Ko Yo Chemical (Group) Limited - Proxy Solicitation & Information Statement 2003

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 Tse Sui Luen Jewellery (International) Limited, you should at once hand this circular to the purchaser or the transferee, or to the bank, stockbroker or other agent through whom the sale or the transfer was effected for transmission to the purchaser or the transferee.

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

TSE SUI LUEN JEWELLERY (INTERNATIONAL) LIMITED

(Incorporated in Bermuda with limited liability)

CONTINUING CONNECTED TRANSACTIONS

Financial adviser to Tse Sui Luen Jewellery (International) Limited

CORPORATE FINANCE, LIMITED

Independent financial adviser to the Independent Board Committee

A letter from the Independent Board Committee containing its recommendations in respect of the continuing connected transactions is set out on page 16 of this circular.

A letter from Equitas, the independent financial adviser to the Independent Board Committee, containing its recommendations in respect of the continuing connected transactions to the Independent Board Committee is set out on pages 17 to 29 of this circular.

6th November, 2003

		Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		1
Letter from the Board
1.	Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
2.	Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
3.	Sub-licensing, consignment and sale, commission and
	consultancy service arrangements with the
	Intermediary’s Companies and other intra-group transactions . . . . . . . . . . . . . . . . .	8
4.	Past connected transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
5.	Continuing connected transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
6.	Reasons for the transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
7.	Shareholders’ approval of the continuing connected transactions
	and waiver from the Stock Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
8.	Advice to shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15
9.	Additional information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		16
Letter of advice from Equitas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		17
Appendix	– General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	30

DEFINITIONS

“associates” has the meaning ascribed thereto under the Listing Rules “Best Accurate” Best Accurate International Limited, a company incorporated in the British Virgin Islands and wholly owned by the Intermediary
“Blink Technology” Blink Technology Limited, a company incorporated in the British Virgin Islands and wholly owned by Mr. Tse Tat Fung, Tommy
“Board” the board of directors of the Company “BTSL” Beijing Tse Sui Luen Jewellery Company Limited, a company incorporated in the PRC and an indirect non-wholly owned subsidiary of TSL China
“Bye-Laws” the current Bye-Laws of the Company “Cap Amounts” the estimated aggregate amounts of the continuing connected transactions, as described in this circular, for the next three financial years ending on 29th February, 2004, 28th February, 2005, and 28th February, 2006, or individually “Cap Amount”
“Company” Tse Sui Luen Jewellery (International) Limited, a company incorporated in Bermuda with limited liability, the ordinary shares of which are listed on the Stock Exchange
“Consignors” BTSL and TSL Trading collectively “Directors” the directors of the Company including the independent nonexecutive directors
“Equitas” Equitas Capital Limited, a deemed licensed corporation under the SFO and the independent financial adviser to the Independent Board Committee
“Group” the Company and its subsidiaries from time to time “HK$” and “cents” Hong Kong dollars and cents, the lawful currency of Hong Kong “Hong Kong” the Hong Kong Special Administrative Region of the People’s Republic of China
“IAC” Infinite Assets Corp., a company incorporated in the British Virgin Islands and owned as to 56.46% indirectly by the Company, as to 19.54% by Best Accurate and as to 24% by The China Retail Fund, LDC
“IAC Group” IAC and its subsidiaries from time to time

– 1 –

DEFINITIONS

“Independent Board Committee”
an independent committee of the Board, comprising the independent non-executive Directors of the Company, namely Mr. Chui Chi Yun, Robert, Mr. Lui Pui Kee, Francis, Mr. Hong Po Kui, Martin and Mr. Gerald Clive Dobby
“Intermediary”
Mr. Qi Jian Hong (a PRC national) who is a director of and, through his wholly owned company, Best Accurate, is a substantial shareholder, and, for himself, a director of each of IAC, TSL China and BTSL, and, therefore, a connected person (as defined under the Listing Rules) of the Company. Save for such connection, Mr. Qi is independent of and not connected with the directors, chief executive or substantial shareholder of the Company, its subsidiaries or any of their respective associates
“Intermediary’s Companies”
certain PRC enterprises which are associates of the Intermediary
“Intra-Group Transactions”
the supply of services, raw materials and finished goods by TSLJ to IAC are TSL China and their respective subsidiaries, the royalty fee and management and services fee paid by IAC and TSL China to TSLJ
“Latest Practicable Date”
4th November, 2003, being the latest practicable date for ascertaining certain information for inclusion in this circular
“Liberty Mark”
Liberty Mark Limited, a company incorporated in the British Virgin Islands and a wholly owned subsidiary of the Company, which owns 5.46% equity interests in each of IAC and TSL China, respectively
“Licensing and Consignment the licensing and consignment terms confirmed by the Terms” Intermediary’s Companies in writing in November 2002 and June 2003 for the previous transactions with TSL Trading and BTSL
“Listing Rules”
the Rules Governing the Listing of Securities on the Stock Exchange
“Macau”
Macau Special Administration Region of the People’s Republic of China
“Mainland China”
the People’s Republic of China which, for the purpose for this circular, excludes Hong Kong, Macau and Taiwan
“PRC”
the People’s Republic of China
“Preference Shares”

the 22,220 6.5 per cent convertible non-voting redeemable preference shares of US$1,000 each in the Company

– 2 –

DEFINITIONS

“RMB”	Renminbi, the lawful currency of the PRC
“Settlement Agreement”	a settlement agreement dated 20th July, 2000 for the settlement
	of, amongst other things, trade receivables amounting to
	RMB30,929,969 (equivalent to HK$28,231,078) due from one of
	the Intermediary’s Companies to TSL Trading, the details of which
	were contained in a circular dated 14th August, 2000 issued by
	the Company
“SFO”	the Securities and Futures Ordinance (Chapter 571 of the laws of
	Hong Kong)
“SHTSLCS”	Shanghai Tse Sui Luen Consultancy Service Limited, a company
	incorporated in the PRC and an indirect non-wholly owned
	subsidiary of IAC
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“TSL China”	Tse Sui Luen Investment (China) Limited, a company incorporated
	in the British Virgin Islands, owned as to 56.46% indirectly by
	the Company, as to 19.54% by Best Accurate and as to 24% by
	The China Retail Fund, LDC
“TSL China Group”	TSL China and its subsidiaries from time to time
“TSLJ”	Tse Sui Luen Jewellery Company Limited, a company incorporated
	in Hong Kong and a wholly owned subsidiary of the Company,
	which owns 51% equity interests in each of IAC and TSL China,
	respectively
“TSLJCS”	Tse Sui Luen Consultancy Jewellery Service Limited, a company
	incorporated in Samoa and a wholly owned subsidiary of IAC
“TSL Jewellery China”	Tse Sui Luen Jewellery (China) Limited, a company incorporated
	in Hong Kong and a wholly owned subsidiary of IAC
“TSL Trading”	Tse Sui Luen Jewellery Trading & Distribution Company Limited,
	a company incorporated in Samoa and a wholly owned subsidiary
	of IAC

– 3 –

LETTER FROM THE BOARD

TSE SUI LUEN JEWELLERY (INTERNATIONAL) LIMITED

(Incorporated in Bermuda with limited liability)

Executive Directors: Mr. Tse Tat Fung, Tommy (Chairman) Mr. Peter Gerardus Van Weerdenburg (Deputy Chairman and Chief Executive Officer) Mr. Leung Yit Kuen, Raymond

Registered office: Clarendon House Church Street Hamilton HM 11 Bermuda

Independent non-executive Directors: Mr. Hong Po Kui, Martin Mr. Chui Chi Yun, Robert Mr. Gerald Clive Dobby Mr. Lui Pui Kee, Francis

Head office and principal place of business: G/F, Block B Summit Building 30 Man Yue Street Hunghom Kowloon Hong Kong

6th November, 2003

To all the shareholders of the Company

Dear Sir or Madam,

CONTINUING CONNECTED TRANSACTIONS

1. INTRODUCTION

The Company announced on 2nd October, 2003, inter alia, that certain transactions between: (i) members of the Group and the Intermediary and the Intermediary’s Companies; and (ii) TSLJ and IAC, TSL China and their respective subsidiaries which under the Listing Rules constitute connected transactions for the Company require the prior approval from the independent shareholders of the Company at a special general meeting. These continuing connected transactions arise in the normal course of the Company’s business, are negotiated on an arm’s length basis and are considered by the Company to be fair and reasonable and in the interest of the Company and all its shareholders. These continuing connected transactions are sub-licensing, consignment and sale, commission and consultancy service arrangements in Mainland China, and the Intra-Group Transactions.

– 4 –

LETTER FROM THE BOARD

The Company has applied to, and obtained a waiver from the Stock Exchange from the requirement to hold a general meeting of shareholders of the Company as required under Chapter 14 of the Listing Rules to approve the continuing connected transactions since, amongst other things, Blink Technology, the controlling shareholder of the Company beneficially owned by Mr. Tse Tat Fung, Tommy holding more than 50 per cent of the issued ordinary shares in the Company has given its written approval for the resolutions and this shareholder’s interest in the transactions is identical to those of the independent shareholders of the Company.

The Independent Board Committee comprising Mr. Lui Pui Kee, Francis, Mr. Chui Chi Yun, Robert, Mr. Hong Po Kui, Martin and Mr. Gerald Clive Dobby has been formed to consider and (if appropriate) advise the independent shareholders of the Company in relation to the continuing connected transactions. Equitas has been appointed as the independent financial adviser to the Independent Board Committee in this respect.

The purpose of this circular is to provide you with, inter alia, information relating to and to set out the recommendation of the Independent Board Committee, based on the advice from Equitas, in respect of the continuing connected transactions.

2. BACKGROUND

The Group is principally engaged in the manufacture, design, export and retailing of jewellery products. Its business in Mainland China is primarily undertaken by IAC and TSL China. IAC and TSL China are investment holding companies and through their subsidiaries, are engaged in the sale of platinum and gem-set jewellery via retail outlets of licensees of TSL Jewellery China in Mainland China. In addition, TSL China Group also engages in the processing of platinum and gem-set jewellery for sale in Mainland China.

As at the Latest Practicable Date, each of IAC and TSL China is owned as to 56.46 per cent by the Company through TSLJ and Liberty Mark, as to 19.54 per cent by Best Accurate and as to 24 per cent by The China Retail Fund, LDC.

– 5 –

LETTER FROM THE BOARD

The structure of the Company’s business in Mainland China is set out below:

==> picture [421 x 310] intentionally omitted <==

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

The China
The Company Intermediary Retail Fund,
LDC
100% 100%
TSLJ Liberty Mark Best Accurate
51% 5.46% 19.54% 24%
IAC TSL China
100% 90%
TSL Jewellery TSL Trading TSLJCS BTSL
China
95%
SHTSLCS
----- End of picture text -----

– 6 –

LETTER FROM THE BOARD

The business in Mainland China represents a significant part of the Group’s operations. The Group’s sales in Mainland China accounted for approximately 19 per cent of the Group’s consolidated turnover and 50 per cent of the contribution to Group operating profit for the year ended 28th February, 2003. The approximate annual turnover of the Mainland China business expressed as a percentage of the Group’s consolidated annual turnover for each of the six years ended 28th February, 2003 are as follows:

Table 1

		Mainland China business
		as a percentage of
		the Group’s consolidated
For	the year ended	annual turnover
28th	February,1998	5 per cent
28th	February,1999	9 per cent
29th	February, 2000	23 per cent
28th	February, 2001	26 per cent
28th	February, 2002	16 per cent
28th	February, 2003	19 per cent

It was announced in a circular to shareholders dated 14th August, 2000 that a settlement had been agreed between the Company and the Intermediary and the PRC trading company in relation to transactions between them. In a further circular to shareholders dated 8th August, 2002, it was announced that the Company proposed to reorganise its share capital through a repurchase and cancellation of the Preference Shares and a reorganisation of and issue of new shares in IAC and TSL China through which the Company would conduct its business in the PRC.

The circulars set out the trading relationship between the Company and the Intermediary and it was in the nature of these arrangements that continuing connected transactions would arise. The position was discussed by the Company in the interim report for the six months ended 31st August, 2002 in which the amounts involved were stated together with the fact that these amounts were discloseable under Practice Note 19 of the Listing Rules. The interim report was published by the Company on the Stock Exchange’s website on or about 30th November, 2002.

This circular is intended to comply strictly with the Listing Rules in informing the shareholders of details on the continuing connected transactions between members of the Group and the Intermediary’s Companies through which most of the Group’s business in the PRC has been and is expected to be conducted.

– 7 –

LETTER FROM THE BOARD

3. SUB-LICENSING, CONSIGNMENT AND SALE, COMMISSION AND CONSULTANCY SERVICE ARRANGEMENTS WITH THE INTERMEDIARY’S COMPANIES AND OTHER INTRA-GROUP TRANSACTIONS

Consignment and sale

TSL Trading, a wholly owned subsidiary of IAC and BTSL commenced consignment and sale arrangements with the Intermediary’s Companies (which constituted connected transactions for the Group) in 1997 and March 2002, respectively.

Under the consignment arrangements between the Consignors and the Intermediary’s Companies, the Consignors would consign jewellery as finished goods to the Intermediary’s Companies which would distribute the consigned finished goods to the Intermediary’s shop outlets operating under the trade name of “Tse Sui Luen” in Mainland China. After the consigned finished goods are sold at the prices agreed between the Consignors and the Intermediary’s Companies, the relevant entity within the Intermediary’s Companies will provide the Consignors with details of the finished goods sold on a monthly basis. The Consignors will then record in their books trade receivables from the relevant entity within the Intermediary’s Companies at the prices agreed between the Consignors and the Intermediary’s Companies. In addition to the above consignment arrangements, finished goods are also directly sold by the Consignors to the Intermediary’s Companies. For the year ended 28th February, 2003, consignment sales represented 80% of total sales to the Intermediary’s Companies.

TSL Trading and BTSL carried out the transactions under the consignment and sale arrangements with the Intermediary’s Companies as licensees in their normal course of business. There was no monetary consideration paid by either the Group or any of the Intermediary’s Companies in respect of using the trademark licenses. Whilst TSL Trading/BTSL determined the basis of cost-plus pricing, the consideration for which the Intermediary’s Companies used the trademark licenses was implicitly included in the sales prices of the jewellery products consigned to the Intermediary’s Companies.

Sub-licensing

TSL Jewellery China has sub-licensing arrangements with the Intermediary’s Companies. Under the sub-licensing arrangements between TSL Jewellery China and the Intermediary’s Companies that started in 1997, sale outlets of the Intermediary’s Companies are allowed to operate under the trade name of “Tse Sui Luen” in Mainland China. There is no monetary consideration payable by the Intermediary’s Companies for the use of the trademarks.

Commission

In November 2002 and June 2003, the Intermediary’s Companies confirmed in writing the licensing and consignment terms for their previous transactions with TSL Trading and BTSL. Originally, TSL Trading was the principal supplier of goods to the Intermediary’s Companies. TSL Trading introduced the Intermediary’s Companies to BTSL as a means of sourcing the goods from the Group as it is more efficient and cost effective to transact directly with the PRC entity. To remunerate the efforts of TSL Trading and compensate for the decreased business, a commission is paid by the Intermediary’s Companies to TSL Trading based on sales by BTSL. Following the confirmed purchase by the Intermediary’s Companies from BTSL and starting in the financial year ended 28th February, 2003, TSL Trading would charge the Intermediary’s Companies a commission calculated as a percentage of the listed price depending on the nature of the products.

– 8 –

LETTER FROM THE BOARD

Consultancy services

Since the financial year ended 28th February, 2002, TSLJCS and SHTSLCS provided consultancy services to retail outlets of the Intermediary’s Companies in return for a fee. The consultancy service fees are charged at a progressive percentage of turnover of the relevant retail outlets if the turnover of the retail outlets to which the consultancy services are rendered exceeds certain thresholds.

Intra-Group Transactions

As referred to in the circular dated 8th August, 2002 issued by the Company, TSL Jewellery China, a wholly owned subsidiary of IAC, has been granted by TSLJ non-exclusive use of certain trademarks in Mainland China in consideration for a royalty fee equal to an aggregate amount of 1% of the monthly turnover of the IAC Group and the TSL China Group and is payable by IAC and TSL China to TSLJ. TSLJ has not received a royalty fee in other financial years apart from the last financial year ended 28th February, 2003 which just exceeded HK$1.0 million.

As also referred to in the circular dated 8th August, 2002 issued by the Company, IAC and TSL China entered into a master supply agreement and a comprehensive services agreement with TSLJ and, or its subsidiaries pursuant to which TSLJ and, or its subsidiaries will provide production support, the procurement of raw materials and products and product design and development services to each of IAC and TSL China and any of their subsidiaries. Pursuant to these comprehensive services agreements, a management and services fee equal to an aggregate amount of 1% of the monthly turnover of the IAC Group and the TSL China Group is payable by IAC and TSL China to TSLJ. TSLJ has not received a management and services fee in other financial years apart from the last financial year ended 28th February, 2003 which just exceeded HK$1.0 million. The supply of services, raw materials and finished goods by TSLJ to IAC, TSL China and their subsidiaries, the royalty fee and management and services fee have been aggregated together and treated as one transaction under rule 14.04(5) of the Listing Rules.

The above sub-licensing, consignment and sale, commission and consultancy service arrangements, and the Intra-Group Transactions constitute continuing connected transactions for the Company under the Listing Rules. The Company’s failure to disclose these continuing connected transactions constitutes breaches of paragraph 2(1) of the listing agreement and Chapter 14 of the Listing Rules. The failure was unintentional and the Company has been distracted during the last few years by the extensive negotiation and finalisation of the restructuring agreement with its bank creditors, the settlement agreement with the Intermediary, the restructuring of its Mainland China operations, the repurchase and cancellation of the Preference Shares and other matters arising as a result of its difficult financial position. The Stock Exchange reserves its rights to take appropriate action against the Company and, or its directors.

The Directors are aware of their obligations relating to connected transactions under the Listing Rules, and will use all reasonable endeavours to comply with such requirements where appropriate in future. Other internal controls that have been introduced include the appointment of Mr. Peter Van Weerdenburg as the Chief Executive Officer and a director of the Company.

– 9 –

LETTER FROM THE BOARD

4. PAST CONNECTED TRANSACTIONS

As mentioned above, the Intermediary’s wholly owned company, Best Accurate, is a substantial shareholder of each of the Company’s two subsidiaries, IAC and TSL China, and the Intermediary is a director of IAC, TSL China and BTSL. The Intermediary and Best Accurate are therefore connected persons of the Company under the Listing Rules. As a result of these relationships, the entering into of sub-licensing, consignment and sale, commission and consultancy service arrangements with the Intermediary’s Companies and the Intra-Group Transactions constitute connected transactions of the Company under Chapter 14 of the Listing Rules.

Other than as disclosed above, the Intermediary, Best Accurate and the Intermediary’s Companies are independent third parties not connected with the Directors, chief executive or substantial shareholders of the Company or any of its subsidiaries or their respective associates.

In the circular dated 14th August, 2000 issued by the Company relating to the Settlement Agreement, the Company also disclosed the consignment arrangements with a Intermediary’s Company. The Settlement Agreement was approved by the Company’s independent shareholders at its special general meeting held on 30th August, 2000. As announced by the Company on 30th November, 2001, the last condition of the Settlement Agreement, being the consent to the Settlement Agreement from the bank creditors of the Group, was fulfilled and completion of the Settlement Agreement took place on the same date.

The amounts of the consignments and sales to the Intermediary’s Companies, under the sublicensing, consignment and sale, commission arrangements and consultancy service agreements and the Intra-Group Transactions for each of the six years ended 28th February, 2003 are shown in Table 2 below:

Table 2

	Intra-Group
	Transactions
	between				Total
	TSLJ to IAC,	Total sales			transactions
	TSL China	to the	Consultancy		with the
For the period/	and their	Intermediary’s	service	Commission	Intermediary’s
year ended	subsidiaries	Companies	fee received	received	Companies
	(HK$’000)	(HK$’000)	(HK$’000)	(HK$’000)	(HK$’000)
			(Note 1)	(Note 1)
28th February, 1998	83,183	41,566	N/A	N/A	41,566
28th February, 1999	132,740	40,573	N/A	N/A	40,573
29th February, 2000	194,895	62,283	N/A	N/A	62,283
28th February, 2001	211,072	52,175	N/A	N/A	52,175
28th February, 2002	224,100	154,611	941	N/A	155,552
28th February, 2003	110,473	178,092	1,958	8,469	188,519

Note 1: The consultancy service fee and commission arrangements with the Intermediary’s Companies commenced during the financial year ended 28th February, 2002 and 28th February, 2003, respectively.

– 10 –

LETTER FROM THE BOARD

5. CONTINUING CONNECTED TRANSACTIONS

The connected transactions under the sub-licensing, consignment and sale, commission and consultancy service fee agreements between TSL Jewellery China, TSL Trading, BTSL, TSLJCS, SHTSLCS and, or other subsidiaries of IAC and, or TSL China, and the Intermediary’s Companies will continue in the future. The Intra-Group Transactions involving the supply of services, raw materials and finished goods by TSLJ to IAC and TSL China and their respective subsidiaries, the royalty fee and management and services fee paid by IAC and TSL China to TSLJ will also continue in the future. Based on its past and projected revenues from the Intermediary’s Companies and from IAC and TSL China and their subsidiaries, the Company has estimated the Cap Amounts as shown in the table below (and the relevant basis for these Cap Amounts in the accompanying notes):

	Intra-Group
	Transactions
	between				Total
	TSLJ to IAC,	Total sales			transactions
	TSL China	to the	Consultancy		with the
For the period/	and their	Intermediary’s	service	Commission	Intermediary’s
year ended	subsidiaries	Companies	fee received	received	Companies
	(HK$’000)	(HK$’000)	(HK$’000)	(HK$’000)	(HK$’000)
	(Note 1)	(Note 1)	(Note 2)	(Note 3)
29th February, 2004	200,000	210,000	4,000	21,000	235,000
28th February, 2005	230,000	250,000	5,000	24,000	279,000
28th February, 2006	300,000	320,000	6,000	31,000	357,000

Notes:

Total sales by TSLJ to IAC, TSL China and their subsidiaries and total sales to the Intermediary’s Companies are assumed, taking into account the growth in number of outlets, to grow at 15%, 19% and 28% for the years ending 28th February, 2004, 2005 and 2006 respectively. The number of outlets is expected to grow from 82 as at the Latest Practicable Date to 87, 90 and 100 for the three years ending 28th February, 2004, 2005 and 2006 respectively.
Consultancy service fees are assumed to be approximately 1.5% of the sales to the Intermediary’s Companies for the three years ending 28th February, 2006 compared to 0.6% and 1.1% for the two years ended 28th February, 2002 and 2003 respectively.
Since 28th February, 2003, the Company has migrated a substantial portion of its Mainland China business to BTSL and 70% of sales to the Intermediary’s Companies are assumed to be made by BTSL and commissions are assumed to be around 7% of the total listed price of sales to the Intermediary’s Companies for each of the three years ending 28th February, 2004, 2005 and 2006. For the year ended 28th February, 2003, 17% of sales to the Intermediary’s Companies were made to BTSL and commission was at about 13% of the total listed price of sales to the Intermediary’s Companies.

– 11 –

LETTER FROM THE BOARD

Since transactions contemplated under the sub-licensing, consignment and sale, commission and consultancy service agreements with the Intermediary’s Companies and the Intra-Group Transactions are expected to continue and take place repeatedly from time to time in the future, it would be costly and impractical for the Company to make a disclosure and seek its shareholders’ approval on each occasion in accordance with Chapter 14 of the Listing Rules. Accordingly, the Company has applied to the Stock Exchange for a waiver from strict compliance with the normal disclosure and shareholders’ approval requirements under Chapter 14 of the Listing Rules on the following conditions:

the Intra-Group Transactions; and the sub-licensing, consignment and sale; commission and consultancy service agreements with the Intermediary’s Companies in the future shall be entered into:
(a) in the ordinary and usual course of business of the Group;
(b) 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 to independent third parties; and
(c) in accordance with the Licensing and Consignment Terms, master supply agreement, comprehensive services agreement, and other terms governing the continuing connected transactions that are fair and reasonable and in the interests of the shareholders of the Company as a whole;
the aggregate amount of the Intra-Group Transactions; and the consignment and sales to; commission received and consultancy service fee from the Intermediary’s Companies at the end of each of the three financial years ending 29th February, 2004, 28th February, 2005 and 28th February, 2006 shall be within the respective Cap Amounts;
the independent non-executive directors of the Company shall review the continuing connected transactions annually and confirm in the Company’s next annual report and in each annual report, thereafter, that these transactions were conducted in the manner as stated in conditions (1) and (2) above;
the Company’s auditors shall review the continuing connected transactions annually and confirm in a letter to the Directors (a copy of which shall be provided to the Listing Division of the Stock Exchange) stating whether the continuing connected transactions:
(a) have received the approval of the Board;
(b) have been entered into in accordance with the Licensing and Consignment Terms, master supply agreement, comprehensive services agreement, and other terms governing the continuing connected transactions;
(c) are in accordance with the pricing policy of the Company; and
(d) have exceeded the relevant Cap Amount;

– 12 –

LETTER FROM THE BOARD

details of the continuing connected transactions in each financial year as specified under Rule 14.25(1)(A) to (D) of the Listing Rules shall be disclosed in the annual report of the Company for that financial year;
in the event of any subsequent change of major term(s) relating to the Intra-Group Transactions and in the license agreement, Licensing and Consignment Terms and the commission agreements and the consultancy service fee agreement, the Company shall take immediate steps to ensure full compliance with the relevant requirements under the Listing Rules, unless a separate waiver is obtained from the Stock Exchange;
the Company has given an undertaking to the Stock Exchange that they shall provide or procure their subsidiaries to provide, the auditors of the Company with full access to the relevant books and records for the purpose of the auditors’ review of the continuing connected transactions referred to in paragraph (4) above; and
the Intermediary’s Companies have given an undertaking to the Company that they shall provide or procure their subsidiaries to provide, the auditors of the Company with all the relevant information necessary for the purpose of the auditors’ review of the continuing connected transactions referred to in paragraph (4) above.

If the relevant Cap Amount is exceeded or if any terms of the Intra-Group Transactions, or the licensing and consignment arrangements with the Intermediary’s Companies are altered in any material respect or if the Company enters into other agreements with the Intermediary’s Companies in the future, the Company shall comply with the provisions of Chapter 14 of the Listing Rules governing connected transactions unless it applies for and obtains a separate waiver from the Stock Exchange, if required.

In the opinion of the Directors, the sub-licensing, consignment and sale, commission and consultancy service agreements with the Intermediary’s Companies and the Intra-Group Transactions have been entered into in the ordinary course of business of the Company, on an arm’s length basis and on normal commercial terms which are fair and reasonable so far as the interests of the independent shareholders of the Company are concerned.

6. REASONS FOR THE TRANSACTIONS

As shown in the section headed “BACKGROUND” above, the Company’s business in Mainland China represents a significant part of the Company’s operations. The Directors expect that the Company’s business in Mainland China will remain the main source of revenue and cash flow in the future, and that the Intra-Group Transactions, the sub-licensing, consignment and sale, commission and consultancy service agreements with the Intermediary’s Companies will remain a crucial part of this business. The Directors also expect that the Company’s profitability and liquidity would be adversely affected should the sub-licensing and consignment arrangements be terminated.

Taking into account the interests of the Company’s shareholders as a whole, the Directors consider that the past connected transactions and the continuing connected transactions with the Intermediary’s Companies and between TSLJ and, or its subsidiaries and each of IAC and TSL China and, or each of their respective subsidiaries are bona fide in the commercial interests of the Company and its shareholders, taken as a whole.

– 13 –

LETTER FROM THE BOARD

7. SHAREHOLDERS’ APPROVAL OF THE CONTINUING CONNECTED TRANSACTIONS AND WAIVER FROM THE STOCK EXCHANGE

Under Chapter 14 of the Listing Rules, the Stock Exchange will normally require, amongst other things, that the continuing connected transactions are conditional on approval by the independent shareholders of the Company in a general meeting, and that the circular to be issued by the Company to its shareholders includes a letter from an independent expert to opine on whether the transactions are fair and reasonable so far as the independent shareholders of the Company are concerned.

By a written approval dated 29th July, 2003, Blink Technology has approved the continuing connected transactions subject to the conditions (as detailed in paragraph 5 headed “CONTINUING CONNECTED TRANSACTIONS” above) for which the Company has applied for a wavier from strict compliance with Chapter 14 of the Listing Rules. Blink Technology’s shareholding interest in the Company exceeded 50 per cent of the share capital in the Company since 29th April, 2000.

Blink Technology is interested in the transactions solely by virtue of its shareholding in the Company. Accordingly, the interest of Blink Technology in the transactions is the same as those of the other shareholders of the Company, and Blink Technology has the right to attend and vote at a general meeting of the shareholders of the Company held to approve the transactions, should such general meeting be convened.

The Company has applied to and obtained a waiver from the Stock Exchange from compliance with the requirements to hold a general meeting of shareholders of the Company as required under Chapter 14 of the Listing Rules to approve the continuing connected transactions. The Company’s justification for the application of the waiver to hold a general meeting to approve the continuing connected transactions is that:

the continuing connected transactions do not involve any issue of securities by the Company or its subsidiaries;
no shareholder is required to abstain from voting if the Company convenes a general meeting for the approval of the continuing connected transactions;
the written shareholder’s approval has been obtained from a shareholder of the Company (i.e. Blink Technology) which holds more than 50 per cent in the Company’s issued ordinary shares giving the right to attend and vote at that general meeting to approve the continuing connected transactions; and
the same result of approving resolutions can be achieved by obtaining the written shareholder’s approval that will avoid incurring additional cost and time for the Company to hold a general meeting to approve the continuing connected transactions.

– 14 –

LETTER FROM THE BOARD

8. ADVICE TO SHAREHOLDERS

Your attention is drawn to: (a) the letter from the Independent Board Committee set out on page 16 of this circular which contains its advice to the independent shareholders of the Company, based on the advice from Equitas, in respect of the continuing connected transactions; and (b) the letter from Equitas on pages 17 to 29 of this circular which contains its advice to the Independent Board Committee as well as the principal factors and reasons considered by Equitas in formulating its advice.

9. ADDITIONAL INFORMATION

Please refer to the appendix to this circular for additional information.

By order of the Board Tse Sui Luen Jewellery (International) Limited Tse Tat Fung, Tommy Chairman

– 15 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

TSE SUI LUEN JEWELLERY (INTERNATIONAL) LIMITED

(Incorporated in Bermuda with limited liability)

6th November, 2003

To the independent shareholders

Dear Sir or Madam,

CONTINUING CONNECTED TRANSACTIONS

We refer to the circular to the shareholders of the Company dated 6th November, 2003 (the “Circular”) issued by the Company, of which this letter forms part. Capitalised terms used in this letter shall have the same meanings as defined in the Circular unless the context otherwise requires. As independent directors of the Company, we have been appointed by the Board to advise independent shareholders of the Company as to whether, in our opinion, the continuing connected transactions comprising sub-licensing, consignment and sale, commission and consultancy service arrangements with the Intermediary’s Companies and the Intra-Group Transactions, are fair and reasonable so far as independent shareholders of the Company are concerned.

Equitas has been appointed by the Company to advise the Independent Board Committee as to whether the terms of the continuing connected transactions are fair and reasonable so far as the independent shareholders of the Company are concerned. Details of its advice, together with the principal factors taken into consideration in arriving at such advice, are set out on pages 17 to 29 of the Circular.

Your attention is also drawn to the letter from the Board set out on pages 4 to 15 of the Circular and the additional information set out in the appendix to the Circular.

Having considered the terms of the continuing connected transactions and the advice of Equitas, we consider that the terms of the continuing connected transactions are fair and reasonable as far as the independent shareholders of the Company are concerned and are in the interests of the Company and its shareholders. We, therefore, recommend that the independent shareholders including Blink Technology approve the continuing connected transactions.

Yours faithfully,

Independent Board Committee of Tse Sui Luen Jewellery (International) Limited Chui Chi Yun, Robert Lui Pui Kee, Francis Hong Po Kui, Martin Gerald Clive Dobby Independent Independent Independent Independent Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director

– 16 –

LETTER OF ADVICE FROM EQUITAS

The following is the text of a letter of advice received from Equitas in relation to the continuing connected transactions, which letter has been prepared for the purpose of inclusion in this circular:

==> picture [225 x 31] intentionally omitted <==

5/F Winning Centre, 46-48 Wyndham Street, Central, Hong Kong.

6th November, 2003

The Independent Board Committee Tse Sui Luen Jewellery (International) Limited Ground Floor, Block B Summit Building 30 Man Yue Street Hunghom, Kowloon

Dear Sirs,

CONTINUING CONNECTED TRANSACTIONS

We, Equitas Capital Limited, refer to our appointment by the Directors of the Company as independent financial adviser to advise the Independent Board Committee in relation to certain transactions which were referred to in the public announcement released by the Company on 2nd October, 2003.

These transactions comprise the supply of raw materials and finished goods by TSLJ to IAC, TSL China and their subsidiaries and the levying of a royalty fee and a management service fee by TSLJ from IAC and TSL China; and the consignment and sale, sub-licensing, consultancy services and commission arrangements in Mainland China, which constitute continuing connected transactions (the “Continuing Connected Transactions”) for the Company under the Listing Rules for which prior approval is required from the Independent Shareholders of the Company in general meeting.

Equitas is unconnected with any of the Company; the Intermediary; the Intermediary’s Companies; the directors, chief executive and substantial shareholders of the Company, the Intermediary’s Companies and any of their respective subsidiaries; and the associates of each of them; and, accordingly, is considered suitable to give independent advice to you. Apart from normal professional fees payable to us in connection with this appointment, no arrangement exists whereby Equitas will receive any fees or benefits from the Company; the Intermediary; the Intermediary’s Companies; the directors, chief executive and substantial shareholders of the Company, the Intermediary’s Companies and any of their respective subsidiaries; or any party associated with any of them.

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LETTER OF ADVICE FROM EQUITAS

The expressions defined in the circular to the shareholders of the Company dated 6th November, 2003 in respect of the Continuing Connected Transactions, of which this letter forms part, have the same meanings in this letter unless the context requires otherwise.

In formulating our opinion, we have reviewed the published information on the Company, including its annual reports and audited financial statements for each of the two financial years ended 28th February, 2003, the two circulars to shareholders issued by the Company dated 14th August, 2000 and 8th August, 2002, respectively, the unaudited management accounts of the Company for the six months ended 31st August, 2003 and the Group’s operating and cash flow budgets for the two financial years ending 28th February, 2005. We have been provided with copies of the relevant agreements involved in the Continuing Connected Transactions (including the master supply agreement and the comprehensive services agreement referred to in the section headed “ Background ” in this letter below; the consignment and sale agreements, the sub-licensing agreements (standard sample copy only), the consultancy services agreements and the commission agreements between the Group and the Intermediary’s Companies). We have discussed with the Directors the current financial condition of the Group, recent developments and the future direction of the Group’s business, particularly in Mainland China. We consider that the information which we have received is sufficient for us to reach our opinion as set out in this letter and to justify our relying on such information as a reasonable basis therefor and we have no reason to doubt the truth and accuracy of the information provided to us. The Directors have confirmed to us that no material facts have been omitted from the information supplied and opinions expressed. We have relied on such information and opinions and have not conducted any review of the business, operations or financial condition of the Group or the current state or likely prospects of the sectors of the jewellery retail industry in which the Group operates.

THE CONTINUING CONNECTED TRANSACTIONS

Background

The Group is principally engaged in the manufacture and sale of jewellery products. Its business in Mainland China is principally conducted through two non-wholly owned subsidiaries, IAC and TSL China. Each of IAC and TSL China is engaged, through its subsidiaries, in the sale of jewellery products via retail outlets of the licensees of TSL Jewellery China in Mainland China. In addition, the TSL China Group is also engaged in the business of processing of jewellery products for sale in Mainland China.

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LETTER OF ADVICE FROM EQUITAS

A chart showing the relevant corporate structure (simplified) of the Group is set out below:

==> picture [437 x 257] intentionally omitted <==

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

The China Retail
The Company Intermediary
Fund, LDC
100% 100%
TSLJ Liberty Mark Best Accurate
51% 5.46% 19.54% 24%
IAC TSL China
100%
90%
TSL Jewellery
TSL Trading TSLJCS BTSL
China
95%
SHTSLCS
----- End of picture text -----

The Intermediary became a substantial shareholder in IAC and TSL China in December, 1996 and November, 2000 respectively. Since March, 1997 (when the IAC Group commenced its operations, the Intermediary, together with companies which he controlled or in which he has a major beneficial interest, has been instrumental in the development of the Group’s current business in Mainland China. As at the Latest Practicable Date, the Intermediary, through Best Accurate (a company wholly owned by the Intermediary), is beneficially interested in 19.54% of each of IAC and TSL China. The Intermediary is also a director of IAC, TSL China and BTSL, which is an indirect non-wholly owned subsidiary of TSL China.

The trading relationship between the Group and the Intermediary were referred to in a circular to shareholders dated 14th August, 2000 issued by the Company which set out details of a settlement between the Company, the Intermediary and Mr. Tse Sui Luen (the then chairman of the Company and the father of the current Chairman) in relation to (inter alia) the settlement of certain trade receivables outstanding from, and deposit monies paid to, one of the Intermediary’s Companies.

As referred to in a circular dated 8th August, 2002 issued by the Company in relation to (inter alia) the repurchase and cancellation of the Company’s then issued preference shares and pursuant to shareholders agreements entered into on 31st August, 2002 between the Company and the other shareholders (including Best Accurate) of each of IAC and TSL China, a master supply agreement and a comprehensive services agreement (together, the “Intra-Group Agreements”) were entered into between TSLJ and each of IAC and TSL China which agreements require that TSLJ and/or its subsidiaries will provide production support, the procurement of the raw materials and products and product design and development services to each of IAC and TSL China and any of their subsidiaries.

– 19 –

LETTER OF ADVICE FROM EQUITAS

The transactions under the Intra-Group Agreements (comprising the supply of raw materials and finished goods by TSLJ to IAC, TSL China and/or their subsidiaries and the levying of a royalty fee and a management service fee by TSLJ from IAC and TSL China) constitute continuing connected transactions. The trading relationship between the Group and the Intermediary’s Companies, comprising consignment and sale, sub-licensing of the Group’s trademarks, provision of consultancy services and the commission arrangement on consigned sales, also constitute continuing connected transactions, which require the approval of the independent shareholders of the Company.

We note that, in the Company’s interim report for the six months ended 31st August, 2002, the Company disclosed, in accordance with Practice Note 19 of the Listing Rules, that, as at 31st August, 2002, a subsidiary of the Company had an advance outstanding to one of the Intermediary’s Companies in Mainland China of HK$69,550,000. The interim report stated that the advance was a trade receivable arising from the Group’s normal and ordinary course of business and was unsecured, interest free with credit term of 75 days.

We also note that the Company made further disclosures in respect of the Group’s trading relationship with the Intermediary’s Companies in its annual report for the financial year ended 28th February, 2003. In particular, under Note 17 of the Notes on the Financial Statements, the annual report disclosed that, as at 28th February, 2003, the Group had consigned finished goods totalling HK$77,543,000 to, as well as an amount due in respect of trade receivables of HK$42,134,000 from, one of the Intermediary’s Companies. This information was also referred to in the Report of the Directors in the same annual report under the section headed “DISCLOSURE PURSUANT TO PRACTICE NOTE 19 OF THE LISTING RULES Advance to an entity”.

Particulars of the Continuing Connected Transactions

(A) The transactions under the Intra-Group Agreements

TSLJ is a wholly owned subsidiary of the Company incorporated in Hong Kong and is engaged in the business of manufacturing, trading and retailing of jewellery products. It is the principal operating company within the Group. As mentioned above, TSLJ has entered into a master supply agreement with each of IAC and TSL China to provide the procurement of raw materials and jewellery products on a cost plus basis to these companies and their respective subsidiaries.

In furtherance of this supply relationship, TSL Jewellery China, a wholly owned subsidiary of IAC, has been granted by TSLJ the non-exclusive use of certain trademarks, including “Tse Sui Luen”, in Mainland China in consideration for a royalty fee in an aggregate amount equal to 1% of the monthly aggregate turnover of the IAC Group and the TSL China Group. An additional management service fee is payable by the IAC Group and the TSL China Group amounting to 1% of their aggregate monthly turnover is payable to TSLJ pursuant to the comprehensive services agreement referred to above.

– 20 –

LETTER OF ADVICE FROM EQUITAS

The following table sets out the amount of sales by TSLJ to each of the IAC Group and the TSL China Group in each of the six financial years ended 28th February, 2003 and the royalty and management service fees received by TSLJ in the financial year ended 28th February, 2003:

							Total amounts
		Sales to		As a		Management	of transactions
	Sales to	the TSL		percentage	Royalty fee	service fee	under the
Financial	the IAC	China		of TSLJ	received by	received by	Intra-Group
year ended	Group	Group	Sub-total	turnover	TSLJ	TSLJ	Agreements
	(HK$’000)	(HK$’000)	(HK$’000)		(HK$’000)	(HK$’000)	(HK$’000)
28th February, 1998	83,183	–	83,183	3.5%	–	–	83,183
28th February, 1999	132,740	–	132,740	7.0%	–	–	132,740
29th February, 2000	194,895	–	194,895	17.8%	–	–	194,895
28th February, 2001	211,072	–	211,072	22.3%	–	–	211,072
28th February, 2002	215,557	8,543 (Note 1)	224,100	24.4%	–	–	224,100
28th February, 2003	84,152	24,253	108,405 (Note 2)	14.4%	1,034 (Note 3) 1,034 (Note 3) 110,473

Notes :

1. TSL China was incorporated on 8th February, 2000 and began its operations in August, 2001.

2. According to the Company, sales by TSLJ to the IAC Group and the TSL China Group were changed from a consignment and sale basis to a direct sale basis in 2002. This resulted in an increase of reported sales for TSLJ in the financial year ended 28th February, 2002 (the transitional year) and a reduction in reported sales in the following financial year ended 28th February, 2003.

3. There was no royalty and management service fees received in other financial years.

(B) The consignment and sale, sub-licensing, consultancy services and commission arrangements with the Intermediary’s Companies
(i) consignment and sale

TSL Trading (a wholly owned subsidiary of IAC) and BTSL (a 90% owned subsidiary of TSL China) commenced consignment and sale arrangements with the Intermediary’s Companies in March, 1997 and March, 2002, respectively.

Under the consignment arrangements between TSL Trading and BTSL (as Consignors) and the Intermediary’s Companies, the Consignors would consign jewellery as finished goods to the Intermediary’s Companies which would distribute the consigned finished goods to the Intermediary’s shop outlets operating under the trade name of “Tse Sui Luen” in Mainland China. After the consigned finished goods are sold at the retail prices set by the Consignors (subject to discounts to customers allowed by, and at the discretion of, the Intermediary’s Companies), the relevant entity within the Intermediary’s Companies will provide the Consignors with details of the finished goods sold on a monthly basis. The Consignors will then record in their books of accounts trade receivables from the relevant entity within the Intermediary’s Companies at the wholesale prices which have been agreed between the Consignors and the Intermediary’s Companies. The wholesale prices are determined by TSL trading on a cost plus basis taking into account the type of jewellery

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LETTER OF ADVICE FROM EQUITAS

products and the relevant market conditions. Cash settlement of these trade receivables will be made within 75 days of the end of the month in which the sales are confirmed. The consignment arrangements provide for periodic stock take access but there are currently no guaranteed sale provisions and no fixed requirement for the shop outlets to return consigned goods unsold over any given extended time period. In addition to the above consignment arrangements, finished goods are also directly sold by the IAC Group and the TSL China Group to the Intermediary’s Companies for settlement within 30 days. For the year ended 28th February, 2003, the amount of consignment sales represented approximately 80% of total sales to the Intermediary’s Companies.

Total sales by each of TSL Trading and BTSL to the Intermediary’s Companies in each of the six financial years ended 28th February, 2003 were as follows:

	Sales by	Sales by		As a percentage
Financial year ended	TSL Trading	BTSL	Sub-total	of Group turnover
	(HK$’000)	(HK$’000)	(HK$’000)
28th February, 1998	41,566	–	41,566	1.5%
28th February, 1999	40,573	–	40,573	1.8%
29th February, 2000	62,283	–	62,283	4.9%
28th February, 2001	52,175	–	52,175	4.4%
28th February, 2002	154,611	–	154,611	15.7%
28th February, 2003	148,683	29,409_(Note)_	178,092	18.7%

Note : BTSL commenced its consignment and sale arrangements with the Intermediary’s Companies in March, 2002.

(ii) sub-licensing

Under the sub-licensing arrangements between TSL Jewellery China and the Intermediary’s Companies which began in 1997, shop outlets of the Intermediary’s Companies are permitted to operate under the trade name “Tse Sui Luen” in Mainland China. There is no separate and explicit monetary consideration for the use of the trademarks. We understand that the consideration is implicitly included in the pricing of the jewellery products consigned and sold by TSL Trading and BTSL to the Intermediary’s Companies.

(iii) consultancy services

Commencing from the beginning of the financial year ended 28th February, 2002, TSLJCS (a wholly owned subsidiary of IAC) and SHTSLCS (a 95% owned subsidiary of TSLJCS) provided consultancy services to certain retail outlets of the Intermediary’s Companies in consideration for a fee. The consultancy service fees are charged at progressive percentages (up to a maximum of 5%) of turnover of the relevant retail outlets if the turnover of the retail outlets to which the consultancy services are rendered exceeds certain thresholds.

TSLJCS also engaged certain of the Intermediary’s Companies as consultant for advice on public relations matters in Mainland China for which a consultation fee would be paid.

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LETTER OF ADVICE FROM EQUITAS

The amount of consultancy service fees received from, and paid by the Group to, the Intermediary’s Companies in each of the two financial years ended 28th February, 2003 were as follows:

During the	Consultancy service	Consultancy service
financial year ended	fees received	fees paid
	(HK$’000)	(HK$’000)
28th February, 2002	941	545
28th February, 2003	1,958	546

The amount of consultancy service fees received by the Group in each of the two financial years ended 28th February, 2003 represents approximately 0.6% and 1.1% respectively of the relevant aggregate turnover of the retail outlets covered by the consultancy services agreements.

(iv) commissions

Commencing from the beginning of the financial year ended 28th February, 2002, TSL Trading and BTSL have instituted a commissioning arrangement with the Intermediary’s Companies under which, following the confirmed purchase by the Intermediary’s Companies of any jewellery products under consignment from BTSL, TSL Trading would charge the Intermediary’s Companies a commission on a monthly basis calculated as a percentage (ranging from 5 to 8%) of the listed price depending on the type of products purchased. The commission is intended to remunerate TSL Trading for its efforts in referring the Intermediary’s Companies to BTSL which is expected increasingly to replace TSL Trading as the principal supplier to the Intermediary’s Companies in the future.

During the financial year ended 28th February, 2003, TSL Trading received commissions totalling HK$8,469,000 from the Intermediary’s Companies for their confirmed purchases from BTSL.

Breach of Listing Rules

As the Intermediary is a connected person under the Listing Rules, the consignment and sale, sublicensing, consultancy services and commission arrangements constitute connected transactions of the Company under Chapter 14 of the Listing Rules. The supply of services, raw materials and finished goods by TSLJ to each of IAC and TSL China and their subsidiaries under the Intra-Group Agreements also constitutes connected transactions under Chapter 14 of the Listing Rules.

The Continuing Connected Transactions have not been properly disclosed by the Company nor has prior approval therefor been obtained from the independent shareholders of the Company in general meeting. The failure of the Company in these regards constitutes breaches of paragraph 2(1) of the Listing Agreement and Chapter 14 of the Listing Rules.

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LETTER OF ADVICE FROM EQUITAS

Application for waiver

The Continuing Connected Transactions are expected to continue in the future. For so long as the Group continues to do business in Mainland China, TSLJ will be required to continue to supply services, raw materials and finished goods to TSL Trading and BTSL under the Intra-Group Agreements; and the consignment and sale, sub-licensing, consultancy services and commission arrangements between Group companies (each of the IAC Group and the TSL China Group) and the Intermediary’s Companies will also continue.

Since transactions contemplated under the Continuing Connected Transactions are expected to continue and take place repeatedly from time to time in the future, it would be costly and impractical for the Company to make a disclosure and seek its shareholders’ approval on each and every occasion in accordance with the requirements of Chapter 14 of the Listing Rules. Accordingly, the Company has applied to the Stock Exchange for a waiver from strict compliance with the normal disclosure and shareholders’ approval requirements under Chapter 14 of the Listing Rules for a period of three years ending 28th February, 2006 on the conditions as set out in the section headed “ 5. CONTINUING CONNECTED TRANSACTIONS ” in the Letter from the Board.

Table of Cap Amounts

Based on past experience and a projected development of the Group’s business in Mainland China, the Company has estimated the Cap Amounts in respect of each category of the Continuing Connected Transactions as follows:

	Total amounts				Total
	of transactions	Total sales			transactions
	under the	to the	Consultancy		with the
For the period/	Intra-Group	Intermediary’s	service fees	Commission	Intermediary’s
year ended	Agreements	Companies	received	received	Companies
	(HK$’000)	(HK$’000)	(HK$’000)	(HK$’000)	(HK$’000)
	Note 1	Note 1	Note 2	Note 3
29th February, 2004	200,000	210,000	4,000	21,000	235,000
28th February, 2005	230,000	250,000	5,000	24,000	279,000
28th February, 2006	300,000	320,000	6,000	31,000	357,000

Notes:

1. Total amounts of transactions under the Intra-Group Agreements (comprising sales by TSLJ to the IAC Group and the TSL China Group and the levying of a royalty fee and management service fee) and total sales to the Intermediary’s Companies are assumed, taking into account the growth in the number of retail outlets, to increase at 15%, 19% and 28% for each the three years ending 28th February, 2004, 2005 and 2006 respectively.

2. Consultancy service fees are assumed to amount to approximately 1.5% of the sales to the Intermediary’s Companies in each of the three years ending 28th February, 2006.

3. In the financial year ended 28th February, 2003, approximately 17% of the Group’s sales to the Intermediary’s Companies are made by BTSL. However, it is the intention of the Group increasingly to channel the Group’s sales to the Intermediary’s Companies through BTSL so that BTSL is expected to replace TSL Trading as the principal supplier to the Intermediary’s Companies in the future. The amount of commission received has been calculated on the basis that 70% of sales to the Intermediary’s Companies are made by BTSL and commissions are assumed to be around 7% of the total listed price of sales to the Intermediary’s Companies in each of the three years ending 28th February, 2006.

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LETTER OF ADVICE FROM EQUITAS

If the relevant Cap Amount is exceeded or if any terms of (i) the transactions under the IntraGroup Agreements (comprising the supply of raw materials and finished goods by TSLJ to the IAC Group and the TSL China Group and the levying of the royalty fee and management service fee); or (ii) the consignment and sale, sub-licensing, consultancy services and commission arrangements between the Group and the Intermediary’s Companies are altered in any material respect or if the Company enters into other agreements with the Intermediary’s Companies in the future, the Company shall comply with the provisions of Chapter 14 of the Listing Rules governing connected transactions unless it applies for and obtains a separate waiver from the Stock Exchange, if required.

Shareholders’ Approval of the Continuing Connected Transactions

As referred to in the section headed “7. SHAREHOLDERS’ APPROVAL AND WAIVER FROM

THE STOCK EXCHANGE” in the Letter from the Board, the Company has applied to, and obtained, a waiver from the Stock Exchange from compliance with the requirements to hold a general meeting of shareholders of the Company as required under Chapter 14 of the Listing Rules to approve the Continuing Connected Transactions. The Company’s justification for the application of the waiver to hold a general meeting to approve the transactions is set out in that section.

By a written approval dated 29th July, 2003, Blink Technology has approved the Continuing Connected Transactions subject to the conditions for which the Company has applied for a wavier from strict compliance with Chapter 14 of the Listing Rules. Blink Technology’s shareholding interest in the Company has exceeded 50 per cent of the share capital in the Company since 29th April, 2000. Blink Technology has represented that it is interested in the Continuing Connected Transactions solely by virtue of its shareholding in the Company. Accordingly, the interest of Blink Technology in the Continuing Connected Transactions is the same as those of the other shareholders of the Company, and Blink Technology considers that it has the right to attend and vote at a general meeting of the shareholders of the Company held to approve the transactions, should such general meeting be convened.

PRINCIPAL FACTORS AND REASONS

In arriving at our opinion and advice stated below, we have considered, inter alia, the following principal factors and reasons:

1. background to, and reasons for, the Continuing Connected Transactions

The Group’s business in Mainland China represents a significant part of its operations; in the financial year ended 28th February, 2003, the Group’s sales in Mainland China accounted for approximately 19% of consolidated Group turnover and 50% of the contribution to Group operating profit, compared with approximately 16% and 49%, respectively, the year before. We understand that the Directors expect that the Company’s business in Mainland China will remain a very important source of revenue and cash flow in the future and that the Continuing Connected Transactions will constitute a crucial part of this business. The Directors believe that, as a result of the sustained economic growth in Mainland China and the increasing affluence of its citizens, the demand for quality jewellery products such as those which are sold by the Group will continue to increase. The Group regards Mainland China as its major source of growth of revenue and profit in the future.

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LETTER OF ADVICE FROM EQUITAS

As at the Latest Practicable Date, of the network of 82 outlets (owned and operated by the Group’s sub-licensees) in Mainland China which retails the Group’s jewellery products, 74 are owned and operated by, and/or affiliated with, the Intermediary’s Companies. In the financial year ended 28th February, 2003, total revenue derived by the Group from its trading relationships with the Intermediary’s Companies comprised some 98% of the Group’s business in Mainland China.

In addition, the Group currently relies extensively on the Intermediary’s Companies to handle the distribution and retailing of the Group’s finished goods in Mainland China. The Directors of the Company expect that this reliance will continue unless and until the regulatory requirements in respect of the distribution and retailing of jewellery products in Mainland China become sufficiently liberalised.

We note that in the Report of the Auditors contained in the annual report of the Company for the financial year ended 28th February, 2003, the auditors of the Company have stated that the financial statements (set out in the annual report) have been prepared on a going concern basis, the validity of which depends upon the ongoing support of the Group’s bankers. The Group’s financial condition remains difficult in the last few years and this state of affairs is expected to continue until the Company’s capital base is materially strengthened either through an injection of equity funds or positive cash flow generated from its operations. We consider that, at this juncture, the Company can ill afford to undertake any actions which may jeopardise any significant part of its business operations. We believe that the Group needs to continue with its business in Mainland China in its existing configuration. Indeed, the Company is bound by the shareholders agreements referred to in the section headed “ (A) The transactions under the Intra-Group Agreements ” in this letter above effectively only to conduct its business in Mainland China through the IAC Group and the TSL China Group.

We have discussed with the Directors the current set up of, and their future plans for, the Group’s business in Mainland China. The Directors intend to continue to develop its business in Mainland China through a close co-operation with the Intermediary’s Companies whilst renewed efforts will be made to grow independent third party business. However, as noted above, the Group is constrained by the current regulatory requirements in Mainland China and its difficult financial condition.

We have been assured by the Directors that the Continuing Connected Transactions have been conducted in accordance with the relevant agreements concerned. On this basis, we would agree with the Directors that the Continuing Connected Transactions have been entered into in the ordinary and usual course of business of the Group.

2. the terms of the Continuing Connected Transactions

2.1 Under the Intra-Group Agreements, the supply of raw materials and finished goods by TSLJ to the IAC Group and the TSL China Group is priced on a cost plus basis and the amount of the royalty fee and management service fee is based on the turnover of the IAC Group and the TSL Group.

We believe that this type of pricing arrangement is normal amongst intra-group trading relationships; we consider that it is reasonable for TSLJ to charge TSL Jewellery China a separate royalty fee for its use of the Group’s trademarks and an additional management service fee for the provision of a comprehensive range of services in furtherance of the

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LETTER OF ADVICE FROM EQUITAS

Group’s business in Mainland China amounting, in each case, to 1% of the relevant aggregate turnover.

We believe that a substantially higher royalty fee and management service fee is likely to impact on the cost of the raw materials and finished goods supplied to the IAC Group and the TSL China Group which may affect the competitiveness of their operations.

The Group does not have a similar supply relationship with any independent third party.

2.2 The consignment and sale of jewellery products by TSL Trading and BTSL to the Intermediary’s Companies is also priced on a cost plus basis. No separate sub-license fee is charged to the shop outlets who are permitted to operate as sub-licensees in Mainland China as the fee is implicitly included in the pricing of the consignment and sale. Cash settlement of these trade receivables will be made within 75 days of the end of the month in which the sales are confirmed. The Directors of the Company have represented to us that the terms of the consignment and sale have been determined after arms length negotiations with the Intermediary’s Companies after taking into account the terms of similar arrangements offered by the Group’s competitors in the market. Such terms are essentially the same as those offered to customers who are independent third parties.

We consider that the terms of the consignment and sale (inclusive of the implicit sub-license fee) are fair and reasonable as the pricing thereof (which is additional to the margin already charged by TSLJ) ensures that the Group’s business in Mainland China, even in the absence of a guaranteed off-take, enjoys a certain level of profitability whilst the Intermediary’s Companies bear a significant portion of the relevant business risk.

The objectives of the consultancy services and commission arrangements are better to match the recovery of the Group’s overhead costs with efforts expended to assist the shop outlets of the Intermediary’s Companies to improve its effectiveness and to capture, for Group benefit, any same store growth in the volume of sales achieved by these shop outlets.

2.3 We have compared the terms of the consignment and sale, sub-licensing, consultancy services and commission arrangements between the Group and the Intermediary’s Companies with the terms on which the Group conducts similar business with independent third parties. Currently, the turnover of the independent third party business undertaken by the Group amounts to approximately HK$3,400,000 a year, representing no more than 2% of the Group’s business in Mainland China. We would not regard such level of business as sufficient quantum to determine what would constitute as “normal business terms” for the Group’s business in Mainland China. However, we have been assured by the Directors that the terms available to the Intermediary’s Companies are no less favourable (to the Company) than the terms being offered to the retail outlets who are operated by independent third parties.

3. the Cap Amounts

The Cap Amounts in respect of each category of the Continuing Connected Transactions are set out in the section headed “ Table of Cap Amounts ” above in this letter. These amounts are determined on

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LETTER OF ADVICE FROM EQUITAS

the basis that total sales by TSLJ to the IAC Group and the TSL China Group, as well as total sales by the Group to the Intermediary’s Companies, are projected to increase by approximately 15%, 19% and 28%, respectively, in each of the three years ending 28th February, 2006, taking into account the projected increase of the retail network from the current 82 outlets (of which 74 are owned or operated by the Intermediary’s Companies) to 87, 90 and 100 outlets and the projected increase in average sales by each outlet of approximately 12%, 15% and 15%, respectively, in each of the same three years.

We believe that such projected increases in sales for the purposes of the Cap Amounts are reasonable.

The projected increases in consultancy service fees and commission received from the Intermediary’s Companies over each of the next three years are based on the relevant projected increase on sales and the approximate average percentage achieved during the most recent financial year and are, accordingly, also reasonable.

4. Practice Note 19 disclosures

It was disclosed by the Company that, as at 28th February, 2003, the Group had consigned finished goods totalling HK$77,543,000 to, as well as an amount due in respect of trade receivables of HK$42,134,000 from, one of the Intermediary’s Companies. This information was also referred to in the Report of the Directors in the same annual report under the section headed “DISCLOSURE PURSUANT TO PRACTICE NOTE 19 OF THE LISTING RULES Advance to an entity”. The consigned finished goods of HK$77,543,000 and the trade receivables due of HK$42,134,000 represent, respectively, approximately 26.7% of the Group’s inventory and approximately 50.4% of the Group’s trade and other receivables outstanding as at the same date.

Further, it was noted in Note 17 of the Notes on the Financial Statements to the effect that, since the Group cannot supervise the activities of any of the Intermediary’s Companies, the Directors consider that it is possible that the Group may not be able to recover possession of all or certain of these consigned finished goods in the event that any of the Intermediary’s Companies is unable to meet its financial obligations. The Directors are not aware of any circumstances that lead the Group to believe that any of the Intermediary’s Companies is unable to meet its financial obligations.

We have been informed that no default of the terms of the consignment and sale, sub-licensing, consultancy services and commission agreements has happened since the completion of the Settlement Agreement in November, 2001.

We understand that the credit terms of the consignment and sale have been tightened since the beginning of the current financial year following the appointment by the Group of a financial controller in Mainland China who will have as one of his special responsibilities the task of closely monitoring the settlement of accounts receivable from the shop outlets to the Intermediary’s Companies, with the objective of hastening the receipt of any amounts due from the Intermediary’s Companies.

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LETTER OF ADVICE FROM EQUITAS

5. other considerations

5.1 As referred to in this letter above, we have been provided with copies of each of the consignment and sale agreements, the sub-license agreements (standard sample copy only), the consultancy services agreements and the commission agreements between the Group and the Intermediary’s Companies. These agreements, which are subject to the laws of Mainland China, are executed in the Chinese language and are normally valid for a period of two years, extendable for a further year in the absence of breaches during the validity period. These agreements are less extensive than similar agreements signed in Hong Kong under the laws of Hong Kong. We have been informed that whilst the Group’s legal advisers in Mainland China have advised that these agreements provide adequate protection for the Group, more elaborate agreements are being developed for use in the future.
5.2 The Intermediary’s Companies have given an undertaking to the Company that they shall provide, or procure their subsidiaries to provide, the auditors of the Company with all the relevant information necessary for the purpose of the auditors’ annual review of the Continuing Connected Transactions.
5.3 We note that the corporate entities comprising the Intermediary’s Companies are subject to change from time to time but we have been assured by the Directors of the Company that any such change will in no way have any material adverse effect on the Group’s business in Mainland China in general or the recoverability or collectibility of the Group’s consigned goods or accounts receivable in particular.

OUR OPINION AND ADVICE

Having considered these factors and reasons, we, Equitas Capital Limited, are of the opinion that the Continuing Connected Transactions have been entered in the Group’s normal and usual course of business and that the terms of such transactions are fair and reasonable and in the interests of the Company and its shareholders as a whole. Accordingly, we advise the Independent Board Committee to recommend that Independent Shareholders (including Blink Technology) should approve the Continuing Connected Transactions.

Yours faithfully, For and on behalf of

Equitas Capital Limited Ng Ming Wah, Charles Managing Director

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GENERAL INFORMATION

APPENDIX

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the 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 enquires, that to the best of their knowledge and belief there are no other facts the omission of which would make any statement herein misleading.

2. DISCLOSURE OF INTERESTS

(a) Directors’ interests and short positions in shares, underlying shares and debentures of the Company

As at the Latest Practicable Date, the interests or short positions of the Directors or their associates in the shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO), which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they were taken or deemed to have under such provisions of the SFO), or which were required to be entered in the register maintained by the Company pursuant to Section 352 of the SFO, or which were required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies, were as follows:

(i) Interests and short positions in shares of the Company

		Number of ordinary	Number of ordinary	shares held
					Percentage
						of total
						issued
	Personal	Family	Corporate	Short	Other	share
Name of Director	interest	interest	interest	interest	interest	capital
Tse Tat Fung, Tommy	–	–	195,971,534_(i)_	–	1_(ii)_	50%
Notes:

(i) These shares were held through Blink Technology Limited, a company beneficially owned by Mr. Tse Tat Fung, Tommy.
(ii) Blink Technology acquired the rights, title and interest pursuant to various financing documents under which this share, representing the share of which Mr. Tse Sui Luen has personal interest, was charged. Accordingly, Mr. Tse Tat Fung, Tommy is deemed to be interested in this share.
(ii) Interests in the Company’s share options

As at the Latest Practicable Date, none of the Directors and employees of the Company had interests in any option to subscribe for shares of the Company.

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GENERAL INFORMATION

APPENDIX

Save as disclosed above, at the Latest Practicable Date, none of the Directors or their associates had or were deemed to have any interest or short position in the shares, underlying shares or debentures of the Company or any of its associated corporations as defined in the SFO.

(b) Substantial interests and short positions in shares and underlying shares of the Group

(i) As at the Latest Practicable Date, the interest or short positions of any substantial shareholders in the shares or underlying shares of the Company which have been disclosed to the Company pursuant to Division 2 and 3 of Part XV of the SFO and have been recorded in the register required to be kept by the Company pursuant to Section 336 of Part XV of the SFO were as follows:

				Number of	ordinary shares	held
			Percentage		Percentage	Percentage
			of total		of total		of total
		Direct	issued	Short	issued	Other	issued
Name	Capacity	interest	shares	interest	shares	interest	shares
Blink Technology	Beneficial	195,971,534	50.0%	–	–	1_(i)_	0%
	owner
Suez Asia Holdings	Trustee	20,090,000	5.10%	–	–	–	–
Pte Ltd_(ii)_
Kwong Tai Holdings	Trustee	37,304,000	9.5%	–	–	–	–
Limited_(iii)_
HSBC International	Trustee	37,304,000	9.5%	–	–	–	–
Trustee Limited_(iii)_

Notes:

(i) Blink Technology acquired the rights, title and interest in various financing documents under which this share, representing the share of which Mr. Tse Sui Luen has personal interest, was charged. Accordingly, Blink Technology is deemed to be interested in this share.
(ii) Suez Asia Holdings Pte Ltd is the trustee of certain discretionary trusts.
(iii) The two reference to 37,304,000 shares relate to the same block of shares in the Company. Both Kwong Tai Holdings Limited, and HSBC International Trustee Limited are the trustees of certain discretionary trusts.

Save as disclosed above, as at the Latest Practicable Date, the Company had not been notified of any persons who had interests or short positions in the shares or underlying shares of the Company, which were required to be recorded in the register required to be kept by the Company pursuant to Section 336 of Part XV of the SFO.

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GENERAL INFORMATION

APPENDIX

(ii) So far as was known to the Directors, as at the Latest Practicable Date, the persons directly or indirectly interested in 10% or more of the issued share capital carrying rights to vote in all circumstances at general meetings of the following members of the Group (other than the Company) and the amount of each of such person’s interest were as follows:

	Name of	Interest in share
Name of member	substantial	capital/equity	Percentage of
of the Group	shareholder	interest	shareholding
Infinite Assets Corp.	Best Accurate	54,183 “A”	19.54%
	International Limited	Ordinary Shares
	The China Retail	66,521 “B”	24%
	Fund, LDC	Ordinary Shares
Tse Sui Luen Investment	Best Accurate	1,341 “A”	19.54%
(China) Limited	International Limited	Ordinary Shares
	The China Retail	1,647 “B”	24%
	Fund, LDC	Ordinary Shares
Impromptus Asia	Genius Bright	3,000	30%
Pacific Limited	Limited	Ordinary Shares
Global Famous Limited	Chan Ching Po,	40	40%
	Ernest	Ordinary Shares

3. DIRECTORS’ SERVICE CONTRACTS

Mr. Tse Tat Fung, Tommy has a service contract with a subsidiary of the Company which is terminable by either party giving six months’ notice. Mr. Leung Yit Kuen, Raymond has a service contract with a subsidiary of the Company which is terminable by either party giving three months’ notice. Messrs. Gerald Clive Dobby and Lui Pui Kee, Francis have service contracts with the Company for a term up to the expiry of the restructuring of the Group which is five years and three months from 3rd August, 2000 or up to an earlier date when repayments reduce the bank indebtedness of the Group to HK$150 million; or up to an earlier date when all bank debt or term debt and accrued interest together with the fees as defined in the restructuring agreement which is entered into between the Company and its bank creditors on 3rd August, 2000 have been fully repaid/refinanced; or to be terminated by the Company or the relevant subsidiaries giving seven days’ notice, whichever is earlier.

Save as the aforesaid, none of the Directors have any existing or proposed service contracts with any member of the Group, excluding contracts expiring or determinable by the employer within one year without payment of compensation, other than normal statutory compensation.

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GENERAL INFORMATION

APPENDIX

4. EXPERT’S CONSENT AND QUALIFICATIONS

Equitas (an exempt dealer and exempt investment adviser under the repealed Securities Ordinance) is a deemed licensed corporation under the SFO for (inter alia) Type 6 of the regulated activities. Equitas has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and the references to its name in the form and context in which they are included.

As at the Latest Practicable Date, Equitas was not interested beneficially or otherwise in any shares in the Company or any of its subsidiaries or associated corporations and did not have any right (whether legally enforceable or not) or option to subscribe for or to nominate persons to subscribe for any shares in the Company or any of its subsidiaries or associated corporations nor did it have any interest, either direct or indirect, in any assets which have been, since the date to which the latest published audited financial statements of the Company were made up, acquired or disposed of by or leased to or are proposed to be acquired or disposed of by or leased to any member of the Group.

The following are the qualifications of the experts who have given opinions or advice which are contained in this circular:

Name Qualification Equitas Capital Limited A deemed licensed corporation under the SFO

5. MATERIAL ADVERSE CHANGE

Save as disclosed in the announcement by the Company dated 2nd May, 2003 relating to, amongst other things, the impact of Severe Acute Respiratory Syndome on the Company, the Directors are not aware of any material adverse change in the financial or trading position of the Group since 28th February, 2003, the date to which the latest published audited accounts of the Company have been made up.

6. MISCELLANEOUS

(a) Save as disclosed in this circular:
(i) none of the Directors are materially interested in any contract or arrangement subsisting at the date hereof which is significant in relation to the business of the Group; and
(ii) none of the Directors have any direct or indirect interest in any assets which they have, since 28th February, 2003 the date to which the latest published audited consolidated financial statements of the Company were made up, acquired, disposed of by, or leased to, any member of the Group, or are proposed to be acquired, disposed of by, or leased to, any member of the Group.
(b) The English texts of this circular shall prevail over their respective Chinese texts.

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GENERAL INFORMATION

APPENDIX

7. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during business hours at the head office and principal place of business of the Company at Ground Floor, Block B, Summit Building, 30 Man Yue Street, Hunghom, Kowloon, Hong Kong from the date of this circular up to and including 20th November, 2003:

(a) the memorandum of association and Bye-Laws of the Company;
(b) the letter of advice from Equitas dated 6th November, 2003, the text of which is set out on pages 17 to 29 of this circular;
(c) the master supply agreement, the comprehensive services agreement; the agreement containing the Licensing and Consignment Terms, the consultancy service agreement, the trademark licence contract, the shareholders’ agreement, and the Settlement Agreement;
(d) the service contracts referred to in paragraph 3 of this appendix;
(e) the letter of consent referred to in paragraph 4 of this appendix; and
(f) the consolidated audited financial statements of the Group for the two years ended 28th February, 2003.

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AI assistant

Ko Yo Chemical (Group) Limited — Proxy Solicitation & Information Statement 2003

49492_rns_2003-11-07_26e39975-63a6-4a3c-ae21-e3c492ecfedf.pdf

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

TSE SUI LUEN JEWELLERY (INTERNATIONAL) LIMITED

CONTINUING CONNECTED TRANSACTIONS

Financial adviser to Tse Sui Luen Jewellery (International) Limited

Independent financial adviser to the Independent Board Committee

CONTENTS

DEFINITIONS

DEFINITIONS

DEFINITIONS

TSE SUI LUEN JEWELLERY (INTERNATIONAL) LIMITED

CONTINUING CONNECTED TRANSACTIONS

1. INTRODUCTION

LETTER FROM THE BOARD

2. BACKGROUND

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Table 1

LETTER FROM THE BOARD

Consignment and sale

Sub-licensing

Commission

LETTER FROM THE BOARD

Consultancy services

Intra-Group Transactions

LETTER FROM THE BOARD

4. PAST CONNECTED TRANSACTIONS

LETTER FROM THE BOARD

5. CONTINUING CONNECTED TRANSACTIONS

LETTER FROM THE BOARD

LETTER FROM THE BOARD

6. REASONS FOR THE TRANSACTIONS

LETTER FROM THE BOARD

7. SHAREHOLDERS’ APPROVAL OF THE CONTINUING CONNECTED TRANSACTIONS AND WAIVER FROM THE STOCK EXCHANGE

LETTER FROM THE BOARD

8. ADVICE TO SHAREHOLDERS

9. ADDITIONAL INFORMATION

TSE SUI LUEN JEWELLERY (INTERNATIONAL) LIMITED

CONTINUING CONNECTED TRANSACTIONS

LETTER OF ADVICE FROM EQUITAS

CONTINUING CONNECTED TRANSACTIONS

LETTER OF ADVICE FROM EQUITAS

THE CONTINUING CONNECTED TRANSACTIONS

Background

LETTER OF ADVICE FROM EQUITAS

LETTER OF ADVICE FROM EQUITAS

Particulars of the Continuing Connected Transactions

LETTER OF ADVICE FROM EQUITAS

LETTER OF ADVICE FROM EQUITAS

(ii) sub-licensing

(iii) consultancy services

LETTER OF ADVICE FROM EQUITAS

(iv) commissions

Breach of Listing Rules

LETTER OF ADVICE FROM EQUITAS

Application for waiver

Table of Cap Amounts

LETTER OF ADVICE FROM EQUITAS

Shareholders’ Approval of the Continuing Connected Transactions

As referred to in the section headed “7. SHAREHOLDERS’ APPROVAL AND WAIVER FROM

PRINCIPAL FACTORS AND REASONS

1. background to, and reasons for, the Continuing Connected Transactions

LETTER OF ADVICE FROM EQUITAS

2. the terms of the Continuing Connected Transactions

LETTER OF ADVICE FROM EQUITAS

3. the Cap Amounts

LETTER OF ADVICE FROM EQUITAS

4. Practice Note 19 disclosures

LETTER OF ADVICE FROM EQUITAS

5. other considerations

OUR OPINION AND ADVICE

APPENDIX

1. RESPONSIBILITY STATEMENT

2. DISCLOSURE OF INTERESTS

(a) Directors’ interests and short positions in shares, underlying shares and debentures of the Company

(b) Substantial interests and short positions in shares and underlying shares of the Group

APPENDIX

3. DIRECTORS’ SERVICE CONTRACTS

Ko Yo Chemical (Group) Limited Proxy Solicitation & Information Statement 2003