Shui On Land Limited — Proxy Solicitation & Information Statement 2002

Nov 18, 2002

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

This circular is for information purposes only and does not constitute an invitation or offer to acquire or subscribe for securities.

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

If you have sold or transferred all your shares in NATURAL BEAUTY BIO-TECHNOLOGY LIMITED , you should at once hand this circular to the purchaser or the transferee or to the bank, stockbroker or other agent through whom the sale was effected for transmission to the purchaser or the transferee.

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

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NATURAL BEAUTY BIO-TECHNOLOGY LIMITED

(Incorporated in the Cayman Islands with limited liability)

CONNECTED TRANSACTION

ACQUISITION OF INTERESTS IN 3 PRC SUBSIDIARIES

Financial Adviser to Natural Beauty Bio-Technology Limited

Karl Thomson Financial Advisory Limited

Independent Financial Adviser to the Independent Board Committee

Henco & Associates

Henco Capital Limited

A letter from the independent board committee of Natural Beauty Bio-Technology Limited is set out in this circular.

A letter from Henco Capital Limited containing its recommendations to the independent board committee of Natural Beauty Bio-Technology Limited is set out on pages 17 to 24 of this circular.

18 November, 2002

CONTENT

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	2
Letter from the Board
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
The S&P Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
The Share Mortgage Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
Reasons for the Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
Written Certificate from Efficient Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15
Further Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
Letter of advice from Henco . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
Appendix – General information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	25

• 1 -

DEFINITIONS

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

• Acquisition(s) the acquisition(s) of the Sale Shares from the Vendors by the Purchaser pursuant to the S&P Agreement(s)

• Anshan NB Anshan Natural Beauty Cosmetics Company Limited, a PRC company, of which 45.9% equity interest is attributed to the Group before Completion

• Board board of Directors Chang Chun NB Chang Chun Natural Beauty Cosmetics Company Limited, a PRC company, of which 45.9% equity interest is attributed to the Group before Completion

• Chong Ming Sanlian Chong Ming Sanlian Investment Development Company, a collective owned enterprise established in the PRC by the People’s Government of Chong Ming County Cheng Qiao Township

the acquisition(s) of the Sale Shares from the Vendors by the Purchaser pursuant to the S&P Agreement(s)

• Company Natural Beauty Bio-Technology Limited, a company incorporated in the Cayman Islands with limited liability and the shares of which are listed on the main board of the Stock Exchange of Hong Kong

• Completion the completion of the S&P Agreement, within 10 days after the Conditions Precedent have been satisfied in full

• Conditions Precedent the conditions precedent to Completion

• Connected Transaction the Acquisition of interests in the present 3 PRC Subsidiaries by NB Sanlian

• Directors the directors of the Company

• Efficient Market Efficient Market Investments Limited, an investment holding company incorporated in the British Virgin Islands which owns 75% of the Company’s issued share capital, where Efficient Market is ultimately and beneficially owned by Dr. Tsai Yen Yu as to 70%, Mr. Su Chien Cheng as to 15% and Ms. Su Sh Hsyu as to 15%

• First Batch Acquisitions acquisitions of interests in 18 non-wholly owned PRC subsidiaries of the Group pursuant to the First Batch S&P Agreements

• 2 -

DEFINITIONS

First Batch S&P Agreements	the 18 sale and purchase agreements dated 10 September 2002
	entered into between the Purchaser and 18 separate vendors in
	relation to the First Batch Acquisitions
First Circular	the circular dated 23 October 2002 by the Company to the
	Shareholders in relation to the First Batch Acquisitions and the
	Second Batch Acquisitions
Group	the Company and its subsidiaries
Hai Nan NB	Hai Nan Natural Beauty Cosmetics Company Limited, a PRC
	company, of which 72% equity interest is attributed to the Group
	before Completion
Henco	Henco Capital Limited, an investment adviser and a dealer
	registered under the Securities Ordinance, Chapter 333 of the Laws
	of Hong Kong
Independent Board Committee	an independent committee of the Board comprising of the two
	independent non-executive Directors, Mr. Yeh Liang Fei and Mrs.
	Chen Shien Shu Chen
Independent Shareholders	Shareholders other than those who are interested in the Acquisitions
	and their associates, if any
IPO	initial public offering of the Company’s ordinary shares as
	described by the Company’s Prospectus
Karl Thomson	Karl Thomson Financial Advisory Limited, an investment adviser
	registered under the Securities Ordinance, Chapter 333 of the Laws
	of Hong Kong
Latest Practicable Date	12 November 2002, being the latest practicable date for
	ascertaining certain information contained in this circular
Listing Rules	the Rules Governing the Listing of Securities of the Stock
	Exchange of Hong Kong Limited
NB Sanlian	Shanghai Natural Beauty Sanlian Cosmetics Company Limited, a
	sino-foreign co-operative joint venture enterprise established in
	the PRC and owned by the Group as to 90% and by Chong Ming
	Sanlian as to 10%
Non-PRC auditor	PriceWaterhouseCoopers

• 3 -

DEFINITIONS

PRC	the People’s Republic of China
PRC Subsidiaries	collectively, Anshan NB, Chang Chun NB, Hai Nan NB and each
	of them is a PRC Subsidiary
Prospectus	the document describing the Company’s initial public offer in the
	Hong Kong Stock Exchange dated 19 March 2002
Purchase Price	the total consideration payable for acquisition of the Sale Shares
Purchaser	together, NB Sanlian and Chong Ming Sanlian
RMB	Renminbi, the lawful currency of the PRC
S&P Agreement(s)	the 3 sale and purchase agreements dated 28 October 2002 entered
	into between the Purchaser and each of the 3 Vendors in relation
	to the Acquisitions
Sale Shares	the issued shares of the PRC Subsidiaries for sale by each of the
	Vendors under the respective S&P Agreement(s)
SDI Ordinance	Securities (Disclosure of Interests) Ordinance (Chapter 396 of the
	Laws of Hong Kong
Second Batch Acquisitions	acquisitions of interests in 4 non-wholly owned PRC subsidiaries
	of the Group pursuant to the Second Batch S&P Agreements
Second Batch S&P Agreements	the 4 sale and purchase agreements dated 8 October 2002 entered
	into between the Purchaser and 4 separate vendors in relation to
	the Second Batch Acquisitions
Share(s)	Ordinary share(s) of HK$0.10 each in the issued share capital of
	the Company
Shareholders	holders of Shares
Share Mortgage Agreement(s)	the 3 batches of supplemental agreement(s) dated 10 September
	2002, 8 October 2002 and 28 October 2002 respectively entered
	into between the Purchaser and 25 separate vendors in relation to
	the First Batch Acquisitions, the Second Batch Acquisitions and
	the Acquisitions respectively
Shareholders	shareholders of the Company

• 4 -

DEFINITIONS

Signing Date	the date of signing of the S&P Agreements by the Purchaser and
	each of the Vendors
Stock Exchange	The Stock Exchange of Hong Kong Limited
Third Batch Acquisitions	acquisitions of interests in 3 non-wholly owned PRC subsidiaries
	of the Group pursuant to the Third Batch S&P Agreements
Third Batch S&P Agreements	The 3 sale and purchase agreements dated 28 October 2002 entered
	into between the Purchaser and the 3 Vendors in relation to the
	Third Batch Acquisitions
Vendor(s)	the 3 existing minority PRC shareholders of the PRC Subsidiaries
	before Completion
Written Certificate	the written certificate provided by Efficient Market to approve the
	Connected Transaction

In this circular, all amounts in Renminbi were translated into Hong Kong dollars at an exchange rate of HK$1.0000: RMB1.0606 for indication only.

• 5 -

LETTER FROM THE BOARD

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NATURAL BEAUTY BIO-TECHNOLOGY LIMITED

(Incorporated in the Cayman Islands with limited liability)

Executive Directors:

Dr. Tsai Yen Yu (alias Dr. Tsai Yen Pin) (Chairman) Mr. Lee Ming Ta (alias Mr. Lee Ming Tah) Mr. Su Chien Cheng

Non-executive Director Ms. Su Sh Hsyu

Registered office: P.O. Box 309 Ugland House South Church Street George Town Grand Cayman Cayman Islands

Independent non-executive Directors:

Mr. Yeh Liang Fei Mrs. Chen Shien Shu Chen

Head office and principle place of business: 4th Floor, Manson House 74-78 Nathan Road Kowloon Hong Kong

18 November, 2002

To the Shareholders

Dear Sir or Madam,

CONNECTED TRANSACTION

ACQUISITION OF INTERESTS IN 3 PRC SUBSIDIARIES

1. INTRODUCTION

Further to the announcement of the Company dated 18 September 2002 and 8 October 2002, and the First Circular dispatched to the Shareholders on 23 October 2002, the Board announced that, on 28 October 2002, NB Sanlian has entered into the remaining 3 S&P Agreements with Chong Ming Sanlian and the 3 Vendors independently to acquire the Sale Shares from each of the Vendors representing interests in the PRC Subsidiaries ranging from 10% to 39% for a consideration ranging from RMB328,478 to RMB1,635,756 (equivalent to approximately HK$309,710 to HK$1,542,293), and to assume all management and operation rights of the acquired PRC Subsidiaries, subject to the Conditions Precedent. The aggregated consideration for all of the interests in the 3 PRC Subsidiaries under the S&P Agreements amount to RMB2,856,584 (equivalent to approximately HK$2,693,366).

• 6 -

LETTER FROM THE BOARD

The total aggregated consideration for all the 3 Acquisitions, together with the First Batch Acquisitions and the Second Batch Acquisitions, amount to RMB50,716,469 (equivalent to approximately HK$47,818,655).

Pursuant to the S&P Agreements of the Acquisitions, the Purchaser and each of the 3 Vendors agreed to:

• a. acquire and sell the Sales Shares;

• b. transfer the operation of the business of the PRC Subsidiaries from the Vendor to the Purchaser; and

• c. enter into the Share Mortgage Agreement.

The Vendors of Anshan NB and Chang Chun NB are connected persons of the Company by virtue of being substantial shareholders and directors of the respective PRC Subsidiaries. The Vendor of Hai Nan NB is a connected person of the Company by virtue of being a substantial shareholder of Hai Nan NB.

Under the Listing Rules and similar to the First Batch Acquisitions and the Second Batch Acquisitions, these Acquisitions would be aggregated, together with the First and Second Batch Acquisitions, and constitute connected transactions for the Company and therefore, the S&P Agreements and the transactions contemplated thereunder are also conditional, among other things, upon the approval of the Shareholders in a general meeting.

As the interest of Efficient Market, the majority shareholder of the Company holding 75% of the issued share capital of the Company, is in all respects identical with those of the other Shareholders as a general body and Efficient Market has no shareholding in the 3 PRC Subsidiaries, Efficient Market shall be entitled to vote at the relevant shareholders’ meeting. Therefore, the Company has obtained and the Stock Exchange has accepted the Written Certificate from Efficient Market in lieu of a physical shareholders’ meeting to approve the Connected Transaction, on the condition that an independent financial adviser is of the opinion that the terms of the Connected Transaction were fair and reasonable as far as the Shareholders were concerned.

An Independent Board Committee has been formed to advise the Shareholders in respect of the terms of the S&P Agreements (and the transactions contemplated thereunder including the Share Mortgage Agreements). Karl Thomson has been appointed as the financial advisor to the Company in connection with the Connected Transaction. Henco has been appointed as the independent financial advisor to advise the Independent Board Committee in respect thereof.

The purpose of this circular is (a) to provide you with details of the S&P Agreements (and the transactions contemplated thereunder including the Share Mortgage Agreements); (b) to set out the advice and recommendation of the Independent Board Committee in respect of the terms of the S&P Agreements (and the transactions contemplated thereunder including the Share Mortgage Agreements); (c) to set out the advice and recommendation of Henco in respect of the S&P Agreements (and the

• 7 -

LETTER FROM THE BOARD

transactions contemplated thereunder including the Share Mortgage Agreements); and (d) to set out the basis of approval of the Connected Transaction from Efficient Market and the waiver from the requirement to obtain Shareholders’ consent by means of a physical shareholders’ meeting granted by the Stock Exchange to the Company.

2. THE S&P AGREEMENTS

Date

28 October 2002

Parties to the Third Batch S&P Agreements

• (1) The Purchaser: NB Sanlian and Chong Ming Sanlian

• (2) The Vendors:

PRC Subsidiaries to be acquired

by the Purchaser

Vendors

Anshan NB WANG Long Hai Nan NB Hainan Ludao Property Development Co. Ltd. Chang Chun NB BAI Li

All 3 S&P Agreements are identical in commercial terms and conditions, except for the number of Sale Shares to be acquired, the amount of consideration, and the identities of the Vendors.

Pursuant to the S&P Agreements, the Purchaser has agreed to acquire the Sale Shares of the respective PRC Subsidiaries from the Vendors at the Purchase Price as detailed in the table below:

PRC	Shareholding		Net Asset
Subsidiaries	(%) of NB	% to be	% to be	Purchase	Value being
to be acquired	Sanlian prior	acquired	acquired	Price (RMB)	acquired
by the	to the	by NB	by Chong	payable by	(RMB) by
Purchaser	Acquisitions	Sanlian	Ming Sanlian	NB Sanlian	NB Sanlian	Vendors
Anshan NB	51	39	10	1,635,756	817,878	WANG Long
Hai Nan NB	80	10	10	328,478	164,239	Hainan Ludao
						Property
						Development
						Co. Ltd.
Chang Chun NB	51	39	10	892,350	446,175	BAI Li
Total				2,856,584	1,428,292

• 8 -

LETTER FROM THE BOARD

Upon Completion:

Upon completion, NB Sanlian will own 90% of each of the 3 PRC Subsidiaries and Chong Ming Sanlian will own the remaining 10% of each of the 3 PRC Subsidiaries.

Chong Ming Sanlian has no interest in the PRC Subsidiaries prior to the Acquisitions.

Since NB Sanlian had not been involved with the PRC Subsidiaries or the PRC Subsidiaries had not been incorporated until 2001, financial information for the year ended 31 December 2000 is unavailable. Based on the 2001 PRC audited accounts, the following table shows the net profits or losses of the respective PRC Subsidiaries before and after taxation for the year ended 31 December 2001.

PRC Subsidiaries to be	Net profit/(loss) before tax	Net profit/(loss) after tax
acquired by the Purchaser	and extraordinary items	and extraordinary items
	(RMB)	(RMB)
Anshan NB	237,555	159,162
Hai Nan NB	(268,208)	(268,208)
Chang Chun NB	(168,634)	(168,634)

Consideration

The aggregated consideration for the 3 Acquisitions amount to RMB2,856,584 (equivalent to approximately HK$2,693,366). For both NB Sanlian and Chong Ming Sanlian, each of the consideration for the 3 Acquisitions was negotiated with the 3 Vendors independently on an arm’s length basis and on normal commercial terms and is determined based on 200% of the net asset value of the acquired proportion of the interests of the PRC Subsidiary as at 1 July 2002 as certified by a PRC auditor (“Original Net Asset Values”).

The consideration of 200% of the respective PRC Subsidiary’s net asset value (equivalent to a 100% premium on the respective PRC Subsidiary’s net asset value) is based on the Company’s view of the following intangible commercial factors:

1. the rate of expansion of the cosmetic market in the first half of 2002, based on the Director’s knowledge and experience of the PRC cosmetics market and sales growth of the PRC Subsidiaries in the first six months of 2002, has grown beyond the Company’s anticipation. According to the Company’s latest interim report on the analysis of turnover by geographical segment, the Company has reported unaudited sales in the PRC of HK$88,709,000 for the first six months of 2002, comparing to HK$45,851,000 for the first six months in year 2001. This represents an increase of 93% compared with last corresponding period;

2. in view of the established network, reputation and clientele of the PRC Subsidiaries and the experience associated with the PRC Subsidiaries, the Company considers that these intangible assets should be reflected by a reasonable premium;

3. 9 -

LETTER FROM THE BOARD

1. overall cost reduction for the Company as a whole after gaining full control of the PRC Subsidiaries; and

2. improved management and financial controls over the PRC Subsidiaries.

All of the above factors are intangible but important commercial factors which would be beneficial to the Company. Based on the growth of the business by the increase in turnover by nearly 100% for the first six months of 2002 and the other above mentioned factors, the Directors are of the views that a reasonable premium of 100% to the relevant PRC Subsidiary’s net asset value is justified.

Within 14 days after the Signing Date, the Purchaser may instruct the Non-PRC auditor to independently audit the accounts of each of the PRC Subsidiaries, as well as the other 22 PRC subsidiaries acquired under the First Batch Acquisitions and the Second Batch Acquisitions, at the Purchaser’s sole expenses. In case there is any inconsistency between the Original Net Asset Values and the net asset values of the PRC Subsidiaries as certified by the Non-PRC auditor which remains unresolved after 14 days of negotiation, the final net asset values (“Final NAVs”) shall be determined by reference to the average between the Original Net Asset Values and the net asset values as certified by the Non-PRC auditor. Any difference between the Final NAVs and the original net asset values shall be settled between the Purchaser and the respective Vendors from the initial deposit payment within 3 days after the determination of the Final NAVs and the Company will make a further announcement in this respect accordingly.

Principal Terms

Pursuant to the terms and conditions of the S&P Agreement:

• a. the Purchaser agreed:

• i. to acquire the Sale Shares;

• ii. to enter into the Share Mortgage Agreement; and

• iii. to pay an initial deposit payment in cash of 50% of the Purchase Price within 5 working days of the Signing Date and the balance of the Purchase Price will be due on Completion or on the date the Share Mortgage Agreement comes into effect;

• b. each of the 3 Vendors agreed:

• i. to sell the Sale Shares; and

• ii. to enter into the Share Mortgage Agreement.

• 10 -

LETTER FROM THE BOARD

Within 15 days after the Signing Date, each of the Vendors shall procure the transfer of the assets as well as the operation and management rights of their respective PRC Subsidiary to NB Sanlian and procure the resignation of the existing General Manager of the PRC Subsidiaries. In the event that the assets transferred to the Purchaser are less than that certified by the PRC auditor in the audit reports, the Vendor must pay to the Purchaser the difference in value in cash within 3 days after notification by the Purchaser.

NB Sanlian and Chong Ming Sanlian have agreed that NB Sanlian shall be solely responsible for the management and operation of each PRC Subsidiary and Chong Ming Sanlian shall not participate in the management of the PRC Subsidiaries. The profits of each PRC Subsidiary shall be divided between NB Sanlian and Chong Ming Sanlian in proportion to their relative shareholdings in the PRC Subsidiary.

Completion

It is expected that all 3 of the S&P Agreements will be completed 10 days after the Conditions Precedent have been satisfied in full, and in any case not later than 31 December 2002.

Conditions Precedent

The Conditions Precedent to the completion of the S&P Agreements include:

• a. the majority Shareholder having approved the Acquisitions by means of a written certificate;

• b. if required, all necessary approval, consent and waiver, in accordance with the Listing Rules, by the Stock Exchange of Hong Kong having been obtained in respect of the Acquisitions and the transactions contemplated thereunder;

• c. a PRC lawyer having confirmed in its written legal opinion to the satisfaction of the Purchaser to the effect that the S&P Agreements are valid and legal in accordance with the PRC laws; and

• d. if required, all other necessary approvals and consents as may be required by any laws of the relevant jurisdictions or from any relevant regulatory bodies having been obtained.

NB Sanlian is obligated to pay the Vendors, within 5 working days after the Signing Date of the S&P Agreements, an initial deposit payment equivalent to 50% of the Purchase Price (i.e. RMB1,428,292 or HK$1,346,683 in total). The balance of the Purchase Price will then be due on Completion. In case of any of the Conditions Precedent is not satisfied by the due date, the Share Mortgage Agreements with the respective PRC Subsidiaries entered into on the date of signing the S&P Agreements will become effective and the balance of the Purchase Price will be payable to the respective Vendor. As the result of commercial negotiation between the Purchaser and the Vendors, the S&P Agreements are entered into on the condition that the Purchaser will pay the full

• 11 -

LETTER FROM THE BOARD

Purchase Price to each respective PRC Subsidiary no matter if the Conditions Precedent are satisfied in full or not. The return of payment of the Purchase Price will then be secured by the Share Mortgage Agreement in case the payment is not returned. In addition, under the Share Mortgage Agreements, NB Sanlian has the right to sell the Sale Shares to third parties.

Non-competition

Pursuant to the non-competition covenants contained in the S&P Agreements, each of the Vendors shall not, within a period of 3 years after the Signing Date:

• a. directly or indirectly manufacture or sell the same types of products or offer the same type of services as produced, sold or offered by the Purchaser, within the PRC. In addition, the Vendors shall not, either on its own account or in conjunction with or on behalf of any person, firm or company, carry on or be engaged or interested in PRC in the same business as that of the Purchaser;

• b. directly or indirectly solicit, employ or assist any employees of the Group or directly or indirectly solicit or entice away any of the customers of the Group; and

• c. directly or indirectly engage or be engaged or otherwise interested in any other cosmetics or beauty services related business or participate in any associated distribution networks. In addition, the Vendors shall not refer any of the Group’s customers, students, members, franchisees or distributors to any other of the Group’s competitors.

Furthermore, each of the Vendors shall not at any time, make use of the name “NB”, “Natural Beauty” or any other registered trademarks of the Group unless having obtained the consent of the Purchaser.

3. THE SHARE MORTGAGE AGREEMENTS

Each of the 3 Share Mortgage Agreements being executed contemporaneously with the signing of the S&P Agreements will be effective if and only if any of the Conditions Precedent in the respective S&P Agreement has not been satisfied, and the Purchase Price has not been returned due to non-completion. Pursuant to the Share Mortgage Agreements, each of the Vendors has agreed to pledge with the Purchaser its respective Sale Shares and all the rights attributed to those Sale Shares as security for the return of the Purchase Price without interest. In the event that any of the Vendors (the “Default Vendor”) shall fail to return the full Purchase Price to the Purchaser on non-satisfaction of the Conditions Precedents by 7 January 2003, the Purchaser shall have the right to sell the Sale Shares to a third party and the Default Vendor shall cooperate fully with the completion of the sale of the Sale Shares to the third party. The liability of the Default Vendor for the return of the Purchase Price is limited to the proceeds realized from the sale of the Sales Shares. In the event that the proceeds are less than the Purchase Price, the Purchaser shall have no further recourse against the Default Vendor. In the event that the proceeds from the sale of the Sale Shares exceed the Purchase Price, the Purchaser shall be entitled to retain the whole of the proceeds.

• 12 -

LETTER FROM THE BOARD

The Directors are of the view that the value of the Sale Shares shall exceed the Purchase Price given the current market of cosmetic products in the PRC and the well established networks of these PRC Subsidiaries.

The Share Mortgage Agreement will be supplementary to the S&P Agreement and be effective only in the event that the respective S&P Agreement fails to complete, that is, when the Conditions Precedent are not satisfied. In the event of a default of the Share Mortgage Agreement and/or a sale of Sale Shares in accordance with the Share Mortgage Agreement, further announcement will be made by the Company accordingly.

4. REASONS FOR THE ACQUISITIONS

The Group is principally engaged in (i) the research and development, manufacture and sale of aromatherapeutic, beauty and skin care products, and (ii) the provision of skin treatments and SPA services through its beauty centers offering tailor-made beauty and skin care solutions, particularly, aromatherapy using essential oil and specialized equipment by the professional beauticians.

Based on the Director’s knowledge and experience of the PRC cosmetics market and its experience with the operation and sales growth of the PRC Subsidiaries in the first six months of 2002, the Directors expect that the market demand for skin care, beauty and aromatherapeutic products and skin treatments and SPA services are expected to grow at an increasing rate when the average family disposable income continues to rise in the PRC. To capitalize on this opportunity and for its long-term business development, the Group is carrying out a restructuring of its distribution channels by acquiring the interests of the minority shareholders of these remaining 3 PRC Subsidiaries, together with the previous 2 batches of other 22 non-wholly owned subsidiaries in the PRC.

Prior to the signing of the S&P Agreements, all products of the Group were distributed via the PRC Subsidiaries to its franchisees in the PRC other than Shanghai region. After Completion, the Directors believe that the Group will regain full control of the PRC Subsidiaries and as a result, operations and especially financial management of the PRC Subsidiaries can be enhanced. Therefore, the expansion of franchised stores and sales revenue can be further improved. The Group will also have the full controlling power to restructure the costing structure of its distribution and therefore, higher profit margin will be attributed to the Group.

The Acquisitions, together with the First and Second Batch Acquisitions, had not been mentioned in the Company’s Prospectus because this opportunity has been materialized only very recently. This opportunity was not foreseeable before the Company’s IPO and the Company intended to cooperate with the minority shareholders of the PRC Subsidiaries by setting up the PRC Subsidiaries and leveraging on the local experience of the minority shareholders in the operation and management of the various PRC Subsidiaries. It was until recently that after NB Sanlian has gained considerable experience in respect of the management of the PRC Subsidiaries and given the Directors’ assessment of the future business potential of the PRC Subsidiaries, both the minority shareholders and the Company had come to realize that it will be beneficial to all parties for the Company to acquire the PRC Subsidiaries through NB Sanlian. While the minority shareholders will receive money up front and recoup their investment, the Company will be able to capture the expected growth of business in the future.

• 13 -

LETTER FROM THE BOARD

Given the decision to enter into the Acquisitions was made by the Company recently, the Company had not budgeted for these expenses in its cashflow forecast as described in the Prospectus.

However, the Company will not apply or rely on any of the IPO proceeds to satisfy the consideration of the Acquisitions since the current level of operating cash is sufficient to cover the Purchase Price payable in respect of the Acquisitions. The Company had approximately HK$141,860,000 of cash and short term investments and a net operating cash inflow of approximately HK$134,808,000 as of 31 December 2001. Therefore, the financial position of the Company is very strong and sufficient to cover the Purchase Price payable in respect of the Acquisitions without relying on the IPO proceeds.

These remaining 3 Acquisitions is the last batch of the 25 non-wholly owned subsidiaries in the PRC of the same nature which the Company has recently acquired. The First Batch Acquisitions of 18 of the 25 non-wholly owned PRC subsidiaries had been announced by the Company on 18 September 2002. The Second Batch Acquisitions of 4 of the 25 non-wholly owned PRC subsidiaries had been announced by the Company on 8 October 2002. These remaining 3 Acquisitions had been announced by the Company on 28 October 2002.

5. WRITTEN CERTIFICATE FROM EFFICIENT MARKET

Under the Listing Rules, this series of 3 Acquisitions, together with the First Batch Acquisitions and the Second Batch Acquisitions, would be aggregated and constitute connected transactions for the Company and therefore, the S&P Agreements and the transactions contemplated under the S&P Agreements are conditional, among other things, upon the approval of the Independent Shareholders in a general meeting.

As the interest of Efficient Market, the majority shareholder of the Company, is in all respects identical with those of the other shareholders as a general body and Efficient Market has no shareholding in the 3 PRC Subsidiaries, Efficient Market shall be entitled to vote at the relevant shareholders’ meeting.

Accordingly, the Stock Exchange has granted to the Company a waiver from the requirement to obtain the necessary Shareholders’ approval for the Connected Transaction by means of a physical shareholders’ meeting. Conditional upon the issuance of an opinion by an independent financial adviser to the effect that the Connected Transaction is fair and reasonable, a written certificate from Efficient Market approving the Connected Transaction will suffice for the purpose.

A Written Certificate from Efficient Market is acceptable in lieu of a physical shareholders’ meeting for the following reasons:

1. Efficient Market is not “interested” in the Connected Transaction as it is not a party to the Acquisitions. Further, the position of Efficient Market is in all respects identical with those of the other Shareholders as a whole in that any consequences affecting Efficient Market as a result of the Connected Transaction would also have similar effect on the other Shareholders. Accordingly, Efficient Market shall be entitled to vote at any relevant shareholders’ meeting to approve the Connected Transaction;

2. 14 -

LETTER FROM THE BOARD

1. The Connected Transaction does not involve any matter particularly requiring detailed consideration and discussion by the Shareholders for which a physical general meeting is required. Furthermore, none of the 3 Acquisitions involves the issue of new securities by the Company or any of its subsidiaries requiring the convening of a shareholders meeting. Accordingly, a written certificate approving the Connected Transaction from Efficient Market should suffice; and

2. Efficient Market has already provided its Written Certificate to the Company of its approval of the Connected Transaction. Since it is the holder of 75% of the nominal value of the shares of the Company having the right to attend and vote at the shareholders’ meeting and that it is entitled to vote as aforesaid, there is certainty of passing of the relevant resolutions to approve the Connected Transaction even if an extraordinary general meeting is held.

6. RECOMMENDATION

An Independent Board Committee comprising Mr. Yeh Liang Fei and Mrs. Chen Shien Shu Chen has been appointed to advise the Independent Shareholders in relation to the terms and conditions of the Connected Transaction. Henco has been appointed to advise the Independent Board Committee in this respect.

The text of a letter to the Shareholders from the Independent Board Committee containing its recommendation in relation to the Connected Transaction is set out on page 16 of this circular. The Independent Board Committee, after taking into account and based on the advice of Henco, in particular, the principal factors and reasons set out in the letter of advice of Henco, is of the opinion that the Connected Transaction is in the interests of the Company and its Shareholders as a whole, and the terms of the Connected Transaction and all agreements entered into by the Group in connection therewith as described in this circular are fair and reasonable so far as the Shareholders as a whole are concerned and are in the interests of the Company and the Shareholders. Accordingly, the Independent Board Committee endorses the Written Certificate from Efficient Market in relation to the approval of the Connected Transaction as described in this circular.

The Directors are also of the opinion that the Connected Transaction is in the best interests of the Company and the Shareholders as a whole. Accordingly, the Directors endorse the Written Certificate from Efficient Market in relation to the approval of the Connected Transaction in terms as set out in this circular.

7. FURTHER INFORMATION

Your attention is also drawn to the letter from the Independent Board Committee, the letter of advice from Henco and the additional information set out in the appendix to this circular.

Yours faithfully,

By Order of the Board

Natural Beauty Bio-Technology Limited Dr. Tsai Yen Yu (alias Dr. Tsai Yen Pin)

Chairman

• 15 -

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

==> picture [118 x 35] intentionally omitted <==

NATURAL BEAUTY BIO-TECHNOLOGY LIMITED

(Incorporated in the Cayman Islands with limited liability)

18 November, 2002

To the Shareholders

Dear Sir or Madam,

CONNECTED TRANSACTION

ACQUISITION OF INTERESTS IN 3 PRC SUBSIDIARIES

We refer to the circular (the “Circular”) dated 18 November, 2002 issued by the Company, of which this letter forms part. The terms used herein shall have the same meanings as those defined in the Circular unless the context otherwise requires.

As independent non-executive Directors who have no involvement in the relevant matter, we have been appointed by the Board to be members of the Independent Board Committee to advise you as to whether, in our opinion, the terms of Connected Transaction is fair and reasonable so far as the Independent Shareholders as a whole are concerned. Henco has been appointed as the independent financial adviser to advise the Independent Board Committee in this respect.

We wish to draw your attention to the letter from the Board, as set out in pages 6 to 15 of the Circular, and the letter of advice from Henco, as set out on pages 17 to 24 of the Circular, containing their respective opinions in respect of the Connected Transaction. Having considered the terms of the S&P Agreements (the transactions contemplated thereunder including the Share Mortgage Agreements) and the opinion given by Henco and in particular the principal factors and reasons taken into consideration by it in arriving at its opinion, we are of the opinion that the Connected Transaction is fair and reasonable as far as the Shareholders as a whole are concerned. Accordingly, we endorsed the Written Certificate from Efficient Market in relation to the approval of the Connected Transaction.

Yours faithfully,

Mr. Yeh Liang Fei Mrs. Chen Shien Shu Chen Independent non-executive Director Independent non-executive Director

• 16 -

LETTER OF ADVICE FROM HENCO

The following is the text of a letter of advice from Henco Capital Limited to the Independent Board Committee in respect of the Connected Transaction, and is prepared for inclusion in this circular.

Henco & Associates

Henco Capital Limited

2313 Jardine House 1 Connaught Place, Central Hong Kong

18 November, 2002

To the Independent Board Committee of Natural Beauty Bio-Technology Limited

Dear Sir or Madam,

CONNECTED TRANSACTION

ACQUISITION OF INTERESTS IN 3 PRC SUBSIDIARIES

INTRODUCTION

We refer to our appointment as the independent financial adviser to advise the Independent Board Committee in respect of the Connected Transaction, details of which are set out in this circular, of which this letter forms a part. Unless the context otherwise requires, terms used in this letter have the same meanings as those defined in this circular. We recommend the Independent Board Committee to advise the Shareholders to read this circular carefully before they decide whether the Connected Transaction is fair and reasonable.

On 10th September, 2002, the First Batch S&P Agreements were entered into between the Purchaser and 18 vendors respectively. On 8th October, 2002, the Second Batch S&P Agreements were entered into between the Purchaser and 4 vendors respectively. On 28th October, 2002, the Third Batch S&P Agreements were entered into between the Purchaser and the remaining 3 Vendors respectively. Pursuant to the Third Batch S&P Agreements, the 3 Vendors, representing minority shareholders of the 3 PRC Subsidiaries, agreed to sell their respective interests in the 3 PRC Subsidiaries to the Purchaser (ranging from 10% to 39%) for an aggregate consideration of approximately RMB2.857 million (approximately HK$2.693 million). After Completion, NB Sanlian will hold 90% interests in each of the 3 PRC Subsidiaries and Chong Ming Sanlian will hold the balance of 10% interests.

• 17 -

LETTER OF ADVICE FROM HENCO

The Vendors of Anshan NB and Chang Chun NB are connected persons of the Company by virtue of being substantial shareholders and directors of the respective PRC Subsidiaries. The Vendor of Hai Nan NB is a connected person of the Company by virtue of being substantial shareholder of Hai Nan NB.

Under the Listing Rules, the series of 3 Acquisitions would be aggregated and constitute connected transactions for the Company and therefore, the S&P Agreements and the transactions contemplated under the S&P Agreements are conditional, among other things, upon the approval of the Independent Shareholders in general meeting. As the interest of Efficient Market, the majority Shareholder holding 75% issued share capital of the Company, is in all respects identical with those of the other Shareholders as a general body and Efficient Market has no shareholding in the 3 PRC Subsidiaries, Efficient Market shall be entitled to vote at the relevant shareholders’ meeting. In addition, none of the Directors or any of their associates hold shareholding in the 3 PRC Subsidiaries and are thus not interested in the Acquisitions. Therefore, the Company has obtained and the Stock Exchange has accepted the Written Certificate from Efficient Market in lieu of a physical shareholders’ meeting to approve the Connected Transaction, on the condition that an independent financial adviser is of the opinion that the terms of the Connected Transaction is fair and reasonable as far as the Shareholders were concerned.

In formulating our opinion and advice, we have relied upon accuracy of the information and representations contained in this circular and information provided to us by the Company and its Director(s). We have assumed that all statements and representations made or referred to in this circular were true at the time they were made and continue to be true at the Latest Practicable Date. We have also assumed that all statements of belief, opinion and intention made by the Director(s) in this circular were reasonably made after due enquiry. We have no reason to doubt the truth, accuracy and completeness of the information and representations provided to us by the Purchaser and its Director(s) and have no reason to doubt that any relevant material facts have been withheld or omitted.

We consider that we have reviewed sufficient information to reach an informed view and to justify reliance on the accuracy of the information contained in this circular and to provide a reasonable basis for our recommendation. We have not, however, conducted an independent investigation into the business affairs, financial position or future prospects of the Group, the Purchaser, the Vendors or any of the 3 PRC Subsidiaries nor have we carried out any independent verification of the information supplied.

CONNECTED TRANSACTION

In giving our advice to the Independent Board Committee, we have taken into account the following factors in considering whether or not the terms of the Connected Transaction are fair and reasonable.

Background

The S&P Agreements

Before Completion, NB Sanlian held 51% to 80% equity interests in the 3 PRC Subsidiaries. Pursuant to the S&P Agreements, the Vendors agreed to sell and NB Sanlian agreed to purchase the respective interests of the Vendors in the 3 PRC Subsidiaries, ranging from 10% to 39%, and to assume

• 18 -

LETTER OF ADVICE FROM HENCO

all management and operation rights of the acquired PRC Subsidiaries for an aggregate consideration of approximately RMB2.857 million (approximately HK$2.693 million) and Chong Ming Sanlian agreed to purchase 10% interests in each of the 3 PRC Subsidiaries on the same terms. All 3 S&P Agreements, as stated in the “Letter from the Board” in this circular (the “Letter”), are identical in commercial terms and conditions, except for the number of Sale Shares to be acquired, the amount of consideration and the identity of the Vendors.

As advised by the Directors, the Group has cooperated with Chong Ming Sanlian for over 10 years and Chong Ming Sanlian has substantial experience in the PRC cosmetic market. Accordingly, the Directors consider it beneficial to the development of the PRC Subsidiaries by having Chong Ming Sanlian as a minority shareholder. The Directors informed that save that Chong Ming Sanlian holds 10% interest in Shanghai Natural Beauty Sanlian Cosmetics Company Limited, a 90% subsidiary of the Company, and that Chong Ming Sanlian leases land to Shanghai Natural Beauty Cosmetics Company Limited, a whollyowned subsidiary of the Company in consideration of a fee, Chong Ming Sanlian is independent of and not connected with the promoters, supervisors, chief executive, substantial shareholders or management shareholders of the Company or an associate of any of them.

Share Mortgage Agreements

The Purchaser and each of the 3 Vendors entered into the Share Mortgage Agreements, which will be effective if and only if any of the Conditions Precedent in the respective S&P Agreement have not been satisfied, and the Purchase Price has not been returned to the Purchaser due to non-completion. Pursuant to the Share Mortgage Agreements, each of the Vendors has agreed to pledge with the Purchaser its respective Sale Shares and all the rights attributed to those Sale Shares as security for return of the Purchase Price without interest. In the event that any of the Vendors (the “Default Vendor”) fail to return the full Purchase Price to the Purchaser on non-satisfaction of the Conditions Precedent by 7th January, 2003, the Purchaser shall have the right to sell the Sale Shares to a third party with full cooperation from such Default Vendor. We consider that the entering into of the Share Mortgage Agreements is beneficial to the Group by safeguarding it against the loss arising from the failure of the Vendors to return full Purchase Price upon non-satisfaction of the Conditions Precedent.

Reasons for and benefits of the Acquisitions

The Group is principally engaged in (i) the research and development, manufacture and sale of aromatherapeutic, beauty and skin care products, and (ii) the provision of skin treatments and SPA services through its beauty centers offering tailor-made beauty and skin care solutions, particularly, aromatherapy using essential oil and specialized equipment by the professional beauticians. The Directors believe that the Acquisitions would bring the Group a number of benefits as set out below:

Overall cost reduction

As advised by the Directors, the Company will assume full management and operation rights of the 3 PRC Subsidiaries and Chong Ming Sanlian will not have board representation in any of the 3 PRC Subsidiaries. Accordingly, the Directors believe that having gained full control of the PRC Subsidiaries, the Company can implement strict cost control measures without intervention from the minority

• 19 -

LETTER OF ADVICE FROM HENCO

shareholders. The Group can exercise greater control over the selling prices of the products to the franchisees such as offering trade discount and reduce the cost of sales indirectly. In addition, the Group is expected to achieve economies of scale with respect to the cost of sales like cost of marketing materials, while promotion seminars and spa decoration materials can be reduced with bulk ordering. In such regard, we consider that there is a potential for the Group to achieve overall cost reduction through the implementation of cost control measures among the PRC Subsidiaries.

Restructuring of distribution channels

Due to the fact that all products of the Group are distributed through its subsidiaries to the franchisees in the PRC other than Shanghai region, the Directors consider that efficient control over these distribution channels is crucial for long-term business development of the Group. Upon Completion, the Company plans to improve the inventory logistics among the subsidiaries, warehouses or goods distribution centers by consolidating these warehouses in major large cities instead of existing 3 distribution centers, to save the excessive distribution costs and increase the efficiency of goods ordering and goods distribution. Accordingly, we are of the view that the Acquisitions will grant the Group more autonomy in restructuring and streamlining its distribution network in the PRC.

Enhancement of efficiency in operation and financial control

The Directors believe that the market demand for skin care, beauty and aromatherapeutic products and skin treatments and SPA services is expected to grow at an increasing rate. In order to capitalize on this opportunity, acquisitions of interests of the minority shareholders of these 3 PRC Subsidiaries, together with the previous First Batch Acquisitions and the Second Batch Acquisitions, are considered necessary. Upon Completion, the Group will have greater controlling power over the costing structure and financial operation of all of the PRC subsidiaries and as a result, improved efficiency is expected by implementation of budgets and business plans. The Directors considered that the Group will benefit from sharing of administration, distribution, marketing and financial materials and other resources among all the PRC subsidiaries acquired by the Group in different cities in the future. Furthermore, having gained the control of all the 25 PRC subsidiaries, systems like Oracle ERP and PRM will be implemented among the PRC subsidiaries. Operating efficiency can be further enhanced via system automation and administrative resources can be further capitalized.

Revenue contribution to the Group

Upon Completion, a higher percentage of the results of the 3 PRC Subsidiaries would be consolidated into the Company’s financial statements. As discussed above, the Directors believe that the market demand for skin care, beauty and aromatherapeutic products and skin treatments and SPA services is expected to grow at an increasing rate. Accordingly, the Directors are confident that the Acquisitions would have a positive effect on the financial performance of the Group in the long run.

• 20 -

LETTER OF ADVICE FROM HENCO

Valuation and consideration

The aggregate consideration for all the 3 Acquisitions amounted to approximately RMB2.857 million (approximately HK$2.693 million). For both NB Sanlian and Chong Ming Sanlian, the consideration for each of the 3 Acquisitions was negotiated with the 3 Vendors independently on an arm’s length basis and on normal commercial terms. Such consideration is equivalent to 200% of the net asset value of the acquired proportion of the interests of the PRC Subsidiaries as at 1st July, 2002 as certified by a PRC auditor, representing a 100% premium on the respective PRC Subsidiary’s net asset value. The consideration was to be satisfied by an initial deposit payment of 50% of the consideration within 5 working days from the execution date of the S&P Agreements with the balance of consideration payable in cash on Completion or on the date the Share Mortgage Agreement comes into effect, as the case may be.

The Purchaser may instruct the Non-PRC auditor to independently audit the accounts of each of the PRC Subsidiaries as well as the other 22 PRC subsidiaries acquired in the First Batch Acquisitions and the Second Batch Acquisitions. In case there is any inconsistency between the Original Net Asset Values and the net asset values of the PRC Subsidiaries as certified by the Non-PRC auditor which remains unresolved after 14 days of negotiation, the final net asset values (the “Final NAVs”) shall be determined by reference to the average between the Original Net Asset Values and the net asset values as certified by the Non-PRC auditor. Any difference between the Final NAVs and the Original Net Asset Values shall be settled between the Purchaser and the respective Vendors from the initial deposit payment within 3 days after the determination of the Final NAVs and the Company will make a further announcement in this respect accordingly.

The consideration, representing 200% of the respective PRC Subsidiary’s net asset value, is arrived at after taking into account the following commercial factors:

• i. the rate of expansion of the cosmetic market in the first half of 2002, based on the Director’s knowledge and experience of the PRC cosmetic market and sales growth of the PRC Subsidiaries in the first six months of 2002, has grown beyond the Company’s anticipation.

Based on the unaudited interim report of the Group for the six months ended 30th June, 2002, total revenue contributed by the PRC market for the six months ended 30th June, 2001 and 2002 accounted for approximately HK$45.85 million and HK$88.71 million respectively. The 93% increment in total turnover in the PRC indicated that the demand of the Group’s products in the PRC is rising.

Notwithstanding that not all the 3 PRC Subsidiaries were profitable in 2001, if the Directors’ expectation that the market demand for skin care, beauty and aromatherapeutic products and skin treatments and SPA services continues to grow at an increasing rate with the rising of average family disposable income in areas where the 3 PRC Subsidiaries operate, materializes, we consider that the Acquisitions would improve the Group’s financial performance in the long run.

ii. in view of the established network, reputation and clientele of the PRC Subsidiaries and the experience associated with the PRC Subsidiaries, the Company considers that these intangible assets should be reflected by a reasonable premium.

• 21 -

LETTER OF ADVICE FROM HENCO

The Directors informed that although these 3 PRC Subsidiaries had not been incorporated until 2001, their quality products and services have already earned them good reputation. Furthermore, reputation of the Company’s brandname, “NB”, has been widely recognized in the PRC and Taiwan. As stated in the prospectus of the Company dated 19th March, 2002, the Group and its NB brandnames are widely recognized with the receipt of numerous awards and honours including the “Outstanding Taiwan Enterprise Award” in 1998, the “Most Popular Product Award Chosen by Women in Shanghai” in 2000 and “100 Outstanding Enterprise in the PRC” award in 2001. As such, a valuable goodwill has been established. Given the service nature of business of the Group, we are of the view that reputation and goodwill represent one of the upmost important factors to its success and taking into account the reputation of the Company’s brandname, the premium represented by the consideration was justifiable.

iii.

overall cost reduction for the Company as a whole after gaining greater control of the PRC Subsidiaries.

The Group can exercise greater control over the selling prices of the products to the franchisees such as offering trade discount and reduce the cost of sales indirectly upon Completion. In addition, the Group is expected to achieve economies of scale with respect to the cost of sales like cost of marketing materials, while promotion seminars and spa decoration materials can be reduced with bulk ordering. In such regard, we consider that there is potential for the Group to achieve overall cost reduction through the implementation of cost control measures.

iv.

improved management and financial controls over the PRC Subsidiaries.

Upon Completion, NB Sanlian and Chong Ming Sanlian have agreed that NB Sanlian shall be solely responsible for the management and operation of each PRC Subsidiary and Chong Ming Sanlian shall not participate in the management of the PRC Subsidiaries. The profits of each PRC Subsidiary shall be divided between NB Sanlian and Chong Ming Sanlian in proportion to their shareholdings in the PRC Subsidiary. Accordingly, the Group will have sole management control over these 3 PRC Subsidiaries. The Group will be able to implement its operation procedures as a whole with limited intervention from minority interests and creating synergistic effect by sharing of resources and achieving economies of scale after the Acquisitions. In addition, plans for expansion of distribution network can be executed more effectively. All revenues generated from these 3 PRC Subsidiaries in the future will be consolidated into the Group’s financial statements in a greater portion, with limited payment or contribution to the minority interests. Therefore, the Directors anticipate that the Acquisitions would exert a positive effect on the financial performance of the Group.

Taking into consideration all of the above bases, we are of the view that the premium of consideration over the net asset value of the 3 PRC Subsidiaries is not prejudicial to the interests of the Company and the Shareholders as a whole.

• 22 -

LETTER OF ADVICE FROM HENCO

Financial effects

Earnings

Upon Completion, the accounts of the 3 PRC Subsidiaries will be consolidated into that of the Company in a greater percentage. Based on the PRC audited accounts for 2001, the net profits/ (losses) after taxation of the respective 3 PRC Subsidiaries ranged from RMB (268,208) to RMB 159,162, representing an aggregate loss after taxation of approximately RMB(277,680). Shareholders are reminded to note that certain of the 3 PRC Subsidiaries incurred losses for 2001 and consolidation of the financial results might have negative impact on the financial performance of the Group. However, the Directors believe that the market demand for skin care, beauty and aromatherapeutic products and skin treatments and SPA services is expected to grow in the future. In addition, gaining full control would enhance the operational and financial management efficiency of the PRC Subsidiaries upon Completion. Under such circumstances, the Directors are confident that the Acquisitions are considered to be beneficial to the financial performance of the Group in the long run.

Net asset value

As stated out above, a higher percentage of the results of the 3 PRC Subsidiaries will be consolidated with that of the Company after Completion. As stated in the audited accounts of the 3 PRC Subsidiaries in 2001, their aggregate net asset value was RMB1,428,292. Taking into account the 100% premium of the consideration over such net asset value and notwithstanding that the goodwill generated from the Acquisitions may be amortized over time, the one-off effect on the Company’s consolidated net tangible asset value after Completion is a decrease of RMB1,428,292 assuming that the goodwill deriving from the Acquisitions will be written off immediately upon Completion. We consider that such decrease is not material with respect to the consolidated net asset value of the Company of approximately HK$722.01 million as at 30th June, 2002 and the high growth potential of the PRC Subsidiaries.

Working capital

The Company will make a cash payment of approximately RMB2.857 million (equivalent to approximately HK$2.693 million) in aggregate in respect of the 3 Acquisitions. It is noted from the interim report of the Company for the six months ended 30th June, 2002 that the Group had cash or cash equivalents of approximately HK$250.81 million in aggregate as at 30th June, 2002. As stated in the Letter, the Company will not apply or rely on any of the IPO proceeds to satisfy the consideration of the Acquisitions. The Directors have confirmed that the Group has sufficient internal resources to finance the Acquisitions. On this basis, we concur with the Directors’ view that the Acquisitions will have an insignificant effect to the working capital level of the Group.

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LETTER OF ADVICE FROM HENCO

RECOMMENDATION

Having considered the abovementioned principal factors and reasons, we consider that the terms of the Acquisitions are fair and reasonable and are in the interests of the Company so far as the Shareholders as a whole are concerned. Accordingly, we recommend the Independent Board Committee to advice the Shareholders that the Connected Transaction is fair and reasonable.

Yours faithfully, For and on behalf of Henco Capital Limited Mr. Henry Chien Chief Executive Officer

• 24 -

GENERAL INFORMATION

APPENDIX

1. RESPONSIBILITY STATEMENT

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

2. DISCLOSURE OF INTERESTS

• (a) Interests of Directors

As at the Latest Practicable Date, the interests of the Directors in the share capital of the Company and its associated corporations (within the meaning of the SDI Ordinance) which were required to be notified to the Company and the Stock Exchange pursuant to section 28 of the SDI Ordinance (including the interests which they were deemed or taken to have under section 31 of or Part I of the Schedule to the SDI Ordinance) or which were required, pursuant to section 29 of the SDI Ordinance, to be entered in the register referred to therein or which were required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Director of Listed Companies contained in the Listing Rules, were as follow:

Interests in the Shares

	Number of Shares held	Number of Shares held	Number of Shares held
	Personal	Family	Corporate
Name of Director	Interests	interest	interests	Other Interest
Dr. Tsai Yen-Yu	–	–	1,500,000,000	–
			(Note 1)
Su Chien-Cheng	–	–	225,000,000	–
			(Note 1)
Su Sh-Hsyu	–	–	225,000,000	–
			(Note 1)
Lee Ming-Ta	–	1,500,000,000	–	–
			(Note 2)

• 25 -

GENERAL INFORMATION

APPENDIX

Notes:

1. Dr. Tsai Yen-Yu, Su Chien-Cheng and Su Sh-Hsyu are beneficially interested in 70%, 15% and 15% of the entire issued share capital of Knightcote Enterprises Limited respectively which in turn holds 100% interest in Efficient Market. Efficient Market holds 1,500,000,000 Shares representing 75% of the entire issued share capital of the Company.

2. As Lee Ming-Ta is the spouse of Dr. Tsai Yen-Yu, he will be taken to have a family interest in these Shares.

Interests in associated corporations

• (aa) Dr. Tsai Yen-Yu has corporate interests and Lee Ming-Ta has family interests in the following number of Class B shares in Belem Holding Sdn. Bhd. (“Belem”):

Name

Number of Class B shares

Dr. Tsai Yen-Yu 123,235,408 shares of RMB1.00 (HK$2.00) each (Note 1) Lee Ming-Ta 123,235,408 shares of RMB1.00 (HK$2.00) each (Note 2)

Notes:

1. Dr. Tsai Yen-Yu is beneficially interested in 70% of the entire issued share capital of Knightcote Enterprises Limited which in turn holds 100% interests in Efficient Market. Efficient Market holds 123,235,408 Class B shares in Belem.

2. As Lee Ming-Ta is the spouse of Dr. Tsai Yen-Yu, he will be taken to have family interests in 123,235,408 Class B shares.

3. (bb) Each of Dr. Tsai Yen-Yu, Lee Ming-Ta, Su Chien-Cheng and Su Sh-Hsyu has beneficial interests in her/his personal capacity in 1,000 shares in each of Da Shun Development Co., Ltd., Huei Yao Investment Co., Ltd., Jiun Yuh Investment Co. Ltd., Wan Fang Investment Co. Ltd., Natural Beauty Cosmetics Company Limited and Tian Ran Mei Company Limited.

4. (cc) As Lee Ming-Ta is the spouse of Dr. Tsai, each of Lee Ming-Ta and Dr. Tsai will be taken to have additional family interests in 1,000 shares in each of Da Shun Development Co., Ltd., Huei Yao Investment Co., Ltd., Jiun Yuh Investment Co. Ltd., Wan Fang Investment Co. Ltd., Natural Beauty Cosmetics Company Limited and Tian Ran Mei Company Limited.

Saved as disclosed herein, as at the Latest Practicable Date, none of the Directors had any interest in the share capital of the Company or any of its associated corporations which were required to be notified to the Company and the Stock Exchange pursuant to section 28 of the SDI Ordinance (including the interests which they were deemed or taken to have under section 31 of or Part I of the Schedule to the SDI Ordinance) or pursuant to the Model Code for Securities Transactions by Directors of Listed Companies or which were required, pursuant to section 29 of the SDI Ordinance, to be entered in the register referred to therein.

• 26 -

GENERAL INFORMATION

APPENDIX

• (b) Save as disclosed herein, 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.

• (c) None of the Directors has had any direct or indirect interest in any assets which have since 31 December, 2001 (being the date to which the latest published audited financial statements of the Company were made up) been acquired or disposed of by or leased to or are proposed to be acquired or disposed of by or leased to any member of the Group.

• (d) Save as disclosed in the Prospectus of the Company, none of the Directors has service contract with members of the Group, which is not terminable within one year without payment of compensation (other than statutory compensation).

3. SUBSTANTIAL SHAREHOLDERS

Save as disclosed herein, the Directors and the chief executive of the Company were not aware of any person, who was, directly or indirectly, interested in 10 per cent. or more of the nominal value of the issued share capital of the Company or any of its subsidiaries as at the Latest Practicable Date apart from the following:

	Attributable	Percentage of
Name	number of shares	issued Shares
Efficient Market_(Note 1)_	1,500,000,000	75%
Knightcote_(Note 2)_	1,500,000,000	75%
Dr. Tsai_(Note 3)_	1,500,000,000	75%
Su Chien-Cheng_(Note 4)_	225,000,000	11.25%
Su Sh-Hsyu_(Note 5)_	225,000,000	11.25%

Notes:

1. Efficient Market is beneficially wholly-owned by Knightcote.

2. Knightcote is beneficially owned by Dr. Tsai as to 70% , Su Chien-Cheng as to 15% and Su Sh-Hsyu as to 15%.

3. These Shares are attributable to Dr. Tsai in respect of her 70% interest in Knightcote.

4. These Shares are attributable to Su Chien-Cheng as to his 15% interest in Knightcote.

5. These Shares are attributable to Su Sh-Hsyu as to her 15% interest in Knightcote.

4. QUALIFICATION

The following is the qualification of the expert who has given opinion or advice which is contained in this circular:

• 27 -

GENERAL INFORMATION

APPENDIX

Name

Qualification

Henco

an investment adviser and dealer registered under the Securities Ordinance, Chapter 333 of the Laws of Hong Kong

5. LITIGATION

None of the members of the Company is engaged in any litigation or arbitration of material importance and no litigation or claim of material importance is known to the Directors or the Company to be pending or threatened by or against any member of the Group.

6. CONSENT

Henco has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter and reference to its name and letter in the form and context in which they appear.

7. MATERIAL CHANGES

The Directors are not aware of any material adverse change in the financial or trading position of the Company since 31 December 2001, the date to which the latest published audited financial statements of the Company were made up.

8. MISCELLANEOUS

• (a) The English text of this circular shall prevail over the Chinese text.

• (b) The registered office of the Company is at P.O. Box 309, Ugland House, South Church Street, George Town, Grand Cayman, Cayman Island. The principal registrars and transfer office of the Company is Bank of Bermuda. The Hong Kong branch registrars and transfer office is Hong Kong Registrars Limited.

9. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the offices of Fong & Ng at 8th Floor, Aon China Building, 29 Queen’s Road Central, Hong Kong during normal business hours on any day (except public holidays) for a period of 14 days from date of this Circular:

• (a) The S&P Agreements;

• (b) The Share Mortgage Agreements;

• (c) The Written Certificate from Efficient Market;

• (d) The letter of advice from Henco, the text of which is set out in this circular; and

• (e) The written consent referred to in the section headed “Consent” above.

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