YGM Trading Limited — Proxy Solicitation & Information Statement 2003

Dec 3, 2003

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

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

The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this circular, makes no representations 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.

YGM TRADING LIMITED

(Incorporated in Hong Kong with limited liability)

CONTINUING CONNECTED TRANSACTION

GARMENT SALES BY YANGTZEKIANG GARMENT GROUP TO YGM TRADING GROUP

Independent Financial Adviser to the Independent Board Committee

Hantec Capital Limited

A letter from the Independent Board Committee of YGM Trading Limited is set out on page 9 of this circular.

A letter from Hantec Capital Limited, the independent financial adviser to the Independent Board Committee is set out on pages 10 to 14 of this circular.

A notice convening an extraordinary general meeting of YGM Trading Limited to be held at 22 Tai Yau Street, San Po Kong, Kowloon, Hong Kong on Wednesday, 17th December 2003 at 11:30 a.m. is set out on page 18 of this circular. Whether or not you are able to attend the meeting, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and return the same to the registered office of the Company at 22 Tai Yau Street, San Po Kong, Kowloon, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for the holding of the meeting or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the meeting or any adjourned meeting should you so wish.

3rd December 2003

CONTENTS

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Chairman
1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	3
2. Garment Sales by Yangtzekiang Garment Group to YGM Trading Group . . . . . . . . . .	4
3. Principal Businesses of Yangtzekiang Garment Group and YGM Trading
Group and Connection between Them . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
4. Benefits of the Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
5. Disclosure Requirements and Waivers Sought . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
6. Extraordinary General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
7. Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
8. Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Letter from Hantec. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
The Appendix – General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	15
Notice of Extraordinary General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	18

DEFINITIONS

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

“Associates”	has the meaning ascribed thereto under the Listing Rules
“Chan Directors”	Messrs. Chan Sui Kau, Chan Wing Fui Peter, Chan Wing Kee, Chan
	Wing Sun Samuel, Chan Wing To and Madam Chan Suk Ling Shirley
“Chan Family”	Chan Directors and their Associates (as defined under the Listing Rules)
“Companies”	collectively, Yangtzekiang Garment and YGM Trading
“Directors”	the directors of the Company
“EGM”	the extraordinary general meeting of the Company to be held at 22 Tai
	Yau Street, San Po Kong, Kowloon, Hong Kong on Wednesday, 17th
	December 2003 at 11:30 a.m., notice of which is set out on page 18 of
	this circular
“Groups”	collectively, Yangtzekiang Garment Group and YGM Trading Group
“Hantec”	Hantec Capital Limited, a deemed licensed corporation under the SFO,
	appointed by the Company as the independent financial adviser to advise
	the Independent Board Committee on the Transactions
“Hong Kong”	the Hong Kong Special Administrative Region of the PRC
“HK$”	Hong Kong dollars
“Independent Board	an independent committee of the board of Directors comprising Messrs.
Committee”	Leung Hok Lim and Wong Lam
“Independent Shareholders”	the Shareholders other than the Chan family and its Associates
“Latest Practicable Date”	2nd December 2003, being the latest practicable date prior to the printing
	of this circular for ascertaining certain information contained herein
“Listing Rules”	Rules Governing the Listing of Securities on the Stock Exchange
“NTA”	net tangible assets
“PRC”	the People’s Republic of China
“SFO”	the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong
	Kong)

– 1 –

DEFINITIONS

• “Shareholders”

the shareholders of the Company

• “Shares” ordinary shares of HK$0.50 each in the share capital of the Company

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

• “Transactions” the sales of garment products by Yangtzekiang Garment Group to YGM Trading Group as described in this circular

• “Yangtzekiang Garment” Yangtzekiang Garment Manufacturing Company Limited, a company incorporated in Hong Kong, the shares of which are listed on the Main Board of the Stock Exchange

• “Yangtzekiang Garment Yangtzekiang Garment and its subsidiaries Group”

• “YGM Trading” YGM Trading Limited, a company incorporated in Hong Kong, the shares or the “Company” of which are listed on the Main Board of the Stock Exchange

• “YGM Trading Group” YGM Trading and its subsidiaries

• “%”

• per cent.

– 2 –

LETTER FROM THE CHAIRMAN

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 Lin Keping Leung Hok Lim Wong Lam*

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

• Non-executive Director

• ** Independent Non-executive Directors

3rd December 2003

To the shareholders of the Company

Dear Sir or Madam,

CONTINUING CONNECTED TRANSACTION

GARMENT SALES BY YANGTZEKIANG GARMENT GROUP TO YGM TRADING GROUP

1. INTRODUCTION

The Directors, together with the directors of Yangtzekiang Garment, announced on 12th November 2003 that Yangtzekiang Garment Group sells garment products (such as shirts and knit wear products) from time to time to YGM Trading Group on an order by order basis for trading purposes. The Transactions constitute connected transactions for YGM Trading under the Listing Rules. Details of the Transactions have been disclosed in the joint announcements of the Companies dated 10th August 2000 and 16th October 2002 respectively.

Waivers have been granted by the Stock Exchange from strict compliance with the relevant disclosure and/or shareholders approval requirements in the Listing Rules in respect of the Transactions in August 2000 and October 2002 respectively. The cap amount to which the waiver granted is subject may be exceeded in the financial year of the Company ending 31st March 2004 and thereafter. Since it is expected that the aggregate amount of the Transactions may exceed the higher of HK$10 million or 3% of the book value of the NTA of the Company in the future, the Transactions will be subject to the disclosure and Independent Shareholders’ approval requirements under Rule 14.26 of the Listing Rules.

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LETTER FROM THE CHAIRMAN

The Company has made an application to the Stock Exchange for a waiver from strict compliance with the disclosure and shareholders’ approval requirements under Rule 14.26 of the Listing Rules for the three financial years ending 31st March 2006 with respect to the Transactions which constitute connected transactions under the Listing Rules.

The purpose of this circular is to provide you with information in relation to the Transactions and to convene the EGM to approve the Transactions. Your attention is drawn to the ordinary resolution set out in the notice of the EGM at the end of this circular.

2. GARMENT SALES BY YANGTZEKIANG GARMENT GROUP TO YGM TRADING GROUP

Yangtzekiang Garment Group sells garment products (such as shirts and knit wear products) from time to time to YGM Trading Group on an order by order basis for trading purposes. The Transactions have been and will continue to be conducted on prices and terms no less favourable than those given to independent third party purchasers and suppliers.

The prices and terms of these garment sales and purchases have been agreed after arm’s length negotiations between the Groups with reference to the costs of manufacturing the particular type of garment products involved. The aggregate amount of the Transactions during each of the three financial years ended 31st March 2003 and the respective approximate percentage figures in terms of the latest published audited consolidated NTA of YGM Trading Group as at the relevant financial year end are set out below:

			Consolidated NTA as at	Approx. % to
Year	ended	Aggregate	the preceding	the latest published
31st	March	amount	financial year end	consolidated NTA*
		HK$’000	HK$’000
2001		11,669	664,127	1.76
2002		13,496	556,572#	2.42
2003		10,585	724,416	1.46

• The consolidated NTA of YGM Trading Group as at 31st March 2001 has been adjusted as a result of the change in the accounting policy for dividends in order to comply with Statement of Standard Accounting Practice 9 (revised) issued by the Hong Kong Society of Accountants which became effective for accounting periods commencing on or after 1st January 2001.

• In the Announcement dated 12th November 2003, the approximate percentages of the aggregate amounts of Transactions as at the three financial years ended 31st March 2003 as compared to the audited consolidated NTA of the respective financial year have been indicated. Changes have been made herein to show the respective approximate percentages of the aggregate amounts of Transactions as compared to the consolidated NTA as at the respective preceding financial year ends.

Details of the Transactions had been disclosed in joint announcements of the Companies dated 10th August 2000 and 16th October 2002 respectively.

In August 2000, the Companies have made a joint application to the Stock Exchange for a waiver from strict compliance with Rule 14.26 of the Listing Rules for three financial years ended on 31st March 2002 in respect of the Transactions. A waiver was granted by the Stock Exchange to YGM Trading subject to a cap amount of 8% of its latest published audited consolidated NTA and such waiver had expired after the financial year ended 31st March 2002.

– 4 –

LETTER FROM THE CHAIRMAN

In October 2002, YGM Trading applied again to the Stock Exchange for a waiver from strict compliance with Rule 14.25(1) of the Listing Rules in respect of the Transactions. A waiver was granted by the Stock Exchange to YGM Trading subject to a cap amount of 1.5% of its latest published audited consolidated NTA.

The audited consolidated NTA of YGM Trading Group as at 31st March 2002 was HK$724,416,000. After two special dividend payments made by YGM Trading in January 2003 and August 2003 respectively, the consolidated NTA of YGM Trading Group reduced to HK$448,701,000 as at 31st March 2003 and further to HK$301,701,000 as at 31st August 2003.

Apart from the said special dividend payments of YGM Trading, YGM Trading also sees an increasing demand for garment products in the PRC market in the near future after taking into account the orders recently placed with YGM Trading Group. Accordingly, the cap amount to which the waiver granted to YGM Trading in October 2002 is subject, namely 1.5% of the audited consolidated NTA of YGM Trading Group , may be exceeded in the financial year of YGM Trading ending 31st March 2004 and thereafter. Since it is expected that the aggregate amount of the Transactions during the financial years to come may exceed the higher of HK$10 million or 3% of the book value of the consolidated NTA of YGM Trading Group, the Transactions will be subject to the disclosure and Independent Shareholders’ approval requirements under Rule 14.26 of the Listing Rules.

YGM Trading has applied to the Stock Exchange for a waiver from strict compliance with the disclosure and Independent Shareholders’ approval requirements under Rule 14.26 of the Listing Rules on each occasion when the Transactions occur subject to the conditions set out below. YGM Trading has proposed a new cap amount of 8.5% of its latest published audited consolidated NTA in relation to such sales and purchases.

3. PRINCIPAL BUSINESSES OF YANGTZEKIANG GARMENT GROUP AND YGM TRADING GROUP AND CONNECTION BETWEEN THEM

The principal businesses of Yangtzekiang Garment Group are manufacturing and sale of garment products.

The principal businesses of YGM Trading Group are manufacturing, retail and wholesale of worldrenowned apparel and accessories, property investment and printing.

– 5 –

LETTER FROM THE CHAIRMAN

The Chan Family’s direct and indirect equity interests in Yangtzekiang Garment and YGM Trading are as follows:

==> picture [290 x 146] intentionally omitted <==

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

Chan Family
(including the Chan Directors and their Associates)
53.91% 62.56%
Yangtzekiang
YGM Trading
Garment
----- End of picture text -----

As the Chan Family is beneficially interested in shares representing approximately 53.91% and approximately 62.56% of the issued share capital of Yangtzekiang Garment and YGM Trading respectively, Yangtzekiang Garment is a connected person of YGM Trading for the purpose of the Listing Rules.

4. BENEFITS OF THE TRANSACTIONS

YGM Trading Group has entered into and carried out the Transactions in its ordinary course of business and on normal commercial terms. The Transactions provide an additional source of garment products of YGM Trading. Accordingly, the Directors believe that the continuation of the Transactions will provide commercial flexibility to the YGM Trading Group. The Directors (including its independent non-executive directors) consider the terms of the Transactions fair and reasonable in so far as its Independent Shareholders are concerned and are in the interest of YGM Trading and its Independent Shareholders as a whole.

5. DISCLOSURE REQUIREMENTS AND WAIVERS SOUGHT

The Directors (including its independent non-executive directors) consider that due compliance with the disclosure and shareholders approval requirements under Rule 14.26 with respect to the Transactions on each occasion when any of them arises, would be impracticable and unduly onerous. YGM Trading has therefore applied to the Stock Exchange for a waiver from strict compliance with the disclosure and Independent Shareholders’ approval requirements under Rule 14.26 of the Listing Rules for the three financial years ending 31st March 2006 with respect to the Transactions on the basis of the following conditions:

• (a) the Transactions shall be:

• (i) entered into by YGM Trading Group in the ordinary and usual course of its business;

• (ii) conducted either on normal commercial terms (which expression will be applied by reference to Transactions of a similar nature and to be made by similar entities) or where there is no available comparison, on terms that are fair and reasonable so far as the Independent Shareholders are concerned; and

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LETTER FROM THE CHAIRMAN

• (iii) entered into in accordance with the terms of the agreements governing the Transactions;

• (b) the aggregate amount of the Transactions for each financial year shall not exceed 8.5% of the latest published audited consolidated NTA of YGM Trading Group in that financial year (the “Cap Amount”);

• (c) the independent non-executive Directors shall review annually the Transactions and confirm in the next annual report of YGM Trading that such Transactions were conducted in the manner as stated in paragraphs (a) and (b) above;

• (d) the auditors of YGM Trading shall review the Transactions annually and confirm to the Directors in a letter, a copy of which shall be provided to the Stock Exchange, whether:

• (i) the Transactions have received the approval of the board of Directors;

• (ii) the Transactions have been entered into in accordance with the terms of the agreements governing the Transactions;

• (iii) the Cap Amount has been exceeded in the relevant financial year; and

• (iv) the Transactions are in accordance with the pricing policies, if any, of YGM Trading,

where, for whatever reasons, the auditors of the YGM Trading decline to accept the engagement or are unable to provide the auditors’ letter, the Directors shall contact the Stock Exchange immediately;

• (e) details of the Transactions in each financial year shall be disclosed in the annual reports of YGM Trading as set out in Rule 14.25(1)(A) to (D) of the Listing Rules for that financial year together with a statement of the opinion of the independent non-executive Directors referred to in paragraph (c) above; and

• (f) the Companies shall provide to the Stock Exchange an undertaking that, for so long as their respective shares are listed on the Stock Exchange, they will provide their auditors with full access to their relevant records for the purpose of the auditors’ review of the Transactions referred to in paragraph (d) above.

If any terms of the Transactions are altered or if YGM Trading enters into any new agreements with any connected persons (within the meaning of the Listing Rules) in the future, YGM Trading will take immediate steps to ensure compliance with the relevant disclosure and/or shareholders’ approval requirements under Chapter 14 of the Listing Rules governing connected transactions.

6. EXTRAORDINARY GENERAL MEETING

A notice of the EGM to be held at 22 Tai Yau Street, San Po Kong, Kowloon, Hong Kong on Wednesday, 17th December 2003 at 11:30 a.m is set out on page 18 of this circular. At such meeting, an ordinary resolution will be proposed to approve the Transactions.

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LETTER FROM THE CHAIRMAN

A form of proxy for use at the EGM is enclosed. Whether or not Shareholders intend to be present at the meeting, they are requested to complete this form of proxy and return it to the registered office of the Company at 22 Tai Yau Street, San Po Kong, Kowloon, Hong Kong in accordance with the instructions printed thereon not later than 48 hours before the time of the EGM. The completion and return of the form of proxy will not preclude Shareholders from attending and voting in person should they so wish.

In accordance with the Listing Rules, the Chan family and its Associates are required to abstain from voting on the ordinary resolution to be proposed at the EGM.

7. RECOMMENDATIONS

The Directors consider that the Transactions are in the interest of the Company and the terms are fair and reasonable as far as the Independent Shareholders are concerned and recommend the Independent Shareholders to vote in favour of the ordinary resolution to be proposed at the EGM.

8. ADDITIONAL INFORMATION

Your attention is drawn to the information set out in the following sections of this circular:

• Letter from the Independent Board Committee page 9 containing its opinions in respect of the Transactions;

• Letter from Hantec pages 10 to 14 containing its opinion in respect of the Transactions; and

• General Information (The Appendix).

Yours faithfully, For and on behalf of YGM Trading Limited Chan Sui Kau Chairman

– 8 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

YGM TRADING LIMITED

(Incorporated in Hong Kong with limited liability)

3rd December 2003

To the shareholders of the Company

Dear Sir or Madam,

CONTINUING CONNECTED TRANSACTION

We refer to the circular issued by the Company to its shareholders dated 3rd December 2003 (the “Circular”), of which this letter forms part. Terms defined in the Circular shall have the same meanings when used in this letter, unless the context otherwise requires.

We have been appointed as the Independent Board Committee to advise you in connection with the Transactions. Hantec has been appointed as the independent financial adviser to advise the Independent Board Committee in this regard.

We wish to draw your attention to the “Letter from the Chairman” as set out on pages 3 to 8 of the Circular, which sets out, inter alia, information relating to and the reasons and details of the Transactions, and the letter from Hantec to the Independent Board Committee as set out on pages 10 to 14 of the Circular, which contains its advice to us in respect of the Transactions.

Having discussed with the management of the Company the reasons for the Transactions and considering the principal factors taken into account by Hantec in arriving at its opinion regarding the Transactions as set out in the letter from Hantec on pages 10 to 14 of the Circular, we consider that the Transactions are in the interest of the Company and are fair and reasonable so far as the Independent Shareholders are concerned. Accordingly, we recommend that the Independent Shareholders vote in favour of the ordinary resolution as set out in the notice of the EGM to be held on 17th December 2003 and thereby approve the Transactions.

Yours faithfully, For and on behalf of

Independent Board Committee

Leung Hok Lim Wong Lam Independent Non-executive Independent Non-executive Director Director

– 9 –

LETTER FROM HANTEC

The following is the text of a letter prepared by Hantec for the purpose of inclusion in this circular.

Hantec Capital Limited

Hantec Capital Limited 45th Floor, COSCO Tower 183 Queen’s Road Central Hong Kong

3rd December 2003

To the Independent Board Committee of YGM Trading Limited

Dear Sirs,

CONTINUING CONNECTED TRANSACTION

GARMENT SALES BY YANGTZEKIANG GARMENT GROUP TO YGM TRADING GROUP

INTRODUCTION

We refer to our appointment as the independent financial adviser to advise the Independent Board Committee in respect of the terms of the Transactions, particulars of which are set out in a circular (the “Circular”) to the Shareholders dated 3rd December 2003 and in which this letter is reproduced. Unless the context requires otherwise, terms used in this letter shall have the same meanings as given to them under the definitions section of the Circular.

Yangtzekiang Garment Group has conducted certain garment sales to YGM Trading Group in the ordinary course of business and on normal commercial terms. As the Chan Family is the controlling shareholder (as defined in the Listing Rules) of the Companies, the Transactions constitute connected transactions to YGM Trading under the Listing Rules and are subject to applicable disclosure and/or Independent Shareholders’ approval requirement set out therein. In this connection, the Circular containing, inter alia, the information relating to the Transactions, the recommendation from the Independent Board Committee and this advice letter, is despatched to the Shareholders.

In formulating our opinion, we have relied on the accuracy of the information and representations contained in the Circular and have assumed that all information and representations made or referred to in the Circular which had been provided by YGM Trading were true at the time they were made and continue to be true as at the date of the Circular. We have also relied on our discussion with YGM Trading regarding the information and representations contained in the Circular. We have assumed that all statements of belief, opinion and intention made by YGM Trading in the Circular were reasonably

– 10 –

LETTER FROM HANTEC

made after due enquiry. We consider that we have been provided sufficient information to reach an informed view, to justify relying on the accuracy of the information contained in the Circular and to provide a reasonable basis for our opinion. We have no reason to suspect that any material facts have been omitted or withheld from the information contained or opinions expressed in the Circular nor to doubt the truth, accuracy and completeness of the information and representations provided to us by YGM Trading. We have not, however, conducted an independent in-depth investigation into the affairs of YGM Trading Group, Yangtzekiang Garment Group and each of their respective associates nor have we carried out any independent verification of the information supplied.

PRINCIPAL FACTORS CONSIDERED

In arriving at our recommendation in respect of the Transactions, we have taken into consideration the following principal factors:

(a) Background of the Transactions and the grant of the previous waivers

The principal businesses of YGM Trading Group are manufacturing, retail and wholesale of world-renowned apparel and accessories, property investment and printing.

YGM Trading Group and Yangtzekiang Garment Group from time to time conduct the Transactions on an order by order basis for trading purposes, on normal commercial terms and in the ordinary course of business of the Companies. Since the Chan Family is the controlling shareholder (as defined in the Listing Rules) of Yangtzekiang Garment and YGM Trading, the Transactions constitute connected transactions for the Companies under the Listing Rules.

In 2000, a waiver was granted by the Stock Exchange to YGM Trading from strict compliance with Rule 14.26 of the Listing Rules in respect of the Transactions for three financial years ended on 31st March 2002 with a cap amount of 8% of its latest published audited consolidated NTA. In 2002, another waiver was granted by the Stock Exchange to YGM Trading from strict compliance with Rule 14.25(1) of the Listing Rules in respect of the Transactions with a cap amount of 1.5% of its latest published audited consolidated NTA.

As stipulated in the announcements of YGM Trading dated 10th August 2000 and 16th October 2002, those previous waivers granted by the Stock Exchange to YGM Trading were subject to a number of conditions, inter alia, the annual review by the auditors of YGM Trading (the “Auditors”) as to whether the Transactions were conducted in the ordinary course of business of YGM Trading and on normal commercial terms. Based on the letters to YGM Trading from the Auditors dated 11th September 2001, 3rd September 2002 and 28th October 2003 (the “Letters”), we have learnt that the Auditors have duly examined the supporting invoices and other relevant documents relating to the Transactions. The Auditors noted in the Letters that the Board has approved all the Transactions conducted and confirmed to the Board that nothing of significance has brought to their attention to suggest that those Transactions conducted were not in the ordinary and usual course of business of YGM Trading Group and that the respective amount of the Transactions for each of the year in the relevant period have not exceeded the cap amount under the previous waivers.

In view of the above, it can be demonstrated that YGM Trading has a track record of endeavouring to fulfil strictly the requirements and conditions specified under the previous waivers.

– 11 –

LETTER FROM HANTEC

(b) Nature and terms of the Transactions

The Transactions that have been entered into between Yangtzekiang Garment Group and YGM Trading Group are of recurring nature. Under Rule 14.26 of the Listing Rules, the Transactions normally require disclosure and/or Independent Shareholders’ approval on each occasion they arise. It is considered that the granting of waiver will allow YGM Trading Group to execute the Transactions in a more effective and efficient manner without going through regulatory requirements from time to time. We are of the view that the granting of waiver would be in the best interest of YGM Trading and its shareholders as a whole.

We have reviewed a number of invoices regarding the purchases of garment products (such as shirts and knit wear products) by YGM Trading Group from Yangtzekiang Garment Group and other independent third party in year 2003. We have noted from the invoices that the principal terms of the Transactions, among others, the prices of garment products as stipulated therein, are comparable to that of the independent third party.

On the basis that (i) the Transactions are in the ordinary course of business of YGM Trading and are based on normal commercial terms; and (ii) the prices of the garment products are comparable to those obtained from independent suppliers, we consider that the Transactions provide YGM Trading with additional source of garment products, a wider spectrum of choices and more commercial flexibility.

(c) Cap amount of the Transactions

As set out in the Letter from the Chairman of the Circular, it is one of the conditions for the waiver from disclosure and shareholders’ approval requirements of the Transactions under the Listing Rules that the amount of Transactions in aggregate in each of the three financial years ending 31st March 2006 should not exceed 8.5% (the “Cap Amount”) of the latest audited consolidated NTA of YGM Trading Group.

We were given to understand from YGM Trading that the basis of setting the Cap Amount for the Transactions were determined with reference to the historical records and the estimation of an increasing demand for garment products in the PRC market in the near future after taking into account the orders recently placed with YGM Trading Group. The aggregate value of the Transactions mentioned in the Letter from the Chairman of the Circular for each of the three years ended 31st March 2003 and the approximate percentage figures in terms of the audited consolidated NTA of YGM Trading Group as the relevant financial year end are set out below:

			Consolidated NTA as at	Approx. % to
Year	ended	Aggregate	the preceding	the latest published
31st	March	amount	financial year end	consolidated NTA*
		HK$’000	HK$’000
2001		11,669	664,127	1.76
2002		13,496	556,572#	2.42
2003		10,585	724,416	1.46

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LETTER FROM HANTEC

• The consolidated NTA of YGM Trading Group as at 31st March 2001 has been adjusted as a result of the change in the accounting policy for dividends in order to comply with Statement of Standard Accounting Practice 9 (revised) issued by the Hong Kong Society of Accountants which became effective for accounting periods commencing on or after 1st January 2001.

• In the Announcement dated 12th November 2003, the approximate percentages of the aggregate amounts of Transactions as at the three financial years ended 31st March 2003 as compared to the audited consolidated NTA of the respective financial year have been indicated. Changes have been made herein to show the respective approximate percentages of the aggregate amounts of Transactions as compared to the consolidated NTA as at the respective preceding financial year ends.

Upon comparison, it comes to our attention that the Cap Amount are noticeably higher than the transaction amounts actually achieved by YGM Trading Group for the three years ended 31st March 2003. Upon our enquiry with the management of YGM Trading, they confirmed that the orders recently placed with YGM Trading Group has been increased. Taken into account the increased orders which YGM Trading has received, the management of YGM Trading expect that there would be an increasing demand for garment products in the PRC market in the near future and that the amount of the Transactions would be significantly increased. Moreover, two special dividend payments were made by YGM Trading in January 2003 and August 2003 respectively. As stipulated in the Letter from the Chairman of the Circular, the unaudited consolidated NTA as of 31st August 2003 of YGM Trading Group was approximately HK$300 million. With an estimation of increasing demand for YGM Trading Group’s products in the PRC market but a decrease in the consolidated NTA of YGM Trading Group as a result of the two special dividend payments made in 2003, it is expected that the amount of Transactions would inevitably capture a higher proportion in the future consolidated NTA of YGM Trading Group. As such, the Directors consider that setting the higher proportion of the amount of Transactions to be conducted in the consolidated NTA of YGM Trading Group for the forthcoming three years should provide YGM Trading Group with a sufficient buffer and greater flexibility in YGM Trading Group’s future business operation. Having reviewed the sales projection of the Transactions in 2004 and 2005 produced by YGM Trading and the recent consolidated NTA of YGM Trading Group, we considered that the Cap Amount of 8.5% of the latest published audited consolidated NTA of YGM Trading Group is justifiable.

In view of the above, we concur with the view of the Directors that the Cap Amount of 8.5% of the latest published audited consolidated NTA of YGM Trading Group does offer greater flexibility of YGM Trading Group and is justifiable.

(d) Waiver application for the Transactions and the conditions precedent thereof

YGM Trading Group has applied to the Stock Exchange for waivers from strict compliance with the disclosure and/or shareholders’ approval requirements under Rule 14.26 of the Listing Rules subject to a number of conditions precedent as set out in the Letter from the Chairman of the Circular.

Taking into account of a series of conditions precedent attached to the Transactions, in particular (i) the restriction by way of the Cap Amount (details and justification of which have been discussed in the above section); and (ii) the ongoing review by the independent non-executive Directors and the Auditors on the terms of the Transactions, we consider that YGM Trading has taken appropriate measures to govern itself in carrying out the Transactions, thereby safeguarding the interest of the Independent Shareholders thereunder.

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LETTER FROM HANTEC

OPINION

Based on the information and reasons provided by YGM Trading and the nature of YGM Trading Group’s business, we note that the Transactions were carried out in the ordinary and usual course of business of YGM Trading with terms being arrived at after arm’s length negotiation. Taking into account the principal factors as set out in the above sections, in particular, (i) the conditions of the waiver arrangement relating to the Transactions; and (ii) the details, justification and benefit of Transactions, we concur with the Directors’ view that the Transactions are conducted on terms that are fair and reasonable and the grant of the waiver for the Transactions is not prejudicial to the interests of the Shareholders as a whole. Accordingly, we advise the Independent Board Committee to recommend the Independent Shareholders to vote in favour of the resolution to be proposed to approve the Transactions at the EGM.

Yours faithfully, For and on behalf of Hantec Capital Limited Thomas Lai 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 individually and collectively 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 not contained in this circular, the omission of which would make any statement in this circular misleading.

2. DISCLOSURE OF INTERESTS

• (a) As at the Latest Practicable Date, the interests of the Directors and the chief executive of the Company in the Shares and underlying Shares or any of its associated corporations (within the meaning of the SFO), which have been notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they are taken or deemed to have under such provisions of the SFO) or pursuant to the Model Code for Securities Transactions by Directors of Listed Companies, as recorded in the register kept by the Company pursuant to section 352 of the SFO, were as follows:

Interests in Shares

		Shares of HK$0.50 each	Shares of HK$0.50 each
		Number of Shares
	Personal	Family	Corporate	Other
Name of Director	interests	interests	interests	interests
Chan Sui Kau	5,929,272	214,368	3,840,820	(i)(a)
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 of the Company 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 of the Company 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 of the Company 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.

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GENERAL INFORMATION

APPENDIX

• (iii) 1,597,000 shares of the Company 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.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors or the chief executive of the Company or any of their Associates had any personal, family, corporate or other interests or short positions in the Shares, underlying Shares or debentures and securities of the Company or any of its associated corporations (within the meaning of the SFO).

• (b) Save as disclosed in this circular, none of the Directors has any direct or indirect interest in any assets which have been, since 31st March 2003 (being the date to which the latest published audited financial statements of the Company were made up), acquired or disposed of by or leased to, or proposed to be acquired or disposed of by or leased to any member of the Group.

• (c) As at the Latest Practicable Date, none of the Directors is materially interested in any contract or arrangement subsisting at the date of this circular which is significant in relation to the business of the Group.

3. SUBSTANTIAL SHAREHOLDING

Save as disclosed herein, the Directors are not aware of any person who was, directly or indirectly, interested or had short position in the Shares or underlying Shares which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO or, was directly or indirectly, interested in 10% or more of the nominal value of the issued share capital carrying rights to vote in all circumstances at general meetings of the Company or any options in respect of such capital as at the Latest Practicable Date.

4. LITIGATION

As at the Latest Practicable Date, 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.

5. SERVICE CONTRACTS

There is no existing or proposed service contract between any of the Directors or proposed Directors and the Company or any of its subsidiaries, other than contracts expiring or determinable by the employer within one year without payment of compensation (other than statutory compensation).

6. MATERIAL ADVERSE CHANGE

The Directors are not aware of any material adverse change in the financial or trading position of the YGM Trading Group since 31st March 2003, the date to which the latest published audited financial statements of the Company were made up.

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GENERAL INFORMATION

APPENDIX

7. EXPERT

• (a) The following are the qualifications of the expert who has given opinions or advice contained in this circular:

Name

Qualifications

Hantec

A deemed licensed corporation under the SFO permitted to engage in type 1 and 6 of the regulated activities as defined in the SFO

• (b) As at the Latest Practicable Date, Hantec had neither shareholdings in any member of the YGM Trading Group nor right or option to subscribe for or nominate persons to subscribe for shares in any member of the YGM Trading Group.

• (c) Hantec has given and has not withdrawn its written consent to the issue of this circular with the inclusion of the texts of its letter and references to its name, in the form and context in which it respectively appears.

• (d) As at the Latest Practicable Date, Hantec had no direct or indirect interest in any asset which had been acquired, or disposed of by, or leased to the Company, or was proposed to be acquired, or disposed of by, or leased to the Company, since 31st March 2003, the date to which the latest published audited financial statements of the Company were made up.

8. GENERAL

• (a) The secretary of the Company is Mr. Leung Wing Fat, FCCA, FHKSA.

• (b) The share registrar and transfer office of the Company is Computershare Hong Kong Investor Services Limited at 17th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong.

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

9. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the offices of Johnson Stokes & Master at 17th Floor, Prince’s Building, 10 Chater Road, Central, Hong Kong during normal business hours up to and including 17th December 2003:

• (a) a standard contract for purchase of garments by the YGM Trading Group from Yangtzekiang Garment Group;

• (b) the letter from the Independent Board Committee, the text of which is set out on page 9 of this circular; and

• (c) the letter from Hantec, the text of which is set out on pages 10 to pages 14 of this circular.

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NOTICE OF EXTRAORDINARY GENERAL MEETING

YGM TRADING LIMITED

(Incorporated in Hong Kong with limited liability)

NOTICE IS HEREBY GIVEN that an extraordinary general meeting of the shareholders of YGM Trading Limited (the “Company”) will be held at 22 Tai Yau Street, San Po Kong, Kowloon, Hong Kong on Wednesday, 17th December 2003 at 11:30 a.m. for the purpose of considering and, if it thought fit, passing the following resolution as an ordinary resolution:

ORDINARY RESOLUTION

“ THAT the Transactions (as defined and described in the circular to the shareholders of YGM Trading Limited dated 3rd December 2003 (the “Circular”), a copy of which has been produced to the meeting marked “A” and signed by the Chairman hereof for the purpose of identification) for the three financial years ending 31st March 2006 be and are hereby approved on the condition that the aggregate amount of the Transactions for each financial year shall not exceed 8.5 per cent. of the latest published audited consolidated net tangible assets of the YGM Trading Group (as defined in the Circular) as at that financial year end and the Directors of the YGM Trading Limited be and are hereby authorised to sign, execute and deliver all such documents and take all such actions as they may consider necessary or desirable for the purpose of or in connection with the Transactions.”

By Order of the Board Leung Wing Fat Secretary

Dated 3rd December 2003

Notes:

1. A member entitled to attend and vote at the above meeting is entitled to appoint one or more proxies to attend and, on a poll, vote instead of himself. A proxy need not be a member of the Company.

2. In the case of the joint holders of shares in the Company, any one of such persons may vote at the meeting, either personally or by proxy, in respect of such shares as if he were solely entitled thereto; but if more than one of such joint holders be present at the meeting personally or by proxy, that one of the said persons so present whose name stands first on the register of members of the Company in respect of such shares alone shall be entitled to vote in respect thereof.

3. To be valid, a form of proxy, together with the power of attorney or other authority (if any) under which it is signed, or a notarially certified copy thereof, must be deposited at the registered office of the Company at 22 Tai Yau Street, San Po Kong, Kowloon, Hong Kong not less than 48 hours before the time appointed for holding the meeting or adjourned meeting (as the case may be).

4. A form of proxy is enclosed herewith.

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