Guoco Group Limited — Proxy Solicitation & Information Statement 2007

May 4, 2007

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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.

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

If you have sold or transferred all your shares in Far East Hotels And Entertainment Limited, you should at once hand this circular and the accompanying form of proxy to the purchaser or transferee, or to the bank, stockbroker or other agent through whom the sale or transfer was effected, for transmission to the purchaser or transferee.

==> picture [56 x 55] intentionally omitted <==

FAR EAST HOTELS AND ENTERTAINMENT LIMITED

(Incorporated in Hong Kong with limited liability) (Stock Code: 0037)

CAPITAL REDUCTION AND ADOPTION OF THE 2007 SHARE OPTION SCHEME

The Notice convening an Extraordinary General Meeting of Far East Hotels And Entertainment Limited to be held at Warwick Hotel Cheung Chau, East Bay, Cheung Chau, Hong Kong on Friday, 1 June 2007 at 3:00 p.m. is set out on pages 26 to 28 of this circular. Whether or not Shareholders are able to attend the Extraordinary General Meeting, they are requested to complete the enclosed form of proxy in accordance with the instructions printed thereon and return the same to the registered office of the Company at Suite 2308, 23rd Floor, Office Tower, Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong, as soon as possible and in any event so as to arrive not less than 48 hours before the time appointed for holding the Extraordinary General Meeting (or any adjournment thereof). Completion and return of the form of proxy will not preclude Shareholders from attending and voting in person at the Extraordinary General Meeting (or any adjournment thereof) should they so desire.

4 May 2007

CONTENTS

		Page
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		1-4
EXPECTED TIMETABLE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		5
**LETTER **	FROM THE MANAGING DIRECTOR AND CHIEF EXECUTIVE
−	Capital Reduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
−	Free Exchange of Certificates for New Shares and Trading Arrangements . .	9
−	Adoption of the 2007 Share Option Scheme. . . . . . . . . . . . . . . . . . . . . . . . .	9
−	Extraordinary General Meeting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
−	Procedures for Demanding a Poll . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
−	Responsibility Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
−	Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
APPENDIX − SUMMARY OF THE PRINCIPAL TERMS OF THE 2007
	SHARE OPTION SCHEME . . . . . . . . . . . . . . . . . . . . . . . . . . .	14-25
**NOTICE **	OF EXTRAORDINARY GENERAL MEETING . . . . . . . . . . . . . . . . . . . .	26-28

– i –

DEFINITIONS

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

• “Acceptance Date” the date on or before which an offer of grant of Option may be accepted by the relevant Eligible Person, being a date not later than 28 days after the Offer Date but not after the Expiry Date;

• “Adoption Date” the date on which the 2007 Share Option Scheme is adopted by an ordinary resolution of the Company in general meeting;

• “Auditors” the auditors, from time to time, of the Company;

• “Board”

• the board of Directors (as constituted from time to time) or a duly authorised committee thereof (as constituted from time to time);

• “Capital Reduction” the reduction of the capital of the Company as set out in this circular;

• “Commencement Date” in respect of an Option, the date upon which such Option is deemed to have been granted and accepted in accordance with sub-Paragraph 2(D) of the Appendix to this circular;

• “Companies Ordinance” the Companies Ordinance (Cap 32) of the Laws of Hong Kong;

• “Company”

• Far East Hotels and Entertainment Limited ( ), a company incorporated in Hong Kong with limited liability under the Companies Ordinance;

• “Date of Grant”

• in respect of an Option or an Eligible Person:

• (i) (where no approval of Shareholders of the Company is required for the grant or further grant of Option) the Offer Date; or

• (ii) (where approval of Shareholders of the Company is required for the grant or further grant of Option) the date of the resolution of the Board proposing the grant or further grant of Option,

which must be a Trading Day;

• “Directors”

the directors of the Company;

– 1 –

DEFINITIONS

• “Effective Date” “Eligible Employee”

the effective date of the Capital Reduction;

any person who is:

• (i) a full-time employee or executive director of the Company or any Subsidiary; or

• (ii) a non-executive director (including any independent non-executive directors) of the Company or any Subsidiary;

“Eligible Persons”

any person who is:

• (i) an Eligible Employee or his or her associate; or

• (ii) a business associate of the Company or any Subsidiary; or

• (iii) any other person whomsoever is determined by the Board as having contributed to the development, growth or benefit of the Company or any Subsidiary or as having spent any material time in or about the promotion of the business of the Company or any Subsidiary,

provided always that an Eligible Person can be an individual or bodies corporate, corporations, partnerships, sole proprietorships, organisations, associations, enterprises, branches and entities of any other kind whether or not having separate legal identity;

“EGM”

“Exercise Price”

“Expiry Date”

the extraordinary general meeting of the Company to be held on Friday, 1 June 2007 at 3:00 p.m. to consider and if thought fit by Shareholders, to approve resolution(s) in respect of the Capital Reduction; in respect of an Option, the price per Share at which a Grantee may subscribe for Shares on the exercise of such Option, calculated in accordance with the rules of the 2007 Share Option Scheme;

in respect of an Option, means the date of expiry of such Option as may be determined by the Board, which shall not be later than the day immediately preceding the tenth anniversary of the Offer Date;

– 2 –

DEFINITIONS

• “Grantee” any Eligible Person who accepts the offer of grant of an Option in accordance with the terms of the 2007 Share Option Scheme or (where the context so permits) a person or persons who, in accordance with the applicable laws of succession is or are entitled to exercise the Option granted to and accepted by an Eligible Person (to the extent not already exercised) in consequence of the death of such Eligible Person;

• “Gross Annual Salary” in relation to any Eligible Employee or his or her associate, the total remuneration of such Eligible Employee (including any bonuses but excluding reimbursement of expenses, accommodation allowance, travel allowance and the value of any benefits in kind) from the Company and/or any Subsidiary or Subsidiaries for the 12 months next following the proposed Offer Date of the relevant Option as notified to the Eligible Employee from time to time and in the absence of such notice, the total remuneration of such Eligible Employee for the 12 months immediately preceding the proposed Date of Grant of the relevant Option;

• “Group” the Company and its Subsidiaries from time to time;

• “High Court” the High Court of the HKSAR; “HKSAR” the Hong Kong Special Administrative Region of the People’s Republic of China;

• “Latest Practicable Date” 2 May 2007, being the latest practicable date for ascertaining certain information for inclusion in this circular;

• “Listing Rules” the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited;

• “New Shares” ordinary shares of par value HK$0.10 each in the issued and unissued share capital of the Company on the Effective Date;

• “Notice” notice of the EGM as set out on pages 26 to 28 of this circular;

– 3 –

DEFINITIONS

• “Offer Date” in respect of an Option, means the date on which such Option is offered to an Eligible Person, which must be a Trading Date and which date shall conclusively be determined as the date of the letter of offer in respect thereof in accordance with sub-Paragraph 2(C) of the Appendix to this circular;

• “Option” an option to subscribe for Shares granted pursuant to the 2007 Share Option Scheme;

• “Option Period” in respect of an Option, any time during the period beginning with the Commencement Date and ending on the Expiry Date;

• “Shares” ordinary shares of $1.00 each in the capital of the Company as at the date of this circular and prior to the Effective Date;

• “Shareholders” the holders of the Company’s ordinary shares from time to time;

• “Stock Exchange” The Stock Exchange of Hong Kong Limited;

• “Subsidiary” a subsidiary within the meaning of the Companies Ordinance of the Company or an entity which is otherwise required to be accounted for as a subsidiary of the Company pursuant to the accounting policies of the Company from time to time, whether incorporated in Hong Kong or elsewhere;

• “Takeovers Code” the Hong Kong Code on Takeovers and Mergers issued by the Securities and Futures Commission of Hong Kong;

• “Trading day” a day on which the Stock Exchange is open for business and it is possible to trade Shares on the Stock Exchange;

• “1995 Share Option Scheme” the share option scheme adopted by the Company on 22 September 1995 which expired on 21 September 2005;

• “2007 Share Option Scheme” the new share option scheme proposed to be adopted by the Company; and

• “$” and “cents”

Hong Kong dollars and cents, respectively, the lawful currency of Hong Kong.

– 4 –

EXPECTED TIMETABLE

Latest time for the Shareholders to lodge forms of proxy for the EGM . . . . . . . . . . . . . . . . . . . . . . . . . 3:00 p.m., Wednesday, 30 May 2007 EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3:00 p.m., Friday, 1 June 2007 Announcement of the outcome of the EGM . . . . . . . . . . . . . . . . . . . . Monday, 4 June 2007

The following events are conditional on the result of the EGM and the relevant court hearings. The dates are, therefore, tentative:

Hearing of Petition for confirmation of the Capital Reduction by the High Court . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tuesday, 10 July 2007 Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Thursday, 12 July 2007

Note: The actual date of the Hearing of the Petition (and before that, the date of the Hearing of the Summons for Directions) will depend upon the availability of the High Court which, in turn, depends upon the projected length and scope of the relevant hearing.

– 5 –

LETTER FROM THE MANAGING DIRECTOR AND CHIEF EXECUTIVE

==> picture [56 x 55] intentionally omitted <==

FAR EAST HOTELS AND ENTERTAINMENT LIMITED

(Incorporated in Hong Kong with limited liability) (Stock Code: 0037)

Executive Directors: Deacon Te Ken CHIU, J.P. (Chairman) Derek CHIU, B.A. (Managing Director and Chief Executive) Desmond CHIU, B.A. (Deputy Managing Director) Margaret CHIU, LLB.

Registered Office: Suite 2308, 23rd Floor Office Tower, Convention Plaza 1 Harbour Road Wanchai Hong Kong

Non-Executive Directors: CHIU JU Ching Lan, J.P. Dick Tat Sang CHIU, M.A. Tan Sri Dato’ David CHIU, B.Sc. Dennis CHIU, B.A. Duncan CHIU, B.Sc.

Independent Non-Executive Directors: IP Shing Hing, J.P. NG Wing Hang Patrick CHOY Wai Shek Raymond, MH, J.P.

Alternate Directors: CHAN Chi Hing (Alternate Director to Deacon Te Ken CHIU) TANG Sung Ki, CPA, FCCA (Alternate Director to Desmond CHIU)

4 May 2007

To the Shareholders

Dear Sir or Madam,

CAPITAL REDUCTION AND ADOPTION OF THE 2007 SHARE OPTION SCHEME

CAPITAL REDUCTION

The Directors have announced their intention to put forward to the Shareholders the Capital Reduction. As at the Latest Practicable Date, the authorised share capital of the Company was HK$750,000,000 divided into 750,000,000 ordinary shares of HK$1.00 each, of which 488,842,675 ordinary shares of HK$1.00 each have been issued and are fully paid.

– 6 –

LETTER FROM THE MANAGING DIRECTOR AND CHIEF EXECUTIVE

The Capital Reduction will be effected by cancelling paid up capital to the extent of HK$0.90 upon each of the Shares in issue as at the Latest Practicable Date and any further Shares which may be issued prior to the date on which the petition for the confirmation of the Capital Reduction is heard by the High Court, and by reducing the nominal value of all the Shares from HK$1.00 to HK$0.10 each.

On the assumption that no further Shares will be issued after the Latest Practicable Date, a credit of HK$439,958,407.50 will arise as a result of the Capital Reduction. Of the credit arising on the Capital Reduction, an amount of HK$221,897,828 will be applied towards writing off the unconsolidated accumulated losses of the Company as at 31 March 2006, being the date to which the last audited accounts were drawn up, and HK$100,000,000 will be transferred to a special capital reserve to be created by the Company, the application of which will be subject to such conditions as may be imposed by the High Court. For example, with the High Court’s approval, the sum credited to such reserve may, subject to conditions imposed by the High Court, be capable of being applied in or towards writing off future losses of the Company. The remaining balance of HK$118,060,579.50 (assuming no further Shares are issued as mentioned above) will be credited to the Company’s share premium account and will therefore also continue to constitute capital of the Company.

In addition, the Company proposes to adopt a new share option scheme, its last one having expired on 21 September 2005.

Conditions

The Capital Reduction is conditional upon:

• (1) the passing by the Shareholders of a special resolution to approve the same;

• (2) the confirmation of the Capital Reduction by the High Court and the registration by the Registrar of Companies in Hong Kong of an office copy of the order of the High Court and the minute containing the particulars required by Section 61 of the Companies Ordinance; and

• (3) the Listing Committee of the Stock Exchange granting approval of the listing of, and permission to deal in, the New Shares in issue on the Effective Date.

Assuming that the above conditions are fulfilled, it is expected that the Capital Reduction will become effective immediately following the registration of the order of the High Court and the minute containing the particulars required by Section 61 of the Companies Ordinance.

Although the section above headed “Expected Timetable” gives some guidance as to dates, the Effective Date is not ascertainable at present. At this stage, it is anticipated that the Capital Reduction would become effective around July/August 2007. An application will be made to the High Court as soon as practicable after the approval of the Capital Reduction by Shareholders at the EGM and further announcement(s) will be made informing the Shareholders of the progress of the matter in due course.

– 7 –

LETTER FROM THE MANAGING DIRECTOR AND CHIEF EXECUTIVE

Reasons for the Capital Reduction

The Capital Reduction will enable the Company to write off its unconsolidated accumulated losses as at 31 March 2006. Following the reduction, and resulting write off of losses, the Company’s capital and reserves will more closely reflect the available net assets of the Company, and would give the Company a capital structure that should, subject to performance, permit the payment of dividends, as and when the Directors consider it appropriate in the future.

Of the Company’s audited unconsolidated accumulated losses, as at 31 March 2006, of HK$221,897,828, a large part of this, in the amount of HK$163,600,000, represented an aggregate impairment loss in respect of the Company’s interest in an associated company, Bolan Holdings N.V., a company with interests in a historical theme park in Sydney, Australia which was closed in 2003. To date, Bolan Holdings N.V. has yet to inform the Company of alternative plans for the property. The balance of the Company’s audited unconsolidated accumulated losses reflected other provisions made by the Company in respect of its advances to its subsidiaries, and in small part, to its operating losses as the holding company of a wider group of companies.

In addition, the Shares have, for sometime, been traded on the Stock Exchange at prices below their nominal value of HK$1.00 each. The closing price of a Share on the Stock Exchange as at the Latest Practicable Date was HK$0.400 and the price has, since April 2000, ranged from HK$0.190 to HK$0.930.

The Company seeks the flexibility of raising funds in the future through allotments of shares, which it is restricted from doing at present, in light of the market price of the Shares relative to their nominal value.

Under the Companies Ordinance, a company may not issue shares at a discount to their nominal value unless, amongst other things, the matter is sanctioned by the High Court. Moreover, the Companies Ordinance provides that a company the net assets of which are less than its paid-up share capital may not effect a capital reduction to re-designate the nominal value of its shares unless, among other things, the capital reduction is sanctioned by the High Court.

Over the past years, there were many occasions when the stock market performed strongly, giving rise to opportunities for Hong Kong listed companies to raise new capital to strengthen its financial resources. However, due to the aforementioned constraints, the Company has not been able to capture those opportunities.

The Directors have, accordingly, determined to proceed with the Capital Reduction as the most appropriate means of preparing the Company’s capital structure for potential future fund raising exercises, although at this stage, no specific arrangements for issuing New Shares, either for the purpose of fund raising or as consideration for the acquisition of any business or assets, have been formulated by the Directors.

– 8 –

LETTER FROM THE MANAGING DIRECTOR AND CHIEF EXECUTIVE

Impact of the Capital Reduction

Implementation of the Capital Reduction will not, of itself, alter the underlying assets, business operations, management or financial position of the Company or the proportionate interests of the Shareholders, except for the payment of the related expenses. The Directors believe that the Capital Reduction will not have any adverse effect on the financial position of the Company and its subsidiaries.

FREE EXCHANGE OF CERTIFICATES FOR NEW SHARES AND TRADING ARRANGEMENTS

Shareholders may submit existing certificates for the Shares to the registrar of the Company, Standard Registrars Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Hong Kong, for exchange, at the expense of the Company, up to four weeks from the Effective Date, for certificates for the New Shares.

Details of such free exchange of share certificates, the relevant trading arrangements and timetable will be announced as soon as the Effective Date of the Capital Reduction is ascertainable.

ADOPTION OF THE 2007 SHARE OPTION SCHEME

The 1995 Share Option Scheme, having originally been adopted in September 1995, expired in September 2005. The Company proposes to adopt a new share option scheme in full compliance with Chapter 17 of the Listing Rules. The purpose of the 2007 Share Option Scheme, details of which are set out in the Appendix to this circular, is to provide Eligible Persons with the opportunity to acquire proprietary interests in the Company, to assist the recruitment of senior staff and to provide additional incentive to employees and other relevant persons by giving them the opportunity to participate in the Company and its performance.

The 2007 Share Option Scheme specifies that no Option may be exercised by an Eligible Employee or his or her associate until such Eligible Employee has been in continuous employment with the Company or its Subsidiary or has been appointed as director of the Company or its Subsidiary for a period of one calendar year from the date of such Eligible Employee’s commencement of employment with or appointment by the Company or its Subsidiary. In respect of an Eligible Person who is not an Eligible Employee or his or her associate, the Board may in its absolute discretion specify such minimum period for which an Option must be held before such Option can be exercised.

The 2007 Share Option Scheme does not specify a performance target which must be achieved before an Option can be exercised. However, the rules of the 2007 Share Option Scheme provide that the Board may determine, at its sole discretion, such term(s) on the grant of an Option. The basis for determination of the exercise price is also specified precisely in the rules of the 2007 Share Option Scheme. The Directors consider that the aforesaid criteria and rules will serve to preserve the value of the Company and encourage Eligible Persons to acquire proprietary interests in the Company.

– 9 –

LETTER FROM THE MANAGING DIRECTOR AND CHIEF EXECUTIVE

The adoption of the 2007 Share Option Scheme is conditional upon:

• (a) the passing by the Shareholders of an ordinary resolution to approve the same; and

• (b) the Listing Committee of the Stock Exchange granting approval of the listing of, and permission to deal in, shares to be issued pursuant to the exercise of any options granted under the 2007 Share Option Scheme.

If condition (2) above is not satisfied within three months after the date of adoption of the 2007 Share Option Scheme, the 2007 Share Option Scheme shall forthwith terminate and no person shall be entitled to any rights or benefits or be under any obligations under or in respect of the 2007 Share Option Scheme or any Option.

Based on the 488,842,675 Shares in issue as at the Latest Practicable Date and assuming that there is no change in the issued share capital of the Company before the EGM, the maximum number of Shares that can be issued upon exercise of Options to be granted under the proposed 2007 Share Option Scheme and options to be granted under any other share option scheme(s) of the Company is 48,884,267 Shares, representing 10% of the Shares in issue as at the date of passing the ordinary resolution approving the adoption of the 2007 Share Option Scheme.

As at the Latest Practicable Date, there were 20,000,000 options outstanding as granted pursuant to the 1995 Share Option Scheme, at an exercise price ranging from HK$1.00 to HK$3.01 per share. The latest date for exercising the outstanding options is 28 January 2010. The outstanding options will be cancelled subject to the consent of the relevant holders of the options granted pursuant to the 1995 Share Option Scheme as at the date of the adoption of the 2007 Share Option Scheme.

– 10 –

LETTER FROM THE MANAGING DIRECTOR AND CHIEF EXECUTIVE

As at the Latest Practicable Date, the details of the outstanding options were as follows:

Outstanding options pursuant to the 1995 Share Option Scheme

Date of option granted Name Capacity 09/09/97 Derek Chiu Director 19/11/97 Margaret Chiu Director 29/01/00 Tang Sung Ki Alternate Director/ Company Secretary 29/01/00 Ng Chi Kin Employee 29/01/00 Chung Siu Mei Employee Total	Share option granted Exercise price per share Expiry date HK$ 1,000,000 shares 3.01 08/09/2007 7,000,000 shares 1.74 18/11/2007 6,000,000 shares 1.00 28/01/2010 3,000,000 shares 1.00 28/01/2010 3,000,000 shares 1.00 28/01/2010 20,000,000 shares

The Directors believe that any calculation of the fair value of the Options as at the Latest Practicable Date before the Options are actually granted would not be meaningful and would be misleading to Shareholders, because any valuation of the fair value of the Options would have to be based on the circumstances as at the Latest Practicable Date, but Options would not be granted until the 2007 Share Option Scheme is approved i.e. after the Latest Practicable Date. Given also the fact that there are various factors relevant to each individual grant (including vesting periods and lock-ups), such valuation figure cannot be relied upon as being an accurate measure of the fair value of all Options that may, in the future, be granted.

However, Shareholders should note that, in compliance with the Listing Rules, estimated valuations and cost of Options granted during any financial period based on the Black-Scholes option pricing model, the binominal option pricing model or a comparable based on generally accepted methodology will be provided in the Company’s annual report and interim report, in accordance with the generally accepted accounting principles in Hong Kong.

An application will be made to the Stock Exchange for approval of the listing of and permission to deal in the shares that may be issued pursuant to the exercise of Options that may be granted under the 2007 Share Option Scheme. An announcement will be published by the Company in compliance with the Listing Rules in respect of the outcome of the proposed resolution to approve the 2007 Share Option Scheme as soon as practicable after (which is expected to be the business day immediately following) the EGM.

– 11 –

LETTER FROM THE MANAGING DIRECTOR AND CHIEF EXECUTIVE

The rules of the 2007 Share Option Scheme will be available for inspection during normal business hours (from 9:00 a.m. to 5:30 p.m.) on any business day (from Monday to Friday) at the principal office of the Company at Suite 2308, 23rd Floor, Office Tower, Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong from the date of this circular up to and including the date of the EGM and at the EGM.

EXTRAORDINARY GENERAL MEETING

The Notice convening the EGM to approve the Capital Reduction and the adoption of the 2007 Share Option Scheme, is set out on pages 26 and 28 of this Circular. A form of proxy for use at the EGM is enclosed. Whether or not you intend to attend the EGM, you are requested to complete the enclosed form of proxy in accordance with the instructions printed thereon and return the same to the registered office of the Company at Suite 2308, 23rd Floor, Office Tower, Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong, as soon as possible and in any event so as to arrive not less than 48 hours before the time appointed for holding the EGM or any adjournment thereof. The return of a form of proxy will not preclude you from attending and voting in person at the EGM (or any adjournment thereof) should you so desire.

PROCEDURES FOR DEMANDING A POLL

Pursuant to Article 57 of the Articles of Association of the Company, at any general meeting, a resolution put to the vote of the meeting shall be decided on a show of hands unless a poll (on or before the declaration of the result of the show of hands) is demanded:

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

• (b) by at least three members present in person or by proxy for the time being entitled to vote; or

• (c) by one member or two members present in person or by proxy and entitled to vote, if that member or those two members together hold not less than fifteen per cent of the paid up share capital of the Company.

A demand by a person or proxy for a member or in the case of a member being a corporation by its duly authorised representative shall be deemed to be the same as a demand by a member.

Subject to any special rights, privileges or restrictions as to voting for the time being attached to any shares, at any general meeting on a show of hands, every member who (being an individual) is present in person or (being a corporation) is present by proxy or by a representative duly authorised, not being himself a member, shall have one vote, and in case of a poll every member present in person or by proxy shall have one vote for every HK$1.00 nominal amount of shares of any class of which he is the holder.

– 12 –

LETTER FROM THE MANAGING DIRECTOR AND CHIEF EXECUTIVE

RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Group. The Directors collectively and individually accept full responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief, there are no other facts the omission of which would make any statement contained herein misleading.

RECOMMENDATION

The Directors consider that the Capital Reduction and the adoption of the 2007 Share Option Scheme are in the best interests of the Company and the Shareholders as a whole. Accordingly, the Directors recommend all Shareholders to vote in favour of each such resolution to be proposed at the EGM.

Yours faithfully,

DEREK CHIU

Managing Director and Chief Executive

– 13 –

SUMMARY OF THE PRINCIPAL TERMS OF THE 2007 SHARE OPTION SCHEME

APPENDIX

1. PURPOSE AND DURATION OF THE 2007 SHARE OPTION SCHEME

• (A) The purpose of the 2007 Share Option Scheme is to provide Eligible Persons with the opportunity to acquire proprietary interests in the Company, to assist the recruitment of staff and to provide additional incentive to employees and other relevant persons by giving them the opportunity to participate in the Company and its performance, for the benefit of the Company and its Shareholders as a whole.

• (B) Subject to Paragraph 11, the 2007 Share Option Scheme shall be valid and effective for the period of ten years commencing on the Adoption Date. On and after the tenth anniversary of the Adoption Date, no further Options shall be granted but in all other respects the provisions of the 2007 Share Option Scheme shall remain in full force and effect. Options which are granted during the life of the 2007 Share Option Scheme shall continue to be exercisable in accordance with their terms of issue.

2. OPTIONS

• (A) The Board shall, in accordance with the provisions of the 2007 Share Option Scheme, be entitled at any time following the Adoption Date and before the tenth anniversary of the Adoption Date, to offer to grant an Option to any Eligible Person whom the Board may, in its absolute discretion, select and subject to such conditions as it may think fit. Notwithstanding the foregoing but subject to sub-Paragraph (B) below, the total number of shares issued and to be issued upon exercise of Options granted and to be granted under the 2007 Share Option Scheme and options granted and to be granted outside the terms of the 2007 Share Option Scheme to any single Eligible Person (including exercised, cancelled and/ or outstanding Options granted under the 2007 Share Option Scheme and exercised, cancelled and/or outstanding options granted outside the terms of the 2007 Share Option Scheme), whether or not already a Grantee, in any 12-month period shall be subject to a limit that it shall not exceed 1% of the shares in issue (the “ Individual Limit ”). Any grant or further grant of Options to an Eligible Person (whether or not already a Grantee) under the 2007 Share Option Scheme which would result in the shares issued and that may be issued upon exercise of all Options granted and to be granted under the 2007 Share Option Scheme and all options granted and to be granted outside the terms of the 2007 Share Option Scheme to such Eligible Person (including those shares issued or issuable in respect of exercised, cancelled and/or outstanding Options granted under the 2007 Share Option Scheme and those shares issued or issuable in respect of exercised, cancelled and/or outstanding options granted outside the terms of the 2007 Share Option Scheme) in the 12-month period up to and including the proposed Date of Grant exceeding the Individual Limit shall be subject to the separate approval of Shareholders in a general meeting in advance, on which approval the Eligible Person and his or her associates abstain from voting. The Company shall send to the Shareholders a circular containing the information required under the Listing

– 14 –

SUMMARY OF THE PRINCIPAL TERMS OF THE 2007 SHARE OPTION SCHEME

APPENDIX

Rules. The number and terms of Options proposed to be granted to such Eligible Person under the 2007 Share Option Scheme shall be fixed before Shareholders’ approval is sought.

• (B) Notwithstanding the foregoing, no grant or further grant of Options shall be made to an Eligible Person (whether or not already a Grantee) if such grant or further grant would result in the aggregate value of shares from time to time (calculated on the basis of the closing price of the shares as stated in the daily quotations sheet issued by the Stock Exchange on the proposed Date of Grant) that may be issued upon exercise of all outstanding Options granted and Options to be granted (and any other outstanding options granted and options to be granted outside the terms of the 2007 Share Option Scheme, if any) to such Eligible Person exceeding:

• (i) in the case of an Eligible Employee or his/her associate, an amount equal to 5 times the Gross Annual Salary of the relevant Eligible Employee; and

• (ii) in any other cases, HK$5 million, or any other amount approved by a resolution of the Board either generally or on a case by case basis.

• (C) If in accordance with sub-Paragraphs (A) and (B) the Board determines to offer to grant an Option to an Eligible Person, the Board shall forward to the relevant Eligible Person a letter of offer (in duplicate), in such form as the Board may from time to time determine which states (or, alternatively, documents accompanying the letter of offer which state), inter alia:

• (i) the Eligible Person’s name (and, as applicable, staff number);

• (ii) the Offer Date;

• (iii) the number of shares in respect of which the Option is offered;

• (iv) the Exercise Price and the manner of payment of the Exercise Price for the shares on, and in consequence of, the exercise of the Option;

• (v) the Expiry Date in relation to that Option;

• (vi) the method of exercise of the Option which shall, unless the Board otherwise determines, be as set out in Paragraph 4 below; and

• (vii) such other terms and conditions (including, but not limited to, any minimum period(s) for which that Option must be held and any minimum performance target(s) that must be reached before the Option can be exercised in whole or in part and any terms as to early termination of an Option) relating to the Option to subscribe for shares which in the opinion of the Board are fair and reasonable but not being inconsistent with the rules and procedures applicable to the 2007 Share Option Scheme.

– 15 –

SUMMARY OF THE PRINCIPAL TERMS OF THE 2007 SHARE OPTION SCHEME

APPENDIX

• (D) An Option shall be deemed to have been granted to and accepted by a Grantee and to have taken effect when the duplicate letter of offer constituting acceptance of the Option duly signed by an Eligible Person is received by the Company at its principal office in Hong Kong or such other address as is specified in the letter of offer on or before the relevant Acceptance Date. Any Option the offer of grant of which is not so accepted shall be deemed null and void and never to have been granted. No offer of grant of an Option may be accepted in respect of less than the number of shares in respect of which it is offered. No Grantee of Option is required to pay for the grant of the relevant Option.

• (E) The Options will not be listed or dealt in on the Stock Exchange.

• (F) An Option shall be personal to the Grantee and shall not be assignable and no Grantee shall in any way sell, transfer, charge, mortgage, encumber or create any interest (legal or beneficial) in favour of any third party over or in relation to any Option or attempt so to do, except with the prior written consent of the Board from time to time. Any breach of the foregoing shall entitle the Company to cancel any outstanding Option or any part thereof granted to such Grantee (including, but not limited to, the Option in question).

• (G) Any Options granted but not exercised may be cancelled if the Grantee thereof so agrees and (if the Board so resolves) new Options may be granted to that Grantee provided that such new Options are granted with the available unissued Options (excluding the Options so cancelled) within the limits prescribed by Paragraph 6 and are otherwise granted in accordance with the terms of the 2007 Share Option Scheme.

• (H) Each grant of Options to any director, chief executive or substantial shareholder of the Company, or any of his or her associates shall be subject to the prior approval of the independent non-executive directors of the Company (excluding any independent non-executive director in the circumstances where he or she or any of his or her associates is the proposed Grantee).

Where any grant of Options to a substantial shareholder or an independent non-executive director of the Company, or to any of his or her respective associates, would result in the shares issued and issuable upon exercise of all Options already granted and to be granted under the 2007 Share Option Scheme and all options already granted and to be granted outside the terms of the 2007 Share Option Scheme to such person (including those shares issued or issuable in respect of exercised, cancelled and/or outstanding Options granted under the 2007 Share Option Scheme and those shares issued or issuable in respect of exercised, cancelled and/or outstanding options granted outside the terms of the 2007 Share Option Scheme) in the 12-month period up to and including the Date of Grant:

• (i) representing in aggregate over 0.1% (or such other percentage as may from time to time be specified by the Stock Exchange) of the shares in issue; and

– 16 –

SUMMARY OF THE PRINCIPAL TERMS OF THE 2007 SHARE OPTION SCHEME

APPENDIX

• (ii) having an aggregate value, based on the closing price of the shares as stated in the daily quotations sheets issued by the Stock Exchange on the Date of Grant, in excess of HK$5 million (or such other amount as may from time to time be specified by the Stock Exchange),

such grant of Options shall be subject to prior approval by resolution of the Shareholders (voting by way of poll) on which all connected persons of the Company abstain from voting in favour; save that (for the avoidance of doubt) any connected person may, without affecting the validity of the relevant resolution, vote against the relevant resolution at the general meeting provided that its intention to do so has been stated in the circular to be sent to the Shareholders in connection therewith.

• (I) A grant of Options may not be made after a price sensitive event has occurred or a price sensitive matter has been the subject of a decision until such price sensitive information has been published in accordance with the Listing Rules. In particular, during the period commencing one month immediately preceding the earlier of (i) the date of the meeting of the Board (as such date is first notified to the Stock Exchange under the Listing Rules) for the approval of the Company’s results for any year, half-year, quarterly or any other interim period (whether or not required under the Listing Rules), and (ii) the deadline for the Company to publish an announcement of its results for any year or half-year under the Listing Rules, or quarterly or any other interim period (whether or not required under the Listing Rules) and ending on the date of the results announcement, no Options may be granted.

3. EXERCISE PRICE

The Exercise Price in relation to each Option shall be determined by the Board in its absolute discretion but in any event shall not be less than the highest of:

• (i) the closing price of the shares as stated in the daily quotations sheet of the Stock Exchange on the Date of Grant;

• (ii) the average closing price of the shares as stated in the daily quotations sheet of the Stock Exchange for the five Trading Days immediately preceding the Date of Grant; and

• (iii) the nominal value of the shares on the Date of Grant.

4. EXERCISE OF OPTIONS

• (A) An Option may, subject to the terms and conditions upon which such Option is granted, be exercised in whole or in part in the manner set out in this Paragraph 4. An Option may be exercised during the Option Period only by the Grantee (including legal personal representatives of an Eligible Person to whom the Option was granted) giving notice in writing to the Company (in such form as the

– 17 –

SUMMARY OF THE PRINCIPAL TERMS OF THE 2007 SHARE OPTION SCHEME

APPENDIX

Company may require, either generally or on a case by case basis) stating that the Option is thereby exercised and the number of shares in respect of which it is exercised. Where the Option is exercised in part, it must be exercised in amounts or integral multiples of such number of shares as shall represent the board lot for dealing in shares traded on the Stock Exchange for the time being, save that any last exercise of an Option over the residual balance of shares the subject of such Option may be exercised in full irrespective of whether or not such shares represent a board lot or an integral multiple thereof. Each such notice must be accompanied by a remittance for the full amount of the Exercise Price for the shares in respect of which the notice is given. Within 28 days after receipt of the notice and the remittance and, where appropriate, receipt of the Auditors’ or independent financial adviser’s certificate pursuant to Paragraph 7, the Company shall allot and issue the relevant shares to the Grantee credited as fully paid with effect from (but excluding) the relevant exercise date and issue to the Grantee certificates in respect of the shares so allotted.

• (B) No Option may be exercised by an Eligible Employee or his or her associate until such Eligible Employee has been in continuous employment with the Company or its Subsidiary or has been appointed as director of the Company or its Subsidiary for a period of one calendar year from the date of such Eligible Employee’s commencement of employment with or appointment by the Company or its Subsidiary.

• (C) In respect of an Eligible Person who is not an Eligible Employee or his or her associate, the Board may in its absolute discretion specify such minimum period (which shall be documented in the letter of offer referred to in sub-Paragraph 2(C)) for which an Option must be held before such Option can be exercised. In respect of an Eligible Person (whether or not an Eligible Employee), the Board may in its absolute discretion make, in individual cases, the exercise of an Option conditional on the achievement of minimum performance target(s) which shall be documented in the letter of offer referred to in sub-Paragraph 2(C).

• (D) The exercise of any Option shall be subject to the Shareholders of the Company in general meeting approving any necessary increase in the authorised share capital of the Company.

• (E) Subject to the terms and conditions upon which the Option is granted, an Option may be exercised by a Grantee (including legal personal representatives of an Eligible Person to whom the Option was granted) at any time or times during the Option Period, provided that:

• (i) in the event of the Grantee (who is Eligible Employee) ceasing to be an Eligible Employee by reason of his/her death or ill heath provided that at the date of cessation, none of the events for termination of employment under sub-Paragraph 5(A)(iv) and (vi) exists with respect to such Eligible Employee (and subject always to the provisions of sub-Paragraph 5(B)), such Eligible Employee or his or her associates (being Grantee of Options) (or

– 18 –

SUMMARY OF THE PRINCIPAL TERMS OF THE 2007 SHARE OPTION SCHEME

APPENDIX

their respective legal personal representative) may exercise the Option up to their respective entitlements at such date of cessation (to the extent not already exercised) within the period of 12 months following the date of such cessation, which date shall be the last actual working day on which the relevant Eligible Employee was at work with the Company or the relevant Subsidiary on which salary is paid whether in lieu of notice or not or such longer period as the Board may determine.

• (ii) if a general offer (other than by way of scheme of arrangement) is made to all the holders of shares (or all such holders other than the offeror, any person controlled by the offeror and/or any person acting in concert with the offeror) and such offer becomes or is declared unconditional on any date prior to the Expiry Date, the Company shall forthwith give notice thereof to the Grantee and the Grantee shall be entitled to exercise the Option to its full extent or, if the Company shall give the relevant notification, to the extent specified by the Company pursuant to sub-Paragraph (F)(ii) at any time within such period as shall be specified by the Company.

• (iii) if a general offer by way of scheme of arrangement is made to all the holders of shares and has been approved at the requisite meetings in the manner prescribed by the applicable laws and regulations and the Takeovers Code, the Company shall forthwith give notice thereof to the Grantee and the Grantee may at any time thereafter (but before such time as shall be specified by the Company) exercise the Option to its full extent or, if the Company shall give the relevant notification, to the extent specified by the Company pursuant to sub-Paragraph (F)(ii).

• (iv) in the event a notice is given by the Company to its Shareholders to convene a Shareholders’ meeting for the purpose of considering and, if thought fit, approving a resolution to voluntarily wind-up the Company, the Company shall forthwith give notice thereof to the Grantee and the Grantee may at any time thereafter (but before such time as shall be specified by the Company) exercise the Option to its full extent or, if the Company shall give the relevant notification, to the extent specified by the Company pursuant to sub-Paragraph (F)(ii), and the Company shall as soon as possible and in any event no later than three days immediately prior to the date on which the shareholders’ meeting is convened, allot, issue and register such number of fully paid shares to the Grantee which falls to be issued on such exercise of the Option.

• (v) in the event of any scheme of arrangement between the Company and its members and/or creditors (other than a scheme of arrangement contemplated in sub-Paragraph (E)(iii) above), the Company shall, having given notice of the meeting to its members and/or creditors to consider such scheme, forthwith give notice of the same to the Grantee, and the Grantee may at any time thereafter (but before such time as shall be specified by the Company)

– 19 –

SUMMARY OF THE PRINCIPAL TERMS OF THE 2007 SHARE OPTION SCHEME

APPENDIX

exercise the Option to its full extent or, if the Company shall give the relevant notification, to the extent specified by the Company pursuant to sub-Paragraph (F)(ii).

• (F) For the purpose of this Paragraph 4:

• (i) any references to exercising an Option shall refer to exercising that Option up to the extent not already exercised;

• (ii) pursuant to sub-Paragraphs (E)(ii), (iii), (iv) and (v), the Company may, in its discretion, notwithstanding the terms of the relevant Option, at the same time as giving the notice provided for under each of those paragraphs, also give notification to a Grantee that his or her Option may be exercised at any time within such period as shall be specified by the Company and/or to the extent specified by the Company; and

• (iii) if the Company gives the notification under sub-Paragraph (F)(ii) that an Option can be exercised in part only, the balance of the Option shall, on the giving of such notification, lapse.

• (G) The shares to be allotted and issued upon the exercise of an Option shall not carry voting rights nor rights to participate in any dividends or distributions (including those arising on a liquidation of the Company) in respect of such shares until completion of the registration of the Grantee as the holder thereof. The shares to be allotted and issued upon the exercise of an Option shall be subject to all the provisions of the Memorandum of Association and Articles of Association of the Company for the time being in force and will rank pari passu in all respects with the fully paid shares in issue on the date the name of the Grantee is registered on the register of members of the Company.

• (H) The Board shall have discretion as to the interpretation and application of the 2007 Share Option Scheme (including but not limited to discretion to grant waivers or extensions of any period specified in the 2007 Share Option Scheme or any letter of offer) to the extent such interpretation or application is not contrary to the explicit provisions hereof or of Chapter 17 of the Listing Rules.

5. EXPIRY OF OPTION

• (A) An Option shall lapse automatically (to the extent not already exercised) on the earliest of:

• (i) the Expiry Date relevant to that Option;

• (ii) the expiry of any of the periods referred to in sub-Paragraph 4(E);

• (iii) subject to sub-Paragraph 4(E)(iv), the date of commencement of the winding-up of the Company;

– 20 –

SUMMARY OF THE PRINCIPAL TERMS OF THE 2007 SHARE OPTION SCHEME

APPENDIX

• (iv) in the case of a Grantee who is an Eligible Employee or his or her associates, the date on which:

• (a) the relevant Eligible Employee ceases to be an employee or director of the Company or any Subsidiary by reason of proper termination of his/ her employment or office for any reason other than death or ill health, which date shall be the last actual working day on which the relevant Eligible Employee was at work with the Company or the relevant Subsidiary on which salary is paid whether in lieu of notice or not. A resolution of the Board to the effect that employment or office of an Eligible Employee has or has not been terminated for any reason other than death or ill health shall be conclusive;

• (b) the relevant Eligible Employee gives notice of resignation as employee or director to the Company or the relevant Subsidiary; or

• (c) the relevant Eligible Employee ceases to be an employee or director of the Company or any Subsidiary by reason of his/her retirement in accordance with the provision of his/her contract of employment or service contract or policy of the Company or the relevant Subsidiary;

• (v) in the case of a Grantee which is not an individual, the date on which it appears either to be unable to pay or to have no reasonable prospect of being able to pay its debts or becomes insolvent or makes any arrangement or composition with its creditors generally or the circumstances in which the Option shall lapse as specified by the Board in the letter of offer referred to in sub-Paragraph 2(C) occur;

• (vi) the date on which the Board shall exercise the Company’s right to cancel the Option at any time after the Grantee commits a breach of sub-Paragraph 2(F); and

(vii) subject to sub-Paragraph 4(E)(i), the date of death of the Grantee.

• (B) If the Grantee is an Eligible Employee or his or her associate then, notwithstanding any other term of the 2007 Share Option Scheme or of the grant of the relevant Option (but subject always to any waiver or extension granted by the Board), such Option granted to such Grantee shall lapse automatically (to the extent not already exercised) should the relevant Eligible Employee cease to be employed by or hold office at the Company or any Subsidiary for any reason whatsoever (including his or her death) during the 12-month period following the Offer Date.

– 21 –

SUMMARY OF THE PRINCIPAL TERMS OF THE 2007 SHARE OPTION SCHEME

APPENDIX

6. MAXIMUM NUMBER OF SHARES AVAILABLE FOR SUBSCRIPTION

• (A) The overall limit on the number of shares which may be issued upon exercise of all outstanding Options granted and yet to be exercised under the 2007 Share Option Scheme and all outstanding options granted and yet to be exercised under any other share option scheme(s) of the Company must not exceed 30% of the shares in issue from time to time.

• (B) In addition, the maximum number of shares in respect of which Options may be granted under the 2007 Share Option Scheme shall not, when aggregated with any shares subject to options to be granted pursuant to any other share option scheme(s) of the Company, exceed the limit of 10% of the shares in issue on the Adoption Date (the “ Scheme Mandate Limit ”). Options lapsed in accordance with Paragraph 5 or rejected in accordance with sub-Paragraph 2(D) and options lapsed or rejected in accordance with the terms of any other share option scheme(s) of the Company shall not be counted for the purpose of calculating the Scheme Mandate Limit.

• (C) The Scheme Mandate Limit referred to in sub-Paragraph 6(B) may be renewed at any time subject to prior Shareholders’ approval but in any event shall not exceed 10% of the shares in issue as at the date of approval of the renewal of the Scheme Mandate Limit. Options previously granted under the 2007 Share Option Scheme and options previously granted under any other share option scheme(s) of the Company (including those outstanding, cancelled, lapsed or exercised) shall not be counted for the purpose of calculating the limit as renewed.

• (D) The Company may also, having obtained separate Shareholders’ approval, grant Options beyond the Scheme Mandate Limit or the refreshed Scheme Mandate Limit to Eligible Persons specifically identified by the Company before the Shareholders’ meeting at which the aforesaid approval is sought. A circular containing the information required under the Listing Rules must be sent to the Shareholders.

7. CAPITAL RESTRUCTURING

In the event of any alteration in the capital structure of the Company whilst any Option remains exercisable, whether by way of capitalisation of profits or reserves, rights issue, consolidation, sub-division or reduction of the share capital of the Company, or otherwise howsoever (except on an issue of securities of the Company as consideration in a transaction which shall not be regarded as a circumstance requiring alteration or adjustment), such corresponding alterations or adjustments (if any) shall be made in:

• (i) the number of shares subject to any Option so far as such Option or any part thereof remains unexercised; and/or

• (ii) the Exercise Price,

– 22 –

SUMMARY OF THE PRINCIPAL TERMS OF THE 2007 SHARE OPTION SCHEME

APPENDIX

or any combination thereof, and, provided always, that:

• (a) any such adjustments shall give a Grantee the same proportion of equity capital of the Company as that to which that Grantee was entitled prior to such adjustment; and

• (b) no adjustment shall be made the effect of which would be to enable a share to be issued at less than its nominal value.

In respect of any such adjustments, the Auditors or an independent financial adviser engaged by the Company must confirm to the directors of the Company in writing that the adjustments proposed satisfy the requirements of the relevant provisions of the Listing Rules as interpreted from time to time by the Stock Exchange.

The Auditors or the independent financial adviser (as the case may be) shall act as experts and not as arbitrators and their certificate shall, in the absence of manifest error, be final and binding on the Company and the Grantee. The costs of the Auditors or the independent financial adviser (as the case may be) shall be borne by the Company.

8. INCREASE IN SHARE CAPITAL

Subject to sub-Paragraph 4(D), the Board shall at all times set aside for the purposes of the 2007 Share Option Scheme, out of the authorised but unissued share capital of the Company, such number of shares as the Board may from time to time determine to be sufficient to meet subsisting requirements for the exercise of Options.

9. DISPUTES

Any disputes arising under or in connection with the 2007 Share Option Scheme (whether as to the number of shares the subject of an Option, the amount of the Exercise Price or otherwise) shall be referred to the decision of the Auditors or an independent financial advisor engaged by the Company who shall act as experts and not as arbitrators and whose decision shall, in the absence of manifest error, be final and conclusive and binding on all persons who may be affected thereby.

10. ALTERATION OF THE 2007 SHARE OPTION SCHEME

• (A) Subject to sub-Paragraph (B), the provisions of the 2007 Share Option Scheme may be altered by resolution of the Board (including without limitation amendments in order to comply with changes in legal or regulatory requirements and amendments in order to waive any restrictions, imposed by the provisions of the 2007 Share Option Scheme, which are not required by the Listing Rules) at any time, but not so as to affect adversely any rights which have accrued to any Grantee at that date except with:

• (i) the consent in writing of all such Grantees; or

– 23 –

SUMMARY OF THE PRINCIPAL TERMS OF THE 2007 SHARE OPTION SCHEME

APPENDIX

• (ii) (in the case of a proposed amendment affecting all Grantees) the sanction of a special resolution passed at a meeting of the Grantees,

in either case, supported by consideration (if any), as may be necessary to give legal effect to the amendment.

• (B) Any provisions of the 2007 Share Option Scheme which relate to the matters set out in rule 17.03 of the Listing Rules cannot be altered to the advantage of Grantees or prospective Grantees, and no changes to the authority of the Board in relation to any alteration of the terms of the 2007 Share Option Scheme shall be made, without the prior approval of Shareholders in general meeting. Any alterations to the terms and conditions of the 2007 Share Option Scheme which are of a material nature or any change to the terms of Options granted shall not be effective unless approved by the Shareholders in general meeting, except where the alterations take effect automatically under the existing terms of the 2007 Share Option Scheme. The 2007 Share Option Scheme so altered must comply with the Listing Rules.

• (C) In respect of any meeting of Grantees as referred to in sub-Paragraph (A), all the provisions of the Articles of Association for the time being of the Company as to general meetings of the Company shall mutatis mutandis apply as though the Options were a class of shares forming part of the share capital of the Company except that:

• (i) not less than 7 days’ notice of such meeting shall be given;

• (ii) a quorum at any such meeting shall be two Grantees present in person or by proxy and holding Options entitling them to the issue of one-tenth in nominal value of all shares which would fall to be issued upon the exercise of all Options then outstanding;

• (iii) every Grantee present in person or by proxy at any such meeting shall be entitled on a show of hands to one vote, and on a poll, to one vote for each share to which he or she would be entitled upon exercise in full of his or her Options then outstanding;

• (iv) any Grantee present in person or by proxy may demand a poll; and

• (v) if any such meeting is adjourned for want of a quorum, such adjournment shall be to such date and time, not being less than 7 or more than 14 days thereafter, and to such place as may be appointed by the chairman of the meeting. At any adjourned meeting those Grantees who are then present in person or by proxy shall form a quorum and at least 7 days’ notice of any adjourned meeting shall be given in the same manner as for an original meeting and such notice shall state that those Grantees who are then present in person or by proxy shall form a quorum.

– 24 –

SUMMARY OF THE PRINCIPAL TERMS OF THE 2007 SHARE OPTION SCHEME

APPENDIX

11. TERMINATION

The Company by ordinary resolution in general meeting or the Board may at any time terminate the operation of the 2007 Share Option Scheme and in such event no further Options shall be granted hereunder but in all other respects the provisions of the 2007 Share Option Scheme shall remain in force and Options granted prior to such termination shall continue to be valid and exercisable in accordance with the 2007 Share Option Scheme.

12. COMPANY’S CASH ELECTION

• (A) Notwithstanding any other provision of the 2007 Share Option Scheme, the Board shall be entitled at its discretion at any time and from time to time to cancel any Option, either in whole or in part, after notice of exercise thereof has been given by the Grantee, but before the Company has issued and allotted any shares pursuant to the exercise of that Option, by giving notice in writing to the Grantee stating that such Option is thereby cancelled.

• (B) If any Option shall be cancelled pursuant to sub-Paragraph 12(A), the Grantee shall, subject as hereinafter provided, be entitled to receive from the Company a refund of the aggregate Exercise Price paid on exercise of such Option together with an additional payment in cash to compensate him or her for such cancellation calculated in accordance with the formula below. Such refund and payment shall be made within 14 days of the Company giving notice of such cancellation and once made the Grantee shall have no other claim against the Company in connection with any Option so cancelled. The amount of any additional payment shall be calculated by reference to the following formula:

• (A x B) – C

where:

• A is the number of shares that would have been issued on exercise of the Option had it not been cancelled (the “ Applicable Shares ”);

• B is the average closing price of the shares as stated in the daily quotations sheets of the Stock Exchange for the five Trading Days immediately preceding the date on which the Company receives notice of exercise of the Option; and

• C is the aggregate Exercise Price for the Applicable Shares,

provided that if the calculation shall result in a negative figure it shall be deemed to be zero.

Any payment made by the Company in accordance with this sub-Paragraph (B) will be dealt with in accordance with the applicable laws and generally accepted accounting principles in force at the time of such payment.

– 25 –

NOTICE OF EXTRAORDINARY GENERAL MEETING

==> picture [56 x 55] intentionally omitted <==

FAR EAST HOTELS AND ENTERTAINMENT LIMITED

(Incorporated in Hong Kong with limited liability) (Stock Code: 0037)

NOTICE OF EXTRAORDINARY GENERAL MEETING

Notice is hereby given that an Extraordinary General Meeting of Far East Hotels And Entertainment Limited ( ) (the “Company”) will be held at Warwick Hotel Cheung Chau, East Bay, Cheung Chau, Hong Kong, on Friday, 1 June 2007 at 3:00 p.m. for the purpose of considering and, if thought fit, passing the following resolutions, in the case of resolution number 1, as a Special Resolution; and in the case of resolution number 2, as an Ordinary Resolution:

1. “THAT the paid-up capital of the Company be cancelled to the extent of HK$0.90 per ordinary share in issue on the date upon which this reduction of capital takes effect and that the nominal value of each ordinary share in the authorised capital of the Company be reduced from HK$1.00 to HK$0.10.”

2. “THAT the new share option scheme of the Company (the “2007 Share Option Scheme”), the rules of which are contained in the document marked “A” produced to this Meeting and for the purpose of identification signed by the Chairman, be approved and adopted; and subject to and conditional upon the Listing Committee of The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) granting approval of listing of, and permission to deal in, the shares of the Company falling to be issued pursuant to the exercise of any options granted under the 2007 Share Option Scheme, the directors of the Company be authorised to do all such acts and to enter into all such transactions, arrangements and agreements as may be necessary or expedient in order to give full effect to the 2007 Share Option Scheme including but without limitation:

3. (i) to administer the 2007 Share Option Scheme;

4. (ii) to modify and/or amend the 2007 Share Option Scheme from time to time provided that such modification and/or amendment is effected in accordance with the provisions of the 2007 Share Option Scheme relating to modification and/or amendment;

5. (iii) to allot and issue, from time to time, such number of shares as may fall to be issued pursuant to the exercise of the options granted under the 2007 Share Option Scheme, provided always that the total number of shares subject to the 2007 Share Option Scheme, when aggregated with any shares subject to any other share option scheme(s) of the Company, shall not

– 26 –

NOTICE OF EXTRAORDINARY GENERAL MEETING

exceed 10 percent of the shares in issue as at the date of passing of this Resolution, but the Company may seek approval of its shareholders in general meeting for refreshing the 10 percent limit under the 2007 Share Option Scheme; and the maximum number of shares which may be issued upon exercise of all outstanding options granted and yet to be exercised under the 2007 Share Option Scheme and any other share option scheme(s) of the Company shall not exceed 30 percent of the shares in issue from time to time;

• (iv) to make application at the appropriate time or times to the Stock Exchange, and other stock exchanges upon which the issued shares of the Company may for the time being be listed, for listing of and permission to deal in any shares which may hereafter, from time to time, fall to be issued pursuant to the exercise of the options granted under the 2007 Share Option Scheme; and

• (v) to consent, if it so deems fit and expedient, to such conditions, modifications and/or variations as may be required or imposed by the relevant authorities in relation to the 2007 Share Option Scheme.”

By Order of the Board Far East Hotels And Entertainment Limited Tang Sung Ki Company Secretary

Hong Kong, 4 May 2007

Notes:

1. Any member entitled to attend and vote at the Extraordinary General Meeting is entitled to appoint one or more proxies to attend and, on a poll, vote in his stead in accordance with the Articles of Association of the Company. A proxy need not be a member of the Company.

2. The instrument appointing a proxy shall be in writing under the hand of the appointor or of his/her attorney duly authorised in writing or, if the appointor is a corporation, either under its seal or under the hand of any officer, attorney or other person authorised to sign the same.

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

4. The form of proxy and the power of attorney or other authority, if any, under which it is signed or a notarially certified copy of such power of attorney or authority must be lodged with the registered office of the Company at Suite 2308, 23rd Floor, Office Tower, Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong as soon as possible and in any event so as to arrive not less than 48 hours before the time appointed for holding the Extraordinary General Meeting (or any adjournment thereof), and in default the form of proxy shall be treated as invalid. The completion and return of the form of proxy shall not preclude members from attending and voting in person at the Extraordinary General Meeting (or any adjourned meeting thereof) should they so wish.

– 27 –

NOTICE OF EXTRAORDINARY GENERAL MEETING

1. In accordance with the Company’s Articles of Association, the following categories of members may demand that the vote in respect of the resolution to be put to the Extraordinary General Meeting should be taken on a poll:

2. (a) by the chairman of the meeting; or

3. (b) by at least three members present in person or by proxy for the time being entitled to vote; or

4. (c) by one member or two members present in person or by proxy and entitled to vote, if that member or those two members together hold not less than fifteen per cent of the paid up share capital of the Company.

A poll may be so demanded before or on the declaration of the result of the show of hands.

– 28 –