Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.

(Incorporated in Bermuda with limited liability) (Stock Code: 494)

CONTINUING CONNECTED TRANSACTIONS DISTRIBUTION AGREEMENT Reference is made to the announcement of the Company dated 16 December 2012 relating to the Sale and Purchase Agreement for the disposal of the entire issued share capital of the Target by the Seller (which is an indirect wholly-owned subsidiary of the Company) to the Purchaser. The Board announces that on 25 December 2012, pursuant to the Sale and Purchase Agreement, the Seller, as a master licensee of the “Roots” brand in some Asian countries under the Master License Agreement, entered into the Distribution Agreement with BLS to appoint BLS as the distributor of the Products in part of such territories for an initial term commencing from 1 January 2013 and ending on 31 January 2021, which may be renewed for a further term of ten years subject to certain conditions. BLS is an indirect wholly-owned subsidiary of the Purchaser, which is an indirect wholly-owned subsidiary of FH 1937, which is a substantial shareholder of the Company. Accordingly, BLS, being an associate of FH 1937, is a connected person of the Company. The transactions contemplated under the Distribution Agreement therefore constitute continuing connected transactions for the Company under Chapter 14A of the Listing Rules. Since the highest applicable percentage ratio calculated with reference to the highest Annual Cap for the Distribution Agreement is more than 0.1% but less than 5%, the transactions contemplated under the Distribution Agreement are subject to the reporting, annual review and announcement requirements, but are exempt from the independent shareholders’ approval requirement, under Chapter 14A of the Listing Rules. The transactions contemplated under the Distribution Agreement fall within the scope of the Master Distribution and Sale of Goods Agreement, and it is expected that the Annual Caps for the Master Distribution and Sale of Goods Agreement for each of the two years ending 31 December 2014 will be sufficient to cover the Annual Caps for the Distribution Agreement for the same period. The Annual Caps for the Distribution Agreement for the rest of its initial term beyond 31 December 2014 will be taken into account in determining the Annuals Caps for any renewal of the Master Distribution and Sale of Goods Agreement.

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BACKGROUND Reference is made to the announcement of the Company dated 16 December 2012 relating to the Sale and Purchase Agreement for the disposal of the entire issued share capital of the Target by the Seller (which is an indirect wholly-owned subsidiary of the Company) to the Purchaser. The Seller is the exclusive licensee of the “Roots” brand in some Asian countries under the Master License Agreement, which has an initial term of ten years expiring on 1 February 2021 and is renewable for a further term of ten years. The Board announces that on 25 December 2012, pursuant to the Sale and Purchase Agreement, the Seller entered into the Distribution Agreement with BLS to appoint BLS as the distributor of the Products in part of such territories. THE DISTRIBUTION AGREEMENT Date 25 December 2012 Parties (1) (2)

The Seller, as master licensee BLS, as distributor

Distribution arrangements Pursuant to the Distribution Agreement, the Seller appoints BLS: 

as its exclusive distributor to market, distribute and sell (in retail stores and online only) the Products in the Exclusive Territories; and



as its non-exclusive distributor to market, distribute and sell the Products, in retail stores only, in the Other Designated Territories.

The Seller agreed to use best endeavours to obtain licensing rights from the Licensor to the Additional Products and upon the Seller being granted such rights, BLS’s distribution rights will be extended to the Additional Products. For each year during the initial term of the Distribution Agreement as described below, BLS Group shall purchase and pay for no less than a guaranteed minimum purchase amount of the Products as specified in the Distribution Agreement.

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Term The Distribution Agreement shall have an initial term commencing on 1 January 2013 and ending on 31 January 2021. BLS will have the right to renew the Distribution Agreement for a further term of ten years, subject to BLS Group having purchased an aggregate amount of the Products during the initial term being equivalent in value to at least 90% of the aggregate of the guaranteed minimum purchase amounts during the initial term, the Master License Agreement having been renewed; and BLS not being then in material default of the terms of the Distribution Agreement, and subject also to the parties mutually agreeing to the terms and conditions applicable to such further term. The Company will comply with the then applicable requirements under the Listing Rules in case of a renewal of the Distribution Agreement. Pricing basis The Products shall be sold by the Seller to BLS at a price and on payment terms, which the Directors confirmed are either at market rates and on normal commercial terms or at rates and on terms similar to those offered to third party distributors. ANNUAL CAPS FOR THE DISTRIBUTION AGREEMENT The Annual Caps for the Distribution Agreement for the period between 1 January 2013 and 31 January 2021 are set out below: For the year ending

Annual Caps

31 December 2013

US$40,000,000 (approximately HK$312,000,000)

31 December 2014

US$48,000,000 (approximately HK$374,400,000)

31 December 2015

US$57,600,000 (approximately HK$449,280,000)

31 December 2016

US$69,100,000 (approximately HK$538,980,000)

31 December 2017

US$82,900,000 (approximately HK$646,620,000)

31 December 2018

US$99,500,000 (approximately HK$776,100,000)

31 December 2019

US$119,400,000 (approximately HK$931,320,000)

31 December 2020

US$143,300,000 (approximately HK$1,117,740,000)

31 December 2021

US$172,000,000 (approximately HK$1,341,600,000)

The Annual Caps set out above are determined with reference to the historical sales amounts of the Products by the Target and the expected growth rate.

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REASONS FOR AND BENEFITS OF THE DISTRIBUTION AGREEMENT The Group is recognized as the world’s leader in consumer goods design, development, sourcing and distribution. It manages the supply chain for retailers and brands worldwide through its three interconnected business networks, i.e. trading, logistics and distribution, and offers a spectrum of services that covers the entire end-to-end supply chain. The Seller, which was acquired by the Group in 2010, is an investment holding company and its subsidiaries are principally engaged in the distribution of consumer products, including fast moving consumer products, healthcare and apparel and footwear. BLS, which is an indirect wholly-owned subsidiary of the Purchaser, is principally engaged in trading and distribution of apparel and accessories. As mentioned in the announcement of the Company dated 16 December 2012, the main reason and objective for the Disposal is to transform the Group’s business through the Target from an integrated retailing business to the business model of brand licencing, focusing on product design, brand management, sourcing, distributing and wholesale without directly engaging in retail operations. The Distribution Agreement was entered into pursuant to the Sale and Purchase Agreement consequential to the Disposal and in pursuit of the aforesaid objective. The Directors (including the independent non-executive Directors) consider that the Distribution Agreement is entered into in the ordinary and usual course of business and on normal commercial terms, and the terms thereof are fair and reasonable and in the interests of the Company and its shareholders as a whole. Dr. Victor Fung Kwok King and Dr. William Fung Kwok Lun, both being directors of FH 1937, are considered to have a material interest in the Distribution Agreement by virtue of their interests in FH 1937, and therefore abstained from voting on the board resolutions in respect of the Distribution Agreement. Mr. Spencer Theodore Fung, being the son of Dr. Victor Fung Kwok King, also abstained from voting on the board resolutions in respect of the Distribution Agreement. Mr. Benedict Chang Yew Teck, being a director of FH 1937, is considered to have a conflict of interest in the Distribution Agreement by virtue of his directorship with FH 1937 and therefore abstained from voting on the board resolutions in respect of the Distribution Agreement. LISTING RULES IMPLICATIONS BLS is an indirect wholly-owned subsidiary of the Purchaser, which is an indirect wholly-owned subsidiary of FH 1937, which is a substantial shareholder of the Company. Accordingly, BLS, being an associate of FH 1937, is a connected person of the Company. The transactions contemplated under the Distribution Agreement therefore constitute continuing connected transactions for the Company under Chapter 14A of the Listing Rules.

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Since the highest applicable percentage ratio calculated with reference to the highest Annual Cap is more than 0.1% but less than 5%, the transactions contemplated under the Distribution Agreement are subject to the reporting, annual review and announcement requirements, but are exempt from the independent shareholders' approval requirement, under Chapter 14A of the Listing Rules. Reference is made to the announcement of the Company dated 19 January 2012 relating to, among other things, the Master Distribution and Sale of Goods Agreement which is for a term of three years ending on 31 December 2014. The Annual Caps for the Master Distribution and Sale of Goods Agreement for each of the two years ending 31 December 2014 are US$120,000,000 (approximately HK$936,000,000) and US$200,000,000 (approximately HK$1,560,000,000), respectively. The transactions contemplated under the Master Distribution and Sale of Goods Agreement are subject to the reporting, annual review and announcement requirements, but are exempt from the independent shareholders' approval requirement, under Chapter 14A of the Listing Rules. The transactions contemplated under the Distribution Agreement fall within the scope of the Master Distribution and Sale of Goods Agreement. It is expected that the Annual Caps for the Master Distribution and Sale of Goods Agreement for each of the two years ending 31 December 2014 will be sufficient to cover the Annual Caps for the Distribution Agreement for the same period. The Annual Caps for the Distribution Agreement for the rest of its initial term beyond 31 December 2014 will be taken into account in determining the Annuals Caps for any renewal of the Master Distribution and Sale of Goods Agreement. Since the duration of the Distribution Agreement is longer than three years, pursuant to Rule 14A.35(1) of the Listing Rules, an independent financial adviser is required to issue a letter to explain why a longer period for the Distribution Agreement is required and that it is normal business practice for agreements of this type to be of such duration. BNP Paribas Capital (Asia Pacific) Limited (“BNP Paribas”) is appointed as the independent financial adviser for this purpose. In assessing the duration of the Distribution Agreement, BNP Paribas has considered, based on the information provided by the Company, the following reasons and factors: 

The Company considers that it is commercially sensible for the Distribution Agreement to have a longer duration in order to mirror the remaining term of the Master License Agreement.



The Target has been principally engaged in the retail of “Roots” branded apparel and accessories through chain store operations in Taiwan.



A distribution agreement of this type generally requires the wholesalers and the retailers to agree on all branding, advertising, promotional and marketing strategies and standards, which is an expensive and time consuming exercise. It is therefore not in the commercial interest of the wholesalers to change their retailers in a frequent manner or to have the retailers to enter into short term contracts with wholesalers. A longer term distribution agreement will provide the wholesalers with a greater degree of stability and continuity to formulate long term -5-

strategic plans. On the above rationale, having a term of more than three years for the Distribution Agreement is practicable and commercially sensible for the Group. 

From the perspective of the retailers, they usually incur substantial investments for their retail stores and marketing activities. The need on the part of retailers to have longer term business plans and projections and accordingly longer duration for distribution agreements is reasonable as agreements of a longer duration might reduce business uncertainties and may be commercially advantageous to retailers. It is normal and customary for retailers to enter into distribution agreements of a longer duration to ensure a smooth operation.



The Directors, including the independent non-executive Directors, are of the view that performance of the Distribution Agreement will be in the ordinary and usual course of business of the Company and that the terms of the Distribution Agreement are on normal commercial terms, are fair and reasonable and in the interests of the Company and its shareholders as a whole.



The existing term sheets of distribution arrangements entered into between members of the Group as the licensee and independent third parties as the distributor (the “Other Distribution Arrangements”) either: (i) have a duration of three years or more; or (ii) have an initial term of three years and are automatically renewed for another three years or five years on expiry of the initial term, subject to achieving minimum purchases and point-of-sale commitments during the initial term, or other terms agreed among the relevant parties.



Two of the Other Distribution Arrangements, with durations of three years and four years respectively, end on the same date as the relevant master license agreements. These two Other Distribution Arrangements are covered by the respective master license agreements and thus mirror the durations of the respective master license agreements. Accordingly, the proposed arrangement for the Distribution Agreement also follows the usual practice for these two Other Distribution Arrangements, i.e. mirroring the remaining duration of the Master License Agreement.



BNP Paribas has reviewed a number of transactions from publicly available information involving the granting of licensing rights to retailers which are listed in Hong Kong and noted that the durations of some of these transactions are also more than three years or are, upon expiry of the initial term, automatically renewed subject to certain renewal conditions such as compliance with the license agreement and trading performance.

Taking into account of the above reasons and factors, BNP Paribas is of the view that a longer period for the Distribution Agreement is required and it is normal business practice for agreements of this type to be of such duration.

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DEFINITIONS In this announcement, unless the context otherwise requires, the following terms shall have the following meanings: “Additional Products”

additional categories of “Roots” products, being food & beverage, home products, furnishings, accessories and pet products

“Annual Caps”

in respect of the Distribution Agreement or the Master Distribution and Sale of Goods Agreement (as the case may be), the estimated maximum aggregate annual transaction amounts thereunder

“associate”, “connected person”, “subsidiary”, “substantial shareholder”

each has the meaning ascribed to it under the Listing Rules

“BLS”

Branded Lifestyle Trading (Asia) Limited, an indirect wholly-owned subsidiary of the Purchaser

“BLS Group”

BLS, any holding company of BLS, all subsidiaries of BLS and all subsidiaries of any such holding companies from time to time

“Board”

the board of directors of the Company

“Company”

Li & Fung Limited, a company incorporated in Bermuda with limited liability, the shares of which are listed on the Stock Exchange

“Director(s)”

the director(s) of the Company

“Disposal”

the disposal of the one issued share of the Target which represents the entire issued share capital of the Target by the Seller pursuant to the Sale and Purchase Agreement

“Distribution Agreement”

the distribution agreement dated 25 December 2012 between the Seller and BLS for appointment of BLS as the distributor of the Products in the Exclusive Territories and the Other Designated Territories

“Exclusive Territories”

Taiwan and South Korea

“FH 1937”

Fung Holdings (1937) Limited, a company incorporated in Hong Kong, which is a substantial shareholder of the Company

“Group”

the Company and its subsidiaries -7-

“Hong Kong”

the Hong Kong Special Administrative Region of the People’s Republic of China

“HK$”

Hong Kong dollars, the lawful currency of Hong Kong

“Licensor”

Roots International Ltd., a company incorporated under the laws of the province of Ontario, Canada

“Listing Rules”

the Rules Governing the Listing of Securities on the Stock Exchange

“Master Distribution and Sale of Goods Agreement”

the distribution and sale of goods agreement dated 19 January 2012 between the Company and FH 1937 (formerly known as Li & Fung (1937) Limited) as described in the Company’s announcement dated 19 January 2012

“Master License Agreement”

the license agreement dated 12 August 2010 entered into between the Seller and the Licensor in respect of products to be sold, marketed or distributed under the “Roots” brand in certain territories

“Other Designated Territories”

Japan, Singapore, Malaysia, Philippines, Indonesia and Thailand

“Products”

“Roots” branded products including menswear, ladieswear, childrenswear, bags and luggage, fashion accessories and footwear and certain third party licensed merchandise

“Purchaser”

ILC International Corporation, a incorporated in the British Virgin Islands

“Sale and Purchase Agreement”

the sale and purchase agreement dated 16 December 2012 between the Seller and the Purchaser in relation to the Disposal

“Seller”

IDS Group Limited, a company incorporated in the British Virgin Islands, which is an indirect wholly-owned subsidiary of the Company

“Stock Exchange”

The Stock Exchange of Hong Kong Limited

“Target”

LF Asia (Taiwan) Limited, a company incorporated in Hong Kong

“US$”

US dollar(s), the lawful currency of the United States of America

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company

BOARD OF DIRECTORS As at the date hereof, the Board comprises the following Directors: Non-Executive Directors: Victor Fung Kwok King (Honorary Chairman) Paul Edward Selway-Swift* Allan Wong Chi Yun* Franklin Warren McFarlan* Martin Tang Yue Nien* Benedict Chang Yew Teck Fu Yuning*

Executive Directors: William Fung Kwok Lun (Group Chairman) Bruce Philip Rockowitz (Group President & Chief Executive Officer) Spencer Theodore Fung (Group Chief Operating Officer)

* Independent Non-executive Directors For reference only, amounts in US$ set out in this announcement have been converted into HK$ based on an exchange rate of US$1 = HK$7.80. No representation is made that any amount in US$ had been or could be converted at the above rate.

By Order of the Board Terry WAN Mei Chow Company Secretary

Hong Kong, 27 December 2012 Websites: www.lifung.com www.irasia.com/listco/hk/lifung

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