First Tractor Company Limited — Proxy Solicitation & Information Statement 2002

Aug 5, 2002

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold all your Shares in K. Wah Construction Materials Limited, you should at once hand this circular to the purchaser or to the bank, stockbroker or other agent through whom the sale was effected for transmission to the purchaser.

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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K. WAH CONSTRUCTION MATERIALS LIMITED

(Incorporated in Hong Kong with limited liability)

CONNECTED TRANSACTION

Granting of Guaranteed Unsecured Revolving Loan Facility by

Brighten Lion Limited, an indirect wholly-owned subsidiary of K. Wah Construction Materials Limited, to Great Place Developments Limited, an indirect wholly-owned subsidiary of K. Wah International Holdings Limited

Financial adviser to K. Wah Construction Materials Limited

EQUITAS CAPITAL LIMITED

Independent financial adviser to the Independent Board Committee of K. Wah Construction Materials Limited

Somerley Limited

A letter from the board of Directors of K. Wah Construction Materials Limited is set out on pages 4 to 10 of this circular. A letter from the Independent Board Committee of K. Wah Construction Materials Limited containing its advice to Independent Shareholders is set out on pages 11 to 12 of this circular. A letter from Somerley Limited, the independent financial adviser, containing its advice to the Independent Board Committee of K. Wah Construction Materials Limited is set out on pages 13 to 22 of this circular.

A notice convening an extraordinary general meeting of K. Wah Construction Materials Limited to be held on Thursday, 22nd August, 2002 at Picasso Room, Basement 1, Grand Stanford Inter-Continental Hong Kong, 70 Mody Road, Tsimshatsui East, Kowloon, Hong Kong at 11:15 a.m. is set out on pages 30 to 31 of this circular. Whether or not you are able to attend, please complete and return the enclosed form of proxy in accordance with the instructions printed thereon as soon as possible and in any event no later than 48 hours before the time appointed for the holding of the meeting. Completion and return of the form of proxy will not preclude you from attending and voting at the meeting (or at any adjourned meeting thereof) should you so wish.

5th August, 2002

K. Wah Construction Materials Limited

CONTENTS

Page	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board
1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
2. The Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
3. Reasons for the Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
4. Extraordinary General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
5. The Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
6. Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
7. Further Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
Letter from Somerley . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
Appendix — General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	23
Notice of Extraordinary General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	30

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K. Wah Construction Materials Limited

DEFINITIONS

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

• “Agreement” the conditional agreement dated 22nd July, 2002 entered into between, Great Place and Brighten Lion in relation to the Facility

• “associate(s)” shall have the meaning ascribed to it in the Listing Rules “Board” board of Directors “Brighten Lion” Brighten Lion Limited, a company incorporated in Hong Kong and an indirect wholly-owned subsidiary of the Company

• “Company” or “KWCM” K. Wah Construction Materials Limited, a company incorporated in Hong Kong, the shares of which are listed and dealt in on the Stock Exchange

• “Completion” completion of the Transaction “connected person” a director, chief executive or substantial shareholder of a listed company or its subsidiaries or their respective associates

• “Consolidated Total Net the aggregate of all the liabilities in respect of financial Borrowings” indebtedness of the KWIH Group (determined on a consolidated basis in accordance with generally accepted accounting principles and practices in Hong Kong) but deducting any cash in hand or at bank belonging to the KWIH Group

• “Director(s)” the director(s) of the Company “EGM” an extraordinary general meeting of the Company to be convened to approve, amongst other things, the Agreement and the transactions contemplated therein or any adjournment of such extraordinary general meeting

• “Equitas” Equitas Capital Limited, an exempt dealer and an exempt investment adviser under the Securities Ordinance (Chapter 333 of the Laws of Hong Kong), the financial adviser to the Company

• “Facility” the guaranteed unsecured revolving loan facility granted by Brighten Lion to Great Place pursuant to the terms of the Agreement

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K. Wah Construction Materials Limited

DEFINITIONS

“Great Place” Great Place Developments Limited, a limited company incorporated in the British Virgin Islands and an indirect wholly-owned subsidiary of KWIH “Group” or “KWCM Group” the Company and its subsidiaries “Guarantee” guarantee and indemnity from KWIH in favour of Brighten Lion in respect of the obligations of Great Place under the Agreement

• “HIBOR” Hong Kong interbank offered rates per annum for Hong Kong dollar deposits quoted on the Reuters screen and calculated pursuant to the Facility

• “Hong Kong” the Hong Kong Special Administrative Region of the PRC “Independent Board an independent committee of the board of Directors Committee” (comprising Messrs. Moses Cheng Mo Chi and Yip Hing Chung, each being an independent non-executive Director) which has been established to advise the Independent Shareholders in respect of the Transaction

• “Independent Shareholders” shareholders of the Company (other than the Lui Family and their associates) who are entitled to attend and vote at the EGM on the Agreement and the transactions contemplated therein

• “KWIH” K. Wah International Holdings Limited, a company incorporated in Bermuda, the shares of which are listed and dealt in on the Stock Exchange

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

• “KWIH Group” KWIH and its subsidiaries (including, unless the context requires otherwise, the Group)

“KWIH Independent shareholders of KWIH (other than the Lui Family and Shareholders” their associates) who are entitled to attend and vote at the SGM on the Agreement and the transactions contemplated therein

• “KWIH Share(s)” share(s) of HK$0.10 each in the share capital of KWIH

• “Latest Practicable Date” 2nd August, 2002, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained herein

• “Listing Rules”

the Rules Governing the Listing of Securities on the Stock Exchange

K. Wah Construction Materials Limited

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DEFINITIONS

“Lui Family”	Dr. Lui Che Woo (the Chairman of the Company),
	Mr. Francis Lui Yiu Tung (the Managing Director) and
	Mrs. Paddy Tang Lui Wai Yu (an Executive Director)
“PRC” or “China”	the People’s Republic of China
“SDI Ordinance”	Securities (Disclosure of Interests) Ordinance (Chapter
	396 of the Laws of Hong Kong)
“Securities Ordinance”	Securities Ordinance (Chapter 333 of the Laws of Hong
	Kong)
“SGM”	a special general meeting of KWIH to be convened to
	approve, amongst other things, the Agreement and the
	transactions contemplated therein or any adjournment of
	such special general meeting
“Share(s)”	share(s) of HK$0.10 each in the share capital of the
	Company
“Shareholder(s)”	holder(s) of shares in the capital of the Company
“Somerley”	Somerley Limited, a registered investment adviser and
	an exempt dealer registered under the Securities
	Ordinance (Chapter 333 of the Laws of Hong Kong) and
	the independent financial adviser to the Independent
	Board Committee
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“subsidiaries”	shall have the meaning ascribed to it by section 2(4) of
	the Companies Ordinance (Chapter 32 of the Laws of
	Hong Kong)
“Transaction”	the transaction contemplated under the Agreement
“HK$”	Hong Kong dollars

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K. Wah Construction Materials Limited

LETTER FROM THE BOARD

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K. WAH CONSTRUCTION MATERIALS LIMITED

(Incorporated in Hong Kong with limited liability)

Executive Directors:

Dr. Lui Che Woo, MBE, JP, LLD (Chairman) Francis Lui Yiu Tung (Deputy Chairman and Managing Director) Albert To Tak Pui

Paddy Tang Lui Wai Yu

Registered Office: 29th Floor

K. Wah Centre 191 Java Road North Point Hong Kong

Non-executive Directors:

Dr. Chan Nai Keong, CBE, JP Dr. Charles Cheung Wai Bun, JP[] Moses Cheng Mo Chi, OBE, JP[] Yip Hing Chung, MBE, JP[*]

• Independent non-executive Directors

5th August, 2002

To the Shareholders

Dear Sir or Madam,

CONNECTED TRANSACTION

Granting of Guaranteed Unsecured Revolving Loan Facility by

Brighten Lion Limited, an indirect wholly-owned subsidiary of

K. Wah Construction Materials Limited, to Great Place Developments Limited, an indirect wholly-owned subsidiary of K. Wah International Holdings Limited

1. INTRODUCTION

It was jointly announced by the Company and KWIH on 22nd July, 2002 that Great Place and Brighten Lion had entered into the Agreement on that day pursuant to which Brighten Lion has conditionally agreed to grant the Facility in the maximum amount of HK$330 million to Great Place on the terms summarised herein below.

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K. Wah Construction Materials Limited

LETTER FROM THE BOARD

Equitas has been appointed as the financial advisers to your Company in connection with the Transaction.

As at the Latest Practicable Date, the Company was owned indirectly as to about 67.7% by KWIH. Accordingly, the Transaction constitutes a connected transaction for each of the Company and KWIH. The Agreement is conditional upon, amongst other things, (i) the approval of the Independent Shareholders at the EGM; and (ii) the approval of the KWIH Independent Shareholders at the SGM. The Independent Board Committee has been established for the purpose of considering the Transaction and making recommendation to the Independent Shareholders as to the fairness and reasonableness of the terms of the Agreement and as to the manner the Independent Shareholders should vote at the EGM. Somerley has been appointed as the independent financial adviser to advise the Independent Board Committee in this regard.

The purpose of this circular is to provide you with further information on the Agreement and the Transaction, to set out the letter of advice of the Independent Board Committee and the letter of advice of Somerley and to give you notice of the EGM whereat the approval of the Independent Shareholders for the Agreement and the Transaction will be sought.

2. THE AGREEMENT

Date				:	22nd July,	2002
**Parties **	**to **	**the **	Agreement	:	Borrower	:	Great Place
					Guarantor	:	KWIH
					Lender	:	Brighten Lion

Principal terms of the Facility

Pursuant to the Agreement, Brighten Lion has conditionally agreed to grant the Facility, which is unsecured, to Great Place on the following principal terms:

1.	Facility	amount:	principal amount of up to a maximum of HK$330	principal amount of up to a maximum of HK$330
			million revolving loan facility
2.	Facility	term:	(i)	if, not less than 2 months prior to the First
				Maturity Date (as defined below), either party to
				the Agreement serves a written notice (“First
				Maturity Notice”) on the other stipulating that the
				Facility is to be terminated on the 3rd anniversary
				(“First Maturity Date”) of the date of the First
				Drawdown (as defined in Clause 4 below), the
				term of the Facility will be three years from date of
				First Drawdown; or

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K. Wah Construction Materials Limited

LETTER FROM THE BOARD

• (ii) if Brighten Lion exercises its right pursuant to Clause 6 (ii) below, the Facility term will be four years maturing on the 4th anniversary of the date of the First Drawdown; or

• (iii) if neither the First Maturity Notice nor the Early Expiry Notice (as defined in Clause 6 (ii) below) is served, the Facility will automatically be extended for two years from the First Maturity Date

• Availability period: the period commencing on the date on which the Agreement becomes unconditional and ending on the Date of Final Repayment (as referred to in Clause 6 below);

• notwithstanding this provision and other terms in the Agreement, Brighten Lion will have the right after the First Maturity Date to serve a notice on Great Place requiring it to drawdown all or part of the undrawn and uncancelled portion of the Facility within 3 months of the date of such notice, failing which the undrawn and uncancelled portion of the Facility as at the end of the said 3 month period shall be automatically cancelled and shall not be available for borrowing

• Drawdown: a drawing must be made within two months from the date on which the Agreement becomes unconditional and the first drawing of the Facility (“First Drawdown”) shall be for a minimum of HK$50 million; further drawings may be made by Great Place under the Facility (up to an aggregate of HK$330 million) at any time within the Availability Period

• Repayment: subject to the date of Final Repayment as referred to in Clause 6 below, every drawing under the Facility must be repaid in full on the last day of the interest period applicable to that drawing which shall be for a duration of 3 months

• Date of Final being (as the case may be): Repayment:

• (i) the First Maturity Date if a First Maturity Notice is served by any party to the Agreement; or

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K. Wah Construction Materials Limited

LETTER FROM THE BOARD

• (ii) the fourth anniversary of the date of First Drawdown (the “Early Expiry Date”) if Brighten Lion serves a notice (the “Early Expiry Notice”) on Great Place demanding repayment of all amounts owing by Great Place under the Facility on the fourth anniversary of the date of the First Drawdown, and such notice is served not less than 2 months prior to the Early Expiry Date; or

• (iii) the fifth anniversary of the date of the First Drawdown if the First Maturity Notice and the Early Expiry Notice have not been served by the relevant party

• 1. Interest rate: interest payable every three months in arrears at the rate equal to three months HIBOR plus 2.38% per annum
• 1. Fee: a front end fee calculated at 0.36% of the maximum amount of the Facility is payable by Great Place to Brighten Lion on the date on which the Agreement becomes unconditional
• 1. Default interest: three month HIBOR plus 4% per annum 10. Guarantee: guarantee and indemnity from KWIH in favour of Brighten Lion in respect of the obligations of Great Place under the Agreement
• 1. Financial Great Place and KWIH have undertaken to ensure undertakings: that, before any drawing under the Facility has been fully repaid, (i) the consolidated net tangible assets of the KWIH Group at any time is not less than HK$1,500 million; and

• (ii) the Consolidated Total Net Borrowings of the KWIH Group shall not at any time exceed 150% of its consolidated net tangible assets plus any amount attributable to minority interests

Conditions of the Agreement

The Agreement is conditional upon the fulfillment of the following conditions:

1. the approval of the Independent Shareholders at the EGM for the Agreement and the Transaction;

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K. Wah Construction Materials Limited

LETTER FROM THE BOARD

1. the approval of the KWIH Independent Shareholders at the SGM for the Agreement and the Transaction; and

2. completion and delivery of the Guarantee to be given by KWIH in favour of Brighten Lion and certain other documentation principally relating to the constitutional documents of Great Place and KWIH and other procedural matters in a form acceptable to Brighten Lion.

If any of the conditions of the Agreement is not fulfilled in accordance with the Agreement on or before 30th September, 2002 (or such later date as may be agreed by the parties to the Agreement), the Agreement shall terminate whereupon none of the parties thereto shall have any rights or claims against or owing to the other under the Agreement except in respect of those arising from any antecedent breaches or pursuant to certain provisions in the Agreement.

Determination of the terms of the Facility

The Agreement has been entered into on normal commercial terms after arms length negotiations between the parties thereto. In particular, the interest margin of 2.38% over HIBOR has been determined by reference to the interest rates charged by local banks for similar unsecured borrowings after taking into account the revolving nature and the term of the Facility.

3. REASONS FOR THE TRANSACTION

The Group is principally engaged in the production, sale and distribution of construction materials and the operation of quarries in Hong Kong and mainland China.

The Group has recorded satisfactory financial results in recent financial years and has been able to generate positive cash flow and accumulate substantial cash resources from its operations. In the year ended 31st December, 2001, the Group recorded net profit attributable to Shareholders of HK$112.8 million (as compared to HK$166.3 million for the year ended 31st December, 2000 and HK$143.5 million for the nine months ended 31st December, 1999). The reduced profit for the year ended 31st December, 2001 due to the soft construction market conditions in Hong Kong has been partly compensated by the increased profit from operations in mainland China, particularly in Shanghai, and interest income of approximately HK$25.4 million generated from the investment in a note instrument issued by KWIH (which was fully redeemed in June, 2002 prior to maturity). The Directors expect that the restructuring of the Hong Kong economy will take time to materialise and that contributions from the Hong Kong operation would, in the meantime, be further reduced before recovery. To enhance its future profitability, the Group will, in the long run, continue to explore suitable investment opportunities to expand its product range and business presence in major cities in mainland China in the light of a favourable market outlook arising from mainland China’s entry to WTO and the commencement works for Beijing’s 2008 Olympics.

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K. Wah Construction Materials Limited

LETTER FROM THE BOARD

The Directors consider that, in the absence of any imminent investment targets requiring immediate use of cash resources, the granting of the Facility to the KWIH Group represents a profitable opportunity for the Group to utilise its spare cash resources to generate a reasonable medium-term yield when compared to market. To the extent that the Facility is drawn down and utilised, the Group will earn interest on its spare cash resources at a rate which is 2.38% per annum in excess of the rate offered by local banks for three month deposits.

As at 30th June, 2002, the Group had cash holdings in excess of HK$580 million. The Facility to be provided by Brighten Lion to Great Place pursuant to the Agreement will be funded from the internal resources of the Group.

4. EXTRAORDINARY GENERAL MEETING

The EGM will be held on Thursday, 22nd August, 2002 at Picasso Room, Basement 1, Grand Stanford Inter-Continental Hong Kong, 70 Mody Road, Tsimshatsui East, Kowloon, Hong Kong at 11:15 a.m. for the purpose of considering and, if thought fit, passing the ordinary resolution to approve the Agreement and the Transaction. The notice of the EGM is set out on pages 30 to 31 of this circular.

The Lui Family, as controlling shareholders of the Company (through their controlling interest in KWIH), are deemed to be interested in the Transaction. Accordingly, the Lui Family and their associates will abstain from voting to approve the Agreement and the Transaction at the EGM.

A form of proxy for use in connection with the EGM is enclosed. Whether or not you are able to attend the EGM, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon to the registered office of the Company in Hong Kong at 29th Floor, K. Wah Centre, 191 Java Road, North Point, Hong Kong as soon as possible and in any event no later than 48 hours before the time appointed for holding the EGM (or any adjourned meeting thereof). Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM (or any adjourned meeting thereof) should you so wish.

5. THE INDEPENDENT BOARD COMMITTEE

The Independent Board Committee has been established for the purpose of considering the Transaction and making recommendation to the Independent Shareholders as to the fairness and reasonableness of the terms of the Agreement and as to the manner the Independent Shareholders should vote at the EGM. As Dr. Charles Cheung Wai Bun is also a director of KWIH, he has not been included as a member of the Independent Board Committee established for the Transaction.

Somerley has been appointed as the independent financial adviser to advise the Independent Board Committee in this regard.

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K. Wah Construction Materials Limited

LETTER FROM THE BOARD

6. RECOMMENDATION

Your attention is drawn to the Letter from the Independent Board Committee containing its advice regarding the Transaction set out on pages 11 to 12 of this circular. The Independent Board Committee, having taken into account the advice of Somerley, the text of which is set out on pages 13 to 22 of this circular, considers that the Transaction is in the interests of the Company and the Shareholders taken as a whole and the terms of the Agreement are fair and reasonable so far as the Independent Shareholders are concerned, and recommends the Independent Shareholders to vote in favour of the ordinary resolution which will be proposed at the EGM to approve the Agreement and the Transaction.

For the reasons stated in the section headed “Reasons for the Transaction” above, your Directors (other than members of the Independent Board Committee) consider that the Transaction is in the interests of the Company and the Shareholders taken as a whole and the terms and conditions of the Agreement are fair and reasonable so far as the Independent Shareholders are concerned. Accordingly, your Directors (other than members of the Independent Board Committee) recommend that the Independent Shareholders vote in favour of the ordinary resolution which will be proposed at the EGM to approve the Agreement and the Transaction.

7. FURTHER INFORMATION

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

Yours faithfully, For and on behalf of the Board of K. Wah Construction Materials Limited Dr. Lui Che Woo Chairman

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K. Wah Construction Materials Limited

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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K. WAH CONSTRUCTION MATERIALS LIMITED

(Incorporated in Hong Kong with limited liability)

5th August, 2002

To the Independent Shareholders

Dear Sir or Madam,

CONNECTED TRANSACTION

Granting of Guaranteed Unsecured Revolving Loan Facility by

Brighten Lion Limited, an indirect wholly-owned subsidiary of K. Wah Construction Materials Limited, to Great Place Developments Limited, an indirect wholly-owned subsidiary of K. Wah International Holdings Limited

We refer to the circular to the Shareholders dated 5th August, 2002 (the “Circular”), in which this letter is reproduced. Unless the context requires otherwise, terms defined in the Circular shall have the same meanings in this letter.

Details of the Agreement and the Transaction are contained in the Letter from the Board set out on pages 4 to 10 of the Circular. Under the Listing Rules, the Transaction constitutes a connected transaction for the Company.

We have been appointed by the Board to advise the Independent Shareholders on whether the terms of the Agreement and the Transaction are fair and reasonable so far as the Independent Shareholders are concerned.

Your attention is drawn to the letter of advice from Somerley set out on pages 13 to 22 of the Circular. We have noted the letter and the advice contained therein and have considered, amongst others, the principal factors and reasons taken into account by Somerley. We have also considered the various factors and reasons contained in the Letter from the

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K. Wah Construction Materials Limited

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Board set out on pages 4 to 10 of the Circular. In our opinion, the terms of the Agreement are fair and reasonable so far as the Independent Shareholders are concerned and the Transaction is in the interests of the Company and the Shareholders taken as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolution to be proposed at the EGM to approve the Agreement and the Transaction.

Yours faithfully,

For and on behalf of the Independent Board Committee of

K. Wah Construction Materials Limited Moses Cheng Mo Chi Yip Hing Chung Independent Non-Executive Directors

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K. Wah Construction Materials Limited

LETTER FROM SOMERLEY

Set out below is the text of a letter of advice prepared by Somerley for the purpose of inclusion in this circular, which sets out its advice to the Independent Board Committee regarding the Agreement and the Transaction.

Somerley Limited Suite 3108

One Exchange Square 8 Connaught Place Central Hong Kong

The Independent Board Committee K. Wah Construction Materials Limited 29th Floor, K. Wah Centre 191 Java Road North Point Hong Kong

5th August, 2002

Dear Sirs,

CONNECTED TRANSACTION

Granting of guaranteed unsecured revolving loan facility by

Brighten Lion Limited, an indirect wholly-owned subsidiary of K. Wah Construction Materials Limited, to Great Place Developments Limited, an indirect wholly-owned subsidiary of K. Wah International Holdings Limited

We refer to our appointment to advise the Independent Board Committee as regards the terms of the Agreement involving the grant of the Facility by Brighten Lion to Great Place. Details of the Agreement are set out in the letter from the Board contained in the circular of the Company dated 5th August, 2002 (the “Circular”), of which this letter forms part. Terms defined in the Circular shall have the same meanings in this letter unless the context of this letter otherwise requires.

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K. Wah Construction Materials Limited

LETTER FROM SOMERLEY

As at the Latest Practicable Date, KWCM was held indirectly as to approximately 67.7 per cent. by KWIH. Accordingly, KWIH is considered to be a connected person of KWCM. The Transaction therefore constitutes a connected transaction of KWCM under Rule 14.26(6)(a) of the Listing Rules and is subject to the approval by the Independent Shareholders at the EGM. The Independent Board Committee has been established to consider the terms of the Transaction and to advise the Independent Shareholders in this connection.

In formulating our advice, we have relied on the information and facts supplied, and the opinions expressed, by the Directors and management of KWCM and have assumed that the information, facts and opinion made to us are true and accurate. We have also sought and received confirmation from the Directors that no material factors have been omitted from the information supplied and opinions expressed. We consider that the information we have received is sufficient for us to reach an informed view and have no reason to believe that any material information has been withheld, or doubt the truth or accuracy of the information provided. We have not, however, conducted an independent investigation into the affairs of the Group. We have also assumed that the statements and representations made or referred to in the Circular were accurate at the time they were made and continue to be accurate as at the respective dates of the Circular and holding of the EGM.

PRINCIPAL FACTORS TAKEN INTO ACCOUNT

In arriving at our advice to the Independent Board Committee with regard to the Agreement, we have taken into account the following principal factors:

1. Background to the grant of the Facility

The Group is principally engaged in the production, sale and distribution of construction materials and the operation of quarries in Hong Kong and the mainland China.

In recent financial years, the Group has recorded satisfactory results and has been able to generate positive cash flow and accumulate substantial cash resources from its operations. For the nine months ended 31st December, 1999 and each of the two years ended 31st December, 2000 and 2001, the Group recorded audited profit attributable to Shareholders of approximately HK$143.5 million, HK$166.3 million and HK$112.8 million respectively. The reduced profit attributable to Shareholders for the year ended 31st December, 2001 due to the soft construction market conditions in Hong Kong has partly been compensated by the increased profit from operations in the PRC, particularly, in Shanghai, and the pre-tax interest income of approximately HK$25.4 million generated from the investment in a note instrument issued by KWIH (which was fully redeemed in June, 2002 prior to maturity). The Directors expect the restructuring of the Hong Kong economy will take time to materialise and that contributions from the Hong Kong operation would, in the meantime, be further reduced before recovery. In order to enhance its future

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K. Wah Construction Materials Limited

LETTER FROM SOMERLEY

profitability, the Group will, in the long run, continue to explore suitable investment opportunities to expand its product range and business presence in major cities in the PRC in light of a favourable market outlook arising from China’s entry to WTO and the commencement works for Beijing’s 2008 Olympics.

In view of the aforesaid expansion strategy, the Directors consider that it would not be in the long term interest of the Group to decapitalise KWCM by distributing surplus cash to the Shareholders which would reduce the cash resources available for future investment by the Group as and when suitable opportunities arise. In the absence of any imminent new investment targets identified and with a view to generating reasonable return to the Group while allowing flexibility in the allocation of resources, the Directors consider it appropriate for the Group to invest the cash reserves which are surplus to its present need in money market instruments with a medium term.

In contemplating the grant of the Facility, the Directors consider that as KWCM is engaged in the construction materials industry, they have sufficient experience and knowledge to assess the risks of the property market in Hong Kong in which KWIH principally operates. In light of the fact that KWIH is an established listed property development company in Hong Kong, the Directors believe that they are in a position to evaluate the financial position of KWIH and the credit risks associated with the Facility. Having considered this factor and the expected yield of the Facility as compared to the yield from money market deposits currently obtained by the Group as discussed below, the Directors are of the view, with which we concur, that the grant of the Facility represents a profitable opportunity for the Group to utilise its financial resources to generate a reasonable yield when compared to market.

2. Terms of the Facility

Your attention is drawn to the section headed “Principal terms of the Facility” set out in the letter from the Board on pages 5 to 7 of the Circular. In assessing whether the terms of the Facility are fair and reasonable, we have given particular regard to the following principal terms:

Maturity

The Facility will initially mature in three years from the date of first drawdown of the Facility by Great Place (the “First Drawdown”), which will be made in the minimum amount of HK$50 million within two months from the date on which the Agreement becomes unconditional. Unless the party to the Agreement serves the First Maturity Notice to the other on or before two months prior to the third anniversary of the date of the First Drawdown (the “First Maturity Date”), the Facility will automatically be extended for a further two years from the First Maturity Date, subject to Brighten Lion’s right of calling for early expiry or termination as described below.

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K. Wah Construction Materials Limited

LETTER FROM SOMERLEY

Brighten Lion may request for early expiry of the Facility on the fourth anniversary of the date of the First Drawdown by serving a 2-month notice to Great Place prior to the Early Expiry Date. In addition, Brighten Lion will have the right after the First Maturity Date to serve a notice on Great Place requiring it to drawdown all or part of the undrawn and uncancelled portion of the Facility within three months of the date of such notice, failing which the undrawn or uncancelled portion of the Facility as at the end of the said three-month period shall be automatically cancelled and shall not be available for borrowing.

As discussed above, although there is no imminent investment project identified by the Group that would require use of cash resources on a short term basis, it would not be in the interest of the Group to tie up its financial resources in a long term instrument and that it would be appropriate to invest the Group’s surplus cash resources in a medium-term instrument such as the Facility.

Interest and fee

The Facility will bear interest at 2.38 per cent. per annum over three-month HIBOR on the outstanding principal amount calculated on a daily basis and is payable by Great Place every three months in arrears. A front-end fee of 0.36 per cent. of the maximum amount of the Facility is payable by Great Place to Brighten Lion on the date on which the Agreement becomes unconditional. Accordingly, the annual yield of the Facility (refers to the annual interest rate plus front-end fee amortised over the fixed term of the Facility) would be 2.5 per cent. over three-month HIBOR.

For the purpose of assessing whether the yield of the Facility is fair and reasonable, we have identified, as set out in the tables below, the note/debt issues by other listed companies in Hong Kong during the past twelve months from publicly available sources and have compared the yield of these issues with that of the Facility. For this purpose, we have selected issues in Hong Kong dollars with principal amounts up to HK$1,000,000,000 and issues with maturity period up to five years, but excluded issues with equity-linked features, such as convertible notes, and issues by financial institutions and infrastructure/public utilities companies.

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K. Wah Construction Materials Limited

LETTER FROM SOMERLEY

Table I — Properties related companies

	Launch	Maturity
Borrower/Guarantor	date	date	Amount	All-in yield	Issue type
			(in HK$	(Note)
			million)
Hang Lung Group	August, 2001	August, 2004	500	HIBOR+0.53%	Term loan
Limited
Hang Lung Group	August, 2001	August, 2005	500	HIBOR+0.51%	Revolver line
Limited
Sino Land Company	September,	September,	500	HIBOR+0.67%	Secured term
Limited	2001	2006			loan/revolver line
Cheung Kong	April, 2002	April, 2005	550	5.25%	Fixed rate bond
(Holdings) Limited
The Wharf (Holdings)	June, 2002	June, 2004	300	3.68%	Fixed rate bond
Limited
The Wharf (Holdings)	June, 2002	June, 2005	300	4.36%	Fixed rate bond
Limited
Chevalier International	June, 2002	June, 2007	350	HIBOR+0.72%	Revolver/term
Holdings Limited					loan

Mean (average of all-in yield) for fixed rate issues 4.43% Median (mid point of all-in yield) for fixed rate issues 4.36%

Mean (average of all-in yield) for floating rate issues Median (mid point of all-in yield) for floating rate issues

HIBOR+0.61% HIBOR+0.60%

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K. Wah Construction Materials Limited

LETTER FROM SOMERLEY

Table II — Other companies

	Launch	Maturity
Borrower/Guarantor	date	date	Amount	All-in yield	Issue type
			(in HK$	(Note)
			million)
Orient Power Holdings	July, 2001	July, 2004	100	HIBOR+1.97%	Unsecured term
Limited					loan
Kingboard Chemical	September,	September,	600	HIBOR+1.24%	Unsecured term
Holdings Limited	2001	2004			loan
Peace Mark	November, 2001	November, 2004	200	HIBOR+2.05%	Unsecured term
(Holdings) Limited					loan
Yue Fung International	January, 2002	January, 2005	80	HIBOR+2.25%	Term loan
Group Holding
Limited
Golik Holdings Limited	January, 2002	January, 2005	75	HIBOR+2.25%	Term loan
Liu Chong Hing	January, 2002	January, 2005	475	HIBOR+1.63%	Unsecured term
Investment Limited					loan
CEC International	January, 2002	January, 2005	100	HIBOR+2.5%	Term/revolver
Holdings Limited					line
U-Right International	April, 2002	April, 2005	130	HIBOR+1.7%	Term loan
Holdings Limited
Ngai Lik Industrial	May, 2002	May, 2006	210	HIBOR+1%	Revolver
Holdings Limited					line/term loan

Mean (average of all-in yield) for floating rate issues Median (mid point of all-in yield) for floating rate issues

HIBOR+1.84% HIBOR+1.97%

All companies

Mean (average of all-in yield) for fixed rate issues 4.43% Median (mid point of all-in yield) for fixed rate issues 4.36%

Mean (average of all-in yield) for floating rate issues Median (mid point of all-in yield) for floating rate issues

HIBOR+1.46% HIBOR+1.63%

Source: Basis Point

Note: All-in yield refers to the annual coupon rate of the issues plus front-end fee, if any, amortised over the fixed term of the issues but excludes commitment fee, if any, as we are not in a position to ascertain the basis on which such fee is charged by the lender.

— 18 —

K. Wah Construction Materials Limited

LETTER FROM SOMERLEY

While we appreciate that the above notes/debt issues are not necessarily entirely comparable with the Facility given the differences in (i) the credit rating and market capitalisation of the issuers; (ii) the size of the issues; (iii) the repayment or redemption feature; (iv) the maturity period; and (v) the availability of securities, we note that, with the exception of 1 issue with yield of 2.5 per cent. over HIBOR, the all-in yield of the Facility is higher than the yield of all other floating rate note/debt issues by other listed companies in the past twelve months identified by us, which range from 0.51 per cent. to 2.25 per cent. over HIBOR. On the basis of the three-month HIBOR of approximately 1.77 per cent. as at the Latest Practicable Date, the all-in yield of the Facility is approximately 4.27 per cent. and is within range of the yield of those fixed rate notes issued by other listed companies in the past twelve months identified by us, which range from 3.68 per cent. to 5.25 per cent. In addition, the all-in yield of the Facility is higher than the mean and median of the yield of the floating rate issues by other listed companies in the past twelve months identified by us of 1.46 per cent. and 1.63 per cent over HIBOR respectively, and is comparable to the mean and median of the yield of the fixed rates issued by other listed companies in the past twelve months identified by us of 4.43 per cent. and 4.36 per cent. respectively.

Covenants

Great Place and KWIH have agreed to observe certain covenants before any drawing under the Facility has been fully repaid, which include: (i) the level of consolidated net tangible assets of the KWIH Group shall not at any time be less than HK$1,500 million; and (ii) the Consolidated Total Net Borrowings of the KWIH Group shall not at all time exceed 150% of its consolidated net tangible assets plus any amount attributable to minority interests.

We consider that these covenants are common features of loan facility of this kind and serve to protect the interest of Brighten Lion as lender. We understand that covenants of similar nature are also imposed on the KWIH Group by other banks or financial institutions which have extended unsecured facilities to the KWIH Group, except that the above covenants are less restrictive in terms of the maximum gearing level of the KWIH Group. In this respect, the all-in price for those more restrictive and unsecured facilities currently available to the KWIH Group is lower than that of the Facility. We consider that the credit risk associated with the less restrictive covenants of the Facility has been reflected in the interest rate of the Facility.

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K. Wah Construction Materials Limited

LETTER FROM SOMERLEY

3. Credit risk associated with the Facility

Industry risk

The Facility to be granted to Great Place is unsecured and guaranteed by KWIH. As discussed above, the Facility carries a relatively higher yield than most of the debt/note issues of listed companies in Hong Kong in the past twelve months identified by us. For the purpose of our assessment of the credit risk of the Facility, we have sought to compare the all-in yield of the Facility with the yield of those issues made by listed property related companies (as set out in table I on page 17 of the Circular), which presumably will bear a similar level of industry risk as KWIH.

The yield of the issues by other listed property companies in the past twelve identified by us range from 0.51 per cent. to 0.72 per cent. over HIBOR for floating rate issues (with mean and median of 0.61 per cent. and 0.60 per cent. over HIBOR respectively) and from 3.68 per cent. to 5.25 per cent. (with mean of 4.43 per cent. and median of 4.36 per cent.) for fixed rate issues. The all-in yield of the Facility is higher than the yield of all the floating rate issues by other listed property companies, and is within range and comparable to the mean and median of the yield of the fixed rate issues by other listed property companies on the basis of the three-month HIBOR of 1.77 per cent. as at the Latest Practicable Date. We consider that the yield of the Facility, taking into account the less restrictive covenants as discussed above, the market capitalisation of KWIH and other features of the Facility, represents a reasonable return to the Group.

Financial position of the KWIH Group

We have reviewed the financials of the KWIH Group and note that, based on the audited accounts of the KWIH Group as at 31st December, 2001, the KWIH Group has a gearing ratio (calculated on the basis of net debt to shareholders’ fund) of around 0.59. The gearing ratio would be approximately 0.60 if both the bank loans and cash balances of the Group is excluded from the KWIH Group. The drawdown of the Facility by Great Place will have a neutral effect on the pro forma gearing position of the KWIH Group (excluding the Group and without taking into account any cash flow and/or actual earnings of the KWIH Group since 31st December, 2001). We have also reviewed and discussed with the management of KWIH the cash flow projection of the KWIH Group (excluding the Group) over the initial three-year term of the Facility. Based on the said cash flow projection and taking into account the banking facilities currently available to the KWIH Group (excluding the Group) and the gearing position of the KWIH Group as discussed above, we consider that the quarterly payment of interests on the Facility and the repayment of the principal of the Facility are within the capacity of the KWIH Group to finance.

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K. Wah Construction Materials Limited

LETTER FROM SOMERLEY

4. Effect of the grant of the Facility on the Group

Cashflow

The Facility will be funded from internal resources of the Group. We have discussed and reviewed with the Directors the cash flow projection of the Group for the period up to and including the First Maturity Date, and are of the view that the grant of the Facility would not have material adverse effect on the Group’s cash flow position.

Financial position

Based on the audited financial statements of KWCM, the KWCM Group has a net cash position as at 31st December, 2001. As at the Latest Practicable Date, the KWCM Group has cash and bank balances of over HK$580 million. The Facility will be funded by utilising the internal resources of the Group. On the basis of the audited accounts of the Group as at 31st December, 2001 and taking into account the early redemption of the note instrument by KWIH in June, 2002 but without taking into account the other cash flow and/or actual earnings of the Group since 31st December, 2001, it is estimated that the Group will have a gearing ratio of approximately 0.03 upon full drawdown of the Facility by Great Place, which we consider to be a comfortable level in light of the cash flow projection of the Group during the availability period of the Facility.

Profitability

On the basis that the Facility is fully drawn by Great Place and an all-in yield for the Facility of 2.5 per cent. over three-month HIBOR of approximately 1.77 per cent. as at the Latest Practicable Date, the Facility will generate approximately HK$11.8 million after-tax interest income for the Group each year during the term of the Facility, which represents about 10.5 per cent. of the profit attributable to Shareholders of HK$112.8 million for the year ended 31st December, 2001. It is not possible to predict the expected return on investment projects that may be identified by the Group instead of the grant of the Facility. However, on the basis of the current average money market deposit rates for Hong Kong dollar deposits obtained by the Group of approximately 1.6 per cent. per annum (which means that approximately HK$5.3 million non-taxable interest income will be generated each year if the HK$330 million cash resources are to be placed as money market deposit instead of providing the Facility) and the current borrowing cost for Hong Kong dollar loans of the Group ranging from 0.5 per cent. to 0.6 per cent. over HIBOR per annum, we consider that the grant of the Facility would represent a profitable investment opportunity for the Group. We also consider that the grant of the Facility would enhance the profitability of the Group, in particular during the period when contribution from the Group’s operations in Hong Kong is expected to further reduce before recovery in the construction market materialises.

— 21 —

K. Wah Construction Materials Limited

LETTER FROM SOMERLEY

ADVICE

Having considered the above principal factors and reasons, we are of the opinion that the Transaction is in the interests of KWCM and the Shareholders as a whole and the terms of the Agreement are fair and reasonable so far as the Independent Shareholders are concerned. Accordingly, we advise the Independent Board Committee to recommend the Independent Shareholders to vote in favour of the ordinary resolution to be proposed at the EGM to approve the Agreement and the Transaction.

Yours faithfully, For and on behalf of SOMERLEY LIMITED Mei H. Leung Managing Director

— 22 —

K. Wah Construction Materials Limited

GENERAL INFORMATION

APPENDIX

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 the omission of which would make any statement herein misleading.

SHARE CAPITAL

The authorised and issued share capital of the Company as at the Latest Practicable Date were as follows:

Authorised HK$ 3,888,000,000 Shares 388,800,000.00 Issued 1,239,654,969 Shares 123,965,496.90

The Shares in issue rank pari passu in all respects, including in particular as to dividends, voting rights and capital.

DISCLOSURE OF INTERESTS

(a) Interests of Directors

As at the Latest Practicable Date, the interests of the Directors in the share capital 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 or taken to have under section 31 of or Part I of the Schedule to the SDI Ordinance) or which were required, pursuant to section 29 of the SDI Ordinance, to be entered in the register referred to therein or which

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K. Wah Construction Materials Limited

APPENDIX

GENERAL INFORMATION

were required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies contained in the Listing Rules, were as follows:

(i) The Company

Number of Shares held

	Personal	Family	Corporate	Other
	interests	interests	interests	interests	Total
Lui Che Woo	7,468,344	1,389,650	71,009,170(1)	842,834,297(2)	922,701,461
Francis Lui Yiu Tung	2,822	—	—	842,834,297(2)	842,837,119
Albert To Tak Pui	—	—	—	—	—
Paddy Tang Lui Wai Yu	1,861,906	—	—	842,834,297(2)	844,696,203
Chan Nai Keong	55,576	—	—	—	55,576
Charles Cheung Wai
Bun	1,810	—	—	—	1,810
Moses Cheng Mo Chi	—	—	—	—	—
Yip Hing Chung	180,033	—	—	—	180,033

(ii) KWIH

		Number of KWIH Shares held	Number of KWIH Shares held	Number of KWIH Shares held
	Personal	Family	Corporate	Other
	interests	interests	interests	interests	Total
Lui Che Woo	248,631	6,747,465	32,538,830(3)	1,173,571,928(2)	1,213,106,854
Francis Lui Yiu Tung	379,804	—	—	1,173,571,928(2)	1,173,951,732
Albert To Tak Pui	—	—	—	—	—
Paddy Tang Lui Wai Yu	4,639,166	—	—	1,173,571,928(2)	1,178,211,094
Chan Nai Keong	169,610	—	—	—	169,610
Charles Cheung Wai
Bun	7,239	—	—	—	7,239
Moses Cheng Mo Chi	—	—	—	—	—
Yip Hing Chung	—	—	—	—	—

Notes:

• (1) 71,009,170 Shares were held by Best Chance Investments Ltd. which was controlled by Dr. Lui Che Woo.

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K. Wah Construction Materials Limited

GENERAL INFORMATION

APPENDIX

• (2) KWIH, through a wholly-owned subsidiary, was interested in 839,098,738 Shares representing more than one-third of the issued share capital of the Company. In addition, a discretionary trust was interested in 3,735,559 Shares. 1,173,571,928 KWIH Shares representing more than one-third of its issued share capital were held by discretionary trusts. Dr. Lui Che Woo, Mr. Francis Lui Yiu Tung and Mrs. Paddy Tang Lui Wai Yu, as discretionary beneficiaries under the trusts are deemed under the SDI Ordinance to be interested in those Shares held by the trusts and in those Shares in which KWIH was interested as aforesaid.

• (3) 32,538,830 KWIH Shares were held by Best Chance Investments Ltd. which was controlled by Dr. Lui Che Woo.

(iii) Share Options of the Company

Pursuant to a share option scheme adopted by the Company on 10th September, 1996, the Directors had been granted options to subscribe for Shares as follows:

		Options held
		at the Latest
		Practicable	Exercise
	Date of grant	Date	price	Exercise period
			(HK$)
Lui Che Woo	20th May, 1998	1,500,000	0.5333	20th May, 1999 - 19th May, 2008
	30th December, 1999	1,800,000	0.5216 30th December, 2000 - 29th December, 2009
Francis Lui Yiu Tung	20th May, 1998	1,000,000	0.5333	20th May, 1999 - 19th May, 2008
	30th December, 1999	1,600,000	0.5216 30th December, 2000 - 29th December, 2009
Albert To Tak Pui	—	—	—	—
Paddy Tang Lui Wai Yu	20th May, 1998	600,000	0.5333	20th May, 1999 - 19th May, 2008
	30th December, 1999	1,070,000	0.5216 30th December, 2000 - 29th December, 2009
Chan Nai Keong	20th May, 1998	300,000	0.5333	20th May, 1999 - 19th May, 2008
	30th December, 1999	536,000	0.5216 30th December, 2000 - 29th December, 2009
Charles Cheung Wai	—	—	—	—
Bun
Moses Cheng Mo Chi	—	—	—	—
Yip Hing Chung	—	—	—	—

All options referred to above are subject to a one year vesting period.

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K. Wah Construction Materials Limited

GENERAL INFORMATION

APPENDIX

(iv) Share Options of KWIH

Pursuant to a share option scheme adopted by KWIH on 10th September, 1996, options to subscribe for shares in KWIH had been granted to certain of the Directors as follows:

		Options held
		at the Latest
		Practicable	Exercise
	Date of grant	Date	price	Exercise period
			(HK$)
Lui Che Woo	20th May, 1998	1,500,000	0.5586	20th May, 1999 - 19th May, 2008
	30th December, 1999	1,350,000	0.36 30th December, 2000 - 29th December, 2009
Francis Lui Yiu Tung	20th May, 1998	1,000,000	0.5586	20th May, 1999 - 19th May, 2008
	30th December, 1999	1,200,000	0.36 30th December, 2000 - 29th December, 2009
Albert To Tak Pui	—	—	—	—
Paddy Tang Lui Wai Yu	20th May, 1998	600,000	0.5586	20th May, 1999 - 19th May, 2008
	30th December, 1999	870,000	0.36 30th December, 2000 - 29th December, 2009
Chan Nai Keong	20th May, 1998	300,000	0.5586	20th May, 1999 - 19th May, 2008
	30th December, 1999	435,000	0.36 30th December, 2000 - 29th December, 2009
Charles Cheung Wai Bun	—	—	—	—
Moses Cheng Mo Chi	—	—	—	—
Yip Hing Chung	—	—	—	—

All options referred to above are subject to a one year vesting period.

— 26 —

K. Wah Construction Materials Limited

GENERAL INFORMATION

APPENDIX

• (b) Except for the above-mentioned share option schemes, at no time during the year was the Company or any of its subsidiary companies, its fellow subsidiary companies or its holding companies a party to any arrangements to enable the Directors to acquire benefits by means of the acquisition of shares in or debentures of the Company or any other body corporate.

• (c) Save as disclosed herein, as at the Latest Practicable Date, none of the Directors had any interest in the share capital 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 of or Part I of the Schedule to the SDI Ordinance) or pursuant to the Model Code for Securities Transactions by Directors of Listed Companies or which were required, pursuant to section 29 of the SDI Ordinance, to be entered in the register referred to therein.

• (d) Save as disclosed herein, there is no contract or arrangement subsisting at the date of this circular in which any of the Directors is materially interested and which is significant in relation to the business of the Group.

• (e) None of the Directors, Equitas and Somerley has had any direct or indirect interest in any assets which have since 31st December, 2001 (being the date to which the latest published audited financial statements of the Company were made up) been acquired or disposed of by or leased to or are proposed to be acquired or disposed of by or leased to any member of the Group.

• (f) As at the Latest Practicable Date, Somerley did not have any shareholding, direct or indirect, in any member of the Group nor any right (whether legally enforceable or not) to subscribe for or nominate persons to subscribe for securities in any member of the Group.

— 27 —

K. Wah Construction Materials Limited

GENERAL INFORMATION

APPENDIX

SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, according to the register kept by the Company under section 16(1) of the SDI Ordinance and so far as was known to the Directors and the chief executive of the Company, the following persons (other than the Directors or chief executive of the Company or their associates) were directly or indirectly interested or taken or deemed to be interested in 10 per cent. or more of the nominal value of the issued share capital of the Company:

Name	Number of Shares
Sutimar Enterprises Limited	839,098,738
K. Wah International Holdings Limited	839,098,738 (Note 1)
HSBC Holdings plc	823,096,106
HSBC Bank plc	823,096,106
Midcorp Limited	823,096,106
Griffin International Limited	823,096,106
HSBC Europe BV	823,096,106
HSBC Europe (Netherlands) BV	823,096,106
HSBC International Trustee Limited	823,096,106 (Note 2)

Notes:

1. KWIH was deemed to be interested in the 839,098,738 Shares held by Sutimar Enterprises Limited since it owned all of the issued share capital of Sutimar Enterprises Limited.

2. HSBC International Trustee Limited is the trustee of discretionary trusts which held 823,096,106 Shares. Each of HSBC Holdings plc, HSBC Bank plc, Midcorp Limited, Griffin International Limited, HSBC Europe BV and HSBC Europe (Netherlands) BV were deemed to be interested in the 823,096,106 Shares held by HSBC International Trustee Limited, being a wholly-owned subsidiary within the HSBC Group.

There was duplication in the above disclosure of interests as follow:

• (i) the 842,834,297 Shares held by each of Dr. Lui Che Woo, Mr. Francis Lui Yiu Tung and Mrs. Paddy Tang Lui Wai Yu under other interests above related to the same shares. Of these shares, the 839,098,738 Shares held by each of Sutimar Enterprises Limited and KWIH related to the same Shares; and

• (ii) the 1,173,571,928 KWIH Shares held by each of Dr. Lui Che Woo, Mr. Francis Lui Yiu Tung and Mrs. Paddy Tang Lui Wai Yu related to the same shares.

Save as disclosed herein, the Directors and the chief executive of the Company were not aware of any person, who was, directly or indirectly, interested in 10% or more of the nominal value any class of the issued share capital carrying rights to vote in all circumstances at general meetings of the Company or any of its subsidiaries as at the Latest Practicable Date.

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K. Wah Construction Materials Limited

GENERAL INFORMATION

APPENDIX

SERVICE CONTRACTS

None of the Directors has any existing or proposed service contract with any member of the Group which is not expiring or determinable by the employer within one year without payment of compensation (other than statutory compensation).

EXPERTS AND CONSENTS

The following are the qualifications of the experts whose names appear in this circular:

Name	Qualification
Equitas	Exempt investment adviser and exempt dealer in
	securities
Somerley	Investment adviser and exempt dealer registered under
	the Securities Ordinance

Each of Equitas and Somerley has given and has not withdrawn its written consent to the issue of this circular within reference to their names and letter in the form and context in which they appear respectively.

MATERIAL CHANGE

As at the Latest Practicable Date, there had been no material adverse change in the financial or trading position of the Group since 31st December, 2001 (being the date to which the latest published audited financial statements of the Company were made up).

DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection at the registered office of the Company in Hong Kong during normal business hours for a period of 14 days from the date of this circular and at the EGM:

• (a) the Agreement;

• (b) the letter of advice issued by Somerley, the text of which is set out on pages 13 to 22 of this circular; and

• (c) the consent letters of Equitas and Somerley referred to under the section headed “Experts and Consents” of this appendix.

— 29 —

K. Wah Construction Materials Limited

NOTICE OF EXTRAORDINARY GENERAL MEETING

==> picture [49 x 52] intentionally omitted <==

K. WAH CONSTRUCTION MATERIALS LIMITED

(Incorporated in Hong Kong with limited liability)

NOTICE IS HEREBY GIVEN that an Extraordinary General Meeting of K. Wah Construction Materials Limited (the “Company”) will be held on Thursday, 22nd August, 2002, at Picasso Room, Basement 1, Grand Stanford Inter-Continental Hong Kong, 70 Mody Road, Tsimshatsui East, Kowloon, Hong Kong at 11:15 a.m. for the purpose of considering and, if thought fit, passing the following resolution as an ordinary resolution:

ORDINARY RESOLUTION

“ THAT a conditional loan agreement dated 22nd July, 2002 (“Agreement”) entered into between Brighten Lion Limited (“Lender”), an indirect wholly-owned subsidiary of the Company, and Great Place Developments limited (“Borrower”), an indirect wholly-owned subsidiary of K. Wah International Holdings Limited, pursuant to which the Lender agreed to make available to the Borrower a revolving loan facility of up to HK$330,000,000 for general working capital requirements, a copy of which has been produced to the Meeting and marked “A” and signed by the Chairman of this Meeting for the purpose of identification, be and is hereby approved, confirmed and ratified and that all other transactions contemplated by the Agreement be and are hereby approved.”

By Order of the Board Steven Tong Kui Nam Company Secretary

Hong Kong, 5th August, 2002

Registered Office:

29th Floor

K. Wah Centre 191 Java Road North Point Hong Kong

— 30 —

K. Wah Construction Materials Limited

NOTICE OF EXTRAORDINARY GENERAL MEETING

Notes:

1. Any member entitled to attend and vote at the meeting convened by the above notice is entitled to appoint one or more proxies to attend and vote on his/her behalf. A proxy need not be a member of the Company. If more than one proxy is so appointed, the appointment shall specify the number of shares in respect of which each such proxy is so appointed.

2. The instrument appointing a proxy and the power of attorney or other authority (if any) under which it is signed or a certified copy of such power or authority, must be lodged with the Company’s registered office no later than 48 hours before the time appointed for holding the meeting or the adjourned meeting.

— 31 —

K. Wah Construction Materials Limited