YGM Trading Limited — Proxy Solicitation & Information Statement 2005

Sep 1, 2005

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 obtain 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 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 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.

YGM TRADING LIMITED

(Incorporated in Hong Kong with limited liability)

(Stock Code: 375)

CONTINUING CONNECTED TRANSACTIONS

GARMENT SALES BY YANGTZEKIANG GARMENT GROUP TO YGM TRADING GROUP

Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders

Hantec Capital Limited

A letter from the Independent Board Committee is set out on page 8 of this circular.

A letter from Hantec containing its advice to the Independent Board Committee and Independent Shareholders is set out on pages 9 to 13 of this circular.

A notice convening the EGM of the Company to be held at 22 Tai Yau Street, San Po Kong, Kowloon, Hong Kong on 23 September 2005 at 12:15 p.m. is set out on page 19 of this circular. Whether or not you intend to be present and vote at the EGM, you are requested to complete the enclosed form of proxy in accordance with the instructions printed thereon and return it to the Company’s registered office 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 holding of the EGM. The completion of a form of proxy will not preclude you from attending and voting at the EGM in person should you so wish.

1 September 2005

CONTENT

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	3
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	8
Letter from Hantec . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Appendix – General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
Notice of Extraordinary General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	19

DEFINITIONS

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

“Board” the board of Directors; “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; “Continuing Connected Garment Sales by Yangtzekiang Garment Group to YGM Trading Transactions” Group; “Directors” the directors of the Company; “EGM” extraordinary general meeting of the Company to be held at 22 Tai Yau Street, San Po Kong, Kowloon, Hong Kong on 23 September 2005 at 12:15 p.m., notice of which is set out on page 19 of this circular; “Garment Sales by Yangtzekiang the transaction as described in the section headed “Letter from Garment Group to YGM the Board – Master Agreement” in this circular; Trading Group” “Groups” collectively, Yangtzekiang Garment Group and YGM Trading Group; “Hantec” Hantec Capital Limited, a licensed corporation for type 1 (dealing in securities) and type 6 (advising on corporate finance) regulated activities under the SFO and the independent financial adviser to the Independent Board Committee and the Independent Shareholders; “Hong Kong” Hong Kong Special Administrative Region of the People’s Republic of China; “Independent Board Committee” an independent committee of the Board comprising Messrs. Leung Hok Lim, Wong Lam and Lin Keping;

– 1 –

DEFINITIONS

• “Independent Shareholders”

the shareholders of YGM Trading, other than the Chan Family and its associates (as defined under the Listing Rules);

• “Latest Practicable Date”

• 30 August 2005, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining certain information contained in this circular;

• “Listing Rules”

Rules Governing the Listing of Securities on the Stock Exchange;

• “Master Agreement”

• the master agreement dated 3 August 2005 in respect of Garment Sales by Yangtzekiang Garment Group to YGM Trading Group, as described in the section headed “Letter from the Board – Master Agreement” in this circular;

• “Old Listing Rules”

Listing Rules in effect shortly prior to 31 March 2004;

• “SFO”

• Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong);

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

• “Shareholders” holders of shares in the Company;

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

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

“Yangtzekiang Garment Group” Yangtzekiang Garment and its subsidiaries;

• “YGM Marketing”

• YGM Marketing Pte Limited, a private company incorporated in Singapore;

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

• “YGM Trading Group”

YGM Trading and its subsidiaries;

“%” per cent.

– 2 –

LETTER FROM THE BOARD

YGM TRADING LIMITED

(Incorporated in Hong Kong with limited liability)

(Stock Code: 375)

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 Leung Hok Lim Wong Lam Lin Keping*

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

• Independent Non-Executive Director

1 September 2005

To the Shareholders of the Company

Dear Sir or Madam,

CONTINUING CONNECTED TRANSACTIONS

GARMENT SALES BY YANGTZEKIANG GARMENT GROUP TO YGM TRADING GROUP

BACKGROUND

The Board, together with the board of directors of Yangtzekiang Garment, announced on 11 August 2005 that Yangtzekiang Garment Group and YGM Trading Group have been carrying out certain transactions in relation to sales and purchases of garment products and licence arrangement. These transactions constitute continuing connected transactions for the Company under the Listing Rules. Details of these transactions, including the Continuing Connected Transactions, have been disclosed and waivers sought under the Old Listing Rules.

The purpose of this circular is to provide you with further information relating to the Continuing Connected Transactions, to set out the recommendation of Hantec and the advice of the Independent Board Committee in relation to the Continuing Connected Transactions and the related annual caps, and to give you notice of the EGM at which your approval of the Continuing Connected Transactions and the related annual caps will be sought.

– 3 –

LETTER FROM THE BOARD

MASTER AGREEMENT

As required under Rule 14A.35(1) of the Listing Rules, YGM Trading entered into a new master agreement in respect of the Continuing Connected Transactions as described in detail below. The Continuing Connected Transactions are subject to annual review, reporting, announcement and Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

Date: 3 August 2005

Nature of Transaction

Yangtzekiang Garment Group will sell garment products (such as knitwears)(the “Garment Products”) to YGM Trading Group from time to time for trading purposes during the 3-year period ending 31 March 2008.

Pricing Basis

For the three financial years ended 31 March 2005, the annual trading volume of the Garment Products amounted to approximately HK$10,585,000, HK$23,771,000 and HK$35,709,000 respectively.

These garment sales and purchases will be entered into in the ordinary course of business of YGM Trading Group and on terms no less favourable than those available to or from (as the case may be) independent third party.

The prices and terms of these garment sales and purchases will be agreed between the Groups on an order-by-order basis after arm’s length negotiations between them, taking into account the value and volume of the order, the type and design of the products and any specific requirements under the order.

The Company currently estimates that the annual trading volume of garment products will not exceed the maximum annual cap of HK$50,000,000, HK$60,000,000 and HK$70,000,000 for each of the three financial years ending 31 March 2008 respectively. This estimate was made based on (i) the value of and growth in garment sales and purchases in the previous financial years; (ii) significant increase in orders for the Garment Products currently under negotiation between YGM Trading and existing and new third party customers as compared with the sale and purchase of the Garment Products between the Groups during the financial year ended 31 March 2005; and (iii) the estimated growth in market demand for garment products.

As the applicable percentage ratios on an annual basis represent more than 2.5% for the Company and the annual trading volume exceeds HK$10,000,000, this transaction is subject to annual review, reporting, announcement and Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

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LETTER FROM THE BOARD

REASONS FOR AND BENEFITS OF THE CONTINUING CONNECTED TRANSACTIONS

The Continuing Connected Transactions provide the Company additional supplier of garment products and commercial flexibility. The prices and terms of the Continuing Connected Transactions have been and will be agreed on an order-by-order basis after arm’s length negotiations with Yangtzekiang Garment Group taking into account the value and volume of the order, the type and design of the products and any specific requirements under the order. Given the cooperation between the Groups in the past, the Board considers that the continuation of the Continuing Connected Transactions will be beneficial to the business of YGM Trading Group, and do not and are not expected to have any material adverse impact on the business of YGM Trading Group.

The Directors (including the independent non-executive directors of the Company) confirm that the Continuing Connected Transactions will be conducted in the ordinary course of business of the Company and on normal commercial terms, negotiated on an arm’s length basis, and are fair and reasonable and in the interests of the Shareholders as a whole.

PRINCIPAL BUSINESS OF YGM TRADING GROUP, YANGTZEKIANG GARMENT GROUP AND CONNECTION AMONG THE RELEVANT PARTIES

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

The principal businesses of Yangtzekiang Garment Group are manufacturing and sale of garment products and textiles and provision of processing services.

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

==> picture [300 x 140] intentionally omitted <==

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

Chan Family
(including the Chan Directors and their associates)
54.53% 56.06%
Yangtzekiang
YGM Trading
Garment
----- End of picture text -----

As Chan Family is beneficially interested in shares representing approximately 54.53% and approximately 56.06% of the issued share capital of Yangtzekiang Garment and YGM Trading respectively, Yangtzekiang Garment is a connected person of the Company for the purpose of the Listing Rules.

– 5 –

LETTER FROM THE BOARD

EXTRAORDINARY GENERAL MEETING

A notice of the EGM to be held at 22 Tai Yau Street, San Po Kong, Kowloon, Hong Kong on 23 September 2005 at 12:15 p.m. is set out on page 19 of this circular. At the EGM, an ordinary resolution will be proposed to approve the Continuing Connected Transactions and the related annual caps.

A form of proxy for use at the EGM is enclosed. Whether or not you intend to be present and vote at the EGM, you are requested to complete the enclosed form of proxy in accordance with the instructions printed thereon and return it to the Company’s 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 holding of the EGM. The completion of a form of proxy will not preclude you from attending and voting at the EGM in person should you so wish.

In accordance with the Listing Rules, the Chan Family and its associates (as defined under the Listing Rules) will abstain from voting on the resolution to be proposed at the EGM. As at the Latest Practicable Date, the Chan Family together with his associates held an approximately 56.06% interest in the Company.

RECOMMENDATIONS

The Board considers that the terms of the Continuing Connected Transactions and the related annual caps are fair and reasonable and the Continuing Connected Transactions and the related annual caps are in the interests of the Company and its Shareholders as a whole and recommend the Independent Shareholders to vote in favour of the ordinary resolution to be proposed at the EGM.

PROCEDURES FOR DEMANDING A POLL BY SHAREHOLDERS

Pursuant to Article 75 of the existing Articles of Association, at any general meeting a resolution put to the vote of the meeting shall be decided on a show of hands unless a poll is (before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll) demanded:

• (i) by the chairman of the meeting; or

• (ii) by at least three members present in person (or, in the case of a member being a corporation, by its duly authorised representative) or by proxy for the time being entitled to vote at the meeting; or

• (iii) by any member or members present in person (or, in the case of a member being a corporation, by its duly authorised representative) or by proxy and representing not less than one-tenth of the total voting rights of all the members having the right to vote at the meeting; or

• (iv) by a member or members present in person (or, in the case of a member being a corporation, by its duly authorised representative) or by proxy and holding shares in the Company conferring a right to vote at the meeting being shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all the shares conferring that right.

– 6 –

LETTER FROM THE BOARD

ADDITIONAL INFORMATION

The Independent Board Committee, comprising three independent non-executive Directors, namely Messrs. Leung Hok Lim, Wong Lam and Lin Keping, has been formed to advise the Independent Shareholders on how they should vote in relation to the Continuing Connected Transactions and the related annual caps. Hantec has been retained to advise the Independent Board Committee and the Independent Shareholders on the Continuing Connected Transactions and the related annual caps.

Your attention is drawn to the letter from the Independent Board Committee set out on page 8 of this circular and the letter of advice received from Hantec on pages 9 to 13 of this circular.

Your attention is also drawn to the general information set out in the appendix to this circular.

Yours faithfully, By Order of the Board Chan Wing Sun, Samuel Managing Director

– 7 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

YGM TRADING LIMITED

(Incorporated in Hong Kong with limited liability)

(Stock Code: 375)

1 September 2005

To the Independent Shareholders

Dear Sir or Madam,

CONTINUING CONNECTED TRANSACTIONS

GARMENT SALES BY YANGTZEKIANG GARMENT GROUP TO YGM TRADING GROUP

We refer to the circular dated 1 September 2005 of the Company (the “Circular”) of which this letter forms part. Terms defined in the Circular bear the same meanings herein unless the context otherwise requires.

We have been appointed by the Board to form the Independent Board Committee to consider the terms of the Continuing Connected Transactions and the related annual caps and to advise the Independent Shareholders in connection therewith. Hantec has been appointed to advise the Independent Board Committee and the Independent Shareholders in this respect.

We wish to draw your attention to the letter from the Board set out on pages 3 to 7 of the Circular which contains, among other things, information about the Continuing Connected Transactions and the related annual caps, and to the letter of advice from Hantec set out on pages 9 to 13 of the Circular.

Having taken into account the terms of the Continuing Connected Transactions and the related annual caps and the advice of Hantec, we consider the terms of the Continuing Connected Transactions and the related annual caps to be fair and reasonable and in the interests of the Company and the Shareholders as a whole, and recommend the Independent Shareholders to vote in favour of the resolution as set out in the notice of the EGM to approve the Continuing Connected Transactions and the related annual caps.

Yours faithfully, For and on behalf of Independent Board Committee Leung Hok Lim Wong Lam Lin Keping Independent Non-executive Independent Non-executive Independent Non-executive Director Director Director

– 8 –

LETTER FROM HANTEC

The following is the text of a letter of advice to the Independent Board Committee and the Independent Shareholders received from Hantec prepared for the purpose of inclusion in this circular:

Hantec Capital Limited

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

1 September 2005

To the Independent Board Committee and the Independent Shareholders of YGM Trading Limited

Dear Sirs,

CONTINUING CONNECTED TRANSACTIONS

GARMENT SALES BY YANGTZEKIANG GARMENT GROUP TO YGM TRADING GROUP

INTRODUCTION

We refer to our engagement to advise the Independent Board Committee and the Independent Shareholders in connection with the terms of the Master Agreement and the Continuing Connected Transactions including the related annual caps, particulars of which are set out in the circular of the Company dated 1 September 2005 (the “Circular”), of which this letter forms part. Unless the context requires otherwise, capitalised terms used in this letter shall have the same meanings as ascribed to them under the section headed “Definitions” in the Circular.

As referred to in the letter from the Board (the “Letter from the Board”) contained in the Circular, the Master Agreement was entered into between the Companies, pursuant to which YGM Trading Group will purchase the garment products from time to time from Yangtzekiang Garment Group for the three years ending 31 March 2008. As Chan Family is the controlling shareholder (as defined in the Listing Rules) of the Companies, Yangtzekiang Garment is a connected person of the Company and these transactions constitute continuing connected transactions for the Company under Chapter 14A of the Listing Rules, and are subject to applicable disclosure and Independent Shareholders’ approval requirement set out therein.

The Independent Board Committee comprising Messrs. Leung Hok Lim, Wong Lam and Lin Keping, being the independent non-executive Directors, has been established to advise the Independent Shareholders on the terms of the Continuing Connected Transactions and the related annual caps. Any vote of the Independent Shareholders at the EGM shall be taken by poll. The Chan Family and its associates (as defined under the Listing Rules) shall abstain from voting at the EGM in relation to the resolutions approving the Continuing Connected Transactions and the related annual caps.

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LETTER FROM HANTEC

BASES AND ASSUMPTIONS

In arriving at our recommendation, we have relied on the information and facts including, but not limited to the Master Agreement and have assumed that any representations made to us are true, accurate and complete. We have also relied on the statements, information, opinions and representations contained in the Circular and the information and representations provided to us by the Directors and management of the Company. We have assumed that all information, representations and opinions contained or referred to in the Circular and all information, representations and opinions which have been provided by the Directors and management of the Company for which they are solely responsible, are true and accurate at the time they were made and will continue to be accurate at the date of the despatch of the Circular.

The Directors jointly and severally accept full responsibility for the accuracy of the information contained in the Circular and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief, opinions expressed in the Circular have been arrived at after due and careful consideration and there are no other facts not contained in the Circular the omission of which would make any such statement contained in the Circular misleading. We consider that we have been provided with sufficient information on which to form a reasonable basis for our opinion. We have no reason to suspect that any relevant information has been withheld, nor are we aware of any fact or circumstance which would render the information provided and representations and opinions made to us untrue, inaccurate or misleading. Having made all reasonable enquiries, the Directors have further confirmed that, to the best of their knowledge, they believe there are no other facts or representations the omission of which would make any statement in the Circular, including this letter, misleading. We have not, however, carried out any independent verification of the information provided by the Directors and management of the Company, nor have we conducted an independent investigation into the business and affairs of YGM Trading Group.

PRINCIPAL FACTORS CONSIDERED

In arriving at our recommendation in respect of the Master Agreement and the Continuing Connected Transactions as well as the related annual caps, we have taken into consideration the following principal factors:-

I. Background

• (a) Information of YGM Trading Group and Yangtzekiang Garment Group

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

The principal businesses of Yangtzekiang Garment Group are manufacturing and sale of garment products and textiles and provision of processing services.

• (b) Background of the Continuing Connected Transactions

Yangtzekiang Garment Group and YGM Trading Group have been carrying out transactions in relation to sales and purchases of garment products from time to time on an order-by-order basis for trading purposes, on normal commercial terms and in the ordinary course of business of the

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LETTER FROM HANTEC

Companies. Since Chan Family is the controlling shareholder (as defined in the Listing Rules) of the Company and Yangtzekiang Garment, Yangtzekiang Garment is a connected person of the Company and these transactions constitute continuing connected transactions for the Company under the Listing Rules.

For each of the three financial years ended 31 March 2005, the annual trading volume of garment products amounted to approximately HK$10,585,000, HK$23,771,000 and HK$35,709,000 respectively.

II. The Master Agreement

• (a) Terms of the Master Agreement

The Company has entered into the Master Agreement with Yangtzekiang Garment on 3 August 2005, pursuant to which YGM Trading Group would continue to purchase garment products from time to time from Yangtzekiang Garment Group on an order-by-order basis for the three years ending 31 March 2008. As referred to in the Letter from the Board, the Company will need to seek the approval of the Independent Shareholders at the EGM for the Continuing Connected Transactions as well as the related annual caps in respect thereof, and, assuming that the said approval of the Independent Shareholders will be forthcoming, will also need to comply with the reporting requirements set out in Rules 14A.45 and 14A.46 and the annual review requirements of Rules 14A.37 to 14A.41 of the Listing Rules.

Pursuant to the Master Agreement, the prices and terms of these garment sales and purchases will be agreed between the Groups on an order-by-order basis after arm’s length negotiations between them, taking into account the value and volume of the order, the type and design of the products and any specific requirements under the order. As stated in the Letter from the Board, these garment sales and purchases will be entered into in the ordinary course of business of YGM Trading Group and on terms no less favourable than those available to or from (as the case may be) independent third parties.

In this regard, we have reviewed the purchase contracts entered into (i) between YGM Trading Group and Yangtzekiang Garment Group; and (ii) between YGM Trading Group and independent suppliers in 2004, in which, we compared the terms of contracts in relation to the purchase of garment products by YGM Trading Group from Yangtzekiang Garment Group with the terms of contracts in relation to the purchase of similar garment products by YGM Trading Group from independent suppliers. We have noted that the principal terms of the transactions, amongst others, the prices and the payment terms of garment products as stipulated therein, are comparable to those of the independent suppliers.

On the basis that (i) the Master Agreement are entered into in the ordinary course of business of the Company and are based on normal commercial terms; (ii) the prices of garment products are comparable to those obtained from independent suppliers; and (iii) the Directors confirmed that the prices of garment products will be entered on terms no less favourable than those available from independent third suppliers, we consider that the Continuing Connected Transactions provide the Company with additional source of garment products, a wider spectrum of choices and more commercial flexibility and the prices of garment products will be entered on terms no less favourable than those available from independent suppliers.

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LETTER FROM HANTEC

(b) Reasons for entering into of the Master Agreement

The Continuing Connected Transactions provide the Company an additional supplier of garment products and commercial flexibility. The prices and terms of Continuing Connected Transactions have been and will be agreed on an order-by-order basis after arm’s length negotiations with Yangtzekiang Garment Group taking into account the value and volume of the order, the type and design of the products and any specific requirements under the order. Given the cooperation between the Companies in the past, the Board considers that the continuation of the Continuing Connected Transactions will be beneficial to the business of YGM Trading Group, and do not and are not expected to have any material adverse impact on the business of YGM Trading Group.

The Directors (including independent non-executive Directors) confirm that the Continuing Connected Transactions will be conducted in the ordinary course of business and on normal commercial terms, negotiated on an arm’s length basis, and are fair and reasonable and in the interests of the Shareholders as a whole.

For these reasons, we concur with the view of the Directors that it is beneficial for YGM Trading Group to enter into the Master Agreement and we consider that it is reasonable to continue to choose Yangtzekiang Garment Group as one of the suppliers of garment products to YGM Trading Group for the three years ending 31 March 2008. We consider that the Continuing Connected Transactions were and will be conducted in the ordinary course of business and on normal commercial terms and are fair and reasonable and in the interests of the Shareholders as a whole.

III. Bases of the related annual caps

As set out in the Letter from the Board, the Companies currently estimate that the annual trading volume of garment products will not exceed the maximum annual cap of HK$50,000,000, HK$60,000,000 and HK$70,000,000 for each of the three financial years ending 31 March 2008 respectively. As advised by the Directors, this estimate was made based on (i) the value of and growth in garment sales and purchases in the previous financial years; (ii) significant increase in orders for garment products currently under negotiation between the Company and existing and new third party customers as compared with the financial year ended 31 March 2005; and (iii) the estimated growth in market demand for garment products.

Having reviewed the information provided by the Company and noted from the China Statistical Yearbook that:

• (i) the value of the purchases of garment products from Yangtzekiang Garment Group had increased approximately 124.6% and 50.2% for the years ended 31 March 2004 and 31 March 2005 respectively,

• (ii) there has a significant increase in orders for garment products currently under negotiation between the Company and existing and new third party customers as compared with the financial year ended 31 March 2005; and

• (iii) according to China Statistical Yearbook 2004 (中國統計年鑒 2004) issued by National Bureau of Statistics of China (中國國家統計局 ), (a) the gross domestic product of the PRC, being the major market of YGM Trading Group’s garment products, increased from

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LETTER FROM HANTEC

approximately RMB8,946.8 billion in 2000 to approximately RMB11,725.2 billion in 2003, represented a compound annual growth rate of approximately 9.4%; and (b) the per capita annual consumption of clothing of urban households in the PRC increased from approximately RMB500.5 in 2000 to approximately RMB637.7 in 2003, represented a compound annual growth rate of approximately 8.4%.

Taking into consideration that (i) there has a significant increase in orders for garment products currently under negotiation between the Company and existing and new third party customers as compared with the sale and purchase of garment products between the Groups during the financial year ended 31 March 2005; and (ii) the trading value of garment products purchased by YGM Trading Group from Yangtzekiang Garment Group had increased approximately 124.6% and 50.2% for the years ended 31 March 2004 and 31 March 2005 respectively, the Directors consider that the proposed annual cap of HK$50,000,000 for the year ending 31 March 2006, represent an estimate increase of approximately 40% as compared with the historical amount of purchase of garment products from Yangtzekiang Garment Group of approximately HK$35,709,000 during the year ended 31 March 2005, is fair and reasonable.

In addition, in view of (i) the aforesaid growth of historical trading value of garment products between YGM Trading Group and Yangtzekiang Garment Group for the three years ended 31 March 2005; and (ii) the increase in the per capita annual consumption of clothing in the PRC from 2000 to 2003, we consider that the consumption of garment products would continue to increase along with the increase in the gross domestic product in the PRC and we concur with the Directors that the increase in the proposed annual caps for the three years ending 31 March 2008 is fair and reasonable.

Based on the aforesaid reasons, we consider that the proposed annual caps in relation to the Continuing Connected Transactions for the three years ending 31 March 2008 are fair and reasonable and are in the interests of the Independent Shareholders and YGM Trading Group as a whole.

OPINION

Based on the information and reasons provided by the Company and the nature of business of YGM Trading Group, we note that the Continuing Connected Transactions were carried out in the ordinary and usual course of business of the Company 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 terms of and reasons for entering into of the Master Agreement; and (ii) the bases and assumptions adopted in arriving at the related annual caps for the three years ending 31 March 2008, we consider that the entering into the Master Agreement is in the interest of the Company and the Shareholders as a whole and that the terms thereof and the Continuing Connected Transactions including the related annual caps are fair and reasonable so far as the Company and the Shareholders are concerned. Accordingly, we advise the Independent Shareholders, as well as the Independent Board Committee to recommend the Independent Shareholders, to vote in favor of the ordinary resolution to be proposed at the EGM to approve the Continuing Connected Transactions and the related annual caps.

Yours faithfully,

For and on behalf of

Hantec Capital Limited Thomas Lai

Director

– 13 –

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) Interests of Directors and chief executive

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

(i) Directors’ interests in shares of the Company:

		Number of Shares	Number of Shares
	Personal	Family	Corporate		Other
Name of Director	interests (i)	interests	interests		interests
Chan Sui Kau	4,929,272	214,368	3,840,820		(ii)
Chan Wing Fui Peter	324,068	3,820,420		–	(ii) & (iii) & (iv)
Chan Wing Sun Samuel	2,072,072	–	7,291,144		(ii) & (iii) & (iv)
Chan Suk Ling Shirley	3,613,544	16,000		–	(ii) & (iii) & (iv)
Chan Wing Ming Michael	2,967,208	–		–	(ii) & (iii) & (iv)
Chan Wing Kee	3,692,776	819,404		–	(ii) & (iii) &
					(iv) & (v)
Chan Wing To	4,144,736	–		–	(ii) & (iii) &
					(iv) & (v)
Fu Sing Yam William	598,835	–		–	–
Leung Hok Lim	–	–		–	–
Wong Lam	–	–		–	–
Lin Keping	–	–		–	–

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GENERAL INFORMATION

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Notes:

• (i) These shares are registered under the name of the respective directors and chief executive of the Company who are the beneficial owners.

• (ii) 19,903,700 shares of the Company were held by Chan Family Investment Corporation Limited (which is owned by 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 and other members of the Chan family) and its subsidiaries.

• (iii) 24,595,908 shares of the Company were held by Canfield Holdings Limited, which is beneficially owned by Messrs. Chan Wing Fui Peter, Chan Wing Kee, Chan Wing Sun Samuel, Chan Wing To, Chan Wing Ming Michael, Madam Chan Suk Ling Shirley and other members of the Chan family.

• (iv) 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, Chan Wing To, Chan Wing Ming Michael, Madam Chan Suk Ling Shirley and other members of the Chan family.

• (v) 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 other members of the Chan family.

• (ii) Directors’ interests in share options granted by the Company:

Pursuant to a share option scheme adopted by the Company on 23 September 2004, the Company had on 17 January 2005 granted to certain Directors the rights to subscribe for Shares at an exercise price of HK$12.10 per Share exercisable during the period from 16 February 2005 to 15 February 2015 (both days inclusive), details of which are as follows:

Name of Director	Number of share options
Chan Sui Kau	1,000,000
Chan Wing Fui Peter and his spouse	1,500,000
Chan Wing Sun Samuel	1,200,000
Chan Suk Ling Shirley	1,500,000
Chan Wing Kee	800,000
Chan Wing To	500,000
Fu Sing Yam William	1,200,000
Leung Hok Lim	100,000
Wong Lam	25,000
Lin Keping	25,000

Save as disclosed above, as at the Latest Practicable Date, none of the Directors or the Company’s chief executive, had, under Divisions 7 and 8 of Part XV of the SFO, nor were they taken to or deemed to have under such provisions of the SFO, any interests or short positions in the shares, underlying shares or debentures of the Company or any associated corporations (within the meaning of Part XV of the SFO) or any interests which are required to be entered into the register kept by the Company pursuant to section 352 of the SFO or any interests which are required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies in the Listing Rules.

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GENERAL INFORMATION

APPENDIX

• (B) As at the Latest Practicable Date, none of the Directors has any direct or indirect interest in any assets which have been, since 31 March 2005 (being the date to which the latest published audited consolidated financial statements of the Company were made up), acquired or disposed of by or leased to any member of YGM Trading Group, or which are proposed to be acquired or disposed of by or leased to any member of YGM Trading Group;

• (C) As at the Latest Practicable Date, none of the Directors are materially interested in any contract or arrangement which was significant in relation to the business of YGM Trading Group taken as a whole.

(D) Substantial Shareholdings

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.

3. COMPETING INTEREST

As at the Latest Practicable Date, in so far as the Directors were aware, none of the Directors or their respective associates had any interest in a business which competed or was likely to compete with the business of YGM Trading Group.

4. EXPERT AND CONSENT

• (a) The following is the qualification of the expert which has given its advice contained in this circular:

Name Qualifications

Hantec Capital Limited Licensed corporation for type 1 (dealing in securities) and type 6 (advising on corporate finance) regulated activities under the SFO

• (b) Hantec does not have any shareholding, direct or indirect, in any member of YGM Trading Group or any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of YGM Trading Group.

• (c) Hantec has given and has not withdrawn its written consent to the issue of this circular with the inclusion of their letter and references to its name in the form and context in which they are included.

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GENERAL INFORMATION

APPENDIX

• (d) Hantec does not have any interest, direct or indirect, in any assets which have been acquired or disposed of by or leased to any member of YGM Trading Group, or which are proposed to be acquired or disposed of by or leased to any member of YGM Trading Group since 31 March 2005, being the date to which the latest published audited consolidated financial statements of the Company were made up.

• (e) The letter given by Hantec is given as of the date of this circular for incorporation herein.

5. MATERIAL ADVERSE CHANGE

The Directors confirm that, as at the Latest Practicable Date, they were not aware of any material adverse change in the financial or trading position of YGM Trading Group since 31 March 2005, being the date to which the latest published audited consolidated financial statements of the Company were made up.

6. DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had entered into any service contracts with the Company or any member of YGM Trading Group, other than contracts expiring or determinable by the employer within one year without payment of compensation (other than statutory compensation).

7. CORPORATE INFORMATION

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

• (b) The registered office, head office and principal place of business in Hong Kong is 22 Tai Yau Street, San Po Kong, Kowloon, Hong Kong.

• (c) The share registrar and transfer office of the Company is Computershare Hong Kong Investor Services Limited at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong.

8.

LANGUAGE

In the event of inconsistency, 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 23 September 2005:–

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

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GENERAL INFORMATION

APPENDIX

• (b) Master Agreement in respect of Garment Sales by Yangtzekiang Garment Group to YGM Trading Group dated 3 August 2005;

• (c) the letter from the Independent Board Committee, the text of which is set out on page 8 of this circular; and

• (d) the letter from Hantec, the text of which is set out on pages 9 to 13 of this circular.

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NOTICE OF EXTRAORDINARY GENERAL MEETING

YGM TRADING LIMITED

(Incorporated in Hong Kong with limited liability)

(Stock Code: 375)

NOTICE IS HEREBY GIVEN that an Extraordinary General Meeting of YGM Trading Limited (the “Company”) will be held at 22 Tai Yau Street, San Po Kong, Kowloon, Hong Kong on 23 September 2005 at 12:15 p.m. for purpose of considering and, if thought fit, passing the following resolution as an ordinary resolution:

ORDINARY RESOLUTION

“ THAT the Continuing Connected Transactions (as defined in the circular to the shareholders of YGM Trading Limited dated 1 September 2005 (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) and the related annual caps in respect of each of the three financial years ending 31 March 2008 be and are hereby approved, and the Directors of the Company be and are hereby authorised to execute all such documents and do all such acts as they may in their absolute discretion consider expedient, necessary or desirable to give effect to the transactions contemplated under the Continuing Connected Transactions.”

By Order of the Board Leung Wing Fat Company Secretary

Hong Kong, 1 September 2005

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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