PegBio Co., Ltd. — Proxy Solicitation & Information Statement 2004

Mar 12, 2004

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

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

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

* (Incorporated in Bermuda with limited liability)

CONNECTED TRANSACTIONS FORMATION OF A JOINT VENTURE COMPANY AND ENTERING INTO OF SUPPLY AGREEMENT

Financial adviser to the Company

Somerley Limited

Independent financial adviser to the Independent Board Committee

A letter from Dao Heng Securities Limited setting out its advice and recommendations to the Independent Board Committee is set out on pages 15 to 24 of this circular.

The notice convening a Special General Meeting to be held at Plaza I-III, Lower Lobby, Novotel Century Hong Kong, 238 Jaffe Road, Wanchai, Hong Kong on Monday, 29th March, 2004 at 10:00 a.m. is set out on pages 29 to 30 of this circular. Whether or not you propose to attend the Special General 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 later than forty-eight (48) hours before the time for holding the meeting. Completion and return of the form of proxy will not preclude you from attending and voting at the Special General Meeting or any adjournment of it, if you so wish.

12th March, 2004

* For identification only

CONTENTS

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	3
The JV and the Shareholders’ Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
The Supply Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
Information on the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Information on HCSPL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Reasons for the Formation of the JV and the Ongoing Connected Transactions . . . . . . . . . .	9
Compliance with the Listing Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
Waiver for the Ongoing Connected Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
The Special General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
Further information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
Letter from Dao Heng Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15
Appendix – General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	25
Notice of Special General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	29

DEFINITIONS

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

“Board” the board of Directors “Company” Xin Corporation Limited, a company incorporated in Bermuda with limited liability and the shares of which are listed on the Stock Exchange “Dao Heng Securities” Dao Heng Securities Limited, a corporation deemed licensed under the SFO to conduct Types 1, 4, 6, 7 and 9 regulated activities under the SFO and the independent financial adviser to the Independent Board Committee

• “Directors” the directors of the Company

• “Effective Date” the date on which all conditions precedent to the Supply Agreement are fulfilled

• “Group” the Company and its subsidiaries

• “HCSPL” Huang & Co (Singapore) Pte Ltd, a company incorporated in Singapore with limited liability

• “Independent Board Committee” an independent committee of the Board comprising the independent non-executive Directors, namely Mr. Wu Wing Kit, Mr. Wong Kwok Tai, Wystan and Mr. Lau Pok Lam

• “Independent Shareholders” Shareholders other than Vision Century, Mr. Wilson Ng, Mr. Ng Wee Keat and their respective associates

“Invoice Prices” the aggregate amount payable to the JV by HCSPL pursuant to the Supply Agreement

• “JV” Xin Procurement & Trading Pte. Ltd., a company incorporated in Singapore with limited liability which will be beneficially owned as to 51% by the Subsidiary and 49% by HCSPL upon completion of the Shareholders’ Agreement

• “JV Share(s)” ordinary share(s) of S$1.0 each in the capital of the JV

• “Latest Practicable Date” 10th March, 2004, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained in this circular

“Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange

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DEFINITIONS

“Ongoing Connected the transactions in relation to the supply and procurement services Transactions” to be provided by the JV to HCSPL under the Supply Agreement “SFO” the Securities and Futures Ordinance (Cap 571 of the laws of Hong Kong)

• “Shareholders” holders of the ordinary shares of HK$0.01 each in the share capital of the Company

• “Shareholders’ Agreement” a shareholders’ agreement dated 20th February, 2004 entered into among the Subsidiary, HCSPL and the JV

“Special General Meeting” the special general meeting of the Company convened on Monday, 29th March, 2004 at 10:00 a.m. to approve the Shareholders Agreement, the Supply Agreement and the Waiver, notice of which is set out herein

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

“Subsidiary” Able Market Profits Limited, a company incorporated in the British Virgin Islands with limited liability and wholly owned by the Company

• “Supply Agreement” an agreement dated 20th February, 2004 entered into between the JV and HCSPL in relation to, inter alia, the supply and the procurement of equipment, goods and services to be provided by the JV to HCSPL

“Vision Century” Vision Century Group Limited, a company incorporated in the British Virgin Islands, the controlling shareholder of the Company

• “Waiver” the waiver from strict compliance with the Listing Rules in respect of the disclosure and approval requirements relating to the Ongoing Connected Transactions

• “HK$” Hong Kong dollars “S$” Singaporean dollars

For illustration only, amount in Singapore dollars have been translated into Hong Kong dollars at the rate of S$1.0 = HK$4.6.

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LETTER FROM THE BOARD

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(Incorporated in Bermuda with limited liability)

Executive Directors:

Mr. Lo Ming Chi, Charles (Chairman) Mr. Yu Wai Man Mr. Wilson Ng Mr. Ng Wee Keat Mr. Ng Teow Leng Mr. Ng Eng Leng

Independent Non-executive Directors:

Mr. Wu Wing Kit Mr. Wong Kwok Tai, Wystan Mr. Lau Pok Lam

Registered Office: Clarendon House 2 Church Street Hamilton HM 11 Bermuda

Head Office and Principal

Place of Business: Room 808B, 8/F., Tower B New Mandarin Plaza 14 Science Museum Road Tsim Sha Tsui East Kowloon Hong Kong

12th March, 2004

To the Shareholders

Dear Sirs or Madam,

CONNECTED TRANSACTIONS FORMATION OF A JOINT VENTURE COMPANY AND ENTERING INTO OF SUPPLY AGREEMENT

INTRODUCTION

On 20th February, 2004, the Directors announced that the Subsidiary and HCSPL had entered into the Shareholders’ Agreement to form the JV. Upon completion of the Shareholders’ Agreement, 51% and 49% of the issued share capital of the JV will be beneficially owned by the Subsidiary and HCSPL respectively. The business activities of the JV will be confined to acting as supplier for the supply of equipment, goods and services, which include, but not limited to, office equipment, office supplies, machinery, parts, lubricating oil and bunker for vessels.

In addition, the JV entered into the Supply Agreement with HCSPL on 20th February, 2004 whereby the JV has been appointed by HCSPL as supplier for the efficient and timely supply of certain office equipment and office supplies, machinery, parts, lubricating oil and bunker for vessels as detailed below.

By virtue of Mr. Wilson Ng’s and Mr. Ng Wee Keat’s (both executive Directors) parents’ interests in HCSPL, the Shareholders’ Agreement and the transactions contemplated under the Supply Agreement constitute connected transactions of the Company under Rule 14.26 of the Listing Rules and are required

* For identification only

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LETTER FROM THE BOARD

to be approved by the Independent Shareholders in general meeting. The transactions contemplated under the Supply Agreement are expected to continue in the future and will constitute ongoing connected transactions of the Group. The Company has applied to the Stock Exchange for the Waiver from strict compliance with certain approval and disclosure requirements under the Listing Rules.

The purpose of this circular is to provide further information to the Shareholders regarding the transactions under the Shareholders’ Agreement, the Supply Agreement, the Waiver, including the letter of advice from the Independent Board Committee and the opinion and recommendations of Dao Heng Securities, and to give you notice of the Special General Meeting convened to approve the Shareholders’ Agreement, the Supply Agreement and the Waiver.

1. THE JV AND THE SHAREHOLDERS’ AGREEMENT

Parties : the Subsidiary, HCSPL and the JV

• Shareholders : the Subsidiary and HCSPL

• Subject matter : Formation and operation of the JV

• Share capital : Upon completion of the Shareholders’ Agreement, the issued share capital of the JV will be S$10,000, divided into 10,000 JV Shares. Of the 10,000 JV Shares, 5,100 JV Shares (equivalent to 51% of the issued share capital of the JV) will be beneficially owned by the Subsidiary and 4,900 JV Shares (equivalent to 49% of the issued share capital of the JV) will be beneficially owned by HCSPL.

Neither shareholder of the JV may, without the prior consent in writing of the other shareholder of the JV, sell, assign, transfer or otherwise dispose of any of its JV Shares or any shareholder’s loan advanced by it to the JV, or otherwise purport to deal with the beneficial interest therein (including but not limited to its voting rights) or any right relating thereto.

• Board of directors : Unless otherwise agreed in writing by both shareholders of the JV, the JV shall have a board comprising not more than 5 directors. The Subsidiary shall be entitled to nominate up to 3 persons to be directors and HCSPL shall be entitled to nominate up to 2 persons as directors.

• Profits : Profits will be distributed in proportion to shareholders’ percentage interests in the JV provided that the prior written consent of both shareholders of the JV has been obtained.

Staffing : The JV will employ its own staff to handle its operation.

The JV will become a subsidiary of the Company upon completion of the Shareholders’ Agreement.

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LETTER FROM THE BOARD

Principal business

The business activities of the JV will be confined to acting as supplier for the supply of equipment, goods and services, which include, but not limited to, office equipment, office supplies, machinery, parts, lubricating oil and bunker for vessels. In addition to the services provided to HCSPL pursuant to the Supply Agreement, as mentioned in the section headed “The Supply Agreement” below, the clients of the JV will also include other independent third parties not connected with the directors, chief executive or substantial shareholders of the Company, its subsidiaries or any of their respective associates.

Investment and funding arrangement

The initial investment by the Subsidiary and HCSPL in the JV will be approximately S$10,000 (equivalent to approximately HK$46,000), which will represent the entire initial issued share capital of the JV. In addition, they will provide interest-free loans to the JV within 14 days after the completion of subscription of JV Shares pursuant to the Shareholders’ Agreement with an aggregate amount of S$500,000 (equivalent to approximately HK$2,300,000), of which S$255,000 (equivalent to approximately HK$1,173,000) will be advanced by the Subsidiary and S$245,000 (equivalent to approximately HK$1,127,000) will be advanced by HCSPL. On the above basis, the total investment of the JV pursuant to the Shareholders’ Agreement will be in an aggregate amount of approximately S$510,000 (equivalent to approximately HK$2,346,000), of which approximately S$260,100 (equivalent to approximately HK$1,196,460) will be contributed by the Subsidiary.

The JV will utilize the above sum for general working capital of the JV to finance, among other things, (i) the purchase of machinery and parts for repair and maintenance required for providing the supply and procurement services; and (ii) the daily operations, e.g. salary and rental expenses of the JV. The portion of the loan provided to the JV by the Subsidiary will be funded from the internal resources of the Group.

In the event that further financing is required for the proper growth and operation of the JV, the JV will attempt to obtain necessary financing for itself through loans from commercial banks or other financial institutions on the strength of its own financial standing.

In the event that the financial resources of the JV are insufficient to meet the operating expenses and the JV fails to raise money in the manner mentioned above, the shareholders of the JV shall fund the JV either by applying for allotment of additional JV Shares or providing further loans at such interest rate on normal commercial terms as shall be decided by the board of the JV, in proportion to their respective shareholdings in the JV. The portion of the additional funding provided to the JV by the Subsidiary will be funded from internal resources of the Group.

Save as disclosed above, there is no other financial commitment of the shareholders of the JV pursuant to the Shareholders’ Agreement.

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LETTER FROM THE BOARD

Conditions

The Shareholders’ Agreement is subject to and conditional upon the fulfillment of the following conditions on or before 30th April, 2004 or such other date as shall be agreed by the parties to the Shareholders’ Agreement in writing:

• (a) all consents and/or approvals (if any) of the Stock Exchange, any relevant governmental or regulatory authorities and other relevant third parties which are necessary and essential for the entering into and the implementation of the Shareholders’ Agreement and all transactions contemplated under the Shareholders’ Agreement having been obtained; and

• (b) the approval of the Shareholders’ Agreement by the Independent Shareholders at a duly convened special general meeting of the Company in accordance with the Listing Rules.

In the event that either of the above conditions is not fulfilled on or before 30th April, 2004, the Shareholders’ Agreement shall absolutely cease and determine and no party shall have any claim against any other party on any ground whatsoever save in respect of any antecedent breach.

2. THE SUPPLY AGREEMENT

Parties to the Supply Agreement:

Client: HCSPL Supplier: the JV

Operation of the Supply Agreement:

Services provided

Pursuant to the Supply Agreement, the JV has been appointed by HCSPL as supplier for the efficient and timely supply of:

Part A Items

• (i) all items permitted by law other than those mentioned in Part B Items (as defined below) as HCSPL may from time to time notify to the JV including, but not limited to, office equipment (including computers and furniture, etc.) and office supplies (including stationery and pantry supplies, etc); and

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LETTER FROM THE BOARD

Part B Items

• (i) machinery, parts, stores and spares for the upkeeping of two vessels namely “Leisure World” and “Amusement World”, to the standards required by the relevant laws and regulations of the countries in which they are registered and of the places where they trade;

• (ii) necessary victuals for the crew, lubricating oil and bunker for the operation of the above two vessels; and

• (iii) appointment of surveyors and technical consultants for the above two vessels.

Invoice Prices

The prices payable by HCSPL to the JV for the supply of Part A Items and Part B Items during the continuation of the Supply Agreement shall be determined as follows:

• (a) in relation to the supply of Part A Items, at the price equivalent to 10/9th times the total actual cost to the JV in supplying Part A Items (inclusive of all tax, duties, shipping, transportation, handling and other charges); and

• (b) in relation to the supply of Part B Items, at the price equivalent to 100/98th times the total actual cost to the JV in supplying Part B Items (inclusive of all tax, duties, shipping, transportation, handling and other charges).

The method of calculation of the Invoice Prices has been agreed between the parties based on arm’s length negotiations taking into account (i) the nature of the Part A Items and Part B Items to be supplied; (ii) the time and effort to be consumed for each of Part A Items and the Part B Items when providing the service to HCSPL by the JV; and (iii) the relevant market rate paid by HCSPL to independent suppliers. The supply and procurement services of items of same nature will be charged by the JV to HCSPL at rates no less favourable than those provided to independent third parties. HCSPL shall pay for Part A Items and Part B Items at the prices to be determined based on the above on such dates as specified by the JV, which allows flexibility for the JV to request for payment as and when it sees fit and such provision has been commercially agreed by the parties to the Supply Agreement.

In accordance with a preliminary business plan prepared by the Group for the year ending 31st March, 2005, the Group estimates that the JV will achieve a turnover of approximately S$25.1 million (equivalent to approximately HK$115.5 million), of which aggregate Invoice Prices of approximately S$6.2 million (equivalent to approximately HK$28.5 million) will be received from HCSPL for the year ending 31st March, 2005 in respect of goods and services to be provided up to 31st March, 2005. On the above basis, approximately 24.7% of the estimated turnover of the JV for the year ended 31st March, 2005 is expected to arise from the services rendered to HCSPL. The remaining 75.3% of the turnover of the JV is expected to be generated from other independent clients not connected with the directors, chief executive or substantial shareholders of the Company, its subsidiaries or any of their respective associates.

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LETTER FROM THE BOARD

Out of the S$6.2 million of the Invoice Prices as mentioned above, approximately S$0.6 million (equivalent to approximately HK$2.8 million) is expected to arise from the supply of Part A Items while approximately S$5.6 million (equivalent to approximately HK$25.8 million) is expected to arise from the supply of Part B Items. Based on the above calculation of the Invoice Prices, the JV is expected to achieve an aggregate gross margin of approximately S$172,000 (equivalent to approximately HK$791,200) for the year ending 31st March, 2005 in relation to goods and services provided to HCSPL. Out of the S$172,000 of aggregate gross margin, approximately S$59,000 (equivalent to approximately HK$271,400) is expected to arise from the supply of Part A Items while approximately S$113,000 (equivalent to approximately HK$519,800) is expected to arise from the supply of Part B Items.

Shareholders should note that the above does not represent profit of the JV and no forecast of profit for the JV is made.

Term

The Supply Agreement will commence on the Effective Date and continue in force, unless terminated by either party in accordance with the Supply Agreement, for an initial term of 3 years commencing from the Effective Date. Thereafter, the Supply Agreement may be renewed subject to review and mutual agreement between the parties of the Supply Agreement.

Expenses of the JV

The JV will bear its own operating expenses including salary expenses, rental expenses, secretarial fees and other miscellaneous office expenses.

Conditions

The Supply Agreement is subject to and conditional upon the fulfillment of the following conditions on or before 30th April, 2004 or such other date as shall be agreed by the parties in writing:

• (a) all consents and approvals (if any) of the Stock Exchange, any relevant governmental or regulatory authorities and other relevant third parties which are necessary for the entering into the Supply Agreement and all transactions contemplated under the Supply Agreement having been obtained;

• (b) the approval of the Supply Agreement and the transactions therein contemplated by the Independent Shareholders at a duly convened special general meeting of the Company in accordance with the Listing Rules; and

• (c) the Shareholders’ Agreement and the transactions contemplated therein becoming unconditional.

In the event that any of the above conditions are not fulfilled on or before 30th April, 2004, the Supply Agreement shall absolutely cease and determine and no party shall have any claim against any other party on any ground whatsoever save in respect of any antecedent breach.

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LETTER FROM THE BOARD

3. INFORMATION ON THE COMPANY

The principal activities of the Group are the design, manufacture and sale of a wide range of toys.

For the year ended 31st March, 2002, the audited turnover and the audited consolidated net loss of the Group was approximately HK$47.4 million and HK$59.3 million respectively. For the year ended 31st March, 2003, the audited turnover and the audited consolidated net profit of the Group were approximately HK$38.1 million and HK$37.4 million respectively. For the six months ended 30th September, 2003, the unaudited turnover and unaudited consolidated net loss of the Group were approximately HK$11.9 million and HK$15.4 million respectively. As at 30th September, 2003, the unaudited consolidated net asset value of the Group was approximately HK$26.6 million.

4. INFORMATION ON HCSPL

The Directors have been informed that HCSPL is principally engaged in the cruise line business in Singapore, Malaysia and Indonesia. It also provides operational management services for the handling of the vessels including crewing, technical management, insurance, management services, procurement services and accounting. Mr. Wilson Ng and Mr. Ng Wee Keat, both of whom are executive Directors, are also directors of HCSPL.

5. REASONS FOR THE FORMATION OF THE JV AND THE ONGOING CONNECTED TRANSACTIONS

The formation of the JV and the entering of the Supply Agreement enable the Group to diversify into the supply and procurement business. For the six months ended 30th September, 2003, the unaudited consolidated net loss of the Group was approximately HK$15.4 million. As set out in the 2003 interim report of the Company, the management is seeking to strengthen the Group by looking for new investment opportunities with stable revenue generating power. The Directors consider that a recovery of the global economy is underway and in particular, in the Asia Pacific region, which is beneficial to the Asia Pacific tourism industry.

The Directors consider that the proposed formation of the JV will serve the mutual interest of the Group and HCSPL for the following reasons:

• (i) It will enable HCSPL to outsource its supply and procurement business to a reliable party, i.e. the JV, in which HCSPL will have a 49% equity interest, and at the same time enable HCSPL to deploy its resources for other business purposes with more flexibility;

• (ii) It will enable the Group to diversify into the supply and procurement business and to effectively commit its resources for such purpose, as it will provide the Group with a reliable and trustworthy client from the start of the supply and procurement business;

• (iii) The JV, being a subsidiary of a listed company, will be in a better position to expand its client base to include customers other than HCSPL in the future;

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LETTER FROM THE BOARD

• (iv) With the growth in the supply and procurement business, the JV will enjoy better efficiency and economies of scale which could enable it to improve its profit margins; and

• (v) The 51% – 49% shareholding structure is a fair reflection of the contributions and efforts made or to be made by the Group and HCSPL respectively in the JV.

The Directors believe that the Group is well equipped to diversify its business into the provision of the supply and procurement business which will serve to provide a stable revenue income source for the Group based on the following reasons: (i) certain Directors, including Mr. Wilson Ng and Mr. Ng Wee Keat, both of whom are also directors of HCSPL, have relevant experience in the shipping industry; (ii) the Group has experience in the toys trading business together with sourcing and supplying of raw materials for its toys manufacturing business; and (iii) the cooperation with HCSPL, the other shareholder of the JV, who has extensive experience in the cruise line business.

The Directors (including the independent non-executive Directors) consider the transactions contemplated under the Shareholders’ Agreement and the Supply Agreement are on normal commercial terms and the terms of such are fair and reasonable as far as the Shareholders are concerned. The Directors (including the independent non-executive Directors) also consider that the Shareholders’ Agreement, the Supply Agreement and the Waiver are in the interest of the Company.

6. COMPLIANCE WITH THE LISTING RULES

HCSPL is wholly owned by New Century International Pte. Ltd., a company incorporated in Singapore with limited liability. New Century International Pte. Ltd. is wholly owned by the parents of Mr. Wilson Ng and Mr. Ng Wee Keat, both of whom are executive Directors and also directors of HCSPL.

As at the Latest Practicable Date, Vision Century, the controlling shareholder of the Company, was interested in approximately 70.92% of the issued share capital of the Company. Vision Century is wholly owned by Huang Worldwide Holding Limited, which is in turn wholly owned by Huang Group (BVI) Limited. Huang Group (BVI) Limited is wholly owned by Mr. Kan Ka Chong, Frederick as trustee of a discretionary trust, the discretionary beneficiaries of which include Mr. Wilson Ng and Mr. Ng Wee Keat.

7. WAIVER FOR THE ONGOING CONNECTED TRANSACTIONS

The transactions contemplated under the Supply Agreement are expected to continue in the future on a regular basis in the normal and ordinary course of business of the Group and will continue to constitute ongoing connected transactions under the Listing Rules for so long as HCSPL remains a connected person of the Company. It would be impracticable and unduly burdensome for the Company to make separate press announcements and to seek the approval of the Independent Shareholders in relation to the Ongoing Connected Transactions, prior to each occasion the relevant transactions arise, in order to comply strictly with the Listing Rules.

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LETTER FROM THE BOARD

The Ongoing Connected Transactions constitute connected transactions of the Company under Rule 14.26 of the Listing Rules. Accordingly, the Company has applied to the Stock Exchange for the Waiver. The Waiver will cover a three-year financial period from 1st April, 2004 to 31st March, 2007 subject to the following conditions:

• (a) The Ongoing Connected Transactions will be conducted on the following basis:

• (i) the supply and procurement services will be maintained on normal commercial terms and on terms that are fair and reasonable so far as the Shareholders are concerned;

• (ii) the Ongoing Connected Transactions will be entered into in accordance with the terms of the Supply Agreement, in particular, the pricing policies; and

• (iii) the Ongoing Connected Transactions will be entered in the ordinary and usual course of business of the Group.

• (b) The aggregate amount of the Ongoing Connected Transactions on an annual basis will not exceed S$7.5 million (approximately HK$34.5 million) for each of the three financial years ending 31st March, 2007.

• (c) The independent non-executive Directors will review annually the Ongoing Connected Transactions and confirm in the Company’s annual report for each of the financial year during which whether the Ongoing Connected Transactions are conducted on the basis in accordance with the provisions of (a)(i) to (iii) and (b) as stated above.

• (d) The auditors of the Company will review annually the Ongoing Connected Transactions and confirm to the Board in writing (a copy of which will be provided to the Stock Exchange) that:

• (i) approval of the Board has been obtained with respect to the Ongoing Connected Transactions;

• (ii) the Ongoing Connected Transactions have been entered into in accordance with the terms of the Supply Agreement, in particular, the pricing policies; and

• (iii) the cap amounts as stated in (b) above have not been exceeded in the relevant financial year.

• (e) Each of the Company, the Subsidiary and HCSPL shall provide to the Stock Exchange an undertaking that for so long as the shares of the Company are listed on the Stock Exchange, it will provide the Company’s auditors with full access to their relevant records for the purpose of the review of the Ongoing Connected Transactions by the Company’s auditors.

• (f) The cap amounts as stated in (b) above in respect of the Ongoing Connected Transactions will be subject to review by, and approval of, the Independent Shareholders.

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LETTER FROM THE BOARD

• (g) Relevant details of the Ongoing Connected Transactions will be disclosed in the Company’s next and each successive annual report in accordance with Rule 14.25(1)(A) to (D) of the Listing Rules, together with a statement of opinion of independent non-executive Directors as referred to in paragraph (c) above.

In the event that the aggregate value of the Ongoing Connected Transactions for any particular year should exceed the relevant cap, the Waiver will be revoked and the relevant requirements of the Listing Rules in respect of such transactions shall be complied with in full by the Company. In the event that the terms of the Ongoing Connected Transactions are altered or the Company enters into any other connected transactions in future, the Company will comply with relevant provisions of the Listing Rules.

THE SPECIAL GENERAL MEETING

Notice of the Special General Meeting, at which ordinary resolutions to approve the the Shareholders’ Agreement, the Supply Agreement and the Waiver will be proposed, is set out on pages 29 to 30 of this circular.

By virtue of Mr. Wilson Ng’s and Mr. Ng Wee Keat’s parents’ interests in HCSPL, the Shareholders’ Agreement and the transactions under the Supply Agreement constitute connected transactions of the Company under Rule 14.26 of the Listing Rules. Vision Century, Mr. Wilson Ng, Mr. Ng Wee Keat and their respective associates will abstain from voting on the resolutions to be proposed in the Special General Meeting to consider the Shareholders’ Agreement, the Supply Agreement and the Waiver. As at the Latest Practicable Date, Mr. Wilson Ng and Mr. Ng Wee Keat did not hold any Shares.

A form of proxy for use at the Special General Meeting is enclosed. You are advised to complete the form of proxy and return the same to the principal place of business of the Company in Hong Kong in accordance with the instructions printed thereon not less than 48 hours before the time for holding the Special General Meeting, whether or not you propose to attend the Special General Meeting. Completion and return of the form of proxy will not preclude you from attending and voting in person at the Special General Meeting or any adjournment of it, if you so wish.

RECOMMENDATIONS

The Directors believe that the Shareholders’ Agreement, the transactions contemplated under the Supply Agreement and the Waiver are in the interests of the Company and the Shareholders. Accordingly, the Board recommends that the Independent Shareholders should vote in favour of the ordinary resolutions set out in the notice of the Special General Meeting.

Independent Shareholders are advised to read carefully the advice of the Independent Board Committee and the opinion of Dao Heng Securities in relation to the Shareholders’ Agreement, the Supply Agreement, the Waiver and the annual cap amount for the Ongoing Connected Transactions.

– 12 –

LETTER FROM THE BOARD

FURTHER INFORMATION

Your attention is drawn to the texts of the letters from the Independent Board Committee and from Dao Heng Securities containing their respective recommendations regarding the Shareholders’ Agreement, the Supply Agreement, the Waiver and the annual cap amount for the Ongoing Connected Transactions, and to the additional information set out in the appendix to this circular.

On behalf of the Board Lo Ming Chi, Charles Chairman

– 13 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

* (Incorporated in Bermuda with limited liability)

To the Independent Shareholders

12th March, 2004

Dear Sirs or Madam,

CONNECTED TRANSACTIONS FORMATION OF A JOINT VENTURE COMPANY AND ENTERING INTO OF SUPPLY AGREEMENT

As the Independent Board Committee, we have been appointed to advise you in connection with the Shareholders’ Agreement, the Supply Agreement, the Waiver and the annual cap amount for the Ongoing Connected Transactions, details of which are set out in the letter from the Board contained in the circular to the Shareholders dated 12th March, 2004 (the “Circular”), of which this letter forms part. Terms defined in the Circular have the same meanings when used herein, unless the context otherwise requires.

Dao Heng Securities has been appointed as the independent financial adviser of the Company to advise the Independent Board Committee in respect of the terms of the Shareholders’ Agreement and the Supply Agreement as well as the Waiver and the annual cap amount for the Ongoing Connected Transactions.

Having considered the terms of the Shareholders’ Agreement and the Supply Agreement as well as the Waiver and the annual cap amount for the Ongoing Connected Transactions and the advice of Dao Heng Securities in relation thereto as set out on pages 15 to 24 of the Circular, we are of the opinion that the terms of the Shareholders’ Agreement and the Supply Agreement as well as the Waiver and the annual cap amount for the Ongoing Connected Transactions are fair and reasonable so far as the Independent Shareholders are concerned and recommend the Independent Shareholders should vote in favour of the ordinary resolutions set out in the notice of the Special General Meeting.

Yours faithfully, Independent Board Committee

Wu Wing Kit Wong Kwok Tai, Wystan Lau Pok Lam

* For identification only

– 14 –

LETTER FROM DAO HENG SECURITIES

The following is the text of the letter of advice to the Independent Board Committee from Dao Heng Securities in connection with the Shareholders’ Agreement, the Supply Agreement, the Waiver and the annual cap amount for the Ongoing Connected Transactions, which has been prepared for the purpose of inclusion in this circular.

To the Independent Board Committee

12th March, 2004

Dear Sir,

CONNECTED TRANSACTIONS FORMATION OF A JOINT VENTURE COMPANY AND ENTERING INTO OF SUPPLY AGREEMENT

INTRODUCTION

We refer to our engagement by the Company as independent financial adviser to advise the Independent Board Committee with respect to the terms of the Shareholders’ Agreement and the Supply Agreement as well as the Waiver and the annual cap amount for the Ongoing Connected Transactions, details of which are contained in the letter from the Board in the circular dated 12th March, 2004 to the Shareholders (the “Circular”), of which this letter forms part. Terms defined in the Circular bear the same meanings herein unless the context otherwise requires.

On 20th February, 2004, the Company, the Subsidiary and HCSPL entered into the Shareholders’ Agreement to form the JV and the JV entered into the Supply Agreement with HCSPL. HCSPL is wholly owned by New Century International Pte. Ltd., a company incorporated in Singapore with limited liability. New Century International Pte. Ltd. is wholly owned by the parents of Mr. Wilson Ng and Mr. Ng Wee Keat, both of whom are Directors. By virtue of Mr. Wilson Ng’s and Mr. Ng Wee Keat’s parents’ interests in HCSPL, the Shareholders’ Agreement and the transactions contemplated under the Supply Agreement constitute connected transactions of the Company under Rule 14.26 of the Listing Rules. The transactions contemplated under the Supply Agreement are expected to continue in the future and will constitute ongoing connected transactions of the Group under the Listing Rules for so long as HCSPL remains a connected person of the Company. Accordingly, the Company has applied to the Stock Exchange for the Waiver.

The Shareholders’ Agreement, the Supply Agreement, the Waiver and the annual cap amount for the Ongoing Connected Transactions are conditional on the approval by the Independent Shareholders at the Special General Meeting. During such meeting, Mr. Wilson Ng, Mr. Ng Wee Keat (both executive Directors) and Vision Century Group Limited (the controlling Shareholder) and their associates will abstain from voting on the resolutions. Messrs. Wu Wing Kit, Wong Kwok Tai, Wystan and Lau Pok Lam have been appointed as the members of the Independent Board Committee to advise the Independent Shareholders in respect of the Shareholders’ Agreement, the Supply Agreement, the Waiver and the annual cap amount for the Ongoing Connected Transactions.

– 15 –

LETTER FROM DAO HENG SECURITIES

Our role as the independent financial adviser to the Independent Board Committee is to give our opinion as to whether the terms of the Shareholders’ Agreement and the Supply Agreement as well as the Waiver and the annual cap amount for the Ongoing Connected Transactions are fair and reasonable so far as the interests of the Independent Shareholders as a whole are concerned.

In formulating our recommendations, we have relied on the accuracy of the information and representations contained in the Circular, which have been provided by the Directors and have assumed that all information and representations made or referred to in the Circular are true and accurate in all material respects. We have no reason to doubt the truth, accuracy and completeness of the information and representations provided to us by the Directors and have been advised by the Directors that no material facts have been omitted from the information provided and referred to in the Circular. We consider that we have reviewed sufficient information to reach an informed view and to justify relying on the accuracy of the information contained in the Circular and to provide a reasonable basis for our advice. We have not, however, conducted any independent investigation into the business and affairs or the future prospects of the Group.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our advice in respect of the Shareholders’ Agreement, the Supply Agreement, the Waiver and the annual cap amount for the Ongoing Connected Transactions, we have considered the following principal factors and reasons.

A. Reasons for and benefits of the Shareholders’ Agreement and the Supply Agreement

The principal activities of the Group are the design, manufacture and sale of a wide range of

toys.

As stated in the letter from the Board of the Circular, the Subsidiary and HSCPL entered into the Shareholders’ Agreement to form the JV and the JV entered into the Supply Agreement with HCSPL. The business activities of the JV will be confined to acting as supplier for the supply of equipment, goods and services which include but not limited to office equipment, office supplies, machinery, parts, lubricating oil and bunker for vessels. The initial investment by the Subsidiary and HCSPL in the JV will be approximately S$10,000 (equivalent to approximately HK$46,000), which represents the entire initial issued share capital of the JV. In addition, they will provide interest-free loans to the JV within 14 days after completion of subscription of the JV Shares pursuant to the Shareholders’ Agreement with an aggregate amount of S$500,000 (equivalent to approximately HK$2,300,000), of which S$255,000 (equivalent to approximately HK$1,173,000) will be advanced by the Subsidiary and S$245,000 (equivalent to approximately HK$1,127,000) will be advanced by HCSPL. The JV will utilise this sum for general working capital of the JV to finance, among other things, (i) purchase of machinery and parts for repair and maintenance required for providing the supply and procurement services; and (ii) daily operations, e.g. salary and rental expenses of the JV. The portion of the loan provided to the JV will be funded from the internal resources of the Group.

– 16 –

LETTER FROM DAO HENG SECURITIES

The following table summarises the results of the Group for the two years ended 31st March, 2002 and 31st March, 2003 and the six months ended 30th September, 2003:

	For the year ended		For the six months
	31st March,		ended 30th
	2002	2003	September, 2003
Turnover (HK$’000,000)	47.4	38.1	11.9
Profit or (loss) from operating
activities (HK$’000,000)	(43.4)	(33.4)	(12.1)
Net profit or (loss) (HK$’000,000)	(59.3)	37.4	(15.4)

As stated in the Company’s circular dated 26th April, 2002 issued to the Shareholders, as a result of an investigation by the Independent Commission Against Corruption against the former chairman of the Group, an incident of wide publicity in the press, the Group’s reputation was severely impaired. All its bankers and suppliers either suspended or terminated their credit facilities granted to the Group and some of them demanded repayment of outstanding balances. As advised by the Directors, credit facilities, which had been suspended or terminated by its banks, amounted to approximately HK$88.9 million based on the financial statements for the year ended 31st March, 2002. As stated in the Company’s annual report 2002, this made it difficult for the Group to carry on its normal operations with its tight working capital position. Together with the imposition of stringent credit control by the Group on sales, the Group’s turnover dropped from approximately HK$202.7 million in the year ended 31st March, 2001 to approximately HK$47.4 million in the year ended 31st March, 2002. As a result of the Group’s significantly smaller scale of operation which the turnover could not reach a scale that could recover the Group’s fixed costs, the Group recorded a loss from operating activities and net loss of approximately HK$43.4 million and HK$59.3 million respectively.

For the year ended 31st March, 2003, the Group underwent a debt restructuring exercise including, among other things, (i) the subscription of new Shares; (ii) the entering into of various compromise agreements with the Group’s bankers and other creditors; (iii) an open offer on the basis of three offer shares for every two Shares held by the then qualifying Shareholders; and (iv) the reschedule of the repayment of the Group’s indebtedness, and as a result, a gain of approximately HK$77.0 million was recorded. Although the Group recorded a loss from operating activities of approximately HK$33.4 million, the Group’s net profit amounted to approximately HK$37.4 million during the year under review.

As stated in its interim report 2003 and as advised by the Directors, the Iraq war not only affected the consumer spending sentiment but also caused a decrease in the supply of plastic material in general, leading to a rise in the unit price of PP-Block Copolymer of approximately 24.4% on average, being the major raw material utilised for the Group’s core product item – toddler cars, that ultimately affected its margins and turnover. For the six months ended 30th September, 2003, the loss from operating activities and unaudited consolidated net loss of the Group were approximately HK$12.1 million and HK$15.4 million respectively. As set out in the 2003 interim report of the Company, the management was seeking to strengthen the Group by looking for new investment opportunities with stable revenue generating power.

– 17 –

LETTER FROM DAO HENG SECURITIES

As stated in the letter from the Board, the Directors consider that a recovery of the global economy is underway and in particular, in the Asia Pacific region, which is beneficial to the Asia Pacific tourism industry. It is further stated in the letter from the Board of the Circular that, while the formation of the JV enables the Group to diversify into the supply and procurement business and to effectively commit its resources for such purpose, the entering into of the Supply Agreement will provide the Group with a reliable and trustworthy client from the start of its supply and procurement business. With the growth in the supply and procurement business, the Directors believe that the JV will enjoy better efficiency and economies of scale which would enable it to improve its profit margins.

The Directors also believe that the Group is well equipped to diversify its business into the provision of the supply and procurement business which will serve to provide a stable revenue income source for the Group based on the following reasons: (i) certain Directors, including Mr. Wilson Ng and Mr. Ng Wee Keat, both of whom are also directors of HCSPL, have relevant experience in the shipping industry; (ii) the Group has experience in the toys trading business together with sourcing and supplying of raw materials for its toys manufacturing business; and (iii) the cooperation with HCSPL, the other shareholder of the JV who has extensive experience in the cruise line business.

In view of the losses from the operating activities of the Group for the two years ended 31st March, 2002 and 31st March, 2003 and the six months ended 30th September, 2003, we consider that it is a logical move for the Group to diversify into new business, in this case shipping related business, in which certain Directors have relevant knowledge and experience and to solicit and secure a long term customer by entering into the Supply Agreement.

B. Principal terms of the Shareholders’ Agreement

As stated in the letter from the Board in the Circular, the Subsidiary and HCSPL agreed to govern their relationship as shareholders of the JV through the Shareholders’ Agreement. The Directors consider that the terms of the Shareholders’ Agreement are on normal commercial terms and in the interest of the Company and the terms of which are fair and reasonable as far as the Shareholders are concerned. Principal terms of the Shareholders’ Agreement in respect of the formation and operation of the JV are set out in the section headed “1. The JV and the Shareholders’ Agreement” in the letter from the Board in the Circular.

We note that, pursuant to the Shareholders’ Agreement, contribution to the JV including investment, borrowings, guarantee shall be pro rata in accordance with the respective shareholdings of the Subsidiary and HCSPL and the number of directors of the JV to be nominated by the Subsidiary shall be three out of five. In addition, the Shareholders’ Agreement contains a restriction on the disposal of the JV Shares by either shareholder subject to prior written consent of the other shareholder. Based on the above, the Company’s interest in the JV is further protected under the Shareholders’ Agreement. Consequently, we are of the view that the terms of the Shareholders’ Agreement are fair and reasonable so far as the Shareholders are concerned.

– 18 –

LETTER FROM DAO HENG SECURITIES

C. Principal terms of the Supply Agreement

The JV entered into the Supply Agreement with HCSPL whereby the JV has been appointed by HCSPL as supplier (on a non-sole and non-exclusive basis) for the efficient and timely supply of (i) Part A Items including certain office equipment and office supplies; and (ii) Part B Items including machinery, parts, lubricating oil and bunker for vessels (details of Part A Items and Part B Items are set out in the paragraph headed “2. The Supply Agreement” in the letter from the Board in the Circular). The Directors consider the transactions contemplated under the Supply Agreement are on normal commercial terms and in the interest of the Company and the terms of which are fair and reasonable as far as the Shareholders are concerned. The major terms of the Supply Agreement are set out as follows:

Pricing : Part A Items

• The price equivalent to 10/9th times the total actual cost to the JV of the Part A Items supplied (inclusive of all tax, duties, shipping, transportation, handling and other charges)

Part B Items

The price equivalent to 100/98th times the total actual cost to the JV of the Part B Items supplied (inclusive of all tax, duties, shipping, transportation, handling and other charges)

• Term : The Supply Agreement shall commence on the date on which all the conditions thereunder are fulfilled and shall continue in force for an initial term of three years commencing therefrom. Thereafter, the Supply Agreement may be renewed subject to review and mutual agreement between HCSPL and the JV.

As stated in the letter from the Board, the JV will bear its own operating expenses including salary expenses, rental expenses, secretarial fees and other miscellaneous office expenses. It is also stated in the letter from the Board that the method of calculation of the Invoice Prices has been agreed between the parties based on arm’s length negotiations and the supply and procurement services of items of same nature will be charged by the JV on HCSPL at rates no less favourable than those provided to independent third parties. According to the Directors, the JV is a newly established company and no business has been conducted so far. Since no business has been conducted by the JV thus far, no past transactions are available for comparison as to the basis of pricing under the Supply Agreement. Nevertheless, as stated in the letter from the Board in the Circular that the pricing of the supply and procurement services of items of same nature to be charged by the JV on HCSPL will be at rates no less favourable than those provided to independent third parties, we consider that the interests of the Group and the Shareholders has been properly safeguarded and we consider that the method of calculation of the Invoice Price is fair and reasonable and in the interest of the Company as far as the Independent Shareholders as a whole are concerned.

– 19 –

LETTER FROM DAO HENG SECURITIES

D. The Waiver

As stated in the letter from the Board, the Ongoing Connected Transactions are expected to continue in the future on a regular basis, it would be impracticable and unduly burdensome for the Company to make separate press announcements and to seek the approval of Independent Shareholders in relation to the Ongoing Connected Transactions prior to each occasion the relevant transactions arise, in order to comply strictly with the Listing Rules. As such, the Company has applied to the Stock Exchange for the Waiver. The Waiver will cover a three-year financial period from 1st April, 2004 to 31st March, 2007 subject to the following conditions:

• (a) the Ongoing Connected Transactions will be conducted on the following basis:

• (i) the supply and procurement services will be maintained on normal commercial terms and on terms that are fair and reasonable so far as the Shareholders are concerned;

• (ii) the Ongoing Connected Transactions will be entered into in accordance with the terms of the Supply Agreement, in particular, the pricing policies; and

• (iii) the Ongoing Connected Transactions will be entered in the ordinary and usual course of business of the Group;

• (b) the aggregate amount of the Ongoing Connected Transactions on an annual basis will not exceed S$7.5 million (approximately HK$34.5 million) for each of the three financial years ending 31st March, 2007;

• (c) the independent non-executive Directors will review annually the Ongoing Connected Transactions and confirm in the Company’s annual report for each of the financial year during which whether the Ongoing Connected Transactions are conducted on the basis in accordance with the provisions of (a)(i) to (iii) and (b) as stated above;

• (d) the auditors of the Company will review annually the Ongoing Connected Transactions and confirm to the Board in writing (a copy of which will be provided to the Stock Exchange) that:

• (i) approval of the Board has been obtained with respect to the Ongoing Connected Transactions;

• (ii) the Ongoing Connected Transactions have been entered into in accordance with the terms of the Supply Agreement, in particular, the pricing policies; and

• (iii) the cap amounts as stated in (b) above have not been exceeded in the relevant financial year;

– 20 –

LETTER FROM DAO HENG SECURITIES

• (e) each of the Company, the Subsidiary and HCSPL shall provide to the Stock Exchange an undertaking that for so long as the shares of the Company are listed on the Stock Exchange, it will provide the Company’s auditors with full access to their relevant records for the purpose of the review of the Ongoing Connected Transactions by the Company’s auditors;

• (f) the cap amounts as stated in (b) above in respect of the Ongoing Connected Transactions will be subject to review by, and approval of, the Independent Shareholders; and

• (g) relevant details of the Ongoing Connected Transactions will be disclosed in the Company’s next and each successive annual report in accordance with Rule 14.25(1)(A) to (D) of the Listing Rules, together with a statement of opinion of independent nonexecutive Directors as referred to in paragraph (c) above.

E. The annual cap amount for the Ongoing Connected Transactions

As a condition for the Waiver granted by the Stock Exchange, the Ongoing Connected Transactions will be subject to, among other thing, the cap amount for each financial year up to 31st March, 2007. We note that the Directors have principally determined the cap amount with reference to (i) HCSPL’s annualised purchase amount in the year ended 31st March, 2003; (ii) the estimated HCSPL’s annual purchase amount in the year ending 31st March, 2004 based on the actual purchase for the seven months up to 31st October, 2003; and (iii) the estimated respective annual growth in the consumption of the Part A Items and Part B Items in the coming years.

– 21 –

LETTER FROM DAO HENG SECURITIES

Based on the information provided by the Company, we summarise (i) the unaudited annualised purchase by HCSPL on Part A Items and Part B Items for the year ended 31st March, 2003 and the year ending 31st March, 2004 respectively; (ii) the expected annual turnover derived from purchases by HCSPL from the JV for the three years ending 31st March, 2007; and (iii) the respective annual growth rate of purchases as follows:

	Year ended		Year ending	31st March,
31st	March, 2003	2004	2005	2006	2007
	S$’000	S$’000	S$’000	S$’000	S$’000
	(Note 1)	(Note 2)	(Note 3)	(Note 3)	(Note 3)
Part A Items:
Total purchases by HCSPL	597.0	507.0	591.0	507.0	591.0
Annual growth rate		(15.1)%	16.6%	(14.2)%	16.6%
Part B Items:
Total purchases by HCSPL	3,955.0	5,133.0	5,650.0	6,215.0	6,837.0
Annual growth rate		29.8%	10.1%	10.0%	10.0%
Total purchases	4,552.0	5,640.0	6,241	6,722.0	7,428.0
Total annual growth rate		23.9%	10.7%	7.7%	10.5%
Cap amount			7,500.0	7,500.0	7,500.0
(equivalent amount in HK$’000)			34,500.0	34,500.0	34,500.0

• Notes: 1. Annualised figures based on unaudited management accounts of HCSPL and its subsidiaries (annualised figures have been used due to the fact that HCSPL has changed its year end from December to March in year 2002/2003 and such management accounts therefore covered the period from 1st January, 2002 to 31st March, 2003)

• Annualised figures based on actual purchase for the seven months up to 31st October, 2003 as recorded in the unaudited management accounts of HCSPL and its subsidiaries

• Projected figures based on the business plan of the Group with reference to the preliminary plan provided by HCSPL for its purchase of office equipment and supplies in each of the three years ending 31st March, 2007

• Part A Items – We obtained from the Company a preliminary plan for HCSPL relating to the purchase of office equipment and office supplies for each of the three years ending 31st March, 2007 that the expected annual turnover derived from purchases by HCSPL from the JV for each of the three years ending 31st March, 2007 are to be approximately S$591,000, S$507,000 and S$591,000 respectively. Given the respective annualised purchases of Part A Items for the year ended 31st March, 2003 and the year ending 31st March, 2004 of approximately S$597,000 and S$507,000, we consider that the projection as to the total purchases by HCSPL of Part A Items of no more than S$591,000 per year for the three years ending 31st March, 2007 to be acceptable.

– 22 –

LETTER FROM DAO HENG SECURITIES

• Part B Items – The Directors advised us that, due to the outbreak of the severe acute respiratory syndrome (“SARS”) in the beginning of 2003, the tourism business in South East Asian region were adversely affected. The number of passengers boarding the vessels and the voyages of the vessels had decreased. Following the World Health Organization’s announcement on the removal of Singapore from the list of locations from travel warning in relation to SARS in May 2003, the tourism industry in the South East Asian region began to recover and the number of passengers boarding the vessels has rebounded to the levels of the pre-SARS period. Accordingly, the consumption of the Part B Items (mainly include machinery and spares and fuel for vessels) by HCSPL, which is principally engaged in the cruise line business in Singapore and also provides operational management services for handling of the vessels, will increase for the year ending 31st March, 2004, when compared with that of the previous year. According to the statistics released by the Singapore Tourism Board, the number of visitor arrivals in Singapore during the period from July to September 2003 amounted to approximately 1,700,022, representing an increase of approximately 143.6% from the previous quarter (that of April to June 2003 was approximately 697,957). It further increased by approximately 12.5% to approximately 1,912,427 in the quarter from October to December 2003. As such, we consider that the expected growth in the consumption of the Part B Items by HCSPL in the year ending 31st March, 2004 is in line with the rebound of the tourism industry in Singapore.

The Directors consider that the gradual recovery of the global economy has positive effect on the tourism industry, in particular, in the South East Asian region and consider that the usage of the vessels will increase and accordingly the Directors expect the consumption of Part B Items will increase gradually by 10% for each of the three years ending 31st March, 2007. According to the forecast released by the World Tourism Organization in 2001, the total number of cruise passengers worldwide is expected to grow from approximately 7.5 million in 1998 to approximately 13.5 million by 2005, representing a compound annual growth rate of approximately 8.8%, and the growth is even more significant over the first half of the decade from 2001 to 2010 which is expected to attain approximately 10%. As such, we consider that the expected annual growth of approximately 10% in the consumption of the Part B Items by HCSPL for each of the three years ending 31st March, 2007 is in line with the forecast by the World Tourism Organization.

Based on (i) the fact that the annualised purchase of Part A Items and Part B Items by HCSPL for the year ended 31st March, 2003 amounted to approximately S$4,552,000 and for the year ending 31st March, 2004 amounting to approximately S$5,640,000; (ii) the projection as to the purchases by HCSPL of Part A Items for each of the three years ending 31st March, 2007 is even lower than the annualised purchases of the same for the year ended 31st March, 2003; (iii) the expected expansion in the number of cruise passengers in the future; and (iv) the flexibility allowed for HCSPL and the JV as to any seasonal or other unforeseeable variations for the demand of Part A Items and Part B Items, we consider that the annual cap amount of S$7.5 million (equivalent to approximately HK$34.5 million) for each of the three years ending 31st March, 2007 for the Ongoing Connected Transactions is fair and reasonable and in the interest of the Company as far as the Independent Shareholders as a whole are concerned.

– 23 –

LETTER FROM DAO HENG SECURITIES

Taking into account a series of conditions attached to the transactions under the Supply Agreement, in particular (a) the restriction by way of the annual cap amount; and (b) the ongoing annual review by the independent non-executive Directors and the auditors of the Company as described in paragraph headed “D. The Waiver” in this letter has taken appropriate measures to govern the Company in carrying out the transactions, we consider that the Company has taken appropriate measures to govern the Company in carrying out the transactions under the Supply Agreement, thereby safeguarding the interests of the Independent Shareholders thereunder.

RECOMMENDATION

Having taken into account the above factors and reasons, we consider that the entering into of the Shareholders’ Agreement and the Supply Agreement and the terms thereunder, the Waiver and the annual cap amount for the Ongoing Connected Transactions are fair and reasonable so far as the interest of the Independent Shareholders are concerned. Accordingly, we recommend the Independent Board Committee to advise the Independent Shareholders to vote at the Special General Meeting in favour of the resolutions in relation to the Shareholders’ Agreement, the Supply Agreement, the Waiver and the annual cap amount for the Ongoing Connected Transactions.

Yours faithfully, For and on behalf of

Dao Heng Securities Limited

Stella Fung Venus Choi Executive Director Executive Director and General Manager

– 24 –

GENERAL INFORMATION

APPENDIX

1. RESPONSIBILITY STATEMENT

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

2. DISCLOSURE OF INTERESTS

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

					Percentage
					of the
		Number	of Shares	held	Company’s
	Personal	Family	Corporate	Other	Issued Share
Name of Directors	interests	interests	interests	interests	Capital
Mr. Lo Ming Chi, Charles	18,068,000	–	–	–	1.64%
Mr. Yu Wai Man	7,024,000	–	–	–	0.64%
Mr. Wilson Ng	–	–	–	782,095,950	70.92%
Mr. Ng Wee Keat	–	–	–	782,095,950	70.92%
				(Note 2)

Notes:

1. All the interests disclosed above represents long positions in the Shares.

2. These Shares are held by Vision Century. Vision Century is ultimately owned by a discretionary trust, the beneficiaries under the discretionary trust include Mr. Wilson Ng and Mr. Ng Wee Keat.

Save as disclosed herein and as at the Latest Practicable Date, no Director or chief executive of the Company had any interests or short positions in the shares, underlying shares and debentures of the Company or its associated corporations (within the meaning of Part XV of the SFO) which require notification to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests which he is deemed or taken to have under such provisions of the SFO) or which are required to be entered into the register maintained by the Company, pursuant to Section 352 of the SFO, or which are required, pursuant to the Model Code for Securities Transactions by Directors of Listed Companies, to be notified to the Company and the Stock Exchange.

– 25 –

GENERAL INFORMATION

APPENDIX

3. SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, so far as is known to the Directors and the chief executive of the Company, the following persons, other than a Director or chief executive of the Company, have an interest or short positions in the shares and underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or, who was, directly or indirectly, interested in 5% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group and the amount of each of such person’s interest in such securities, together with particulars of any options in respect of such capital:

		Number of		Percentage of
		Shares held		the Company’s
Name of Substantial Shareholders	Notes	Long Position	Short Position	Issued Share Capital
Vision Century		782,095,950	–	70.92%
Huang Worldwide Holding Limited	1	782,095,950	–	70.92%
Huang Group (BVI) Limited	2	782,095,950	–	70.92%
Mr. Ng (Huang) Cheow Leng	3	782,095,950	–	70.92%
Mr. Kan Ka Chong, Frederick	4	782,095,950	–	70.92%

Notes:

1. Vision Century is wholly owned by Huang Worldwide Holding Limited and Vision Century held 782,095,950 Shares as at the Latest Practicable Date. Accordingly, Huang Worldwide Holding Limited is deemed to be interested in 782,095,950 Shares held by Vision Century.

2. Huang Worldwide Holding Limited is wholly owned by Huang Group (BVI) Limited, which is deemed to be interested in 782,095,950 Shares held by Vision Century.

3. Mr. Ng (Huang) Cheow Leng is the founder of the discretionary trust referred to in note 4 below.

4. Huang Group (BVI) Limited is wholly owned by Mr. Kan Ka Chong, Frederick who acts as trustee of a discretionary trust of which Mr. Wilson Ng and Mr. Ng Wee Keat are discretionary beneficiaries. Accordingly, Mr. Kan Ka Chong, Frederick is deemed to be interested in 782,095,950 Shares held by Vision Century.

Save as disclosed herein and as at the Latest Practicable Date, the Directors and the chief executive of the Company are not aware of any person, other than a Director or chief executive of the Company, who, had any interest or short positions in the shares and underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or, who was interested, directly or indirectly, in 5% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any member of the Group.

4. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date and save as publicly disclosed, the Directors are not aware of any material adverse changes in the financial or trading position of the Group since 31st March, 2003, the date to which the latest published audited consolidated financial statements of the Group were made up.

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GENERAL INFORMATION

APPENDIX

5. EXPERT

Dao Heng Securities, being a corporation deemed licensed to carry out Types 1, 4, 6, 7 and 9 regulated activities under the SFO, has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter or opinion as set out in this circular and references to its name in the form and context in which they appear respectively.

As at the Latest Practicable Date, Dao Heng Securities was not beneficially interested in the share capital of any member of the Group nor did it have any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group nor did it have any interest, either direct or indirect, in any assets which have been, since the date to which the latest published audited consolidated financial statements of the Group were made up, acquired or disposed of by or leased to or are proposed to be acquired or disposed of by or leased to any member of the Group.

6. MISCELLANEOUS

• (a) As at the Latest Practicable Date, none of the Directors had any existing or proposed service contract with any member of the Group which does not expire or is not terminable by the Group within one year without payment of compensation (other than statutory compensation).

• (b) As at the Latest Practicable Date, save for the Shareholders’ Agreement and the Supply Agreement, there was no contract or arrangement entered into by any member of the Group subsisting at the Latest Practicable Date in which any Director is materially interested and which is significant in relation to the business of the Group.

• (c) As at the Latest Practicable Date, none of the Directors had any direct or indirect interest in any assets which have been acquired, disposed of or leased to, or which were proposed to be acquired, disposed of or leased to, any member of the Group since 31st March, 2003, the date to which the latest published audited consolidated financial statements of the Group were made up.

• (d) The registered office of the Company is at Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda.

• (e) The secretary of the Company is Mr. Yu Wai Man, A.H.K.S.A., F.C.C.A.

• (f) The English texts of this circular and the accompanying form of proxy shall prevail over their respective Chinese texts.

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GENERAL INFORMATION

APPENDIX

7. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during normal business hours (Saturdays and public holidays excepted) at the office of Richards Butler at 20th Floor, Alexandra House, 16-20 Chater Road, Central, Hong Kong from the date of this circular up to and including 26th March, 2004:

• (a) the Memorandum of Association and bye-laws of the Company;

• (b) the annual reports of the Company for the two years ended 31st March, 2002 and 31st March, 2003 and the interim report for the six months ended 30th September, 2003;

• (c) the letter from the Independent Board Committee, the text of which is set out on page 14 of this circular;

• (d) the letter from Dao Heng Securities to the Independent Board Committee, the text of which is set out on pages 15 to 24 of this circular;

• (e) the consent letter from Dao Heng Securities; and

• (f) the Shareholders’ Agreement and the Supply Agreement.

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NOTICE OF SPECIAL GENERAL MEETING

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(Incorporated in Bermuda with limited liability)

NOTICE IS HEREBY GIVEN that a special general meeting of Xin Corporation Limited (the “Company”) will be held at Plaza I-III, Lower Lobby, Novotel Century Hong Kong, 238 Jaffe Road, Wanchai, Hong Kong at 10:00 a.m. on Monday, 29th March, 2004 for the purpose of considering and if thought fit, passing, the following resolutions, which will be proposed with or without amendment as ordinary resolutions of the Company:

ORDINARY RESOLUTIONS

1. “ THAT:–

2. (a) the Shareholders’ Agreement (as defined in the circular of the Company dated 12th March, 2004) in relation to the formation and operation of Xin Procurement & Trading Pte. Ltd., a copy of which has been produced to this meeting marked “A” and signed by the chairman of the meeting for the purpose of identification, be and is hereby approved, confirmed and ratified; and

3. (b) the directors of the Company be and are hereby authorised to do all things and acts and sign all documents which they may consider necessary, desirable or expedient to implement and/or give effect to any matters relating to or in connection with the Shareholders’ Agreement.”

“ THAT:–

• (a) subject to the passing of the Ordinary Resolution No. 1 set out in the notice convening a special general meeting of the Company dated 12th March, 2004, the Supply Agreement (as defined in the circular of the Company dated 12th March, 2004) in relation to the supply and the procurement of equipment, goods and services to be provided by Xin Procurement & Trading Pte. Ltd. to Huang & Co (Singapore) Pte Ltd, a copy of which has been produced to this meeting marked “B” and signed by the chairman of the meeting for the purpose of identification, be and is hereby approved, confirmed and ratified;

• (b) the directors of the Company be and are hereby authorised to do all things and acts and sign all documents which they may consider necessary, desirable or expedient to implement and/or give effect to any matters relating to or in connection with the Supply Agreement.”

“ THAT:–

• (a) subject to the passing of the Ordinary Resolution No. 2 set out in the notice convening a special general meeting of the Company dated 12th March, 2004, the transactions in relation to the supply and the procurement of equipment, goods and services to be

* For identification only

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NOTICE OF SPECIAL GENERAL MEETING

provided by Xin Procurement & Trading Pte. Ltd. to Huang & Co (Singapore) Pte Ltd under the Supply Agreement (as defined in the circular of the Company dated 12th March, 2004) (the “Transactions”) and the Waiver (as defined in the circular of the Company dated 12th March, 2004), which is conditional on, amongst other things, that the aggregate amount of the Transactions on an annual basis will not exceed S$7.5 million for each of the three financial years ending 31st March, 2007, be and are hereby approved; and

• (b) the directors of the Company be and are hereby authorised to do all things and acts and sign all documents which they may consider necessary, desirable or expedient to implement and/or give effect to any matters relating to or in connection with the Transactions and/or the Waiver.”

By Order of the Board Yu Wai Man Company Secretary

Hong Kong, 12th March, 2004

Head Office and Principal Place of Business: Room 808B, 8/F., Tower B New Mandarin Plaza 14 Science Museum Road Tsim Sha Tsui East Kowloon Hong Kong

Notes:

1. Any member of the Company entitled to attend and vote at a meeting of the Company is entitled to appoint another person as his proxy to attend and vote instead of him. A member of the Company who is the holder of two or more shares may appoint more than one proxy to represent him and vote on his behalf at a general meeting of the Company or at a class meeting. A proxy need not be a member of the Company. In addition, a proxy or proxies representing either a member of the Company who is an individual or a member of the Company which is a corporation is entitled to exercise the same powers on behalf of the member of the Company which he or they represent as such member of the Company could exercise.

2. The instrument appointing a proxy shall be in writing under the hand of the appointor or his attorney duly authorized in writing, if the appointor is a corporation, either under its seal or under the hand of an officer, attorney or other person authorized to sign the same. In the case of an instrument of proxy purporting to be signed on behalf of a corporation by an officer thereof it shall be assumed, unless the contrary appears, that such officer is duly authorized to sign such instrument of proxy on behalf of the corporation without further evidence of the fact.

3. The instrument appointing a proxy and (if required by the board) the power of attorney or other authority (if any) under which it is signed, or a certified copy of such power or authority, shall be delivered to the principal place of business of the Company in Hong Kong at Room 808B, 8/F., Tower B, New Mandarin Plaza, 14 Science Museum Road, Tsim Sha Tsui East, Kowloon, Hong Kong not less than forty-eight (48) hours before the time appointed for holding the meeting at which the person named in the instrument proposes to vote. Delivery of an instrument appointing a proxy shall not preclude a member of the Company from attending and voting in person at the meeting convened and in such event, the instrument appointing a proxy shall be deemed to be revoked.

4. Where there are joint holders of any share, any one of such joint holders may vote, either in person or by proxy, in respect of such share as if he were solely entitled thereto, but if more than one of such joint holders be present at any meeting the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders, and for this purpose seniority shall be determined by the order in which the names stand in the register of members of the Company in respect of the joint holding.

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