Fountain Set (Holdings) Limited — Proxy Solicitation & Information Statement 2005

Mar 21, 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 or transferred all your shares in San Miguel Brewery Hong Kong Limited, you should at once hand this circular and the accompanying form of proxy to the purchaser or the transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or the 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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SAN MIGUEL BREWERY HONG KONG LIMITED

(Incorporated in Hong Kong with limited liability)

(Stock Code: 236)

COMPLIANCE WITH THE REVISED LISTING RULES IN RELATION TO CERTAIN CONTINUING CONNECTED TRANSACTIONS

Financial Adviser to San Miguel Brewery Hong Kong Limited

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

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A letter from the board of directors of San Miguel Brewery Hong Kong Limited is set out on pages 3 to 11 of this circular and a letter from the Independent Board Committee containing its recommendation to the Independent Shareholders is set out on page 12 of this circular. A letter from Tai Fook Capital Limited containing its advice to the Independent Board Committee and the Independent Shareholders is set out on pages 13 to 22 of this circular.

A notice convening an extraordinary general meeting of San Miguel Brewery Hong Kong Limited to be held at the Langham Hotel, 8 Peking Road, Tsimshatsui, Kowloon, Hong Kong on Thursday, 7 April 2005 at 2:30 p.m. (or so soon thereafter as the extraordinary general meeting of San Miguel Brewery Hong Kong Limited convened to be held on the same date at the same venue shall have been concluded or adjourned) is set out on pages 31 to 32 of this circular. A form of proxy for use by the Independent Shareholders at the extraordinary general meeting is also enclosed. Whether or not you propose to attend the meeting, you are requested to complete the form of proxy in accordance with the instructions printed thereon and return the same to the Company’s share registrar in Hong Kong, Computershare Hong Kong Investor Services Limited, at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for the holding of the meeting or any adjournment thereof. Completion and return of the proxy form will not preclude you from attending and voting at the meeting, or any adjourned meeting, should you so wish.

21 March 2005

CONTENTS

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	3
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
The Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
Reasons for and benefits of the Continuing Connected Transactions . . . . . . . . . . . . . . . . . . .	8
Conditions of the Continuing Connected Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
Recommendation of the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
Letter from Tai Fook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
Appendix – General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	23
Notice of EGM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	31

DEFINITIONS

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

“Agreement” the agreement dated 11 March 2005 entered into between the Company and SMC in respect of the Continuing Connected Transactions “associate(s)” has the meaning ascribed to it under the Revised Listing Rules

“Board” the board of Directors “Cap(s)” the maximum aggregate value for each of the Continuing Connected Transactions

• “Company” San Miguel Brewery Hong Kong Limited, a company incorporated in Hong Kong with limited liability, whose shares are listed on the Stock Exchange

• “Continuing Connected the transactions between the Group and the SMC Group pursuant Transactions” to the Agreement

• “Directors” the directors of the Company

“EGM” the extraordinary general meeting to be convened to consider and approve, if thought fit, the Continuing Connected Transactions and the Caps, the notice of which is set out on pages 31 to 32 of this circular

• “Group” the Company and its subsidiaries

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

• “Independent Board an independent committee of the Board established by the Board Committee” to advise the Independent Shareholders in respect of the Continuing Connected Transactions

• “Independent Shareholder(s)” the shareholder(s) of the Company, other than SMC and its associates

• “Latest Practicable Date”

• 18 March 2005, being the latest practicable date for ascertaining certain information contained in this circular

• “Macau”

the Macau Special Administrative Region of the People’s Republic of China

– 1 –

DEFINITIONS

“Old Listing Rules”	the Rules Governing the Listing of Securities on the Stock
	Exchange before the Revised Listing Rules took effect from 31
	March 2004
“PRC”	the People’s Republic of China which, for the purpose of this
	circular, excludes Hong Kong, Macau and Taiwan
“Revised Listing Rules”	the Rules Governing the Listing of Securities on the Stock
	Exchange which took effect from 31 March 2004
“SFO”	the Securities and Futures Ordinance (Chapter 571 of the Laws of
	Hong Kong)
“Share(s)”	ordinary share(s) of HK$0.50 each in the share capital of the
	Company
“Shareholders”	the shareholders of the Company
“SMC”	San Miguel Corporation, the ultimate controlling shareholder of
	the Company
“SMC Group”	SMC and its subsidiaries, excluding the Group, for the purpose of
	this circular
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Tai Fook”	Tai Fook Capital Limited, a licensed corporation under the SFO
	to carry out type 6 regulated activity
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong

– 2 –

LETTER FROM THE BOARD

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SAN MIGUEL BREWERY HONG KONG LIMITED

(Incorporated in Hong Kong with limited liability)

(Stock Code: 236)

Executive Directors: Mr. Ramon A. de la Llana Mr. Thomas R. Mainwaring

Non-executive Directors:

Mr. Francisco C. Eizmendi, Jr. Mr. Ramon S. Ang Mr. Ferdinand K. Constantino Mr. Faustino F. Galang Mr. Francis H. Jardeleza Mr. Estelito P. Mendoza

Registered office and principal place of business in Hong Kong: 9th Floor Citimark Building 28 Yuen Shun Circuit Siu Lek Yuen Shatin, New Territories Hong Kong

Mr. Gabriel L. Villareal

Independent non-executive Directors:

Dr. The Hon. David K.P. Li Mr. Wai Sun Ng Mr. Ian F. Wade

21 March 2005

To the Shareholders

Dear Sir or Madam,

COMPLIANCE WITH THE REVISED LISTING RULES IN RELATION TO CERTAIN CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

On 11 March 2005, the Company entered into the Agreement with SMC in respect of the Continuing Connected Transactions in order to comply with the Revised Listing Rules. SMC controlled approximately 65.78% of the issued share capital of the Company as at the Latest Practicable Date. SMC and its associates are therefore connected persons for the purposes of the Revised Listing Rules. The Continuing Connected Transactions under the Agreement constitute non-exempt continuing connected transactions under Chapter 14A of the Revised Listing Rules, which are subject to the approval of the Independent Shareholders by way of poll at the EGM.

– 3 –

LETTER FROM THE BOARD

The purpose of this circular is to provide you with further details of the Continuing Connected Transactions and the Caps. The Independent Board Committee, comprising Dr. The Hon. David K.P. Li, Mr. Wai Sun Ng and Mr. Ian F. Wade, has been formed to advise the Independent Shareholders on the terms of the Agreement and the Caps. Tai Fook has been appointed as the independent financial adviser to the Independent Board Committee and the Independent Shareholders. A letter from the Independent Board Committee is set out on page 12 of this circular and a letter from Tai Fook is set out on pages 13 to 22 of this circular.

In view of the interests of the SMC Group in the Continuing Connected Transactions, SMC and its associates, which controlled approximately 65.78% of the issued share capital of the Company as at the Latest Practicable Date, will abstain from voting in relation to the resolution for approving the Agreement and the Caps at the EGM.

BACKGROUND

The principal business activities of the Group are the manufacture and distribution of bottled, canned and draught beers. The Company is a non-wholly owned subsidiary of SMC. SMC is the largest publicly listed company in the Philippines engaging in the manufacture and packaging of food and beverages with over 100 manufacturing facilities in the Philippines, Southeast Asia, China and Australia.

Shareholders are referred to the announcements of the Company dated 11 March 2005 and 9 November 2000 and the annual reports of the Company for each of the four financial years ended 31 December 2001, 2002, 2003 and 2004 in relation to the Group’s continuing connected transactions with the SMC Group. Set out below is a summary of the connected transactions between the Group and the SMC Group for each of the four financial years ended 31 December 2001, 2002, 2003 and 2004 and for the nine months from 1 April 2004 (after the Revised Listing Rules came into effect) to 31 December 2004:

					9 months from
					1 April 2004 to
					31 December
	2001	2002	2003	2004	2004
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Purchase of cans by the Group
from the SMC Group	34,870	31,611	19,916	21,543	15,637
Purchase of bottles by the
Group from the SMC Group	34,574	28,407	10,704	25,852	21,112
Purchase of crown seals
by the Group
from the SMC Group	1,074	2,827	1,382	2,233	1,768
Purchase of crates
by the Group from
the SMC Group	7,538	699	–	4,416	2,951
Total purchases
of packaging materials	78,056	63,544	32,002	54,044	41,468

– 4 –

LETTER FROM THE BOARD

					9 months from
					1 April 2004 to
					31 December
	2001	2002	2003	2004	2004
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Purchase of packaged beer
by the Group
from the SMC Group	2,831	3,551	2,638	2,629	2,132
Sales of packaged
beer by the Group
to the SMC Group	46,596	35,547	39,738	29,492	23,461
Payment of commission
by the Group to the SMC
Group in respect of sales
of packaged beer by the
Group directly to customers
in certain countries (other
than Hong Kong, Macau
and the PRC)	834	906	316	524	485

The Group has been carrying on connected transactions with the SMC Group for many years in the usual and ordinary course of the Group’s business. The Company had obtained a conditional waiver from the Stock Exchange from strict compliance with the disclosure requirements under the Old Listing Rules in respect of the Group’s purchases of cans, bottles, crates and packaged beer from the SMC Group and the Group’s sales of packaged beer to the SMC Group. Due to an inadvertent oversight, the Directors did not appreciate that following the coming into effect of the Revised Listing Rules on 31 March 2004, the Company could no longer rely on the waiver previously granted to it by the Stock Exchange. The purchase of crown seals by the Group from the SMC Group was not covered by the previous waiver granted by the Stock Exchange. Due to an oversight, the level of purchases of crown seals by the Group in 2001, 2002 and 2003 exceeded the de minimis threshold for disclosure under the Old Listing Rules and in 2004 exceeded the de minimis threshold under the Revised Listing Rules but were not disclosed. Based upon the value of the transactions carried out between the Group and the SMC Group for the period from 1 April 2004 to 31 December 2004, the Group’s purchases of cans, crates and packaged beer each is subject to the reporting and announcement requirements under Rules 14A.45 to 14A.47 and the purchase of bottles by the Group from the SMC Group and the sales of packaged beer by the Group to the SMC Group is each subject also to the requirement for approval by Independent Shareholders under Rule 14A.35 of the Revised Listing Rules. As set out above, the amounts of commission paid to the SMC Group for the years 2001 to 2004 were each below the disclosure threshold of HK$1 million under the Old Listing Rules (for 2001 to 2003) and the Revised Listing Rules (for 2004). The Company is now taking appropriate steps to ensure compliance with the Revised Listing Rules. The Stock Exchange reserves its right to take appropriate actions against the Company and the Directors.

– 5 –

LETTER FROM THE BOARD

THE AGREEMENT

Pursuant to Chapter 14A of the Revised Listing Rules, in respect of non-exempt continuing connected transactions, the issuer must enter into a written agreement with the connected person for a period not more than three years and the issuer must set a maximum aggregate annual value for each connected transaction. In order to comply with the Revised Listing Rules, the Company entered into the Agreement with SMC on 11 March 2005 to govern the terms upon which the Continuing Connected Transactions will be carried out between members of the Group and members of the SMC Group. The Agreement will expire on 31 December 2007.

Continuing Connected Transactions and the Caps

Under the Agreement, the Group expects to enter into the following Continuing Connected Transactions. Each of the Continuing Connected Transactions is not expected to exceed the following Caps.

	2005	2006	2007
	HK$’000	HK$’000	HK$’000
Purchase of packaging materials
(comprising cans, bottles, crown
seals and crates) by the Group
from the SMC Group	47,800	92,600	105,700
Purchase of packaged beer
by the Group from the SMC Group	4,300	4,700	5,000
Sales of packaged beer by
the Group to the SMC Group	46,100	53,600	60,700
Payment of commission by
the Group to the SMC Group
in respect of sales of packaged
beer by the Group directly to
customers in certain countries
(other than Hong Kong, Macau
and the PRC)	1,100	1,300	1,600

The proposed Caps were determined by reference to a number of factors including historical transaction amounts, the expected growth in demand for the Group’s beer products, the expected growth in demand for the SMC Group’s beer products which are distributed by the Group, the Group’s replacement programme for its crates and the Company’s understanding that due to the SMC Group’s production capacity constraints, the SMC Group should have increased demand for the Group’s packaged beer products for export markets.

– 6 –

LETTER FROM THE BOARD

The Directors (excluding the independent non-executive Directors who have expressed their view in the letter from the Independent Board Committee set out on page 12 of this circular) are of the opinion that the proposed Caps are fair and reasonable and are in the interest of the Company and Shareholders as a whole.

Term

The period commencing on 1 January 2005 and ending on 31 December 2007. In the event that the Continuing Connected Transactions are not approved by the Independent Shareholders, the Company shall have the right to terminate the Agreement.

Pricing

The Board confirms that the pricing policy of the Company in respect of the Continuing Connected Transactions is on an arm’s length basis and is consistent with the Group’s historic pricing policy in respect of the past transactions between the Group and the SMC Group (which were for the majority of the Continuing Connected Transactions the subject of the conditional waiver previously granted to the Company by the Stock Exchange) and that such pricing policy will remain unchanged and continue to be on an arm’s length basis.

With respect to the sourcing of packaging materials from the SMC Group, the relevant members of the Group shall negotiate supply terms with the SMC Group on an annual basis with reference to the prices and credit terms available from independent third party suppliers able to meet the Group’s stringent quality requirements and delivery schedules and if no such comparable reference prices/credit terms are available, the prices/credit terms shall be determined by agreement between the parties based upon reasonable commercial principles.

The prices payable by and the credit terms offered to the Group for the packaged beer purchased from the SMC Group shall be determined by reference to the prices paid by and the credit terms offered to the Group in respect of other beers imported into Hong Kong, Macau and the PRC by the Group from suppliers which are independent third parties and if no such comparable reference prices/credit terms are available, the prices/credit terms shall be determined by agreement between the parties based upon reasonable commercial principles.

The prices receivable and credit terms offered by the Group for the packaged beer sold to the SMC Group shall be established by reference to the prices and credit terms offered by the SMC Group to ultimate customers, which are independent third parties, in export markets in countries other than Hong Kong, Macau, the PRC and the Philippines for similar packaged beer products and if no such comparable reference prices/credit terms are available, the prices/credit terms shall be determined by agreement between the parties based upon reasonable commercial principles. Typically the price received by the Group will be the price at which the relevant packaged beer is on-sold by the SMC Group to ultimate customers which are independent third parties in the relevant export market less an agreed margin for the SMC Group.

– 7 –

LETTER FROM THE BOARD

The commission payable by the Group to the SMC Group in respect of the sale of packaged beer invoiced directly by the Group to independent third party customers in certain countries (other than Hong Kong, Macau and the PRC) which require direct invoicing from the country of origin shall be determined by reference to the profit margin which would have been made by the SMC Group had such packaged beer been sold by the Group to the SMC Group and then on-sold by the SMC Group to such independent third party customers. The Group will also have regard to the historic levels of commissions paid to the SMC Group in respect of comparable sales of packaged beer when agreeing the levels of commissions to be paid to the SMC Group pursuant to the Agreement. The Group will only pay such commission to the SMC Group in respect of such sales that the Group receives payment in respect thereof from the customers. Furthermore, the SMC Group shall indemnify the Group in respect of any non-payment by such independent third party customers to the extent of the variable production and variable distribution costs incurred by the Group in respect of the relevant beer.

REASONS FOR AND BENEFITS OF THE CONTINUING CONNECTED TRANSACTIONS

Purchases

The Group needs to source cans, bottles, crown seals and crates for use in the packaging and distribution of its beer products. The SMC Group has established itself as a competitively priced and dependable supplier of cans, bottles, crown seals and crates to the Group which meet the Group’s stringent quality requirements and delivery schedules.

The Group also purchases beer products from the SMC Group for sale to the Group’s customers in Hong Kong and Macau to complement the range of beer products sold by the Group.

Sales

The Group does not have an international sales force outside of Hong Kong, Macau and the PRC. The Group is able to reach customers in these export markets through the SMC Group which markets and sells such products to customers through its international sales channels. In respect of such sales of beer invoiced by the Group to the SMC Group for sale to export markets through the SMC Group, the Group is able to avoid taking exchange rate risk and counterparty risk with the ultimate customers in the relevant export markets. Customers in certain export markets require direct invoicing from the country of origin and so the Group invoices such customers direct and pays commission to the SMC Group in respect of such sales. As described above under the section headed “Pricing”, the SMC Group indemnifies the Group to the extent of the Group’s variable production costs and variable distribution costs in respect of any non-payment by the customers in the export markets which are invoiced directly by the Group. Furthermore, certain of the beer products produced by the Group are San Miguel beer brands. The Group is licensed by the SMC Group to sell San Miguel beer brands in Hong Kong, Macau and Guangdong and Hainan provinces in the PRC. The Group does not hold any rights to sell San Miguel beer brands anywhere else in the world. Those rights are held by the SMC Group which owns the San Miguel beer brands and trademarks. Accordingly, if the Group wishes to sell San Miguel beer brands outside its defined territories, it must do so with the cooperation and approval of the SMC Group.

– 8 –

LETTER FROM THE BOARD

CONDITIONS OF THE CONTINUING CONNECTED TRANSACTIONS

The Continuing Connected Transactions will be required to be approved by the Independent Shareholders and will also be subject to the following conditions:

• (1) the Continuing Connected Transactions will be entered into:

• (i) in the ordinary and usual course of business of the Group;

• (ii) either on normal commercial terms, or if there are not sufficient comparable transactions to judge whether they are on normal commercial terms, on terms no less favourable to the Group than those available from independent third parties; and

• (iii) in accordance with the Agreement on terms that are fair and reasonable and in the interests of the Shareholders as a whole;

• (2) the relevant amount of Continuing Connected Transactions for each of the three financial years ending 31 December 2005, 2006 and 2007 shall not exceed the relevant Caps (as described above);

• (3) the independent non-executive Directors shall review annually the Continuing Connected Transactions and confirm in the Company’s corresponding annual report that the Continuing Connected Transactions have been conducted in the manner as stipulated in paragraph (1) above;

• (4) the auditors of the Company shall review annually the Continuing Connected Transactions and confirm in a letter to the Directors (a copy of which shall be provided to the Stock Exchange) that such Continuing Connected Transactions:

• (i) have received the approval of the Board;

• (ii) are in accordance with the pricing policies of the Group;

• (iii) have been entered into in accordance with the Agreement; and

• (iv) have not exceeded the relevant Caps;

• (5) the Company shall promptly notify the Stock Exchange and publish an announcement if it knows or has reason to believe that the independent non-executive Directors and/or auditors of the Company will not be able to confirm the matters set out in paragraphs (1), (3) and/or (4) respectively;

• (6) the Company shall and shall procure that each member of the Group and the relevant counterparties to the Continuing Connected Transactions shall, during the term of the Agreement provided that the shares in the Company are listed on the Stock Exchange, provide the Company’s auditors with sufficient access to the relevant records for the purpose of the auditors’ review of the Continuing Connected Transactions referred to in paragraph (4) above.

– 9 –

LETTER FROM THE BOARD

EGM

The Board anticipates that the Continuing Connected Transactions under the Agreement will constitute non-exempt continuing connected transactions under the Revised Listing Rules and will be subject to the disclosure and reporting requirements under Rules 14A.37 to 14A.39 and 14A.45 to 14A.47 and will be subject to the approval of the Independent Shareholders under Rule 14A.35 of the Revised Listing Rules. Accordingly an ordinary resolution will be proposed to approve the Agreement and the Caps in relation to the Continuing Connected Transactions at the EGM. The notice convening the EGM is set out on pages 31 to 32 of this circular.

In view of the interest of the SMC Group in the Continuing Connected Transactions, SMC and its associates (as defined in the Revised Listing Rules), which controlled approximately 65.78% of the issued share capital of the Company as at the Latest Practicable Date, will abstain from voting at the EGM in this regard. The votes to be taken at the EGM will be taken by poll, the results of which will be announced after the EGM.

A form of proxy for use at the EGM is enclosed. Whether or not you propose to attend the meeting, you are requested to complete the form of proxy in accordance with the instructions printed thereon and return the same to the Company’s share registrar in Hong Kong, Computershare Hong Kong Investor Services Limited, at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for the holding of the meeting or any adjournment thereof. Completion and return of the proxy form will not preclude you from attending and voting at the meeting, or any adjourned meeting, should you so wish.

Pursuant to article 76 of the Company’s articles of association, at any general meeting a resolution put to the vote of the meeting shall be decided on a show of hands unless a poll is (before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll) demanded:–

• (i) by the chairman of the meeting; or

• (ii) by at least three shareholders present in person (or, in the case of a shareholder being a corporation, by its duly authorised representative) or by proxy for the time being entitled to vote at the meeting; or

• (iii) by any shareholder or shareholders present in person or duly represented in the case of a shareholder being a corporation or by proxy and representing not less than one-tenth of the total voting rights of all the members having the right to vote at the meeting; or

• (iv) by a shareholder or shareholders present in person or duly represented in the case of a shareholder being a corporation or by proxy and holding shares in the Company conferring a right to vote at the meeting being shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all the shares conferring that right.

– 10 –

LETTER FROM THE BOARD

Unless a poll be so demanded and not withdrawn, a declaration by the chairman of the meeting that a resolution has on a show of hands been carried or carried unanimously, or by a particular majority, or lost, and an entry to that effect in the book containing the minutes of the proceedings of the Company shall be conclusive evidence of the fact without proof of the number or proportion of the votes recorded in favour or against such resolution.

Pursuant to rule 13.39(4) of the Listing Rules, any vote of shareholders taken at a general meeting to approve connected transactions pursuant to Chapter 14A of the Listing Rules and transactions that are subject to independent shareholders’ approval pursuant to the Listing Rules must be taken on a poll. Accordingly, the chairman of the EGM will demand that the ordinary resolution to approve the Agreement and the respective Caps be decided by poll.

RECOMMENDATION OF THE INDEPENDENT BOARD COMMITTEE

Your attention is drawn to (i) the letter from the Independent Board Committee set out on page 12 of this circular which contains the recommendation from the Independent Board Committee to the Independent Shareholders concerning the Continuing Connected Transactions and (ii) the letter from Tai Fook set out on pages 13 to 22 of this circular which contains the recommendation from Tai Fook to the Independent Board Committee and the Independent Shareholders in relation to the Continuing Connected Transactions and the principal factors considered by Tai Fook in arriving at its recommendation.

Having taken into account the advice from Tai Fook and in particular the principal factors set out in the letter from Tai Fook, the Independent Board Committee considers that the Continuing Connected Transactions are in the ordinary and usual course of business of the Group and that the terms of the Agreement are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned. The Independent Board Committee also considers that the entering into of the Agreement is in the interests of the Company and the Shareholders as a whole. Further, the Independent Board Committee considers that the relevant Caps are fair and reasonable so far as the Independent Shareholders are concerned. Accordingly, the Independent Board Committee recommends that the Independent Shareholders should vote in favour of the ordinary resolution to be proposed at the EGM to approve the Continuing Connected Transactions and the Caps.

GENERAL

Your attention is drawn to the letter from the Independent Board Committee, the letter from Tai Fook, the general information set out in the appendix to this circular and the notice convening the EGM.

By order of the Board

San Miguel Brewery Hong Kong Limited Thomas R. Mainwaring

Company Secretary

– 11 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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SAN MIGUEL BREWERY HONG KONG LIMITED

(Incorporated in Hong Kong with limited liability)

(Stock Code: 236)

21 March 2005

To the Independent Shareholders

Dear Sir or Madam,

COMPLIANCE WITH THE REVISED LISTING RULES IN RELATION TO CERTAIN CONTINUING CONNECTED TRANSACTIONS

We refer to the circular dated 21 March 2005 issued to the Shareholders (the “Circular”), of which this letter forms part. Unless the context otherwise requires, terms used in this letter have the same meanings as defined in the Circular.

We have been appointed as members of the Independent Board Committee to advise you in respect of the Continuing Connected Transactions. Tai Fook has been appointed as the independent financial adviser to advise us in respect of the Continuing Connected Transactions.

Having taken into account the advice from Tai Fook and in particular the principal factors set out in the letter from Tai Fook, we consider that the Continuing Connected Transactions are in the ordinary and usual course of business of the Group and that the terms of the Agreement are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned. We also consider that the entering into of the Agreement is in the interests of the Company and the Shareholders as a whole. Further, we consider that the relevant Caps are fair and reasonable so far as the Independent Shareholders are concerned. Accordingly, we recommend that the Independent Shareholders should vote in favour of the ordinary resolution to be proposed at the EGM to approve the Continuing Connected Transactions and the Caps.

We also draw the attention of the Independent Shareholders to the letter from the Board, the letter from Tai Fook and the appendix to the Circular.

Dr. The Hon. David K.P. Li

Yours faithfully, Mr. Wai Sun Ng

Mr. Ian F. Wade

Independent Board Committee

– 12 –

LETTER FROM TAI FOOK

The following is the letter of advice from Tai Fook to the Independent Board Committee and the Independent Shareholders, which has been prepared for the purpose of inclusion in this circular.

==> picture [52 x 51] intentionally omitted <==

25th Floor New World Tower 16-18 Queen’s Road Central Hong Kong

21 March 2005

To the Independent Board Committee and the Independent Shareholders

San Miguel Brewery Hong Kong Limited 9th Floor Citimark Building 28 Yuen Shun Circuit Siu Lek Yuen Shatin, New Territories Hong Kong

Dear Sirs,

COMPLIANCE WITH THE REVISED LISTING RULES IN RELATION TO CERTAIN CONTINUING CONNECTED TRANSACTIONS

INTRODUCTION

We refer to our appointment as the independent financial adviser to the Independent Board Committee and the Independent Shareholders with respect to the terms of the Continuing Connected Transactions (including the Caps) and the Agreement, details of which are set out in the Letter from the Board contained in the circular of the Company dated 21 March 2005 (the “Circular”), of which this letter forms part. Terms used in this letter shall have the same respective meanings as defined in the Circular unless the context otherwise requires.

SMC controlled approximately 65.78% of the issued share capital of the Company as at the Latest Practicable Date. SMC and its associates are therefore connected persons of the Company for the purposes of the Revised Listing Rules. The Continuing Connected Transactions under the Agreement constitute non-exempt continuing connected transactions under the Revised Listing Rules and will be subject to the disclosure and reporting requirements under Rules 14A.37 to 14A.39 and 14A.45 to 14A.47 and will be subject to the approval of the Independent Shareholders at the EGM under Rule 14A.35 of the Revised Listing Rules. SMC and its associates will abstain from voting at the EGM in relation to the resolution to approve the Continuing Connected Transactions and the Caps. The votes to be taken at the EGM will be taken by way of poll, the results of which will be announced after the EGM.

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LETTER FROM TAI FOOK

The Independent Board Committee, comprising Dr. The Hon. David K.P. Li, Mr. Wai Sun Ng and Mr. Ian F. Wade, has been formed to advise the Independent Shareholders whether or not to vote in favour of the Continuing Connected Transaction and the Caps. In our capacity as the independent financial adviser to the Independent Board Committee and the Independent Shareholders, our role is to provide the Independent Board Committee and the Independent Shareholders with an independent opinion and recommendations as to whether i) the terms of the Continuing Connected Transactions under the Agreement are on normal commercial terms, in the ordinary and usual course of business, fair and reasonable and in the interests of the Company and the Independent Shareholders as a whole; and ii) the Caps are fair and reasonable so far as the Company and the Independent Shareholders are concerned. We are independent of the Company and its associates.

BASIS OF OUR OPINION

In formulating our recommendations, we have relied on the information and facts supplied to us and representations expressed by the Directors and/or the management of the Company and have assumed that all such information and facts and any representations made to us are true, accurate and complete as at the date hereof. We have been advised by the Directors and/or the management of the Company that all relevant information has been supplied to us and that no material facts have been omitted from the information supplied and representations expressed to us. We have no reason to doubt the completeness, truth or accuracy of the information and facts provided and we are not aware of any facts or circumstances which would render such information provided and representations made to us untrue, inaccurate or misleading.

We consider we have reviewed sufficient information to reach an informed view and to provide a reasonable basis for our opinion. We have not, however, conducted an independent verification of the information nor have we conducted any form of in-depth investigation into the businesses and affairs of the Group.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our recommendation in respect of the terms of the Continuing Connected Transactions contemplated under the Agreement, we have considered the following principal factors and reasons:

I. Background and reasons for the Continuing Connected Transactions

The principal business activities of the Group are the manufacture and distribution of bottled, canned and draught beers. The Company was approximately 65.78% controlled by SMC as at the Latest Practicable Date.

SMC is a publicly listed company on the Philippine Stock Exchange, Inc. engaging in the manufacture and packaging of food and beverages with over 100 manufacturing facilities in the Philippines, Southeast Asia, China and Australia.

The Group has been carrying on connected transactions with the SMC Group in the usual and ordinary course of the Group’s business including (i) purchases of packaging materials, being bottles, cans, crown seals and crates, by the Group from the SMC Group; (ii) purchases of packaged beer by the Group from the SMC Group; (iii) sales of packaged beer by the Group to the SMC

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Group; and (iv) payment of commission by the Group to the SMC Group in respect of sales of packaged beer by the Group directly to independent third party customers in certain countries (other than Hong Kong, Macau and the PRC).

(a) Purchases of packaging materials by the Group from the SMC Group

Cans, bottles, crates and crown seals are used in the packaging and distribution of the Group’s beer products. As advised by the Directors, in order to protect and strengthen the established brand name, the Group places strong emphasis on the quality of its products and therefore high quality packaging materials are critical to the Group’s business. Any flaws in the packaging materials may adversely affect the production process and may affect customers’ perception of the Group’s products. In view of this, the Group has stringent selection criteria on the suppliers of packaging materials. Apart from the purchasing price, the quality of the materials, degree of attention, delivery schedule and supporting services provided by the suppliers are important factors considered by the Group in the selecting process.

As stated above, the SMC Group is engaged in a wide variety of businesses including the manufacture and packaging of beer, beverages and food. The SMC Group provides packaging materials to both the group companies and other independent customers. With its years of experience and expertise in the manufacture and packaging of beer, the SMC Group has established itself as a reputable and reliable supplier of packaging materials. As a result, apart from other independent suppliers, the Group has purchased packaging materials from the SMC Group for many years as the SMC Group is able to provide high quality packaging materials at competitive prices and meet the stringent delivery schedules of the Group. For each of the three years ended 31 December 2002, 2003 and 2004, purchases of packaging materials from the SMC Group accounted for approximately 57.0%, 30.1% and 38.9% respectively of the Group’s total purchases of packaging materials. As advised by the Directors, since the Group has established a long and stable business relationship with the SMC Group and is satisfied with the reliable services and performance of the SMC Group, the Group decides to continue the business relationship with the SMC Group in relation to the sourcing of the above-mentioned packaging materials.

(b) Purchases of packaged beer by the Group from the SMC Group

The product lines of the SMC Group are not completely the same as those of the Group. In order to satisfy the tastes and needs of different customers and to capture a higher market share in Hong Kong and Macau, the Group purchases packaged beer from the SMC Group for sale in Hong Kong and Macau to complement the range of packaged beer sold by the Group so as to provide its customers with a wider selection of beer products.

(c) Sales of packaged beer by the Group to the SMC Group

As stated in the Letter from the Board contained in this Circular, SMC Group owns the San Miguel beer brands and trademarks and holds the rights to sell San Miguel beer brands. The Group is licensed by the SMC Group to sell San Miguel beer brands in Hong Kong, Macau and Guangdong and Hainan provinces in the PRC only and does not hold any

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rights to sell San Miguel beer brands anywhere else in the world. In other words, the SMC Group is the only channel of the Group to distribute its San Miguel beer brands in the overseas market outside its defined territories.

In addition, the Group does not have an international sales force outside of Hong Kong, Macau and the PRC. The Group is able to reach customers in these export markets through the SMC Group which markets and sells such products to customers through its international sales channels. As advised by the Directors and as stated in the Letter from the Board contained in this Circular, in respect of such sales of beer invoiced by the Group to the SMC Group for sale to export markets through the SMC Group, the Group is able to avoid taking exchange rate risk and counterparty risk with the ultimate customers in the relevant export markets, yet can enjoy the income stream from sales to such other markets in the world. Therefore, the Directors consider selling packaged beer to the SMC Group is the most effective and appropriate method for the Group to explore and develop its overseas market and is beneficial to the Group.

• (d) Payment of commission to the SMC Group in respect of sales of packaged beer by the Group directly to independent third party customers in certain countries (other than Hong Kong, Macau and the PRC)

As stated in the Letter from the Board contained in this Circular, customers in certain export markets require direct invoicing from the country of origin and so the Group issues invoices to such customers directly and pays commission to the SMC Group in respect of such sales through the international sales channels of the SMC Group.

II. Terms of the Agreement

In compliance with the Revised Listing Rules and in order to govern the terms upon which the purchases of packaging materials and packaged beer from the SMC Group, the sales of packaged beer to the SMC Group by the Group and the payment of commission to the SMC Group in respect of sales of packaged beer by the Group directly to independent third party customers in certain countries, the Company and SMC entered into the Agreement on 11 March 2005 which is subject to the approval of the Independent Shareholders at the EGM. The Agreement has a term for a period commencing on 1 January 2005 and ending on 31 December 2007. In the event that the Continuing Connected Transactions are not approved by the Independent Shareholders, the Company shall have the right to terminate the Agreement.

The Continuing Connected Transactions are recurring in nature and are in line with the principal businesses of the Group. Pursuant to the Agreement, the Continuing Connected Transactions will be carried out in the ordinary and usual course of business of the Group and will be on normal commercial terms. The Directors have also confirmed that the Continuing Connected Transactions will be conducted on an arm’s length basis. We are therefore of the view that the entering into of the Agreement in relation to the Continuing Connected Transactions is fair and reasonable and is in the interest of the Company and the Independent Shareholders as a whole.

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LETTER FROM TAI FOOK

III. Basis of determination

(a) Purchases of packaging materials by the Group from the SMC Group

As stated in the Letter from the Board contained in this Circular, the supply terms will be negotiated with the SMC Group on an annual basis and the prices and credit terms for the packaging materials to be purchased from the SMC Group will first be determined with reference to the prices and credit terms available in the market from independent third party suppliers who are able to meet the Group’s stringent quality requirements and delivery schedules. In the event that comparable reference prices or credit terms are not available, the prices or the credit terms shall then be determined by agreement between the parties based upon reasonable commercial principles. We are advised by the Directors that they believe, in general, reasonable commercial principles would relate to, among other things, the profitability of the Group in entering into such transactions, quality of the packaging materials to be provided, the ability to meet the Group’s stringent delivery schedules and the level of demand of the Group for such packaging materials.

In this connection, we have reviewed sample copies of certain quotations and/or purchase orders for packaging materials between the Group and the SMC Group and between the Group and other independent suppliers of different types of the packaging materials during the period from 2003 to present, as provided by the Company. We found that the prices and credit terms of the packaging materials purchased from the SMC Group are comparable to the prices quoted and/or charged and credit terms offered by other independent suppliers.

(b) Purchases of packaged beer by the Group from the SMC Group

As stated in the Letter from the Board contained in this Circular, the prices and the credit terms for the packaged beer purchased from the SMC Group will first be determined with reference to the prices paid by and the credit terms offered to the Group in respect of other beers imported into Hong Kong, Macau and the PRC by the Group from suppliers which are independent third parties. In the event that comparable reference prices or credit terms are not available, the prices and the credit terms shall then be determined by agreement between the parties based upon reasonable commercial principles. As advised by the Directors, such reasonable commercial principles would also relate to, among other things, factors stated in the paragraph headed “Purchases of packaging materials by the Group from the SMC Group” above in this section.

In this connection, we have reviewed sample copies of certain sales invoices for packaged beer purchased by the Group from the SMC Group and for other imported beers purchased by the Group from other independent suppliers during the period from 2003 to present. We found that the prices of the packaged beer purchased from the SMC Group are comparable to the prices of other imported beers purchased from other independent suppliers.

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LETTER FROM TAI FOOK

• (c) Sales of packaged beer by the Group to the SMC Group

As the packaged beer sold by the Group to the SMC Group is on-sold by the SMC Group to independent third party customers in the international market, the selling prices and the credit terms for the packaged beer sold to the SMC Group is associated with the prices and the credit terms offered by the SMC Group to its ultimate customers, which are independent third parties. As stated in the Letter from the Board contained in this Circular, such selling prices and credit terms offered by the SMC Group to its ultimate customers will first be determined with reference to the prices and the credit terms offered by the SMC Group in export markets in countries other than Hong Kong, Macau, the PRC and the Philippines for similar packaged beer products. In the event that no such comparable reference materials are available, the prices or credit terms offered by the SMC Group to its ultimate customers shall be determined by agreement between the parties based upon reasonable commercial principles. We are advised by the Directors that typically the price received by the Group for the sales of packaged beer to the SMC Group will be the selling price of the relevant packaged beer on-sold by the SMC Group to its ultimate customers less an agreed margin.

In connection to the above, we have inquired and are advised by the Directors that the Group will accept orders from the SMC Group only if such sales are able to command a reasonable gross margin for the Group. In other words, if the proposed selling price offered by the SMC Group to the ultimate customers is too low and so the revenue to be received by the Group from the proposed sale is unable to command a reasonable gross margin, the Group will reject such orders from the SMC Group. Furthermore, we have reviewed certain correspondences between the Group and the SMC Group in relation to such price negotiation process. Based on the aforesaid, we are of the view that the pricing mechanism for the sales of packaged beer to the SMC Group is fair and reasonable and in the interests of the Company and the Independent Shareholders as a whole.

• (d) Payment of commission to the SMC Group in respect of sales of packaged beer by the Group directly to independent third party customers in certain countries (other than Hong Kong, Macau and the PRC)

As stated in the Letter from the Board contained in this Circular, the commission payable by the Group to the SMC Group in respect of sales of packaged beer invoiced directly by the Group to independent third party customers in certain countries (other than Hong Kong, Macau and the PRC) which require direct invoicing from the country of origin shall be determined with reference to the profit margin which would have been made by the SMC Group had such packaged beer been sold by the Group to the SMC Group and then on-sold by the SMC Group to such independent third party customers. The Group will also have regard to the historical levels of commissions paid to the SMC Group in respect of comparable sales of packaged beer when agreeing the levels of commission to be paid to the SMC Group pursuant to the Agreement. In other words, the commission paid by the Group is basically made with reference to the profit margin earned by the SMC Group, which is in turn derived similarly from the pricing mechanism as discussed in the paragraph headed “Sales of packaged beer by the Group to the SMC Group” above in this section. Similar to

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LETTER FROM TAI FOOK

the sales of packaged beer by the Group to the SMC Group, the Group will only accept orders from such independent third party customers which require direct invoicing if such sales are able to command a reasonable gross margin for the Group.

Under the Agreement, the Group will only pay commission to the SMC Group in respect of such sales that the Group receives payment in respect thereof from the independent third party customers. Furthermore, the SMC Group shall indemnify the Group in respect of any non-payment by such independent third party customers to the extent of the variable production and variable distribution costs incurred by the Group in respect of the relevant beer. We have discussed with and are advised by the Directors that similar indemnities have been provided by the SMC Group in the past. Based on the aforesaid, we are therefore of the view that the commission determination mechanism is fair and reasonable and such indemnities provided by the SMC Group to the Group under the Agreement are beneficial to the Group and in the interests of the Company and the Independent Shareholders as a whole.

Based on the above and after taking into account that the pricing policy of the Company in respect of the Continuing Connected Transactions is on an arm’s length basis and is consistent with the Group’s historical pricing policy in respect of the past transactions between the Group and the SMC Group and that such pricing policy will remain unchanged and continue to be on an arm’s length basis, we are of the view that the basis for the prices and commission determination for the Continuing Connected Transactions under the Agreement is fair and reasonable.

IV. Basis of the annual Caps

• (a) Purchases of packaging materials by the Group from the SMC Group

As stated in the Letter from the Board contained in this circular, in each of the financial years ended 31 December 2001, 2002, 2003 and 2004, the total purchases of packaging materials from the SMC Group were approximately HK$78.1 million, HK$63.5 million, HK$32.0 million and HK$54.0 million respectively.

Under the Agreement, the cap amounts for the purchases of packaging materials by the Group from the SMC Group for each of the three years ending 31 December 2005, 2006 and 2007 are HK$47.8 million, HK$92.6 million and HK$105.7 million respectively.

We have reviewed and discussed with the Company the internal projections of the Group in respect of such cap amounts. We understand that in determining the cap amounts for the demand for packaging materials from the SMC Group for the forthcoming three years ending 31 December 2005, 2006 and 2007, the following factors have been taken into consideration:

• (i) the anticipated increase in demand for canned and bottled beer in Hong Kong, Macau and Guangdong and Hainan provinces in the PRC;

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LETTER FROM TAI FOOK

• (ii) the anticipated increase in the prices of aluminium, fuel and steel which are the principal raw materials for the manufacturing of cans, bottles and crown seals respectively;

• (iii) the replacement programme for crates of the Group. The crates manufactured by the SMC Group have an expected useful life of seven years. As at the Latest Practicable Date, approximately 30% of the Group’s crates have reached their expected useful life span and a further approximately 20% of the Group’s crates are approaching their expected useful life span. Accordingly, approximately 50% of the Group’s current crate population is scheduled to be replaced during 2005 to 2007;

• (iv) the expected increase in demand for crown seals as a result of the increase in demand for bottled beers;

• (v) due to the SMC Group’s production capacity constraints, it is expected that the SMC Group will shift part of its beer production for export sales to the Group in the forthcoming years which therefore would increase the packaging materials demanded by the Group from the SMC Group;

• (vi) the expected increase in demand for beer products in the SMC Group’s export markets, which in turn may result in an increase in demand for beer products from the Group by the SMC Group; and

• (vii) the historical unit prices of each type of the packaging materials and the historical transaction volume of such packaging materials between the Group and the SMC Group.

• (b) Purchases of packaged beer by the Group from the SMC Group

As stated in the Letter from the Board contained in this Circular, in each of the four financial years ended 31 December 2001, 2002, 2003 and 2004, the total purchases of packaged beer from the SMC Group were approximately HK$2.8 million, HK$3.6 million, HK$2.6 million and HK$2.6 million respectively.

Under the Agreement, the cap amounts for the purchases of packaged beer by the Group from the SMC Group for each of the three years ending 31 December 2005, 2006 and 2007 are HK$4.3 million, HK$4.7 million and HK$5 million respectively.

We have reviewed and discussed with the Company the internal projections of the Group in respect of such cap amounts. We understand that in determining the cap amounts for the demand for packaged beer from the SMC Group for the forthcoming three years, the following factors have been taken into consideration:

• (i) the historical transaction volume and prices of packaged beer purchased from the SMC Group;

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LETTER FROM TAI FOOK

• (ii) the anticipated increase in the unit price of the packaged beer products purchased from the SMC Group; and

• (iii) the expected increase in demand for the SMC Group’s beer products in Hong Kong, Macau, and Guangdong and Hainan provinces in the PRC which are distributed by the Group in each of the three financial years ending 31 December 2005, 2006 and 2007.

• (c) Sales of packaged beer by the Group to the SMC Group

As stated in the Letter from the Board contained in this Circular, in each of the four financial years ended 31 December 2001, 2002, 2003 and 2004, the total sales of packaged beer by the Group to the SMC Group were approximately HK$46.6 million, HK$35.5 million, HK$39.7 million and HK$29.5 million respectively.

Under the Agreement, the cap amounts for the sales of packaged beer by the Group to the SMC Group for each of the three years ending 31 December 2005, 2006 and 2007 are HK$46.1 million, HK$53.6 million and HK$60.7 million respectively.

We have reviewed and discussed with the Company the internal projections of the Group in respect of such cap amounts. We understand that in determining the cap amounts for the sales of packaged beers by the Group to the SMC Group for the forthcoming three years, the following factors have been taken into consideration:

• (i) due to the SMC Group’s production capacity constraints and the expected increase in demand for the SMC Group’s packaged beer in its export markets, it is expected that the SMC Group will have higher reliance on the supply of packaged beer by the Group in order to satisfy the expected growth in demand. As a result, the amount of sales of packaged beer by the Group to the SMC Group is expected to increase;

• (ii) the expected increase in demand for the Group’s beer products in the export markets for the three years ending 31 December 2005, 2006 and 2007; and

• (iii) the historical transaction volume and prices of packaged beer sold by the Group to the SMC Group.

• (d) Payment of commission to the SMC Group in respect of sales of packaged beer by the Group directly to independent third party customers in certain countries (other than Hong Kong, Macau and the PRC)

As stated in the Letter from the Board contained in this Circular, in each of the four financial years ended 31 December 2001, 2002, 2003 and 2004, the amounts of commission paid to the SMC Group were each below HK$1 million.

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LETTER FROM TAI FOOK

Under the Agreement, the cap amounts for the payment of commission to the SMC Group in respect of sales of packaged beer by the Group directly to independent third party customers in certain countries (other than Hong Kong, Macau and the PRC) for each of the three years ending 31 December 2005, 2006 and 2007 are HK$1.1 million, HK$1.3 million and HK$1.6 million respectively.

We have reviewed and discussed with the Company the internal projections of the Group in respect of such cap amounts. We understand that in determining the cap amounts for the payment of commission to the SMC Group in respect of sales of packaged beer by the Group directly to independent third party customers in certain countries (other than Hong Kong, Macau and the PRC) for the forthcoming three years, the following factors have been taken into consideration:

• (i) the historical commission paid by the Group to the SMC Group in respect of sales of packaged beer by the Group directly to independent third party customers in certain countries (other than Hong Kong, Macau and the PRC); and

• (ii) the expected increase in demand for the Group’s beer products in those countries where direct invoicing from country of origin is required.

Based on the above and after taking into account the recurring nature of the transactions and that the terms of the Agreement are determined between the Company and SMC after arm’s length negotiation, we consider that the level of the Caps for each of the (a) purchases of packaging materials by the Group from the SMC Group; (b) purchases of packaged beer by the Group from the SMC Group; (c) sales of packaged beer by the Group to the SMC Group; and (d) payment of commission to the SMC Group in respect of sales of packaged beer by the Group directly to independent third party customers in certain countries (other than Hong Kong, Macau and the PRC) was made by the Directors after due and careful consideration and therefore, we concur with the Directors’ view that the basis for determining the Caps and the Caps is fair and reasonable so far as the Independent Shareholders are concerned.

RECOMMENDATION

Having considered the above principal factors and reasons, we consider i) the terms of the Continuing Connected Transactions under the Agreement are on normal commercial terms, in the ordinary and usual course of business of the Group, fair and reasonable and in the interests of the Company and the Independent Shareholders as a whole; and ii) the Caps are fair and reasonable so far as the Company and 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 Continuing Connected Transactions and the Caps.

Yours faithfully, For and on behalf of

Tai Fook Capital Limited Derek C.O. Chan

Deputy Managing Director

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GENERAL INFORMATION

APPENDIX

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Revised 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 matters the omission of which would make any statement in this circular misleading.

2. DISCLOSURE OF INTERESTS

(a) Directors’ interests and short positions in the securities of the Company and its associated corporations

As at the Latest Practicable Date, the interests and short positions of the Directors and the chief executive of the Company in the Shares, underlying Shares and debentures of the Company or its associated corporations (within the meaning of Part XV of the SFO) which (i) 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 they were taken or deemed to have under such provisions of the SFO); or (ii) were required to be entered in the register maintained by the Company pursuant to section 352 of the SFO; or (iii) were required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers as contained in the Revised Listing Rules, were as follows:

• (1) Interests in issued share capital

	Number of ordinary shares of $0.50 each in	Number of ordinary shares of $0.50 each in	Number of ordinary shares of $0.50 each in	the Company
				Approximate
	Personal	Family		% of
Name of Director	interests	interests	Total	shareholding
Francisco C. Eizmendi, Jr.	2,816	–	2,816	–
David K.P. Li	300,000	–	300,000	0.08%

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GENERAL INFORMATION

APPENDIX

		Number of shares	in SMC
				Approximate
	Personal	Family		% of
Name of Director	interests	interests	Total	shareholding
Class A (par value of 5 pesos each):
Francisco C. Eizmendi, Jr.	298,768	–	298,768	0.01%
Ramon S. Ang	6,050	–	6,050	–
Ramon A. de la Llana	12,539	–	12,539	–
Ferdinand K. Constantino	94,341	–	94,341	–
Faustino F. Galang	165,042	–	165,042	0.01%
Francis H. Jardeleza	7,662	–	7,662	–
Estelito P. Mendoza	31,972	–	31,972	–
Gabriel L. Villareal	24,572	10,500	35,072	–
Class B (par value of 5 pesos each):
Ramon A. de la Llana	5,600	–	5,600	–
Faustino F. Galang	25,270	–	25,270	–
Francis H. Jardeleza	53,800	–	53,800	–
Gabriel L. Villareal	–	29,000	29,000	–

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GENERAL INFORMATION

APPENDIX

(2) Interests in underlying shares

Certain Directors have been granted share options to subscribe for shares in SMC. Particulars of share options in SMC held by Directors as at the Latest Practicable Date were as follows:

Share options in SMC

				Balance
				as at
		Exercise	Exercise	the Latest
	Date	period	price per	Practicable
Name of Director	granted	up to	share	Date
			(pesos)
Class A (par value of 5 pesos each):
Ramon S. Ang	26/06/03	26/06/11	54.50	259,422
	(Note 1)
	01/10/04	01/10/12	57.50	266,854
Ramon A. de la Llana	26/06/03	26/06/11	54.50	13,876
	(Note 1)
	01/10/04	01/10/12	57.50	31,422
Ferdinand K. Constantino	26/06/03	26/06/11	54.50	50,514
	(Note 1)
	01/10/04	01/10/12	57.50	56,643
Faustino F. Galang	26/06/03	26/06/11	54.50	85,306
	(Note 1)
	01/10/04	01/10/12	57.50	87,751
Francis H. Jardeleza	26/06/03	26/06/11	54.50	52,537
	(Note 1)
	01/10/04	01/10/12	57.50	56,476
Thomas R. Mainwaring	26/06/03	26/06/11	54.50	16,419
	(Note 1)
	01/10/04	01/10/12	57.50	10,687

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GENERAL INFORMATION

APPENDIX

Share options in SMC

				Balance
				as at
		Exercise	Exercise	the Latest
	Date	period	price per	Practicable
Name of Director	granted	up to	share	Date
			(pesos)
Class B (par value of 5 pesos each):
Ramon S. Ang	26/06/03	26/06/11	62.50	111,181
	(Note 1)
	01/10/04	01/10/12	70.50	114,366
Ramon A. de la Llana	26/06/03	26/06/11	62.50	5,947
	(Note 1)
	01/10/04	01/10/12	70.50	13,466
Ferdinand K. Constantino	26/06/03	26/06/11	62.50	14,432
	(Note 1)
	01/10/04	01/10/12	70.50	24,275
Faustino F. Galang	26/06/03	26/06/11	62.50	36,560
	(Note 1)
	01/10/04	01/10/12	70.50	37,607
Francis H. Jardeleza	26/06/03	26/06/11	62.50	22,516
	(Note 1)
	01/10/04	01/10/12	70.50	24,204
Thomas R. Mainwaring	26/06/03	26/06/11	62.50	7,036
	(Note 1)
	01/10/04	01/10/12	70.50	4,580

Note 1:

These share options were approved and granted by the board of SMC on 29 January 2004, and were retroactive to 26 June 2003.

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GENERAL INFORMATION

APPENDIX

Save as disclosed above, as at the Latest Practicable Date, none of the Directors or the chief executive of the Company had or was deemed to have any interest or short position in the Shares, underlying Shares or debentures of the Company or its associated corporations (within the meaning of Part XV of the SFO) which (i) 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 they were taken or deemed to have such provisions of the SFO); or (ii) were required to be entered in the register maintained by the Company pursuant to section 352 of the SFO; or (iii) were required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers as contained in the Revised Listing Rules.

• (b) Persons or corporations who have an interest or short position which is discloseable under Divisions 2 and 3 of Part XV of the SFO and substantial shareholders of members of the Group

So far as is known to each Director or the chief executive of the Company, as at the Latest Practicable Date, the following persons or corporations had an interest or short position in the Shares and underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who/which 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 and the amount of each of such persons’s/corporation’s interest in such securities, together with particulars of any options in respect of such capital, were as follows:

	Number	of Shares
	Ordinary	% of total
Name	shares held	issued shares
Neptunia Corporation Limited_(note 1)_	245,720,800	65.78%
HKSCC Nominees Limited	66,285,236	17.74%
Conroy Assets Limited_(note 2)_	13,624,600	3.65%
Hamstar Profits Limited_(note 2)_	10,078,400	2.70%

Notes:

1. SMC, San Miguel International Limited (“SMIL”), San Miguel Holdings Limited (“SMHL”) and San Miguel Brewing International Limited (“SMBIL”) are all deemed to hold the above disclosed interests of Neptunia Corporation Limited in the Company because SMC has a controlling interest in SMIL, SMIL has a controlling interest in SMHL, SMHL has a controlling interest in SMBIL and SMBIL has a controlling interest in Neptunia Corporation Limited.

2. Mr. Li Ka-Shing, Cheung Kong (Holdings) Limited, Li Ka-Shing Unity Trustee Company Limited, Li KaShing Unity Trustee Corporation Limited and Li Ka-Shing Unity Trustcorp Limited are all deemed to hold the above disclosed interest of Conroy Assets Limited (“Conroy”) and Hamstar Profits Limited (“Hamstar”) in the Company. The aggregate interest of Conroy and Hamstar exceeds 5% of the issued share capital of the Company resulting in a duty of disclosure under the SFO.

3. The following Directors are directors/employees of the companies which have an interest or short position in the Shares or underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO:

Mr. Ramon S. Ang is Vice Chairman, President and Chief Operating Officer of SMC. Mr. Ferdinand K. Constantino is Senior Vice President and Chief Finance Officer and Treasurer of SMC and a director of SMHL and SMBIL. Mr. Faustino F. Galang is President of San Miguel Beer Division of SMC and a director of Neptunia Corporation Limited. Mr. Francis H. Jardeleza is Senior Vice President and Corporate Secretary and General Counsel of SMC and a director of SMIL and SMHL. Mr. Estelito P. Mendoza is a director of SMC.

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GENERAL INFORMATION

APPENDIX

		% of
Name of subsidiary	Name of shareholder	interest in subsidiary
Guangzhou San Miguel	Guangzhou Brewery	30%
Brewery Company Limited

Save as disclosed above, as at the Latest Practicable Date, none of the Directors nor the chief executive of the Company was aware of any other person or corporation who had an interest or short position in the Shares or underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who/which 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 any options in respect of such capital.

3. SERVICE CONTRACTS

Pursuant to an agreement dated 12 June 1963, Neptunia Corporation Limited provides technical and advisory services to the Company and may be paid a General Managers’ Commission. Messrs. Francisco C. Eizmendi, Jr., Ramon S. Ang, Ferdinand K. Constantino, Ramon A. de la Llana, Faustino F. Galang, Francis H. Jardeleza, Thomas R. Mainwaring, Estelito P. Mendoza and Gabriel L. Villareal are interested parties to this contract to the extent that they either have equity interests in or are directors of SMC, the ultimate holding company of Neptunia Corporation Limited. General Managers’ Commission has not been paid by the Company or charged by Neptunia Corporation Limited since the 1995 financial year.

Save as disclosed above, at the Latest Practicable Date, none of the Directors had entered, or proposed to enter, into a service contract with any member of the Group which does not expire or is not determinable by the relevant member of the Group within one year without compensation, other than statutory compensation.

4. COMPETING INTEREST

As at the Latest Practicable Date, none of the Directors and his/her associates had any interests which competed or was likely to compete, either directly or indirectly, with the Company’s business.

5. LITIGATION

As at the Latest Practicable Date, no member of the Group was engaged in any litigation or arbitration proceedings of material importance and there is no litigation or claim of material importance known to the Directors to be pending or threatened by or against the Company or any member of the Group.

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GENERAL INFORMATION

APPENDIX

6. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial and trading position of the Company since 31 December 2004, being the date to which the latest published audited financial statements of the Company were made up.

7. INTERESTS IN ASSETS AND/OR CONTRACTS AND OTHER INTERESTS

As at the Latest Practicable Date, none of the Directors had any direct or indirect interest in any asset which had been, since 31 December 2004, being the date to which the latest published audited financial statements of the Company were made up, acquired or disposed of by or leased to any member of the Group.

Save as disclosed in the section headed “Service Contracts” above, as at the Latest Practicable Date, none of the Directors was materially interested in any contract or arrangement which is significant in relation to the business of the Company.

8. CONSENT OF EXPERT

Tai Fook has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and references to its name in the form and context in which they respectively appear.

As at the Latest Practicable Date, Tai Fook was not interested in any Shares or share in any member of the Group nor did it have any right or option (whether legally enforceable or not) to subscribe for or nominate persons to subscribe for any Share or share in any member of the Group.

As at the Latest Practicable Date, Tai Fook did not have any direct or indirect interest in any asset which had been, since 31 December 2004, being the date to which the latest published audited financial statements of the Company were made up, acquired or disposed of by or leased to any member of the Group.

9. GENERAL

• (a) The secretary of the Company is Mr. Thomas R. Mainwaring, who is also an executive Director.

The qualified accountant of the Company is Mr. Man Bun Wong, who is a Fellow Member of The Hong Kong Institute of Certified Public Accountants and The Hong Kong Institute of Directors, as well as a Fellow Member of The Association of Chartered Certified Accountants in the United Kingdom. He also holds a Master degree in Business Administration from The University of Melbourne.

• (b) The Company’s share registrar in Hong Kong is Computershare Hong Kong Investor Services Limited, at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong.

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GENERAL INFORMATION

APPENDIX

• (c) In the event of inconsistency, the English text of this circular shall prevail over the Chinese text.

10. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the Company’s registered office, 9th Floor, Citimark Building, 28 Yuen Shun Circuit, Siu Lek Yuen, Shatin, New Territories, Hong Kong during normal business hours up to and including 7 April 2005:

• (a) the Agreement;

• (b) the agreement referred to in the section headed “Service Contracts” in this appendix;

• (c) the letter from Tai Fook, the text of which is set out in this circular; and

• (d) the consent letter of Tai Fook referred to in the section headed “Consent of Expert” in this appendix.

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NOTICE OF EGM

==> picture [35 x 57] intentionally omitted <==

SAN MIGUEL BREWERY HONG KONG LIMITED

(Incorporated in Hong Kong with limited liability)

(Stock Code: 236)

NOTICE OF EXTRAORDINARY GENERAL MEETING

NOTICE IS HEREBY GIVEN that an extraordinary general meeting of the shareholders of San Miguel Brewery Hong Kong Limited (the “Company”) will be held at the Langham Hotel, 8 Peking Road, Tsimshatsui, Kowloon, Hong Kong on Thursday, 7 April 2005 at 2:30 p.m. (or so soon thereafter as the extraordinary general meeting of the Company convened to be held on the same date at the same venue shall have been concluded or adjourned) for the purpose of considering and, if thought fit, passing with or without modifications, the following resolution as an ordinary resolution of the Company:

ORDINARY RESOLUTION

“ THAT :

the master agreement dated 11 March 2005 (the “Agreement”) entered into between San Miguel Corporation, the ultimate controlling shareholder of the Company, and the Company, a copy of which marked “A” has been produced to the meeting and signed by the Chairman of the meeting for the purpose of identification, and the transactions contemplated thereunder be and are hereby approved, ratified and confirmed and the proposed annual caps (the “Caps”) in relation to the transactions contemplated under the Agreement for each of the three financial years ending 31 December 2005, 2006 and 2007 as set out in the Company’s circular dated 21 March 2005 be and are hereby approved, and the directors of the Company be and are hereby authorised on behalf of the Company to sign, seal, execute, perfect, deliver and do all such documents, deeds, acts, matters and things as they may in their discretion consider necessary or desirable or expedient to implement and/or to give effect to the Agreement and the Caps and the transactions thereby contemplated.”

By order of the Board

San Miguel Brewery Hong Kong Limited Thomas R. Mainwaring Company Secretary

Hong Kong, 21 March 2005

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NOTICE OF EGM

Notes:

1. The ordinary resolution to be considered at the extraordinary general meeting will be decided by poll. On voting by poll, each shareholder of the Company shall have one vote for each share held in the Company.

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

3. In order to be valid, a form of proxy duly completed and signed in accordance with the instructions printed thereon together with a power of attorney or other authority, if any, under which it is signed or a notarially certified copy thereof must be deposited at the Company’s share registrar in Hong Kong, Computershare Hong Kong Investor Services Limited, at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong not less than 48 hours before the time appointed for holding the meeting or any adjournment thereof.

4. Completion and delivery of the form of proxy will not preclude a shareholder of the Company from attending and voting at the meeting if the shareholder of the Company so desires.

5. A shareholder or his proxy shall produce proof of identity when attending the meeting.

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