THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your securities in Ocean Shores Group Limited, you should at once hand this circular, together with the accompanying form of proxy, to the purchaser or other 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.

OCEAN SHORES GROUP LIMITED

海岸集團有限公司*
(Incorporated in Bermuda with limited liability)

MAJOR TRANSACTION

Granting of Hotel and Intranet Distribution Rights and Disposal of 100% interest in Ocean Shores Licensing Limited to Gainful Fortune

DISCLOSABLE AND CONNECTED TRANSACTION

Licensing of distribution rights for 116 Movies from CSID

CONNECTED TRANSACTION

Grant of first right of refusal by CSID to acquire Territory Distribution Rights

Independent financial adviser to the Independent Board Committee of Ocean Shores Group Limited

UOB ASIA (HONG KONG) LIMITED

A letter from the Board is set out on pages 7 to 24 of this circular. A letter from the Independent Board Committee is set out on page 25 of this circular and a letter from UOB Asia is set out on pages 26 to 36 of this circular.

A notice convening a special general meeting of Ocean Shores Group Limited to be held at Units 609-610, Miramar Tower, 132 Nathan Road, Tsimshatsui, Kowloon, Hong Kong at 11:00 a.m. on 8th April, 2002 is set out on pages 51 to 53 of this circular. Whether or not you are able to attend the meeting in person, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon as soon as possible and in any event not less than 48 hours before the time appointed for holding the meeting. Completion and return of the form of proxy shall not preclude you from attending and voting at the meeting or any adjourned meeting should you so desire.

13th March, 2002

for identification only

CONTENTS

Page

Definitions 1

Letter from the Board
Introduction 7
Gainful Fortune Supply Agreement and Sale and Purchase Agreement 9
The Licensing Agreement 15
The Territory Supply Agreement 19
Special General Meeting 23
Recommendations 24
Additional information 24

Letter from the Independent Board Committee 25

Letter from UOB Asia 26

Appendix I — Valuation report 37

Appendix II — Statutory and general information 43

Notice of Special General Meeting 51

— i —

DEFINITIONS

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

"Announcement"
the announcement dated 8th February, 2002 made jointly by China Star and the Company regarding, inter alia, the Gainful Fortune Supply Agreement, the Sale and Purchase Agreement, the Licensing Agreement and the Territory Supply Agreement

"associates"
has the meaning ascribed to the term in the Listing Rules

"China Star"
China Star Entertainment Limited, a company incorporated in Bermuda with limited liability, the shares of which are listed on the main board of the Stock Exchange, and which is the controlling shareholder of the Company holding approximately 38.64% of the issued share capital of the Company

"China Star Group"
China Star and its subsidiaries

"CN2U"
CN2U technology company Limited, a company established under the laws of Hong Kong whose ultimate beneficial shareholder is Chan Chun Hung, Bobby, an Independent Third Party

"CN2U Group"
CN2U and its subsidiaries

"Company"
Ocean Shores Group Limited, a company incorporated in Bermuda with limited liability, the shares of which are listed on the main board of the Stock Exchange

"Consideration Notes A"
Gainful Fortune Notes in the principal amount of HK$80,000,000 to be issued to OSP (or such person(s) as it may direct) in satisfaction of the consideration payable by Gainful Fortune to OSP for the acquisition of the Hotel and Intranet Distribution Rights under the Gainful Fortune Supply Agreement

"Consideration Notes B"
Gainful Fortune Notes in the principal amount of HK$80,000,000 to be issued to OSP (or such other person(s) as Ocean Shores (BVI) Limited may direct) in satisfaction of the consideration payable by Gainful Fortune to Ocean Shores (BVI) Limited under the Sale and Purchase Agreement

— 1 —

DEFINITIONS

"Conversion Share(s)"
the new Share(s) which may fall to be issued upon exercise of the conversion rights attaching to the Ocean Shores Notes

"CSID"
China Star International Distribution Limited, a company incorporated in the British Virgin Islands and a wholly-owned subsidiary of China Star

"Cyber Cinema Rights"
the rights to exhibit any of the Movies or Films by means of videograms where a charge for admission is made including but not limited to at public and private cinemas within the Territory

"Director(s)"
the director(s) of the Company

"Film(s)"
any films, television series and/or video features, in respect of which CSID or any of its holding companies or ultimate holding companies or any of the subsidiaries of such holding or ultimate holding company has (or will at the time of grant of the distribution rights pursuant to the Territory Supply Agreement have) the distribution rights within the Territory

"Gainful Fortune"
Gainful Fortune Limited, a company incorporated in the British Virgin Islands with limited liability which is a wholly-owned subsidiary of CN2U

"Gainful Fortune Notes"
the series of 1% convertible loan notes to be constituted by the Instrument in the aggregate principal amount of HK$160,000,000 comprising the Consideration Notes A and the Consideration Notes B, with the benefit of and subject to the provisions of the conditions set out in the Instrument

"Gainful Fortune Share Subscription"
the subscription of such number of Gainful Fortune Shares which represent 40% of its enlarged issued share capital by OSP (or such other person(s) as Ocean Shores (BVI) Limited may direct), upon the completion of the Sale and Purchase Agreement

— 2 —

DEFINITIONS

"Gainful Fortune Shareholders' Agreement"
the shareholders' agreement relating to Gainful Fortune to be entered into between OSP (or such other person(s) as Ocean Shores (BVI) Limited may direct) and Excellent Selection Limited to set out the terms and conditions in relation to the management and operation of Gainful Fortune

"Gainful Fortune Shares"
ordinary shares of HK$1.00 each comprised in the capital of Gainful Fortune as at the completion of the Sale and Purchase Agreement

"Gainful Fortune Supply Agreement"
the supply agreement dated 5th February, 2002 entered into between OSP and Gainful Fortune relating to the grant of the Hotel and Intranet Distribution Rights

"Group"
the Company and its subsidiaries

"Hong Kong"
the Hong Kong Special Administrative Region of the People's Republic of China

"Hotel and Intranet Distribution Rights"
the exclusive Hotel Rights and Intranet TV Rights to be granted (or proposed to be granted) by OSP (or the relevant Group Companies) to Gainful Fortune (or its subsidiaries) pursuant to the Gainful Fortune Supply Agreement

"Hotel Rights"
the right to exhibit or deliver or broadcast a Picture by means of closed circuit television or other multi-media content delivery system (whether free of charge or pursuant to any pay-per-view, subscription, license and/or rental arrangements) in hotels and motels within the PRC

"Independent Board Committee"
an independent committee of the board of Directors of the Company comprising Mr. Tang Chak Lam, Gilbert

"Independent Shareholders"
Shareholders other than any connected persons (as defined in the Listing Rules) interested in the Licensing Agreement and/or the Territory Supply Agreement (being China Star and its associates)

— 3 —

DEFINITIONS

"Independent Third Party"
an independent third party which is not connected with any director, chief executive or substantial shareholder of the Company or any of its subsidiaries or any of their respective associates

"Instrument"
the instrument to be executed by Gainful Fortune (as issuer) and CN2U constituting the Gainful Fortune Notes

"Intranet TV Rights"
the right to exhibit or deliver or broadcast a Picture by means of intranet television or other multi-media content delivery system (whether free of charge or pursuant to any pay-per-view, subscription, license and/or rental arrangements) for residents of an individual residential estate or an individual residential building within the PRC

"Latest Practicable Date"
11th March, 2002, being the latest practicable date for ascertaining certain information for inclusion in this circular

"Licensing Agreement"
the licensing agreement dated 5th February, 2002 entered into between CSID, OSP and the Company in relation to the grant of distribution rights in the Territory for the Movies

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

"Macau"
the Macau Special Administrative Region of the People's Republic of China

"Movies"
the 116 motion pictures to be licensed by CSID to OSP in respect of their distribution rights in the Territory pursuant to the Licensing Agreement

"Ocean Shores Notes"
the 1% convertible notes in the principal amount of HK$33,800,000 to be issued by the Company to CSID, or such person(s) as it may direct, in satisfaction of the consideration payable to CSID pursuant to the Licensing Agreement

— 4 —

DEFINITIONS

"OSP"
Ocean Shores Pictures Limited, a company incorporated in the British Virgin Islands and a wholly-owned subsidiary of the Company

"Pictures"
any films, television series and/or video features, in respect of which the relevant Group Company owns (or will at the time of the grant of the Hotel and Intranet Distribution Rights in respect thereof pursuant to the Gainful Fortune Supply Agreement own) Hotel Rights and Intranet TV Rights within the PRC

"PRC"
(for the purposes of geographical references in this circular only) the People's Republic of China except Hong Kong, Macau and Taiwan

"Sale and Purchase Agreement"
the agreement dated 5th February, 2002 for the sale and purchase of the entire issued share capital of Ocean Shores Licensing Limited entered into between Ocean Shores (BVI) Limited and Gainful Fortune

"Share(s)"
ordinary share(s) of HK$0.10 each in the issued share capital of the Company

"Shareholders"
shareholders of the Company

"Special General Meeting"
the special general meeting of the Company to be held at Units 609-610 Miramar Tower, 132 Nathan Road, Tsimshatsui, Kowloon, Hong Kong on 8th April, 2002 at 11:00 a.m., notice of which is set out on pages 51 to 53 of this circular

"Stock Exchange"
The Stock Exchange of Hong Kong Limited

"Territory Distribution Agreements"
the distribution agreements to be entered into between CSID and OSP in respect of individual Films in accordance with the Territory Supply Agreement

"Territory Distribution Rights"
the exclusive distribution rights in respect of the Films in the Territory to be acquired by OSP under the Territory Distribution Agreements pursuant to the Territory Supply Agreement

— 5 —

DEFINITIONS

"Territory Supply Agreement" the conditional supply agreement dated 5th February, 2002 for the grant of a first right of refusal in relation to the Territory Distribution Rights in respect of the Films entered into between CSID and OSP

"Territory" collectively, the PRC and Mongolia

"UOB Asia" UOB Asia (Hong Kong) Limited, an investment adviser registered under the Securities Ordinance (Chapter 333 of the Laws of Hong Kong) and the independent financial adviser to the Independent Board Committee

"Valuation Report" the valuation report prepared by Adonis Appraisal Limited, an Independent Third Party, dated 31st January, 2002 on the value of the distribution rights of the Movies in the Territory

"videogram" types of videocassette or videodisc (including but not limited to laserdiscs, digital video-CD, video-CD, CD-Rom, CDI and 3DO)

"Waiver" the waiver from the Stock Exchange from strict compliance with the relevant disclosure and Independent Shareholders' approval requirements for connected transactions under the Listing Rules in respect of the transactions contemplated in the Territory Distribution Agreements

"%" per cent.

— 6 —

LETTER FROM THE BOARD

OCEAN SHORES GROUP LIMITED

海岸集團有限公司*

(Incorporated in Bermuda with limited liability)

Executive Directors

Mr. Heung Wah Keung (Chairman)

Ms. Chen Ming Yin, Tiffany (Vice Chairman)

Mr. Lei Hong Wai (Chief Executive Officer)

Registered office:

Clarendon House

2 Church Street

Hamilton HM 11

Bermuda

Independent non-executive Directors

Mr. Wong Yuen

Mr. Lai Hok Lim

Mr. Tang Chak Lam, Gilbert

Principal place of business:

Units 609-610,

Miramar Tower,

132 Nathan Road,

Tsimshatsui, Kowloon,

Hong Kong

13th March, 2002

To the Shareholders

Dear Sir/Madam,

MAJOR TRANSACTION

Granting of Hotel and Intranet Distribution Rights and

Disposal of 100% interest in

Ocean Shores Licensing Limited to Gainful Fortune

DISCLOSEABLE AND CONNECTED TRANSACTION

Licensing of distribution rights for 116 Movies from CSID

CONNECTED TRANSACTION

Grant of first right of refusal by CSID to acquire

Territory Distribution Rights

INTRODUCTION

On 8th February, 2002, the Directors announced that, inter alia, the Group had on 5th February, 2002 entered into (a) the Gainful Fortune Supply Agreement; (b) the Sale and Purchase Agreement; (c) the Licensing Agreement; and (d) the Territory Supply Agreement.

for identification only

LETTER FROM THE BOARD

The grant of the Hotel and Intranet Distribution Rights under the Gainful Fortune Supply Agreement, the sale of the entire issued share capital of Ocean Shores Licensing Limited under the Sale and Purchase Agreement and the taking up of the Gainful Fortune Notes by OSP under the Gainful Fortune Supply Agreement and the Sale and Purchase Agreement together constitute a major transaction of the Company under the Listing Rules and is subject to approval by Shareholders. Gainful Fortune is an Independent Third Party.

China Star, the sole shareholder of CSID, is beneficially interested in 38.64% of the Company and is therefore a connected person of the Company and accordingly, each of the Licensing Agreement and the Territory Supply Agreement constitutes a connected transaction for the Company under the Listing Rules and is subject to approval by Independent Shareholders. China Star and its associates will abstain from voting in respect of their shareholding interests in the Company for the relevant resolutions to approve the Licensing Agreement and the Territory Supply Agreement at the Special General Meeting.

The Territory Supply Agreement, together with each of the Territory Distribution Agreements to be entered into from time to time in future in accordance with the terms of the Territory Supply Agreement, will also constitute connected transactions for the Company under the Listing Rules. The Company has made an application to the Stock Exchange for the Waiver.

Mr. Lai Hok Lim, an independent non-executive Director, is a partner of a firm of solicitors which, from time to time, has provided legal advice to the China Star Group, its substantial shareholders and their respective associates, and accordingly is not considered as independent in relation to the transactions contemplated under the Licensing Agreement and the Territory Supply Agreement. Mr. Wong Yuen, another independent non-executive Director, is currently not in Hong Kong and cannot be contacted. Accordingly, an Independent Board Committee comprising Mr. Tang Chak Lam, Gilbert, an independent non-executive Director has been established to advise the Independent Shareholders in relation to the transactions contemplated under the Licensing Agreement and the Territory Supply Agreement. UOB Asia has been appointed as the independent financial adviser to advise the Independent Board Committee in this regard.

The purpose of this circular is to provide you with further information regarding, among other things, the transactions contemplated in the Gainful Fortune Supply Agreement, the Sale and Purchase Agreement, the Licensing Agreement and the Territory Supply Agreement, to set out the recommendation of the Independent Board Committee to the Independent Shareholders in relation to the Licensing Agreement and the Territory Supply Agreement and the text of the letter containing the advice of UOB Asia to the Independent Board Committee and to give you notice of the Special General Meeting convened for the purpose of considering and, if thought fit, approving the transactions contemplated under the Gainful Fortune Supply Agreement, the Sale and Purchase Agreement, the Licensing Agreement and the Territory Supply Agreement.

— 8 —

LETTER FROM THE BOARD

GAINFUL FORTUNE SUPPLY AGREEMENT AND SALE AND PURCHASE AGREEMENT

(a) Gainful Fortune Supply Agreement

Summary of the terms of the Gainful Fortune Supply Agreement

Date : 5th February, 2002

Licensor : OSP, a wholly-owned subsidiary of the Company

Licensee : Gainful Fortune, an Independent Third Party

OSP shall during the term of three (3) years from completion of the Gainful Fortune Supply Agreement grant (or procure the relevant company in the Group to grant) to Gainful Fortune (or its designated subsidiaries) the Hotel and Intranet Distribution Rights in respect of an aggregate of up to 300 Pictures in the PRC. If Gainful Fortune elects to acquire any Picture in any list of Pictures provided by OSP, it shall within 30 business days of receiving the list, notify OSP and acquire the Hotel and Intranet Distribution Rights of such Picture (at no additional costs) by entering into a license agreement for a term of not less than six months and which shall expire on such date as specified in the relevant license agreement.

If during the 3-year term of the Gainful Fortune Supply Agreement, upon OSP having fulfilled all its obligations of granting the Hotel and Intranet Distribution Rights in respect of 300 Pictures, Gainful Fortune wishes to acquire the Hotel and Intranet Distribution Rights in respect of any further Pictures, OSP may enter into a license agreement with Gainful Fortune for each further Picture, for a license fee equivalent to 25% of the gross income to be received by Gainful Fortune in respect of such additional Picture(s).

As the grant of the Hotel and Intranet Distribution Rights in respect of any further Pictures are normal commercial transactions in the ordinary course of business of the Group, appropriate announcements will be made when such transactions fall into the classification of notifiable transactions or when required under the Listing Rules.

Consideration for the Gainful Fortune Supply Agreement

The consideration for the grant of the Hotel and Intranet Distribution Rights pursuant to the Gainful Fortune Supply Agreement is the sum of HK$80,000,000 which was determined after arm's length negotiations between the parties and was not based on any comparable transaction as far as the Company was aware. In agreeing to the amount of the consideration, the Company had assessed the potential financial benefits which

LETTER FROM THE BOARD

could be derived from the Hotel and Intranet Distribution Rights and formed the view that there was no absolute certainty that an income of HK$80,000,000 could be generated over a period of three years if the Group were to attempt to exploit such rights on its own. As the Hotel and Intranet Distribution Rights are new business segments, the Company has assessed the network and experience of the CN2U Group and believes that by leveraging on the CN2U Group’s multi-media content deployment technology and distribution platform, the Group may be able to generate income from business segments previously unexploited on its own and at no substantial opportunity costs to the Group. The consideration will be satisfied by way of the issue of the Consideration Notes A in the aggregate principal amount of HK$80,000,000 by Gainful Fortune to OSP (or such person(s) as OSP may direct).

There will be no further consideration payable for the license agreements to be entered into in respect of the first 300 Pictures in future as the HK$80 million consideration for the Gainful Fortune Supply Agreement represents the aggregate fee for the grant of the Hotel and Intranet Distribution Rights in respect of up to 300 Pictures in the PRC.

Conditions of the Gainful Fortune Supply Agreement

Completion of the Gainful Fortune Supply Agreement is conditional upon:

(i) the passing of an ordinary resolution by the Shareholders at the Special General Meeting to approve, inter alia, the transactions contemplated in the Gainful Fortune Supply Agreement and the Sale and Purchase Agreement; and
(ii) the completion of the Sale and Purchase Agreement.

In the event that any of the above conditions is not satisfied within six months from 5th February, 2002 (or such later date as the parties may agree), the Gainful Fortune Supply Agreement shall lapse.

Reasons for the grant

The Directors consider that the grant of the Hotel and Intranet Distribution Rights to Gainful Fortune and the amount of the consideration payable under the Gainful Fortune Supply Agreement and the issue of the Consideration Notes A to OSP (or such person(s) as OSP may direct) in satisfaction of the consideration is in the best interests of the Group, as it allows the Group to gain a good opportunity for future exploitation of the Hotel and Intranet Distribution Rights, and that the terms of the Gainful Fortune Supply Agreement are fair and reasonable so far as the Company and the Shareholders are concerned.

The Company’s principal business is the distribution of films in various mediums and formats, including video compact disc format and digital video disc format. It has not been the Company’s principal business to grant hotel and intranet distribution rights to

— 10 —

LETTER FROM THE BOARD

external parties. The Directors believe that the commercial exploitation of the Hotel and Intranet Distribution Rights by Gainful Fortune in the PRC will enable the Group to participate in the potentially vast PRC video entertainment and multi-media market through the implementation of the Gainful Fortune Supply Agreement. The Directors also believe that the Group's co-operation and relationship with CN2U Group could generate other future opportunities for the Group in the PRC video entertainment and/or multi-media market through the distribution network developed by CN2U Group in various hotels and residential estates within the PRC.

(b) Sale and Purchase Agreement

Summary of the terms of the Sale and Purchase Agreement

Date : 5th February, 2002

Purchaser : Gainful Fortune, an Independent Third Party

Subject to the completion of the Sale and Purchase Agreement, Ocean Shores (BVI) Limited, the holding company of OSP, will procure OSP (or such other person(s) as directed by Ocean Shores (BVI) Limited) to subscribe for such number (being not more than 1,000) of Gainful Fortune Shares at a par value of HK$1.00 each as will represent 40% of its enlarged issued share capital. Consequently, Gainful Fortune will become an associated company of the Company. The Gainful Fortune Share Subscription is a completion arrangement and is not a condition of the Gainful Fortune Supply Agreement and the Sale and Purchase Agreement.

The Gainful Fortune Supply Agreement and the Sale and Purchase Agreement are not conditional upon completion of the Gainful Fortune Share Subscription.

Vendor : Ocean Shores (BVI) Limited, a limited company incorporated in the British Virgin Islands and a wholly-owned subsidiary of the Company.

Asset to be sold : The entire issued share capital of Ocean Shores Licensing Limited, whose principal assets are the distribution rights in respect of about 195 films, mainly in the North America region. Based on its audited accounts, Ocean Shores Licensing Limited recorded profit after taxation of approximately HK$27.1 million and HK$26.5 million respectively for the two financial years ended 31st December, 1999 and 31st December, 2000 respectively. As at 31st December, 2000, its audited net asset value is approximately HK$76.8 million.

— 11 —

LETTER FROM THE BOARD

Upon completion of the Gainful Fortune Share Subscription described above, Ocean Shores Licensing Limited will become an associated company of the Company, through its 40% shareholding in Gainful Fortune.

Consideration for the Sale and Purchase Agreement

HK$80,000,000. The consideration for the Sale and Purchase Agreement was determined after arm's length negotiations between the parties and with reference to the audited net asset value of Ocean Shores Licensing Limited as at 31st December, 2000 of approximately HK$76.8 million and the unaudited net asset value of Ocean Shores Licensing Limited as at 30th June, 2001 of approximately HK$80.9 million. The consideration will be satisfied by way of the issue of the Consideration Notes B in the aggregate principal amount of HK$80,000,000 by Gainful Fortune to OSP (or such other person(s) as Ocean Shores (BVI) Limited may direct).

Conditions of the Sale and Purchase Agreement

Completion of the Sale and Purchase Agreement is conditional upon:

(i) the passing of an ordinary resolution by the Shareholders at the Special General Meeting to approve, inter alia, the Sale and Purchase Agreement and the Gainful Fortune Supply Agreement; and
(ii) the completion of the Gainful Fortune Supply Agreement.

In the event that any of the above conditions is not satisfied within six months from 5th February, 2002 (or such later date as the parties may agree), the Sale and Purchase Agreement shall lapse.

Reasons for the sale

The Directors believe that, leveraging on the CN2U Group's technical knowhow on multi-media content distribution, the Group's co-operation and relationship with Gainful Fortune, through the sale of Ocean Shores Licensing Limited to Gainful Fortune pursuant to the Sale and Purchase Agreement and the Gainful Fortune Share Subscription, as a result of which the Group will hold a 40% shareholding interest in Gainful Fortune, could generate other future opportunities for the Group in the North American video entertainment and multi-media market.

— 12 —

LETTER FROM THE BOARD

Financial effect

Subject to audit for the financial year ending 31st December, 2002, it is estimated that the Company will record profits before and after tax of approximately HK$200,000 following the Sale and Purchase Agreement and the Gainful Fortune Share Subscription.

(c) Terms of the Gainful Fortune Notes

The Gainful Fortune Notes comprise the Consideration Notes A and the Consideration Notes B. Neither Gainful Fortune Shares nor the Gainful Fortune Notes are listed on the Stock Exchange or any other securities exchange, nor is there any present intention to seek any such listing.

The principal terms of the Gainful Fortune Notes were determined after arm's length negotiations between the parties and are summarised below:

1. Principal amount

HK$160,000,000

2. Interest

1% per annum of the principal amount of Gainful Fortune Notes outstanding from time to time, payable yearly in arrears on 31st December in each year.

(The rate of interest was determined after arm's length negotiations between the parties, with reference to the current market interest rates.)

3. Maturity

Three (3) years from the date of the issue of the Gainful Fortune Notes. Unless previously redeemed or converted, the Gainful Fortune Notes will be redeemed by Gainful Fortune at its principal amount together with accrued interest thereon on maturity.

(Any proceeds from redemption of the Gainful Fortune Notes will be used as general working capital of the Group.)

4. Early redemption

Prior to maturity, Gainful Fortune shall have the right to redeem any Gainful Fortune Note in any integral multiple of HK$5,000,000 by delivering a written redemption notice to the holder of that Gainful Fortune Note.

5. Conversion

Unless previously redeemed or converted, the holder of a Gainful Fortune Note shall have the right at any time after the maturity to convert the whole of the

— 13 —

LETTER FROM THE BOARD

outstanding principal amount of each Gainful Fortune Note together with all accrued interest due on the outstanding principal amount of the Gainful Fortune Note into Gainful Fortune Shares, which shall be issued at the par value of each Gainful Fortune Share. Prior to the maturity, the holder(s) of Gainful Fortune Note(s) may convert the Gainful Fortune Note(s) with the consent of Gainful Fortune.

If the whole of the Gainful Fortune Notes are converted, OSP’s shareholding in Gainful Fortune will increase from 40% to more than 99% upon conversion.

6. Voting

A Gainful Fortune Note does not entitle the holder to attend and vote at any general meetings of Gainful Fortune.

7. Restrictions on change in share capital

Gainful Fortune is not permitted to issue any Gainful Fortune Shares or other securities (including options, warrants and other convertible securities) without the prior written consent of all the holders of Gainful Fortune Notes. The holding company of Gainful Fortune, CN2U will give an undertaking to holders of Gainful Fortune Notes in the Instrument to procure Gainful Fortune’s compliance with this restriction.

(d) Gainful Fortune Shareholders’ Agreement

Upon completion of the Gainful Fortune Share Subscription, Excellent Selection Limited (being a wholly-owned subsidiary of CN2U which will own the balance of 60% shareholding interest in Gainful Fortune) and OSP will enter into the Gainful Fortune Shareholders’ Agreement which sets out the terms and conditions in relation to the management and operation of Gainful Fortune.

Under the Gainful Fortune Shareholders’ Agreement, the principal business of Gainful Fortune will be restricted to the business of distribution and licensing of distribution rights of films, television series and video features. Excellent Selection Limited and OSP may appoint two directors and a director respectively to the board of Gainful Fortune and such board of directors shall be responsible for the management of Gainful Fortune subject to the consent required from both shareholders in relation to certain specified matters such as amendments of articles of association, terms of employment of directors, payment of dividends and the entering into of transactions other than in the ordinary course of business.

— 14 —

LETTER FROM THE BOARD

(e) Information about Gainful Fortune

Gainful Fortune, together with its ultimate holding company, CN2U, are principally engaged in the research and development in the field of multi-media content production, processing and distribution. The CN2U Group has formed alliances with major universities in the PRC and in Macau, developing and providing multi-media content deployment technology. The CN2U Group has developed a multi-media community technology which will be used in hotels and housing estates for multi-media content delivery. Gainful Fortune and CN2U have developed the multi-media content deployment technology to distribute contents. While this technology has not been applied commercially, upon implementation of the Gainful Fortune Supply Agreement, Gainful Fortune and CN2U will be able to distribute the Pictures in hotels and housing estates in the PRC using such technology. Leveraging on the contents of the Group and CN2U Group's distribution platform, the CN2U Group aims to tap the vast PRC video entertainment and multi-media market.

(f) Major transaction under the Listing Rules

THE LICENSING AGREEMENT

Summary of the terms of the Licensing Agreement

Date : 5th February, 2002

Licensor : CSID, a wholly-owned subsidiary of China Star

Licensee : OSP, a wholly-owned subsidiary of the Company

Rights : CSID has conditionally agreed to license to OSP exclusive distribution rights in the Territory, including but not limited to (a) the cable television rights; (b) the interactive broadcast rights; (c) the satellite television rights; (d) the standard television rights; (e) the non-theatrical rights; (f) the videogram rights (including the Cyber Cinema Rights); (g) the hotel rights; and (h) the intranet TV rights, but excluding the internet rights and theatrical rights, in respect of 116 Movies owned by it.

— 15 —

LETTER FROM THE BOARD

Term : A period of 10 years from the date on which the completion of the Licensing Agreement takes place.

The Movies

The Movies comprise 116 motion pictures. Upon completion of the Licensing Agreement, the Group will have the exclusive right to exploit the Movies by all means and in all media in the Territory, except through internet and theatrical distribution in the Territory and except that OSP is required to grant the Cyber Cinema Rights in respect of any Movies licensed to it by CSID to such person as directed by CSID on such terms as agreed between OSP and the person directed by CSID.

Consideration

HK$33,800,000. The consideration is based on the valuation of the distribution rights in the Territory in respect of the Movies to be granted by CSID of HK$33.8 million as stated in the Valuation Report. The consideration has been agreed between the parties based on such valuation and the Directors (including the independent non-executive Directors) consider the terms of the Licensing Agreement to be fair and reasonable so far as the Company and the Shareholders are concerned.

The consideration will be satisfied by way of the issue of the Ocean Shores Notes in the aggregate principal amount of HK$33,800,000 by the Company to CSID (or such person(s) as CSID may direct).

Terms of the Ocean Shores Notes

The Ocean Shores Notes will not be listed on the Stock Exchange or any other securities exchange, nor is there any present intention to seek any such listing. The Conversion Shares to be issued pursuant to the conversion of the Ocean Shores Notes will be listed on the Stock Exchange and the Company has made an application to the Stock Exchange for the grant of the listing of, and permission to deal in, the Conversion Shares.

The principal terms of the Ocean Shores Notes were determined after arm's length negotiations between the parties and are summarized below:

1. Principal amount

HK$33,800,000

2. Interest

1% per annum of the principal amount of the Ocean Shores Notes outstanding from time to time, payable half yearly in arrears on the respective dates falling six and twelve calendar months from the date of issue of the Ocean Shores Notes.

— 16 —

LETTER FROM THE BOARD

(The rate of interest was determined after arm’s length negotiations between the parties, with reference to the current market interest rates.)

3. Maturity

Three (3) years from the date of the issue of the Ocean Shores Notes. Unless previously redeemed or converted, the Ocean Shores Notes will be redeemed by the Company at its principal amount together with accrued interest thereon on maturity.

4. Early redemption

Prior to maturity, neither the holder nor the Company has the right to redeem or request for redemption of any Ocean Shores Note.

5. Conversion

Unless previously converted, the holder of a Ocean Shores Note shall have the right at any time between the issue date and maturity convert the whole or any part of the outstanding principal amount of each Ocean Shores Note into Conversion Shares.

The number of Conversion Shares to be issued will be determined by dividing the outstanding principal amount of the Ocean Shores Notes to be converted by the conversion price (as described below) in effect on the date of such conversion. The Conversion Shares shall rank pari passu with all other Shares then existing. Based on the conversion price of HK$4.00 per Share and assuming there is no adjustment to the conversion price and that all Ocean Shores Notes are converted, the Company will be required to issue 8,450,000 new Shares representing approximately 1.78% and 1.75% of the Company’s existing issued share capital and enlarged issued share capital (as enlarged by the issue of the Conversion Shares) respectively.

Assuming that no Shares will be issued or repurchased prior to the conversion of the Ocean Shores Notes and that there is no change in the shareholding interest of China Star in the Company, if the whole of the Ocean Shores Notes are converted based on the conversion price of HK$4.00 per Share, the China Star Group will hold in aggregate an approximately 39.71% shareholding interest in the Company upon full conversion of the Ocean Shores Notes.

6. Conversion Price

HK$4.00 per Share, subject to adjustments. The conversion price represents a premium of approximately 27.0% over the closing price of HK$3.15 per Share quoted on the Stock Exchange on 5th February, 2002, being the last trading day on which Shares were traded on the Stock Exchange before such trading was suspended prior to the issue of the Announcement.

— 17 —

LETTER FROM THE BOARD

The conversion price of HK$4.00 per Share represents a premium of approximately 19.7% over the average of HK$3.3425 per Share of the closing prices quoted on the Stock Exchange for the last 10 trading days up to (and including) 5th February, 2002. The conversion price also represents a premium of approximately 42.9% over the closing price of HK$2.80 per Share as quoted on the Stock Exchange on the Latest Practicable Date.

Voting

An Ocean Shores Note does not entitle the holder to attend and vote at any general meetings of the Company.

Transferability

The Ocean Shores Notes may be transferred in whole or in part (in an amount or integral amount of HK$8,450,000) of the outstanding principal amount by holders of the Ocean Shores Notes.

Conditions of the Licensing Agreement

Completion of the Licensing Agreement is conditional upon:

(i) the passing of an ordinary resolution by the Independent Shareholders at the Special General Meeting to approve, inter alia, the Licensing Agreement and the issue of the Ocean Shores Notes and the Conversion Shares; and

(ii) the Listing Committee of the Stock Exchange approving the issue of the Ocean Shores Notes and granting the listing of and permission to deal in the Conversion Shares, of which an application has been made to the Stock Exchange.

In the event that any of the above conditions is not satisfied within six months from 5th February, 2002 (or such later date as the parties may agree), the Licensing Agreement shall lapse.

Discloseable and connected transaction under the Listing Rules

The transactions contemplated in the Licensing Agreement constitute a discloseable transaction of the Company under the Listing Rules. China Star, the holding company of CSID, is beneficially interested in a 38.64% shareholding interest in the Company, and CSID is therefore a connected person of the Company. Accordingly, the transactions contemplated in the Licensing Agreement constitute connected transactions for the Company under the Listing Rules and are subject to approval by the Independent Shareholders.

— 18 —

LETTER FROM THE BOARD

Reasons and benefits for entering into the Licensing Agreement

The Directors believe that the Licensing Agreement will enhance the Group’s existing portfolio of film titles available for distribution in the PRC, thereby improving its marketing position to media operators in the Territory, particularly the PRC, and should have a positive impact on the Group’s earnings. The Licensing Agreement will also streamline the geographical focus of the China Star Group and the Group, minimising their competition in the PRC market. The Directors, including the independent non-executive Directors, are of the view that the Licensing Agreement is in the interests of the Company and the Shareholders and the terms of the Licensing Agreement are fair and reasonable so far as the Company and the Shareholders are concerned.

THE TERRITORY SUPPLY AGREEMENT

Summary of the terms of the Territory Supply Agreement and the Territory Distribution Agreements to be entered pursuant to the Territory Supply Agreement

Date : 5th February, 2002

Licensor : CSID, a wholly-owned subsidiary of China Star

Distributor : OSP, a wholly-owned subsidiary of the Company

Rights : CSID has conditionally agreed to grant in favour of OSP a first right of refusal to acquire the exclusive Territory Distribution Rights, being the distribution rights in respect of each Film in the Territory, (including but not limited to (a) the cable television rights; (b) the interactive broadcast rights; (c) the satellite television rights; (d) the standard television rights; (e) the non-theatrical rights; (f) the videogram rights (including the Cyber Cinema Rights); (g) the hotel rights; and (h) the intranet TV rights, but excluding the internet rights). In addition, OSP may also exercise an option to acquire the theatrical rights in respect of such Film.

Term of the Territory Supply Agreement : A period of three (3) years from the date on which the completion of the Territory Supply Agreement takes place.

OSP shall pay an amount of HK$5 million to CSID as a deposit for the grant of the first right of refusal to acquire the Territory Distribution Rights and as security for the license fees payable under the Territory Distribution Agreements to be entered into, which shall be refundable without interest upon the termination of the Territory Supply Agreement. The deposit amount was determined after arm’s length negotiations between the parties, taking into account the license fee rates as described below.

— 19 —

LETTER FROM THE BOARD

In respect of each Film to be provided by CSID (or any designated company in the China Star Group) during the term of the Territory Supply Agreement, CSID will, within 14 business days after it has obtained the relevant rights in that Film, notify and invite OSP to acquire, within 90 days of receipt of such notice, the Territory Distribution Rights (including the option relating to theatrical rights) to that Film. If OSP elects to acquire the aforesaid Territory Distribution Rights, a Territory Distribution Agreement in respect of the Film will be entered into pursuant to which OSP (or another designated company in the Group) shall pay a license fee in respect of each Film calculated by reference to its grading in accordance with the terms of the Territory Supply Agreement as follows:

Grading	Cost of production of Film (X)	License fee per Film
A++	X ≥ HK$30 million	HK$1,000,000
A+	HK$30 million > X ≥ HK$20 million	HK$800,000
A	HK$20 million > X ≥ HK$10 million	HK$500,000
B	HK$10 million > X ≥ HK$5 million	HK$300,000
C	X < HK$5 million	HK$200,000

As the Territory is a relatively new market segment, there is a lack of comparable prices for license fees in respect of the Territory Distribution Rights. The license fees were agreed upon based on arm's length negotiations between the parties and have taken into account previous arrangements for distribution rights for similar medium and in other geographical regions such as in Hong Kong, Taiwan, Korea, Malaysia and Singapore, between China Star Group or the Group and other independent third parties.

Of the total license fee payable by OSP to CSID, 40 per cent. shall be paid upon signing of the relevant Territory Distribution Agreement and the balance 60 per cent. shall be payable upon completion of the grant of the Territory Distribution Rights, being not later than two months prior to the proposed date of release of the Film by OSP. The Territory Distribution Rights in respect of a Film will be for a period of 10 years.

In relation to any Film for which OSP has exercised its option to also acquire the theatrical rights, the additional license fee payable for the theatrical rights for that Film shall be equal to the balance of the total income received by OSP (or the other relevant company in the Group) in respect of the exploitation of such theatrical rights before payment of any distribution expenses but after deducting therefrom a sum equal to 20% of the said total income which shall be retained by OSP (or the other relevant company in the Group). CSID (as licensor) shall bear all distribution expenses in respect of the relevant Film and reimburse OSP (or the other relevant company in the Group) (as licensee) for all such distribution expenses it has incurred.

— 20 —

LETTER FROM THE BOARD

OSP (or the other relevant company in the Group) will have the exclusive right to exploit each relevant Film by all means and in all media in the Territory, except through internet and theatrical distribution (unless OSP has exercised its option to also acquire the theatrical rights) in the Territory and except that OSP (or the other relevant company in the Group) is required to grant the Cyber Cinema Rights of any Films licensed to it by CSID to such person as directed by CSID on such terms as agreed between OSP (or the other relevant company in the Group) and the person directed by CSID.

Conditions of the Territory Supply Agreement

Completion of the Territory Supply Agreement is conditional upon:

(i) the Waiver being granted by the Stock Exchange to the Company and on such terms and conditions as may be accepted by both CSID and OSP; and
(ii) the passing of an ordinary resolution by the Independent Shareholders at the Special General Meeting to approve, inter alia, the transactions contemplated in the Territory Supply Agreement.

In the event that any of the above conditions is not satisfied within six months from 5th February, 2002 (or such later date as the parties may agree), the Territory Supply Agreement shall lapse and the Company will make an announcement accordingly.

Connected transaction under the Listing Rules

China Star, the holding company of CSID, is beneficially interested in a 38.64% shareholding interest in the Company, and CSID is therefore a connected person of the Company. Accordingly, the transactions contemplated in the Territory Supply Agreement constitute a connected transaction for the Company under the Listing Rules and are subject to approval by the Independent Shareholders.

Waiver from the Stock Exchange

In addition, the Territory Distribution Agreements to be entered into between CSID and OSP from time to time in future in relation to the respective Films under the terms of the Territory Supply Agreement will also constitute connected transactions for the Company under the Listing Rules and will require disclosure by press notice and/or approval by Independent Shareholders at a general meeting of the Company on each occasion or following a number of occasions. As these transactions will be conducted on normal commercial terms and in the ordinary course of business of the Group and may occur on a regular basis, the Directors consider that it would be impractical for the Company to comply strictly with the relevant disclosure requirements and Independent Shareholders' approval requirements under the Listing Rules in respect of connected transactions. Therefore, the Company has made an application

— 21 —

LETTER FROM THE BOARD

to the Stock Exchange for a waiver from strict compliance with such requirements. The Waiver would be, subject to approval by the Independent Shareholders and the approval of the Stock Exchange, for three years from the effective date of the Territory Supply Agreement and on the basis that:

(i) the Territory Distribution Agreements are entered into by the Group in the ordinary and usual course of business and are in accordance with the terms of the Territory Supply Agreement;

(ii) the total license fee paid by OSP (or the other relevant Company in the Group) to CSID (or the relevant company in the China Star Group) during a financial year (“Aggregate Fee”) will not exceed 50% of the latest published audited consolidated net assets of the Company (the “Cap”);

(iii) the independent non-executive Directors will review the terms of each Territory Distribution Agreement and will confirm in the next published annual report of the Company that they are satisfied that the relevant transactions entered into pursuant to the Territory Distribution Agreements during the financial year covered by the relevant annual report were conducted in accordance with the terms of the relevant Territory Distribution Agreements, were on normal commercial terms and in the ordinary course of business of the Group and were fair and reasonable;

(iv) details of the Territory Distribution Agreements will be disclosed as required under Rule 14.25(1)(A) to (D) of the Listing Rules in the published annual report of the Company for that financial year together with a statement of the opinion of the independent non-executive Directors and the auditors of the Company referred to in sub-paragraphs (iii) and (v);

(v) the auditors of the Company will review the terms of the Territory Distribution Agreements annually and will provide a written confirmation to the Directors that the Territory Distribution Agreements have been approved by the Directors and have been conducted in accordance with the terms of the Territory Distribution Agreements and that the Aggregate Fee did not exceed the Cap; and where, for whatever reason, the Company’s auditors decline to accept the engagement or are unable to provide the above letter, the Directors must contact the Listing Division of the Stock Exchange immediately; and

(vi) the Company and CSID (or the relevant company in the China Star Group) shall undertake to the Stock Exchange that the auditors of the Company will be granted access to such of its records for the purpose of the auditors’ review of the Territory Distribution Agreements.

In the event of any future amendments to the Listing Rules imposing more stringent requirements than as at the date of the transactions of the kind in which the Territory Distribution

— 22 —

LETTER FROM THE BOARD

Agreements belong (including, but not limited to, a requirement that such Territory Distribution Agreements be made conditional on approval by the Independent Shareholders), the Company shall take immediate steps to ensure compliance with such requirements within a reasonable time.

In the event that any of the above conditions is not satisfied in respect of any of the Territory Distribution Agreements or if the terms of the Territory Supply Agreement are altered, or if OSP enters into new arrangements with CSID in the future, the Company will comply with the provisions of Chapter 14 of the Listing Rules governing connected transactions, unless it applies for and obtains a separate waiver from the Stock Exchange.

In respect of the Territory Distribution Agreements under the Waiver, the Company has applied for the Waiver on the basis of the Aggregate Fee not exceeding the Cap in order to allow OSP more flexibility, in obtaining Territory Distribution Rights from CSID as and when business opportunities arise in the Territory, taking into account the potentially wide range of licence fees payable for the theatrical rights for those Films in respect of which OSP (or the other relevant companies in the Group) may be exercising its option.

Reasons for entering into the Territory Supply Agreement

The Directors believe that the transactions contemplated in the Territory Supply Agreement will enhance the future development of the Group as it will secure a stable supply of film titles and television drama series for distribution in the potentially huge PRC market. The Directors are of the view that the transactions contemplated in the Territory Supply Agreement are in the interests of the Company and its Shareholders and the terms of the Territory Supply Agreement are fair and reasonable so far as the Company and its Shareholders are concerned.

SPECIAL GENERAL MEETING

A Special General Meeting will be held at Units 609-610 Miramar Tower, 132 Nathan Road, Tsimshatsui, Kowloon, Hong Kong on 8th April, 2002 at 11:00 a.m. at which resolutions will be proposed to approve the transactions contemplated under the Gainful Fortune Supply Agreement, the Sale and Purchase Agreement, the Licensing Agreement and the Territory Supply Agreement. A form of proxy for use at the Special General Meeting is enclosed. Whether or not you intend to be present in person at the meeting, you are requested to complete and return the form of proxy in accordance with the instructions printed thereon as soon as possible and in any event not less than 48 hours before the time fixed for holding the Special General Meeting. The completion and return of the form of proxy will not prevent you from attending and voting in person at the Special General Meeting if you so wish.

China Star, being a substantial shareholder of the Company interested in the Licensing Agreement and the Territory Supply Agreement, and its associates shall abstain from voting on the relevant resolutions at the Special General Meeting.

— 23 —

LETTER FROM THE BOARD

RECOMMENDATIONS

The Directors are of the opinion that the transactions contemplated in the Gainful Fortune Supply Agreement and the Sale and Purchase Agreement are in the best interests of the Company and the Shareholders. Accordingly, the Directors recommend that you vote in favour of the relevant resolutions to be proposed at the Special General Meeting in relation to the Gainful Fortune Supply Agreement and the Sale and Purchase Agreement.

Your attention is drawn to (1) the letter from the Independent Board Committee as set out on page 25 of this circular advising the Independent Shareholders on the fairness and reasonableness of the terms of the Licensing Agreement and the Territory Supply Agreement and the application to the Stock Exchange for the Waiver; and (2) the letter from UOB Asia to the Independent Board Committee as set out on pages 26 to 36 of this circular advising the Independent Board Committee as to whether the Licensing Agreement and the Territory Supply Agreement and the application to the Stock Exchange for the Waiver are fair and reasonable so far as the Independent Shareholders are concerned.

Having taken into account the advice of UOB Asia contained in its letter, the Independent Board Committee considers the terms of the Licensing Agreement and the Territory Supply Agreement and the said application to the Stock Exchange for the Waiver to be fair and reasonable so far as the Independent Shareholders are concerned. Accordingly, the Independent Board Committee recommends the Independent Shareholders to vote in favour of the relevant resolutions to be proposed at the Special General Meeting.

ADDITIONAL INFORMATION

Your attention is drawn to the letter from the Independent Board Committee set out on page 25 and the letter from UOB Asia set out on pages 26 to 36 in this circular and also the general information set out in the appendices to this circular.

Yours faithfully,

for and on behalf of the Board

Heung Wah Keung

Chairman

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

OCEAN SHORES GROUP LIMITED

海岸集團有限公司*

(Incorporated in Bermuda with limited liability)

13th March, 2002

To the Independent Shareholders

Dear Sir or Madam,

DISCLOSABLE AND

CONNECTED TRANSACTION

Licensing of distribution rights for 116 Movies from CSID

CONNECTED TRANSACTION

Grant of first right of refusal by CSID to acquire

Territory Distribution Rights

The Independent Board Committee refers to the circular dated 13th March, 2002 (the "Circular") issued to the Shareholders, of which this letter forms part. Terms defined in the Circular shall bear the same meanings herein unless the context requires otherwise.

Mr. Tang Chak Lam, Gilbert has been appointed to constitute the Independent Board Committee to consider and to advise the Independent Shareholders as to the fairness and reasonableness of the proposed terms of the Licensing Agreement and the Territory Supply Agreement and the application to the Stock Exchange for a waiver from strict compliance with the relevant disclosure and Independent Shareholders' approval requirements for connected transactions under Chapter 14 of the Listing Rules in respect of the transactions contemplated in the Territory Distribution Agreements. UOB Asia has been appointed the independent financial adviser to advise the Independent Board Committee regarding the proposed terms of the Licensing Agreement and the Territory Supply Agreement, the transactions contemplated in the Territory Distribution Agreements and the said application to the Stock Exchange for the Waiver.

Having taken into account the advice of UOB Asia contained in its letter set out on pages 26 to 36 of the Circular, the Independent Board Committee considers the terms of the Licensing Agreement and the Territory Supply Agreement, the transactions contemplated in the Territory Distribution Agreements and the said application to the Stock Exchange for the Waiver to be fair and reasonable in so far as the Independent Shareholders are concerned. Accordingly, the Independent Board Committee recommends the Independent Shareholders to vote in favour of the relevant resolutions to be proposed at the Special General Meeting.

Yours faithfully,

Tang Chak Lam, Gilbert

Independent Board Committee

for identification only

LETTER FROM UOB ASIA

The following is the text of a letter of advice from UOB Asia to the Independent Board Committee dated 13th March, 2002 prepared for the inclusion in this circular.

UOB ASIA (HONG KONG) LIMITED
新加坡大華亞洲(香港)有限公司
(A MEMBER OF THE UNITED OVERSEAS BANK GROUP)

13th March, 2002

The Independent Board Committee
Ocean Shores Group Limited
Units 609-610,
Miramar Tower,
132 Nathan Road
Tsimshatsui, Kowloon
Hong Kong

Dear Sirs,

DISCLOSABLE AND CONNECTED TRANSACTION
Licensing of distribution rights for 116 Movies from CSID

CONNECTED TRANSACTION
Grant of first right of refusal by CSID to acquire
the Territory Distribution Rights

We refer to our appointment as the independent financial adviser to advise the Independent Board Committee in relation to the terms of the Licensing Agreement, the Territory Supply Agreement and the Waiver application, details of which are set out in the circular of the Company to the Shareholders dated 13th March, 2002, (the "Circular"), of which the text of this letter forms part. Terms used in this letter shall have the same meanings as those defined in the Circular unless the context otherwise requires.

On 5th February, 2002, OSP, a wholly-owned subsidiary of the Company, entered into the Licensing Agreement with CSID, a wholly-owned subsidiary of China Star, pursuant to which CSID has conditionally agreed to license to OSP the exclusive distribution rights in the Territory in respect of 116 Movies for a period of 10 years from the date of completion of the Licensing Agreement. On the same date, OSP entered into the Territory Supply Agreement with CSID, pursuant to which CSID has conditionally agreed to grant in favour of OSP a first right of refusal to acquire the exclusive Territory Distribution Rights in respect of each Film for a period of three years from the date of completion of the Territory Supply Agreement. Under the Territory Supply Agreement, Territory Distribution Agreements will be entered into between CSID and OSP from time to time in future if OSP elects to acquire the aforesaid Territory Distribution Rights. Further, OSP may also exercise an option to acquire the theatrical rights in respect of such Films.

— 26 —

LETTER FROM UOB ASIA

China Star, the sole shareholder of CSID, is beneficially interested in 38.64% of the Company and is therefore a connected person of the Company. Under the Listing Rules, the Licensing Agreement constitutes a discloseable and connected transaction of the Company and the Territory Supply Agreement constitutes a connected transaction for the Company. In addition, the Territory Distribution Agreements to be entered into between CSID and OSP from time to time in future will also constitute on-going connected transactions for the Company under the Listing Rules. The Licensing Agreement, the Territory Supply Agreement and the Waiver application relating to the on-going connected transactions require approvals by the Independent Shareholders at the Special General Meeting. China Star and its associates will abstain from voting at the Special General Meeting.

An Independent Board Committee comprising Mr. Tang Chak Lam, Gilbert, an independent non-executive Director, has been established to advise the Independent Shareholders as to whether the terms of the Licensing Agreement, the Territory Supply Agreement and the Waiver application are fair and reasonable so far as the Independent Shareholders are concerned.

In arriving at our recommendation, we have relied on the information and representations contained in the Circular and have assumed that all information and representations made or referred to in the Circular were true at the time they were made and continue to be true as at the date of the Circular. We have assumed that all statements of belief, opinion and intention made by the Directors in the Circular were reasonably made after due enquiry.

We consider that the information reviewed by us is sufficient for the purpose of our recommendation set out in this letter. We have no reason to suspect that any material facts have been omitted or withheld from the information contained or opinions expressed in the Circular nor to doubt the truth, accuracy, or completeness of the information provided to us by the Directors. The Directors have also advised us that no material information has been omitted from the information provided to us or referred to in the Circular. We have not, however, carried out any independent verification of the information, nor have we conducted any form of investigation in the business, operations, financial standing and affairs of the Group and their respective associates.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In arriving at our recommendation to the Independent Board Committee, we have considered the following principal factors and reasons:

I. Background

The Group is principally engaged in (i) the distribution of video programmes in VHS, LD, VCD and DVD formats for home entertainment; (ii) the sub-licensing of video programme rights in Hong Kong, Macau, Taiwan, Singapore, Malaysia, South Korea, Australia, Canada and the United States; and (iii) the provision of video conversion services including duplication, editing and sub-titling services for motion pictures. The

— 27 —

LETTER FROM UOB ASIA

video programmes distributed by the Group are principally motion pictures covering a wide variety of genres including drama, action, comedy, musical, horror, adventure, war, animation and adult.

Current business environment

Hong Kong has one of the largest and most dynamic film industries in the world. It has now been recognized globally by the recent success in winning prestigious awards in the film industry namely, at the Academy Awards (The Oscars) and the Cannes Film Festival.

In 2001, 133 Hong Kong films were screened locally and represented a decrease of about 12% from 2000. Given the limited size of the domestic market and the unfavourable economic conditions in Hong Kong, Hong Kong's film industry as a whole must rely on the overseas market. With the PRC's accession to the World Trade Organisation and the likelihood of a deregulation of its home entertainment industry, it is imperative for the Group to take advantage of such opportunities to exploit the distribution market in the PRC.

We therefore concur with the Directors that the Licensing Agreement will enhance the Group's existing portfolio of film titles available for distribution in the PRC thereby improving its marketing position to media operators in the Territory, particularly the PRC, as it will also streamline the geographical focus of China Star and the Group, minimizing their competition in the PRC market. We also concur with the Directors' view that the Territory Supply Agreement will enhance the future development of the Group as it will secure a stable supply of film titles and television drama series for distribution in the potentially huge PRC market.

II. Terms of the Licensing Agreement

1. Consideration

The Company will pay a license fee of HK$33,800,000 for the Licensing Agreement. The consideration was determined with reference to the Valuation Report and has been agreed between the parties based on arm's length negotiations. The Directors consider that the terms of the Licensing Agreement to be fair and reasonable so far as the Company and the Independent Shareholders are concerned.

The Movies valuation is based on the projected incomes of the Movies for five years from 2002 to 2006. The incomes for the remaining term of five years under the Licensing Agreement have not been taken into account. After reviewing the major assumptions on the projected incomes adopted by the Independent Valuer underlying the valuation of the Movies and the fact that only five years of projected

— 28 —

LETTER FROM UOB ASIA

incomes are included, we are of the view that the projected incomes of the Movies have been prepared by the Directors in a reasonable manner after due and careful enquiry, and are therefore acceptable and in line with market practice and the comparables we stated below.

According to the Valuation Report as contained in Appendix I to the Circular, a discounted cash flow method was adopted to determine the fair market values of the distribution rights of the Movies in the Territory. This method of valuation discounts projected future cash flows for time value of money and risk factors and is based on the principle that an informed buyer would pay no more for a project than an equal amount to the present worth of anticipated future benefits from the same or equivalent project with similar risk. In view that (i) the economic benefit of owning the distribution rights of the Movies is derived from royalty revenue which is determined by the cast, popularity and production cost of the movie; and (ii) it is in line with the market practice of valuing film libraries, we concur with the Independent Valuer that a cash flow method based model is appropriate for the valuation.

A discount rate of 22% was applied by the Independent Valuer when formulating its opinion on the valuation of the Movies. We refer to the discount rates used to perform business valuations for similar assets for the purpose of comparison and details of which are set out below:

Appraisal Date	Company	Consideration involved	Discount Rate
30 June 2001	Mandarin Entertainment
(Holdings) Limited
("Mandarin Entertainment")
66 existing films &
2 title of television series	HK$72 million *	20%
30 November 2000	China Star
21 completed films &
8 television drama series	HK$73.5 million	24%
		Average	22%

which includes 6 new films

We note that the discount rate applied to the Movies falls in the range mentioned above. We consider the discount rate of 22% applied by the Independent Valuer as acceptable after considering the following factors:

The Movies comprise films which are more recent than the films in the film library of Mandarin Entertainment, which comprise 66 titles of films and 2

LETTER FROM UOB ASIA

titles of television series released in 1992-2000. As stated above, the discount rate adopted for the above films was 20% and the discount rate adopted in the valuation of the 21 completed films and 8 television drama series, which were released between 1994 and 2000, acquired by China Star was 24%. All of the 116 Movies, which form the subject matter under the Licensing Agreement, are existing films comprising 6 Grade A++ films, 25 Grade A+ films, 28 Grade C films and 57 Grade D films produced and released between 1993 and 2001.

It is the market practice to license broadcasting rights of films in a package of films with different grades. Accordingly, a larger and a more diversified film library justifies a higher valuation as the licensor of distribution rights may have better bargaining power and flexibility in price negotiations.
Discount rate is a function of, inter alia, risk-free rate and risk premiums. Assuming the risk premiums to be constant, the lower the risk-free rate, the lower the discount rate. According to the statistics quoted by the Hong Kong Monetary Authority, the yield on Hong Kong 10-year Exchange Fund Notes as at 30th November, 2000, 30th June, 2001 and 31st January, 2002 (being the respective appraisal dates regarding films/movies titles acquired by China Star, the film library of Mandarin Entertainment, and the Movies) are about 7.07%, 6.37% and 6.07% respectively. A lower discount rate is therefore justifiable.

Based on the aforesaid 22% discount rate, we note that a rather substantial risk premium of 15.93% (being 22% less 6.07%) is built in on top of the current yield on Hong Kong 10-year Exchange Fund Notes of 6.07%. We concur with the discount rate applied by the Independent Valuer in relation to the Movies' valuation.

Based on such observation, we also concur with the Directors' view that the terms of the Licensing Agreement are fair and reasonable.

However, it should be noted that the conclusions of the fair market value of the Movies were based on generally accepted valuation procedures and practices that rely exclusively on the use of numerous assumptions and the consideration of uncertainties, not all of which can be easily quantified or ascertained. Failure of any such assumptions would significantly affect the valuation.

Issue of the Ocean Shores Notes

The consideration will be satisfied by way of the issue of the Ocean Shores Notes in the aggregate principal amount of HK$33,800,000 by the Company to CSID (or such other person(s) as CSID may direct). As stated in the Letter from the Board, the terms of the Ocean Shores Notes were determined after arm's length negotiations between the parties to the Licensing Agreement.

— 30 —

LETTER FROM UOB ASIA

The conversion price of HK$4.00 per Share (subject to adjustments) represents:

a premium of about 26.98% to the closing price of HK$3.15 per Share as quoted on the Stock Exchange on 5th February, 2002 (being the last trading day prior to the date of the Licensing Agreement).
a premium of about 19.76% to the average closing price of HK$3.34 per Share for the last ten trading days ended 5th February, 2002.
a premium of about 42.86% to the closing price of HK$2.80 per Share on the Latest Practicable Date.
a premium of about 50.38% to the average closing price of about HK$2.66 per Share for the last ten trading days ended the Latest Practicable Date.
a premium of about 1,112.12% or HK$3.67 to the unaudited consolidated net asset per Share as at 30th June, 2001 of about HK$0.33 before completion of the Gainful Fortune Supply Agreement, Sale and Purchase Agreement, the Licensing Agreement and the Territory Supply Agreement.
a premium of about 900% or HK$3.60 to the pro forma unaudited fully-diluted adjusted consolidated net asset value per Share of about HK$0.40 after completion of the Gainful Fortune Supply Agreement, Sale and Purchase Agreement, the Licensing Agreement and Territory Supply Agreement and assuming full conversion of the Conversion Shares.
the highest and lowest closing Share price during the period from 3rd October 2001 to the Latest Practicable Date, was HK$3.55 per Share and HK$0.53 respectively. The average closing price during the aforesaid period was about HK$2.29.

With reference to the above analysis, the conversion price was set at a premium over the respective market prices and net asset value per Share, we therefore consider this to be in the interest of the Company.

Potential Dilution of Shareholding

As at the Latest Practicable Date, there are 475,200,000 Shares in issue of which 38.64% is held by China Star. Assuming that no Shares will be issued or repurchased prior to the conversion of the Ocean Shores Notes and that there is no change in the shareholding interest of China Star in the Company, if all the

LETTER FROM UOB ASIA

Ocean Shores Notes are converted in full based on the conversion price of HK$4.00 per Share, the shareholding structure of the Company will be as follows:

	Existing shareholding		Assuming full conversion of the Ocean Shores Notes
	Shares	%	Shares	%
China Star	183,600,000	38.64	192,050,000	39.71
Public	291,600,000	61.36	291,600,000	60.29
Total	475,200,000	100.00	483,650,000	100.00

On this basis, the shareholding in the Company held by the existing Independent Shareholders would be reduced from about 61.36% to 60.29%. The potential dilution is, in our opinion, acceptable to the Independent Shareholders as the Movies may generate an additional revenue stream which may improve the financial position of the Company.

III. Terms of the Territory Supply Agreement

OSP shall pay an amount of HK$5 million as a deposit for the grant of the first right of refusal to acquire the Territory Distribution Rights and as security for the license fees payable under the Territory Distribution Agreements to be entered into. The HK$5 million deposit shall be refundable without interest after the termination of the Territory Supply Agreement. The deposit amount was determined after arm's length negotiations between the parties, taking into account the license fee rates as described on page 20 to the Circular. The license fees to be paid under the Territory Distribution Agreement of each Film are calculated by reference to its grading.

Should OSP also acquire the theatrical rights of the Film, OSP shall pay an additional license fee equal to the balance of the total income received by OSP in respect of the exploitation of such theatrical rights before payment of any distribution expenses but after deducting therefrom a sum which is equal to 20% of the said total income which shall be retained by OSP.

The license fee rates to be paid by OSP to CSID under the Territory Supply Agreement and the manner of payments have been agreed between the parties after arm's length negotiations and based on current market rates. Factors taken into account to determine the current market rates include: the producers of the films, the grading of the films (which is a function of the production cost), the territories in which the films are distributed, and the terms and extent of the distribution rights. Based on the experience of the Directors, and offers made by independent third parties to China Star for acquiring rights similar to those granted to OSP under the Territory Supply Agreement, the Directors consider the license fee rates under the Territory Supply Agreement to be in accordance with market rates.

— 32 —

LETTER FROM UOB ASIA

However, it should be noted that the license fee rates fluctuate according to numerous uncertainties, including, but not limited to, the economic conditions and purchasing power of the market to which films are distributed, perceptions on films produced in Hong Kong or in other countries and change of market appetite. All of these factors are difficult to be quantified or ascertained.

IV. Financial effects to the Group

1. Earnings

The Licensing Agreement and Territory Supply Agreement may provide an additional source of revenue and enhance the earning performance of the Group. As stated in the interim report of the Company for the six months ended 30th June, 2001, the Company recorded an unaudited net loss attributable to Shareholders of about HK$3 million. It is expected that the Licensing Agreement and the Territory Supply Agreement will mitigate the negative pressure on the Company's operating results for the six months ending 30th June, 2002. We therefore consider that these two agreements will provide an additional revenue stream to the Group and are beneficial to the Group and the Independent Shareholders as a whole.

2. Net asset value

Upon completion of the Licensing Agreement, the pro forma unaudited consolidated net asset value of the Group would not be affected. Assuming that the Ocean Shores Notes are converted in full based on a conversion price of HK$4.00, the pro forma unaudited consolidated net asset value per Share as at 30th June, 2001 would decrease from HK$0.334 to HK$0.328 and such effect would be immaterial.

3. Liquidity

As stated in the Letter from the Board, the consideration for the Movies under the Licensing Agreement will be satisfied by way of the issue of the Ocean Shores Notes in the aggregate principal amount of HK$33,800,000. Based on the Group's results for the six months ended 30th June, 2001, the gearing position of the Group upon completion of the Licensing Agreement will increase from 24.32% to 45.64%. However, the Directors consider that the issue of the Ocean Shores Notes will help preserve the cash resources of the Group. In addition, as set out in Appendix II to the Circular, the Directors are of the opinion that, taking into account the Gainful Fortune Supply Agreement, the Sale and Purchase Agreement, the Licensing Agreement and the Territory Supply Agreement and the internal resources of the Group, and in the absence of unforeseen circumstances, the Company will have sufficient working capital for its present requirements.

— 33 —

LETTER FROM UOB ASIA

Having considered the Directors' opinion that: (i) the Company will have sufficient working capital after Completion; (ii) the existing financial position of the Group can be largely preserved given that the consideration of the Licensing Agreement will be satisfied by way of the issue of the Ocean Shores Notes; and (iii) the Licensing Agreement and the Territory Supply Agreement may provide an additional source of revenue and enhance the earning performance of the Group, we are of the view that the increase of the Group's gearing ratio is acceptable and justifiable.

ON-GOING CONNECTED TRANSACTIONS

The Territory Distribution Agreements to be entered into between CSID (or any designated company in the China Star Group) and OSP (or any of its group company) from time to time in future will also constitute connected transactions for the Company and will require full disclosure and/or Independent Shareholders' approval. As these transactions will be conducted between CSID and OSP on a recurring nature, on normal commercial terms and in the ordinary course of business of the Group, the Directors consider that strict compliance with the requirements under Chapter 14 of the Listing Rules would be impractical and unduly burdensome for the Company. Therefore, the Company has made an application to the Stock Exchange for a waiver from strict compliance with the disclosure and/or Independent Shareholders' approval requirements as stipulated in Chapter 14 of the Listing Rules for the three years from the effective date of the Territory Supply Agreement. The waiver application is subject to, among other conditions, the total license fee paid by OSP to CSID during a financial year will not exceed 50% of the latest published audited consolidated net assets of the Company.

According to the Directors, the Cap was proposed based on the projection of the license fees payable by OSP to CSID each year during the term of the Territory Supply Agreement, which is estimated according to the following principal factors:

As announced by the Company on 23rd November, 2001, a license agreement dated 22nd November, 2001 was entered into between Smart Choice Investment Limited ("Smart Choice"), a wholly-owned subsidiary of the Company through OSP and the 廣東創盛音像制品有限公司 (the "China Distributor"), pursuant to which Smart Choice has agreed to supply to the China Distributor a minimum of 70 and a maximum of 100 movie titles, television programmes and video features annually for a term of ten years commencing from 1st December, 2001.
As announced by the Company on 7th December, 2001, Ocean Shores Distribution Limited ("OSD"), a wholly-owned subsidiary of the Company, entered into a co-operation agreement with China Film Group Corporation (中國電影集團公司) ("China Film") in relation to the distribution of movies titles in the PRC and overseas on 6th December, 2001. Under the co-operation agreement, OSD is responsible for, inter alia, supplying a minimum of 10 movie titles annually to China Film for distribution in the PRC. The Directors estimate that the majority of the movie titles will be licensed from CSID each year.

— 34 —

LETTER FROM UOB ASIA

After taking into account the factors above, we consider the annual cap of 50% of the latest published audited consolidated net assets of the Company proposed in the Waiver application to be fair and reasonable. We also concur with the Directors' view that it will secure a stable supply of film titles and television drama series for distribution in the potentially huge PRC market.

Basis of the Waiver Application

Under the Listing Rules, the on-going connected transactions contemplated under the Territory Distribution Agreements is subject to the following conditions:

(i) the Territory Distribution Agreements are entered into by the Group in the ordinary and usual course of business and are in accordance with the terms of the Territory Supply Agreement;

(ii) the total license fee paid by OSP (or its relevant Group companies) to CSID (or the relevant company in the China Star Group) during a financial year will not exceed 50% of the latest published audited consolidated net assets of the Company;

(iii) the independent non-executive Directors will review the terms of the Territory Distribution Agreement and will confirm in the next published annual report of the Company that they are satisfied that the relevant transactions entered into pursuant to the Territory Distribution Agreements during the financial year covered by the relevant annual report were conducted in accordance with the terms of the relevant Territory Distribution Agreements, were on normal commercial terms and in the ordinary and usual course of business of the Group and were fair and reasonable;

(v) the auditors of the Company shall review the terms of the Territory Distribution Agreements annually and will provide a written confirmation to the Directors that the Territory Distribution Agreements have been approved by the Directors and have been conducted in accordance with their terms and that the Aggregate Fee did not exceed the Cap; and where, for whatever reason, the Company's auditors decline to accept the engagement or are unable to provide the above letter, the Directors must contact the Listing Division of the Stock Exchange immediately; and

— 35 —

LETTER FROM UOB ASIA

In the event of any future amendments to the Listing Rules imposing more stringent requirements than those as at the date of the transactions of the kind in which the Territory Distribution Agreements belong (including, but not limited to, a requirement that such Territory Distribution Agreements be made conditional on approval by the Independent Shareholders), the Company must take immediate steps to ensure compliance with such requirements within a reasonable time.

On such basis, we consider that the above conditions serve to monitor the future transactions to be carried out under the Territory Distribution Agreements, thereby safeguarding the interests of the Company and the Independent Shareholders as a whole.

RECOMMENDATION

Having considered the above principal factors and reasons, we consider that the terms of the Licensing Agreement, the Territory Supply Agreement and the Waiver application are fair and reasonable so far as the Independent Shareholders are concerned. Accordingly, we advise the Independent Board Committee to recommend the Independent Shareholders to vote in favour of the ordinary resolutions proposed at the Special General Meeting to approve the Licensing Agreement, the Territory Supply Agreement and the Waiver application.

Yours faithfully,

For and on behalf of

UOB Asia (Hong Kong) Limited

Calfred Yung

Director

— 36 —

APPENDIX I

VALUATION REPORT

The following is the text of a valuation report from Adonis Appraisal Limited to the Directors dated 31 January, 2002 in respect of the valuation of the distribution rights for 116 Movies from CSID.

Adonis Appraisal

Adonis Appraisal Limited
安迪評值有限公司

31st January, 2002

The Board of Directors
Ocean Shores Group Limited
Units 609-610, Miramar Tower
132 Nathan Road
T.S.T., Hong Kong

Dear Sirs/Madams,

According to the instructions of Ocean Shores Group Limited (the "Company"), we have conducted an appraisal on the fair market value of the grant of the exclusive distribution rights (the "Distribution Rights") in the People's Republic of China (excluding Hong Kong, Macau and Taiwan) and Mongolia (together the "Territory") including but not limited to (a) the cable television rights; (b) the interactive broadcast rights; (c) the satellite television rights; (d) the standard television rights; (e) the non-theatrical rights; (f) the videogram rights (including the cyber cinema rights); (g) the hotel rights and (h) the Intranet television rights (but excluding the internet rights and theatrical rights) in respect of 116 film titles (the "Film Library") with details listed in the "List of Film Library" attached to this letter from China Star International Distribution Limited ("CSID"), a subsidiary of China Star Entertainment Limited ("China Star"), to Ocean Shores Pictures Limited ("OSP"), a wholly-owned subsidiary of the Company. CSID is a connected person to the Company according to the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited by virtue of China Star's shareholding interest in the Company, as of the appraisal date of 31st January, 2002.

This letter identifies the business appraised, describes the basis of valuation and assumptions, explains the valuation methods used, and presents our conclusion of the fair market value of the Distribution Rights in the Territory in respect of the Film Library. It is our understanding that this appraisal report is used for licensing of the Distribution Rights.

The term fair market value is defined as the amount at which the appraised interest might be expected to exchange between a willing buyer and a willing seller, neither being under compulsion, each having reasonable knowledge of all relevant facts.

— 37 —

APPENDIX I

VALUATION REPORT

INTRODUCTION

China Star, a listed company in Hong Kong, is engaged in the production and distribution of Chinese language films. The Film Library consists of 116 Chinese language movies wholly owned by China Star. CSID intends to license to OSP the Distribution Rights in the Territory for the Film Library pursuant to a proposed license agreement to be entered into between CSID, OSP and the Company (the "Licensing Agreement") for a term of 10 years commencing from the date on which the completion of the Licensing Agreement takes place, that is expected to be in April 2002.

Usually, the film distribution business involves two main sources of revenues. One source of revenue comes from theatrical exploitation, where the second source would be generated from the licensing of rights over a film via channels including video, cable television, video compact disc, interactive television and so on. The second source of revenues normally takes the form of a flat royalty which is determined by the cast, popularity and production cost of the movie. In this valuation, the expected second source of revenues to be generated from the Film Library in the Territory for a period of 10 years were used to arrive at the appraisal conclusion.

BASIS OF VALUATION AND ASSUMPTIONS

We have appraised the Film Library on the basis of fair market value. Fair market value has been defined above; however, it is assumed that the buyer and seller both contemplate retention of the business at its present location for continuation of current operations unless the breakup of the business or the sale of its assets would yield greater investment returns.

Our investigation included but not limited to discussions with the management of China Star and its subsidiaries (together the "Group") with regards to the history, operations and prospects of the business of the Film Library. We also studied the current condition of the entertainment industry in general in the Territory, and reviewed the Licensing Agreement and the financial projection (the "Financial Projection") of the Film Library that were furnished to us by management of the Group. We assumed that the data we obtained in the course of the valuation, along with the opinions and representations provided to us by the Group are true and accurate. It is reasonable to assume that the Financial Projection provided by management of the Group was prepared with due care and consideration. We see no reason, nor are we aware of any condition, to cause us to doubt the appropriateness of the bases and assumptions adopted in the Financial Projection. Before arriving at our opinion of value, we have considered the following principal factors:

the history and operation condition of the Group;
the economic outlook in general and the specific economic and competitive elements related to the business of the Film Library;

APPENDIX I
VALUATION REPORT

the past revenues generated by the Film Library;
market-derived investment returns of entities engaged in similar lines of business;
the market position of the Group in the Chinese language film industry;
the entertainment industry in the Territory in general;
the Licensing Agreement; and
the Financial Projection.

In this appraisal, a number of assumptions have to be made in order to sufficiently support our concluded value of the Film Library. The major assumptions adopted in this appraisal are:

there will be no major changes in the existing political, legal, and economic conditions in the Territory;
there will be no major changes in the current taxation law in the Territory that the rates of tax payable remain unchanged and that all applicable laws and regulations will remain in compliance;
exchange rates and interest rates will not differ materially from those presently prevailing;
the intellectual property of the Film Library will not be infringed upon in a manner which would materially affect the economic benefits attributable to the Film Library;
the Financial Projection has been prepared on a reasonable basis, reflecting estimates which have been arrived at after due and careful consideration by the management of the Company;
the Financial Projection provided by the Group’s management will materialize;
the Group will retain and have competent management, key personnel, and technical staff to support its ongoing operation for the Film Library; and
industry trends and the market conditions for related industries will not deviate significantly from economic forecasts.

— 39 —

APPENDIX I

VALUATION REPORT

VALUATION METHODOLOGY

The fair market value of the Film Library was developed through the application of the income approach technique known as the discounted cash flow method. The income approach is the conversion of expected periodic benefits of ownership into an indication of value. It is based on the principle that an informed buyer would pay no more for the property than an amount equal to the present worth of anticipated future benefits (income) from the same or equivalent property with similar risk.

The income approach explicitly recognizes that the current value of an investment is premised upon the expected receipt of future economic benefits such as cost savings, periodic income, or sale proceeds. We have applied the discounted cash flow method in appraising the economic benefits of the Film Library. In practice, the discounted cash flow approach consists of estimating future annual cash flows and individually discounting them to present value.

A major requirement of the discounted cash flow approach is an earnings forecast, in particular a cash flow projection. Management of the Group provided the Financial Projection, covering the period from April 2002 to March 2012. We have reviewed the Financial Projection and considered it to be reasonable after studying the current condition of the film market in the Territory and discussions with the management of the Group. In addition, we have compared the Financial Projection with the performance of the film title licensing market in the South East Asian Region which is the traditional market for film distribution for the Group. The market value of the Film Library was calculated by adding the present values of the projected yearly cash flow covering the above period. The present value of the projected yearly cash flow was derived by discounting the cash flow by a discount rate appropriate for the risks of the investment.

A discount rate represents the total expected rate of return that an investor would demand on the purchase price of an ownership interest in an asset given the level of risk inherent in that ownership interest. When developing a discount rate to apply to the cash flow streams attributable to the Film Library, the discount rate is the cost of equity.

The cost of equity was developed through the application of the Capital Asset Pricing Model ("CAPM"). The CAPM states that an investor requires excess returns to compensate for any risk that is correlated to the risk in the return from the stock market as a whole but requires no excess return for other risks. Risks that are correlated to the risk in the return from the stock market as a whole are referred to as systematic and measured by a parameter called beta, whereas other risks are referred to as nonsystematic. The discount rate for the Film Library was the sum of the risk-free return, equity risk premium, intangible asset premium and specific risk premium of the business of the Film Library. Our analysis suggested that a discount rate of $22\%$ was appropriate for valuing the Film Library. The discount rate is also in line with the discount rates adopted in other film entertainment related valuations we studied.

— 40 —

APPENDIX I

VALUATION REPORT

We were furnished for the purpose of this appraisal with past revenues as well as other relevant information, documents and forecasts. In arriving at our opinion of value, we have relied, to a very considerable extent, on the information provided by, and discussions held with the management of the Group.

CONCLUSION OF VALUE

Based on the aforesaid investigation, analysis and appraisal method employed, it is our opinion that as of 31st January, 2002 the fair market value of a 100% interest in the Distribution Rights in the Territory for the Film Library is reasonably stated as HONGKONG DOLLARS THIRTY-THREE MILLION AND EIGHT HUNDRED THOUSAND ONLY (HK$33,800,000).

The opinion of value was based on generally accepted appraisal procedures and practices that rely extensively on the use of numerous assumptions and the consideration of many uncertainties, not all of which can be easily quantified and ascertained.

We have not investigated the title to or any liabilities against the property appraised.

We hereby certify that we have neither present nor prospective interests in the Group, the Company, OSP, the Film Library and the value reported.

Respectfully submitted,

For and on behalf of

Adonis Appraisal Limited

Anna H.Y. Lok

Chartered Financial Analyst

Senior Manager

Business Valuation Department

Note: Ms. Anna H.Y. Lok, Chartered Financial Analyst, has been conducting business valuation in the Greater China region for various purposes since 1997.

— 41 —

APPENDIX I

VALUATION REPORT

LIST OF FILM LIBRARY

1 黑俠
2 冒險王
3 殺手之王
4 蜀山傳
5 給爸爸的信
6 黃飛鴻之西域雄獅
7 大冒險家
8 天地雄心
9 碧血藍天
10 賭俠1999
11 賭俠大戰拉斯維加斯
12 決戰紫禁之巔
13 大內密探零零發
14 烈火戰車
15 辣手回春
16 黑金
17 極速傳說
18 錦繡前程
19 瘦身男女
20 老夫子2001
21 天若有情 III 之烽火佳人
22 對不起，多謝你
23 孤男寡女
24 戀戰沖繩
25 黑馬王子
26 暗戰
27 新上海灘
28 百變星君
29 天與地
30 龍在江湖
31 鍾無艷
32 攝氏32度
33 原始武器
34 野獸之瞳
35 求戀期
36 天有眼
37 笨小孩
38 龍城正月
39 生死拳速

40 飛虎隊
41 等候董建華發落
42 霹靂戰士
43 每天嚇你八小時
44 愛上我吧
45 山水有相逢
46 頭號人物
47 恐怖雞
48 江湖告急
49 絕世好BRA
50 慈禧秘密生活
51 我愛777
52 兩個只能活一個
53 呆佬拜壽
54 滿清禁宮奇案
55 誤人子弟
56 小飛俠
57 風流三壯士
58 陰陽路之我在你左右
59 陰陽路之升棺發財
60 復仇者
61 97重案實錄
62 性迷宮
63 97江湖情
64 警察大賊
65 雙龍出海
66 臥底
67 勇探
68 深淵
69 罪加一等
70 殺戮波士
71 威龍保鏢
72 無敵鐵沙掌
73 黃鷺大戰亞拉丁
74 朋友妻
75 黑豹 (I) 末世独情
76 黑豹 (II) 怒世独音
77 龍虎兄弟
78 追蹤

79 零二房間
80 情不容義
81 殺殺人、跳跳舞
82 情歸何處
83 浪島江湖
84 綁架黃七輝
85 神鳳苗翠花
86 轟天雙龍會
87 麻煩小子
88 落難賊鴛鴦
89 越殺
90 我友張來
91 血的疑惑
92 迷殺
93 極度驚魂
94 困局
95 鑽石永恆
96 豪情雄心
97 女保鏢
98 流氓大狀
99 CALL IN 紅唇劫
100 複製人
101 絕地狂奔
102 秘密檔案之殺馬行動
103 佈局
104 男兒血淚
105 咖哩+辣椒
106 拳神
107 破繭少年
108 情與義
109 讓我勝出一次
110 毒吻
111 生日夜驚魂
112 非常小姐
113 殺手
114 小心警察
115 陷阱
116 香港愛的故事之緣份

— 42 —

APPENDIX II

STATUTORY AND GENERAL INFORMATION

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, opinions expressed in this circular have been arrived at after due and careful consideration and there are no other facts not contained in this circular, the omission of which would make any statement contained herein misleading.

2. SHARE CAPITAL

As at the Latest Practicable Date, the authorised and issued share capital of the Company were as follows:

Authorised:	HK$
1,000,000,000 Shares	100,000,000
Issued and fully paid up:
475,200,000 Shares	47,520,000

All Shares in issue rank pari passu in all respects including as to dividends, voting rights and interest in capital.

3. DISCLOSURE OF INTERESTS OF DIRECTORS

(i) Shares

As at the Latest Practicable Date, the Directors or chief executive of the Company and their respective associates had the following interest in the equity or debt securities of the Company or any of its associated corporations (as defined in the Securities (Disclosure of Interests) Ordinance (the "SDI Ordinance")) which was required to be notified to the Company and the Stock Exchange pursuant to Section 28 of the SDI Ordinance (including interests which were taken or deemed to have under Section 31 or Part I of the Schedule to the SDI Ordinance), or which were required to be entered in the register maintained by the Company pursuant to Section 29 of the SDI Ordinance, or which was required to be notified

— 43 —

APPENDIX II

STATUTORY AND GENERAL INFORMATION

to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies:

Director	Shareholding interests (Shares)		Total (Shares)	Percentage of issued share capital
	Personal	Corporate
Mr. Heung Wah Keung	—	183,600,000	183,600,000	38.64%
Ms. Chen Ming Yin, Tiffany	—	183,600,000	183,600,000	38.64%

Save as disclosed above and other than certain nominee shares in the subsidiaries of the Company held by the Directors in trust for the Company, as at the Latest Practicable Date, none of the Directors or chief executive, or their associates had or were deemed to have any interests in any securities of the Company or any of its associated corporations (as defined in the SDI Ordinance) which was required to be notified to the Company and the Stock Exchange pursuant to Section 28 of the SDI Ordinance (including interests which were taken or deemed to have under Section 31 or Part I of the Schedule to the SDI Ordinance), or which were required to be entered in the register maintained by the Company pursuant to Section 29 of the SDI Ordinance, or which was required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies.

(ii) Share Option Scheme

The Company had terminated its previous share option scheme and adopted a new share option scheme on 21st January, 2002 ("New Scheme") under which the Directors may invite any eligible persons (as defined in the New Scheme) to take up share options to subscribe for Shares.

— 44 —

APPENDIX II

STATUTORY AND GENERAL INFORMATION

As at the Latest Practicable Date, the following Directors held share options granted to them under the New Scheme entitling them to subscribe for Shares:

Name of Director	Date of grant	Exercise price per Share HK$	Number of Shares in respect of which share options are outstanding
Mr. Heung Wah Keung	8th March, 2002	2.60	475,000
Ms. Chen Ming Yin, Tiffany	8th March, 2002	2.60	475,000
Mr. Lei Hong Wai	8th March, 2002	2.60	4,750,000

(iii) Others

There is no contract or arrangement subsisting at the date of this circular in which any of the Directors is materially interested and which is significant in relation to the business of the Group.

None of the Directors has any direct or indirect interest in any assets which have been since 31st December, 2000, the date to which the latest published audited accounts of the Group were made up, acquired or disposed of by, or leased to, or which are proposed to be acquired or disposed of by, or leased to, the Company or any of its subsidiaries.

— 45 —

APPENDIX II

STATUTORY AND GENERAL INFORMATION

4. SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, so far as is known to, or can be ascertained after reasonable enquiry by, the Directors, the person who were, directly or indirectly, interested in 10% or more of the nominal value of any class of issued share capital rights to vote in all circumstances at general meetings of the Company were as follows:

Name	Shareholding interests (Shares)		Total (Shares)	Percentage of issued share capital
	Direct	Deemed
Classical Statue Limited	183,600,000	—	183,600,000	38.64%
China Star	—	183,600,000	183,600,000	38.64%
China Star Entertainment (BVI) Limited	—	183,600,000	183,600,000	38.64%
Top Vision Management Limited	79,200,000	—	79,200,000	16.67%

Note: The shareholding interests held by China Star in the Company are held indirectly through China Star Entertainment (BVI) Limited and Classical Statue Limited, being companies incorporated in the British Virgin Islands with limited liability and which are wholly and beneficially owned by China Star.

5. INDEBTEDNESS

Borrowings

At the close of business on 31st December, 2001, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this circular, the Group had no outstanding borrowings.

Security

As at 31st December, 2001, the Group did not have any mortgages or charges.

APPENDIX II

STATUTORY AND GENERAL INFORMATION

Disclaimer

Save as aforesaid or as otherwise disclosed herein, and apart from inter-Group company liabilities, neither the Company nor any of its subsidiaries as at the close of business on 31st December, 2001, had any debt securities (whether outstanding or authorised but unissued), bank overdrafts, loans or other similar indebtedness, liabilities under acceptance (other than normal trade bills) or acceptance credits, debentures, mortgages, charges, finance lease or hire purchase commitments, guarantees or other material contingent liabilities.

The Directors have confirmed that there have been no material changes in the indebtedness and contingent liabilities of the Group since 31st December, 2001.

6. WORKING CAPITAL

The Directors are of the opinion that, taking into account the Gainful Fortune Supply Agreement, the Sale and Purchase Agreement, the Licensing Agreement and the Territory Supply Agreement, and the internal resources of the Group, and in the absence of unforeseen circumstances, the Company will have sufficient working capital for its present requirements.

7. MATERIAL ADVERSE CHANGE

The results of the Group since 31st December, 2000, the date to which its latest published audited accounts were made up, has been adversely affected by a decline in sales of the Group as a result of the unfavourable economic condition in Hong Kong and other Asian regions.

A new management team was appointed to the Board of the Company in August 2001. The Directors believe the new management team, with their extensive experience, expertise and in-depth knowledge of the home entertainment industry, will enhance the Group's competitiveness and the Directors expect the Group's performance to improve under the new leadership.

Save as disclosed herein, there has been no material change in the financial and trading positions of the Company since 31st December, 2000, the date to which the latest audited accounts of the Company were made up.

— 47 —

APPENDIX II

STATUTORY AND GENERAL INFORMATION

8. MATERIAL CONTRACTS

The following contracts (not being contracts entered into in the ordinary course of business) have been entered into by members of the Group within the two years preceding the date of this circular and are or may be material:

(a) a subscription agreement dated 28th September, 2001 entered into between the Company and Classical Statue Limited in relation to the subscription for 33,000,000 new Shares of the Company;

(b) the agreement dated 22nd November, 2001 entered into between Top Vision Management Limited, Chan Kam Sum, Ocean Shores (BVI) Limited and the Company in respect of the acquisition of OSP (formerly known as Plexwood Limited) by Ocean Shores (BVI) Limited; and

Save as aforesaid, no material contracts (not being contracts entered into in the ordinary course of business) have been entered into by members of the Group within the two years preceding the date of this circular.

9. SERVICE CONTRACTS

As at the Latest Practicable Date, there are no existing or proposed service contracts between any of the Directors and the Company or any of its subsidiaries respectively, other than contracts expiring or determinable by the employer within one year without payment of compensation (other than statutory compensation).

10. LITIGATION

Neither the Company nor other members of the Group is engaged in any litigation or arbitration of material importance and no litigation or claim of material importance is known to the Directors to be pending or threatened against any member of the Group.

11. EXPERTS AND CONSENTS

The qualifications of the experts who have given opinion and advice in this circular are as follows:

Name	Qualification
Adonis Appraisal Limited	a professional business valuation firm
UOB Asia (Hong Kong) Limited	a registered an investment adviser registered under the Securities Ordinance (Chapter 333 of the Laws of Hong Kong)

— 48 —

APPENDIX II

STATUTORY AND GENERAL INFORMATION

Each of UOB Asia and Adonis Appraisal Limited has given and has not withdrawn their written consents to the issue of this circular with the inclusion herein of their letter or report (as the case may be) and references to their names, in the form and context in which they appear.

As at the Latest Practicable Date, each of UOB Asia and Adonis Appraisal Limited has no shareholding in any members of the Group nor any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

As at the Latest Practicable Date, each of UOB Asia and Adonis Appraisal Limited has no direct or indirect interest in any assets which have been since 31st December, 2000, the date to which the latest published audited accounts of the Group were made up, acquired or disposed of by, or leased to, or which are proposed to be acquired or disposed of by, or leased to, the Company or any of its subsidiaries.

12. GENERAL

(a) The secretary of the Company is Ms. Choy Hok Man, Constance, who is a solicitor qualified in Hong Kong and England. Ms. Choy is a partner of Sidley Austin Brown & Wood, an international law firm. She holds a bachelor degree in laws from The University of Hong Kong, a master degree in laws from Osgoode Hall Law School, York University, Canada and a master degree in business administration from York University, Canada.

(b) The registered office of the Company is at Clarendon House, 2 Church Street, Hamilton HM11, Bermuda. The principal place of business of the Company is at Units 609-610, Miramar Tower, 132 Nathan Road, Tsimshatsui, Kowloon, Hong Kong.

(c) The Hong Kong branch share registrar and transfer office of the Company is Standard Registrars Limited at 5th Floor, Wing On Centre, 111 Connaught Road Central, Hong Kong.

(d) All time references contained in this document refer to Hong Kong time.

(e) The English text of this circular shall prevail over the Chinese text in case of any inconsistency.

— 49 —

APPENDIX II

STATUTORY AND GENERAL INFORMATION

13. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the offices of the Company at Units 609-610, Miramar Tower, 132 Nathan Road, Tsimshatsui, Kowloon, Hong Kong during normal business hours up to and including 8th April, 2002:

(a) the memorandum of association and the bye-laws of the Company;

(b) the annual reports of the Company for the two financial years ended 31st December, 2000 and the interim report of the Company for the six months ended 30th June, 2001;

(c) the circular of the Company dated 16th August, 2001 in relation to the conditional cash offer by Classical Statue Limited, a wholly-owned subsidiary of China Star, to acquire all the issued Shares (other than those Shares already owned by Classical Statue Limited or parties acting in concert with it);

(d) the circular of the Company dated 7th December, 2001 in relation to, inter alia, the acquisition of OSP (formerly known as Plexwood Limited);

(e) the letter of advice from UOB Asia dated 13th March, 2002, the text of which is set out on pages 26 to 36 of this circular;

(f) the Valuation Report as set out on pages 37 to 42 of this circular;

(g) the material contracts referred to in the paragraph headed “Material Contracts” in this Appendix;

(h) the written consents referred to in the paragraph headed “Experts and Consents” in this Appendix;

(i) the Licensing Agreement; and

(j) the Territory Supply Agreement.

NOTICE OF SPECIAL GENERAL MEETING

OCEAN SHORES GROUP LIMITED

海岸集團有限公司*

(Incorporated in Bermuda with limited liability)

NOTICE IS HEREBY GIVEN that a special general meeting of Ocean Shores Group Limited (the "Company") will be held at Units 609-610 Miramar Tower, 132 Nathan Road, Tsimshatsui, Kowloon, Hong Kong on 8th April, 2002 at 11:00 a.m. for the purpose of considering and, if thought fit, passing, with or without modifications, the following resolutions as ordinary resolutions of the Company:

ORDINARY RESOLUTIONS

"THAT the conditional supply agreement dated 5th February, 2002 and made between Ocean Shores Pictures Limited ("OSP") and Gainful Fortune Limited relating to, inter alia, the grant of the hotel and intranet distribution rights in respect of films, television series and/or video features (the "Gainful Fortune Supply Agreement"), a copy of which has been produced to the meeting marked "A" and signed by the chairman of the meeting by way of identification, be and is hereby approved and that the directors of the Company be and are hereby authorized to implement and to take any and all such steps and do and/or procure to be done any and all such acts and things as they may in their absolute discretion consider to be necessary, desirable or expedient to complete, implement and give effect to the transactions contemplated in the Gainful Fortune Supply Agreement (including but not limited to the taking up of the convertible notes of Gainful Fortune Limited in the aggregate amount of HK$80,000,000 by OSP (or such other person(s) as it may direct) in satisfaction of the consideration payable to OSP pursuant to the Gainful Fortune Supply Agreement and the entering into of individual license agreements pursuant to the Gainful Fortune Supply Agreement)."
"THAT the conditional sale and purchase agreement dated 5th February, 2002 and made between Ocean Shores (BVI) Limited ("OSBVI") and Gainful Fortune Limited relating to, inter alia, the sale and purchase of the entire issued share capital of Ocean Shores Licensing Limited (the "Sale and Purchase Agreement"), a copy of which has been produced to the meeting marked "B" and signed by the chairman of the meeting by way of identification, be and is hereby approved and that the directors of the Company be and are hereby authorized to implement and to take any and all such steps and do
for identification only

NOTICE OF SPECIAL GENERAL MEETING

and/or procure to be done any and all such acts and things as they may in their absolute discretion consider to be necessary, desirable or expedient to complete, implement and give effect to the transactions contemplated in the Sale and Purchase Agreement (including but not limited to (a) the taking up of the convertible notes of the Gainful Fortune Limited in the aggregate amount of HK$80,000,000 by Ocean Shores Pictures Limited (or such other person(s) as OSBVI may direct) in satisfaction of the consideration payable to OSBVI pursuant to the Sale and Purchase Agreement; and (b) the subscription of a 40% shareholding interest in Gainful Fortune Limited by Ocean Shores Pictures Limited (or such other person(s) as OSBVI may direct) pursuant to the Sale and Purchase Agreement)."

"THAT the conditional license agreement dated 5th February, 2002 and made between China Star International Distribution Limited ("CSID"), Ocean Shores Pictures Limited and the Company relating to, inter alia, the acquisition of distribution rights in respect of 116 films, television series and/or video features (the "Licensing Agreement"), a copy of which has been produced to the meeting marked "C" and signed by the chairman of the meeting by way of identification, be and is hereby approved and that the directors of the Company be and are hereby authorized to implement and to take any and all such steps and do and/or procure to be done any and all such acts and things as they may in their absolute discretion consider to be necessary, desirable or expedient to complete, implement and give effect to the transactions contemplated in the Licensing Agreement (including but not limited to the issue of the convertible notes in the principal amount of HK$33,800,000 by the Company to CSID (or such person(s) as it may direct) in satisfaction of the consideration ("Ocean Shores Notes") payable to CSID pursuant to the License Agreement and the issue and allotment of the shares of the Company upon conversion of the Ocean Shores Notes)."
"THAT the conditional supply agreement dated 5th February, 2002 and made between China Star International Distribution Limited and Ocean Shores Pictures Limited relating to, inter alia, the acquisition of a first right of refusal in relation to the distribution rights in respect of films, television series and/or video features (the "Territory Supply Agreement"), a copy of which has been produced to the meeting marked "D" and signed by the chairman of the meeting by way of identification and the application made by or on behalf of the Company to The Stock Exchange of Hong Kong Limited (the "Stock Exchange") for a waiver from the Stock Exchange from strict compliance with the relevant disclosure and approval requirements for connected transactions under the Rules Governing the Listing of Securities on the Stock Exchange in respect of the transactions contemplated in the individual license agreements pursuant to the Territory Supply Agreement ("Territory Distribution Agreements"), be and are hereby approved, confirmed and ratified and that the directors of the Company be and are hereby authorized

— 52 —

NOTICE OF SPECIAL GENERAL MEETING

to implement and to take any and all such steps and do and/or procure to be done any and all such acts and things as they may in their absolute discretion consider to be necessary, desirable or expedient to complete, implement and give effect to the transactions contemplated in the Territory Supply Agreement (including the entering into of Territory Distribution Agreements pursuant to the Territory Supply Agreement).

On behalf of the Board
Heung Wah Keung
Chairman

Hong Kong, 13th March, 2002

Notes:

A form of proxy for use at the meeting is being despatched to the shareholders of the Company together with a copy of this notice.
The instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney duly authorized in writing or, if the appointor is a corporation, either under its seal or under the hand of any officer, attorney or other person authorized to sign the same.
Any shareholder of the Company entitled to attend and vote at the meeting convened by the above notice shall be entitled to appoint one or more proxies to attend and vote instead of him. A proxy need not be a shareholder of the Company.
In order to be valid, the form of proxy, together with the power of attorney or other authority (if any) under which it is signed, or a notarially certified copy of such power of attorney or authority, must be deposited at the Company's branch share registrar in Hong Kong, Standard Registrars Limited, at 5th Floor, Wing On Centre, 111 Connaught Road Central, Hong Kong not less than 48 hours before the time appointed for holding the meeting or any adjournment thereof.
Completion and deposit of the form of proxy will not preclude a shareholder of the Company from attending and voting in person at the meeting convened or any adjourned meeting and in such event, the form of proxy will be deemed to be revoked.
Where there are joint holders of any share of the Company, any one of such joint holders may vote, either in person or by proxy, in respect of such share as if he/she were solely entitled thereto, but if more than one of such joint holders are present at the meeting, the most senior shall alone be entitled to vote, whether in person or by proxy. For this purpose, seniority shall be determined by the order in which the names stand on the register of members of the Company in respect of the joint holding.
Any shareholder of the Company who is interested in the Licensing Agreement (as defined in resolution number 3) and/or the Territory Supply Agreement (as defined in resolution number 4) (being China Star Entertainment Limited and its associates (as such term is defined in the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited)) shall abstain (and shall instruct its proxy to abstain) from voting in relation to resolutions number 3 and 4 as set out in this notice at the meeting convened by the above notice.

— 53 —

AI assistant

Samsonite Group S.A. — Proxy Solicitation & Information Statement 2002

50259_rns_2002-03-13_b85eec2b-2b9a-40de-8511-1b107ba4d7ea.pdf

OCEAN SHORES GROUP LIMITED

MAJOR TRANSACTION

DISCLOSABLE AND CONNECTED TRANSACTION

CONNECTED TRANSACTION

Independent financial adviser to the Independent Board Committee of Ocean Shores Group Limited

UOB ASIA (HONG KONG) LIMITED

OCEAN SHORES GROUP LIMITED

海岸集團有限公司*

INTRODUCTION

GAINFUL FORTUNE SUPPLY AGREEMENT AND SALE AND PURCHASE AGREEMENT

Summary of the terms of the Gainful Fortune Supply Agreement

Consideration for the Gainful Fortune Supply Agreement

Conditions of the Gainful Fortune Supply Agreement

Reasons for the grant

Summary of the terms of the Sale and Purchase Agreement

Consideration for the Sale and Purchase Agreement

Conditions of the Sale and Purchase Agreement

Reasons for the sale

Financial effect

(c) Terms of the Gainful Fortune Notes

1. Principal amount

2. Interest

3. Maturity

4. Early redemption

5. Conversion

6. Voting

7. Restrictions on change in share capital

(d) Gainful Fortune Shareholders’ Agreement

THE LICENSING AGREEMENT

Summary of the terms of the Licensing Agreement

The Movies

Consideration

Terms of the Ocean Shores Notes

1. Principal amount

2. Interest

3. Maturity

4. Early redemption

5. Conversion

6. Conversion Price

Reasons and benefits for entering into the Licensing Agreement

THE TERRITORY SUPPLY AGREEMENT

Summary of the terms of the Territory Supply Agreement and the Territory Distribution Agreements to be entered pursuant to the Territory Supply Agreement

Conditions of the Territory Supply Agreement

Connected transaction under the Listing Rules

Waiver from the Stock Exchange

Reasons for entering into the Territory Supply Agreement

SPECIAL GENERAL MEETING

RECOMMENDATIONS

ADDITIONAL INFORMATION

OCEAN SHORES GROUP LIMITED

海岸集團有限公司*

DISCLOSABLE AND

CONNECTED TRANSACTION

Licensing of distribution rights for 116 Movies from CSID

CONNECTED TRANSACTION

Grant of first right of refusal by CSID to acquire

Territory Distribution Rights

PRINCIPAL FACTORS AND REASONS CONSIDERED

I. Background

Current business environment

II. Terms of the Licensing Agreement

1. Consideration

III. Terms of the Territory Supply Agreement

IV. Financial effects to the Group

1. Earnings

2. Net asset value

3. Liquidity

ON-GOING CONNECTED TRANSACTIONS

Basis of the Waiver Application

RECOMMENDATION

INTRODUCTION

BASIS OF VALUATION AND ASSUMPTIONS

VALUATION METHODOLOGY

CONCLUSION OF VALUE

LIST OF FILM LIBRARY

1. RESPONSIBILITY STATEMENT

2. SHARE CAPITAL

Samsonite Group S.A. Proxy Solicitation & Information Statement 2002