FINANCIAL MODELLING 1 Introduction

The Joint Liquidators believe that the Scheme will be in the best interests of Scheme Claimants by simplifying matters, removing inherent legal uncertainties, facilitating more efficient agreement of claims, leading to earlier distribution of funds and earlier closure of the administration, resulting in cost savings.

An accurate comparison between the Scheme and the liquidation is not possible in view of the uncertainty connected with litigation and the range of outcomes if each type of Investor claim were litigated together with the issues in respect of priorities, as set out in Appendix 6. Depending on the outcome of such litigation the range of returns could vary so that one Class of Investor could receive significantly less than the other Class. The Scheme seeks to resolve these issues in a manner which:

• preserves the relative creditor/shareholder priorities;

• treats all Investors in the same way;

• values Investor Scheme Claims at the subscription amount paid;

• equalises the difference between Class A and Class B shareholders so that no commissions or charges are levied; and

• avoids the substantial costs and delays of litigation, with a view to early distribution to creditors and shareholders.

The estimates by the Joint Liquidators in respect of the liquidation assume that the inherent legal uncertainties are resolved through litigation with associated cost and delay. The estimated costs of litigation are in the order of US$5-8 million, and the time delays could be in the order of at least 2 years and possibly as long as 7 years, if decisions are appealed.

Consequently the estimated returns are similar in the Scheme compared to the original Liquidation estimates as follows:

Original Scheme Liquidation US$m Estimate Estimate

Creditors 24.5 100% 100%

Shareholders registered on or after 12 December 2003 112.7 60 to 72% – Shareholders registered before 12 December 2003 55.6 60 to 72% –

Shareholders 168.3 – 56 to 67%

Appendix 7

2 Scheme Compromises

The adjustments that each class of claimant will be compromising in the Scheme are:

a) Creditors will forego all claims to interest. It is estimated that if the claims for damages were successful, then they would render the Company insolvent and accordingly interest would not be payable in any event (refer to paragraph 3 below).

b) Investor Scheme Claimants with possible claims relating to the period on or after 12 December 2003 will receive a dividend which recognises part of the benefit they would be entitled to without incurring the cost of establishing that claim. Investor Scheme Claimants with claims relating to the period before 12 December 2003 will receive the same return on their invested amount.

c) Generally those who invested later paid more for their shares. By valuing all Investors’ claims at the amount that each group paid for their shares, whenever purchased, is intended to give a fairer return to Investors, more accurately reflecting their loss. A distribution based on the number of shares held, while it would be at the same liquidation dividend rate, would represent a lower return on the invested amount for some shareholders than for others. Furthermore it would avoid further possible argument on the correct calculation of the net asset values and share prices at each share issue date. A simple example, for illustrative purposes only, is provided at paragraph 4 below. Note that the actual situation will differ for each investor.

d) If each type of Investor claim were litigated it is hard to predict which group might receive a higher dividend in a liquidation and therefore it is not possible to make an accurate comparison between the Scheme and the relative position of Investors’ claims in a liquidation.

e) Overall all classes would receive an improvement through avoiding the costs and delays of litigation.

3 Claims for Interest

Generally in liquidations, claims for interest after the commencement of winding up are barred, except in circumstances where a surplus remains after all claims by creditors are paid in full. The bases of calculating claims for interest are set out in section 264A of the Hong Kong Companies Ordinance and section 215 of the BVI Insolvency Act. It is noted that claims for interest may not be applicable if the claims set out in Appendix 6 were successful as they would likely render the Company insolvent.

In Hong Kong the basis of calculation of interest is as follows:

• The period of interest is from, the date of the winding up order, 10 January 2005, until the date of payment of the principal amount.

• The applicable interest rate is the greater of the Court rate on judgment debts and the rate applicable on the debt apart from winding up. For practical purposes in this case the Court judgment rate would be applicable as no debts of the Company provided for interest. The applicable Court rate since January 2005 was approximately 8%.

In BVI the basis of calculation of interest is as follows:

• The period of interest is from date of appointment of liquidators, 13 December 2004, until the

Appendix 7

• The applicable interest rate is the greater of the Court rate and the rate applicable on the debt apart from winding up. For practical purposes in this case the Court rate would be applicable as no debts of the Company provided for interest. The applicable Court rate since December 2004 was 5%.

Accordingly there would be a conflict between the jurisdictions as to the correct calculation of interest, which would require Court directions in order to resolve.

4 Illustration of Compromise by Investors

Assumptions

• The share prices for those investors who bought their shares during the period on or after 12 December 2003, ranged from US$1,212.42 to US$1,266.36.

• The share prices for those investors who bought their shares prior to 12 December 2003, ranged from US$1,000.00 to US$1,206.46.

• Accordingly for the same subscription amount those who bought later received fewer shares than those who bought shares earlier.

• On distribution in liquidation the shareholders would receive the same dividend per share, which for the purposes of this illustration is taken as US$635 per share.

• Therefore for the purposes of this illustration the compromises for the equivalent investment amount of say US$100,000 the position would be as follows:

Illustration of Compromise by Investors Pre Post

Dec ’03 Dec ’03

US$ US$

Subscription amount invested 100,000 100,000

Share price 1,050 1,250

Number of shares allotted # shares 95 80

Illustrative liquidation return per share 635 635

Return on shares 60,325 50,800

Percentage return on subscription amount 60.3% 50.8%

Total amount of pools 55.6m 112.7m

Total adjustment between pools (2.9)m 2.9m

5 Conclusion

The Joint Liquidators consider that a better return to Scheme Claimants (in terms of timing and value) can be achieved through the Scheme than would be the case through liquidation and are of the opinion that the implementation of the Scheme will be in the best interests of the creditors and members, as Scheme Claimants.

APPENDIX 8