01 li & fung (d&ct) cover

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

21 November 2007

LI & FUNG LIMITED(Incorporated in Bermuda with limited liability)

(Stock Code: 494)

DISCLOSEABLE AND CONNECTED TRANSACTIONS

DISPOSAL AND LEASEBACK OF PROPERTIES

Independent Financial Adviser to the Independent Board Committee

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

If you have sold or transferred all your shares in Li & Fung Limited, you should at oncehand this circular to the purchaser or the transferee or to the bank, stockbroker or otheragent through whom the sale or transfer was effected for transmission to the purchaser orthe transferee.

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

A letter from the Independent Board Committee to the Independent Shareholders is setout on pages 13 to 14 of this circular. A letter from the Independent Financial Adviser tothe Independent Board Committee and the Independent Shareholders is set out on pages15 to 28 of this circular.

A notice convening the SGM to be held at Pheasant & Jasmine Room, 1st Floor, MandarinOriental, 5 Connaught Road Central, Hong Kong on 7 December 2007 at 12:00 noon is setout on page 46 of this circular. Whether or not you are able to attend the SGM, you arerequested to complete and return the enclosed form of proxy in accordance with theinstructions printed thereon as soon as possible and in any event not less than 48 hoursbefore the time appointed for the holding of the SGM. Completion and return of the formof proxy will not preclude you from attending and voting in person at the SGM shouldyou so wish.

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CONTENT

Page

Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Letter from the Board

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5The Agreements dated 5 November 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6Leaseback . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8Previous Disposals and Leaseback . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9Information on Property Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10Reasons for and effects of the Disposal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11Listing Rules Implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Letter from the Independent Financial Adviser . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Appendix I – Property Valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Appendix II – Additional Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

Notice of Special General Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

DEFINITIONS

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

“Adjusted Sum” The increase/decrease in the aggregate amount of thecombined assets (other than the Properties) excludingdeferred tax assets minus the liabilities excluding anydeferred tax liabilities of the Property Companies asshown in their unaudited accounts for the periodending on the Completion date comparing with theunaudited accounts for the period ended on 31 October2007 . The Adjus ted Sum sha l l not exceedHK$10,000,000

“Agreements” the two agreements for the sale and purchase of theProperty Companies all dated 5 November 2007between the Vendor and the Purchasers

“Announcement” the announcement of the Company dated 5 November2007 in respect of the Disposal and Leaseback

“applicable percentage ratio”, each of them has the meaning ascribed to it under the“associate”, and Listing Rules“connected person”

“Board” the board of Directors

“CBRE” CB Richard Ellis Limited, an independent professionalproperty valuer

“Company” Li & Fung Limited, a company incorporated inBermuda with limited liability and whose shares arelisted on the Stock Exchange

“Completion” Completion of the Disposal in accordance with theterms and conditions of the Agreements

“Directors” the directors of the Company

“Disposal” the disposal of the Property Companies under theAgreements

“Group” the Company and its subsidiaries

“HK$” Hong Kong dollars, the lawful currency of Hong Kong

DEFINITIONS

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“HK GAAP” Hong Kong Generally Accepted Accounting Principles

“Hong Kong” Hong Kong Special Administrative Region of thePeople’s Republic of China

“Independent Board Committee” an independent committee appointed by the Boardcomprising all the independent non-executiveDirectors to advise the Independent Shareholders inrespect of the Disposal

“Independent Financial Adviser” Commerzbank AG, acting through its Hong Kongor “Commerzbank” Branch, a licensed bank under the Banking Ordinance

(Chapter 155 of the Laws of Hong Kong) and anauthorized financial institution under the SFO toconduct type 1 (dealing in securities), type 4 (advisingon securities) and type 6 (advising on corporatefinance) regulated activities as set out in Schedule 5 tothe SFO, and appointed as the independent financialadviser to the Independent Board Committee and theIndependent Shareholders in relation to the Disposal

“Independent Shareholders” Shareholders other than Dr. Victor Fung Kwok Kingand Dr. William Fung Kwok Lun and their respectiveassociates

“Latest Practicable Date” 14 November 2007, being the latest practicable dateprior to the printing of this circular for ascertainingcertain information contained in this circular

“Leaseback” the leasing of the Properties by the Tenant

“Listing Rules” Rules Governing the Listing of Securities on the StockExchange

“Previous Announcement” the announcement of the Company dated 22 December2006

“Previous Disposal” the disposal of certain properties by the Group, detailsof which are described in the Previous Announcement

“Previous Leaseback” the leaseback of certain properties by the Group,details of which are described in the PreviousAnnouncement

“Properties” Property 1A, Property 1B, Property 1C, Property 2Aand Property 2B

DEFINITIONS

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“Property 1A” Units A, B and D on Ground Floor, 1st Floor and 2ndFloor, Phases I & II, Hong Kong Spinners IndustrialBuilding, 800 Cheung Sha Wan Road, Hong Kong withlettable area of 168,447 square feet

“Property 1B” 3rd Floor, Phases I & II, Hong Kong Spinners IndustrialBuilding, 800 Cheung Sha Wan Road, Hong Kong withlettable area of 65,761 square feet

“Property 1C” Units C and D on 4th Floor, Phases I & II, Hong KongSpinners Industrial Building, 800 Cheung Sha WanRoad, Hong Kong with lettable area of 35,165 squarefeet

“Property 2A” LiFung Tower, 868 Cheung Sha Wan Road, Kowloon,Hong Kong with lettable area of 126,687 square feet

“Property 2B” LiFung Tower, 888 Cheung Sha Wan Road, Kowloon,Hong Kong with lettable area of 103,566 square feet

“Property 1 Companies” Property 1A Company, Property 1B Company andProperty 1C Company

“Property 1A Company” Ultimate Quest Limited, a company incorporated inHong Kong and, prior to the Disposal, an indirectwholly-owned subsidiary of the Company

“Property 1B Company” Clear Lake Group Limited, a company incorporatedin Hong Kong and, prior to the Disposal, an indirectwholly-owned subsidiary of the Company

“Property 1C Company” Eaglefame Investments Limited, a companyincorporated in Hong Kong and, prior to the Disposal,an indirect wholly-owned subsidiary of the Company

“Property 2 Companies” Property 2A Company and Property 2B Company

“Property 2A Company” Albinina Limited, a company incorporated in HongKong and, prior to the Disposal, an indirect wholly-owned subsidiary of the Company

“Property 2B Company” Li & Fung Development Limited, a companyincorporated in Hong Kong and, prior to the Disposal,an indirect wholly-owned subsidiary of the Company

“Property Companies” Property 1 Companies and Property 2 Companies

DEFINITIONS

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“Purchasers” LFC Holdings Limited, the purchaser of the Property1 Companies; and

LFT (Holdings) Limited, the purchaser of the Property2 Companies

“SFO” the Securities and Futures Ordinance (Chapter 571 ofthe Laws of Hong Kong)

“SGM” the special general meeting of the Company to be heldat Pheasant & Jasmine Room, 1st Floor, MandarinOriental, 5 Connaught Road Central, Hong Kong on 7December 2007 at 12:00 noon at which an ordinaryresolution will be proposed to approve, among otherthings, the Disposal, the Agreements and thetransactions contemplated thereunder, the notice ofwhich is set out at the end of this circular

“Shareholders” shareholders of the Company

“Stock Exchange” The Stock Exchange of Hong Kong Limited

“Tenant” Li & Fung (Trading) Limited, an indirect wholly-ownedsubsidiary of the Company

“Vendor” Li & Fung (Properties) Limited, an indirect wholly-owned subsidiary of the Company

“%” per cent

LETTER FROM THE BOARD

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Non-Executive Directors: Executive Directors:Victor Fung Kwok King William Fung Kwok Lun

(Chairman) (Managing Director)Paul Edward Selway-Swift* Bruce Philip RockowitzAllan Wong Chi Yun* Henry ChanFranklin Warren McFarlan* Danny Lau Sai WingMakoto Yasuda* Annabella Leung Wai PingLau Butt Farn

* independent non-executive director

Registered Office: Principal place of business:Canon’s Court 11th Floor22 Victoria Street LiFung TowerHamilton HM 12 888 Cheung Sha Wan RoadBermuda Kowloon

Hong Kong

21 November 2007



To Shareholders,

Dear Sirs or Madam,

INTRODUCTION

The Board announced in the Announcement that on 5 November 2007, the Vendorentered into the Agreements to dispose of the Property Companies, the assets of whichmainly comprise the Properties, to the Purchasers at an aggregate consideration ofHK$448,842,000 in cash (subject to adjustments as described below), and the Group alsoagreed to lease back the Properties at an aggregate monthly rental of HK$4,791,750 for anunexpired term of one month with three options exercisable by the Tenant to renew eachfor a further term of three years in terms set out in the Announcement. The Group hasexercised its options to renew the first term.


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As the Purchasers are connected persons of the Company by virtue of therelationships set out below, the Disposal constitutes a connected transaction, and theLeaseback will constitute a continuing connected transaction, for the Company under theListing Rules. As the aggregate consideration for the Disposal represents more than 5%but less than 25% under the applicable percentage ratios under the Listing Rules, theDisposal also constitutes a discloseable transaction of the Company. The Disposal willtherefore be subject to the Independent Shareholders’ approval requirements at the SGM.

The Independent Board Committee has been formed to consider and advise theIndependent Shareholders in respect of the Disposal. Commerzbank has been appointedas the Independent Financial Adviser to provide advice and recommendation to theIndependent Board Committee and the Independent Shareholders in respect of the Disposal.

The purpose of this circular is to give you (i) further information in relation to theDisposal and the Agreements; (ii) the letter of recommendation from the IndependentBoard Committee to the Independent Shareholders; (iii) the letter of advice from theIndependent Financial Adviser to the Independent Board Committee and the IndependentShareholders; (iv) the valuation report from CBRE; (v) the notice of the SGM; and (vi)other information as required under the Listing Rules.

The Leaseback together with the Previous Leaseback are only subject to the reportingand announcement requirements, but are exempted from the Independent Shareholders’approval requirement under the Listing Rules as all the applicable percentage ratios forthe Leaseback and the Previous Leaseback are less than 2.5%.

THE AGREEMENTS DATED 5 NOVEMBER 2007

Parties

Vendor: Li & Fung (Properties) Limited, an indirect wholly-ownedsubsidiary of the Company.

Purchasers: For the purchase of Property 1 Companies, LFC Holdings Limited

For the purchase of Property 2 Companies, LFT (Holdings) Limited

Both of the Purchasers, of which the principal activities areproperties holding, are indirectly wholly-owned by Dr. WilliamFung Kwok Lun and a trust established for the family of Dr. VictorFung Kwok King.


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Assets to be sold

In respect of the agreement for the sale of Property 1 Companies:

The entire issued share capital of Property 1A Company, Property 1B Company andProperty 1C Company, which are property holding companies, and the principal assets ofwhich are Property 1A, Property 1B and Property 1C, respectively.

In respect of the agreement for the sale of Property 2 Companies:

The entire issued share capital of Property 2A Company and Property 2B Company,which are property holding companies, and the principal assets of which are Property 2Aand Property 2B, respectively.

The Properties were occupied by the Group prior to the Disposal and are intendedto be occupied by the Group pursuant to the Leaseback.

Consideration

The aggregate considerations for the disposal of the Property Companies was initiallyHK$448,842,000, comprising HK$379,156,000 for Property 1A Company, Property 1BCompany and Property 1C Company, HK$69,686,000 for Property 2A Company, andProperty 2B Company. The said considerations will then be adjusted by adding/subtractingthe Adjusted Sum in pursuance of the Agreements. The Adjusted Sum shall not exceedHK$10,000,000.

The payment terms of the said considerations are as follows:

(1) an initial deposit of HK$22,442,100 was paid in cash upon signing of theAgreements; and

(2) the balance of the said considerations of HK$426,399,900 plus/minus theAdjusted Sum shall be paid in cash upon Completion.

Prior to the Completion, the Purchasers undertake to advance interest free call loansof not exceeding HK$961,415,000 in aggregate to the Property Companies solely for thepurpose for them to repay all the outstanding indebtedness owed by them to the Group.Such outstanding indebtedness owed to the Group will be fully repaid by the PropertyCompanies in cash immediately prior to Completion.

The said considerations were agreed after arm’s length negotiations between theVendor and the Purchasers with reference to the agreed price of the Properties plus assets(other than the Properties) excluding deferred tax assets, minus the liabilities excludingdeferred tax liabilities of the Property Companies as shown in their unaudited accountsfor the period ended 31 October 2007 prepared in accordance with HK GAAP. The agreedprice of each of the Properties was computed at an average of the two valuations as at 30September 2007 based on vacant possession basis prepared by two independent professional


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valuers, namely, CB Richard Ellis Limited (appointed by the Vendor) and Jones LangLaSalle Limited (appointed by the Purchasers), in respect of each of the Properties. Theaggregate of the said average valuations of the Properties is HK$1,401,500,000, comprisingHK$691,500,000 for Property 1A, Property 1B and Property 1C, and HK$710,000,000 forProperty 2A and Property 2B. The summary of valuations and valuation certificates fromCBRE is set out in Appendix I to this circular. To the best of the Directors’ knowledge, thesaid two independent professional valuers and their respective ultimate beneficial ownersare independent of the Company and its connected persons.

Completion

Completion of the Agreements is conditional upon the passing by the IndependentShareholders at the SGM to be held on 7 December 2007 an ordinary resolution to approvethe Disposal, the Agreements and the transactions contemplated thereunder.

Completion shall take place within 5 business days after the above condition hasbeen satisfied, or such other date as the parties thereto may agree.

LEASEBACK

The Tenant has leased Property 1A, Property 2A and Property 2B since 1 January2005, Property 1B since 20 March 2006 and Property 1C since 1 March 2007 and intends tomaintain such leases after the Disposal. It was agreed that such leases can be maintainedbased on the existing terms and rentals. All the terms of such leases are recorded by fivetenancy agreements dated 5 November 2007 for the leasing of the Properties, the principalterms of which were set out in the Announcement.

The Group also agreed to lease back the Properties at an aggregate monthly rentalof HK$4,791,750 for an unexpired term of one month with three options exercisable by theTenant to renew each for a further term of three years. The aforesaid rentals for theexisting term ending 31 December 2007 had been agreed by the Tenant and PropertyCompanies before the commencement of the leases on 1 January 2005 (in respect of Property1A, Property 2A and Property 2B), 20 March 2006 (in respect of Property 1B) and 1 March2007 (in respect of Property 1C). As the aggregate rentals for the existing term ending 31December 2007 are less 0.1% of each of the applicable percentage ratios on an annualbasis, the leaseback contemplated under the existing term ending 31 December 2007 isexempt from the reporting, announcement and independent shareholders’ approvalrequirements under the Listing Rules.

The Group has exercised its options to renew the first term of tenancy agreement ata total rental of HK$71,946,144 per annum for the Properties for the period from 1 January2008 to 31 December 2010. The rentals for the first renewed term were agreed after arm’slength negotiations between the parties with reference to the market rent.


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PREVIOUS DISPOSALS AND LEASEBACK

As noted from the Previous Announcement, the Group has entered into the PreviousDisposal, pursuant to which the following properties were disposed of at an aggregateconsideration of HK$67,972,658 to a connected person of the Company, which is an associateof Dr. Victor Fung Kwok King and Dr. William Fung Kwok Lun:

• Car Park Space Nos. 15-20 on Ground Floor and 7th Floor, Phases I & II, HongKong Spinners Industrial Building, 800 Cheung Sha Wan Road, Hong Kong(“Premises X”);

• Roofs, External Walls, Canopy, and certain area on the Ground Floor, of PhasesI & II, Hong Kong Spinners Industrial Building, 800 Cheung Sha Wan Road,Hong Kong (“Premises Y”);

• Block A, Workshops A1, A5 and A7, 8/F, Hong Kong Industrial Centre, 481-489 Cheung Sha Wan Road, Hong Kong; and

• Workshop 8, 5/F, Hong Leong Plaza, 33 Lok Yip Road, Fanling, N.T., HongKong.

The Previous Disposal was structured by way of disposing the holding companiesof such properties. Premises X and Premises Y were then leased back to the Group at anaggregate monthly rental of HK$657,611 for a then unexpired term of 1 year ending on 31December 2007 with options to renew. The Group has exercised its options to renew the3-year terms all commencing from 1 January 2008 and ending on 31 December 2010 andthe relevant rents are to be based on open market rent as at the commencement of therelevant renewed terms, but subject to a maximum aggregate monthly rental of not morethan HK$789,133.

It is currently expected that the total maximum annual rental payable in relation tothe initial renewed terms under the present Leaseback and the renewed terms in respectof the Previous Leaseback will be HK$81,415,740. The Board decides that for the purposeof the continuing connected transactions arising from the renewals in respect of the PreviousLeaseback and the present Leaseback, the annual caps for each of the financial year ending31 December 2008, 2009 and 2010 will be HK$81,415,740 per annum.

The Leaseback together with the Previous Leaseback are only subject to the reportingand announcement requirements, but is exempted from the Independent Shareholders’approval requirement under the Listing Rules as all the applicable percentage ratios forthe Leaseback and the Previous Leaseback are less than 2.5%.


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INFORMATION ON PROPERTY COMPANIES

The Property Companies are indirect wholly-owned subsidiaries of the Company.Their principal activities are property investment and their assets mainly comprise theProperties. Based on the audited accounts for the two years ended 31 December 2006 ofrespective Property Companies, the book value and net profits before and after taxationand extraordinary items of the Property Companies are as follows:

Property Property Property Property Property1A 1B 1C 2A 2B

Company Company Company Company Company(HK$’000) (HK$’000) (HK$’000) (HK$’000) (HK$’000)

As at 31/12/2006Book value (Net assets/

(liabilities)) 8,186 1,979 (7,165) (12,645) 5,600

For year ended 31/12/2006Net profits/(losses)

before taxation andextraordinary items 13,729 2,686 (6,174) (1,156) (3,934)

Net profits/(losses)after taxation andextraordinary items 10,798 2,420 (6,161) (1,663) (4,360)

For year ended 31/12/2005Net profits/(losses)

before taxation andextraordinary items 16,392 (3,410) (956)* 353 (3,178)

Net profits/(losses)after taxation andextraordinary items 16,839 (1,553) (1,004)* (429) (3,747)

* The above financial information for Property 1C Company is for the period from 24 June 2005 (date ofincorporation) to 31 December 2005.

USE OF PROCEEDS

The aggregate net proceeds from the Disposal is estimated to be approximatelyHK$1,390,000,000. Presently, the Group intends to use the said net proceeds to finance itsfuture business acquisitions and to increase its working capital.


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REASONS FOR AND EFFECT OF THE DISPOSAL

The Group is the world’s leading buying agency for consumer goods, managing thesupply chain for retailers and brands worldwide.

The Directors consider that the Disposal allow the Group to achieve its asset lightstrategy while obtaining long leases for the Group’s use. The Directors consider that theterms of the Disposal are on normal commercial terms and are fair and reasonable and theDisposal is in the interests of the Company and its Shareholders as a whole.

As a result of the Disposal, the Group is expected to record an unaudited gain ofapproximately HK$449,000,000 in aggregate after deducting an estimated expenses ofapproximately HK$14,700,000. The Group, as the tenant of the Properties under theleaseback arrangement, shall be subject to immediate aggregate monthly rental expensesof HK$4,791,750 for 2007. The agreed aggregate monthly rental expenses payable for 2008to 2010 shall be HK$5,995,512. In so far as assets and liabilities are concerned, bankbalances of the Group will be increased by approximately HK$1,390,000,000 while the netbook value of the fixed assets and premium for land leases will be reduced byapproximately HK$263,000,000 and HK$664,000,000, respectively. Save as the aforesaid,there will not be any material financial impact to the Group.

LISTING RULES IMPLICATIONS

To the best knowledge of the Directors, the Purchasers are property holdingcompanies and are indirectly wholly-owned by Dr. William Fung Kwok Lun and a trustestablished for the family of Dr. Victor Fung Kwok King. As Dr. Victor Fung Kwok Kingand Dr. William Fung Kwok Lun are the Chairman and Managing Director of the Companyrespectively, the Purchasers are thus connected persons of the Company.

Accordingly, the Disposal constitutes a connected transaction for the Company underthe Listing Rules. As the aggregate consideration involved for the Disposal representsmore than 5% but less than 25% under the applicable percentage ratios under the ListingRules, the Disposal also constitutes a discloseable transaction of the Company. The Disposalwill therefore be subject to the reporting, announcement and Independent Shareholders’approval requirements under the Listing Rules.

Dr. Victor Fung Kwok King, Dr. William Fung Kwok Lun and their respectiveassociates (together holding approximately 37.29%) will abstain from voting the resolutionto approve the Disposal, the Agreements and the transactions contemplated thereunder.

The Independent Board Committee of the Company comprising Mr. Paul EdwardSelway-Swift, Mr. Allan Wong Chi Yun, Professor Franklin Warren McFarlan andMr. Makoto Yasuda, all being independent non-executive Directors, has been formed toadvise the Independent Shareholders in respect of the Disposal, the Agreements and thetransactions contemplated thereunder. Commerzbank has been appointed as theIndependent Financial Adviser to provide advice and recommendation to the IndependentBoard Committee and the Independent Shareholders.


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RECOMMENDATIONS

The Independent Board Committee, having taken into account the advice of theIndependent Financial Adviser, considers that the terms of the Disposal and the Agreementsare fair and reasonable and are in the interests of the Company and its shareholders as awhole. Accordingly, the Independent Board Committee recommends the IndependentShareholders to vote in favour of the ordinary resolution to be proposed at the SGM toapprove the Disposal, the Agreements and the transactions contemplated thereunder.

SGM

A notice of the SGM to be held at Pheasant & Jasmine Room, 1st Floor, MandarinOriental, 5 Connaught Road Central, Hong Kong on 7 December 2007 at 12:00 noon is setout on page 46 of this circular.

A form of proxy for use at the SGM is enclosed. A member entitled to attend andvote at the above meeting may appoint one or more proxies to attend and vote instead ofhim. A proxy need not be a member of the Company. Whether or not you intend to bepresent at the SGM, you are requested to complete the form of proxy and return it to theHong Kong office of the Company in accordance with the instructions printed thereon notless than 48 hours before the time fixed for holding the SGM. Such form of proxy for useat the SGM is also published on the websites of the Company and the Stock Exchange.Completion and return of the form of proxy will not preclude you from attending andvoting in person at the SGM should you so wish.

Pursuant to Bye-law 78 of the Bye-laws of the Company and as required under theListing Rules, the resolution to be proposed at the SGM will be voted by poll. The resultof the poll will be published on the websites of the Company and the Stock Exchange. Theprocedure to demand a poll is set out in the Appendix II to this circular.

GENERAL

Your attention is drawn to the additional information regarding the Group which isrequired to be included in this circular under the Listing Rules as set out in the AppendixII to this circular.

Yours faithfully,By Order of the Board

Victor Fung Kwok KingChairman

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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Registered Office:Canon’s Court22 Victoria StreetHamilton HM12Bermuda

Principal place of business:11th FloorLiFung Tower888 Cheung Sha Wan RoadKowloonHong Kong

21 November 2007

To the Independent Shareholders

Dear Sir or Madam,



We have been appointed by the Board to form the Independent Board Committee toadvise you in connection with the Disposal, the Agreements and the transactionscontemplated thereunder, details of which are set out in the letter from the Board containedin the circular to the Shareholders dated 21 November 2007 (the “Circular”), of which thisletter forms part. Terms defined in the Circular shall have the same meanings when usedherein unless the context otherwise requires.

Commerzbank has been appointed as the Independent Financial Adviser to considerand advise the Independent Board Committee on the Disposal, the Agreements and thetransactions contemplated thereunder.

We wish to draw your attention to the letter of the Board set out on pages 5 to 12 ofthe Circular which contains, among other things, information about the Disposal, theAgreements and the transactions contemplated thereunder, and to the letter of advicefrom the Independent Financial Adviser set out on pages 15 to 28 of the Circular.

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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Having considered the terms of the Disposal and the Agreements, and the principalfactors, reasons and opinion of the Independent Financial Adviser in relation thereto asset out on pages 15 to 28 of the Circular, we are of the opinion that the terms of theDisposal and the Agreements are fair and reasonable and are in the interests of the Companyand its shareholders as a whole. We therefore recommend that you vote in favour of theordinary resolution to be proposed at the SGM to approve the Disposal, the Agreementsand the transactions contemplated thereunder.

Yours faithfully,For and on behalf of

the Independent Board CommitteePaul Edward Selway-Swift

Allan Wong Chi YunFranklin Warren McFarlan

Makoto YasudaDirectors

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

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The following is the text of the letter of advice dated 21 November 2007 from the IndependentFinancial Adviser to the Independent Board Committee and the Independent Shareholders inrespect of the Discloseable and Connected Transactions prepared for incorporation into this circular:

21 November 2007

To the Independent Board Committee and the Independent Shareholders

Dear Sirs,



INTRODUCTION

We refer to our appointment as the independent financial adviser to advise theIndependent Board Committee of the Company and the Independent Shareholders inrespect of the Disposal. Details of the Disposal and the Leaseback arrangement, amongstother things, are set out in the circular dated 21 November 2007 (the “Circular”), of whichthis letter forms part. Terms defined in the Circular will have the same meanings whenused in this letter unless the context requires otherwise.

On 5 November 2007, the Company, through its indirect wholly-owned subsidiary,Li & Fung (Properties) Limited, entered into the Agreements for the disposal of the PropertyCompanies, the assets of which mainly comprise the Properties, to the Purchasers. TheGroup also agreed to lease back the Properties from the Purchasers under the Leasebackarrangement after Completion.

The Purchasers are property holding companies which are indirectly wholly-ownedby William Fung Kwok Lun and a trust established for the family of Victor Fung KwokKing. While Victor Fung Kwok King and William Fung Kwok Lun are the Chairman andthe Managing Director of the Company respectively, the Purchasers are connected personsof the Company under the Chapter 14A of the Listing Rules. Accordingly, the Disposalwill constitute a connected transaction and the Leaseback will constitute a continuingconnected transaction for the Company pursuant to Chapter 14A of the Listing Rules. Asthe aggregate consideration for the Disposal represents more than 5% but less than 25%under the asset test as defined under the Listing Rules, the Disposal also constitutes adiscloseable transaction of the Company. The Disposal will, therefore, be subject to thereporting, announcement and Independent Shareholders’ approval requirements as setout in Rule 14A.45 to 54 of the Listing Rules. Victor Fung Kwok King, William Fung KwokLun and their respective associates shall abstain from voting for the resolutions to approvethe Disposal, the Agreements and the transactions contemplated thereunder.


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The Independent Board Committee of the Company, comprising all of theindependent non-executive Directors, namely Paul Edward Selway-Swift, Allan Wong ChiYun, Franklin Warren McFarlan and Makoto Yasuda, has been formed to advise theIndependent Shareholders in respect of the Disposal. We, Commerzbank AG Hong KongBranch, have been appointed as the independent financial adviser to advise the IndependentBoard Committee of the Company and the Independent Shareholders on the terms of theDisposal, the Agreements and the transactions contemplated thereunder as to whetherthey are fair and reasonable and in the interests of the Company and the Shareholders as awhole.

In formulating our recommendation, we have relied on the information and factssupplied to us by the Company. We have reviewed, among other things, the Circular, theAgreements, the two valuation reports prepared by two independent valuers, namely CBRichard Ellis Limited (“CBRE”) and Jones Lang Lasalle Limited (“Jones Lang”) (collectively,the “Valuers”), in respect of each of the Properties, the audited financial statements ofeach of the Property Companies for the year ended 31 December 2006 prepared inaccordance with HK GAAP, the Company’s interim report for the six-month period ended30 June 2007 and annual report for the year ended 31 December 2006. We have assumedthat all information, opinions and representations contained or referred to in the Circularare true, complete and accurate in all material respects and we have relied on the same.Also, we have relied on the representations made by the Directors that having made allreasonable enquiries and careful decisions, and to the best of their information, knowledgeand belief, there is no other fact or representation or the omission of which would makeany statement contained in the Circular, including this letter, misleading. We have alsoassumed that all information, statements and representations made or referred to in theCircular, which have been provided to us by the Company, and for which it is whollyresponsible, are true, complete and accurate in all material respects at the time they weremade and continue to be so at the Latest Practicable Date.

We consider that we have (i) taken reasonable steps as required under Rule 13.80 ofthe Listing Rules in obtaining all necessary information from the Company and (ii) reviewedsufficient information to enable us to reach an informed view regarding the Disposal andthe Leaseback and to provide us with a reasonable basis for our recommendation. Wehave no reason to suspect that any material facts have been omitted or withheld, nor arewe aware of any facts or circumstances, which would render the information and therepresentations made to us untrue, inaccurate or misleading. We have not, however, carriedout any independent verification of the information provided by the Company; nor havewe conducted any independent in-depth investigation into the business and affairs of theCompany and their respective associates.


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PRINCIPAL FACTORS AND REASONS CONSIDERED

In formulating our opinion in relation to the Disposal and the transactionscontemplated therein, and giving our independent financial advice to the IndependentBoard Committee and the Independent Shareholders, we have taken into account thefollowing principal factors:

1. Core business of the Group

The Group is the leading buying agency in the world for consumer goods andmanages the supply chain for retailers and brands worldwide. As stated in theannual report of the Company for the year ended 31 December 2006, it is the policyof the Group to pursue an asset-light strategy which includes, if possible, not owningfactories or properties. Accordingly, the intention of the management of the Group,whenever possible, is to dispose of the Group’s properties when suitable “sale andlease back” arrangements can be made with a suitable landlord at favourable rentalrates and tenure of occupancy.

Having considered that (i) the Group’s core business is on supply chainmanagement; (ii) the Properties are disposed of at the aggregate consideration ofHK$448,842,000 with reference to independent valuation reports prepared by theValuers; and (iii) the Properties will be leased back to the Group at rents comparableto the prevailing open market rents, we are of the view that the Disposal and theLeaseback are broadly in line with the corporate strategy of the Group.

2. The Properties

As set out in the section headed “Letter from the Board” in the Circular, theDisposal involves the disposal of the entire issued share capital of Property 1Companies and Property 2 Companies. Property 1 Companies comprise Property1A Company, Property 1B Company and Property 1C Company, the principal assetsof which are Property 1A, Property 1B and Property 1C, respectively. Property 2Companies comprise Property 2A Company and Property 2B Company, the principalassets of which are Property 2A and Property 2B, respectively. We set out below asummary of the Properties:

Property 1A Property 1B Property 1C Property 2A Property 2B

Location Units A, B and D 3rd Floor Units C and D LiFung Tower, 868 LiFung Tower, 888on Ground Floor, on 4th Floor Cheung Sha Wan Cheung Sha Wan

1st Floor and Road, Hong Kong Road, Hong Kong2nd Floor

Phases I & II, Hong Kong Spinners Industrial Building,800 Cheung Sha Wan Road, Hong Kong

Lettable area(square feet) 168,447 65,761 35,165 126,687 103,566

The Properties to be disposed of are mainly used as the offices, sample andshow rooms of the Group for its sourcing activities in Hong Kong.


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2.1 Financial performance and position of the Property Companies

We have reviewed the audited financial statements of each of the PropertyCompanies for the year ended 31 December 2006 and noted that most of theProperty Companies (except for Property 1A Company and Property 1BCompany which recorded net profit after taxation and extraordinary items ofapproximately HK$10.8 million and HK$2.4 million, respectively) recordednet losses after taxation and extraordinary items. The aggregate audited netprofit after taxation and extraordinary items of the Property Companies hasbeen decreased significantly to approximately HK$1.03 million for the yearended 31 December 2006 from approximately HK$10.1 million for the previousyear mainly due to the increase in interest rate charged by other members ofthe Group which was set with reference to the then prevailing market rates inHong Kong. In addition, we also noted that the Property Companies had theaggregate net liabilities of approximately HK$4.04 million as at 31 December2006, which mainly comprised the net liabilities of the Property Companiesdue to the Group. We further understand that the aggregate turnover of theProperty Companies mainly comprised rental income charged on othermembers of the Group and were set with reference to the then prevailingmarket rates in Hong Kong. Although the rental income and interest paymentwere inter-company transactions which were eliminated on consolidation, thedeclining aggregate net profit of the Property Companies indicates that theProperties were under-performed. Given the low financial performance andaggregate net liabilities of the Property Companies in the year 2006, we are ofthe view that the Disposal will provide additional resources for the Group tofocus on its core business, thereby improving the operating profit and the netasset value of the Group.

2.2 The Property Market in Hong Kong

The Properties can be classified as flatted factories which comprisepremises designed for general manufacturing processes and uses, includingoffices, directly related to such processes, under the category system of theRating and Valuation Department of the Government of Hong Kong. Accordingto the statistics published by the Rating and Valuation Department of theGovernment of Hong Kong, there were a total of 6,718 sale transactions offlatted factories for the first nine months of 2007. We set out below thebreakdown of the number of sale transactions of flatted factories by quarters:

First Second Third FourthQuarter Quarter Quarter Quarter TOTAL

2005* – – – – 6,5602006 1,690 2,038 1,819 1,862 7,4092007 1,906 2,432 2,380 – 6,718

Source: The Rating and Valuation Department of the Government of Hong Kong.

* The quarterly data for the number of sales transactions was not published.


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We note that the aggregate number of sale transactions of flatted factoriesfor the three quarters of 2007 has exceeded the aggregate number oftransactions under the same category for the whole year of 2005. In addition,the number of transactions in each of the first, second and third quarters of2007 recorded a growth rate of approximately 12.8%, 19.3% and 30.8%respectively over the corresponding periods in 2006.

We set out below the average rents of the flatted factories over the pasttwelve months:

Average Rents of Flatted Factories in Kowloon

85

90

95

100

105

110

115

120

Sep-06 Dec-06 Mar-07 Jun-07 Sep-07

HK$98

HK$115

HK

$/sq

.m. p

er m

onth

Source: The Rating and Valuation Department of the Government of Hong Kong

As shown in the above chart, the monthly average rents of flattedfactories in Kowloon increased from HK$98 per square metre (“sq.m.”) inSeptember 2006 to HK$115 per sq.m. in September 2007, representing a growthrate of approximately 17.3%.

3. The Disposal

3.1 Basis of the Consideration

As stated in the section headed “Letter from the Board” in the Circular,the aggregate consideration (the “Consideration”) for the disposal of theProperty Companies was initially HK$448,842,000 (subject to the adjustmentof the Adjusted Sum), comprising HK$379,156,000 for Property 1A Company,Property 1B Company and Property 1C Company, and HK$69,686,000 forProperty 2A Company and Property 2B Company.


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We note that the Consideration was arrived at after arm’s lengthnegotiations between the Vendor and the Purchasers with reference to theagreed price of the Properties plus assets (other than the Properties) excludingdeferred tax assets, minus the liabilities excluding deferred tax liabilities ofthe Property Companies as shown in their respective unaudited accounts forthe first ten months of 2007 prepared in accordance with HK GAAP. We alsonote that the agreed price of each of the Properties was computed at an averageof the two valuations as at 30 September 2007 prepared by the Valuers onvacant possession basis.

According to the valuation reports prepared by Jones Lang (which isengaged by an affiliate of the Purchasers and is reviewed by us) and preparedby CBRE (which is engaged by the Group and a valuation certificate of whichis set out in Appendix I in this Circular), the open market values of theProperties are arrived at by adopting direct comparison approach, withreference to comparable sales evidence in the relevant market, or by incomecapitalization approach, considering the capitalised income derived from theexisting tenancies with due provision for the reversionary income potential ofthe properties. We have discussed the basis of the valuation with the Valuersand noted that the approaches adopted are in accordance with the “HKISValuation Standards on Properties (First Edition 2005)” published by the HongKong Institute of Surveyors on valuing the open market values of investmentproperties. As such, we concur with the Valuers on their basis of valuation.

Set out below are the open market values of the Properties as at 30September 2007 based on the valuation reports/certificate prepared by theValuers:

Market value as at Market value as at30 September 2007 30 September 2007 Average marketper the valuation per the valuation value as atreport of CBRE report of Jones Lang 30 September 2007

Property (a) (b) [(a) + (b)] ÷ 2HK$ HK$ HK$

Property 1A,Property 1B andProperty 1C 698,000,000 685,000,000 691,500,000

Property 2A andProperty 2B 696,000,000 724,000,000 710,000,000

Total 1,394,000,000 1,409,000,000 1,401,500,000


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We note that the average open market values of Property 1A, Property1B and Property 1C as at 30 September 2007 are HK$691,500,000 and theaverage open market values of Property 2A and Property 2B as at 30 September2007 are HK$710,000,000. Accordingly, the aggregate of the said average openmarket values of the Properties is HK$1,401,500,000, which was used as areference price in determining the Consideration. The Vendor entered into theAgreements with the Purchasers for the Disposal at an aggregate Considerationof HK$448,842,000 (subject to the adjustment of the Adjusted Sum). After takinginto account that the aggregate indebtedness owed by the Property Companiesto the Group which amounted to approximately HK$951,415,000 as at 31October 2007 and based on the Consideration, the aggregate amount payableby the Purchasers on the equity interests of the Property Companies (includingthe aggregate indebtedness and before adjustment of the Adjusted Sum) willbe approximately HK$1,400,257,000, which approximates the aggregate of thesaid average valuation of the Properties of HK$1,401,500,000.

Having considered that (i) the purpose of the Adjusted Sum is only forrecognizing the increase/decrease of the net assets (excluding any deferredtax assets or liabilities) of the Property Companies for the period from 1November 2007 to the Completion Date (the analysis of which is set out insub-section 3.2 headed “Adjusted Sum” in this letter); and (ii) the total amountpayable by the Purchasers on the equity interests of the Property Companies(including the aggregate indebtedness of the Property Companies to the Groupand before adjustment of the Adjusted Sum) of HK$1,400,257,000 approximatesthe average open market value of the Properties as determined by the Valuers,we consider the Consideration for the Properties to be fair and reasonable.

3.2 Adjusted Sum

The Adjusted Sum represents the increase/decrease in the aggregateamount of the combined assets (other than the Properties) excluding deferredtax assets minus the liabilities excluding any deferred tax liabilities of theProperty Companies as shown in their unaudited accounts for the periodending on the date of Completion comparing with the unaudited accounts forthe 10-month period ended 31 October 2007. The Adjusted Sum shall notexceed HK$10,000,000.

We have reviewed the unaudited management accounts of each of theProperty Companies for the 10-month period ended 31 October 2007 and notedthe assets (other than the Properties) comprise (i) deferred tax assets; (ii) currentaccounts with the Group companies or related companies of the Group; (iii)other receivables, prepayments and deposits; (iv) cash and bank balances; (v)tax recoverable and (vi) available-for-sale financial assets (collectively “OtherAssets”). The liabilities for each of the Property Companies as at 31 October2007 comprise (i) current accounts with the Group companies; (ii) loansadvanced by the Group; (iii) accrued charges and sundry payables; and (iv)taxation payable (“Other Liabilities”). We note that Other Assets are mainly


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non-operating assets without a readily market for resale and the values ofwhich are not subject to any significant fluctuations within a short time frame.For the Other Liabilities (excluding loans advanced by the Group which willbe fully repaid by the Purchasers prior to Completion), they are mainly non-interest bearing liabilities and the values of which will not be increased over ashort time frame.

Given that (i) the Completion is expected to take place in or about mid-December 2007, which is only about six weeks after 31 October 2007; (ii) thevalues of Other Assets and Other Liabilities are not expected to be subject tosignificant fluctuations within such a short time frame; and (iii) the AdjustedSum is capped at HK$10,000,000, we consider that it is fair and reasonableand is in the interests of the Company and the Shareholders as a whole toinclude the Adjusted Sum as an adjustment for the Consideration.

3.3 Payment terms

Pursuant to the Agreements, the aggregate Consideration ofHK$448,842,000 has been/will be satisfied in two instalments as follows:

(1) an initial deposit of HK$22,442,100 (the “Deposit”), being 5% ofthe Consideration, has been paid in cash to the Vendor till signingof the Agreements; and

(2) the balance of HK$426,399,900, plus/minus the Adjusted Sum, shallbe paid in cash upon Completion.

We have reviewed the Agreements and noted that the Deposit will beheld by the Vendor in an interest bearing account in its name and will beapplied as follows:

(i) the Deposit together with all interest accrued on it uponCompletion represent part payment of the Consideration;

(ii) if Completion does not take place due to the Purchasers’ fault, theDeposit (together with all interest accrued on it) will be rescindedby the Vendor and will not be returned to the Purchasers on suchrescission;

(iii) if Completion does not take place due to the Vendor ’s fault, theDeposit (together with all interest accrued on it) will be returnedby the Vendor to the Purchasers on such rescission; and

(iv) if Completion does not take place for any other reason not due tothe obligations of either the Vendor or the Purchasers, the Deposit(together with all interest accrued on it) will be refunded by theVendor to the Purchasers on termination of the Agreements.


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On the basis that (i) the Deposit represents only 5% of the Consideration;(ii) the Deposit (together with all interest accrued on it) will be forfeited incase of Purchasers’ fault; and (iii) the Deposit (together with all interest accruedon it) will be fully refunded if the Agreements lapse (whether due to theVendor’s fault or any other reason), we are of the view that the above paymentarrangements for the Consideration of the Disposal are fair and reasonable inso far as the Independent Shareholders are concerned.

In addition, we note that the Purchasers undertake to advance interest-free call loans of not exceeding HK$961,415,000 in aggregate to the PropertyCompanies solely for the purpose for them to repay all the outstandingindebtedness owed by them to the Group. We understand that sucharrangement is to settle all the outstanding indebtedness between the PropertyCompanies and the Group before Completion so as to allow straight executionof the Agreements. Given that (i) the outstanding balances with the PropertyCompanies will be fully settled prior to Completion; (ii) the loans to beadvanced by the Purchasers are interest-free; and (iii) the liquidity of theGroup will be enhanced as a result of such payment arrangement, we considersuch payment arrangement is fair and reasonable and is in the interests of theCompany and the Shareholders as a whole.

4. The Leaseback

The Tenants, being an indirect wholly-owned subsidiary of the Company, hasleased (i) Property 1A, Property 2A and Property 2B since 1 January 2005; (ii) Property1B since 20 March 2006 and (iii) Property 1C since 1 March 2007. The Tenant intendsto maintain such leases after the Disposal and has agreed that such leases will bemaintained based on the existing terms and rentals. We set out below a summary ofthe principal terms for the leasing of the Properties by the Tenant and the marketmonthly rental value as at 30 September 2007 (the “Market Monthly Rental”) asassessed by CBRE which bases on open market approach by taking into considerationof rental comparable transactions:


– 24 –

Property1A 1B 1C 2A 2B

Term 3 years 1 year and 10 months 3 years 3 years9 months

Existing tenancy period

From 1 January 20 March 1 March 1 January 1 January2005 2006 2007 2005 2005

To 31 December 2007

Current monthlyrental (HK$) 1,684,470 657,610 334,010 1,164,710 950,950

Monthly rent after the renewal (HK$) (Note 1)

First renewedterm 2,021,364 789,132 421,980 1,520,244 1,242,792

Second renewedterm (Note 2) 2,526,705 986,415 527,475 1,900,305 1,553,490

Third renewedterm (Note 2) 2,947,823 1,150,818 615,388 2,217,023 1,812,405

Market MonthlyRental (HK$) 2,420,000 840,000 430,000 1,890,000 1,530,000

Note 1: Under the Leaseback, it is agreed that the Tenant has the option to renew the tenanciesin respect of the Properties for three further terms each commencing immediatelyupon expiration of the preceding 3-year term.

Note 2: The monthly rental under the second and the third renewed term are maximummonthly rental payable by the Group.


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Based on the information set out above, we have conducted the followinganalysis:

Property1A 1B 1C 2A 2B

Monthly rentalunder thefirst renewedterm (HK$) 2,021,364 789,132 421,980 1,520,244 1,242,792– Discount to

Market MonthlyRental (%) 16.5 6.1 1.9 19.6 18.8

Maximummonthly rentalunder thesecond renewedterm (HK$)(Note 1) 2,526,705 986,415 527,475 1,900,305 1,553,490

– Incrementincrease fromthe firstrenewedterm (%) 25.0 25.0 25.0 25.0 25.0

– Annualizedincrease (%)(Note 2) 7.7 7.7 7.7 7.7 7.7

Maximummonthly rentalunder the thirdrenewed term(HK$) (Note 1) 2,947,823 1,150,818 615,388 2,217,023 1,812,405– Increment

increasefrom the secondrenewed term (%) 16.7 16.7 16.7 16.7 16.7

– Annualizedincrease (%)(Note 2) 5.3 5.3 5.3 5.3 5.3

Note 1: The monthly rental under the second and the third renewed term are maximummonthly rental payable by the Group.

Note 2: Calculation based on a three-year period.


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We note that the monthly rental under the first renewed term for each of theProperties represents a discount to the Market Monthly Rental. As stated in the sub-section headed “The Property Market in Hong Kong” above, the annual growth rate ofthe monthly market rental of flatted factories for the period from September 2006 toSeptember 2007 is approximately 17.3%. Based on our above analysis, the maximummonthly rental under the second renewed term and the third renewed term representan annualized growth rate of approximately 7.7% and 5.3%, respectively from thepreceding renewed term, which is substantially lower than the historical growthrate in the market, not to mention that such comparison is based on the maximummonthly rental payable by the Group and the actual monthly rental payable may belower than the maximum amount. In addition, the aggregate monthly rental to bepaid under the first renewed term of HK$5,995,512 represents a yield ofapproximately 5.1% to the total consideration payable on the equity interests of theProperty Companies (including the aggregate indebtedness of the PropertyCompanies to the Group and before adjustment of the Adjusted Sum) ofHK$1,400,257,000, which is lower than the market yield in the range of 6.9% to 7.6%for flatted factories in 2006 according to the Rating and Valuation Department of theGovernment of Hong Kong.

Given that (i) the Leaseback allows the Group to secure premises to maintainstable operation while achieving its asset-light strategy; (ii) the Group, being theTenant, has the right to exercise the renewal option, which enables it to cap theamount of rent payable in a market of expected rental surge; (iii) the monthly rentalunder the first renewed term represents a discount to the Market Monthly Rental;(iv) the annualized growth rates of the maximum monthly rental under the secondrenewed term and the third renewed term are substantially lower than the historicalgrowth rate of average monthly rental for flatted factories, not to mention that suchcomparison is based on the maximum monthly rental payable by the Group and theactual monthly rental payable may be lower than the maximum amount; and (v) theyield to be realized by the Purchasers on the Leaseback is lower than the prevailingmarket yield, we consider the Leaseback is fair and reasonable and is in the interestsof the Company and the Shareholders as a whole.

5. Financial effects on the Group

5.1 Liquidity and working capital

As disclosed in the Circular, the net proceeds from the Disposal willincrease the Group’s net cash position by approximately HK$1.39 billion(subject to the adjustment of the Adjusted Sum which is capped at HK$10million), and is expected to provide additional working capital to the Groupfor its future business acquisitions and increase its working capital positionfor business operations.


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5.2 Profitability

The Group expects to record an aggregate unaudited gain ofapproximately HK$449 million in aggregate arising from the Disposal, whichwill be reflected in the consolidated income statement of the Company for theyear ending 31 December 2007.

Given that the Disposal (i) provides additional working capital for theGroup’s future business acquisitions; and (ii) allows the Group to focus on itssupply chain and sourcing businesses for future expansion; and the renewalof the tenancy of the Properties is at the Group’s option, we concur with theDirectors’ view that the benefits of the Disposal outweighs the future costsincurred by the Group under the Leaseback arrangement.

5.3 Benefits from maintaining the remaining net book value of leaseholdimprovement and furniture, fixtures and equipment

The remaining net book value of the leasehold improvement as well asthe furniture, fixtures and equipment under the Properties amounted toapproximately HK$156 million, which would have been written off upon theDisposal if there were no Leaseback. By virtue of the Leaseback, the entireamount of HK$156 million will continue to be depreciated in accordance withthe Company’s asset-light accounting policy.

CONCLUSION AND ANALYSIS

The Group is principally engaged in the supply chain management for the retailerbrands worldwide. Given the growing competition within the industry, we are of theview that further enhancement in the Group’s liquidity will strengthen its market position.Although the Leaseback will result in future cash outflow by the Group, the Group’sfuture rental payments will be capped. In addition, the Disposal will not only substantiallyincrease the liquidity and net cash position of the Group by approximately HK$1.39 billion(subject to the Adjusted Sum), but will also enhance the Group’s overall financial profileby disposing of those non-performing subsidiaries (such as Property 1C Company, Property2A Company and Property 2B Company) and non-core assets which are in line with theGroup’s asset-light corporate strategy. All of the above, together with the facts that (i) acapital gain of approximately HK$449 million (subject to the Adjusted Sum) will berecognised by the Group after the Disposal; (ii) the rental terms under the Leasebackrepresent a discount to the prevailing market price in the first renewed term; (iii) theConsideration is arrived at with reference to the valuation reports/certificate prepared bythe Valuers; and (iv) the Group will be shielded from any unexpected substantial surge inthe rental rate in Hong Kong which may have adverse impact on the Group’s profitability,we are of the view that the Disposal, together with the Leaseback as contemplated underthe Agreements, are in the interests of the Company and the Independent Shareholders asa whole.


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OUR RECOMMENDATION

Having considered the principal factors and reasons that we have examined in theforegoing, we consider the Disposal, the Agreements and the transactions contemplatedthereunder are on normal commercial terms, are fair and reasonable in so far as theIndependent Shareholders are concerned and are in the interests of the Company and theIndependent Shareholders as a whole. Accordingly, we recommend the Independent BoardCommittee of the Company to advise the Independent Shareholders to vote in favour ofthe resolutions to be proposed at the SGM in respect of the Disposal, the Agreements andthe transactions contemplated thereunder.


Commerzbank AG Hong Kong Branch

Kenneth Chan Andrew YuHead of Corporate Finance – Asia Pacific Corporate Finance – Asia Pacific

APPENDIX I PROPERTY VALUATION

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The following is the text of the letter with the summary of valuations and valuation certificatesdated 21 November 2007 from CBRE in respect of the Properties for incorporation into thiscircular:

34/F Central Plaza18 Harbour Road

Wanchai, Hong KongT 852 2820 2800F 852 2810 0830

香港灣仔港灣道十八號中環廣場三十四樓電話 852 2820 2800 傳真 852 2810 0830

www.cbre.com.hk

地產代理（公司）牌照號碼Estate Agent’s Licence No: C-004065

21 November 2007

The Board of DirectorsLi & Fung (Properties) Limited11/F., LiFung Tower888 Cheung Sha Wan RoadCheung Sha Wan, KowloonHong Kong Special Administrative Region

Dear Sirs,

In accordance with your instruction to us to carry out a valuation of certainproperties, details of which are set out in the attached valuation certificate, held by Li &Fung (Properties) Limited and its subsidiaries (together the “Group”) in Cheung Sha Wan,Hong Kong Special Administrative Region. We confirm that we have made relevantinvestigations and enquiries and obtained such further information as we considernecessary for the purpose of providing you with our opinion of the capital values of theproperties as at 30 September 2007 (“date of valuation”).

Valuation Basis and Assumptions

Our valuation is prepared in accordance with the “HKIS Valuation Standards onProperties (First Edition 2005)” published by the Hong Kong Institute of Surveyors. Wehave also complied with all the requirements contained in Chapter 5 of the Rules Governingthe Listing of Securities on The Stock Exchange of Hong Kong Limited (the “ListingRules”).


– 30 –

Our valuation is our opinion of Market Value which is defined to mean “the estimatedamount for which a property should exchange on the date of valuation between a willingbuyer and a willing seller in an arm’s-length transaction after proper marketing whereinthe parties had each acted knowledgeably, prudently and without compulsion.”

Our valuation has been made on the assumption that the owners sell the propertieson the open market without the benefit or burden of a deferred terms contract, leaseback,joint venture, management agreement or any similar arrangement which could affect thevalues of the properties.

No allowance has been made in our valuation for any charges, mortgages or amountsowing on the property nor for any expenses or taxation which may be incurred in effectinga sale. Unless otherwise stated, it is assumed that the properties are free from encumbrances,restrictions and outgoings of an onerous nature which could affect their values.

Source of Information

We have caused searches to be made at the Land Registry, however we have notinspected the original documents to verify ownership or to ascertain the existence of anyamendments which may not appear on the copies handed to us.

We have inspected the properties to such extent that we consider necessary for thepurpose of this valuation. However, we have not carried out building surveys, nor havewe inspected those parts of the properties which are covered, unexposed or inaccessibleand such parts have been assumed to be in reasonable repair and condition. During ourinspection, we did not notice any serious defects. We have not carried out any structuralsurvey and we are therefore unable to report whether the properties are or are not freefrom rot, infestation or any other defects. No tests have been carried out on any of thebuilding services.

We have relied to a considerable extent on information given to us by the instructingparty, in particular on matters such as planning approvals, statutory notice, easements,floor layout plans, gross and leaseable floor areas and tenancy details. Dimensions,measurements and areas included in the report are taken from the information and aretherefore only approximations.

We enclose herewith a summary of valuation and our valuation certificate.


CB Richard Ellis Limited

Alex P W Leung MHKIS MRICS RPS(GP)

DirectorValuation & Advisory Services

Note: Mr. Alex Leung is a Registered Professional Surveyor, a corporate member of Royal Institution ofChartered Surveyors and an associate member of the Hong Kong Institute of Surveyors. He has beenpracticing in the valuation of properties in Hong Kong since early 1995.


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SUMMARY OF VALUATIONS

Capital value in theexisting state as at

Property 30 September 2007

1. 868 Cheung Sha Wan Road HK$386,000,000Cheung Sha Wan, KowloonHong Kong Special Administrative Region

2. 888 Cheung Sha Wan Road HK$310,000,000Cheung Sha Wan, KowloonHong Kong Special Administrative Region

3. Units A, B and D of G/F, Whole of 1 – 2/F, HK$469,000,000Phases I & II Hong Kong Spinners Industrial Building800 Cheung Sha Wan Road, KowloonHong Kong Special Administrative Region

4. Whole of 3/F, HK$152,000,000Phases I & II Hong Kong Spinners Industrial Building800 Cheung Sha Wan Road, KowloonHong Kong Special Administrative Region

5. Units C and D on 4/F, HK$77,000,000Phases I & II Hong Kong Spinners Industrial Building800 Cheung Sha Wan Road, KowloonHong Kong Special Administrative Region

Total: HK$1,394,000,000


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VALUATION CERTIFICATE


Property Description and tenure Details of occupancy 30 September 2007

1. 868 Cheung ShaWan Road,Cheung Sha Wan,Kowloon,Hong KongSpecialAdministrativeRegion

Section E ofNew KowloonInland LotNo. 3515

The subject property togetherwith Property No. 2 comprisetwo interconnectedindustrial/office buildings,collectively known as LiFungTower.

Completed in 1972, thesubject building is erected ona site with an area ofapproximately 11,007 sq ft(1,022.60 sq m). The subjectbuilding is 12-storey inheight and is provided withparking spaces, loading/unloading bays and a retailshop on the ground floor.

As per approved buildingplans, the plot ratio grossfloor area of the property is120,234 sq ft (11,170.00 sq m).We were advised theleaseable area of the subjectbuilding is 126,687 sq ft(11,770 sq m) plus a groundfloor retail space with anadditional floor area ofapproximately 505 sq ft(46.90 sq m).

The property is held underConditions of Sale No. 4268for a term of 75 yearsrenewable for 24 yearscommencing from 1 July1898. The lease has beenextended to 30 June 2047. Theannual government rent isequivalent to 3% of therateable value of the propertyfrom the time being.

The property is occupiedby the Group.

The retail unit on groundfloor has been leased fora term of 3 years until 11July 2010 at a monthlyrent of HK$12,100 percalendar month inclusiveof management fee andgovernment rent butexclusive of governmentrates and waiver fee.

HK$386,000,000

(HONG KONGDOLLARS THREE

HUNDRED EIGHTYSIX MILLION)

Notes:

(a) According to the Land Registry, the registered owner of the property is Albinina Limited by virtueof an assignment vide Memorial No. UB5400628 dated 31 July 1992.

(b) We were advised that the registered owner is a subsidiary of Li & Fung Limited.

(c) The retails shop is subject to a Waiver letter with plan registered on 19 July 2002 vide MemorialNo. UB8743048.

(d) We were instructed to assess the property subject to the tenancy of the retail shop whilst the remainingportions on a vacant possession basis.

(e) As shown on Cheung Sha Wan Outline Zoning Plan No. S/K5/30 dated 1 June 2007, the propertylies within an area zoned as “Other Specified Uses – Business (2)”.


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2. 888 Cheung ShaWan Road,Cheung Sha Wan,Kowloon,Hong KongSpecialAdministrativeRegion

Section B ofNew KowloonInland LotNo. 3515

The subject property togetherwith Property No. 1 comprisetwo interconnectedindustrial/office buildings,collectively known as LiFungTower.

Completed in 1967, thesubject building is erected onsite with an area ofapproximately 8,970 sq ft(833.34 sq m). The building is12-storey in height and isprovided with parking spacesand loading/ unloading bayson the ground floor.

As per approved buildingplans, the plot ratio grossfloor area of the property is95,377 sq ft (8,860.70 sq m).We were advised theleaseable area of the buildingis 103,566 sq ft (9,621.52sq m).



HK$310,000,000

(HONG KONGDOLLARS THREE

HUNDRED TENMILLION)

Notes:

(a) According to the Land Registry, the registered owner of the property is Li & Fung DevelopmentLimited by the virtue of an assignment vide Memorial No. UB6183756 dated 30 November 1994.

(b) We were advised that the registered owner is a subsidiary of Li & Fung Limited.

(c) We were instructed to assess the property on a vacant possession basis.

(d) As shown on Cheung Sha Wan Outline Zoning Plan No. S/K5/30 dated 1 June 2007, the propertylies within an area zoned as “Other Specified Uses – Business (2)”.


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3. Units A, B and Dof G/F, Whole of1 – 2/F, Phases I &II Hong KongSpinnersIndustrialBuilding,800 Cheung ShaWan Road,Kowloon,Hong KongSpecialAdministrativeRegion

1731/7530undivided sharesof and in theRemaining Portionof New KowloonInland LotNo. 3515

The property comprisesmajority portion of G/F andtwo low floors in a 10-storeyindustrial building completedin 1966.

As advised by the instructingparty, the gross area of theproperty is approximately185,887 sq ft (17,269.32 sq m).The leasable area is 168,447sq ft (15,649.11 sq m) plus aground floor retail space withan additional floor area ofapproximately 1,578 sq ft(146.60 sq m).



The retail unit on groundfloor has been leased fora term of 3 years from30 September 2006 to29 September 2009 at amonthly rent ofHK$55,000 per calendarmonth inclusive ofmanagement fee andgovernment rent butexclusive of governmentrates and waiver fee.

HK$469,000,000

(HONG KONGDOLLARS FOUR

HUNDRED SIXTYNINE MILLION)

Notes:

(a) According to the Land Registry, the registered owner of the property is Ultimate Quest Limited byvirtue of an assignment vide Memorial No. UB8871512 dated 20 January 2003.

(b) The property is subject to the following encumbrances:

• Deed of Variation with plan registered on 25 June 1981 vide Memorial No. UB2121009;

• Deed of Variation of Crown Lease registered on 2 May 1983 vide Memorial No. UB2407803;and

• Deed of Mutual Covenant and Management Agreement with plans registered on 16 December1989 vide Memorial No. UB4310606.

(c) Unit No. D on G/F is also subject to a Waiver letter with plan registered on 13 July 2004 videMemorial No. UB9282329.

(d) We were advised that the registered owner is a subsidiary of Li & Fung Limited.

(e) We were instructed to assess the property subject to the tenancy of the retail shop whilst the remainingportions on a vacant possession basis.

(f) As shown on Cheung Sha Wan Outline Zoning Plan No. S/K5/30 dated 1 June 2007, the propertylies within an area zoned as “Other Specified Uses – Business (2)”.


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4. Whole of3/F, Phases I & IIHong KongSpinnersIndustrialBuilding,800 Cheung ShaWan Road,Kowloon,Hong KongSpecialAdministrativeRegion


The property comprises awhole floor in a 10-storeyindustrial building completedin 1966.

As advised by the instructingparty, the floor area of theproperty is approximately69,236 sq ft (6,432.18 sq m) interms of gross area or 65,761sq ft (6,109.35 sq m) inleaseable area.



HK$152,000,000

(HONG KONGDOLLARS ONE

HUNDRED FIFTYTWO MILLION)

Notes:

(a) According to the Land Registry, the registered owner of the property is Clear Lake Group Limitedby the virtue of an assignment vide Memorial No. UB8871511 dated 20 January 2003.





(c) We were advised that the registered owner is a subsidiary of Li & Fung Limited.

(d) We were instructed to assess the property on a vacant possession basis.



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5. Units C and D on4/F, Phases I & IIHong KongSpinnersIndustrialBuilding,800 Cheung ShaWan Road,Kowloon,Hong KongSpecialAdministrativeRegion


The property comprisesabout half of a mid floor in a10-storey industrial buildingcompleted in 1966.

As advised by the instructingparty, the leasable area of theproperty is approximately35,165 sq ft (3,266.91 sq m).



HK$77,000,000

(HONG KONGDOLLARS SEVENTY

SEVEN MILLION)

Notes:

(a) According to the Land Registry, the registered owner of the property is Eaglefame InvestmentLimited by the virtue of an assignment vide Memorial No. 05102501970025 dated 30 September2005.





(c) We were advised that the registered owner is a subsidiary of Li & Fung Limited.

(d) We were instructed to assess the property on a vacant possession basis.


APPENDIX II ADDITIONAL INFORMATION

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1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for thepurpose of giving information with regard to the Group. The Directors collectively andindividually accept full responsibility for the accuracy of the information contained in thiscircular and confirm, having made all reasonable enquiries, that to the best of theirknowledge and belief, there are no other facts the omission of which would make anystatement contained in this circular misleading.

2. DISCLOSURE OF INTERESTS

(I) Interests of Directors and the Chief Executive

As at the Latest Practicable Date, the directors and chief executive of the Companyhad the following interests in the shares and underlying shares and debentures of theCompany 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 toDivisions 7 and 8 of Part XV of the SFO (including interests and short positions whichthey are taken or deemed to have under such provisions of the SFO), the Model Code forSecurities Transactions by Directors of Listed Companies of Listed Companies and whichare required to be entered in the register required to be kept under section 352 of theSFO:–

(A) Long Position in Shares and underlying shares of the Company

Number of Shares

Trust/ Equity PercentagePersonal Corporate Family similar derivatives of issuedinterest interest interest interest (share options) Total share capital

Victor Fung Kwok King – 1,150,545,880 1 – 55,825,000 2 – 1,206,370,880 34.97%

William Fung Kwok Lun 79,928,530 1,150,545,880 1 4,400 – 1,760,000 3 1,232,238,810 35.72%

Bruce Philip Rockowitz 712,800 – – 11,411,510 4 57,145,880 5 69,270,190 2.00%

Henry Chan 3,514,000 – – – 1,760,000 3 5,274,000 0.15%

Danny Lau Sai Wing 7,824,000 – – – 1,320,000 3 9,144,000 0.26%

Annabella Leung Wai Ping 4,008,000 – – – 880,000 3 4,888,000 0.14%

Lau Butt Farn 2,420,000 – – – – 2,420,000 0.07%

Franklin Warren McFarlan – – – 57,200 6 – 57,200 0.00%


– 38 –

Notes:

The interests of Dr Victor Fung Kwok King and Dr William Fung Kwok Lun in the Shares as atthe Latest Practicable Date are summarized in the following chart:–

William Fung Kwok LunJ.P. Morgan Trust

Company (Jersey) Limited(Note 2)

King Lun Holdings Limited (Note 1(a))

Li & Fung (1937) Limited(Note 1(b))

Li & Fung Limited(37.34%)

50% 50%

100%

31.76%2.37% 1.59% 1.62%

(1) (a) King Lun Holdings Limited (“King Lun”), a private company incorporated in theBritish Virgin Islands, held 54,945,880 Shares.

(b) King Lun through its wholly-owned Hong Kong incorporated subsidiary, Li &Fung (1937) Limited, held 1,095,600,000 Shares.

Dr Victor Fung Kwok King and Dr William Fung Kwok Lun, both were directors of KingLun and Li & Fung (1937) Limited, were deemed to have interests in the 1,150,545,880Shares, i.e. the total number of Shares mentioned in notes (1)(a) and (b) above, throughtheir personal or other interests in King Lun as set out below:–

(i) 1,332,840 shares in King Lun, representing 50% of its issued share capital, wereowned by J.P. Morgan Trust Company (Jersey) Limited, the trustee of a trustestablished for the benefit of the family of Dr Victor Fung Kwok King.

(ii) 1,332,840 shares in King Lun, representing 50% of its issued share capital, wereowned by Dr William Fung Kwok Lun.

(2) 55,825,000 Shares were held by J.P. Morgan Trust Company (Jersey) Limited, the trusteeof a trust established for the benefit of the family of Dr Victor Fung Kwok King.

(3) These interests represented the interests in underlying shares in respect of share optionsgranted by the Company to these directors as beneficial owners, the details of which areset out in the Interest in Share Options section stated below.

(4) 11,411,510 Shares were held by Hurricane Millennium Holdings Limited (“HMHL”), acompany beneficially owned by a trust which has been set up for the benefit of familymembers of Mr Bruce Philip Rockowitz.


– 39 –

(5) These interests represented:–

(a) the beneficial interest of Mr Bruce Philip Rockowitz in 2,200,000 underlying sharesin respect of share options granted by the Company to Mr Bruce Philip Rockowitz;and

(b) the deemed interest of Mr Bruce Philip Rockowitz in 54,945,880 underlying sharesin the Company in respect of options granted by King Lun to HMHL to purchasesuch shares in the Company in ten tranches during the period from 25 December2004 to 24 December 2019 with each tranche having an exercisable period of sixyears pursuant to an agreement made between King Lun and HMHL.

(6) 57,200 Shares in the Company were held by a trust established for the benefit of ProfessorFranklin Warren McFarlan.

(B) Short positions in Shares and underlying shares of the Company

By virtue of the SFO, each of Dr Victor Fung Kwok King and Dr William FungKwok Lun was taken as at the Latest Practicable Date to have short position throughKing Lun, in which both of them were deemed to have interests as disclosed above,in respect of an aggregate of 54,945,880 underlying shares in the Company,representing 1.59% of the total issued share capital of the Company. Such interestconstituted, for the purposes of the SFO, a short position of King Lun under unlistedphysically settled equity derivative which arose under an agreement made betweenKing Lun and HMHL pursuant to which options were granted by King Lun toHMHL to purchase such shares in the Company in ten tranches during the periodfrom 25 December 2004 to 24 December 2019, with each tranche having an exercisableperiod of six years.


– 40 –

(C) Interest in Share Options

Share options granted under the share option scheme adopted on 12 May 2003which remained outstanding:–

Number ofShare Options Exercise

Outstanding Price Grant Date Exercisable PeriodHK$

William Fung Kwok Lun 880,000 13.45 20/6/2005 20/6/2008-19/6/2011880,000 13.45 20/6/2005 20/6/2009-19/6/2012

Bruce Philip Rockowitz 440,000 8.36 23/5/2003 23/5/2005-22/5/2008440,000 8.36 23/5/2003 23/5/2006-22/5/2009440,000 13.45 20/6/2005 20/6/2007-19/6/2010440,000 13.45 20/6/2005 20/6/2008-19/6/2011440,000 13.45 20/6/2005 20/6/2009-19/6/2012

Henry Chan 440,000 8.36 23/5/2003 23/5/2006-22/5/2009440,000 13.45 20/6/2005 20/6/2007-19/6/2010440,000 13.45 20/6/2005 20/6/2008-19/6/2011440,000 13.45 20/6/2005 20/6/2009-19/6/2012

Danny Lau Sai Wing 440,000 13.45 20/6/2005 20/6/2007-19/6/2010440,000 13.45 20/6/2005 20/6/2008-19/6/2011440,000 13.45 20/6/2005 20/6/2009-19/6/2012

Annabella Leung Wai Ping 440,000 13.45 20/6/2005 20/6/2008-19/6/2011440,000 13.45 20/6/2005 20/6/2009-19/6/2012


– 41 –

(II) Interests of Shareholders Discloseable Pursuant to the SFO

Save as disclosed below, the Directors were not aware of any other person (otherthan a Director or chief executive of the Company or another member of the Group) who,as at the Latest Practicable Date, had an interest or short position in the Shares or underlyingshares of the Company which would fall to be disclosed to the Company under theprovisions of Divisions 2 and 3 of Part XV of the SFO:–

Percentage ofNumber of issued share

Name of Shareholder Capacity Shares capital

Long Positions

King Lun Holdings Limited Beneficial owner 1,150,545,8802 33.35%(54,945,880)

Interest of controlledcorporation(1,095,600,000)1

J.P. Morgan Trust Company Trustee (55,825,000) 1,206,370,8803 34.97%(Jersey) Limited Interest of controlled

corporation(1,150,545,880)2

Janus Capital Management LLC Investment manager 241,662,660 7.00%

Short Positions

King Lun Holdings Limited Beneficial owner 54,945,8804 1.59%

J.P. Morgan Trust Company Interest of controlled 54,945,8805 1.59%(Jersey) Limited corporation

Lending Pool

State Street Corporation Interest of controlled 265,269,264 7.68%corporation

Notes:

(1) 1,095,600,000 Shares were held by Li & Fung (1937) Limited which was a wholly-owned subsidiaryof King Lun.

(2) (a) 50% of issued share capital of King Lun was owned by J.P. Morgan Trust Company(Jersey) Limited and its interests in 1,150,545,880 Shares was duplicated in the interestsof J.P. Morgan Trust Company (Jersey) Limited.


– 42 –

(b) By virtue of the SFO, each of Dr Victor Fung Kwok King and Dr William Fung Kwok Lunwas deemed to be interested in 1,150,545,880 Shares held by King Lun as described inNote (1) under the above section of Interests of the Directors and Chief Executive.

(3) By virtue of the SFO, Dr Victor Fung Kwok King was deemed to be interested in 1,206,370,880Shares held by J.P. Morgan Trust Company (Jersey) Limited, the trustee of a trust established forthe benefit of the family of Dr Victor Fung Kwok King.

(4) This short position represented King Lun’s short position in 54,945,880 underlying shares whichconstituted unlisted physically settled equity derivatives pursuant to arrangement as describedin the above section of Interests of the Directors and Chief Executive.

(5) J.P. Morgan Trust Company (Jersey) Limited was taken to have short position in the sameunderlying shares held by its controlled corporation, King Lun.

(III) Substantial Shareholders in Other Members of the Group

Save as disclosed below, the Directors are not aware of any person (other than aDirector or chief executive of the Company) who, as at the Latest Practicable Date, wasdirectly or indirectly interested in 10% or more of the nominal value of any class of sharecapital carrying rights to vote in all circumstances at general meetings of any other memberof the Group:–

Name of Company Name of Shareholder %

Dodwell (Mauritius) Limited Rogers & Co. Ltd. 40

LF Capital (II) Limited Consolidated Resources Limited 21.6Anglo South Africa (Proprietary) 18.9

Limited

Li & Fung (Mauritius) Limited Rogers & Co. Ltd. 40

Luma Trading Limited Wael Wagdy Olama 40

Perfect Trading Inc. Wael Wagdy Olama 36

3. SERVICE CONTRACTS

Under a service contract dated 2 June 1992 between the Company and Dr WilliamFung Kwok Lun and a service contract dated 2 June 1992 between Li & Fung (B.V.I.)Limited and Dr William Fung Kwok Lun, Dr William Fung Kwok Lun has been appointedto act as Managing Director of the Company, Li & Fung (Trading) Limited, Li & Fung(Properties) Limited and Li & Fung (B.V.I.) Limited, in each case for an initial period offive years from 1 April 1992 and thereafter unless terminated by not less than 12 calendarmonths’ notice in writing expiring at the end of such initial period or any subsequentmonth.


– 43 –

Save as disclosed above, there is no existing or proposed service contract betweenany of the Directors or proposed Directors and the Company or any of its subsidiaries,which is not determinable within one year without payment of compensation other thanby statutory compensation.

4. COMPETING INTERESTS

As at the Latest Practicable Date, none of the Directors and their respective associateshad any interest in a business which competes or may compete with the business of theGroup.

5. INTERESTS IN ASSETS, CONTRACT OR ARRANGEMENT

As at the Latest Practicable date, none of the Directors had any direct or indirectinterest in any assets which have been acquired or disposed of by or leased to any memberof the Group or are proposed to be acquired or disposed of by or leased to any member ofthe Group since 31 December 2006, being the date to which the latest published auditedconsolidated accounts of the Company were made up.

No Director was materially interested in any contract or arrangement subsisting atthe Latest Practicable Date which was significant in relation to the business of the Grouptaken as a whole.

6. LITIGATION

As at the Latest Practicable Date, neither the Company nor any of its subsidiarieswas engaged in any litigation or arbitration of material importance and, so far as theDirectors were aware, no litigation or claim of material importance was pending orthreatened against the Company nor any of its subsidiaries.

7. MATERIAL ADVERSE CHANGE

The Directors confirm that there was no material adverse change in the financial ortrading position of the Group since 31 December 2006, being the date to which the latestpublished audited consolidated accounts of the Company were made up.


– 44 –

8. QUALIFICATION OF EXPERT

(a) The following is the qualification of the experts which have given their advicecontained in this circular:

Name Qualifications

Commerzbank AG a licensed bank under the Banking OrdinanceHong Kong Branch (Chapter 155 of the Laws of Hong Kong) and an

authorized financial institution under the SFOto conduct type 1 (dealing in securities), type 4(advising on securities) and type 6 (advising oncorporate finance) regulated activities as set outin Schedule 5 to the SFO

CB Richard Ellis Limited Registered professional surveyors

(b) Commerzbank and CBRE do not have any shareholding in any member of theGroup or any right (whether legally enforceable or not) to subscribe for or tonominate persons to subscribe for securities in any member of the Group.

(c) Commerzbank and CBRE have given and have not withdrawn their writtenconsent to the issue of this circular with the inclusion of their letters or reportsand references to their names in the form and context in which they areincluded.

(d) Commerzbank and CBRE do not have any interest, direct or indirect, in anyassets which have been acquired or disposed of by or leased to any member ofthe Group, or which are proposed to be acquired or disposed of by or leasedto any member of the Group since 31 December 2006, the date to which thelatest published audited consolidated financial statements of the Companywere made up.

(e) The letters and reports given by Commerzbank and CBRE are given as of thedate of this circular for incorporation herein.

9. PROCEDURE TO DEMAND A POLL

Pursuant to Bye-law 78 of the Bye-laws, at any general meeting, a resolution put tothe vote of the meeting shall be decided on a show of hands unless a poll is demandedby:–

(a) the Chairman of the meeting; or

(b) at least three members present in person or by a duly authorised corporaterepresentative or by proxy for the time being entitled to vote at the meeting;or


– 45 –

(c) any member(s) present in person or by a duly authorised corporaterepresentative or by proxy and representing not less than one-tenth of thetotal voting rights of all the members having the right to vote at the meeting;or

(d) member(s) present in person or by a duly authorised corporate representativeor by proxy and holding shares in the Company conferring a right to vote atthe meeting being shares on which an aggregate sum has been paid up equalto not less than one-tenth of the total sum paid up on all the shares conferringthat right.

10. GENERAL

(a) The secretary of the Company is Ms Terry Wan Mei Chow, a fellow member ofboth The Institute of Chartered Secretaries and Administrators and The HongKong Institute of Chartered Secretaries.

(b) The qualified accountant of the Company is Mr Edward Yim Kam Chuen, afellow member of the Hong Kong Institute of Certified Public Accountants.

(c) The principal share registrar of the Company is The Bank of Bermuda Limitedat 6 Front Street, Hamilton HM11, Bermuda and its branch share registrar isTricor Abacus Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East,Wanchai, Hong Kong.

(d) The English text of this circular and the enclosed form of proxy shall prevailover the Chinese text.

11. DOCUMENTS FOR INSPECTION

Copies of the following documents will be available for inspection at the offices ofthe Company at 11th Floor, LiFung Tower, 888 Cheung Sha Wan Road, Kowloon, HongKong during normal business on any weekday (public holidays excluded) from the dateof this circular of to and including 7 December 2007:

(a) the Agreements;

(b) the five tenancy agreements in relation to the Leaseback; and

(c) the service contracts referred to in paragraph 3 of this appendix.

NOTICE OF SPECIAL GENERAL MEETING

– 46 –


NOTICE IS HEREBY GIVEN that the Special General Meeting of Li & Fung Limited(the “Company”) will be held at Pheasant & Jasmine Room, 1st Floor, Mandarin Oriental,5 Connaught Road Central, Hong Kong on 7 December 2007 at 12:00 noon to consider, ifthought fit, pass the following resolution as an ordinary resolution:–

“THAT the Disposal (as defined in the circular to the shareholders of the Companydated 21 November 2007 (the “Circular”)) and the Agreements (as defined in the Circularand copies of which have been produced to this meeting marked “A” and signed by thechairman of this meeting for the purpose of identification), as well as all other agreementsin relation to and the transactions contemplated under the Disposal and the Agreements,and/or set out in the Circular, be and are hereby approved, confirmed, authorised andratified, and the directors of the Company be and are hereby authorised to do all such actsand things and execute such documents on behalf of the Company as they may in theirabsolute discretion necessary, desirable or expedient to implement and/or give effect tothe Disposal and the Agreements, as well as all the agreements in relation to and thetransactions contemplated under the Disposal and the Agreements, and/or set out in theCircular, with such changes as the Directors may in their absolute discretion considernecessary, desirable or expedient.”

By Order of the BoardTerry Wan Mei Chow

Company Secretary

Hong Kong, 21 November 2007

Notes:

(1) A member entitled to attend and vote at the above meeting may appoint one or more proxies to attendand vote instead of him. A proxy need not be a member of the Company.

(2) In order to be valid, the instrument appointing a proxy and the power of attorney or other authority, ifany, under which it is signed or a notarially certified copy of that power or authority shall be depositedat 11th Floor, LiFung Tower, 888 Cheung Sha Wan Road, Kowloon, Hong Kong not less than 48 hoursbefore the time for holding the meeting. The proxy form has been published on the website of The StockExchange of Hong Kong Limited and can also be downloaded from the Company’s website:www.lifung.com.

01 li & fung (d&ct) cover

Documents