YGM Trading Limited — Proxy Solicitation & Information Statement 2002

Aug 29, 2002

IMPORTANT

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 all your shares in YGM Trading Limited, you should at once hand this circular to the purchaser or to the bank, stockbroker or other agent through whom the sale was effected for transmission to the purchaser.

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.

This circular is addressed to the shareholders of YGM Trading Limited for the purpose of providing information in connection with the proposed spin-off and separate listing of Hang Ten Group Holdings Limited. It is not an offer of, nor is it calculated to invite offers or applications for, securities of YGM Trading Limited or Hang Ten Group Holdings Limited.

YGM TRADING LIMITED

(Incorporated in Hong Kong with limited liability)

DISCLOSEABLE TRANSACTION

PROPOSED SPIN-OFF AND SEPARATE LISTING OF

HANG TEN GROUP HOLDINGS LIMITED

ON THE STOCK EXCHANGE OF HONG KONG LIMITED

Financial adviser to YGM Trading Limited

Somerley Limited

26th August, 2002

CONTENTS

		Page
Definitions	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board
1.	Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
2.	The Restructuring Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
3.	Business of the Hang Ten Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
4.	Reasons for and benefits of the Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	12
5.	Delineation between the businesses of the Remaining Group and
	the Hang Ten Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	13
6.	Financial effects on the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
7.	Management of the Hang Ten Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15
8.	Further information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
Appendix – General information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		18

DEFINITIONS

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

“Akai”

Akai Holdings Limited (in Compulsory Liquidation), an exempted company incorporated in Bermuda with limited liability

• “Akai Directors” the directors (including independent non-executive directors) of Akai

• “Akai Group” Akai and its subsidiaries

• “Akai SGM” the special general meeting of Akai to be held for the purpose of passing relevant resolutions in relation to, among others, the Restructuring Proposal

• “Akai Share(s)” ordinary share(s) of HK$0.10 each in the existing share capital of Akai

• “Akai Shareholders” shareholders of Akai

• “Associates” has the meaning given to it in the Listing Rules

• “Board” the board of Directors

• “Closing Notice”

the written closing notice to be given by the Liquidators to Hang Ten under the Restructuring Agreement to indicate to the other parties that the Liquidators are in a position to complete the Restructuring Proposal

• “Code” the Hong Kong Code on Takeovers and Mergers

“Company” YGM Trading Limited, a company incorporated in Hong Kong and the securities of which are listed on the Stock Exchange

• “CPS” convertible preference shares to be issued by Hang Ten which would be convertible into Hang Ten Shares

“Debt Restructuring” the proposed restructuring of the indebtedness and liabilities of Akai pursuant to the Restructuring Agreement

– 1 –

DEFINITIONS

“Designated Person”

• “Directors”

• “Group”

• “Hang Ten”

• “Hang Ten (BVI)”

• “Hang Ten (BVI) Group”

• “Hang Ten Group”

• “Hang Ten Shares”

• “Hang Ten Warrants”

• “Hong Kong”

• “ILC”

“Investors”

• “Kung Family”

• “Latest Practicable Date”

Metro Capital Holdings Limited, which is designated by the Investors to receive Hang Ten Shares (with associated Hang Ten Warrants) to be issued pursuant to the Sale and Purchase Agreement in consideration of its provision of consulting services to the Investors in connection with the Restructuring Proposal

directors of the Company

the Company and its subsidiaries

Hang Ten Group Holdings Limited, a company incorporated in Bermuda with limited liability and the shares of which, subject to the Scheme becoming effective, are proposed to be listed on the Stock Exchange by way of introduction

Hang Ten International Holdings Limited, a company incorporated in the British Virgin Islands with limited liability

Hang Ten (BVI) and its subsidiaries

• Hang Ten and its subsidiaries following completion of the Sale and Purchase Agreement

ordinary share(s) in the share capital of Hang Ten

• unlisted and transferable warrant(s) to be issued by Hang Ten to the Investors and the Other Investors pursuant to the Sale and Purchase Agreement which will entitle the holders thereof to subscribe for Hang Ten Shares

the Hong Kong Special Administrative Region of the PRC

• ILC International Corporation, a company incorporated in the British Virgin Islands with limited liability and a subsidiary 97.01% owned by Hang Ten (BVI)

• the Company, the Kung Family, Ms. Wang Li Wen and Ms. Kao Yu Chu who are all shareholders of Hang Ten (BVI) as at the Latest Practicable Date

• Mr. Dennis Kung, his family members and their respective Associates

• 23rd August, 2002, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained herein

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DEFINITIONS

• “Liquidators”

• “Listing”

• “Listing Rules”

• “Other Investors”

• “PRC”

• “Remaining Group”

• “Restructuring Agreement”

• “Restructuring Proposal”

• “Sale and Purchase Agreement”

• “Scheme”

• “SDI Ordinance”

• collectively, Messrs. Nicholas Timothy Cornforth Hill and Fan Wai Kuen, Joseph of RSM Nelson Wheeler Corporate Advisory Services Limited and Mr. R. Craig Christensen of Arthur Morris and Co. of Hamilton, Bermuda, being the joint and several liquidators of Akai

• the proposed spin-off and separate listing of the entire issued share capital of Hang Ten on the Stock Exchange by way of introduction

the Rules Governing the Listing of Securities on the Stock Exchange

• the parties listed in Hang Ten (BVI)’s register of members, other than the Investors, immediately prior to the issue of the Closing Notice, who, for the avoidance of doubt, are not connected with and may or may not act in concert with the directors, the chief executives and the substantial shareholders of the Company and Hang Ten and their subsidiaries and their respective Associates and concert parties

• the People’s Republic of China, and where the context requires, excluding Hong Kong

the Group remained after the spin-off of the Hang Ten Group

• the agreement dated 16th April, 2002 as amended by the supplemental agreement dated 14th May, 2002 between, among others, the Liquidators, Akai and the Investors in relation to the Restructuring Proposal

• the proposal involving the Scheme, Debt Restructuring and the acquisition of Hang Ten (BVI) by Hang Ten

• the agreement to be entered into between the Investors, the Other Investors and Hang Ten pursuant to which the Investors and the Other Investors will, on or before the closing date of the Restructuring Proposal, transfer their respective shares in Hang Ten (BVI) to Hang Ten in consideration of the allotment of Hang Ten Shares

• the proposed scheme of arrangement in relation to Akai pursuant to section 99 of the Companies Act 1981 of Bermuda and made between Akai and the Akai Shareholders, with or subject to any modification thereof, or addition thereto or condition approved or imposed by the Supreme Court of Bermuda and the Akai Shareholders

• the Securities (Disclosure of Interests) Ordinance (Chapter 396 of the Laws of Hong Kong)

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DEFINITIONS

“Share(s)” shares of HK$0.50 each in the capital of the Company “Shareholders” holders of Shares “Somerley” Somerley Limited, an investment adviser and an exempt dealer registered under the Securities Ordinance (Chapter 333 of the Laws of Hong Kong) “Stock Exchange” the Stock Exchange of Hong Kong Limited

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LETTER FROM THE BOARD

YGM TRADING LIMITED

(Incorporated in Hong Kong with limited liability)

Directors: Chan Sui Kau (Chairman) Chan Wing Fui, Peter (Vice Chairman) Chan Wing Sun, Samuel (Managing Director) Chan Suk Ling, Shirley (Deputy Managing Director) Chan Wing Ming, Michael Chan Wing Kee Chan Wing To Fu Sing Yam, William

Registered Office and Principal Office in Hong Kong: 22 Tai Yau Street San Po Kong Kowloon Hong Kong

Non-Executive Director: Takashi Inoue

Independent Non-Executive Directors: Leung Hok Lim Wong Lam

26th August, 2002

To the Shareholders

Dear Sir or Madam,

DISCLOSEABLE TRANSACTION

PROPOSED SPIN-OFF AND SEPARATE LISTING OF

HANG TEN GROUP HOLDINGS LIMITED ON THE STOCK EXCHANGE OF HONG KONG LIMITED

1. INTRODUCTION

The Company announced jointly with Akai on 13th May, 2002 proposals involving a restructuring of Akai by way of a scheme of arrangement pursuant to Section 99 of the Companies Act 1981 of Bermuda, the proposed spin-off of Hang Ten and the listing of Hang Ten on the Stock Exchange by way of introduction. An advance booking for an application to the Stock Exchange for the proposed listing of Hang Ten on the Stock Exchange by way of introduction under the Restructuring Proposal was made on 2nd July, 2002.

Hang Ten is a company incorporated in Bermuda as the holding company of Hang Ten (BVI), which in turn holds an approximately 97.01% interest in ILC. Pursuant to a disposal agreement and a subscription agreement both dated 9th November, 2001, the Company disposed of an approximately 63.77% equity interest in ILC to Hang Ten (BVI) and subscribed for an approximately 25% interest in Hang Ten (BVI). As at the Latest Practicable Date, the Company was interested in 25% of the issued

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LETTER FROM THE BOARD

shares of Hang Ten (BVI). By virtue of the Company’s interest in ILC prior to December 2001, the listing of Hang Ten constitutes a spin-off proposal under the Note to paragraph 2 of Practice Note 15 of the Listing Rules. On 2nd August, 2002, the Company announced that the proposed spin-off of Hang Ten pursuant to Practice Note 15 of the Listing Rules has been approved by the Stock Exchange.

The proposed spin-off of Hang Ten constitutes a discloseable transaction of the Company under the Listing Rules. The purpose of this circular is to provide you with further information regarding the proposed spin-off of Hang Ten and other information required by the Listing Rules.

2. THE RESTRUCTURING PROPOSAL

I. LISTING OF AKAI

Akai was incorporated in Bermuda and has been principally engaged in manufacturing, distributing and retailing of computer, consumer electronics products and developing property.

Trading in the Akai Shares on the Stock Exchange has been suspended since 23rd August, 2000. The High Court of Hong Kong SAR ordered Akai be wound up pursuant to its Court Order dated 23rd August, 2000. The Stock Exchange announced on 10th September, 2001 that Akai was being placed into the third stage of the delisting procedures under Practice Note 17 of the Listing Rules.

On 28th February, 2002, Akai submitted the Restructuring Proposal to the Stock Exchange. On 8th March, 2002, the Stock Exchange advised Akai that the third stage of the de-listing procedure had been extended until 17th July, 2002 to enable the Restructuring Proposal to be progressed. On 12th July, 2002, the Listing Committee of the Stock Exchange had approved the extension for the cancellation of the listing of Akai Shares up to 29th November, 2002 to enable Akai to proceed with the Restructuring Proposal and the new listing application of Hang Ten. The extension was granted solely for the purpose of processing the new listing application under the Restructuring Proposal but not for any other proposals.

The Restructuring Proposal involves the Scheme, the Debt Restructuring and the acquisition of Hang Ten (BVI).

II. THE RESTRUCTURING AGREEMENT

The Liquidators, Akai and the Investors entered into the Restructuring Agreement dated 16th April, 2002 as amended by a supplemental agreement dated 14th May, 2002 regarding the Restructuring Proposal for Akai. The principal terms of the Restructuring Agreement have the support of the committee of inspection which was appointed at a meeting of the creditors of Akai held on 26th October, 2000 to represent the creditors of Akai.

(A) Scheme of arrangement

Hang Ten is expected to issue and allot 300,000,000 Hang Ten Shares, credited as fully paid, to the Akai Shareholders in proportion to their respective shareholdings in Akai in return for the Akai Shareholders transferring all their Akai Shares to Hang Ten. Upon completion of the Restructuring Proposal, the listing status of the Akai Shares on the Stock Exchange will be withdrawn and Hang Ten Shares will be listed on the Stock Exchange by way of introduction.

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LETTER FROM THE BOARD

Under Rule 2.10 of the Code except with the consent of the Executive, the Scheme may only be implemented if:

• (a) the Scheme is approved by at least 75% of the votes attaching to the disinterested Akai Shares that are cast either in person or by proxy at a duly convened Akai SGM; and

• (b) the number of votes cast against the resolution to approve the Scheme at such meeting is not more than 10% of the votes attaching to all the disinterested Akai Shares.

Accordingly, the Restructuring Proposal will be subject to such conditions being satisfied. Further, the Scheme must be conducted in accordance with laws and regulatory requirements applicable to the Scheme, including, but not limited to, passing a resolution at the Court Meeting by a majority of those Akai Shareholders who are present and who vote in person or by proxy, and who represent not less than 75% of the value of the Akai Shares voted.

(B) Debt Restructuring

As part of the Restructuring Proposal, Hang Ten is expected to issue and allot 2,100,000,000 Hang Ten Shares, credited as fully paid, and make a cash payment of HK$12 million to the Liquidators for the sole benefit of the creditors of Akai. On completion of the Restructuring Proposal, the indebtedness due to the creditors of Akai will remain with Akai and Akai will remain under the control of the Liquidators. As such, the liabilities of Akai will not have any impact on the affairs of Hang Ten.

II. ACQUISITION OF HANG TEN (BVI)

Hang Ten will enter into the Sale and Purchase Agreement to acquire the entire issued share capital of Hang Ten (BVI) from the Investors and the Other Investors. On the transfer of the Investors’ entire equity interests in Hang Ten (BVI) to Hang Ten, Hang Ten will issue and allot Hang Ten Shares (with Hang Ten Warrants) and CPS to the Investors. The Hang Ten Warrants will be issued upon completion of the Restructuring Proposal.

As at the Latest Practicable Date, the Company and the Kung Family were interested in 25% and 73% of the issued share capital of Hang Ten (BVI), respectively. Ms. Wang Li Wen and Ms. Kao Yu Chu had 2% interest in Hang Ten (BVI) as at the Latest Practicable Date.

In order to maintain a sufficient public float for the Hang Ten Shares, Hang Ten intends to issue and allot to Other Investors the Hang Ten Shares (with Hang Ten Warrants) for an aggregate value equivalent to the amount invested in Hang Ten (BVI) by the Other Investors. However, the number of Hang Ten Shares to be held by the Other Investors have not been confirmed as at the Latest Practicable Date. Completion of the Sale and Purchase Agreement will take place on or before the business day immediately after the date on which the Liquidators issue the Closing Notice.

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LETTER FROM THE BOARD

III. CONDITIONS PRECEDENT TO THE RESTRUCTURING PROPOSAL

Completion of the Restructuring Proposal will be subject to, among others, the following:

• (i) the Sale and Purchase Agreement being completed;

• (ii) the Supreme Court of Bermuda sanctioning the Scheme and the Scheme becoming effective;

• (iii) the High Court of Hong Kong sanctioning the transfer of the Akai Shares from the Akai Shareholders to Hang Ten pursuant to section 182 of the Companies Ordinance (Chapter 32 of the Laws of Hong Kong);

• (iv) all necessary resolutions being passed by the Akai Shareholders (other than those who are not permitted to vote pursuant to the Listing Rules or the Code) approving the implementation of the Restructuring Proposal at the Akai SGM;

• (v) the Stock Exchange approving the withdrawal of the listing of the Akai Shares on the Stock Exchange and granting the listing of, and permission to deal in, Hang Ten Shares in issue and to be issued pursuant to the Restructuring Agreement, the Scheme and the Sale and Purchase Agreement;

• (vi) necessary approvals by all relevant authorities for the issue of the Hang Ten Shares pursuant to the Restructuring Agreement, the Scheme and the Sale and Purchase Agreement being obtained; and

• (vii) all consents and approvals from all other governmental and regulatory authorities, including the Stock Exchange’s approval of the proposed spin-off of Hang Ten, necessary for the implementation of the Restructuring Proposal being obtained.

If any of the above conditions have not been fulfilled or waived in writing before 31st December, 2002, being the long-stop date, or such later date as the parties may agree, the Restructuring Agreement will be terminated. The obligations of the parties under the Restructuring Agreement shall cease upon the termination of the Restructuring Agreement. Should the Restructuring Proposal fail, the Akai Shares on the Stock Exchange will be delisted in accordance with Practice Note 17 of the Listing Rules.

On 2nd August, 2002, the Company announced that the proposed spin-off of Hang Ten pursuant to Practice Note 15 of the Listing Rules has been approved by the Stock Exchange.

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LETTER FROM THE BOARD

IV. CHANGES IN SHAREHOLDING AND MAINTENANCE OF THE LISTING OF HANG TEN

Upon Hang Ten, or a subsidiary of Hang Ten, acquiring the Investors’ entire equity interests in Hang Ten (BVI), Hang Ten will issue and allot Hang Ten Shares (with Hang Ten Warrants), and CPS to the Investors. The Hang Ten Warrants will be issued upon completion of the Restructuring Proposal. The Investors will direct Hang Ten to issue and allot Hang Ten Shares (with associated Hang Ten Warrants) to the Designated Person in return for the Designated Person providing consulting services to the Investors in connection with the Restructuring Proposal. Based on these assumptions, the estimated changes in the shareholding of Hang Ten upon completion of the Restructuring Proposal will be as follows:

			Upon completion	Upon completion
			of the					Upon completion
			Restructuring					of the
			Proposal with no		Upon completion			Restructuring
	Before		CPS converted		of the			Proposal with all
	completion of the		and Hang Ten		Restructuring			CPS converted
	Restructuring		Warrants		Proposal with all			and Warrants
	Proposal		exercised		CPS converted			exercised
	Number of		Number of		Number of			Number of
	Akai Shares		Hang Ten Shares		Hang Ten Shares			Hang Ten Shares
	(million shares)	%	(million shares)	%	(million shares)		%	(million shares)	%
Akai Shareholders	2,191.0	100.00	300.0	1.27	300.0		0.32	300.0	0.30
Creditors	–	–	2,100.0	8.90	2,100.0	2.23		2,100.0	2.14
Investors:	–	–
The Company	–	–	5,000.0	21.19	22,590.0	24.04		23,590.0	24.02
The Kung Family	–	–	14,600.0	61.87	65,980.0	70.21		68,900.0	70.15
Ms. Wang Li Wen
and Ms. Kao Yu Chu	–	–	400.0	1.69	1,810.0		1.92	1,890.0	1.92
Designated Person	–	–	1,200.0	5.08	1,200.0		1.28	1,440.0	1.47
Subtotal of
concert parties	–	–	21,200.0	89.83	91,580.0	97.45		95,820.0	97.56
Total	2,191.0	100.00	23,600.0	100.00	93,980.0	100.00		98,220.0	100.00

Note: The number of Hang Ten Shares to be held by the Other Investors have not been confirmed as at the Latest Practicable Date and thus are not included in this shareholding table.

It will be a term of the issued Hang Ten Warrants and CPS that no subscribers shall be entitled to exercise the conversion right if such conversion would result in the public float falling below minimum prescribed percentage as required under the Listing Rules.

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LETTER FROM THE BOARD

As shown from the above shareholding table, the Investors and the Designated Person will be interested in approximately 89.83% of the entire issued share capital of Hang Ten upon completion of the Restructuring Proposal. The Hang Ten Shares to be issued and allotted to the Investors are not considered to be “in public hands”. In order to ensure that immediately upon completion of the Restructuring Proposal, Hang Ten Shares held “in public hands” (as such term is understood in accordance with Rule 8.24 of the Listing Rules) will not be less than 25% of the Hang Ten’s entire issued ordinary share capital, the Investors will endeavor to secure Other Investors, who are independent investors not connected with the directors, the chief executives and the substantial shareholders of the Company and Hang Ten and their subsidiaries and their respective Associates and may or may not be concert parties, to subscribe for shares of Hang Ten (BVI). However, the number of Hang Ten Shares to be held by the Other Investors have not been confirmed and no placing agreement has been executed as at the Latest Practicable Date. If Other Investors are secured, they will be joined as parties to the Sale and Purchase Agreement under which they will acquire Hang Ten Shares (with Hang Ten Warrants) as consideration for the transfer of their shares in Hang Ten (BVI) to Hang Ten.

V. INFORMATION ON HANG TEN (BVI)

Hang Ten (BVI) was incorporated in the British Virgin Islands and is an investment holding company whose principal asset is its 97.01% equity interest in ILC.

As at the Latest Practicable Date, the Company and the Kung Family were beneficially interested in 25% and 73% of Hang Ten (BVI)’s issued share capital respectively. The remaining 2% of its issued share capital is held by Ms. Wang Li Wen and Ms. Kao Yu Chu who are directors of ILC’s subsidiaries.

VI. INFORMATION ON ILC

(A) Principal Business

ILC was incorporated in the British Virgin Islands and became a subsidiary of Hang Ten (BVI) in December 2001 after the Company disposed of its 63.77% shareholding in ILC to Hang Ten (BVI).

ILC and its subsidiaries are principally engaged in the business of designing, marketing and retailing casual wears, apparels and accessories. The brand name “Hang Ten” originated in Southern California. ILC and its subsidiaries are the registered owner of the trade marks “Hang Ten” which are licensed to independent third parties for distribution and production of similar products in over 50 countries, including the United States, Europe, Japan and Australia. ILC manages its retailing network of over 300 retail outlets in Taiwan, Singapore, the Philippines and South Korea.

(B) Ownership and Management

ILC was owned as to about 63.77% by the Company and as to about 30% by the Kung Family prior to December 2001. The balance of approximately 6.23% was owned as to approximately 2.99% by Citicorp Asia Limited, 2.99% by China Investment Development Company Limited, 0.08% by Ms. Wang Li Wen, 0.08% by Ms. Kao Yu Chu, 0.04% by Chen Tzu Kang, 0.03% by Chen Kin No and 0.01% by Chen Lan Ying. Ms. Wang Li Wen and Ms. Kao Yu Chu are currently directors of ILC’s subsidiaries.

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LETTER FROM THE BOARD

In December 2001, a capital rearrangement was effected such that the Company, the Kung Family and certain other shareholders of ILC disposed of their shareholding interests in ILC to Hang Ten (BVI). These parties at the same time subscribed for new shares in Hang Ten (BVI) and as a result of these transactions, Hang Ten (BVI) became interested in about 97.01% of the issued share capital of ILC and the Company and the Kung Family became interested in 25% and 73% of the issued share capital of Hang Ten (BVI) respectively.

The following is the shareholding structure of Hang Ten (BVI) as at the Latest Practicable Date:

==> picture [286 x 123] intentionally omitted <==

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

Ms. Wang Li Wan
The Company The Kung Family and Ms. Kao Yu Chu
25% 73% 2%
Hang Ten (BVI)
97.01% 2.99% Independent
third party
ILC
----- End of picture text -----

Prior to the completion of these transactions, Mr. Chan Wing Sun, Samuel was the chairman of ILC, Mr. Kenneth Hung was an executive director of ILC and Mr. Dennis Kung was the general manager of ILC. Mr. Dennis Kung and Mr. Kenneth Hung have been, since 1993 and 1995 respectively, the principal officers responsible for the management of the business operations of ILC and its subsidiaries.

After completion of the transactions described, Mr. Chan Wing Sun, Samuel was appointed as chairman of Hang Ten (BVI) and the respective roles that Mr. Dennis Kung and Mr. Kenneth Hung played in the business operations of ILC and its subsidiaries have remained unchanged. Mr. Chan Wing Sun, Samuel and Mr. Kenneth Hung will become directors of Hang Ten upon completion of the Restructuring Proposal and the appointment of other directors of Hang Ten is set out in paragraph headed “Management of the Hang Ten Group” below.

(C) Financial Information

Hang Ten (BVI) was incorporated on 10th September, 2001 and had not carried out any activities since its incorporation except for the acquisition of 97.01% equity interests in ILC in December 2001. Based on the audited consolidated financial statements of ILC, ILC and its subsidiaries have recorded profits before taxation and extraordinary items and after minority interest of about HK$108.6 million, HK$111.3 million and HK$91.6 million for the years ended 31st March, 2000, 2001 and 2002 respectively. Based on the audited consolidated financial statements of ILC, ILC and its subsidiaries have recorded profits attributable to shareholders of about HK$94.6 million, HK$102.5 million and HK$86.2 million for the years ended 31st March, 2000, 2001 and 2002, respectively.

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LETTER FROM THE BOARD

ILC has consolidated net asset value of approximately HK$341.8 million and HK$421.3 million as at 31st March, 2001 and 2002, respectively, based on its audited consolidated financial statements.

VII. OTHER INFORMATION

The Company and its subsidiaries are principally engaged in manufacturing, the retail and wholesale of apparel and accessories, property investment and printing in Asia including Taiwan. ILC was a subsidiary of the Company and became a subsidiary of Hang Ten (BVI) in December 2001 after the Company disposed of its 63.77% shareholding in ILC to Hang Ten (BVI), further details of which were announced by the Company on 13th November, 2001. At the Latest Practicable Date, the Company was interested in 25% of the issued share capital of Hang Ten (BVI). Under the Restructuring Proposal, the Company will dispose of its interest in Hang Ten (BVI) to Hang Ten and in return acquire Hang Ten Shares which will be listed on the Stock Exchange by way of introduction. Accordingly, the Listing will constitute a spinoff of the Company pursuant to Practice Note 15 of the Listing Rules. Pursuant to the Listing, no assured entitlement to Hang Ten Shares will be provided to the Shareholders. The approval from the Stock Exchange for the proposed spin-off of Hang Ten, being one of the conditions precedent of the Restructuring Proposal, has been granted. Details are set out in the announcement of the Company dated 2nd August, 2002. The proposed spin-off of Hang Ten constitutes a discloseable transaction for the Company under the Listing Rules.

3. BUSINESS OF THE HANG TEN GROUP

Hang Ten, on completion of the Sale and Purchase Agreement, will be an investment holding company whose principal asset is its interest in the entire issued share capital of Hang Ten (BVI). Hang Ten (BVI) was incorporated in the British Virgin Islands and is an investment holding company whose principal asset is its 97.01% equity interest in ILC.

The Hang Ten (BVI) Group is principally engaged in the business of designing, marketing and sale of apparel and accessories under the brandname of “Hang Ten” in Asian countries including Taiwan, South Korea, Singapore and Philippines. The portfolio of apparel under the brandname of “Hang Ten” comprises jackets, vests, T-shirts, skirts, pants and jeans as well as other accessories such as bags, caps, socks, shoes, belts and umbrellas, which are targeted at customers aged between 15 and 45. The Directors believe that “Hang Ten” is one of the leading brand names for money-for-value apparel, apparel and accessories in the Asian region. The Hang Ten (BVI) Group is the registered worldwide owner of the trademark “Hang Ten” which is also licensed to independent third parties for distribution and production of apparel and accessories in over 50 countries, including the US, Europe, Japan, Australia, South America and South Africa. The Hang Ten (BVI) Group operates a retail network of over 300 outlets in the Asian region. The Hang Ten (BVI) Group is also engaged in the wholesaling of products bearing the brandname “Hang Ten” through a number of authorised local distributors in Taiwan. The directors of Hang Ten believe that there will be no change in the nature of the business of the Hang Ten (BVI) Group upon the listing of the Hang Ten Shares.

4. REASONS FOR AND BENEFITS OF THE LISTING

The unaudited carrying value of the Company’s 25% shareholding in Hang Ten (BVI) is approximately HK$13.4 million immediately following completion of the capital rearrangement as described above under paragraph B headed “Ownership and Management” of section VI to this circular.

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LETTER FROM THE BOARD

As the Company owned approximately 63.77% shareholding in ILC prior to December 2001, ILC’s audited net profit attributable to the Shareholders for each of the two years ended 31st March, 2000 and 31st March, 2001 were approximately HK$61.4 million and HK$65.0 million respectively.

The benefits of the Restructuring Proposal to the Company, the Hang Ten Group and their respective shareholders are set out as follows:

Benefits of the Restructuring Proposal to the Company

• (i) By enabling the management team of the Remaining Group to become more focused on its business area, the Restructuring Proposal will enhance the decision making process, improve response times to market changes, gain operational efficiency and expedite business development.

• (ii) The Remaining Group will be able to focus on its core business and will continue to be an attractive investment target, having regard to the stable income flow from its remaining businesses. The Remaining Group will retain a significant equity interest in the Hang Ten Group following the Restructuring Proposal to enable the Remaining Group to benefit in the future growth of the Hang Ten Group.

Benefits of the Restructuring Proposal to shareholders of the Company

• (i) The spin-off will enhance the transparency of the performance of the separate business operations of the Remaining Group and the Hang Ten Group. Shareholders will have much more information and avenues of communication to interact with and evaluate the two business operations.

Benefits of the Restructuring Proposal to the Hang Ten Group

• (i) Subsequent to the separate listing, the Hang Ten Group will be able to establish its own shareholder base and have access to the equity market to raise funds to meet the capital requirements for further business expansion.

• (ii) Hang Ten’s status as a listed company and financial independence from the Company will create opportunities for the Hang Ten Group to further and better develop its business. It can pursue business strategies appropriate to its industry. The increased profile resulting from the listing of the Hang Ten Group should also increase its competitiveness.

5. DELINEATION BETWEEN BUSINESSES OF THE REMAINING GROUP AND THE HANG TEN GROUP

The businesses of the Remaining Group and Hang Ten Group are delineated as follows:

• Hang Ten Group is principally engaged in the business of designing, marketing and retailing casual wear, apparels and accessories under the brand name “HANG TEN” in Taiwan and other Asian countries and trademark licensing.

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LETTER FROM THE BOARD

• The Remaining Group is principally engaged in the business of manufacturing, retailing and wholesaling of world-renowned apparel and accessories including Michel René, Aquascutum of London, Ashworth and Daniel Hechter, property investments and security printing.

Michel René is a European executive line of men’s and women’s formal and city wear collections for young and modern career people.

Aquascutum of London is a line of trench coats and classic checkers using water-repellent wool.

Ashworth is a full line of quality men’s and women’s golf apparel and accessories featuring natural fibers and relaxed fits.

Daniel Hechter is a French label with collections of men’s and fashionable women apparel and accessories

The differences in the two groups’ product branding, market segment and target customers form the basis of the differentiation of the businesses of the Remaining Group and the Hang Ten Group. Under the brand name “Hang Ten”, products include casual wear, apparels and accessories. Hang Ten’s products target a mass market with low prices. The products of the Remaining Group comprise world-renowned branded apparel and accessories including Michel René, Aquascutum of London, Ashworth and Daniel Hechter, which are of higher quality and higher price compared with Hang Ten. Accordingly, the market segment and target customers of Hang Ten and the Remaining Group are clearly delineated.

In terms of geographical delineation, the Remaining Group’s manufacturing, retailing and wholesaling operations mainly cover Hong Kong, China and Taiwan, whereas the Hang Ten Group manages a retail network of over 300 retail outlets in Taiwan, Singapore, the Philippines and South Korea. In addition, the Hang Ten Group has its own purchasing and warehouses which are separate to those of the Remaining Group.

6. FINANCIAL EFFECTS ON THE GROUP

(i) As regards assets

The audited consolidated net assets of the Group as at 31st March, 2002 were approximately HK$724.4 million. The net assets of the Hang Ten Group attributable to the Company at the same date were approximately HK$55.0 million, representing approximately 7.6% of the consolidated net assets of the Group. Consequently, the majority of the assets of the Group after the separate listing of Hang Ten will be retained by the Group, which will remain a substantial group after the Listing with net assets (excluding the Hang Ten Group) in excess of approximately HK$669.4 million.

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LETTER FROM THE BOARD

(ii) As regards profits

The following are the track records of the Group and the Hang Ten Group:

Summary of historic profits after taxation

Profit for the year per audited financial statements_(Note (i)) Less: Contribution from the Hang Ten Group(Note (ii)) Profit on disposal of ILC and share of profit of Hang Ten(Note (iii)) Proforma profit for the year(Note (iv))_	Year ended 31st March, 2000 2001 2002 HK$’000 HK$’000 HK$’000 118,469 141,720 184,092 (61,402) (64,994) (43,027) – – (73,851) 57,067 76,726 67,214

Notes:

• (i) The above track records for each of the three years ended 31st March, 2000, 2001 and 2002 have been prepared based on the audited financial statements of the Group.

• (ii) The contribution from Hang Ten Group has taken into account the effect of minority interest as ILC was effectively 63.92%, 63.77% and 63.77% owned by the Company for the two years ended 31st March, 2001 and nine months ended 31st December, 2002, respectively.

• (iii) Being profit on disposal of 63.77% interest in ILC arising from the capital rearrangement of ILC in December 2001 as set out in paragraph headed “Ownership and Management” in section VI “INFORMATION ON ILC” to this circular and share of profit of Hang Ten for the three months ended 31st March, 2002.

• (iv) Being profit attributable to Shareholders of the Group’s normal course of business and excluding the contribution from the Hang Ten Group.

7. MANAGEMENT OF THE HANG TEN GROUP

• Experience of directors

The directors and the senior management of the Hang Ten Group were prior to November 2001 executives of the Group responsible for the main business of the Hang Ten Group, which is operated independently at present. Save for Mr. Chan Wing Sun, Samuel who is a director of the Company and also a director of Hang Ten and Mr. Kenneth Hung who is the director of a subsidiary of the Remaining Group and also a director of Hang Ten, the directors to be appointed to the board of Hang Ten will be independent from the Remaining Group.

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LETTER FROM THE BOARD

• Administrative capability of Hang Ten

Save for a possible sharing of expenses in connection with the Company’s administrative, non-management functions for the purposes of efficiency, the Hang Ten Group and the Group will operate independently. After the Listing, Hang Ten will have sufficient independent management capability to support its operations. Ongoing and future connected transactions between the Company and Hang Ten will be properly transacted in accordance with the requirements of the Listing Rules. The companies will seek to minimise connected transactions, unless clear synergies or cost savings can be demonstrated, and any such transactions will be on arms-length terms.

• Composition of the board of Hang Ten

The board of directors of Hang Ten is expected to include:

Name	Age
Mr. Chan Wing Sun, Samuel	54
Mr. Hung Kenneth	35
Ms. Wang Li-Wen	49
Ms. Kao Yu-Chu, Shirley	46
Mr. Kwong Chi Keung	48
Mr. So Hon Cheung, Stephen	46

The curriculum vitae of the directors of Hang Ten are as follows:

Executive Directors

Chan Wing Sun, Samuel, aged 54, received a Bachelor’s degree from the University of Manchester, United Kingdom in 1970 and qualified as a Chartered Accountant in 1973. Mr. Chan has been the managing director of YGM since 1987.

Hung Kenneth, aged 35, is the Managing Director of the Hang Ten (BVI) Group and has overall responsibility for the Hang Ten (BVI) Group’s operations in Taiwan, Singapore and the Philippines. Mr. Hung graduated from the University of Minnesota in the US and has over 6 years experience in the apparel retailing industry.

Wang Li-Wen, aged 49, is the Chief Financial Officer of the Hang Ten (BVI) Group’s operations in Taiwan and has overall responsibility in the area of administration, finance, personnel and EDP development. She graduated from a university in Taiwan with a bachelor degree in economics and has over 25 years of experience in the apparel retailing industry. She joined the Hang Ten (BVI) Group in 1993.

Kao Yu-Chu, Shirley, aged 46, is the Chief Operations Officer of the Hang Ten (BVI) Group’s operation in Taiwan and has overall responsibility in the area of product development, sales, advertising and marketing. She started her career in the apparel retailing industry as a shop manager and worked her way up to her existing position. She has over 25 years of experience in the apparel retailing industry. She joined the Hang Ten (BVI) Group in 1993.

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LETTER FROM THE BOARD

Independent non-executive Directors

Kwong Chi Keung, aged 48, holds a Bachelor of Laws degree from the University of Hong Kong. Mr. Kwong is qualified as a solicitor in Hong Kong, England, Victoria, Australia and Singapore and is a notary public. Mr. Kwong is a senior partner of Sit Fung Kwong & Shum and his main areas of practice include intellectual properties (registration, licensing and enforcement of patent, design, copyright and trademark) and injunction proceedings, banking, public and private corporate transactions, China projects and complex commercial litigation. Mr. Kwong is the president of the Asian Patent Attorneys Association and is member of the Intellectual Property Committee of the Law Society of Hong Kong.

So Hon Cheung, Stephen, aged 46, is a partner of the accounting firm T.M. Ho, H.C. So & Company and is a fellow member of the Hong Kong Society of Accountants, member of the Canadian Institute of Chartered Accountants, member of the Society of Certified Management Accountants of Canada and a Fellow member of the Association of International Accountants. He holds a Bachelor in Commerce degree from the University of British Columbia, Canada and is now a visiting professor of various universities and colleges in Beijing, Liaoning, Sichuan, Xinjiang, Qinghai and Guangdong of China. He has over 12 years experience in manufacturing, wholesale and trade in the commercial sector and over 10 years of experience in public practice working for various companies in Hong Kong, China and Canada. Mr. So is also acting as an independent nonexecutive director for two listed companies in Hong Kong. In community and professional services, Mr. So was the President of the Lions Club of Bayview during 1999-2000, Superintendent of the Road Safety Patrol during 1987-1989, and President of the Society of Certified Management Accountants, British Colombia, Hong Kong Branch during 1989-90.

8. FURTHER INFORMATION

Your attention is drawn to the general information of the Group set out in the Appendix of this circular.

Yours faithfully, On behalf of the Board

Chan Wing Sun, Samuel Managing Director

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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 contained in this circular and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief there are no other facts the omission of which would make any statement herein misleading.

2. DISCLOSURE OF INTERESTS

As at the Latest Practicable Date, the interests of the Directors in the securities of the Company and its associated corporations (within the meaning of the SDI Ordinance) which required notification pursuant to Section 28 of the SDI Ordinance (including interests which any such Director was deemed or taken to have under Section 31 of, or Part I of the Schedule to, the SDI Ordinance) or which were required to be entered into the register maintained by the Company under Section 29 of the SDI Ordinance or which were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Companies contained in the Listing Rules, to be notified to the Company and the Stock Exchange, were as follows:

Number of ordinary shares of HK$0.50 each

	Personal	Family	Corporate	Other
Name of director	interests	interests	interests	interests
Chan Sui Kau	5,929,272	214,368	3,840,820	(i)
Chan Wing Fui, Peter	324,068	100,000	–	(i) & (ii)
Chan Wing Sun, Samuel	2,072,072	–	–	(i) & (ii)
Chan Suk Ling, Shirley	3,613,544	16,000	–	(i)
Chan Wing Ming, Michael	2,967,208	–	–	(i)
Chan Wing Kee	3,692,776	819,404	–	(i), (ii) & (iii)
Chan Wing To	4,144,736	–	–	(i), (ii) & (iii)
Fu Sing Yam, William	361,068	–	–	–

Notes:

• (i) (a) An aggregate of 29,932,264 Shares were held under various trusts and companies established for the benefit of members of the Chan family including Messrs Chan Sui Kau, Chan Wing Fui Peter, Chan Wing Kee, Chan Wing Sun Samuel, Chan Wing To, Chan Wing Ming Michael and Madam Chan Suk Ling Shirley.

• (b) 34,595,908 Shares were held by Canfield Holdings Limited which is beneficially owned by certain directors of the Company, namely, Messrs Chan Wing Fui Peter, Chan Wing Kee, Chan Wing Sun Samuel, Chan Wing To, Chan Wing Ming Michael and Madam Chan Suk Ling Shirley.

• (ii) 2,917,480 Shares were held by Hearty Development Limited which is beneficially owned by Messrs Chan Wing Fui Peter, Chan Wing Kee, Chan Wing Sun Samuel and Chan Wing To.

• (iii) 1,597,000 Shares were held by Super Team International Limited which is beneficially owned by Messrs Chan Wing Kee, Chan Wing To and certain members of the Chan family.

Apart from the above, none of the Directors or their associates had any personal, family, corporate or other interests in the share capital of the Company or any of its associated corporation as defined in the SDI Ordinance.

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APPENDIX

GENERAL INFORMATION

Save as disclosed herein, as at the Latest Practicable Date, no Directors had or were deemed to have any interests in the share capital of the Company or its associated corporations (within the meaning of the SDI Ordinance) which required notification to the Company and the Stock Exchange pursuant to Section 28 of the SDI Ordinance (including interests which any such Director was deemed or taken to have under Section 31 of, or Part I of the Schedule to, the SDI Ordinance) or which were required to be entered into the register maintained by the Company under Section 29 of the SDI Ordinance or which were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Companies contained in the Listing Rules, to be notified to the Company and the Stock Exchange.

3. SUBSTANTIAL SHAREHOLDERS

Other than the interests disclosed above in respect of certain Directors, the register of substantial Shareholders maintained by the Company pursuant to Section 16(1) of the SDI Ordinance discloses no person as having an interest of 10% or more in the issued share capital of the Company as at the Latest Practicable Date.

4. MISCELLANEOUS

• (a) None of the Directors has any existing or proposed service contract with any member of the Group, excluding contracts expiring or determinable by the Company within one year without payment of compensation (other than statutory compensation).

• (b) Neither the Company nor any of its subsidiaries 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 the Company or any of its subsidiaries.

• (c) The secretary of the Company is Mr. Leung Wing Fat, F.C.C.A., A.H.K.S.A..

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