New World Development Company Limited — Proxy Solicitation & Information Statement 2002

Sep 23, 2002

IMPORTANT

If you are in any doubt about 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 Hang Lung Group Limited, you should at once hand this circular 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.

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.

HANG LUNG GROUP LIMITED

(incorporated in Hong Kong with limited liability)

• (i) Connected transactions regarding the proposed acquisition by HLP (or its designated subsidiary or subsidiaries) as the Purchaser of the interests of the HLG Group in 460,575,581 A Shares and 417,686,735 B Shares in GHH

• (ii) Possible mandatory unconditional cash offers by Platinum Securities Company Limited on behalf of the Purchaser for all the Shares (other than those already owned or agreed to be acquired by the Purchaser and parties acting in concert with it)

(iii) Proposed privatisation of GHH

Independent Financial Adviser to the Independent HLG Shareholders

UBS Warburg Asia Limited

A letter from the HLG Board is set out on pages 5 to 18 of this circular. A letter from UBS Warburg, the independent financial adviser to the Independent HLG Shareholders, is set out on pages 19 to 27 of this circular. A notice of the extraordinary general meeting of Hang Lung Group Limited to be held at 4:00 p.m. on 8th October, 2002 at 28th Floor, Standard Chartered Bank Building, 4 Des Voeux Road Central, Hong Kong is set out on pages 40 to 41 of this circular. Whether or not you are able to attend the meeting, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon as soon as possible and in any event not less than 48 hours before the time appointed for holding the extraordinary general meeting to the share registrar of Hang Lung Group Limited, Computershare Hong Kong Investor Services Limited, at 17th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong. Completion and return of the form of proxy shall not preclude you from attending and voting at the extraordinary general meeting of Hang Lung Group Limited if you so wish.

20th September, 2002

Hang Lung Group Limited

CONTENTS

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the HLG Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
Letter from UBS Warburg . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	19
Appendix I — Property valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	28
Appendix II — Financial information of The Wesley . . . . . . . . . . . . . . . . . . . . . . . . .	34
Appendix III — General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	35
Notice of the HLG EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	40

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Hang Lung Group Limited

DEFINITIONS

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

“A Shares” ordinary A shares of nominal value of HK$0.10 each in the capital of GHH; “A Share Offer” the possible unconditional cash offer by Platinum on behalf of the Purchaser for the A Shares in issue (other than those already owned or agreed to be acquired by the Purchaser and parties acting in concert with it), details of which are set out in this circular; “Acquisitions” the acquisitions by the Purchaser of the interests of the HLG Group in 460,575,581 A Shares and 417,686,735 B Shares under the S&P Agreement, being an interest representing approximately 74.1% and 69.6% of the A Shares and B Shares respectively in issue as at the Latest Practicable Date through the acquisition of:

• (a) 332,047,066 A Shares and 417,686,735 B Shares directly; and

• (b) the entire issued share capital of, and Shareholders’ Loans to, Hang Far Company Limited and Hoi Sang Limited, two wholly-owned subsidiaries of HLG holding 128,528,515 A Shares in aggregate;

• “Announcements” the joint announcement dated 28th August, 2002 made by HLG, HLP and GHH in relation to the Acquisitions and the transactions contemplated thereunder and the joint announcement dated 29th August, 2002 made by HLG, HLP and GHH in relation to the Offers;

• “Assignee” Noble Hill Limited, a company incorporated in the British Virgin Islands and a wholly-owned subsidiary of HLP;

• “Assignor” Jackpot Limited, a company incorporated in the British Virgin Islands and a wholly-owned subsidiary of HLG;

• “associate(s)” has the meaning ascribed thereto under the Listing Rules; “B Shares” ordinary B shares of nominal value of HK$0.01 each in the capital of GHH;

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Hang Lung Group Limited

DEFINITIONS

“B Share Offer”	the possible unconditional cash offer by Platinum on behalf of
	the Purchaser for the B Shares in issue (other than those
	already owned or agreed to be acquired by the Purchaser and
	parties acting in concert with it), details of which are set out
	in this circular;
“Chesterton”	Chesterton Petty Limited, the independent valuer of the
	properties owned by GHH;
“Cole”	Cole Limited, being the trustee for certain trusts holding
	shares in HLG, HLP and GHH. An associate of Mr. Gerald
	Lokchung Chan, a non-executive HLG Director, is a member
	of a wide class of discretionary objects of one of the trusts;
“Companies Ordinance”	Companies Ordinance (Chapter 32 of the Laws of Hong
	Kong);
“Completion”	completion of the S&P Agreement;
“connected person(s)”	has the meaning ascribed thereto under the Listing Rules;
“GHH”	Grand Hotel Holdings Limited, a company incorporated in
	Hong Kong with limited liability, the Shares of which are
	listed on the Stock Exchange;
“GHH Group”	GHH and its subsidiaries;
“HLG”	Hang Lung Group Limited (formerly known as “Hang Lung
	Development Company, Limited”), a company incorporated
	in Hong Kong, the shares of which are listed on the Stock
	Exchange;
“HLG Board”	the board of HLG Directors;
“HLG Director(s)”	director(s) of HLG;
“HLG EGM”	the extraordinary general meeting of HLG to be convened for
	the purpose of considering and, if thought fit, passing an
	ordinary resolution to approve the Acquisitions;
“HLG Group”	HLG and its subsidiaries;
“HLG Share(s)”	ordinary shares of nominal value of HK$1.00 each in the
	capital of HLG;
“HLG Shareholder(s)”	holder(s) of HLG Share(s);

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Hang Lung Group Limited

DEFINITIONS

“HLP”	Hang Lung Properties Limited (formerly known as “Amoy
	Properties Limited”), a company incorporated in Hong Kong,
	the ordinary shares of which are listed on the Stock Exchange
	and is held as to approximately 61.2% by its controlling
	shareholder, HLG;
“HLP Director(s)”	director(s) of HLP;
“HLP EGM”	the extraordinary general meeting of HLP to be convened for
	the purpose of considering and, if thought fit, passing an
	ordinary resolution to approve the Acquisitions;
“HLP Group”	HLP and its subsidiaries;
“Hong Kong”	the Hong Kong Special Administrative Region of the People’s
	Republic of China;
“Independent HLG Shareholders”	HLG Shareholders other than Cole and its associates (as
	defined in the Listing Rules);
“Latest Practicable Date”	17th September, 2002, being the latest practicable date prior
	to the printing of this circular for ascertaining certain
	information in this circular;
“Listing Rules”	the Rules Governing the Listing of Securities on The Stock
	Exchange of Hong Kong Limited;
“Offers”	the A Share Offer and the B Share Offer;
“Platinum”	Platinum Securities Company Limited, a registered
	investment adviser and registered dealer under the Securities
	Ordinance (Chapter 333 of the Laws of Hong Kong);
“Purchaser”	HLP or, if HLP designates a wholly-owned subsidiary or
	subsidiaries as the purchaser under the S&P Agreement, such
	wholly-owned subsidiary or subsidiaries (as the case may be);
“S&P Agreement”	the conditional sale and purchase agreement dated 28th
	August, 2002 entered into between, among others, HLP and
	HLG relating to the Acquisitions;
“Sale Share(s)”	the 332,047,066 A Shares and 417,686,735 B Shares and the
	entire issued share capital of Hang Far Company Limited and
	Hoi Sang Limited, two wholly-owned subsidiaries of HLG
	holding 128,528,515 A Shares in aggregate, to be sold by the
	HLG Group under the S&P Agreement, representing an
	interest in approximately 74.1% and 69.6% of the A Shares
	and B Shares respectively in issue as at the Latest Practicable
	Date;

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Hang Lung Group Limited

DEFINITIONS

“SFC” the Securities & Futures Commission of Hong Kong; “Share(s)” A Shares and B Shares; “Shareholder(s)” holders of A Shares and/or B Shares; “Shareholder’s Loan 1” an unsecured interest-free loan in the principal amount of approximately HK$223.2 million owing by Hang Far Company Limited to the Assignor, each a wholly-owned subsidiary of HLG; “Shareholder’s Loan 2” an unsecured interest-free loan in the principal amount of approximately HK$13.2 million owing by Hoi Sang Limited to the Assignor, each a wholly-owned subsidiary of HLG; “Shareholders’ Loans” Shareholder’s Loan 1 and Shareholder’s Loan 2; “Stock Exchange” The Stock Exchange of Hong Kong Limited; “Takeovers Code” the Hong Kong Code on Takeovers and Mergers; “UBS Warburg” UBS Warburg Asia Limited, an investment adviser registered under the Securities Ordinance (Chapter 333 of the Laws of Hong Kong) and the independent financial adviser to the Independent HLG Shareholders; “HK$” Hong Kong dollar(s), the lawful currency of Hong Kong; and “%” percentage.

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Hang Lung Group Limited

LETTER FROM THE HLG BOARD

HANG LUNG GROUP LIMITED

(incorporated in Hong Kong with limited liability)

Executive Directors: Ronnie Chichung Chan (Chairman) Nelson Wai Leung Yuen Wilfred Sai Leung Ho Terry Sze Yuen Ng

Registered office:

28/F, Standard Chartered Bank Building 4 Des Voeux Road Central Hong Kong

Non-Executive Directors:

Gerald Lokchung Chan Laura Lok Yee Chen

Independent Non-Executive Directors:

Shang Shing Yin Hon Kwan Cheng Simon Sik On Ip

20th September, 2002

To the HLG Shareholders

Dear Sir or Madam,

• (i) Connected transactions regarding the proposed acquisition by HLP (or its designated subsidiary or subsidiaries) as the Purchaser of the interests of the HLG Group in 460,575,581 A Shares and 417,686,735 B Shares in GHH

• (ii) Possible mandatory unconditional cash offers by Platinum Securities Company Limited on behalf of the Purchaser for all the Shares (other than those already owned or agreed to be acquired by the Purchaser and parties acting in concert with it)

(iii) Proposed privatisation of GHH

INTRODUCTION

On 28th August, 2002, the HLG Directors announced that HLG had entered into the S&P Agreement with, among others, HLP pursuant to which HLP agreed to, among other things, purchase, or procure to purchase, from HLG or its wholly-owned subsidiaries, their entire interests in

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Hang Lung Group Limited

LETTER FROM THE HLG BOARD

460,575,581 A Shares and 417,686,735 B Shares at approximately HK$847.5 million in aggregate for the A Shares and approximately HK$76.9 million in aggregate for the B Shares, representing a total consideration of approximately HK$924.4 million. Such consideration is calculated based on an agreed price of HK$1.84 per A Share and HK$0.184 per B Share respectively. Completion of the Acquisitions is conditional on a number of conditions as set out below under the section headed “Conditions of the S&P Agreement”.

Upon Completion, the Purchaser and its concert parties will be interested in 477,093,067 A Shares and 438,282,785 B Shares, representing approximately 76.8% and 73% of the A Shares and B Shares respectively in issue. Pursuant to Rule 26.1 of the Takeovers Code, upon Completion, Platinum will, on behalf of the Purchaser, make a mandatory unconditional general offer for each class of A Shares and B Shares in issue which are not already owned or agreed to be acquired by the Purchaser and parties acting in concert with it.

As stated in the Announcements, in the event that the Offers are made on behalf of the Purchaser after Completion and, upon closing of the Offers, not less than 90% in value of each class of the disinterested A Shares and the disinterested B Shares for which the Offers are made have been acquired by the Purchaser, it is the intention of the Purchaser to avail itself of the compulsory acquisition provisions of the Companies Ordinance and an application will be made for the withdrawal of the listing of the Shares on the Stock Exchange.

HLG is the holding company of HLP, holding approximately 61.2% of its issued share capital. The Acquisitions accordingly constitute connected transactions for each of HLG and HLP and are subject to, among other conditions, the approval of the independent shareholders of each of HLG and HLP. An extraordinary general meeting of each of HLG and HLP will be convened for the purposes of seeking such approval. The HLG EGM to be convened will be held at 4:00 p.m. on 8th October, 2002 at 28th Floor, Standard Chartered Bank Building, 4 Des Voeux Road Central, Hong Kong at which an ordinary resolution will be proposed to approve the Acquisitions and will be voted on by the Independent HLG Shareholders. In view of Cole’s interest in the Acquisitions, Cole and its associates are required under the Listing Rules to abstain from voting on the resolution. In view of the interests of HLG in the Acquisitions, HLG will also abstain from voting at the HLP EGM.

An associate of Mr. Gerald Lokchung Chan, a non-executive HLG Director, is a member of a wide class of discretionary objects of a trust, for which Cole is holding shares in HLG and GHH as the trustee. Ms. Laura Lok Yee Chen, another non-executive HLG Director, is a common director of both HLG and HLP Messrs. Shang Shing Yin and Hon Kwan Cheng are common directors of both HLG and HLP and Mr. Simon Sik On Ip is a partner of Johnson Stokes & Master, legal adviser of HLG in respect of the Acquisitions. As such, none of the non-executive HLG Directors and independent non-executive HLG Directors is considered appropriate to be appointed members of the independent board committee to advise the Independent HLG Shareholders on the Acquisitions. Accordingly, UBS Warburg has been appointed as the independent financial adviser to advise the Independent HLG Shareholders directly.

The purpose of this circular is to provide you with details of the Acquisitions, to set out the advice from UBS Warburg in relation to the Acquisitions and to give you notice of the HLG EGM at which your approval of the Acquisitions will be sought.

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Hang Lung Group Limited

LETTER FROM THE HLG BOARD

S&P AGREEMENT

Date

28th August, 2002

Parties

• (1) HLG, as vendor

• (2) HLP, as purchaser

• (3) the Assignor, as assignor of the Shareholders’ Loans

• (4) the Assignee, as assignee of the Shareholders’ Loans

Interests to be acquired

Under the S&P Agreement, HLP has agreed to purchase (or procure the purchase by its designated wholly-owned subsidiary or subsidiaries of):

• (a) 332,047,066 A Shares and 417,686,735 B Shares; and

• (b) the entire issued share capital of, and the Shareholders’ Loans to, Hang Far Company Limited and Hoi Sang Limited, two special purpose wholly-owned subsidiaries of HLG holding 128,528,515 A Shares in aggregate.

The above Shares to be acquired represent an ultimate interest in 460,575,581 A Shares and 417,686,735 B Shares, currently owned by HLG indirectly through its wholly-owned subsidiaries, constituting HLG’s entire interest in GHH, representing approximately 74.1% and 69.6% of the A Shares and B Shares respectively in issue as at the Latest Practicable Date.

Purchase price

Approximately HK$924.4 million in aggregate, based on an agreed price of HK$1.84 per A Share and HK$0.184 per B Share respectively, will be payable in cash upon Completion. The purchase price was determined with reference to the consolidated net asset value of the GHH Group and adjusted with reference to the valuation of the Grand Tower Hotel, the Grand Plaza Hotel and the Grand Plaza Apartments as at 28th August, 2002 by Chesterton (the valuation of these properties has been set out in Appendix I to this circular) and the value of the management contract of The Wesley. The Wesley is not owned by GHH but is managed by one of its wholly owned subsidiaries. The value of the management contract of The Wesley has been determined to be an obligation of approximately HK$90 million, which has not been independently verified, with reference to its financial performance for the three latest financial years as disclosed in Appendix II to this circular and the major terms of the management contract. Such terms include, but are not limited to, a guaranteed annual minimum income to the owner of The Wesley of HK$11 million for the next five years of the remaining contract and HK$15 million for the last five remaining years. The contract is non-transferrable and is

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Hang Lung Group Limited

LETTER FROM THE HLG BOARD

terminable only upon the liquidation of the owner of The Wesley or if the owner breaches the contract or if the GHH Group breaches its obligation to operate The Wesley until the end of the contract term. In addition to these factors, the HLG Directors and the HLP Directors have sought an independent assessment of such management contract to further evaluate the value they have placed on this management contract. The independent assessment took into consideration a cashflow forecast which, due to Auditing Guideline limitations, cannot fulfill the requirements of Rule 10 of the Takeovers Code. Consequently, the independent assessment report has not been included in this circular. The purchase price of HK$1.84 per A Share and HK$0.184 per B Share represents:

• a premium of approximately 116.5% and 114% over the closing prices of the A Shares and the B Shares respectively on the Stock Exchange on 27th August, 2002, being the last trading day before suspension of trading of the Shares on the Stock Exchange on 28th August, 2002;

• a premium of approximately 116.5% and 119.1% over the average closing prices of the A Shares and the B Shares respectively for the consecutive 30 trading days ended on 27th August, 2002;

• a premium of approximately 106.7% and 111.5% over the average closing prices of the A Shares and the B Shares respectively for the consecutive 90 trading days ended on 27th August, 2002;

• a discount of approximately 25.2% to the audited consolidated net asset value per A Share and per B Share as at 30th June, 2002; and

• an amount equivalent to the audited consolidated net asset value per A Share and per B Share as at 30th June, 2002, adjusted with reference to the latest valuations of the real properties of GHH and the value of the outstanding management contract of The Wesley.

Basis for the Consideration

The consideration and other terms of the S&P Agreement were negotiated on an arm’s length basis and based on normal commercial terms. The consideration payable was determined by reference to:

• (a) in respect of the 332,047,066 A Shares and the 417,686,735 B Shares, with reference to the consolidated net asset value of the GHH Group of approximately HK$1,673.5 million as shown in the latest audited accounts of the GHH Group as at 30th June, 2002, adjusted with reference to an independent valuation of the properties of the GHH Group as at 28th August, 2002 by Chesterton (the valuation of these properties has been set out in Appendix I to this circular) and the value of the management contract of The Wesley; and

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Hang Lung Group Limited

LETTER FROM THE HLG BOARD

• (b) in respect of the remaining interest in 128,528,515 A Shares in total to be acquired through the purchase of the entire issued share capital of, and the Shareholders’ Loans to, Hang Far Company Limited and Hoi Sang Limited, with reference to:

• the unaudited net asset value of the entire equity interest in Hang Far Company Limited and Hoi Sang Limited of HK$7,090 and HK$5,302 respectively as shown in their latest management accounts as at 31st July, 2002, having taken into account the purchase price of HK$1.84 per A Share; and

• the face value of the Shareholders’ Loans for an aggregate of approximately HK$236.4 million.

Although the net asset value per A Share and per B Share with reference to the GHH Group’s latest audited accounts as at 30th June, 2002 were approximately HK$2.46 and HK$0.246 respectively, these values reflect the historical costs of the assets of the GHH Group. In an effort to determine a fair purchase price, HLG, HLP and GHH commissioned a valuation of the properties of GHH Group to help them ensure that the assets to be sold and acquired reflect their fair value. With the independent valuation from Chesterton taking into account the enhancement in value as a result of the potential change of usage of these properties, and the value of the management contract of The Wesley, the net asset value of the GHH Group is adjusted to HK$1.84 per A Share and HK$0.184 per B Share. As such, the HLG Directors and the HLP Directors have agreed to use this latest valuation of the Shares to form the basis of the purchase price.

During negotiation, further consideration was given to the fact that HLG and HLP are connected parties. The Acquisitions are subject to the approval of the independent shareholders of both HLG and HLP, and it would be necessary and prudent to determine a purchase price that is fair and reasonable to both HLG and HLP. The HLG Directors are of the view that since the Acquisitions are transactions between HLG and its non-wholly owned subsidiaries in an attempt to build up the overall property portfolio of the HLG Group, neither a premium nor a discount to the net asset value would be considered appropriate in the circumstance. On this basis, the HLP Directors and the HLG Directors agreed to strike the price at the adjusted net asset value of the GHH Group of HK$1.84 per A Share and HK$0.184 per B Share.

Conditions of the S&P Agreement

Completion of the S&P Agreement is conditional upon the following conditions being fulfilled:

• (a) the HLG Shareholders who are not required by the Listing Rules to abstain from voting having passed an ordinary resolution to approve the Acquisitions at the HLG EGM to be convened;

• (b) the shareholders of HLP who are not required by the Listing Rules to abstain from voting having passed an ordinary resolution to approve the Acquisitions at the HLP EGM to be convened; and

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Hang Lung Group Limited

LETTER FROM THE HLG BOARD

• (c) all relevant consents of the Stock Exchange, the SFC and any other applicable governmental or regulatory authorities having been given in respect of the Acquisitions and all applicable statutory or other legal obligations have been complied with.

Completion

Completion of the Acquisitions will take place on the day immediately after the date on which the conditions of the S&P Agreement have been fulfilled and is expected to take place on 9th October, 2002. In the event that any condition of the S&P Agreement is not fulfilled by 31st December, 2002 (or such later date as the parties to the S&P Agreement may agree), the S&P Agreement will lapse automatically.

SHAREHOLDING STRUCTURE

Set out below is a table showing the existing shareholding structure of GHH and the shareholding structure of GHH immediately after Completion:

Existing shareholding structure of GHH Number of A Shares % Number of B Shares 15,765,607 2.54 20,396,065 460,575,581 74.09 417,686,735 — — — 171,879 0.03 199,985 580,000 0.09 —	Existing shareholding structure of GHH Number of A Shares % Number of B Shares 15,765,607 2.54 20,396,065 460,575,581 74.09 417,686,735 — — — 171,879 0.03 199,985 580,000 0.09 —	Existing shareholding structure of GHH Number of A Shares % Number of B Shares 15,765,607 2.54 20,396,065 460,575,581 74.09 417,686,735 — — — 171,879 0.03 199,985 580,000 0.09 —	% 3.40 69.61 — 0.03 —	Shareholding structure of GHH immediately after Completion Number of A Shares % Number of B Shares % 15,765,607 2.54 20,396,065 3.40 — — — — 460,575,581 74.09 417,686,735 69.61 171,879 0.03 199,985 0.03 580,000 0.09 — —	Shareholding structure of GHH immediately after Completion Number of A Shares % Number of B Shares % 15,765,607 2.54 20,396,065 3.40 — — — — 460,575,581 74.09 417,686,735 69.61 171,879 0.03 199,985 0.03 580,000 0.09 — —	Shareholding structure of GHH immediately after Completion Number of A Shares % Number of B Shares % 15,765,607 2.54 20,396,065 3.40 — — — — 460,575,581 74.09 417,686,735 69.61 171,879 0.03 199,985 0.03 580,000 0.09 — —	Shareholding structure of GHH immediately after Completion Number of A Shares % Number of B Shares % 15,765,607 2.54 20,396,065 3.40 — — — — 460,575,581 74.09 417,686,735 69.61 171,879 0.03 199,985 0.03 580,000 0.09 — —
477,093,067 144,538,159	76.75 23.25	438,282,785 161,717,215	73.04 26.96	477,093,067 144,538,159	76.75 23.25	438,282,785 161,717,215	73.04 26.96

Note: Each of (i) Cole, (ii) an HLP Director who is also a director of GHH, and (iii) Platinum, being the financial adviser to HLP, has been deemed to be a concert party of HLP in respect of the Offers.

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Hang Lung Group Limited

LETTER FROM THE HLG BOARD

The following diagrams illustrate the simplified shareholding structure as amongst HLP, HLG and GHH as at the Latest Practicable Date and immediately after completion of the compulsory acquisition and withdrawal of listing of GHH from the Stock Exchange respectively:

Simplified shareholding structure as at the Latest Practicable Date

==> picture [397 x 245] intentionally omitted <==

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

Cole
2.5% A Shares 1%
3.4% B Shares
36%
HLG
(listed)
74.1% A Shares 61.2%
69.6% B Shares
GHH HLP
(listed) (listed)
----- End of picture text -----

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Hang Lung Group Limited

LETTER FROM THE HLG BOARD

Simplified shareholding structure immediately after completion of the compulsory acquisition and withdrawal of listing of GHH from the Stock Exchange

==> picture [173 x 313] intentionally omitted <==

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

Cole
36%
HLG
1%
(listed)
61.2%
HLP
(listed)
100% A Shares
100% B Shares
GHH
(unlisted)
----- End of picture text -----

REASONS FOR THE ACQUISITIONS AND THE OFFERS

It is part of the ordinary course of business of HLG to look for opportunities to build its land bank for future development via its property flagship company HLP and to streamline the property portfolio within the HLG Group to create synergy and to facilitate more efficient management and control. It is therefore logically and strategically advantageous for HLG Group to consolidate the ownership and management of the properties of GHH, namely the Grand Tower Hotel, the Grand Plaza Hotel and the Grand Plaza Apartments, which are contiguous to the Grand Tower Arcade and the Kornhill Plaza held by HLP. Since the properties are an integral part of the other properties under HLP, this would have the benefit of generating greater synergy in the current property market, thus releasing the full potential of the properties. Though the costs for the Acquisitions can alternatively be deployed for acquiring other properties in Mongkok and Quarry Bay, availability of properties for sale in such developed areas is limited and chances of acquiring comparable plots are very low. Acquiring properties in such areas also often involve acquisition of old buildings and vacating the existing residents. That would be a lengthy and cumbersome task, and hence, a costly process. Therefore, it is attractive to the HLG Group to consolidate these properties held by GHH under HLP, en bloc, and readily convert them into revenue generating properties for the overall HLG Group. The timing involved in the conversion of these two properties will be substantially less than that required for land acquisition, demolition and construction. With minimal conversion work required and the approval by the Government for the change in use of the properties, they can expediently become investment properties contributing to the revenue for the overall HLG Group.

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Hang Lung Group Limited

LETTER FROM THE HLG BOARD

As stated in the Announcements, HLP intends to renovate the properties and change their use to realise the full potential of these properties in today’s property market. The plan is to convert the Grand Tower Hotel into offices with ancillary commercial facilities as leasing of offices in that prime location and commercial centre would be more profitable than operating a hotel today. There are other office-buildings in Mongkok which may pose competition to the converted Grand Tower Hotel. However, Grand Tower Hotel is situated on one of the busiest commercial streets in Hong Kong, Nathan Road, and is conveniently located near the Mongkok Mass Transit Railway Station. Its renovation will further set it apart from the office buildings nearby. Its strategic location and the refurbished interior will provide it with much advantage over competition in the area. Furthermore, HLP is currently already operating four office buildings, namely Ritz Building, Park-In Commercial Centre, Hollywood Plaza and Argyle Centre Phase I in the same district which should result in further synergy in property management. Based on the HLP property portfolio yielding between a range of 6% to 8%, the HLG Directors believe the management of HLP would endeavor to achieve a similar yield for the converted property.

Meanwhile, the Grand Plaza Hotel will be converted into serviced apartments so that the entire block becomes serviced apartments. The benefit of converting the Grand Plaza Hotel into serviced apartments will largely come from significant enhancement of cost efficiency and effectiveness. The staff size required to manage the serviced apartments is expected to be significantly less than that for managing a hotel. Operation of a hotel would require staff to be on duty at all times. However, this is not required for serviced apartments. Furthermore, as there are not many recognised sizeable serviced apartment blocks in close proximity to the Grand Plaza Hotel in Kornhill, competition is limited. In addition, the range of possible tenants for serviced apartments is much wider than the hotel market as Hong Kong residents or expatriates do not typically rent hotel rooms on a medium to long term basis. However, people such as single professionals, married couples without children, as well as short-term visitors to Hong Kong may consider leasing serviced apartments. Since the serviced apartment block in the Kornhill area is close to the Taikoo Mass Transit Railway Station, it provides convenient transportation for the residents and attracts potential tenants. The existing serviced apartments in Kornhill, the Grand Plaza Apartments, has achieved over 90% occupancy rate for the last three financial years ended 30th June, 2002 and the average revenue generated per room is higher than that generated from hotel rooms within the GHH Group. Given the high occupancy rate, it is believed that serviced apartments in the Kornhill area are in demand.

With the two properties converted, the HLG Directors believe that HLP could expect better returns on investment to be generated through enhanced economies of scale. There will be limited governmental approval required in the conversion given there is no change in the land use. The only approval required is for buildings work which is a standard application for any conversion work. It is estimated that the conversion of the Grand Tower Hotel will require approximately HK$70 million and for converting the Grand Plaza Hotel will be approximately HK$10 million. As stated in the Announcements, the HLP Directors are of the view that by carrying out the changes outline above, HLP will be able to realise the maximum potential value from the properties for its shareholders upon the completion of the Acquisitions.

— 13 —

Hang Lung Group Limited

LETTER FROM THE HLG BOARD

The objective of the Acquisitions is therefore to further enhance shareholders’ value for all the shareholders of the companies within the HLG Group. The effective shareholding of HLG in GHH will only decrease from an effective holding of approximately 74.1% of the A Shares and 69.6% of the B Shares to approximately 61.2% of the issued share capital of GHH immediately after the completion of a compulsory acquisition and withdrawal of the listing of GHH from the Stock Exchange. GHH effectively remains an indirect subsidiary of HLG.

INFORMATION ON HLG

HLG is a company listed on the Stock Exchange and has been involved in property development in Hong Kong for over 40 years. HLG is responsible for a growing list of developments throughout Hong Kong, and is active in Mainland China where its business has been concentrated in Shanghai since 1992. The new property development interests of HLG Group are now held through the HLP Group and its hotel investments are held through the GHH Group.

INFORMATION ON HLP

HLP is the property arm of HLG, being one of the largest property development and investment companies in Hong Kong in terms of its market capitalisation and with over 40 years of operation in the Hong Kong property market. HLP is a 61.2% owned subsidiary of the HLG Group.

INFORMATION ON GHH

Background and principal activities

GHH is a subsidiary of HLG. The principal activities of GHH are investment holding, and through its subsidiaries, ownership and management of hotels and serviced apartments. GHH owns and manages the Grand Tower Hotel in Mongkok and the Grand Plaza Hotel and Grand Plaza Apartments in Quarry Bay. It also manages The Wesley in Wanchai and The Bay Bridge in Tsuen Wan.

Financial information

The following table sets out a summary of the audited consolidated results of the GHH Group for the three years ended 30th June, 2002:

	**For the year **	**ended 30th **	June (audited)
	2000	2001	2002
	HK$’Million	HK$’Million	HK$’Million
Turnover	264.2	271.9	224.4
Net profits attributable to shareholders	21.3	33.0	18.2

The audited consolidated net asset value of the GHH Group as at 30th June, 2002 was approximately HK$1,673.5 million, representing HK$2.46 per A Share and HK$0.246 per B Share.

— 14 —

Hang Lung Group Limited

LETTER FROM THE HLG BOARD

The audited consolidated net asset value per A Share and per B Share as at 30th June, 2002 adjusted by reference to the latest valuation of the real properties of GHH and the value of the management contract of The Wesley are HK$1.84 and HK$0.184 respectively.

CONNECTED TRANSACTIONS

HLG is the holding company of HLP, holding approximately 61.2% of its issued share capital. The Acquisitions accordingly constitute connected transactions for each of HLG and HLP within the meaning of the Listing Rules. As a result, the Acquisitions are subject to the approval of the independent shareholders of each of HLG and HLP. Each of HLG and HLP will convene an extraordinary general meeting to be held respectively to consider the Acquisitions. As mentioned above, Cole and its associates will abstain from voting at the HLG EGM. In view of the interests of HLG in the Acquisitions, HLG will also abstain from voting at the HLP EGM. The HLG Directors consider the terms of the Acquisitions to be fair and reasonable and in the interest of HLG and the HLG Shareholders as a whole.

POSSIBLE UNCONDITIONAL CASH OFFERS

Background

Upon Completion, the Purchaser and its concert parties will be interested in 477,093,067 A Shares and 438,282,785 B Shares, representing approximately 76.8% and 73% of the A Shares and B Shares respectively in issue. Under Rule 26.1 of the Takeovers Code, upon Completion, the Purchaser will be required to make a mandatory unconditional general offer in respect of each class of Shares, being the A Shares and B Shares in issue, not already owned or agreed to be acquired by the Purchaser and parties acting in concert with it.

As the Offers will only be made if Completion of the S&P Agreement takes place, the making of the Offers is a possibility only and the Offers may or may not proceed.

If the Offers are made, they will be made on the terms set out below.

The Offers

If Completion takes place, Platinum will, on behalf of the Purchaser, make a mandatory unconditional cash offers for all the Shares in issue, other than those already owned or agreed to be acquired by the Purchaser and parties acting in concert with it. The Offers will comprise the A Share Offer and the B Share Offer, which will be made on the following basis:

A Share Offer: offer price of HK$1.84 in cash for each A Share, which is equivalent to the agreed value per A Share under the Acquisitions; and B Share Offer: offer price of HK$0.184 in cash for each B Share, which is equivalent to the agreed value per B Share under the Acquisitions.

— 15 —

Hang Lung Group Limited

LETTER FROM THE HLG BOARD

Conditions for the Offers

If the Offers are made, they will be unconditional.

Total consideration

In the event that the A Share Offer and the B Share Offer are accepted in full, the aggregate amount payable by the Purchaser under the A Share Offer and the B Share Offer would be approximately HK$266 million and HK$29.8 million respectively, being approximately HK$295.8 million in aggregate. The Offers will be funded by internal resources and/or bank financing of the HLP Group.

COMPULSORY ACQUISITION AND WITHDRAWAL OF LISTING OF GHH

As mentioned in the Announcements, if valid acceptances are received by the Purchaser (and not, unless permitted by the Takeovers Code, withdrawn) for each of the classes of A Shares and B Shares amounting to not less than 90% in value of the disinterested A Shares and the disinterested B Shares respectively in issue for which the Offers are made, it is the intention of the Purchaser to avail itself of the compulsory acquisition provisions under section 168 of the Companies Ordinance to acquire all the Shares. Subsequent to such compulsory acquisition, GHH will become a wholly-owned subsidiary of HLP, and an application will be made to the Stock Exchange for the withdrawal of the listing of the Shares on the Stock Exchange.

In the event that the acceptances of the Offers do not amount to 90% or more of the value of the disinterested A Shares and the disinterested B Shares respectively in issue, GHH will seek the approval of its independent Shareholders for the withdrawal of listing of the Shares on the Stock Exchange in accordance with Rule 2.2 of the Takeovers Code and Rule 6.12 of the Listing Rules.

If the Shareholders elect not to accept the Offers and the listing of the Shares on the Stock Exchange is subsequently withdrawn, Shareholders who elect not to accept the Offer(s) would be left holding Shares in an unlisted company, in which circumstances there may not be a market with liquidity for such Shares.

Subject to GHH maintaining its listing and prescribed minimum public float on the Stock Exchange, the Stock Exchange will closely monitor all future acquisitions or disposals of assets by GHH. The Stock Exchange has the discretion to require GHH to issue a circular to its Shareholders irrespective of the size of any proposed transaction, particularly when such proposed transaction represents a departure from the principal activities of GHH. The Stock Exchange also has the power to aggregate a series of transactions and any such transactions may result in GHH being treated as if it were a new listing applicant.

— 16 —

Hang Lung Group Limited

LETTER FROM THE HLG BOARD

INTENTION OF HLP REGARDING THE GHH GROUP

Business

As set out in the Announcements, the HLP Directors consider that the most efficient business plan to realise the full potential of these properties for HLP would be to carry out the following conversion work on the properties currently owned by GHH:

1. Grand Tower Hotel

The fifth to twentieth floors of the hotel will be converted into offices with ancillary commercial facilities as leasing of offices in that prime location and commercial centre would be more profitable than the operation of a hotel.

1. Grand Plaza Hotel

The existing 248 hotel rooms will be converted into serviced apartments so that the management of the entire block of serviced apartments can achieve economies of scale.

These two properties were acquired by GHH in 1988. With the extensive experience that the HLP Directors have in the Hong Kong property market, the changes in the property market over the past 14 years and the fact that it is time to review the scheduled maintenance plans for these properties, the HLG Directors are of the view that an overall review to consider the future plans and renovation of these properties held under GHH would be appropriate and efficient. Such changes in the use of the properties are a commercial decision in the ordinary course of business and the Acquisitions would facilitate such a plan.

Upon Completion, the operations of the two properties would be consolidated under the management of HLP Group for efficiency reasons. With that, only the hotel management contract for The Wesley and the service contract for The Bay Bridge will remain in GHH while the two converted properties would be managed and operated by HLP. With The Wesley management contract estimated to have a negative return, and the two converted properties generating passive income only, GHH will not have adequate operations nor promising growth potential to warrant a listing status. Such a listed company will find it difficult to attract new investors or maintain the investment interest of its existing minority shareholders. Furthermore, the resources allocated to maintain the listing would also not be cost-beneficial in the longer term. Therefore, as stated in the Announcements, the HLP Directors intend to privatise GHH and withdraw the listing of the Shares on the Stock Exchange upon completion of the Acquisitions and the Offers.

Directors of GHH

As stated in the Announcements, it is the intention of HLP that there will be no change in the composition of the board of directors of GHH as a result of the Acquisitions and the Offers.

So long as the Shares remain listed on the Stock Exchange, HLP will ensure that a sufficient number of independent directors will continue to be appointed to the board of GHH.

— 17 —

Hang Lung Group Limited

LETTER FROM THE HLG BOARD

EXTRAORDINARY GENERAL MEETING

A notice convening the HLG EGM to be held at 4.00 p.m. on 8th October, 2002 at 28th Floor, Standard Chartered Bank Building, 4 Des Voeux Road Central, Hong Kong is set out on pages 40 to 41 of this circular. At the HLG EGM, an ordinary resolution will be proposed to approve the Acquisitions and the transactions contemplated thereunder.

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

RECOMMENDATION

An associate of Mr. Gerald Lokchung Chan, a non-executive HLG Director, is a member of a wide class of discretionary objects of a trust, for which Cole is holding such shares in HLG and GHH as the trustee. Ms. Laura Lok Yee Chen, another non-executive HLG Director, is a common director of both HLG and HLP. Messrs. Shang Shing Yin and Hon Kwan Cheng are common directors of both HLG and HLP and Mr. Simon Sik On Ip is a partner of Johnson Stokes & Master, legal adviser of HLG in respect of the Acquisitions. As such, none of the non-executive HLG Directors and independent non-executive HLG Directors is considered appropriate to be appointed members of the independent board committee to advise the Independent HLG Shareholders on the Acquisitions. Accordingly, UBS Warburg has been appointed as the independent financial adviser to advise the Independent HLG Shareholders directly.

The text of the letter of advice from UBS Warburg, containing its opinion and the principal factors and reasons taken into account in arriving at its opinion as regards to the Acquisitions and the transactions contemplated thereunder is set out on pages 19 to 27 of this circular.

ADDITIONAL INFORMATION

Your attention is drawn to the additional information set out in Appendix I to III to this circular. Appendix I sets out the text of the letter, summary of values and valuation certificate received from Chesterton in connection with its valuations of the properties of GHH as at 28th August, 2002. There is no foreseeable potential tax liability in the context of Rule 11.3 of the Takeovers Code. Appendix II sets out certain financial information of The Wesley. Appendix III contains general information regarding HLG.

By Order of the Board Terry Sze Yuen Ng Executive Director

— 18 —

Hang Lung Group Limited

LETTER FROM UBS WARBURG

UBS Warburg

25/F One Exchange Square 8 Connaught Place Central, Hong Kong

20th September, 2002

The Independent Shareholders

Hang Lung Group Limited

Dear Sirs,

We have been appointed by the Board of Directors (the “Directors”) of Hang Lung Group Limited (“HLG” or the “Company”) as the independent financial adviser to the independent shareholders of HLG (the “Independent Shareholders”) in relation to the disposal (the “Transaction”) by HLG of its entire shareholding interest in Grand Hotel Holdings Limited (“GHH”) to Hang Lung Properties Limited (“HLP”), details of which are contained in this circular. As HLG is the holding company of HLP, holding approximately 61.2% of its issued share capital, the Transaction constitutes a connected transaction for each of HLG and HLP under the Listing Rules and is subject to the approval of the independent shareholders of each of HLG and HLP. As independent financial adviser, we are required to advise the Independent Shareholders as to whether or not the terms of the Transaction are fair and reasonable, from a financial perspective, so far as the Independent Shareholders are concerned. We note that none of the non-executive directors and independent non-executive directors of HLG is considered appropriate to be appointed members of an independent board committee of HLG, as stated elsewhere in this circular. Accordingly, we have been appointed to advise the Independent Shareholders directly. Terms used in this letter shall have the same meanings as defined elsewhere in this circular, unless otherwise defined or the context requires otherwise.

In determining our recommendation, we have assumed and relied upon, without independent verification, the accuracy and completeness of the information and representations contained in this circular and other information that were publicly available or furnished to us by the Company or otherwise reviewed by us for the purposes of formulating the recommendation. We have assumed that all statements contained in and representations made or referred to in this circular were true and accurate at the time they were made and continue to be so at the date of despatch of this circular and also assumed that all intentions of the Company and the Directors will be met or carried out as the case may be. We have been advised by the Directors that no material factors have been omitted and we are not aware of any facts or circumstances which would render the information provided and representations made to us untrue, inaccurate or misleading.

We consider that we have reviewed sufficient information to reach an informed view in order to provide a reasonable basis for our recommendation. However, we have not made any independent valuation of the assets of GHH and its subsidiaries (the “Group”) nor have we conducted any independent in-depth investigation into the business and affairs of HLG, HLP or the Group.

— 19 —

Hang Lung Group Limited

LETTER FROM UBS WARBURG

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our recommendation in respect of the terms of the Transaction, we have considered the following principal factors and reasons:

Strategic rationale

The principal activities of GHH are investment holding and, through its subsidiaries, ownership and management of hotels and serviced apartments. The Group owns and manages the Grand Tower Hotel in Mongkok and the Grand Plaza Hotel and Grand Plaza Apartments in Quarry Bay. It also manages The Wesley in Wanchai under a management contract and provides management services to The Bay Bridge in Tsuen Wan under a service contract.

We note that the Group has experienced substantial decline in the demand for its hotel accommodation. For the year ended 30 June 2002, the Group’s turnover fell approximately 17.5% to HK$224.4 million from HK$271.9 million for the year ended 30 June 2001. We note that the decline has been attributed primarily to the general economic slowdown and the changing mix of tourist arrivals in Hong Kong, in conjunction with increased competition in the hotel sector. As stated by the Directors, while occupancy rates have been maintained, room rates have declined primarily due to shorter visits and reduced spending by business travellers and tourists.

The Directors have stated that it is logically and strategically advantageous for the HLG group to consolidate the ownership and management of the Group’s properties, namely the Grand Tower Hotel, the Grand Plaza Hotel and the Grand Plaza Apartments, which are contiguous to the Grand Tower Arcade and the Kornhill Plaza held by HLP. Since the properties are an integral part of each other, the Directors believe that this would have the benefit of generating greater synergy. The Directors believe that it is attractive to the HLG group to consolidate these properties held by the Group under HLP, en bloc, and readily convert them into revenuegenerating properties for the overall HLG group.

In relation to the Grand Tower Hotel, which is situated on Nathan Road, Mongkok, in Kowloon, we note that HLP intends to convert the property into offices with ancillary commercial facilities as the leasing of offices in a prime location within the commercial centre of Kowloon is expected to be more profitable than operating a hotel, for the reasons stated above. In relation to the Grand Plaza Hotel in Quarry Bay, which currently comprises hotel rooms and service apartments, we note that HLP intends to convert the entire block into serviced apartments, thereby enabling HLP to enhance cost-efficiency and effectiveness.

The Directors believe that consolidation of the two hotel properties currently owned and managed by the Group (the “Hotel Properties”) within HLP is expected to generate better returns on investment through enhanced economies of scale. We note that the directors of HLP are of the view that by carrying out the changes as outlined above, HLP would be able to realise maximum

— 20 —

Hang Lung Group Limited

LETTER FROM UBS WARBURG

potential value from the Hotel Properties for its shareholders upon completion of the Transaction. Given that GHH remains effectively an indirect subsidiary of HLG, the Directors have stated that the objective of the Transaction is to further enhance shareholders’ value for all the shareholders of the companies within the HLG group.

In conducting our analysis, we have analysed the terms of the Transaction from a financial perspective. Accordingly, we have assumed that all intentions of the Directors as regards the strategic rationale will be carried out. Having considered the strategic rationale as stated, we note that the hotel business of the Group has suffered a decline for the reasons as described above. Based on our understanding of the business and property portfolio of HLP, we concur that the Hotel Properties as renovated in accordance with HLP’s intentions would appear to form a strategic fit with the existing business and property portfolio of HLP.

Price of the shares

In considering the prices at which the A and B Shares are proposed to be sold to HLP, which are HK$1.84 and HK$0.184 respectively (the “Sale Prices”), we have considered the Sale Prices against the trading prices of the A and B Shares on the Stock Exchange from 4 January 1999 up to 27 August 2002, being the trading day prior to the date on which the joint announcement was made by HLG, HLP and GHH in relation to the Transaction and the other transactions contemplated thereunder (the “Joint Announcement Date”).

Sale Prices compared against the trading prices of the A and B Shares

==> picture [417 x 215] intentionally omitted <==

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

2.00
1.80
1.60
1.40
1.20
1.00
0.80
0.60
0.40
0.20
0.00
GHH A Share A Share Sale Price GHH B Share B Share Sale Price
(HKD)
Price
Jan-99 Mar-99 May-99 Jun-99 Aug -99 Oct-99 Dec-99 Feb-00 Apr-00 Jun-00 Aug-00 Oct-00 Dec-00 Feb-01 Apr-01 Jun-01 Aug-01 Oct-01 Dec-01 Feb-02 Apr-02 Jun-02 Aug-02
----- End of picture text -----

Source: Bloomberg

— 21 —

Hang Lung Group Limited

LETTER FROM UBS WARBURG

Below is a table setting out the approximate premia of the Sale Prices over the average closing prices of the A and B Shares over selected periods of time.

	A Share		B Share
	price	Premium	price	Premium
	(HK$)		(HK$)
Closing price of the shares on 28 August	0.85	116.5%	0.086	114.0%
2002, the Joint Announcement Date
Closing price of the shares on 27 August	0.85	116.5%	0.086	114.0%
2002, the trading day immediately
preceding the Joint Announcement Date
Average closing price of the shares during	0.85	115.8%	0.084	120.0%
the one-month period up to 27 August
2002
Average closing price of the shares during	0.86	113.0%	0.085	117.0%
the six-month period up to 27 August
2002
Average closing price of the shares during	0.84	119.7%	0.085	115.6%
the one-year period up to 27 August
2002
Average closing price of the shares from	0.86	114.9%	0.084	119.5%
the period commencing 4 January 1999
up to 27 August 2002

Source: Bloomberg

The highest closing price for the A Shares for the period from 4 January 1999 up to the date prior to the Joint Announcement Date was HK$1.35 and the highest closing price for the B Shares for the same period was HK$0.143. The Sale Price for the A Shares represents a 36.3% premium to the highest closing price for this period and the Sale Price for the B Shares represents a 28.7% premium to the highest closing price for the same period. The Sale Prices for the A and B Shares represent a 2.2% and 2.2% premia to the respective closing prices of HK$1.80 and HK$0.180 as at the Latest Practicable Date.

For reference, we have also examined the performance of the A and B Shares against the Hang Seng Index, the Hang Seng Property Index and the HKSE All Ordinaries Hotels Index. As can be seen in the chart below, since 4 January 1999, the A and B Shares have generally under-performed the indices.

— 22 —

Hang Lung Group Limited

LETTER FROM UBS WARBURG

Performance of the A and B Shares compared with the Hang Seng Index, the Hang Seng Property Index and the HKSE All Ordinaries Hotels Index

==> picture [397 x 259] intentionally omitted <==

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

200
180
160
140
120
100
80
60
40
20
0
GHH A Share GHH B Share Hang Seng Index
Hang Seng Property Index HKSE All Ordinaries Hotels
Source: Bloomberg
Price (rebased)
Jan-99 Mar-99 May-99 Jul-99 Sep-99 Oct-99 Dec-99 Feb-00 Apr-00 Jun-00 Aug-00 Oct-00 Dec-00 Feb-01 Apr-01 Jun-01 Aug-01 Oct-01 Dec-01 Feb-02 Apr-02 Jun-02 Aug-02
----- End of picture text -----

Note: All values have been rebased to 100 as at 1 January 1999.

We have also examined the trading liquidity of the A and B Shares over selected periods of time. As can be seen below, the average daily trading volume of the A and B Shares have remained low at below 0.01% of the respective total shares in issue for the selected periods of time.

	A Share	Percentage	B Share	Percentage
	average	of total A	average	of total B
	daily	Shares in	daily	Shares in
Period	volume	issue	volume	issue
12-month period up to 27 August 2002	23,757	0.004%	29,416	0.005%
Six-month period up to 27 August 2002	33,400	0.005%	49,022	0.008%
Three-month period up to 27 August 2002	25,479	0.004%	48,786	0.008%
One-month period up to 27 August 2002	43,947	0.007%	53,038	0.009%

Source: Bloomberg

Based on the above analyses, we consider that the Sale Prices represent an attractive premium over the historical price performance of the A and B Shares.

— 23 —

Hang Lung Group Limited

LETTER FROM UBS WARBURG

Valuation of GHH

The consideration for 74.1% and 69.6% of the total A and B Shares in issue, to be paid in cash, amounts to approximately HK$847.5 million and HK$76.9 million respectively. The aggregate consideration to be received by HLG amounts to HK$924.4 million (the “Consideration”) and this implies an equity value of HK$1,143.7 million for 100% of the total A Shares in issue and HK$110.5 million for 100% of the total B Shares in issue. The Consideration, therefore, implies an aggregate equity value of approximately HK$1,254.2 million for the entire issued share capital of GHH. After adjusting for the net cash balance of the Group as at 30 June 2002 of HK$113.5 million, the implied enterprise value (“EV”) of the Group amounts to approximately HK$1,140.7 million. EV is defined as the sum of the equity value of a company plus all interest-bearing liabilities less its cash balances.

According to the property valuation report set out in Appendix I to this circular performed by an independent property valuer (the “Property Valuation”), the Hotel Properties have an aggregate open market value of approximately HK$1,220 million. We note from the Property Valuation that it has been prepared in accordance with the normal professional practice of valuers in Hong Kong and that it takes into account the potential enhancement in value as a result of the change in use of the Hotel Properties.

We note also that the value of the management contract of The Wesley dated 2 December 1988 (the “Wesley Contract”) has been determined by the Directors to be an obligation of HK$90 million, though it has not been independently verified, with reference to its financial performance for the three latest financial years and the major terms of the Wesley Contract. We have reviewed the financial information of The Wesley for each of the three years ended 30 June 2001, as disclosed in Appendix II to this circular. We have also considered the impact to the Group of the guaranteed annual minimum payment to the Methodist Centre Limited, as the owner of The Wesley. We believe that the Directors’ determination of the value of the Wesley Contract is fair and reasonable in the context of the Transaction.

On the basis of the Property Valuation and the Directors’ determination of the value of the Wesley Contract, we note that the aggregate value of the Hotel Properties and the Wesley Contract would amount to HK$1,130 million. Given that the Consideration implies an EV of HK$1,140.7 million for the Group, this reflects approximately a 0.9% premium to the aggregate value of the Hotel Properties and the Wesley Contract of HK$1,130 million. We note that the Consideration was determined with reference to the consolidated NAV of the Group as at 30 June 2002, and adjusted with reference to the valuation of the Hotel Properties as set out in the Property Valuation, and the value of the Wesley Contract as determined by the Directors. We also note that the Directors believe that such adjusted NAV of the Group forms a fair and reasonable basis for the Consideration in view of the fact that the Transaction is part of a group restructuring. Accordingly, we believe that the valuation of the Group as implied by the Consideration is broadly in line with the valuation of the Hotel Properties as set out in the Property Valuation, and the value of the Wesley Contract as determined by the Directors.

— 24 —

Hang Lung Group Limited

LETTER FROM UBS WARBURG

Comparables analysis

As the current principal activities of the Group are the investment holding and the ownership and management of hotels and service apartments, we have also considered the valuation of the Group against peer group companies in order to assess the valuation of the Group in the context of a disposal of a going concern.

Hotel companies in Hong Kong are typically examined on two market valuation benchmarks. Firstly, they are valued on a similar basis to property investment companies as they tend to have ownership of the hotels which they operate and manage. A commonly-used market valuation benchmark in relation to hotel companies is the discount to net asset value (“NAV”) analysis.

Secondly, the hotel sector is characterised by significant capital intensity, due to considerable investment in, and maintenance and upgrades of, fixed assets (for example, buildings, furniture, fittings and equipment). The profitability of hotel companies could be materially affected by the policy and amount of depreciation and amortisation of their fixed assets. The methods of financing such investment may also significantly affect the operating performance of a hotel company. As such, we will also analyse the implied valuation of the Group based on a second commonly-used market valuation benchmark for hotel companies, the EV/EBITDA multiple, which is calculated by dividing the EV by the operating profit before interest, taxation, depreciation and amortisation (“EBITDA”). By multiplying this multiple with the EBITDA of a hotel company, the implied EV of such company can be derived.

We set out below a summary of the NAV discount analysis as well as the EV/EBITDA multiple analysis for comparable hotel companies (the “Hotel Comparables”).

Hotel Comparables(1)	EV/EBITDA (times)(2)	NAV discount
Mandarin Oriental International Ltd	17.7	30.0%
Shangri-La Asia Ltd	14.6	52.8%
Hongkong & Shanghai Hotels Ltd	14.2	69.0%
Great Eagle Holdings Ltd	14.5	74.0%
Asia Standard Hotel Group Limited	46.8	64.0%
Associated International Hotels Limited	7.4	60.9%
Harbour Centre Development Limited	6.6	67.1%
Miramar Hotel & Investment Co., Ltd	10.9	54.9%
Sino Hotels Holdings Ltd	81.5	63.0%
Mean	23.8	59.5%
Median	14.6	62.0%

Notes:

1. All financial data are based on the latest announced results of the Hotel Comparables as at the Latest Practicable Date. Share prices used are the closing prices as at 28 August 2002, which is the Joint Announcement Date.

— 25 —

Hang Lung Group Limited

LETTER FROM UBS WARBURG

1. EV is defined as the sum of the equity value of a company based on its market capitalisation plus all interest-bearing liabilities less its cash balances. EBITDA has been calculated based on trailing 12 months EBITDA as of the date of the latest announced results.

On the basis of the NAV of the Group of HK$1,673.5 million, as stated in its audited consolidated financial report for the year ended 30 June 2002, the equity value for the entire issued share capital of GHH as implied by the Consideration of HK$1,254.2 million reflects approximately a 25.1% discount to NAV as at 30 June 2002. The discount to NAV as represented by the Consideration is substantially lower than the mean and median of the NAV discounts, being 59.5% and 62% respectively, at which the Hotel Comparables are trading.

Based on the equity value as implied by the Consideration of HK$1,254.2 million for the entire issued share capital of GHH, and after adjusting for the net cash balance of the Group of HK$113.5 million as at 30 June 2002, the estimated EV of the Group is HK$1,140.7 million, which represents an EV/EBITDA multiple of 33.5 times. This significantly exceeds the valuation of the Group based on the mean and median of the EV/EBITDA multiples, being 23.8 times and 14.6 times respectively, of the Hotel Comparables.

Based on our analyses above, we believe that the valuation of the Group as implied by the Consideration compares favourably with the valuation of the Group in the context of a disposal of a going concern.

Potential financial impact on HLG

We note that, in substance, the Transaction is part of a group restructuring involving a disposal of HLG’s beneficial interest in 74.1% and 69.6% of the A and B Shares respectively of the issued share capital of GHH to a subsidiary, HLP, which is 61.2% owned by HLG. This effectively reduces the beneficial interest of HLG in the Group and may involve a decrease in the NAV of HLG on a consolidated basis. However, the reduction of its beneficial interest in the Group has been compensated by the net cash Consideration attributable to HLG’s shareholders. Having considered the valuation of the Hotel Properties as set out in the Property Valuation and the Directors’ determination of the value of the Wesley Contract and as discussed above, we concur that the Consideration reflects the fair market value of the assets of the Group.

Possible mandatory general offer by HLP

We note the possible mandatory unconditional cash offers by HLP for all the shares of GHH (other than those already owned or agreed to be acquired by HLP and parties acting in concert with it) in accordance with Rule 26.1 of the Takeovers Code following completion of the S&P Agreement. We also note that in the event that acceptances of the Offers do not amount to 90% or more of the value of the disinterested A Shares and the disinterested B Shares respectively in issue, GHH will seek the approval of its independent shareholders to withdraw the listing of the A and B Shares on the Stock Exchange in accordance with Rule 2.2 of the Takeovers Code and Rule 6.12 of the Listing Rules. The Independent Shareholders should note that pursuant to Rule 26.3 of the Takeovers Code, the offer prices for the A and B Shares under the Offers cannot be lower than the Sale Prices.

— 26 —

Hang Lung Group Limited

LETTER FROM UBS WARBURG

Conclusion

Having considered the principal factors and reasons referred to above and the terms of the S&P Agreement, and based upon the information provided to us, we consider that the terms of the Transaction are fair and reasonable, from a financial perspective, so far as the Independent Shareholders are concerned.

Yours faithfully, For and on behalf of UBS Warburg Asia Limited Mark Dowie Glenn Fok Managing Director Managing Director

— 27 —

Hang Lung Group Limited

PROPERTY VALUATION

APPENDIX I

The following is the text of the letter, summary of values and valuation certificates, prepared for the purpose of incorporation in this circular received from Chesterton, an independent valuer, in connection with their valuations as at 28th August 2002 of the properties of GHH.

==> picture [135 x 26] intentionally omitted <==

PETTY

==> picture [48 x 20] intentionally omitted <==

International Property Consultants

Chesterton Petty Ltd 16/F., CITIC Tower 1 Tim Mei Avenue Central Hong Kong

20th September 2002

The Directors Hang Lung Group Limited 28th Floor Standard Chartered Bank Building 4 Des Voeux Road Central Hong Kong

The Directors Hang Lung Properties Limited 28th Floor Standard Chartered Bank Building 4 Des Voeux Road Central Hong Kong

The Directors Grand Hotel Holdings Limited 28th Floor Standard Chartered Bank Building 4 Des Voeux Road Central Hong Kong

Dear Sirs,

• (1) GRAND PLAZA HOTEL (INCLUDING CLUB GRAND AND GRAND PLAZA APARTMENTS), 2 KORNHILL ROAD, QUARRY BAY, HONG KONG

• (2) HOTEL PORTION OF GRAND TOWER HOTEL, 627 NATHAN ROAD, MONG KOK, KOWLOON

— 28 —

Hang Lung Group Limited

APPENDIX I

PROPERTY VALUATION

In accordance with your instructions for us to value the captioned properties taking into account the respective conversion proposals thereof, we confirm that we have carried out inspection, made relevant enquiries and searches and obtained such further information as we consider necessary for the purpose of providing you with our opinion of the open market values of these properties as at 28th August 2002 in accordance with the basis of valuation as specified hereinafter.

Our valuation is our opinion of the open market value which we would define as intended to mean “the best price at which the sale of an interest in a property would have been completed unconditionally for cash consideration on the date of valuation assuming:

• (a) a willing seller;

• (b) that, prior to the date of valuation, there had been a reasonable period (having regard to the nature of the property and the state of the market) for the proper marketing of the interest, for the agreement of price and terms and for the completion of the sale;

• (c) that the state of the market, level of values and other circumstances were, on any earlier assumed date of exchange of contracts, the same as on the date of valuation;

• (d) that no account is taken of any additional bid by a prospective purchaser with a special interest; and

• (e) that both parties to the transaction had acted knowledgeably, prudently and without compulsion”.

Our valuation has been made on the assumption that the owners sell the properties on the open market without the benefit of any deferred term contract, leaseback, joint venture, management agreement or any similar arrangement which would serve to increase the value of these properties. In addition, no account has been taken of any option or right of pre-emption concerning or affecting the sale of these properties and no forced sale situation in any manner is assumed in our valuation.

Our valuation of property no. 1 is prepared on an as-is basis (i.e. being in its existing physical state) but taking into account the potential of the conversion of the existing hotel guest rooms into serviced apartments. Allowance has been made for the cost and time required for the conversion. Reference is made to the past trading accounts of the property on its current uses. Our valuation of property no. 2 is prepared on an as-is basis (i.e. being in its existing physical state) but taking into account the potential of converting the whole development into a commercial/office building in accordance with the supplied proposal with due allowance made for the cost and time required. Reference is made to the sales evidence as available on the market.

We have not been provided with any title document relating to the properties but we have caused searches to be made at the Land Registry. We have not, however, searched the original documents to verify ownership or to verify any amendment which does not appear on the copies handed to us.

— 29 —

Hang Lung Group Limited

APPENDIX I

PROPERTY VALUATION

We have relied to a very considerable extent on information given by you and have accepted advice given to us on such matters as planning approvals or statutory notices, easements, tenure, trading accounts, particulars of the conversion proposals, costs of conversion, floor areas and all other relevant matters. Dimensions, measurements and areas included in the valuation certificate are based on information contained in the documents provided to us and are therefore only approximations.

We have inspected the exterior of the properties and where possible, we have also inspected the interior of the premises. However, no structural survey has been made, but in the course of our inspection, we did not note any serious defect. We are not, however, able to report that these properties are free from rot, infestation or any other structural defect. No tests were carried out to any of the services.

No allowance has been made in our valuation for any charge, mortgage or amount owing on any property nor for any expense or taxation which may be incurred in effecting a sale. It is assumed that all properties are free from encumbrances, restrictions and outgoings of an onerous nature which could affect their values.

We enclose herewith a summary of values and our valuation certificate.

Yours faithfully, For and on behalf of Chesterton Petty Limited Charles C K Chan

MSc FRICS FHKIS MCIArb RPS(GP) Executive Director

— 30 —

Hang Lung Group Limited

PROPERTY VALUATION

APPENDIX I

SUMMARY OF VALUES

Property

1. Grand Plaza Hotel (including Club Grand and Grand Plaza Apartments), 2 Kornhill Road, Quarry Bay, Hong Kong 2. Hotel portion of Grand Tower Hotel, 627 Nathan Road, Mongkok, Kowloon

Open market value in existing state taking into account the proposed conversion as at 28th August 2002

HK$600,000,000

HK$620,000,000

Total: HK$1,220,000,000

— 31 —

Hang Lung Group Limited

PROPERTY VALUATION

APPENDIX I

VALUATION CERTIFICATE

Property

Description and tenure

Open market value in existing state taking into account the proposed Particulars of conversion as at occupancy 28th August 2002

1. Grand Plaza Hotel Grand Plaza Hotel is a hotel built over a (including Club commercial and carparking podium known Grand and Grand as Kornhill Plaza. The development was Plaza Apartments), completed in 1987. 2 Kornhill Road, Quarry Bay, The property mainly comprises a hotel Hong Kong entrance hall and carparking/loading and unloading area on the 2nd Floor level and a 47,000/700,000th restaurant on the 3rd Floor level of the equal and commercial/carparking podium, a undivided shares of recreational club (known as Club Grand) on and in the the 9th Floor, the back-of-house area on the Remaining Portion 10th Floor, the hotel accommodation on the of Inland 11th to 22nd Floors and scattered portions Lot No. 8566 of the Roof.

47,000/700,000th equal and undivided shares of and in the Remaining Portion of Inland Lot No. 8566

The hotel is HK$600,000,000 currently operated by the owner.

The hotel accommodation on the 11th to 22nd Floors provides a total of 490 guest rooms. 242 guest rooms on the 16th to 22nd Floors have been converted to serviced apartments and the remaining 248 guest rooms are used as hotel rooms.

The Club Grand provides a variety of sports facilities including swimming pool, squash courts, sports halls and health centre.

The total gross floor area of the property extends to 35,275 sq m (379,700 sq ft) or thereabouts.

The existing 248 hotel rooms are proposed to be converted to serviced apartments.

Inland Lot No. 8566 is held from the Government under Conditions of Exchange No. 11728 for a term of 75 years commencing from 27th April 1984 renewable for a further term of 75 years at an annual Government rent of HK$1,000.

Notes:

• (1) The registered owner of the property is TEGRATON LIMITED, a wholly owned subsidiary of Grand Hotel Holdings Limited.

• (2) The property is subject to a Deed Poll, a Deed of Mutual Covenant, two Modification Letters and a Management Undertaking (by Mass Transit Railway Corporation with the Government).

• (3) In preparing our valuation, we have taken into account the potential of the property in converting the existing hotel guest rooms into serviced apartments with due allowance made for the conversion cost and time required.

• (4) In accordance with the information provided to us, the estimated cost and time required for the conversion are about HK$10,000,000 and six months respectively and no planning or building works approvals from the government are required.

• (5) We have prepared our valuation in accordance with Guidance Notes on the Valuation of Property Assets published by the Hong Kong Institute of Surveyors.

— 32 —

Hang Lung Group Limited

APPENDIX I

PROPERTY VALUATION

Property Description and tenure

Open market value in existing state taking into account the proposed Particulars of conversion as at occupancy 28th August 2002

1. Hotel portion of Grand Tower Hotel is a 23-storey Grand Tower Hotel, hotel/commercial building (including two 627 Nathan Road, Basement levels) containing a hotel of 549 Mongkok, Kowloon guest rooms with ancillary restaurant and back-of-house facilities and a commercial 350,000/500,000th podium of shops and restaurant. The shares of and in development was completed in 1987. Kowloon Inland Lot No. 10246 The property comprises the hotel portion of the development which mainly includes a hotel entrance hall and carparking/loading and unloading area on the Ground Floor, mechanical/carparking spaces on the 4th Floor, restaurants/lobby on the 5th and 6th Floors, guest rooms on the 7th to 20th Floors and back-of-house facilities on the 2nd Basement.

The hotel is HK$620,000,000 currently operated by the owner.

The gross floor area of the property extends to 30,000 sq m (322,920 sq ft) or thereabouts.

The property is proposed to be converted into a 23-storey commercial/office building comprising an office tower over a commercial/carparking podium. Carparking spaces are provided on the 2nd Basement and the 4th Floor of the podium.

Kowloon Inland Lot No. 10246 is held from the Government under Conditions of Regrant No. 10561 for a term of 150 years commencing from 27th June 1910 at an annual Government rent of HK$2,204.

Notes:

(1) The registered owner of the property is MODALTON LIMITED, a wholly owned subsidiary of Grand Hotel Holdings Limited.

• (2) The property is subject to a Deed of Mutual Covenant and Management Agreement.

• (3) Our valuation is prepared on the basis that the whole development will be converted into a commercial/office building in accordance with the supplied conversion proposal with due allowance made for the conversion cost and time required.

• (4) In accordance with the information provided to us, the estimated cost and time required for the conversion are about HK$70,000,000 and nine months respectively and building works approvals from the government is required.

• (5) We have prepared our valuation in accordance with Guidance Notes on the Valuation of Property Assets published by the Hong Kong Institute of Surveyors.

— 33 —

Hang Lung Group Limited

FINANCIAL INFORMATION OF THE WESLEY

APPENDIX II

Extracts from the audited accounts of The Wesley for the years ended 30th June 1999, 2000 and 2001 and additional financial information in respect of the guaranteed annual payments by GHH

The table below sets out a summary of the audited profit and loss accounts of The Wesley for each of the years ended 30th June, 1999, 2000 and 2001.

	**Year **	**ended 30th **	June,
	1999	2000	2001
	HK$’000	HK$’000	HK$’000
Turnover	37,037	37,602	42,378
Cost of sales	(33,924)	(33,169)	(32,958)
	3,113	4,433	9,420
Other revenue	2,357	2,416	2,522
Administrative costs	(12,284)	(12,067)	(12,112)
Loss for the year excluding taxation and
payment to Methodist Centre Limited	(6,814)	(5,218)	(170)

Under the terms of the management contract with the Methodist Centre Limited in respect of The Wesley, guaranteed annual payments were made by GHH each year which were recorded in the accounts of GHH itself rather than the accounts of The Wesley. Had these payments been recorded in the accounts of The Wesley for the years ended 30th June, 1999, 2000 and 2001, the impact on its accounts would be:

	**Year **	**ended 30th **	June,
	1999	2000		2001
	HK$’000	HK$’000	HK$’000
Loss for the year excluding taxation and
payment to Methodist Centre Limited	(6,814)	(5,218)		(170)
Guaranteed minimum payments to
the Methodist Centre Limited	(8,000)	(8,000)		(8,000)
Net effect of management contract of
The Wesley	(14,814)	(13,218)		(8,170)

— 34 —

Hang Lung Group Limited

GENERAL INFORMATION

APPENDIX III

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the HLG Group. The HLG Directors jointly and severally 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, opinions expressed in this circular, have been arrived at after due and careful consideration and there are no other facts not contained in this circular the omission of which would make any statement contained herein misleading.

2. DISCLOSURE OF INTERESTS

• (a) As at the Latest Practicable Date, the interests of the HLG Directors in the share capital of HLG or its associated corporations (within the meaning of the Securities (Disclosure of Interests) Ordinance (the “SDI Ordinance”)) which are required to be notified to HLG and the Stock Exchange pursuant to Section 28 of the SDI Ordinance (including interests which they are deemed or taken to have under Section 31 of, or Part 1 of the Schedule to, the SDI Ordinance) or which are required, pursuant to Section 29 of the SDI Ordinance, to be entered in the register referred to therein or which are required to be notified to HLG and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies, were as follows:

HLG (Note 1)

					Approximate
Name of	Personal	Family	Corporate	Other	shareholding
HLG Directors	Interests	Interests	Interests	Interests	percentage
Gerald Lokchung	—	—	—	339,034,580	25.6%
Chan				(Note 2)

Note:

• (1) The nominal value of shares in the share capital of HLG is HK$1.00 each.

• (2) These shares were held by Cole Limited as trustee for a trust of which an associate of Mr. Gerald Lokchung Chan is a member of a wide class of discretionary objects.

HLP ( Note )

						Approximate
**Name **	of	Personal	Family	Corporate	Other	shareholding
**HLG **	Directors	Interests	Interests	Interests	Interests	percentage
—		—	—	—	—	—

Note: The nominal value of shares in the ordinary share capital of HLP is HK$1.00 each.

— 35 —

Hang Lung Group Limited

GENERAL INFORMATION

APPENDIX III

GHH ( Note i )

						Approximate
Name of		Personal	Family	Corporate	Other	shareholding
HLG Directors	Class	Interests	Interests	Interests	Interests	percentage
Gerald Lokchung	A	—	—	—	15,765,607	2.5%
Chan					(Note ii)
Gerald Lokchung	B	—	—	—	20,396,065	3.4%
Chan					(Note ii)

Notes:

• (i) The nominal value of the A Shares and the B Shares in the Share capital of GHH is HK$0.10 each and HK$0.01 each respectively.

• (ii) These Shares were held by Cole Limited as trustee for a trust of which an associate of Mr. Gerald Lokchung Chan is a member of a wide class of discretionary objects.

• (b) As at the Latest Practicable Date, so far as the HLG Directors are aware, according to the register of members kept by HLG, the persons (other than the HLG Directors or the chief executives of HLG) who were directly or indirectly interested in 10% or more of the nominal value of any class of share capital in HLG carrying rights to vote at any general meeting were as follows:

		Approximate
		shareholding
Name	Number of shares	percentage
	(nominal value
	of HK$1.00 each)
Cole Limited	476,834,580(Note)	36.0%

Note: These shares include the 339,034,580 shares held as trustee for a trust of which an associate of Mr. Gerald Lokchung Chan is a member of a wide class of discretionary objects.

Save as disclosed above, so far as the HLG Directors are aware, there were no persons who, as at the Latest Practicable Date, directly or indirectly held or were beneficially interested in 10% or more of the nominal value of any class of share capital carrying rights to vote at any general meeting of HLG or any other members of the HLG Group.

— 36 —

Hang Lung Group Limited

GENERAL INFORMATION

APPENDIX III

• (c) Interests in options of HLG held by HLG Directors

As at the Latest Practicable Date, the following HLG Directors had interests in respect of options to subscribe for shares in HLG granted under the share option scheme of HLG:

			Number of shares
			of HLG represented
Name	Date of Grant	Exercise Price	by options
		HK$
Nelson Wai Leung Yuen	24th February, 2000	6.12	2,500,000
			(Note a)
Wilfred Sai Leung Ho	24th February, 2000	6.12	1,250,000
			(Note a)
Terry Sze Yuen Ng	1st November, 2001	5.87	1,250,000
			(Note b)

Notes:

• (a) These share options were granted to the named directors on 24th February, 2000 under the Share Option Scheme of HLG at an exercise price of $6.12 per share, exercisable in 3 tranches, i.e. 20% from 24th February, 2001, 30% from 24th February, 2002 and 50% from 24th February, 2003, all expiring on 23rd February, 2010.

• (b) The share option was granted on 1st November, 2001 under the Share Option Scheme of HLG at an exercise price of $5.87 per share, exercisable in 3 tranches, i.e. 20% from 1st November, 2002, 30% from 1st November, 2003 and 50% from 1st November, 2004, all expiring on 31st October, 2011.

3. SERVICE CONTRACTS

As at the Latest Practicable Date, none of the HLG Directors has any existing or proposed service contract with any members of the HLG Group, excluding contracts expiring or determinable within one year without payment of compensation (other than statutory compensation).

4. HLG DIRECTORS’ AND EXPERT INTEREST IN ASSETS/CONTRACTS AND OTHER INTERESTS

None of the HLG Directors is materially interested in any contract or arrangement entered into by any member of the HLG Group subsisting at the date of the circular which is significant in relation to the business of the HLG Group.

Save as disclosed in this circular, none of UBS Warburg or Chesterton has any shareholding, directly or indirectly, in any member of the HLG Group or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the HLG Group.

Hang Lung Group Limited

— 37 —

GENERAL INFORMATION

APPENDIX III

None of the HLG Directors, UBS Warburg or Chesterton has any direct or indirect interest in any assets which have since 30th June, 2002 (being the date to which the latest published audited consolidated accounts of HLG were made up) been acquired or disposed of by or leased to any member of the HLG Group or are proposed to be acquired or disposed of by or leased to any member of the HLG Group.

5. MATERIAL ADVERSE CHANGE

The HLG Directors are not aware of any material adverse change in the financial or trading position of the HLG Group as at 30th June, 2002, being the date to which the latest published audited consolidated accounts of HLG were made up.

6. QUALIFICATION OF EXPERT

The qualifications of the experts who have given opinions in this circular are as follows:

Name Qualification

UBS Warburg an investment adviser registered under the Securities Ordinance (Chapter 333 of the Laws of Hong Kong) Chesterton Registered Professional Surveyors

7. CONSENTS

UBS Warburg and Chesterton have given and have not withdrawn their respective written consents to the issue of this circular with the inclusion herein of their respective letters and references to their respective names in the forms and context in which they respectively appear.

8. LITIGATION

No member of the HLG Group is at present engaged in any litigation or claim of material importance to the HLG Group and no litigation or claim of material importance to the HLG Group is known to the HLG Directors to be pending or threatened by or against any member of the HLG Group.

— 38 —

Hang Lung Group Limited

GENERAL INFORMATION

APPENDIX III

9. MISCELLANEOUS

• (a) The company secretary of HLG is Mr. Robin Sik Wing Ching and he is a Fellow of The Association of Chartered Certified Accountants and the Institute of Chartered Secretaries and Administrators.

• (b) The registered office of HLG is situate at 28th Floor, Standard Chartered Bank Building, 4 Des Voeux Road Central, Hong Kong.

• (c) The share registrar of HLG is Computershare Hong Kong Investor Services Limited of 17th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong.

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

10. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection at HLG’s registered office address at 28th Floor, Standard Chartered Bank Building, 4 Des Voeux Road Central, Hong Kong during normal business hours on any business day from the date of this circular until 8th October, 2002:

• (a) the memorandum and articles of association of HLG;

• (b) the letter of advice dated 20th September, 2002 from UBS Warburg the text of which is set out on pages 19 to 27 in this circular;

• (c) the letter, summary of values and valuation of certificates all dated 20th September, 2002 prepared by Chesterton, the text of which are set out in Appendix I to this circular;

• (d) the letters of consent referred to in paragraph 7 in this Appendix; and

• (e) the S&P Agreement.

— 39 —

Hang Lung Group Limited

NOTICE OF THE HLG EGM

HANG LUNG GROUP LIMITED

(incorporated in Hong Kong with limited liability)

NOTICE IS HEREBY GIVEN that an extraordinary general meeting of Hang Lung Group Limited (“HLG”) will be held at 4:00 p.m. on 8th October, 2002 at 28th Floor, Standard Chartered Bank Building, 4 Des Voeux Road Central, Hong Kong for the purpose of considering and, if thought fit, passing (with or without modifications) the following resolution which will be proposed as ordinary resolution of HLG:

ORDINARY RESOLUTION

“ THAT the conditional sale and purchase agreement dated 28th August, 2002 (the “S&P Agreement”) made between, inter alia, Hang Lung Properties Limited (“HLP”) and Hang Lung Group Limited (“HLG”) relating to, inter alia, acquisitions by HLP of the interests of HLG and its subsidiaries in 460,575,581 A Shares and 417,686,735 B Shares in Grand Hotel Holdings Limited (“GHH”) based on an agreed price of HK$1.84 per A Share and HK$0.184 per B Share respectively, through the acquisition of: (a) 332,047,066 A Shares and 417,686,735 B Shares in GHH directly; and (b) the entire issued share capital of, and Shareholders’ Loans to, Hang Far Company Limited and Hoi Sang Limited, two wholly-owned subsidiaries of HLG holding 128,528,515 A Shares in GHH in aggregate, a copy of which has been produced to this meeting marked “A” and initialled by the Chairman of this meeting for the purpose of identification, be and is hereby approved and that the directors of HLG be and are hereby authorised to implement and to take any and all steps and do and/or procure to be done any and all acts and things as they may in their absolute discretion consider necessary, desirable or expedient to implement and give effect to the S&P Agreement and the transactions contemplated thereunder.”

By Order of the Board Robin Sik Wing Ching Company Secretary

Notes:

1. Any shareholder entitled to attend and vote at the meeting is entitled to appoint one or more separate proxies to attend and on a poll, to vote instead of him. A proxy needs not be a shareholder of HLG.

2. To be valid, a form of proxy in the prescribed form together with the power of attorney or other authority (if any) under which it is signed (or a notarially certified copy thereof) must be deposited at HLG’s share registrar, Computershare Hong Kong Investor Services Limited, at 17th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong not less than 48 hours before the time fixed for holding the meeting.

— 40 —

Hang Lung Group Limited

NOTICE OF THE HLG EGM

1. A form of proxy for use at the meeting is enclosed.

2. In case of joint holders, if more than one of such joint holders be present at any meeting, the vote of the senior who tenders a vote, whereby in person or by proxy or by representative, shall be accepted to the exclusion of the vote of the other joint holder, and for this purpose, seniority shall be determined by the order in which the names stand in the register of members of HLG in respect of a joint holding.

— 41 —

Hang Lung Group Limited