whereas the businesses of property investment and sale of electronic and wood products accounted for the remaining 20.2% of the total turnover of the Group for the year ended 31 December 2002. Segment profit from the manufacture and sale of cement products for the year ended 31 December 2002 amounted to approximately HK$41.4 million, representing approximately 59.8% of the Group’s total segment profits for the year ended 31 December 2002.

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The Group recorded an increase of approximately 15.0% in its turnover to approximately HK$250.3 million for the year ended 31 December 2003, with (i) approximately 77.8% of its revenue derived from the manufacture and sale of cement products in Vietnam, which was the major contributor to the Group’s total turnover; and (ii) the remaining 22.2% of its revenue derived from property investment, health care products, and sale of electronic and wood products. Revenue from the sales of cement and clinker for 2003 also grew by approximately 12.0% to approximately HK$194.6 million. Despite the Group’s cement business had a segment profit of approximately HK$58.7 million, the total segment profit of the Group was only approximately HK$57.0 million due to the losses recorded in other business segments of the Group for the year ended 31 December 2003. The Group’s property investments on hand showed an increase in segment turnover of approximately 25.4% to approximately HK$48.3 million as the occupancy rate for Saigon Trade Center in Ho Chi Minh City increased by 4% to 58% as at the end of 2003 and all of the Group’s other investment properties in the PRC and Hong Kong, except for a few apartments in the PRC, were fully leased out during 2003. As the Group’s business on health care products was still on the research and development stage, the revenue generated from such segment for the year ended 31 December 2003 was insignificant. Despite the growth recorded in the Group’s overall turnover and other revenue and gain, the audited net profit attributable to Shareholders dropped by approximately 61.5% to approximately HK$20.2 million for the year ended 31 December 2003. Such reduction in net profit for 2003 was mainly attributable to (i) the increase of approximately HK$20.5 million in selling and distribution costs, and administrative and other operating expenses; (ii) the increase of approximately HK$5.9 million in finance costs; and (iii) the share of losses of a jointlycontrolled entity of approximately HK$4.6 million.

According to the Company’s 2004 annual report, for the year ended 31 December 2004, the Group recorded an audited turnover of approximately HK$278.1 million, representing an increase of approximately 11.1% from the audited turnover of approximately HK$250.3 million for 2003. The turnover of the Group was mainly derived from the Group’s business in the manufacture and sale of cement, which accounted for approximately 76.2% of the Group’s total turnover for the year ended 31 December 2004. While revenue derived from the manufacture and sale of the Group’s cement products for 2004 recorded an increase of approximately 8.9% from that of 2003, profit derived from such business segment leveled at approximately HK$58.4 million due to surging material costs during the year. For the Group’s property investments, as (i) both the occupancy rate and the average rental rate for the Group’s Saigon Trade Centre showed an increase for the year 2004 as compared to those for the year 2003 and (ii) the Group’s other investment properties, mainly situated in Hong Kong and the PRC were almost fully leased out as at 31 December 2004, the revenue from such business segment increased by approximately 18.0% to approximately HK$57.0 million. However, as advised by the Directors, without the benefit of the substantial write-back of other payables in 2003, profit derived from such business segment dropped by approximately 29.7% to approximately HK$26.0 million for the year ended 31 December 2004. As of 31 December 2004, the Group’s health care products were still on the research and development stage and had generated minimal revenue of approximately HK$4.6 million and the segment loss widened to approximately HK$45.8 million. Despite both the cement business and property investment of the Group had segment profit of approximately HK$58.4 million and HK$26.0 million respectively, the total segment profit of the Group was approximately HK$34.3 million due to the losses recorded in other business segments of the Group for the year ended 31 December 2004. As the Group recorded (i) a gain of HK$20 million as a result of the early redemption of

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the principal of a 5-year promissory note; (ii) a reduction in its finance costs by approximately 69.0% to approximately HK$4.0 million; and (iii) a share of profits of a jointly-controlled entity of approximately HK$6.5 million versus a loss of approximately HK$4.6 million in 2003, audited net profit attributable to Shareholders increased by approximately 51.8% to approximately HK$30.6 million for the year ended 31 December 2004 compared to 2003.

Shareholders are advised to note that the auditors of the Company had an unqualified opinion for the financial statements of the Company for the year ended 31 December 2002. However, we notice from the Company’s 2003 and 2004 annual reports that the auditors of the Company had expressed qualified opinion on the Group’s goodwill with a carrying value of approximately HK$277 million as at 31 December 2003 and approximately HK$247 million as at 31 December 2004 arising from the acquisition of 100% interest in a subsidiary, namely Heritage Ventures International Limited, which was engaged in the manufacture and sale of health care products and was yet to generate any significant revenue. It was also stated in the auditors’ reports that any adjustment to the goodwill would have a consequential impact on the Group’s net assets as at 31 December 2003 and 31 December 2004 and the results of the Company for each of the two years ended 31 December 2003 and 2004. In the absence of further information, the auditors had expressed in their report that they were unable to quantify the amount of the provision required. For further information on the acquisition of Heritage Ventures International Limited and the opinions of the auditors of the Company, Shareholders may refer to the announcement of the Company dated 23 January 2003 and the Company’s 2003 and 2004 annual reports. Shareholders should also note that such goodwill arising from the acquisition of Heritage Ventures International Limited is not related to the Acquisition and vice versa.

III. PRINCIPAL FACTORS AND REASONS CONSIDERED

1. Background and reasons for the Acquisition

At present, Luks Cement is owned as to 87.5% by Luks Vietnam and 12.5% by VFF. As stated in the letter from the Board, VFF is currently under voluntary liquidation and a liquidator has been appointed to sell all the remaining assets of VFF for distribution to its creditors and members. According to the Directors, the Company did not initiate the Acquisition but was approached by the liquidator of VFF to acquire its entire equity interests in Luks Cement currently held by VFF. It is also stated in the letter from the Board that under the transfer agreement into between (i) Luks Industrial, the then holding company of Luks Cement, and (ii) VFF in 1994 regarding the transfer of 12.5% interest in Luks Cement to VFF, Luks Industrial, which is currently a subsidiary of the Company following a scheme of reorganization in 2001, was granted the right of first refusal to purchase the said interests in the event that VFF desired to transfer such interests to a third party. The Company thus exercised such right for the purpose of the Acquisition.

The sole asset of Luks Cement is the 77.83% interests in Luks Cement (Vietnam). Luks Cement (Vietnam), which was a joint venture company set up in 1991 and was owned as to 20% and 80% respectively by (i) the predecessor of TCC, a company wholly owned by Thua Thien Hue Provincial Government, and (ii) Luks Industrial, the former ultimate holding company of the Group and is currently a subsidiary of the Company, is principally engaged in the manufacture and sale of cement for use in the construction industry in Vietnam. Following the Group’s acquisition in October 2004 from TCC its

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entire equity interest of 22.17% in Luks Cement (Vietnam), Luks Cement (Vietnam) was converted from a joint-venture company into a wholly-foreign owned enterprise, in which the Company’s effective interest increased from approximately 68.1% to 90.3%. The remaining interest of approximately 9.7% is held by VFF through Luks Cement.

As stated in the letter from the Board, given the strong economic growth in Vietnam, the Directors believe that the demand for cement products in Vietnam is on an upward trend. In addition, we notice from the Company’s 2002, 2003 and 2004 annual reports that the sales quantity of the Group’s cement and clinkers for 2002, 2003 and 2004, all of which were sold domestically in Vietnam, amounted to approximately 590,000 tonnes, 666,000 tonnes and 757,000 tonnes respectively. The Group’s sales of cement products have been able to keep up with the market. As shown in the Company’s 2004 annual report, the management was optimistic about the sales performance of its cement plant in Vietnam for 2005, especially seeing a persistent strong market demand for cement and clinkers and the average annual growth rate of approximately 14.2% in terms of sales quantity attained by the Group over the last three years.

According to the Asian Development Outlook 2004 (“ADO 2004 Update”) issued by Asian Development Bank, Vietnam recorded a growth in gross domestic product (“GDP”) of 5.8% in 2001, 6.4% in 2002 and 7.1% in 2003. Furthermore, based on the Asian Development Outlook 2005 Update (“ADO 2005 Update”) issued by Asian Development Bank, the GDP growth of Vietnam strengthened to 7.5% in 2004 while (i) the industry sector, which covers manufacturing, mining, construction, and utilities, led the expansion with 10.2% growth and contributed 3.9 percentage point to the overall GDP growth; (ii) the service sector grew by 7.4% and contributed 3.0 percentage point to GDP growth; and (iii) the agriculture, forestry and fisheries sector expanded at 2.8% and contributed 0.6 percentage point to the total GDP growth. It was also stated in the ADO 2004 Update that 2004 and 2005 were the last of the 5-year socioeconomic development plan (2001-2005), in which the Vietnamese government aimed to achieve 7.5%-8% GDP growth and according to the ADO 2005 Update, the next 5-year socioeconomic development plan (2006-2010) has a target annual average GDP growth at 7.5%-8%, broken down into 10.0%-15.0% in industry; 7.2%-7.5% in services; and 3.0%-3.5% in agriculture, forestry, and fisheries. In view of both the actual and target growth rates in the GDP of Vietnam, in particular, the leading growth demonstrated in the industry sector, which covers the construction industry of which cement and clinkers are the principal construction materials, we concur with the Directors’ view that the general economy of Vietnam as well as the demand for cement in Vietnam will continue to achieve a stable growth.

Based on the news published on 30 January 2005 at the website of Vietnam Economic News, an official publication of the Ministry of Trade of Vietnam, the Ministry of Construction of Vietnam estimated the demand for cement at approximately 28.4 million tones in 2005, 46.8 million tones in 2010, 62.5 million tones in 2015, and 68-70 million tones in 2020. Further, based on the news published on 6 July 2005 at the website of Vietnam Economic Times, by the end of 2005, Vietnam’s cement output was estimated at approximately 22.3 million tonnes, around 6 million tonnes fewer than the demand. On the basis of these estimates, we believe that Luks Cement (Vietnam) will continue to have stable and favourable business performance on the back of the strong market demand for cement in Vietnam.

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The Group has engaged in the manufacture and sale of cement products through Luks Cement (Vietnam) since its incorporation in 1992 and as seen from the table in the paragraph headed “Information on the Group” above, for the three years ended 31 December 2004, such business has been the major contributor to the Group’s overall turnover and operating profit. In view of (i) the experience of Luks Cement (Vietnam) in the cement industry for more than 10 years; (ii) the profitable track record of Luks Cement (Vietnam) for the three years ended 31 December 2004; and (iii) the strong market demand for cement products in Vietnam, we consider it is a logical move for the Group to further strengthen and increase its stake in Luks Cement (Vietnam). Accordingly, we are of the view that the Acquisition is in the interest of the Company and the Shareholders taken as a whole.

2. Review of the performance of Luks Cement

Luks Cement is a limited company incorporated in the British Virgin Islands in 1994. The sole asset of Luks Cement is the 77.83% interests in Luks Cement (Vietnam). Luks Cement (Vietnam) has been engaged in the manufacture and sale of cement products since its incorporation in 1992. Set out below is an extract of the consolidated audited profit and loss accounts (prepared in accordance with HKGAAP) of Luks Cement for each of the two years ended 31 December 2004:

	Year ended 31 December	Year ended 31 December
	2003	2004
	HK$(million)	HK$(million)
Turnover	194.6	212.0
Profit after taxation and minority interest	26.8	31.7

In addition, we have set out below an extract of the consolidated audited balance sheet (prepared in accordance with HKGAAP) of Luks Cement as at 31 December 2003 and 31 December 2004 respectively:

	As at 31	December
	2003	2004
	HK$(million)	HK$(million)
Total assets	497.8	508.0
Net assets	33.9	64.9

For the year ended 2004, audited turnover of Luks Cement amounted to approximately HK$212.0 million, which represented an increase of approximately 8.9% over the audited turnover of Luks Cement for the year ended 31 December 2003. In addition, Luks Cement’s audited profit after taxation and minority interest rose by approximately 18.3% to approximately HK$31.7 million for the year ended 31 December 2004, when compared with that of 2003. The audited net assets of Luks Cement amounted to approximately HK$64.9 million as at 31 December 2004, representing an increase of approximately 91.4% over its audited net assets as at 31 December 2003.

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The Directors believe that the business of Luks Cement, being the manufacture and sale of cement products through Luks Cement (Vietnam), will continue to grow as the demand for cement products in Vietnam is expected to grow in line with the local economy in Vietnam. The Directors are of the view that the Acquisition will give the Company a good opportunity to increase its effective interest in Luks Cement (Vietnam) by a further 9.7% to 100% and thus enhance the Group’s earnings base.

3. Consideration of the Acquisition

Pursuant to the Agreement, the consideration for the Acquisition is US$2.5 million (approximately HK$19.5 million). As stated in the letter from the Board, the Consideration, which was determined after arm’s length negotiations between the parties to the Agreement, has been arrived at on normal commercial terms having regard to the historical price earnings multiples of certain companies listed on the Stock Exchange whose businesses are comparable to Luks Cement. The audited net asset value of Luks Cement as at 31 December 2004 was approximately HK$64.9 million. The Consideration represents a premium of approximately 140.7% over the Company’s proportional share of 12.5% of such net asset value of Luks Cement attributable to the Acquisition, which amounted to approximately HK$8.1 million.

As the purpose of the Acquisition is to acquire the remaining attributable interests in Luks Cement (Vietnam), which is the core operating business of the Group and the sole asset of Luks Cement since the incorporation of Luks Cement in July 1994, we consider that the reference to the financial information of Luks Cement (Vietnam) would be more representative and meaningful for our analysis purpose. We have therefore studied the audited financial statements of Luks Cement (Vietnam) for the year ended 31 December 2004, which has been prepared in accordance with the Vietnamese Accounting Standards and System. We have also reviewed the unaudited financial statements of Luks Cement (Vietnam) for the year ended 31 December 2004 presented in accordance with the HKGAAP, which have been prepared by the Directors, as well as the two sets of audited financial statements of Luks Cement (Vietnam) for the year ended 31 December 2003, which have been prepared in accordance with the HKGAAP (contained in the Company’s circular dated 18 November 2004) and the Vietnamese Accounting Standards and System. We notice that the variances between the two sets of audited accounts are consistent with the adjustments made in the unaudited financial information by the Directors for Luks Cement (Vietnam) for the year ended 31 December 2004. As Luks Cement (Vietnam) has been a consolidated subsidiary of the Company since its establishment in 1991 and such unaudited financial statements under HKGAAP were prepared by the Directors, including a qualified accountant, we have no reason to doubt the reliability of such unaudited financial information and we consider that we have taken reasonable steps as required under Rule 13.80 of the Listing Rules to ascertain the reliability of the information provided by the Directors. Based on our review of the two sets of financial statements of Luks Cement (Vietnam) for the year ended 31 December 2004 presented under different accounting standards, namely the HKGAAP and the Vietnamese Accounting Standards and System, we also consider that the variances in the two sets of financial statements would not be significant enough to render our opinion and recommendation different or

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unreliable, though based on the financial information of Luks Cement (Vietnam) prepared under the HKGAAP, the Consideration in terms of price/earnings multiple would be slightly higher and still represents a premium over the net asset value as discussed in the paragraph headed “Industry comparison” below. Set out below is a summary of the operating results of Luks Cement (Vietnam) for each of the two years ended 31 December 2004 and for illustrative purpose, we have adopted the exchange rate of HK$1=VND2,039.6:

		Year ended	31 December
	2003		2004
	(Audited)		(Audited)
	VND’000	HK$’000	VND’000	HK$’000
Turnover (Note)	392,407,568	192,394	430,101,370	210,875
Net profit after tax	85,613,178	41,975	98,426,942	48,258

Note: As advised by the Directors, the difference in the turnover of Luks Cement (Vietnam) shown in the above table and the turnover of Luks Cement shown in the paragraph headed “Review of performance of Luks Cement” was mainly due to the different currency exchange rates adopted in the presentation.

In addition, we have set out below an extract of the audited balance sheet of Luks Cement (Vietnam) as at 31 December 2003 and 31 December 2004 respectively. For illustrative propose, we have adopted the exchange rate of HK$1 = VND2,039.6.

		As at 31	December
	2003		2004
	(Audited)		(Audited)
	VND’000	HK$’000	VND’000	HK$’000
Total assets	740,587,612	363,104	718,650,942	352,349
Net assets	277,865,069	136,235	376,292,011	184,493

In particular, the audited net profit after tax for Luks Cement (Vietnam) for the year ended 31 December 2004 was approximately HK$48.3 million. The Consideration represents a historical price to earnings ratio of approximately 4.1 times based on the Company’s proportional share of approximately 9.7% of such profit attributable to the Acquisition, which amounted to approximately HK$4.7 million. In addition, the audited net assets of Luks Cement (Vietnam) as at 31 December 2004 amounted to approximately HK$184.5 million. The Consideration represents a premium of approximately 8.9% over the Company’s proportional share of approximately 9.7% of such net asset value of Luks Cement (Vietnam) attributable to the Acquisition, which amounted to approximately HK$17.9 million. The contrast between the significant premium of approximately 140.7% over the Company’s proportional share of 12.5% of the net asset value of Luks Cement attributable to the Acquisition and the slight premium of approximately 8.9% over the Company’s proportional share of approximately 9.7% of the net asset value of Luks Cement (Vietnam) attributable to the Acquisition is primarily due to the net amount due to members of the Group other than Luks Cement (Vietnam) of approximately HK$187.9 million as at 31 December 2004 which was used to fund the capital contribution towards the legal capital of Luks Cement (Vietnam). As the purpose of the Acquisition is to

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acquire the remaining attributable interests in Luks Cement (Vietnam), we consider the reference to the premium of approximately 8.9% as opposed to 140.7% as described above would be more representative and meaningful for our analysis purpose.

An assessment of the Consideration will be made in the paragraph below.

4. Industry comparison

To assess the fairness and reasonableness of the Consideration, we have identified five companies listed on the main board of the Stock Exchange, whose principal businesses are the manufacture and sale of cement products (the “Comparables”). Set out below are the price/earnings multiples and premium/(discount) of the share price over/to the latest published audited net asset value of the Comparables for comparison purpose.

					Premium/
	Closing price				(discount) of
	per share on	Latest		Latest	the share
	7 July 2005	published		published	price over/to
	(being the	audited	Price/	audited net	the net
Comparable (Stock code)	date of the	earnings	earnings	asset value	asset value
Financial year end	Agreement)	per share	multiples	per share	per share
(dd/mm/yy)		(Note 1)		(Note 2)
	(HK$)	(HK$)	(times)	(HK$)	(%)
Anhui Conch Cement	7.00	0.72	9.7	3.94	77.7
Company Limited (914)		(Note 3)		(Note 3)
31/12/04
Chia Hsin Cement Greater China	0.96	0.10	9.6	1.36	(29.4)
Holding Corporation (699)
31/12/04
China Resources Cement	1.65	0.24	6.9	2.96	(44.3)
Holdings Limited (712)
31/12/04
Shanghai Allied Cement	0.27	0.01	27.0	0.44	(38.6)
Limited (1060)
31/12/04
TCC International Holdings	1.30	0.42	3.1	1.49	(12.8)
Limited (1136)
31/12/04
Average			11.3		(9.5)
Luks Cement (Vietnam)			4.1		8.9
31/12/04			(Note 4)		(Note 5)

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Notes:

1. Based on the latest published audited net profit and the total number of issued shares of the relevant Comparables as at their respective latest year end date.

2. Based on the latest published audited net asset value and the total number of issued shares of the relevant Comparables as at their respective latest year end date.

3. Based on the exchange rate of HK$1=RMB1.06.

4. Based on the Consideration and the Company’s proportional share of approximately 9.7% of the audited net profit after tax of Luks Cement (Vietnam) attributable to the Acquisition for the year ended 31 December 2004.

5. Based on the Consideration and the Company’s proportional share of approximately 9.7% of the audited net asset value of Luks Cement (Vietnam) attributable to the Acquisition as at 31 December 2004.

As shown in the above table, the price/earnings multiples of the Comparables range from approximately 3.1 times to 27.0 times. The price/earnings multiple as represented by the Consideration for Luks Cement (Vietnam) of approximately 4.1 times is the second lowest amongst all the five Comparables. In addition, we notice from the above table that the share prices of four of the Comparables represent discounts which range from approximately 12.8% to 44.3% to their respective net asset value per share. The share price of the remaining Comparable represents a premium of approximately 77.7% over its net asset value per share. The Consideration represents a premium of approximately 8.9% over the Company’s proportional share of approximately 9.7% of the net asset value of Luks Cement (Vietnam) attributable to the Acquisition, which is lower than that of the Comparable which trades at a premium over its net asset value. As Luks Cement (Vietnam) recorded stable growth in turnover and has been operating profitably for the recent years, we consider that the Consideration, which represents a premium of approximately 8.9% over the Company’s proportional share of approximately 9.7% of the net asset value of Luks Cement (Vietnam) attributable to the Acquisition, fair and reasonable.

5. Payment terms and conditions for the Acquisition

The total consideration of US$2.5 million (approximately HK$19.5 million) under the Agreement will be payable by the Company to VFF in cash as to (i) US$100,000 (approximately HK$780,000) upon signing of the Agreement; (ii) US$600,000 (approximately HK$4,680,000) upon the resolution of the Independent Shareholders to approve the Agreement having been passed at the SGM, if convened or a waiver from convening the SGM, having been granted by the Stock Exchange; (iii) US$600,000 (approximately HK$4,680,000) after six months from the date of payment under (ii) above; (iv) US$600,000 (approximately HK$4,680,000) after six months from the date of payment under (iii) above; and (v) the balance of US$600,000 (approximately HK$4,680,000) after six months from the date of payment under (iv) above.

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It was also agreed that VFF shall transfer its entire 12.5% equity interests in Luks Cement to Luks Vietnam (i) upon the receipt from Luks Vietnam of a total payment of US$700,000 (approximately HK$5,460,000) and (ii) the receipt of a letter of undertaking given by the Company guaranteeing the payment by Luks Vietnam of the balance of the Consideration in the amount of US$1.8 million (approximately HK$14,040,000) in the manner as described above.

Completion is conditional upon a number of conditions precedent, details of which are set out in the letter from the Board. Unless all the conditions have been satisfied within 90 days from the date of the Agreement or otherwise agreed by the parties to the Agreement, the Agreement will lapse and any payment having been received by VFF under the Agreement will be refunded to Luks Vietnam in full without accruing any interest if such refund is made within 14 days from the date on which the Agreement lapses. We consider such payment terms and arrangement under the Agreement to be fair and reasonable so far as the Company and the Independent Shareholders are concerned.

Furthermore, as the entire 12.5% equity interests in Luks Cement shall be transferred to Luks Vietnam upon, among others, the payment in cash by the Company of 28% of the Consideration with the remaining 72% of the Consideration payable in cash over the 18 months after the 12.5% equity interests in Luks Cement having been transferred to Luks Vietnam, we consider such arrangement is in the interest of the Company and the Shareholders as a whole.

6. Funding of the Consideration

As stated in the letter from the Board, the cash consideration in the amount of US$2.5 million (approximately HK$19.5 million) will be funded by the Group’s internal resources. We notice from the Company’s 2004 annual report that as at 31 December 2004, cash and cash equivalents of the Group amounted to approximately HK$159.8 million while total bank loans amounted to approximately HK$57.0 million. Accordingly, the Group had a net cash position of approximately HK$102.8 million as at 31 December 2004 and the Consideration represents approximately 19.0% of such net cash position of the Group. Based on its financial position as at 31 December 2004, the Group will have sufficient financial resources to effect the Acquisition and therefore the Acquisition is not expected to have any material adverse impact on the cashflow position of the Group.

7. Financial effects of the Acquisition

(i) Earnings

Upon completion of the Acquisition, the Company’s attributable interest in Luks Cement will increase by 12.5% from approximately 87.5% to 100%. Therefore the future profit or loss of Luks Cement will be increased by approximately 12.5% following completion of the Agreement.

As set out in the letter from the Board, for the two years ended 31 December 2004, Luks Cement recorded an audited net profit of approximately HK$26.8 million and HK$31.7 million respectively and the sole assets of Luks Cement is its holdings of 77.83% interests in Luks Cement (Vietnam). In addition, we notice that all of the

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Group’s cement business has been conducted through Luks Cement (Vietnam) since the incorporation of Luks Cement (Vietnam) in 1992. As set out in the Company’s 2001, 2002, 2003 and 2004 annual reports, the audited turnover derived from the Group’s cement business for the year ended 31 December 2000 was approximately HK$118.0 million and has been increasing continuously to approximately HK$212.0 million for the year ended 31 December 2004, representing an average annual growth rate of approximately 19.9%. Similarly, the segment profit derived from the Group’s cement business also showed an increase from approximately HK$14.1 million for the year ended 31 December 2000 to approximately HK$58.4 million for the year ended 31 December 2004, representing an average annual growth rate of approximately 78.5%.

On the basis that (i) Luks Cement has been operating profitably for the recent years; (ii) there has been continuous growth recorded in the net profit of Luks Cement (Vietnam) over the period under review; and (iii) the market demand for cement in Vietnam is expected to remain strong, details of which have been discussed in the paragraph headed “Background and reasons for the Acquisition” above, we concur with the Directors’ view that the Acquisition will give the Company a good opportunity to increase its interest in Luks Cement (Vietnam) through Luks Cement and thus enhance the Group’s earnings base and is therefore in the interest of the Company and the Shareholders as a whole.

(ii) Net asset value

As at 31 December 2004, the audited net assets and net tangible assets of the Group amounted to approximately HK$1,088.5 million and HK$822.6 million respectively. Before the Acquisition, Luks Cement is a 87.5% indirectly-owned subsidiary of the Company. Upon completion of the Acquisition, Luks Cement will become an indirect wholly owned subsidiary of the Company. According to the selected financial information set out in the letter from the Board, the audited net assets of Luks Cement as at 31 December 2004 was approximately HK$64.9 million. On such basis, the net asset value attributable to 12.5% of Luks Cement amounted to approximately HK$8.1 million. As confirmed by the Directors, upon completion of the Acquisition, the net tangible assets of the Group will drop by approximately HK$11.4 million to approximately HK$811.2 million as a result of the goodwill arising from the Acquisition, which represents the difference between the Consideration and the value of 12.5% net assets of Luks Cement of approximately HK$8.1 million as at 31 December 2004. Given that there will be potential positive contribution to the Group’s future business growth following the completion of the Acquisition and the Acquisition is in the interest of the Company and the Shareholders for reasons as discussed above, we consider that such reduction on the net tangible asset value of the Group is acceptable.

IV. RECOMMENDATION

Having considered the above principal factors and reasons, we are of the view that the Acquisition is in the interest of the Company and its shareholders as a whole and the terms of which are fair and reasonable as far as the Independent Shareholders are concerned.

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Under the Listing Rules, the Acquisition constitutes a connected transaction of the Company and is required to be subject to the approval of Independent Shareholders at a general meeting of the Company. As stated in the letter from the Board, since the interests of the substantial Shareholders in the Acquisition are not different from that of the other Shareholders, no Shareholder is required to abstain from voting if the Company were to convene a general meeting. As the Company has obtained a written approval on the Acquisition from Mr. Luk and Ms. Cheng, who are Directors and hold an aggregate of 273,824,184 Shares, representing approximately 55.80% in the nominal value of the Shares in issue and are entitled to exercise control over the voting rights of these shares giving them the right to attend and vote at the general meeting to consider the Acquisition (if the Company were to convene one), it has applied to the Stock Exchange for a waiver from convening a general meeting to approve the Acquisition. Nevertheless, if the Company were to convene a general meeting to consider the Acquisition, we would advise the Independent Shareholders to vote in favour of the resolution to approve the Agreement.

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

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GENERAL INFORMATION

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. 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 in this circular, the omission of which would make any statement herein misleading.

2. DISCLOSURE OF INTERESTS BY THE DIRECTORS

As at the Latest Practicable Date, the interests and short positions of the Directors and chief executive of the Company in the shares, debentures or underlying shares of the Company or its associated corporations (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which he/she was taken or deemed to have under such provisions of the SFO) or which were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein or which were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Companies in the Listing Rules, to be notified to the Company and the Stock Exchange:

(i) Long positions in the Shares

Name of Director Notes Luk King Tin (a) Cheng Cheung (b) Luk Yan (c) Fan Chiu Tat, Martin	Number of Shares held, capacity and nature of interest Through Directly spouse or Through beneficially minor controlled owned children corporation 167,229,286 – 57,226,071 12,456,800 – 36,912,027 3,370,800 54,000 – 500,000 – – 183,556,886 54,000 94,138,098	Percentage of the Company’s issued Total share capital 224,455,357 45.74% 49,368,827 10.06% 3,424,800 0.70% 500,000 0.10% 277,748,984 56.60%	Percentage of the Company’s issued Total share capital 224,455,357 45.74% 49,368,827 10.06% 3,424,800 0.70% 500,000 0.10% 277,748,984 56.60%
			56.60%

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GENERAL INFORMATION

(ii) Interests in shares of an associated corporation

Long positions in shares of an associated corporation:

		Number of shares held,	Number of shares held,
		capacity and nature of interest		Percentage
				of the
				associated
		Name of the	Through	corporation’s
		associated	controlled	issued
Name of Director	Note	corporation	corporation	share capital
Luk King Tin	(d)	Vigconic	1,974,921	25%
		International
		(Holdings)
		Limited
		(“Vigconic”)

Notes:

• (a) Mr. Luk King Tin had a beneficial interest in KT (Holdings) Limited, which held 57,226,071 Shares at the Latest Practicable Date.

• (b) Ms. Cheng Cheung had a beneficial interest in CC (Holdings) Limited, which held 36,912,027 Shares at the Latest Practicable Date.

• (c) In addition to the above personal interest, Mr. Luk Yan had a family interest, which held 54,000 Shares at the Latest Practicable Date.

• (d) Mr. Luk King Tin had a beneficial interest in Vigconic Biotechnology Company Limited, which held 1,974,921 shares of US$1 each of Vigconic as at the Latest Practicable Date.

In addition to the above, certain Directors have non-beneficial personal equity interests in certain subsidiaries held for the benefit of the Company solely for the purpose of complying with the minimum company membership requirements.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors, chief executive nor their respective associates had any interests or short positions in the shares, underlying shares or debentures and securities of the Company or any of its associated corporations (within the meaning of part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of part XV of the SFO (including interests or short positions which he/she was taken or deemed to have under the provisions of the SFO) or which were required, pursuant to section 352 of the SFO, to be entered into the register referred to therein or which were required pursuant to the Model Code of Securities Transactions by Directors of Listed Companies to be notified to the Company and the Stock Exchange.

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GENERAL INFORMATION

3. SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, so far as it is known to the Directors, the following persons (other than Directors or chief executive of the Company) had interests or short positions in the shares and underlying shares of the Company which would fall into the category to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or, were 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 Group and the amount of each of such person’s interest in such securities, together with particulars of any options in respect of such capital.

Substantial Shareholders’ and other persons’ interests and short positions in shares and underlying shares

As at the Latest Practicable Date, the following interests and short positions of 5% or more of the issued share capital of the Company were recorded in the register of interests required to be kept by the Company pursuant to Section 336 of the SFO:

Long positions:

			Percentage
	Capacity and nature	Number of	of issued
Name	of interest	shares held	share capital
KT (Holdings) Limited	Directly beneficially owned	57,226,071	11.66%
CC (Holdings) Limited	Directly beneficially owned	36,912,027	7.52%

As at the Latest Practicable Date, the following corporations or persons (other than members of the Group, Directors or chief executive of the Company) were, directly or indirectly, interested in 10% or more of the issued share capital carrying rights to vote in all circumstances at the general meetings of the following subsidiaries of the Company:

		Percentage
		of interests
Name of subsidiary	Name of shareholder	in subsidiary
Luks Cement Company Limited	Vietnam Frontier Fund	12.50%
Fortune City Investments Limited	Ip King Yee	30%
Dongguan Fortune City Business	Dongguan City Construction	10%
Residential Development Limited	Projects Group Property
	Development Company

Save as disclosed above, as at the Latest Practicable Date, the Company has not been notified by any persons (other than Directors or chief executive of the Company) who had interests or short positions in the Shares or underlying shares which would fall into the category to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part

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GENERAL INFORMATION

XV of the SFO, or who was, 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 Group or held any option in respect of such capital.

4. DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had any existing or proposed service contracts with any member of the Group which would not expire or would not be determinable by the Group within one year without payment of compensation (other than statutory compensation).

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

As at the Latest Practicable Date, none of the Directors had any direct or indirect interest in any assets which have been acquired, disposed of or leased to, or which are proposed to be acquired, disposed of or leased to, the Company or any of its subsidiaries since 31 December 2004, the date to which the latest published audited accounts of the Group were made up.

As at the Latest Practicable Date, there is no contract or arrangement subsisting in which any Director is materially interested and which is significant in relation to the business of the Group.

As at the Latest Practicable Date, none of the Directors or their respective associates has any interests in any company or business which compete or may compete with the businesses of the Group.

6. EXPERT

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

Name Qualification AMS AMS Corporate Finance Limited, a licensed corporation to carry on type 4 (advising on securities), type 6 (advising on corporate finance) and type 9 (asset management) regulated activities under the SFO

At as the Latest Practicable Date, AMS was not interested beneficially in the securities of any member of the Company and did not have any right, whether legally enforceable or not, to subscribe for or to nominate persons to subscribe for securities in any member of the Company.

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GENERAL INFORMATION

As at the Latest Practicable Date, AMS did not have any direct or indirect interest in any assets which have been acquired or disposed of by or leased to any member of the Group or are proposed to be acquired or disposed of by or leased to any member of the Group since 31 December 2004, being the date up to which the latest published audited consolidated accounts of the Group were made.

7. CONSENT

AMS has given and has not withdrawn its written consents to the issue of this circular with the inclusion of the texts of its letter and references to its name, in the form and context in which they respectively appear.

8. MATERIAL CONTRACTS

The following contracts (not being contracts entered into in the ordinary course of business) have been entered into by the Company or its subsidiaries since the date of 24 months immediately preceding the date of this circular and which are or may be material:

• (a) The early redemption agreement dated 6 May 2004 entered into between the Company and Mr. Luk King Tin in relation to the early redemption of the promissory note in the principal sum of HK$200 million which was issued by the Company to Mr. Luk King Tin on 31 March 2003.

• (b) The transfer agreement dated 12 October 2004, entered into between Luks Vietnam Company Limited, a wholly owned subsidiary of the Company and Thua Thien Hue Construction Corporation in respect of its 22.17% equity interest in Luks Thua Thien Hue Company Limited, now known as Luks Cement (Vietnam) at a consideration of US$4 million (approximately HK$31.2 million).

• (c) The agreement dated 23 March 2005 entered into between Best Deluxe Assets Limited and China National Aero-Technology Import & Export Corporation Beijing Company (中國航空技術進出口北京公司 ) for the purchase of the equipments, machineries and parts in connection with the clinkers production line to be installed in the plant of Luks Cement (Vietnam) at a consideration of US$10.709 million (approximately HK$83.53 million).

• (d) The Agreement.

9. MATERIAL ADVERSE CHANGE

The Directors are not aware of any material adverse change in the financial or trading position of the Group since 31 December 2004, being the date of the latest published audited financial statements of the Company were made up.

10. LITIGATION

As at the Latest Practicable Date, neither the Company nor any of its subsidiaries was engaged in any litigation or arbitration of material importance and there was no litigation or claim of material importance known to the Directors to be pending or threatened by or against the Company or any of its subsidiaries.

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GENERAL INFORMATION

11. GENERAL

• (a) The company secretary and the qualified accountant of the Company is Mr. Fan Chiu Tat, Martin, B.Soc.Sc., FCCA, HKICPA.

• (b) The registered office of the Company is located at Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda.

• (c) The registrar and transfer office of the Company in Hong Kong are Tengis Limited at G/F, Bank of East Asia Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong.

• (d) The principal place of business of the Company is located at 5th Floor, Cheong Wah Factory Building, 39-41 Sheung Heung Road, Tokwawan, Kowloon, Hong Kong.

12. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the office of the Company in Hong Kong at 5th Floor, Cheong Wah Factory Building, 39-41 Sheung Heung Road, Tokwawan, Kowloon, Hong Kong during normal business hours on any weekday (except public holidays) from the date of this circular up to and including 18 August 2005:

• (a) memorandum and Bye-laws of the Company;

• (b) the audited consolidated financial statements of the Company for each of the two years ended 31 December 2003 and 2004;

• (c) the material contracts referred to in paragraph 8 above;

• (d) the circular of the Company dated 31 May 2004 in relation to the proposed early redemption of the promissory note by cash payment and issuance of consideration share and application for whitewash waiver;

• (e) the circular of the Company dated 18 November 2004 in relation to the proposed acquisition of interest in a joint venture company in Vietnam; and

• (f) the circular of the Company dated 18 April 2005 in relation to the proposed agreement for the purchase of the facilities of a clinkers’s production line to be installed in Vietnam.

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