Lobster King

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION If you are in doubt as to any aspect of this circular or as to the action you should take, you should consult your stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser. If you have sold all your shares in HON PO GROUP (LOBSTER KING) LIMITED, you should at once hand this circular to the purchaser or to the bank, stockbroker or other agent through whom the sale was effected for transmission to the purchaser. The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this circular, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular. Hon Po Group (Lobster King) Limited (incorporated in the Cayman Islands with limited liability) MAJOR TRANSACTION ACQUISITION OF PROPERTY 27 May 2002 CONTENTS Page Definition . 1 Letter from the Board Introduction . .3 The Proposed Acquisition . 4 Financing . .4 Reasons for the Proposed Acquisition . 5 Major Transaction . 5 General Information . 5 Appendix I – Financial Information of the Group . 6 Appendix II – Property Valuation . 36 Appendix III – General Information . 40 – i – DEFINITION In this circular, the following expressions have the following meanings unless the context requires otherwise: “Agreement” The Sales and Purchase Agreement dated 3 May 2002, entered into between Jing Hua (as Purchaser) and an independent third party (as Vendor) in relation to the Proposed Acquisition “Board” The board of directors of the Company “Company” Hon Po Group (Lobster King) Limited, an exempted company with limited liability incorporated in the Cayman Islands “Consideration” The total cash consideration of HK$85 million at which the Property is to be acquired pursuant to the Agreement “Directors” The directors of the Company “FPDSavills” FPDSavills (Hong Kong) Limited “Group” The Company and its subsidiaries “Group Reorganisation” The corporate reorganisation of the Group, as described in the prospectus of the Company dated 31 January 2002, which was to rationalize the corporate structure of the Group in preparation for the listing of the Shares on the Stock Exchange “HK$” Hong Kong dollars, the lawful currency of Hong Kong “Jing Hua” Jing Hua Restaurant Limited, a wholly-owned subsidiary (indirect) of the Company “Latest Practicable Date” 10 May 2002, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained herein “Listing Rules” The Rules Governing the Listing of Securities on the Stock Exchange “Property” The property located at 2/F., Allied Plaza, Cosmopolitan Centre, No. 760 Nathan Road, Kowloon – 1 – DEFINITION “Proposed Acquisition” The purchase of the Property by Jing Hua “SDI Ordinance” The Securities (Disclosure of Interests) Ordinance (Chapter 396 of the Laws of Hong Kong) “Share(s)” Share(s) of HK$0.01 each in the capital of the Company “Shareholder(s)” Shareholder(s) of the Company “Stock Exchange” The Stock Exchange of Hong Kong Limited “Vendor” Treasure Continuation Company Limited, an independent third party which is not connected with any directors, the chief executive or any of the substantial shareholders of the Company, or any of its subsidiaries, or any of their respective associates as defined in the Listing Rules. – 2 – LETTER FROM THE BOARD Hon Po Group (Lobster King) Limited (incorporated in the Cayman Islands with limited liability) Executive Directors: Registered office: Mr. Cheung To Sang Century Yard (Chairman and Managing Director) Cricket Square Mr. Chan Nun Chiu (Deputy Chairman) Hutchins Drive Mrs. Cheung Lim Mai Tak, Grace P.O. Box 2681 GT Mr. She Hing Chiu Grand Cayman British West Indies Non-executive Directors: Mr. Cheung Sik Pang (Honorary Chairman) Head office and principal place of Mr. Ng Wing Po business: Units E&F, Ground Floor Independent Non-executive Directors: Phase II, Kingsway Industrial Building Ms. Lee Sin Mei, Olivia 173–175 Wo Yi Hop Road Mr. Mak Siu Cheung, Bernard Jaun Kwai Chung Ms. Chan Choi Har, Ivy Hong Kong 27 May 2002 To the Shareholders Dear Sir or Madam, MAJOR TRANSACTION AQUISITION OF PROPERTY INTRODUCTION On 6 May 2002, the Board announced that Jing Hua had entered into the Agreement on 3 May 2002 with the Vendor for the purchase of the Property. The Vendor is an independent third party which is not connected with any directors, the chief executive or any of the substantial shareholders of the Company, or any of its subsidiaries, or any of their respective associates as defined in the Listing Rules. The purpose of this circular is to provide Shareholders with details of the Proposed Acquisition and other information as required under the Listing Rules. – 3 – LETTER FROM THE BOARD THE PROPOSED ACQUISITION Jing Hua has agreed to purchase from the Vendor a property located at 2/F., Allied Plaza, Cosmopolitan Centre, No. 760 Nathan Road, Kowloon. The gross floor area of the Property is approximately 22,820 square feet. The Property is currently used as a Chinese restaurant. In accordance with the occupation permit, deed of mutual covenant, supplemental deed of mutual covenant and the government lease, there is no restriction on the user of the Property as a restaurant. The total consideration for the purchase of the Property is HK$85 million. A cash deposit of HK$10 million has been paid by Jing Hua to the Vendor and the balance of the Consideration shall be payable in cash on completion. According to the valuation of FPDSavills, an independent valuer appointed by the Group, the Property was valued at HK$80 million as at 3 May 2002. The text of a letter dated 27 May 2002 from FPD Savills and its valuation certificate are set forth in Appendix II to this circular. The Consideration was determined after arm’s length negotiations between the parties and with reference to the valuation of the Property by FPDSavills. Although the Consideration appears to be slightly over the valuation amount, the Directors consider the Consideration to be fair and reasonable and in the best interest of the Group as it is difficult to find premises with quality and location comparable to the Property in the nearby area. The Proposed Acquisition is conditional upon the occurrence of the following events: (a) Approval by the shareholders of the Company of the purchase of the Property pursuant to the requirements under paragraph 14.10 (if applicable) of Chapter 14 of the Listing Rules; and (b) Compliance by the Company with all relevant regulatory requirements, including but not limited to those under the Listing Rules. Subject to satisfaction of the above conditions, completion of the Acquisition is scheduled to take place on 30 May 2002. FINANCING The Consideration will be financed mainly by banking facilities of HK$69.5 million with the remaining balance to be satisfied through the internal resources of HK$15.5 million of the Group. At the Latest Practicable Date, new bank facilities have been granted to the Group to finance the Proposed Acquisition. – 4 – LETTER FROM THE BOARD REASONS FOR THE PROPOSED ACQUISITION The principal business of the Group is the operation of a chain of Chinese restaurants. The Board believes that the Property is situated in a prime location for the operation of a Chinese restaurant which is consistent with the expansion plan of the Group’s restaurant business in Hong Kong. MAJOR TRANSACTION The Proposed Acquisition constitutes a major transaction of the Company under Chapter 14 of the Listing Rules. As Hon Po Investment Limited, which holds approximately 60.32% of the issued share capital of the Company, does not have any material interest in the Proposed Acquisition and has also given its written approval of the Proposed Acquisition, shareholders’ approval by way of a resolution passed at an extraordinary general meeting will not be required. GENERAL INFORMATION Your attention is drawn to the additional information set out in the Appendices to this circular set out on pages 6 to 45. Yours faithfully, By Order of the Board Cheung To Sang Chairman and Managing Director – 5 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP 1. FINANCIAL INFORMATION The following information has been extracted from the annual report of the Group for the year ended 31 December 2001 and the prospectus of the Company dated 31 January 2002. (A) Pro Forma Combined Profit and Loss Account Year ended 31 December 2001 2001 2000 1999 Notes HK$’000 HK$’000 HK$’000 TURNOVER 6 798,644 872,297 980,951 Other revenue 6 6,103 5,374 7,557 Cost of inventories consumed (242,996) (277,039) (310,298) Staff costs (282,908) (299,196) (346,938) Operating lease rentals (79,614) (85,122) (85,966) Depreciation (21,570) (20,679) (25,614) Fuel costs and utility expenses (78,570) (84,314) (78,856) Other operating expenses (69,451) (80,792) (95,595) PROFIT FROM OPERATING ACTIVITIES 7 29,638 30,529 45,241 Finance costs 9 (3,365) (4,357) (4,609) PROFIT BEFORE TAX 26,273 26,172 40,632 Tax 10 (4,560) (2,386) 1,947 PROFIT BEFORE MINORITY INTERESTS 21,713 23,786 42,579 Minority interests 440 1,895 2,229 NET PROFIT FROM ORDINARY ACTIVITIES ATTRIBUTABLE TO SHAREHOLDERS 22,153 25,681 44,808 EARNINGS PER SHARE – Basic 12 HK4.9 cents HK5.6 cents HK9.8 cents – 6 – APPENDIX I FINANCIAL INFORMATION OF THE GROUP (B) Pro Forma Combined Statement of Recognised Gains and Losses Year ended 31 December 2001 2001

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