REPT BATTERO Energy Co., Ltd. — Proxy Solicitation & Information Statement 2003

Oct 10, 2003

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

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

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

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• (Incorporated in the Cayman Islands with limited liability)

ACQUISITION OF INTEREST IN THE JOINT VENTURE AND ISSUANCE OF CONSIDERATION SHARES, CONNECTED AND DISCLOSEABLE TRANSACTION

Financial Adviser to Jackley Holdings Limited

Vinco Capital Limited

Independent Financial Adviser to the Independent Board Committee of Jackley Holdings Limited

Watterson Asia Limited

A letter from the Board is set out on pages 4 to 11 of this circular, a letter from the Independent Board Committee is set out on page 12 of this circular, a letter from the Independent Financial Adviser containing its recommendation to the Independent Board Committee is set out on pages 13 to 18 of this circular and a letter from the Valuer containing its valuation of certain plant and machinery of the Joint Venture is set out on pages 19 to 23 of this circular.

A notice convening an Extraordinary General Meeting of Jackley Holdings Limited to be held at 9:30 a.m. on 24 October 2003 at Basement Function Room II, Luk Kwok Hotel, 72 Gloucester Road, Wanchai, Hong Kong is set out on pages 30 to 31 of this circular. A form of proxy for use at the Extraordinary General Meeting is enclosed. Whether or not you intend to attend the meeting, you are requested to complete the enclosed form of proxy in accordance with the instructions printed thereon and return it as soon as possible to Jackley Holdings Limited’s branch share registrar in Hong Kong, Tengis Limited, at G/F, BEA Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong and, in any event, not less than 48 hours before the time appointed for holding the meeting or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the meeting or any adjourned meeting should you so wish.

* for identification purpose only

9 October 2003

CONTENTS

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
Letter from the Independent Financial Adviser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
Letter from the Valuer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	19
Appendix I – General Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	25
Notice of Extraordinary General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	30

DEFINITIONS

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

• “associate”

has the meaning ascribed to it in the Listing Rules

• “Board”

the board of directors of the Company

• “Business Day” a day (other than a Saturday) on which banks are generally open for business in Hong Kong

• “Company” Jackley Holdings Limited, a company incorporated in the Cayman Islands with limited liability, whose shares are listed on the Stock Exchange

• “Completion” completion of the Share Acquisition on the Completion Date in accordance with the terms of the Share Acquisition Agreement

• “Completion Date” the third Business Day from the date on which any and all of the Conditions are satisfied or waived (as the case may be), which shall be a date on or before 31 October 2003 (or such other date as may be agreed by Jackley America and the Vendor from time to time)

• “Conditions” the conditions precedent as stipulated under the Share Acquisition Agreement, a summary of which is set out in the section headed “Conditions and Completion” on pages 8 and 9 of this circular

• “Consideration” consideration of the Share Acquisition, being HK$62,000,000

• “Consideration Shares”

• 50,000,000 new Shares to be issued at HK$0.30 per Share to the Vendor under the Share Acquisition Agreement

• “Directors”

• the directors (including independent non-executive directors) of the Company

• “EGM”

• the extraordinary general meeting of the Company to be convened for the purpose of approving and passing the relevant resolution(s) in relation to the Share Acquisition and the issue of the Consideration Shares, notice of which is set out on pages 30 and 31 of this circular

• “Group” the Company and its subsidiaries from time to time

• “Hong Kong” Hong Kong Special Administrative Region of the PRC

• “HKD” and “HK$”

Hong Kong dollars, the lawful currency of Hong Kong

– 1 –

DEFINITIONS

• “Independent Board Committee”

• “Independent Shareholders”

• “Jackley America”

• “Jackley Macao”

• “Joint Venture”

• “Latest Annual Report”

• “Latest Practicable Date”

• “LCH” or “Valuer”

• “Listing Rules”

• “Macau”

• “PRC”

• “Relevant Period”

• the independent board committee of the Company comprising Mr. Liu Ngai Wing and Mr. Ong Hong Hoon, the independent nonexecutive Directors of the Company, appointed to advise the Independent Shareholders in relation to the Share Acquisition

• shareholders of the Company who are not interested in the Share Acquisition and the issue of the Consideration Shares. Shareholders who are deemed to be interested in the Share Acquisition are Sinotime Limited, Brilliant Path Limited and Prosperous Statesman Limited, the entire issued share capital of all of which are beneficially owned by Mr. Lam Yat Sing, a substantial shareholder, the former Chairman and a former executive director of the Company

• Jackley International of America Ltd. (旭晟美國國際有限公 司 ), a private company incorporated in Hong Kong with limited liability and an indirect wholly-owned subsidiary of the Company

• Jackley Macao Commercial Offshore Limited, a company incorporated in Macau and a 100% indirectly held subsidiary of the Company and a fellow subsidiary of Jackley America

• 惠陽協凱晟地毯有限公司 (Hui Yang Xie Kai Cheng Carpet Co. Ltd.), a Sino-foreign equity joint venture established under the PRC laws and beneficially owned as to 51 per cent. by Jackley America and as to 49 per cent. by the Vendor

• the annual report of the Company for the year ended 31 December 2002

• 6 October 2003, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained herein

• LCH (Asia-Pacific) Surveyors Limited, a firm of chartered surveyors and plant and machinery valuers in Hong Kong

• the Rules Governing the Listing of Securities on the Stock Exchange

Macau Special Administrative Region of the PRC

• the People’s Republic of China and for the purpose of this circular, excludes Hong Kong, Macau and Taiwan

the period of twelve months after Completion

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DEFINITIONS

“SARS” Severe Acute Respiratory Syndrome “SFO” the Securities and Futures Ordinance, Chapter 571 of the Laws of Hong Kong (as amended) “Shareholder(s)” holder(s) of the Share(s) “Share(s)” share(s) of HK$0.10 each in the capital of the Company “Share Acquisition” the acquisition of 49 per cent. equity interest in the registered capital of the Joint Venture by the Group through Jackley America from the Vendor pursuant to and in accordance with the terms of the Share Acquisition Agreement

• “Share Acquisition Agreement” the conditional share acquisition agreement dated 15 September 2003 between, among others, Jackley America (as purchaser) and the Vendor (as vendor) in relation to the Share Acquisition

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

“USD” and “US$” United States dollars, the lawful currency of the United States of America

• “Vendor” 深圳市豪盛和實業有限公司 (transliterated as Shenzhen Hao Sheng He Industrial Company Limited), a company established in the PRC with limited liability

• “Watterson Asia” or Watterson Asia Limited, the independent financial adviser to the “Independent Financial Adviser” Independent Board Committee in relation to the Share Acquisition

• “WTO” World Trade Organisation “%” per cent.

In this circular, certain amounts quoted in USD have been translated into Hong Kong dollars at the reference rate of US$1.00 to HK$7.80 for information purpose only. Such translation should not be construed as a representation that the relevant amounts have been, could have been, or could be, converted at that or any other rate or at all.

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LETTER FROM THE BOARD

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(Incorporated in the Cayman Islands with limited liability)

Executive Directors: Mr. Wong Kwai Wah Mr. Anthony Henry Serra Mr. Chew Kean Eng Mr. Khoo Chuan Teng

Independent Non-executive Directors: Mr. Liu Ngai Wing Mr. Ong Hong Hoon

Registered office: Century Yard Cricket Square Hutchins Drive P.O. Box 2681GT George Town Grand Cayman Cayman Islands British West Indies

Head office and principal place

of business in Hong Kong: 12th Floor Tai Sang Commercial Building 24-34 Hennessy Road Wanchai Hong Kong

9 October 2003

To the Shareholders,

Dear Sir or Madam,

ACQUISITION OF INTEREST IN THE JOINT VENTURE AND ISSUANCE OF CONSIDERATION SHARES, CONNECTED AND DISCLOSEABLE TRANSACTION

On 18 September 2003, the Company announced that the Group (through Jackley America) had entered into the Share Acquisition Agreement with the Vendor to acquire from the Vendor a 49 per cent. equity interest in the registered capital of the Joint Venture for a consideration of HK$62,000,000. The Consideration represents more than 15 per cent. and less than 50 per cent. of the consolidated net tangible assets of the Group as set out in the Company’s latest published audited financial statements for the year ended 31 December 2002 and the Share Acquisition is therefore a discloseable transaction of the Company under the Listing Rules. Moreover, the Vendor is a substantial shareholder of a subsidiary of

* for identification purpose only

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LETTER FROM THE BOARD

the Company and is therefore a connected person under the Listing Rules. Accordingly, the Share Acquisition also constitutes a connected transaction of the Company under the Listing Rules and is subject to the approval by the Independent Shareholders.

ACQUISITION OF INTEREST IN THE JOINT VENTURE

Date of Share Acquisition Agreement : 15 September 2003

Purchaser : Jackley America, an indirectly wholly-owned subsidiary of the Company Vendor : 深圳市豪盛和實業有限公司 (transliterated as Shenzhen Hao Sheng He Industrial Company Limited)

The Group is principally engaged in the manufacture and distribution of carpets. The Group currently holds a 51% equity interest in the registered capital of the Joint Venture as the foreign joint venture party thereof. The Joint Venture is a Sino-foreign equity joint venture established in the PRC.

Pursuant to the Share Acquisition Agreement, the Company, through Jackley America, its 100% indirect wholly-owned subsidiary, has conditionally agreed to acquire from the Vendor, the Sino joint venture party of the Joint Venture, its entire 49% equity interest in the Joint Venture in consideration of HK$62,000,000.

Upon Completion, the Group’s interest in the Joint Venture will be increased from 51% to 100%. As a result, the Joint Venture will be changed from a Sino-foreign equity joint venture to a wholly foreign owned enterprise under the laws of the PRC. According to the present understanding of the Directors, approval of the Ministry of Foreign Economic and Trade Cooperation is required for such conversion. Although it is not possible to obtain any regulatory confirmation of the time required for such approval to be given, the Directors understand that the regulatory authorities endeavour to grant approval within 30 days of all their documentary requirements being met. The Directors will proceed to apply to the relevant PRC regulatory authorities for a change of corporate legal status of the Joint Venture as soon as possible after Completion.

Description of the Joint Venture

The Joint Venture was established on 11 June 1993. Its registered capital is USD4,940,000 (approximately HK$38,532,000) and its total investment is USD9,880,000 (approximately HK$77,064,000). The Joint Venture is owned as to 51% by Jackley America and as to 49% by the Vendor. The principal operating activities of the Joint Venture are the manufacture and production of wool, nylon and polypropylene tufted carpets for sale in the mainland PRC and export to South East Asia.

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LETTER FROM THE BOARD

The shareholding structure and the board composition of the Joint Venture before and after the Share Acquisition are set out as follows:

			Number of directors	Number of directors
			represented	on board
	Shareholding interest		of the Joint Venture
	Before Share	After Share	Before Share	After Share
	Acquisition	Acquisition	Acquisition	Acquisition
Vendor	49%	0%	2	0
Jackley America	51%	100%	5	5
Total	100%	100%	7	5

Consideration and payment terms

The Consideration was arrived at after arm’s length negotiations between the Company and the Vendor. The Consideration was arrived at based on the pro forma net assets of the Joint Venture of approximately HK$112 million upon Completion of the Share Acquisition. Based on the consideration of HK$62,000,000 payable for the Share Acquisition, the Joint Venture is calculated to have an approximate value of HK$126.5 million. The Vendor is a 49% owner of the Joint Venture and on the basis of its familiarity with the Joint Venture it agreed to the structuring of the Consideration in the manner shown below, having had the full opportunity and access to conduct due diligence on the inventory and receivables concerned. The structuring of the Consideration in such manner also eases immediate cash requirements of Jackley America in funding the Share Acquisition.

The Consideration has been and will be satisfied in four instalments as follows:

• the first instalment of HK$25,000,000 (the “First Instalment”): Jackley America has procured Jackley Macao to transfer, and Jackley Macao transferred, assets (being inventory owned by it), valued at HK$25,000,000 (based on book cost) and owned by Jackley Macao, to the Vendor on 30 September 2003. Such inventory comprises approximately HK$6.4 million of the inventory of HK$28.4 million referred to in the Latest Annual Report which has been subject to auditors’ qualification;

• the second instalment of HK$20,000,000 (the “Second Instalment”): Jackley America shall procure that Jackley Macao will transfer receivables, at book value, of HK$20,000,000 and owned by Jackley Macao, to the Vendor on or before 31 October 2003. Such receivables: (1) do not include any part of the HK$11 million referred to in the Latest Annual Report which has been subject to auditors’ qualification; and (2) are all approximately 90 days’ old which is the normal credit period which the Company provides to customers. The transfer will be implemented by execution of relevant assignment documents between the parties;

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LETTER FROM THE BOARD

• the third instalment of HK$2,000,000 (the “Third Instalment”): Jackley America shall procure that the Joint Venture will transfer 51% of certain receivables (such receivables being those which the Vendor is agreeable to accept) owned by the Joint Venture (such 51% receivables being transferred at a book value of HK$2,000,000), to the Vendor on or before 30 November 2003. Such receivables: (1) do not include any part of the HK$11 million referred to in the Latest Annual Report which has been subject to auditors’ qualification; and (2) are all approximately 90 days’ old which is the normal credit period which the Company provides to customers. The only basis of selection of the Vendor of these receivables was that the Vendor selected those customers with whom it was more familiar and who owned larger amounts to the Joint Venture (so as to minimise the administrative costs of following up on payment); and

• the balance of the Consideration, being HK$15,000,000, shall be satisfied by the allotment and issue by the Company of the Consideration Shares to the Vendor at HK$0.30 per Share, subject to the Vendor first obtaining all relevant approval, consent or permission under the PRC law, rule and regulation, whether statutory, administrative or otherwise. The issue of the Consideration Shares shall be subject to approval of the Independent Shareholders. The Consideration Shares represent approximately 4.02% of the existing issued share capital of the Company and approximately 3.86% of the issued share capital of the Company as enlarged by the issue of the Consideration Shares upon completion of the transactions contemplated by the Share Acquisition Agreement in accordance with the terms thereof.

Having regard to the qualifications to the auditors’ reports on the results of the Joint Venture for the year ended 31 December 2002 relating to the Joint Venture’s inventory of HK$28.4 million, the Directors confirm that, as shown in such auditors’ report, the qualifications were not related to the financial figures but to the unavailability of the books and records of the Joint Venture. Such unavailability (as stated in the auditors’ report) was due to the then ongoing outbreak of SARS in Hong Kong and mainland China. The Directors confirm that the accounts of the Joint Venture have been audited by Huizhou East Certified Public Accountants, an independent PRC professional accounting firm (whose report was issued on 8 April 2003 without qualification) and, relying on such audit, the Directors confirm that the financial figures relating to the Joint Venture represent a fair and accurate view of the financial position of the Joint Venture, notwithstanding the aforesaid qualifications in the Latest Annual Report. Accordingly, the Directors do not believe that a provision for the HK$6.4 million inventory mentioned above is necessary in the circumstances. Such HK$6.4 million inventory constitutes the remaining portion of the HK$28.4 million inventory shown in the Group’s 2002 audited accounts as set out in the Latest Annual Report. Inventory of HK$22 million has been sold since 31 December 2002.

The Directors confirm that the Group now has access to the books and records of the Joint Venture.

The Directors consider that the book value of the aforesaid inventory and receivables represent fair values thereof and therefore the same constitute a fair basis of the relevant portion of the Consideration.

The Directors further consider that the terms of the Share Acquisition Agreement including, without limitation, the Consideration payable thereunder and the manner in which such Consideration will be settled, are fair and reasonable so far as the Independent Shareholders are concerned for the reasons set out in the section headed “Reasons for the Share Acquisition” and in the light of the current financial position of the Group.

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LETTER FROM THE BOARD

The issue price of HK$0.30 per Share, as part consideration of the payment under the Share Acquisition Agreement, represents a premium of approximately 59% over the closing price of HK$0.189 per Share as at 15 September 2003, the date of signing of the Share Acquisition Agreement. The market value of the Consideration Shares, based on the aforesaid closing price of HK$0.189, would be HK$9,450,000. The issue price of HK$0.30 per Share under the Share Acquisition Agreement is part and parcel of the agreement accepted by the Vendor. The effect of the allotment and issue of the Consideration Shares on the shareholding structure of the Company is shown below:

Lam Yat Sing_(Note 1) Public (excluding shareholding of the Vendor below)(Note 2) 深圳市豪盛和實業有限公司 (transliterated as Shenzhen Hao Cheng He Industrial Company Limited)(Note 2)_ Total	Shareholding as at the Latest Practicable Date (Shares) % 689,925,000 55.42 555,075,000 44.58 – – 1,245,000,000 100.00	Shareholding upon completion of Share Acquisition Agreement (Shares) % 689,925,000 53.28 555,075,000 42.86 50,000,000 3.86 1,295,000,000 100.00	Shareholding upon completion of Share Acquisition Agreement (Shares) % 689,925,000 53.28 555,075,000 42.86 50,000,000 3.86 1,295,000,000 100.00
			100.00

• Note 1: Mr Lam Yat Sing was formerly an executive director and the Chairman of the Group. Mr Lam resigned from the above positions on 8 July 2003. Mr Lam is currently still the legal representative of record of the Joint Venture and it is intended that he will resign from this position upon Completion.

According to the register of interests required to be kept by the Company pursuant to section 352(1) of the SFO, as at the Latest Practicable Date, Mr. Lam Yat Sing has interest in 689,925,000 Shares held by companies beneficially owned and controlled by him, further particulars of which are set out in paragraph 2(b) of Appendix I to this circular.

• Note 2: For ease of reference, the public shareholding percentage of 42.86% has not included the shareholding of the Vendor upon Completion. However, after Completion, the shareholding of the Vendor in the Company will form part of the public float, which will be 46.72%.

Conditions and Completion

Completion is conditional upon the following conditions being satisfied on or before 31 October 2003 or such later date as Jackley America and the Vendor may agree from time to time:

1. shareholders of the Company (which will be the Independent Shareholders) approving the Share Acquisition and the transactions contemplated under the Share Acquisition Agreement at the EGM including, without limitation, the issue of the Consideration Shares, in accordance with the Listing Rules;

2. the Share Acquisition and the transactions contemplated under the Share Acquisition Agreement being in compliance with all the requirements of the Listing Rules;

3. the Stock Exchange granting the listing of and the permission to deal in the Consideration Shares;

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LETTER FROM THE BOARD

1. execution by Jackley Macao and the Vendor of a form of transfer for the purpose of effecting the First Instalment and the Second Instalment payments. The form of transfer is required to be agreed by Jackley Macao and the Vendor; and

2. Jackley America obtaining to its satisfaction a PRC legal opinion relating to the conversion of the Joint Venture from a Sino-foreign equity joint venture to a wholly foreign owned enterprise.

Completion is expected to take place on or before the third Business Day after any and all the Conditions are satisfied or waived, as the case may be.

In the event that any one or more of the Conditions are not fulfilled by the relevant party or waived, as the case may be, on or before 31 October 2003 and an extension of time is not agreed, the Share Acquisition will forthwith terminate and cease to have any effect.

Undertaking by the Vendor

The Vendor has undertaken in the Share Acquisition Agreement that if the after-tax profit of the Joint Venture for the Relevant Period falls below HK$23,000,000 (such amount being intended to be determined in accordance with PRC GAAP principles), then the Vendor will pay to Jackley America an amount equal to the entire amount of the shortfall of the actual amount of the after-tax profit achieved for the Relevant Period from HK$23,000,000. The Directors consider that such term is in the best interests of the Group. The after-tax profit for the Relevant Period will be that which is shown in the audited accounts of the Joint Venture for the Relevant Period prepared by auditors appointed by Jackley America (or by an appointee of Jackley America) or other accountants agreed by Jackley America and the Vendor.

The Vendor will not maintain any management function in the Joint Venture after completion of the Share Acquisition Agreement. The Directors confirm that the Vendor, being located in the PRC, is well familiar with the business of the Joint Venture and has expressed confidence in the future potential business of the Joint Venture.

REASONS FOR THE SHARE ACQUISITION

The Joint Venture is engaged in the manufacture and sale of carpets. The Joint Venture accounts for 100% of the Group’s own carpet manufacturing and approximately 6% of the Group’s sales turnover for the year ended 31 December 2002. The Directors consider that the Share Acquisition will enable the Group to have total ownership of the Joint Venture and gain complete control over its operations and management. This will increase the efficiency of the operations of the Joint Venture which is essential for the future growth opportunities for the Group after China’s entry into the WTO. The Group intends to grow the carpet manufacturing and production business aggressively. Increase in business development resulting from the PRC’s entry into the WTO will benefit industries such as the carpet manufacturing industry as the demand for carpet is also expected to increase.

For the financial year ended 31 December 2001, the Joint Venture incurred an audited loss of HK$4,131,118.00. For the financial year ended 31 December 2002, the audited profit before tax and after tax (both figures being the same as no tax was payable) was HK$1,046,411.00. The foregoing figures are arrived at based on Hong Kong GAAP.

The net asset value of the Joint Venture as at 30 June 2003 is approximately HK$27,400,000 (based on HK GAAP).

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LETTER FROM THE BOARD

The Directors are mindful of the qualifications to the auditors’ reports on the results of the Joint Venture for the year ended 31 December 2002. However, as shown in such auditors’ report, the qualifications were not related to the financial figures but to the unavailability of the books and records of the Joint Venture. Such unavailability (as stated in the auditors’ report) was due to the then ongoing outbreak of SARS in Hong Kong and mainland China. The Directors confirm that the accounts of the Joint Venture have been audited by PRC auditors and, relying on such audit, the Directors confirm that the financial figures relating to the Joint Venture represent a fair and accurate view of the financial position of the Joint Venture, notwithstanding the aforesaid qualifications in the Latest Annual Report.

The Share Acquisition, which will make the Joint Venture a 100% subsidiary of the Group, will allow the Group, due to its complete control over operations and management, to focus on installing its own carpet tile (meaning carpet manufactured in tile form rather than in large rolls) manufacturing line and to create opportunities for the Group to release their own range of carpet tiles and target a range of customers which may have not been the subject of business focus or market availability previously. As well, the purchase allows the Group to use spare capacity in a more efficient manner and to dedicate, as the market requires, production capacity to allow the Joint Venture to act as a manufacturer of nonbranded carpet tiles and carpet rolls for both export and PRC domestic sales. The Group is also considering the introduction of nano technology into the production process of manufacturing carpets. Nano technology is a technology which makes use of changes in molecular characteristics in carpet materials to improve their durability and other properties. The Group’s aim is to add premium value to its manufactured carpet products.

CONNECTED TRANSACTION

The Vendor is a connected person of the Company under the Listing Rules as it is a substantial shareholder of a subsidiary of the Company i.e. the Joint Venture. Accordingly, the Share Acquisition and the issue of the Consideration Shares under the Share Acquisition Agreement constitute a connected transaction of the Company and will be subject to the Independent Shareholders’ approval at the EGM.

Shareholders who are deemed to be interested in the Share Acquisition and are therefore not Independent Shareholders are Sinotime Limited, Brilliant Path Limited and Prosperous Statesman Limited, the entire issued share capital of all of which are beneficially owned by Mr. Lam Yat Sing, a substantial shareholder, the former Chairman and a former executive Director of the Company. Such Shareholders shall be abstained from voting at the EGM.

Save for its interest in the Joint Venture, the Vendor has no other connected relationship with the Group. Except for the Consideration Shares to be issued pursuant to the Share Acquisition, the Directors are not aware that the Vendor and its associates hold any shareholding in the Company.

DISCLOSEABLE TRANSACTION

The Share Acquisition also constitutes a discloseable transaction of the Company under the Listing Rules as the value of the Consideration represents more than 15 per cent. and less than 50 per cent. of the consolidated net tangible assets of the Group of HK$162,951,000 as set out in the Company’s latest published audited financial statements for the year ended 31 December 2002.

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LETTER FROM THE BOARD

As at 30 June 2003, the unaudited net assets of the Joint Venture, as prepared on the basis of Hong Kong GAAP, were HK$27.4 million and shareholder’s advance from the Company to the Joint Venture was approximately HK$84.7 million. The foregoing shareholder’s advance will be capitalised after Completion.

GENERAL

An independent board committee of the Company comprising Mr. Liu Ngai Wing and Mr. Ong Hong Hoon, the independent non-executive Directors of the Company, has been formed to advise the Independent Shareholders in relation to the Share Acquisition. Watterson Asia has been appointed as independent financial adviser to advise the Independent Board Committee.

The Company has made an application to the Stock Exchange for the listing of and permission to deal in the Consideration Shares.

EGM

The EGM is to be held at 9:30 a.m. on 24 October 2003 at Basement Function Room II, Luk Kwok Hotel, 72 Gloucester Road, Wanchai, Hong Kong. A notice of the EGM is set out on pages 30 to 31 of this circular. At the EGM, an ordinary resolution will be proposed and if considered appropriate, passed, with or without modifications, to approve the Share Acquisition and the issue of the Consideration Shares.

A form of proxy for use at the EGM is enclosed with this circular. Whether or not you are able to attend the EGM in person, you are requested to complete and return the accompanying form of proxy in accordance with the instructions printed thereon as soon as possible and, in any event, not later than 48 hours before the time appointed for the holding of the EGM or any adjournment thereof to the Company’s branch share registrar in Hong Kong, Tengis Limited, at G/F, BEA Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong. Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM or any adjournment thereof should you so wish.

RESULTS OF THE EGM

The results of the EGM will be published by way of an announcement in a Chinese newspaper and an English newspaper on the Business Day immediately after the date of the EGM.

FURTHER INFORMATION

Your attention is drawn to the letter from the Independent Board Committee set out on page 12 of this circular which contains its recommendation to the Independent Shareholders and the letter from Watterson Asia set out on pages 13 to 18 of this circular which contains its recommendation to the Independent Board Committee and the principal factors and reasons taken into consideration.

Yours faithfully

For and on behalf of the Board of

JACKLEY HOLDINGS LIMITED Anthony Henry Serra

Executive Director and Chief Executive Officer

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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(Incorporated in the Cayman Islands with limited liability)

9 October 2003

To the Independent Shareholders,

Dear Sir or Madam,

ACQUISITION OF INTEREST IN THE JOINT VENTURE AND ISSUANCE OF CONSIDERATION SHARES, CONNECTED AND DISCLOSEABLE TRANSACTION

We refer to the circular dated 9 October 2003 issued by the Company (the “Circular”), of which this letter forms part. Terms defined in the Circular shall have the same meanings when used herein unless the context otherwise requires.

The Independent Board Committee has been established by the Board for the purpose of advising the Independent Shareholders in connection with the Share Acquisition, details of which are set out in the letter from the Board in the Circular. The Independent Board Committee comprises two independent nonexecutive Directors. Watterson Asia has been appointed as the independent financial adviser to advise the Independent Board Committee regarding the Share Acquisition. Details of the advice from Watterson Asia, together with the principal factors and reasons taken into consideration in arriving at such advice, are set out on pages 13 to 18 of the Circular.

Having considered the Share Acquisition, the interests of the Independent Shareholders, the principal factors and reasons considered by Watterson Asia and the advice of Watterson Asia, we consider that the Share Acquisition are fair and reasonable so far as the Independent Shareholders are concerned and are in the interests of the Company and its Shareholders as a whole.

Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolution approving, among others, the Share Acquisition to be proposed at the EGM, notice of which is set out on pages 30 to 31 of the Circular.

Yours faithfully Independent Board Committee of JACKLEY HOLDINGS LIMITED Liu Ngai Wing Ong Hong Hoon

Independent Non-executive Directors

* for identification purpose only

– 12 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is the text of a letter from Watterson Asia for the purpose of incorporation in this circular in connection with its advice to the Independent Board Committee in relation to the Share Acquisition:

9 October 2003

The Independent Board Committee Jackley Holdings Limited 12th Floor, Tai Sang Commercial Building 24-34 Hennessy Road Wanchai Hong Kong

Dear Sirs,

Connected and Discloseable Transaction relating to the acquisition of 49% equity interest in the Joint Venture

We refer to our engagement as the independent financial adviser to the Company in respect of the Share Acquisition as described in the “Letter from the Board” set out in the circular of the Company dated 9 October 2003 to Shareholders (the “Circular”) of which this letter forms part. Unless the context requires otherwise, capitalised terms used in this letter shall have the same meanings as defined in the Circular.

We has been appointed by the Company to advise the Independent Board Committee on the terms of the Share Acquisition, which is a connected and discloseable transaction under the Listing Rules, and to give our opinion as to whether such terms are fair and reasonable so far as the Independent Shareholders are concerned. Details and reasons of the Acquisition have been set out in the “Letter from the Board” in the Circular.

In forming our recommendation, 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 all information and representations made or referred to in the Circular, in particular with regard to financial statements of the Joint Venture for the year ended 31 December 2002, were true and accurate at the date of the Circular. We have also been advised by the Directors that no material facts have been omitted from the information provided and referred to in the Circular. We have reviewed books and records of the Group (including that of the Joint Venture) to reach an informed view and to justify reliance on the accuracy of the information contained in the Circular and to provide a reasonable basis for our recommendation. We have not, however, for the purpose of this exercise conducted any independent investigation into the businesses and affairs of the Joint Venture or that of the Company and its other subsidiaries.

– 13 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our opinion on the Share Acquisition, we have taken into consideration the following factors and reasons:

Background to the Share Acquisition

The Group is engaged in the manufacturing and trading of carpets both in Hong Kong and the PRC. Its carpet manufacturing is carried out under the Joint Venture in which the Company has a 51% equity interest. Over the years, the Joint Venture has focused on the manufacture and sale of low-end carpet tiles whereas the Group is also engaged in the trading of high end carpet and carpet tiles for third party manufacturers based in Europe and other Asian countries under the brand names of Interface, Bentley and Toli. Currently, the Joint Venture, which is responsible for the Group’s own carpet manufacturing, has a maximum annual production capacity of approximately 6.5 million sq. m. but actual production volume at the Joint Venture was only approximately 3.5 million sq. m. for the year ended 31 December 2002. We understand from the Directors that the above low level of production volume at the Joint Venture was primarily due to quality control problems of its products at the factory, and these problems were brought about as a result of conflicting management reporting lines at the factory level. For instance, the deputy general manager currently in charge of production at the Joint Venture is also responsible for ensuring products’ quality control. At present, the directors representing the Vendor in the Joint Venture are responsible for production, finance and accounting whereas the directors representing the Company are responsible for business development, sales and marketing and budgets.

Under the current arrangement with the Vendor, management and operational changes at the Joint Venture require the consensus of all board members of the Joint Venture. We understand from the Directors that the Joint Venture had encountered difficulty in securing support from directors representing the Vendor for management changes in the past due to vested interests, thus delaying the management and operational changes required at the factory level. We are of the view that the above issues need to be addressed before production level at the Joint Venture can increase.

Upon completion of the Share Acquisition, the Group will have total ownership of the Joint Venture and gain complete control over its operations and management. This, we believe, will enable to the Joint Venture to instill changes that are necessary to address past management and operational issues, such as quality control, at the factory. As such, we are of the view that the rationale of the Share Acquisition is sound and the acquisition itself is in the Group’s interest.

Terms of the Share Acquisition

Under the Share Acquisition Agreement, the consideration for the Share Acquisition is HK$62 million. The above consideration is to be satisfied in the following four instalments: (i) the transfer of HK$25 million inventory owned by Jackley Macao, a indirect wholly owned subsidiary of the Company, at book cost to the Vendor by 30 September 2003; (ii) the transfer of HK$20 million trade receivables owned by Jackley Macao at book value to the Vendor by 31 October 2003; (iii) the transfer of HK$2 million receivable owned by the Joint Venture at book value to the Vendor by 30 November 2003 and (iv) the balance of HK$15 million by the issue of 50 million Shares at an issue price of HK$0.30 per Share to the Vendor.

– 14 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

We understand from the Company the following:

• Of the HK$25 million inventory to be transferred to the Vendor under the Share Acquisition Agreement, only HK$6.4 million worth of inventory were those referred to in the 2002 annual report that was subject to auditors’ qualification; and

• the aggregate receivables of HK$22 million set out in the second and third instalments are normal trade receivables within 90 days’ old and do not include any part of the receivables amounted to HK$11 million referred to in the 2002 annual report that was subject to auditors’ qualification.

As the amount of HK$6.4 million of the inventory that was subject to auditors’ qualification represents only approximately 10.3% of the total consideration under the Share Acquisition Agreement and that such inventory, though more than nine months old from the latest audited balance sheet date of 31 December 2002, was accepted by the Vendor as part of the consideration, we are of the opinion that the above inventory and receivables amounts represent fair value of the consideration under the Share Acquisition and that the terms of settlement of the Share Acquisition Agreement, which enables the Group to conserve cash, is beneficial to the Group and is fair and reasonable so far as the Independent Shareholders are concerned.

We note that the issue price of HK$0.30 for the 50 million Consideration Shares represents a premium of approximately 131% over the latest audited net tangible assets of HK$0.13 per Share as at 31 December 2002 and a premium of approximately 59% over the closing price of HK$0.189 for the Shares as at 15 September 2003, the date of signing of the Share Acquisition Agreement. Based on the closing price of the Shares as at 15 September 2003, the market value of the 50 million Consideration Shares was HK$9.45 million only. If we take the above closing market price of the Shares as the value for the Consideration Shares, the total consideration for the Share Acquisition would be HK$56.45 million, instead of HK$62 million as set out in the Share Acquisition Agreement. On this basis, the Joint Venture, based on 100% interest, is valued at HK$115.2 million (the “Valuation”).

Based on the unaudited management accounts prepared by Company as at 30 June 2003, net assets of the Joint Venture amounted to approximately HK$27.4 million and there was a shareholder’s advance of approximately HK$84.7 million from the Company to the Joint Venture. We understand from the Directors that the above shareholder’s advance will be capitalized upon completion of the Share Acquisition Agreement. With a view to establish a more accurate net asset figure of the Joint Venture as at 30 June 2003 (being the date to which its latest unaudited management accounts are made up), the Company engaged LCH (Asia-Pacific) Surveyors Limited, an independent valuer, to perform an independent valuation of the production machinery, equipment and motor vehicles (together referred to as “plant and machinery”) as at 31 July 2003 held by the Joint Venture. A copy of the independent valuation letter is also set out in the Circular. We note that its valuation is based on cost approach which involves estimating the current replacement cost of the plant and machinery of the Joint Venture. In arriving at their estimated replacement cost, reference was made to historic costs and adjusted for depreciation by reference to generally accepted service lives of the equipment in that particular industry. The above replacement costs were also compared to market prices of used plant and machinery in the same trade, with such market prices adjusted to reflect differences in condition and utility to those owned by the Joint Venture. We are of the view that the valuation methodology adopted by LCH is appropriate for the Joint Venture and is fair and reasonable.

– 15 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The independent valuation by LCH has given rise to a revaluation surplus of approximately HK$3.7 million over the HK$64.6 million book value of plant and machinery of the Joint Venture as at 30 June 2003. Based on the above, the pro forma unaudited adjusted net assets of the Joint Venture are set out as follow:

Unaudited net assets of the Joint Venture as at 30 June 2003 prepared under Hong Kong GAAP Add: Capitalization of shareholder’s advance upon completion Surplus upon revaluation of plant and machinery as at 31 July 2003 Pro forma unaudited adjusted net assets of the Joint Venture	HK$ m 27.4 84.7 3.7
	115.8

The Valuation of HK$115.2 million of the Joint Venture as derived, based on the terms of the Share Acquisition Agreement, approximates the pro forma unaudited adjusted net assets of the Joint Venture of HK$115.8 million. Consequently, we are of the view that the terms of the Share Acquisition are fair and reasonable so far as the Independent Shareholders are concerned.

Under the Share Acquisition Agreement, the Vendor has further undertaken that it will reimburse the Group an amount representing any shortfall, on a dollar-for-dollar basis, from the after-tax profit of HK$23 million of the Joint Venture, to be determined based on PRC GAAP, for the 12 months after completion of the Share Acquisition. We understand from the Company that profits of the Joint Venture as calculated under PRC GAAP or Hong Kong GAAP did not show material difference in the past. We also understand that the profit undertaking above is negotiated between the Company and the Vendor on an arm’s length basis and is part and parcel of the Share Acquisition Agreement agreed by the Vendor. So far as the Company is concerned, it serves to reduce the consideration for the Share Acquisition by a maximum amount of HK$23 million in the event of a profit shortfall at the Joint Venture.

While the Vendor will no longer have any interest in the Joint Venture upon completion of the Share Acquisition, the fact that it agrees to compensate the Group a maximum amount of HK$23 million offers the Group further protection as to payment made under the Share Acquisition Agreement and provides incentive to the Vendor to offer assistance to the Joint Venture during the crucial 12 months management transition period after completion of the Share Acquisition Agreement. During this transition period, the Company will take over control over production management, finance and accounting of the Joint Venture from the Vendor. Consequently, we are of the opinion that the above undertaking and the amount of such undertaking by the Vendor as set out in the Share Acquisition Agreement is beneficial to the Group and is in the interest of the Independent Shareholders.

– 16 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Effect on the Group’s financial position

As the consideration for the Share Acquisition does not involve cash payment, there is no effect on the Group’s financial position as a result of the transaction. The payment structure of the Share Acquisition enables the Group to preserve cash for its working capital needs and is thus, in our view, in the interest of the Group and the Independent Shareholders.

Effect on earnings

For the year ended 31 December 2002, the Joint Venture recorded an after-tax profit of only approximately HK$1.05 million, of which HK$0.53 million was attributable to the Group, given its 51% interest. Based on 1,245 million Shares in issue, earnings per Share derived from the Group’s 51% interest in this Joint Venture was Hong Kong 0.04 cent in 2002.

Assuming the Share Acquisition had taken place on 1 January 2002, pro forma earnings per Share derived from the Group’s 100% interest in the Joint Venture for the year ended 31 December 2002 would have been Hong Kong 0.05 cent, calculated based on 1,295 million Shares in issue following as follows:

2002 audited after-tax profit of the Joint Venture Less: Amortization of goodwill arising from the Share Acquisition	HK$m 1.05 (0.35) (note) 0.70
HK$m Note: Consideration payable for 49% interest in Joint Venture 62.0 Less: 49% of pro forma audited net assets of Joint Venture 56.7 Goodwill on consolidation arising from the Share Acquisition 5.3 Annual amortization of goodwill 0.35 Goodwill is to be amortized over a period of 15 years under the Company’s accounting policy and in accordance with Hong Kong GAAP.

From the calculation above, pro forma earnings per Share derived from the Group’s 100% interest in the Joint Venture would have been Hong Kong 0.05 cent, calculated based on 1,295 million Shares in issue following Completion.

Consequently, there is a 25% increase in terms of pro forma earnings per Share derived from the Joint Venture as a result of the Share Acquisition and is thus, in our view, beneficial to the Group and the Independent Shareholders.

– 17 –

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Effect on net assets

As at 30 June 2003, the Group’s unaudited net assets were approximately HK$173.52 million, or Hong Kong 13.9 cents per Share (based on 1,245 million Shares in issue). Upon completion of the Share Acquisition, the Group’s pro forma unaudited net assets will be as follows:

HK$m

Unaudited net assets of the Group as at 30 June 2003 173.52 (HK$0.139 per Share) Add: Issue of 50 million Consideration Shares at an issue price of HK$0.30 per Share 15.00 Pro forma unaudited net assets upon Completion 188.52 (HK$0.145 per Share*)

* Based on 1,295 million Shares in issue following Completion

The above calculation shows that the Group’s net assets per Share will have an increase of approximately 4.3% following the Share Acquisition. This is, in our view, beneficial to the Group and the Independent Shareholders.

Effect on shareholding

The issue of 50 million Consideration Shares as part payment of the consideration under the Share Acquisition will result in approximately 4% shareholding dilution to all Shareholders. However, such dilution is compensated by increases in earnings and net assets as calculated above as well as advantages to the Group expected to be derived from management changes at the Joint Venture following Completion. Consequently, we are of the opinion that the above shareholding dilution is acceptable and is fair and reasonable so far as the Independent Shareholders are concerned.

RECOMMENDATION

Having considered the above principal factors and reasons, we are of the view that the Share Acquisition is in the interest of the Company and that the terms thereof are fair and reasonable so far as the Independent Shareholders are concerned. Consequently, we would advise the Independent Board Committee to recommend to the Independent Shareholders to vote in favor of the ordinary resolution to approve the Share Acquisition to be proposed at the upcoming extraordinary general meeting.

Yours faithfully, For and on behalf of

Watterson Asia Limited David Tsang

Managing Director

– 18 –

LETTER FROM THE VALUER

The following is the text of a letter from LCH for the purpose of incorporation in this circular in connection with its valuation of certain plant and machinery of the Joint Venture in relation to the Share Acquisition:

==> picture [236 x 60] intentionally omitted <==

27th Floor Li Dong Building No. 9, Li Yuen Street East Central Hong Kong

9 October 2003

The Directors Jackley Holdings Limited 12th Floor, Tai Sang Commercial Building 24 Hennessy Road Wanchai Hong Kong

Dear Sirs,

We refer to your instructions to conduct a valuation of certain plant and machinery together with certain equipment and motor vehicles (the “plant and machinery”) presented to us as those held by Hui Yang Xie Kai Cheng Carpet Co., Ltd. (惠陽協凱晟地毯有限公司 ) or the Joint Venture, in relation to the acquisition of a 49 per cent. equity interest (the “Share Acquisition”) by Jackley Holdings Limited (the “Company”) and its subsidiaries (together referred to as the “Group”).

Subsequent to your instructions, we confirm that we have carried out inspections, made relevant enquiries and obtained such further information as we consider necessary for the purpose of providing you with our opinion of the fair market value in continued use of the plant and machinery as at 31 July 2003 (hereinafter referred to as the “relevant valuation date”). This valuation letter was prepared for inclusion in a circular to be issued by the Company (the “Circular”) relating to a connected and discloseable transaction under the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited. The terms used in this valuation letter shall have the same meanings as defined in the Circular, unless the context otherwise requires.

– 19 –

LETTER FROM THE VALUER

This valuation letter forms part of our detailed valuation report of the plant and machinery dated 9 October 2003 which comprise the following:

• A narrative report describing the plant and machinery valued, the premise of value adopted, the nature and scope of our work, the valuation process adopted and the conclusion of value;

• A Certification from our professional staff involved in the valuation;

• General Assumptions and Limiting Conditions; and

• A schedule of the assets included in the valuation showing for each item or group of items a brief technical description and the appraised fair market value.

DESCRIPTION OF THE ASSETS

The plant and machinery comprise the manufacturing facility of the Group for the production of various types of wool, nylon and polypropylene carpets. The plant and machinery valued comprise the following:

Production machinery and equipment comprise 9-tufting machines (2-cut pile and 7-loop pile) of various gauges manufactured by Tuftco from the United States, a dyeing and printing line by Zimmer of Austria, a secondary backing and finishing line, beam winding machines, racks and trolleys, and equipment to supply electricity, water, steam and air.

With the exception of two units of tufting machines acquired in 1999, the main production equipment were purchased by the Group in used condition. We understand that the used machines were refurbished during installation.

Depending on the type of product, the production machinery and equipment can produce about 6 million to 7 million square meters of carpet annually.

Material handling equipment comprise China and Japan made forklifts and hoisting baskets.

Electronic equipment for production comprise weighing balance, oscilloscope, television sets, air conditioners and refrigerators.

Other equipment for production comprise various testing equipment and containers.

Electronic equipment for management comprise telephone sets, computers and peripherals, mobile phones and pagers, television sets, air conditioners, copying machine and fax machine.

Motor vehicles comprise service cars and service vans.

Our valuation was based on a list of fixed assets provided to us with a cut-off date of 31 March 2003. We understand that there was no significant change in the fixed assets between the cut-off date and the relevant valuation date.

– 20 –

LETTER FROM THE VALUER

This valuation is limited to the plant and machinery and we have excluded in our valuation all other assets of the Group such as real estate assets, stocks and inventory, other current assets and any intangible assets that might exist.

BASIS OF VALUATION

We have valued the plant and machinery on the basis of fair market value in continued use which is defined as:

“the estimated amount in terms of money that may be reasonably expected for assets in exchange between a willing buyer and a willing seller with equity to both, neither being under any compulsion to sell or buy, both fully aware of all relevant facts and including installation, as of an appraisal date, and assuming that the earnings support the value reported.”

Under the premise of continued use, the opinion of fair market value assumes operation of the facilities at its present location for continuation of the existing business. It further assumes that prospective earnings would provide a reasonable return to the assets valued plus the value of other assets not included in this valuation and adequate working capital.

VALUATION METHODOLOGY

There are three generally accepted approaches to value, namely:

The Cost Approach

The cost approach considers the cost to reproduce or replace in new condition the assets appraised in accordance with current market prices for similar assets including costs of transportation, installation, commissioning and consultants’ fees. Adjustment is then made for accrued depreciation from physical deterioration, condition, utility, age and functional and economic/external obsolescence.

The Market Approach

The market approach considers prices recently paid for similar assets, with adjustments made to the indicated market prices to reflect condition and utility of the appraised assets relative to the market comparative.

The Income Approach

The income approach is the present worth of the future economic benefits of ownership. This approach is generally applied to investment properties, general-use properties where there is an established and identifiable rental market or to an aggregation of assets in an entire business enterprise including working capital and tangible and intangible assets.

In all situations, all approaches to value must be considered, as one or more may be applicable to the subject assets. In some situations, elements of the three approaches may be combined to reach a value conclusion. However, the relative strength, applicability, and significance of the approaches and their resulting values must be analysed and reconciled.

– 21 –

LETTER FROM THE VALUER

VALUATION ANALYSIS

We personally conducted an inspection of the plant and machinery, investigated market conditions, reviewed accounting records and construction costs and interviewed relevant factory personnel to establish their condition, usage, maintenance, operation and history.

In conducting our valuation, we considered all three approaches to value and found the cost and market approaches are the most appropriate given the type and scope of the plant and machinery. The income approach was found inappropriate due to unavailability of identifiable cash flows attributable to a specific equipment or group of equipment.

On the basis of continued use, we have given consideration to the existing use of the assets and their retention in their present location for the continuation of the on-going business.

The cost approach involves estimating the current replacement or reproduction cost of an equipment including other associated costs such as freight and handling, installation, design and engineering fees, and overhead. Depreciation takes into consideration physical deterioration due to age and usage, obsolescence, observed condition, past maintenance and rebuilding history, if any, as well as current and planned future utilisation.

In arriving at the estimated replacement or reproduction cost, we referred to the historical costs provided to us, quotations from equipment suppliers and internal and external databases. Installation and other associated costs were estimated by analysing historical costs to identify various cost components and adjusted based on current labour and material costs.

The replacement or reproduction cost developed above was depreciated by reference to generally accepted service lives of equipment in the particular industry and adjusted to reflect their existing condition. Service lives of the equipment were taken from valuation databases and trade publications, and existing condition of the equipment was established based on interview with relevant personnel and our observations during our inspection. We have generally adopted useful lives of about 10 to 15 years for the major production equipment and 5 to 10 years for the rest of the plant and machinery.

We have also made adjustments for obsolescence to arrive at the depreciated replacement cost which was then taken to be the fair market value in continued use of the plant and machinery.

The market approach involves gathering used prices of similar equipment and adjusting the used prices to reflect the difference in condition and utility with the plant and machinery. Additional costs for installation and other associated cost less depreciation are then considered to arrive at the fair market value.

In our valuation, we researched the used market of carpet manufacturing equipment through various trade publications, used equipment dealers on the Internet and contacting local agents of the equipment. Prices of similar equipment were then analysed by direct matching, comparable matching and percent of cost. Installation and other associated costs were estimated by analysing historical costs to identify various cost components and adjusted based on current labour and material costs.

– 22 –

LETTER FROM THE VALUER

Values arrived at using the cost and market approaches were reconciled to arrive at our conclusion of fair market value in continued use of the plant and machinery.

VALUATION COMMENTS

We reviewed historical accounting records, technical specifications and other documents relating to the plant and machinery valued. Though we have not carried out an independent investigation of the said information, we found no reason not to rely to a considerable extent on such information in arriving at our opinion of value.

This valuation is issued subject to our General Assumptions and Limiting Conditions as attached in our detailed valuation report dated 9 October 2003.

For reference purposes, we have used the exchange rate of RMB1.06 per HK$ which is the prevailing rate as at 31 July 2003.

We confirm that we have no present or contemplated future interest in the plant and machinery or any other interests that may prevent our having arrived at a fair and unbiased assessment of value.

No deduction has been made in our valuation in respect of any outstanding amounts owed under any finance lease or hire purchase agreement. The assets have been valued as being wholly owned and free of all encumbrances. We have not investigated the titles to or any liabilities affecting the plant and machinery.

This valuation is concerned solely with the value of the plant and machinery and our opinion of value is not related to or dependent upon the earning capacity of the business. We did not attempt to arrive at the value of the Group as a total business entity.

OPINION OF VALUE

Based on the above, we are of the opinion that as at 31 July 2003, the appraised fair market value in continued use of the plant and machinery was reasonably represented by the amount of HK$68,319,800 (HONG KONG DOLLARS SIXTY EIGHT MILLION, THREE HUNDRED AND NINETEEN THOUSAND EIGHT HUNDRED). A breakdown is shown in the attached summary of values.

Yours faithfully, for and on behalf of

LCH (Asia-Pacific) Surveyors Limited

Rolando R. Arcaya

BSME, ASA

Director

Note: Mr. Rolando R. Arcaya is a mechanical engineer and a senior accredited appraiser of the American Society of Appraisers in Machinery and Technical Specialities. He has over 20 years plant and machinery valuation experience in the region.

– 23 –

LETTER FROM THE VALUER

SUMMARY OF VALUES

Description Production Machinery and Equipment Material Handling Equipment Electronic Equipment – Production Other Equipment – Production Electronic Equipment – Management Motor Vehicles – Management Total	Fair Market Value in Continued Use (HKD) 64,054,600 1,073,400 18,700 1,189,600 888,100 1,095,400
	68,319,800

– 24 –

GENERAL INFORMATION

APPENDIX I

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors collectively and individually accept full responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable 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

• (a) Interests and short positions of the Directors in the share capital and/or debenture of the Company and its associated corporations

As at the Latest Practicable Date, the beneficial interests (including interests and short positions in the Shares, underlying Shares and debentures) of the Directors in the shares or securities of the Company or any associated corporation (within the meaning of Part XV of the SFO) which will be required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they are taken or deemed to have taken under such provisions of the SFO), or which will be required, pursuant to section 352 of the SFO, to be entered in the register referred to in that section, or will be required, pursuant to the Model Code for Securities Transactions by Directors of Listed Companies in the Listing Rules, to be notified to the Company and the Stock Exchange were as follows:

– 25 –

GENERAL INFORMATION

APPENDIX I

The Company

Long position in equity derivatives in, or in respect of, underlying Shares

	Number and	Number of		Approximate
	description of	underlying	Nature of	percentage of
Name of Director	equity derivatives	Shares	interest	interest
				(%)
Mr. Chew Kean Eng	4,962,000 share options	4,962,000	Beneficial	0.40%
	granted under the Share
	Option Scheme of the
	Company
Mr. Khoo Chuan Teng	4,962,000 share options	4,962,000	Beneficial	0.40%
	granted under the Share
	Option Scheme of the
	Company
Mr. Wong Kwai Wah	5,956,000 share options	5,956,000	Beneficial	0.48%
	granted under the Share
	Option Scheme of the
	Company
Mr. Liu Ngai Wing	1,244,000 share options	1,244,000	Beneficial	0.10%
	granted under the Share
	Option Scheme of the
	Company
Mr. Ong Hong Hoon	1,244,000 share options	1,244,000	Beneficial	0.10%
	granted under the Share
	Option Scheme of the
	Company

Save as disclosed above, the Directors are not aware of any beneficial interests (including interests and short positions in the Shares, underlying Shares and debentures) of the Directors in the shares or securities of the Company or any associated corporation (within the meaning of Part XV of the SFO) which will be required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they are taken or deemed to have taken under such provisions of the SFO), or which will be required, pursuant to section 352 of the SFO, to be entered in the register referred to in that section, or will be required, pursuant to the Model Code for Securities Transactions by Directors of Listed Companies in the Listing Rules, to be notified to the Company and the Stock Exchange.

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

– 26 –

GENERAL INFORMATION

APPENDIX I

So far as is known to the Directors according to the register required to be kept under 336 of the SFO, the following persons, not being a Director or chief executive of the Company, have an interest or short position in the Shares or underlying Shares of the Company which fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of part XV of the SFO or are directly or indirectly interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group:

	Number and	Number and	Number of Shares/		Approximate
	description of		underlying	Nature of	percentage of
Name	equity derivatives		Shares	interest	interest
					(%)
Mr. Lam Yat Sing	1,244,000 share options		1,244,000	Beneficial	0.10%
(Note 1)		granted under the
		Share Option Scheme
		of the Company
	–		689,925,000	Attributable	55.41%
				interest of
				controlled
				companies
Sinotime Limited	–		325,361,000	Beneficial	26.13%
(Note 1)
Brilliant Path Limited	–		296,364,000	Beneficial	23.80%
(Note 1)
Prosperous Statesman	–		68,200,000	Beneficial	5.48%
Limited_(Note 1)_

Notes:

1. The entire issued share capital of each of Sinotime Limited, Brilliant Path Limited and Prosperous Statesman Limited is legally and beneficially owned by Mr. Lam Yat Sing.

Save as disclosed above, the Directors are not aware of any person (not being a Director or chief executive of the Company) who has interests or short positions in the Shares or underlying Shares of the Company (which is discloseable under Divisions 2 and 3 of the Part XV of the SFO), or is directly or indirectly interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group (which is discloseable under the Listing Rules).

• (c) None of the Directors is materially interested in any contract or arrangement subsisting as at the Latest Practicable Date which is significant in relation to the business of the Group.

• (d) As at the Latest Practicable Date, none of the Directors had any direct or indirect interest in any asset which had been acquired, or disposed of by, or leased to any member of the Group, or was proposed to be acquired, or disposed of by, or leased to any member of the Group, since 31 December 2002, the date to which the latest published audited financial statements of the Group were made up.

– 27 –

GENERAL INFORMATION

APPENDIX I

3. QUALIFICATION

The following are the qualifications of the experts who have given opinion or advice in this circular.

Name

Qualification

Vinco Capital Limited

Corporation licensed to advise on corporate finance and to deal in securities under the SFO

Watterson Asia Limited

Corporation licensed to advise on corporate finance and to deal in securities under the SFO

LCH (Asia-Pacific) Surveyors Limited

Chartered surveyors and plant and machinery valuers

4. CONSENTS

Each of Watterson Asia and LCH, respectively, has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and references to its name in the form and context in which they appear.

As at the Latest Practicable Date, each of Watterson Asia and LCH, respectively, was not beneficially interested in the share capital of any member of the Group nor did it has any right, whether legally enforceable or not, to subscribe for or to nominate persons to subscriber for securities in any member of the Group and did not have any interest, either directly or indirectly, in any assets which have been 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, in each case, since 31 December 2002.

5. MATERIAL CHANGES

The Directors are not aware of any material adverse changes in the financial or trading position of the Group since 31 December 2002 (being the date to which the latest published audited financial statements of the Group were made up).

6. LITIGATION

As at the Latest Practicable Date, no member of the Group was engaged in any litigation or arbitration of material importance and the Directors are not aware of any litigation, arbitration or claims of material importance pending or threatened against any member of the Group.

7. DIRECTORS’ INTEREST IN SERVICE CONTRACTS

Messrs. Chew Kean Eng, Messrs. Khoo Chuan Teng and Messrs. Wong Kwai Wah have entered into service contracts with the Company for terms of three years commencing from 28 September 2001, 1 January 2002 and 7 June 2002, respectively, which continue thereafter until terminated by either party giving not less than three months’ notice in writing to the other party.

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GENERAL INFORMATION

APPENDIX I

Save as disclosed above, none of the Directors had entered into any service agreements with any member of the Group (excluding contracts expiring or determinable by the employer within 1 year without payment of compensation (other than statutory compensation)).

8. MISCELLANCEOUS

• (a) The registered office of the Company is located at Century Yard, Cricket Square, Hutchins Drive, P.O. Box 2681GT, George Town, Grand Cayman, Cayman Islands, British West Indies.

• (b) The head office and principal place of business of the Company in Hong Kong is at 12th Floor, Tai Sang Commercial Building, 24-34 Hennessy Road, Wanchai, Hong Kong.

• (c) The Hong Kong branch share registrar of the Company is Tengis Limited, G/F, BEA Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong.

• (d) The secretary of the Company is Mr. Au Yeung Shiu Kau, Peter, who is a member of Hong Kong Society of Accountants and a fellow of Association of Chartered Certified Accountants, United Kingdom.

• (e) The English text of this circular and the form of proxy shall prevail over the Chinese text.

9. SHARE CAPITAL

As at the Latest Practicable Date, the authorized share capital of the Company was HK$200,000,000 divided into 2,000,000,000 ordinary shares of HK$0.10 each and the issued and fully paid-up share capital of the Company was HK$124,500,000 divided into ordinary 1,245,000,000 shares of HK$0.10 each.

10. DOCUMENTS FOR INSPECTION

Copies of the following documents will be available for inspection at the head office and principal place of business of the Company in Hong Kong at 12th floor, Tai Sang Commercial Building, 24-34 Hennessy Road, Wanchai, Hong Kong during normal business hours on any Business Day up to and including 24 October 2003:

• (a) Share Acquisition Agreement;

• (b) the letter from the Independent Board Committee;

• (c) the letter from Watterson Asia as set out in this circular;

• (d) the letter from LCH as set out in this circular;

• (e) written consents referred to in paragraph no. 4 of this appendix; and

• (f) service contracts referred to in paragraph no. 7 of this appendix.

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NOTICE OF EXTRAORDINARY GENERAL MEETING

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(Incorporated in the Cayman Islands with limited liability)

NOTICE IS HEREBY GIVEN that an Extraordinary General Meeting of Jackley Holdings Limited (the “Company”) will be held at Basement Function Room II, Luk Kwok Hotel, 72 Gloucester Road, Wanchai, Hong Kong on 24 October 2003 at 9:30 a.m. for the purpose of considering and, if thought fit, passing (with or without modifications) the following resolution as ordinary resolution:

ORDINARY RESOLUTION

“THAT:

• (a) the conditional share acquisition agreement (the “Share Acquisition Agreement”) dated 15 September 2003 and entered into between the Company, Jackley International of America Ltd. (as purchaser) (the “Purchaser”) and 深圳市豪盛和實業有限公司 (transliterated as Shenzhen Hao Sheng He Industrial Company Limited) (as vendor) (the “Vendor”) relating to the acquisition of the forty-nine per cent. (49%) equity interest in the registered capital of 惠陽協凱晟地毯有限公司 (Hui Yang Xie Kai Cheng Carpet Co. Ltd.) (the “Joint Venture”) by the Purchaser from the Vendor including, without limitation, the manner of settlement and payment of the consideration therefor as described therein, a copy of which has been produced to the meeting marked “A” and initialed by the Chairman for the purposes of identification, be and the same is hereby unconditionally approved, confirmed and ratified;

• (b) subject to the satisfaction or, as the case may be, waiver of the conditions set out in clause 3 of the Share Acquisition Agreement, the directors of the Company be and they are hereby generally and unconditionally authorised to allot and issue the Consideration Shares (as defined in the Share Acquisition Agreement) to the Vendor in accordance with the terms of the Share Acquisition Agreement;

* for identification purpose only

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NOTICE OF EXTRAORDINARY GENERAL MEETING

and that the transactions contemplated by the Share Acquisition Agreement be and they are hereby generally and unconditionally approved and that any one director of the Company be and he is hereby authorised in the best interest of the Company to do such act or execute such documents for and on behalf of the company by hand or, in case of execution of documents under seal, to do so jointly with either the secretary of the Company, a second director of the Company or such other person appointed by the board of directors of the Company for such purpose, as he shall consider necessary, appropriate, desirable or expedient for the implementation and completion of the transactions contemplated by the Share Acquisition Agreement.”

By order of the Board of JACKLEY HOLDINGS LIMITED Anthony Henry Serra Executive Director and Chief Executive Officer

Hong Kong, 9 October 2003

Registered office: Century Yard Cricket Square Hutchins Drive P.O. Box 2681GT George Town Grand Cayman Cayman Islands British West Indies

Head office and principal place of business in Hong Kong: 12th Floor Tai Sang Commercial Building 24-34 Hennessy Road Wanchai Hong Kong

Notes:

• (1) A member of the Company entitled to attend and vote at the above meeting is entitled to appoint one or more proxies to attend and vote in his stead. A proxy need not be a member of the Company.

• (2) A form of proxy for use at the above meeting is enclosed. In order to be valid, the form of proxy together with any power of attorney or other authority (if any) under which it is signed, or a notarially certified copy of that power of attorney or authority, must be deposited with the Hong Kong branch share registrar of the Company, Tengis Limited, at G/F, BEA Harbour View Centre, 56 Gloucester Road, Wanchai, Hong Kong not less than 48 hours before the time appointed for the holding the meeting or any adjournment thereof. In the case of a joint share holding, the form of proxy may be signed by any one joint holder.

• (3) Completion and return of the accompanying form of proxy will not preclude a member of the Company from attending and voting in person at the above meeting or any adjournment thereof if he so wishes. In that event, his form of proxy will be deemed to have been revoked.

• (4) Where there are joint holders of any share in the Company, any one of such holders may vote at the meeting either personally or by proxy in respect of such share as if he were solely entitled thereto; but if more than one such joint holders be present at the meeting personally or by proxy, then the one of such holders whose name stands first on the register of members of the Company in respect of such share shall alone be entitled to vote in respect thereof in person or by proxy (as the case may be).

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