20-F

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

¨ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2002

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             .

Commission file number 33-45136

DSG INTERNATIONAL LIMITED

(Exact name of Registrant as specified in its charter)

(Translation of Registrant’s name into English)

British Virgin Islands

(Jurisdiction of incorporation or organization)

17/F Watson Centre, 16-22 Kung Yip Street, Kwai Chung

Hong Kong

Tel. No. 852-2484-4820

(Address of principal executive office)

Securities registered or to be registered pursuant to Section 12(b) of the Act.

Title of each Class	Name of each exchange on which registered
None

Securities registered or to be registered pursuant to Section 12(g) of the Act.

Ordinary Shares, par value

$0.01 per share (“Ordinary Shares”)

(Title of Class)

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

None

(Title of Class)

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

Ordinary Shares        6,989,116

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     x    Yes    ¨  No

Indicate by check mark which financial statement item the registrant has elected to follow.    ¨    Item 17    x  Item 18

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.    ¨    Yes    ¨  No

PART I

Item 1. Identity of Directors, Senior Management and Advisors.

Not applicable.

Item 2. Offer Statistics and Expected Timetable.

Not applicable.

Item 3. Key Information.

A. Selected Financial Data

The information required is contained in the Selected Consolidated Financial Data of the Annual Report to Shareholders, and is incorporated herein by reference.

B. Capitalization and Indebtedness

The information required is contained in the Consolidated Balance Sheets and Consolidated Statements of Shareholders’ Equity of the Annual Report to Shareholders, and is incorporated herein by reference.

C. Reasons for the Offer and Use of Proceeds

Not applicable.

D. Risk Factors

Among the factors that have a direct effect on the results of operations and financial condition of DSG International Limited (the “Company”) are the following:

1. Raw Material Cost

The overall raw material costs decreased moderately during 2002. The Company’s operating results may be adversely affected by any increases in raw material costs in the future, specifically the cost of the main raw materials, fluff wood pulp and super absorbent polymer (“SAP”) which may increase at a greater rate than anticipated in 2003.

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2. Branded Product Innovation

Patents and other intellectual property rights are an important competitive factor in the disposable diaper market, mostly because of the industry emphasis in product innovations. Patents held by the main competitors could severely limit the Company’s ability to keep up with branded product innovations, by prohibiting the Company from marketing product with comparable features.

3. Pricing and Volumes

The market position of the Company’s main competitors, The Procter & Gamble Company (“P&G”) and Kimberly-Clark Corporation (“KC”), relative to the Company varies from one geographic area to another; but due to their substantial financial, technical and marketing resources, both of these major manufacturers have the ability to exert significant influence in price and volumes, and gain substantial market share in any of their marketing areas. They have heavily promoted diapers in the multi-pack configuration. These packages offer a lower unit price than previously available to the retailer and consumer. It is possible that as a consequence of this strategy, in those geographic markets in which the main competitors have adopted it, the Company may realize lower selling prices and/or lower sales volume.

4. Increased Cost

On May 21, 2001, the Company entered into an agreement with P&G to settle any potential liability of the Company which may have existed with respect to any past infringement on P&G patents prior to January 1, 2001 and to agree on royalty payments relating to sales on certain of the Company’s products in the Asian Pacific and Australian region after December 31, 2000. A similar agreement with P&G was entered into in 1998 relating to the North American region that provides for payments of royalty fees based on a percentage of certain products sold after December 31, 1997 within the North American region.

The Company believes that the royalty being charged by P&G under its respective license agreements is approximately the same royalty that will be paid by its major competitors for similar patent rights. However, these royalties will continue to have an adverse impact on the Company’s future financial condition and results of operations as compared to pre-settlement.

5. Increased Financial Leverage

As a result of the acquisition of the North American assets of Drypers Corporation, the Company has short and long-term debt of $24.3 million, bearing various interest rates as of December 31, 2002.

The Company’s debt levels were reduced from $47.9 million at December 31, 2001 to $24.3 million at December 31, 2002. Even though the Company’s debt has been reduced it still has significant principal and interest obligations resulting from the acquisition of the North American assets of Drypers Corporation. The existing level of the Company’s financial leverage as described above, could adversely affect the Company’s ability to obtain additional financing for working

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capital, acquisitions or other purposes and could make the Company more vulnerable to economic crisis in the different geographical markets and to competitive pressures from its main competitors.

As a substantial portion of the Company’s available cash from operations will have to be applied to meet debt service requirements, the Company’s liquidity could be affected as well as its ability to fund capital expenditures. Notwithstanding, the Company believes that its cash flow from operations and other sources of liquidity will be adequate to meet its requirements for working capital, capital expenditures, interest payment and scheduled principal payment for the foreseeable future. However, if the Company is unable to generate sufficient cash flow from operations in the future, it may be required to refinance all or a portion of its existing debt or obtain additional financing. There is no assurance that this additional financing could be obtained. If financing is obtainable, there is no guarantee it could be obtained on terms favorable to the Company.

6. Litigation Risk

As the Company operates in an industry in which patents are numerous and are enforced vigorously, the Company and its subsidiaries are from time to time involved in legal matters. On April 18, 2002 the Company made a lump sum payment of $4.2 million to settle a patent infringement lawsuit brought by Plaintiffs John M. Tharpe, Robert E. Herrin and R & L Engineering, Inc., a Georgia corporation. The Company recorded the $4.2 million settlement as a loss on settlement of legal cases in the Company’s Consolidated Statement of Operations in the Annual Report to Shareholders for the year ended December 31, 2001.

The Company is currently not defending itself in any significant litigation matters. Although it cannot be certain, in management’s opinion, none of the legal proceedings in which the Company is currently involved, individually or in the aggregate, is expected to have a material adverse effect on the Company’s business, financial condition or results of operation.

Item 4. Information on the Company.

A. History and Development of the Company

DSG International Limited, established in Hong Kong in 1973, is one of the world’s leading companies specializing in manufacturing disposable baby diapers, adult incontinence and training pants products, with over twenty-nine years of experience in this industry. The Company now operates nine manufacturing facilities in North America, Asia and Europe with extensive distribution activities around the world.

In 1984, the Company established a manufacturing facility in California through a joint venture with a large French disposable diaper manufacturer, and later that year acquired full ownership of that facility.

In 1987, the Company acquired the U.S. assets of a major private label disposable baby diaper manufacturer which

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was in bankruptcy, and was thus able to establish a second manufacturing facility at Norcross, Georgia to serve the central, southeastern and northeastern United States. As a result, the Company extended its “FITTI^®” brand into U.S. national distribution.

In 1988, the Company acquired all the assets of an unprofitable private label manufacturer of disposable baby diapers in Australia. Also in 1988, the Company acquired the assets, including brand names, of the unprofitable disposable baby diaper manufacturing division of a major U.K. consumer products company.

In September 1991, the Company opened a new manufacturing facility in Singapore to relieve capacity constraints at its Hong Kong facility and to better service South East Asian markets.

On March 6, 1992, the Company commenced the initial public offering in the United States of its Ordinary Shares.

In July 1993, the Company acquired all the assets of a private label disposable baby diaper and feminine napkin manufacturing division of a Swiss company. In September 1993, the Company acquired an unprofitable private label disposable baby diaper and feminine napkin manufacturing company in Canada. At the end of December 1993, the Company further acquired an unprofitable branded product disposable baby diaper manufacturer in the United Kingdom. The Company moved its manufacturing plant in Norcross, Georgia to Duluth, Georgia, where the Company further expanded its production capacity in the U.S.

In May 1994, the Company formed a joint venture company with its former distributor in Thailand. The joint venture acquired the entire capital of the distributor’s company and built a plant in Bangkok, Thailand to manufacture baby diapers and adult incontinence products. The Company currently holds an 80% interest in the joint venture company. In August 1994, the Company acquired a manufacturer of adult incontinence products in Switzerland. In November 1994, the Company opened its plant in Zhongshan, Guangdong in the People’s Republic of China.

In April 1995, the Company’s management group, led by the Chairman, Brandon Wang, and two other equity investors proposed a going private transaction to which the holders of all the outstanding shares of the Company held by the public would receive $19 per share. On May 26, 1995, after a review by a Special Committee of independent directors appointed to consider and advise on the proposal, the Board of Directors approved the going private transaction at a price of $19.25 per share and authorized the Company to enter into a merger agreement with corporations that had been formed by the management group. On July 7, 1995 the merger agreement that had been entered into as of May 26, 1995 to effect the going private transaction was terminated because there was no reasonable possibility that certain conditions of the merger agreement could be satisfied within the time period stipulated in the agreement as there was no reasonable prospect that financing would be available on satisfactory terms within such time period.

In September 1995, the Company opened a new plant in Bangkok, Thailand. In October 1995, the Company established a wholly owned subsidiary in Malaysia to assist with the marketing and distribution of the Company’s products in Malaysia.

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In November 1996, the Company invited its public shareholders to tender their shares to the Company at prices not greater than $14.50 or less than $12.75 per share. The tender offer closed on December 13, 1996 and the Company purchased 1,003,641 shares from the public shareholders at a price of $14.50 per share.

In April 1997, the Company acquired the entire share capital of an adult incontinence and disposable baby diaper manufacturer in Wisconsin, United States, and the manufacturing assets of a company in the Netherlands and its related distribution company in Belgium.

In June 1997, the Company entered into a joint venture agreement with an Indonesian distributor to establish a manufacturing facility in Cikande, Indonesia to manufacture disposable baby diapers. The Company owns a 60% interest in the joint venture company.

During 1997, the Company closed its manufacturing operations in Canada, California and Singapore.

In March 1998, the Company closed its operations in Canada and later on in December, the factory facilities were sold. In November 1998, the Company opened its joint venture manufacturing facilities in Indonesia.

In March 1999, the Company sold its private label baby diaper business in Switzerland. In April and June 1999, the Company established two wholly owned subsidiaries in the United Kingdom and Germany to assist the marketing and distribution of the Company’s adult incontinence products in Europe. In June 1999, the Company opened its new plant and commenced its baby disposable diaper production in Selangor, Malaysia.

In October 2000, the Company sold its adult incontinence operation in Switzerland and its sales office in Germany.

In March 2001, the Company acquired all the U.S. assets including the “DRYPERS^®” brand name and the manufacturing facilities in Marion, Ohio and Vancouver, Washington of a major U.S. disposable baby diaper manufacturer which was in bankruptcy, and was thus able to substantially expand its sales in the U.S.

In November 2001, the Company announced the closure of its manufacturing facility in Duluth, Georgia. Production at this facility was discontinued on January 7, 2002. The Company currently has this facility for sale and it is categorized as an “Asset held for sale” on its consolidated balance sheets.

In March 2002, the Company closed its sales and distribution company in Belgium.

On November 11, 2002, the Company entered into a definitive agreement to sell its Australian subsidiaries and the sale was completed on December 6, 2002 (Refer to Item 4.B.6.b. in this report).

DSG International Limited is incorporated in the British Virgin Islands and has its principal executive office at 17/F Watson Centre, 16-22 Kung Yip Street, Kwai Chung, Hong Kong. Its telephone number is (852) 2484-4820.

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CAPITAL EXPENDITURES, INVESTMENT AND DIVESTITURES

Principal capital expenditures, investment and divestitures of the continuing operations over the last three years include the following:

	2002		2001			2000
Property, plant and equipment (net)	$	7,406,000	$	8,859,000		$	4,450,000
Investment in and advances to subsidiaries	$	11,308,000	$	(314,000	)	$	5,883,000
Recoupment of investment in subsidiaries	$	16,271,000	$	23,103,000		$	7,068,000

B. Business Overview

1. General

The Company manufactures and markets disposable baby diapers, training pants and adult incontinence products primarily under its own brand names, which include “DRYPERS^®”, “FITTI^®”, “PET PET^®”, “COSIES^®”, “COSIFITS^®”, “BABY LOVE^®”, “BABYJOY^®”, “LULLABY^®”, “CARES^®”, “CUDDLES^®”, “SUPER FAN-NIES^®”, “DISPO 123^™”, “HANDY^™”, “CERTAINTY^®” and “MERIT^®”. The “DRYPERS^®” brand was acquired in March 2001. The Company also manufactures and markets disposable baby diapers, adult incontinence and training pants products under private labels. The Company’s products are sold internationally, with its nine manufacturing facilities being in Hong Kong, the United States, the United Kingdom, the People’s Republic of China (“PRC”), Thailand, Indonesia and Malaysia.

The Company manufactures and distributes branded and private label disposable baby diapers, adult incontinence products, training pants and youth pants for the North American markets with its operations in Oconto Falls, Wisconsin, Marion, Ohio and Vancouver, Washington. With a strong regional presence, the Company’s “FITTI^®” and “CUDDLES^®” brands are some of the best selling brands of disposable baby diapers (excluding private labels) in many key markets. The Company’s newly acquired “DRYPERS^®” brand is the fourth best selling national brand of disposable baby diapers and training pants products in the North American market. The Company’s sales in adult incontinence products, training pants and youth pants have grown in their significance in the Company’s North American markets.

In the PRC, the Company estimates that the consumer market penetration rate of disposable baby diapers is around 3% to 4% and the market size is growing at a rate of 15% per annum. The Company’s leading brands, “FITTI^®” and “PET PET^®”, are well established in most of the major cities including Shenzhen, Guangzhou, Shanghai and Beijing; and the Company’s economy brands, “BABY LOVE^®” and “BABYJOY^®”, expanded rapidly in the eastern and northeastern part of the PRC. In 2002, the Company launched an economy brand, “FITTI^® Basic”, in order to strengthen the market penetration of the “FITTI^®” brand nationwide. The Company estimates that it holds the third position in overall market share among its competitors in the PRC. In the Guangdong province, the major southern province of the PRC, the Company has a well-established sales and distribution network that extends throughout the province and the Company believes that it is the market leader in the province, with around 30% market share. The Company established a sales office

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in Guangzhou in 2001 to further strengthen its position in the Guangdong province. In the northern part of the PRC, the Company’s sales operation in Beijing established direct sales and distribution in the Beijing and Tianjin markets and expanded its wholesale network into other northern and northeastern provinces such as Shandong, Shanxi, Hebei, Shaanxi, Jilin and Liaoning. In the eastern part of the PRC such as Fujian, Zhejiang, Jiangsu provinces, the Company established a strong sales and distribution network by working with a number of reputable territorial wholesalers and the Company is optimistic about the growth opportunity in these provinces. In Shanghai Municipal, the Company established its direct sales and distribution network with major foreign investor-owned hypermarkets and state-owned supermarket chains. The Company also set up a nationwide sales and marketing center in Shanghai to focus and keep pace with the market development in the PRC. In 2002, the Company set up two new sales offices in Wuhan and Chengdu to reinforce the distribution efforts in the Central and Western part of the PRC. Overall, the Company has expanded its sales and distribution networks in over 58 major cities in the PRC and continues its effort in exploring the potential of other PRC markets. In 2002, the Hong Kong disposable diaper market remained stagnant due to a low birth rate and weak economy, and the Company maintained its second place position in the market with an estimated market share of 20%.

In Thailand, the Company’s “BABY LOVE^®” and “FITTI^® Basic” brands, gained additional market share in the economy sector, and the Company’s 2002 volume grew by 20% over 2001. These sales gains were achieved under difficult market conditions highlighted by intense competitive marketing promotions. In 2002, in Indonesia, the introduction of new brands and promotional pricing programs to match those of our competitors, resulted in double digit sales growth over 2001. In the second half of 2002, the Indonesian market began to weaken and these conditions are expected to carryover into the new year. In Malaysia, the overall diaper market contracted in 2002. The impact of this contraction was compounded by severe competitive promotional pricing. For the first time since it began operations in Malaysia, the Company experienced a decline in volume after three consecutive years of double digit growth. The Company expects these difficult conditions to continue and has planned tailored advertising and promotional campaigns for the new year along with making upgrades to its product offering. In 2002, in Singapore, the Company had about a 15% sales decline after a 40% increase in the previous year. The Singapore economy was weak throughout 2002 and competitive pricing promotions further impaired the Company’s ability to maintain market position. The Company is planning to expand its distribution network in Singapore in the coming year.

The Company manufactures and distributes adult incontinence products through its operation in Thailand to all other markets in Asia under its “DISPO 123^™”, “HANDY^™” and “CERTAINTY^®” brands. The Company believes that it is one of the market leaders in the adult incontinence market in Thailand. In other Asian markets, the sales of adult incontinence products have increased steadily over the years and the Company’s brands are well established both in the retail and institutional sectors. The Company remains optimistic about the market growth potential of the adult incontinence market in the Asian Pacific region.

In Europe, the Company scaled down its operations in 2001. The Company’s remaining operation in the United Kingdom continues to market its branded products to wholesalers and grocery retail accounts. The Company also manufactures private label disposable diapers on a selective basis.

In December 2002, the Company sold its Australian subsidiaries and therefore no longer manufactures or sells

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disposable baby diapers in Australia and the related markets of the Pacific Islands.

The Company’s marketing strategy is to provide retailers and wholesalers with quality, value-oriented products which offer good profit margins, combined with a high level of service, rather than attempting to mass market its products in competition with the industry leaders. The Company believes that its attention to raw material costs and manufacturing efficiency, combined with careful control of advertising and promotional costs, enables it to produce and market value-oriented products at competitive prices.

The Company’s growth strategy is to target its branded products at selected sectors of mature markets, such as the United States, and to take a broader marketing approach in less developed markets where there is a high rate of growth in disposable diaper usage. The Company believes that its manufacturing facilities in Asia will enable it to participate in the expected growth of those markets. In the past, the Company has expanded its business into new markets by acquiring the assets of disposable baby diaper and adult incontinence manufacturers. The Company also expands through establishing its own manufacturing facilities in emerging markets which offer significant growth potential, such as the Company’s facilities in the PRC, Thailand, Indonesia and Malaysia, which were opened in 1994, 1995, 1998 and 1999, respectively.

The Company’s principal raw materials are fluff wood pulp and super absorbent polymer. Other raw materials include polyethylene backsheets, cloth-like breathable backsheets, polypropylene non-woven liners, adhesive tapes, mechanical closure tapes, hot melt adhesive, elastic, aloe vera and tissue. The cost of materials increased in 2001 and decreased slightly in 2002. Raw materials account for about three-quarters of the cost of goods sold.

Disposable diapers are designed and marketed with two basic objectives in mind : (1) to afford parents of infants up to two and one-half years of age the convenience of diapers which are disposed of after one use and (2) to reduce the risk of chapping (“diaper rash”) which often occurs when moisture from a soiled diaper remains in contact with the baby’s skin. The basic concept of most disposable diapers on the market is the same : to allow moisture to pass through a soft inner layer which is in contact with the baby’s skin into a highly absorbent inner core, from which the moisture is prevented from escaping by an outer moisture-proof backsheet. There are significant differences in quality among the various disposable diapers currently on the market. The most important quality features of disposable diapers are their ability to absorb and retain fluids, to prevent leakage through leg and waist openings by the use of elasticized bands, and to be easily fitted and held in place by adhesive tapes which secure the diaper firmly without causing discomfort to the baby. Other features, such as innovative fastenings, attractive designs, extra-dry sub-layer, gender specific absorbent cores, stand-up leg gathers, cloth-like breathable backsheets, mechanical closure tapes, elastic waistband, aloe vera and packaging help to differentiate products from one another.

Adult incontinence products are designed for the convenience of males and females having various degrees of incontinence. The basic concept of most adult incontinence products is to prevent leakage of urine and faeces by absorbing the moisture into a highly absorbent inner core and retaining the soiled contents within an outer moisture proof backsheet. Similar to disposable diapers, the most important quality features of adult incontinence products are their ability to absorb and retain fluids, to prevent leakage through leg and waist openings by the use of elasticized bands, and to be easily fitted and held in place by adhesive tapes which secure firmly without causing discomfort to the user. The absorption media for adult

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incontinence products are fluff wood pulp and super absorbent polymer. Other features, such as wetness indicator, stand-up leg gathers, elastic waistband, frontal tape closure system and packaging help to differentiate products from one another.

The Company believes that there is a high potential for adult incontinence products due to the aging populations of the industrialized and developed countries. The Company entered the adult incontinence markets in North America, Europe and Australia, and established and acquired operations in Switzerland, Thailand and Wisconsin in the United States in 1994, 1995 and 1997, respectively. In October 2000, the Company sold its adult incontinence operation in Switzerland and ceased manufacturing adult incontinence products in Europe. In December of 2002, the Company sold its Australian subsidiaries and therefore no longer sells adult incontinence products in the Australian markets. The Company remains optimistic in its adult incontinence business in the markets in North America and Asia. The Company introduces adult incontinence products into its markets in a manner consistent with its niche market strategy. The Company believes that the key to successful marketing of this type of product is the high and prompt level of service from the manufacturer and distributor, regular contact with institutions to ensure proper knowledge of the products, and providing a range of products of high quality and performance.

2. Geographic Segment and Product Category Information

The following table sets forth the percentage of the Company’s net sales of continuing operations by geographic market and product category activity:

	2002		2001		2000
Net sales
North America	70.9	%	69.7	%	54.4	%
Asia	27.3		27.6		35.1
Europe	1.8		2.7		10.5
	100.0	%	100.0	%	100.0	%
Product sales by category
Disposable baby diapers	79.3	%	78.7	%	68.7	%
Adult incontinence products	14.5		13.3		25.3
Training pants, youth pants and sanitary napkins	6.2		8.0		6.0
	100.0	%	100.0	%	100.0	%

3. Seasonality

There is no significant seasonality impact on the Company’s business in most countries.

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4. Raw Materials

The raw material components used in the manufacturing process are fluff wood pulp, super absorbent polymer, polyethylene backsheet, cloth-like breathable backsheet, polypropylene non-woven liner, adhesive closure tape, mechanical closure tapes, hotmelt adhesive, elastic, aloe vera and tissue.

The main raw material is fluff wood pulp, which is purchased from several suppliers in the United States, Scandinavia and Australia. The source from which the fluff wood pulp is shipped to the Company’s manufacturing facilities is dependent on price, quality and availability. The cost of fluff wood pulp increased significantly in 1995, softened in 1996, stabilized thereafter, increased in 1999, increased moderately until the third quarter in 2000 and decreased moderately in 2001 and 2002. The Company believes it will increase moderately in 2003. Other raw materials are purchased from various sources, also depending on price, quality and availability. The Company maintains good and long-term relationships with its raw materials suppliers. The Company’s chief purchasing officer oversees the purchasing and sourcing policies of each of the Company’s manufacturing facilities and is responsible for new material developments and keeping track of all world-wide producers of raw materials. This person also negotiates and determines the purchase of the Company’s major raw materials with the Company’s key raw material suppliers.

The Company has negotiated supply contracts with several of its key suppliers. Such arrangements are generally designed to achieve volume discounts on price and to assure supply stability. In the event of unacceptable price increases, the Company usually has the right to terminate the arrangement upon specified notice periods, which generally range from two to three months.

Some of the suppliers of raw materials to the Company also manufacture disposable diapers which compete with the Company’s products. The Company has not experienced any difficulty with its raw material suppliers who are in competition with it on sales of finished product, but nevertheless it takes steps to ensure that it has alternative sources of supply available.

The main source of energy for the Company’s plants is electricity. The automated process for manufacturing disposable diapers consumes larger amounts of electricity than many other light industries, but none of the Company’s operating subsidiaries has experienced any problems with electricity supply.

5. Marketing Channels

a. North America

i. Products

The Company manufactures and distributes disposable baby diapers, disposable training and youth pants and adult incontinence products throughout North America under the brand names of “DRYPERS^®”, “COMFEES^®”, “FITTI^®”, “CUDDLES^®” and “CERTAINTY^®”, as well as a growing number of different private label store brands. In March

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2001, the Company acquired the “DRYPERS^®” brand which remains the fourth largest selling brand of disposable baby diapers and disposable training pants in the North American markets. The “DRYPERS^®” brand is a full-featured premium product including all of the features of the leading national brands to deliver premium product performance to the quality conscious consumers. The “FITTI^®” brand is a full-featured value product, recognized for its unique wetness indicator, a cute print that fades away when the diaper becomes wet. The “FITTI^®” brand name is also used with the Company’s disposable training pants and the DRI-NITE JUNIOR disposable youth pants. The Company’s pant products feature tear-away side panels, soft cloth-like covers and comfortable waist and hip elastic. The “FITTI^®” training pants were the first North American product in this segment to offer the Company’s unique wetness indicators.

The Company continues to expand its private label diaper business throughout North America with such customers as Wal-Mart, Shoprite, Walgreens Drugs, Eckerd Drug, Kroger, Giant Eagle, Harris Teeter, A&P, Topco, Pathmark, Rite-Aid, Meijer, Aldi, Amway/Quixtar, Federated Foods, McLane (a division of Wal-Mart) and Medline Industries. The Company is one of very few full line manufacturers capable of producing and marketing a full range of disposable baby diapers as well as training pants and youth pants. This advantage should enhance the Company’s sales and private label partnership opportunities moving into the future. Private label sales grew with expanded sales and distribution through Wal-Mart Stores in 2002. Wal-Mart represents approximately 16% of the Company’s consolidated net sales volume.

The Company’s primary focus on adult incontinence products is the development of profitable private label partnerships with selected retailers and institutional distributors such as Walgreens Drug and Medline Industries. The Company’s products are also available on a limited basis under the “CERTAINTY^®” brand name. The Company’s focus is on the brief products, offering a wide range of product and feature alternatives. The Company was the first to bring disposable adult pants to the North American market and the Company will continue to explore innovative product opportunities that will make a positive difference in this category and bring better solutions to the incontinence user.

ii. Sales and Marketing

Disposable baby diapers account for more than 90% of the baby diaper changes in North America. The market can be divided into several segments : brands that are advertised and sold nationally; brands that are not widely advertised but are sold nationally; brands sold only in specific regional areas; and baby diapers that are sold under private label brands. The nationally advertised brands account for around 80% of all sales. The Company maintains a good distribution base on its “DRYPERS^®” and “FITTI^®” brands, with new retail customers being added on a regular basis. The Company’s “DRYPERS^®” and “FITTI^®” brand training pants have enjoyed moderate sales growth and excellent consumer acceptance. The new “DRYPERS^®” training pant is the first one in the value segment to offer stretchy side panels similar to the leading national brand. The Company was also first to offer wetness indicators on their training pants. The Company’s DRI-NITE JUNIOR youth pant brand is gaining market share in the fast growing youth pant segment. This segment now accounts for more than 3% of total category sales.

The Company efficiently services the North American market from three manufacturing facilities. These facilities are located in Oconto Falls, Wisconsin, Marion, Ohio and Vancouver, Washington. The Company commissions a national network of independent brokers and non-food sales representatives to sell directly to retailers and distributors/wholesalers.

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These brokers and sales representatives, managed by the Company’s direct sales management team, serve as the Company’s agents within defined territories to monitor sales, implement trade promotions and handle the required merchandising activities and responsibilities. The Company’s direct sales management team is responsible for the Company’s marketing and headquarter sales functions. The Company remains committed to its marketing philosophy of direct servicing of its customers and accounts by the sales management personnel. This allows the Company to provide a high degree of category expertise and education to the trade and to be able to promptly respond to trade and market needs. In addition, the strategic locations of its North American manufacturing facilities has enabled the Company to achieve average shipping transit time of one to two days for most North American destinations.

Private Label Private labels is the largest segment of the Company’s business and offers the greatest opportunity for potential growth. The Company continues to strengthen its existing private label partnerships with major retailers like Wal-Mart, Kroger, Eckerd Drug, Walgreens, Pathmark, A&P, Giant Eagle, Amway/Quixtar, Aldi, Federated, Topco etc. and by adding new products in both areas of disposable baby diapers and training pants. The Company will continue to target other major retailers to establish new profitable private label partnerships in all of its product categories. The Company recognizes that the private label segment remains somewhat more insulated than that of the typical “value” brands from the aggressive price/promotional strategies of the advertised brands, due to the protective/defensive posture that major retailers tend to take when it comes to protecting their corporate brand franchise. The Company is one of the few manufacturers capable of supplying a full range of quality disposable baby diapers, training pants, and youth pants and has a proven track record of delivering quality products, category expertise and customer service.

Branded Products Due to the intense price and promotional pressure by the advertised brands, combined with a declining birth rate in the U.S. market, the “value brand” segment continues to shrink. By the end of 2002, the combined share of the Company’s “DRYPERS^®”, “FITTI^®” and “CUDDLES^®” brands was roughly 3% of the total units of disposable baby diapers and training pants sold in grocery outlets throughout North America. The Company is pursuing a hybrid marketing program on the “DRYPERS^®” brand. This hybrid approach is a combination of “everyday low price” (“EDLP”) and targeted consumer and trade marketing, designed to increase sales while enhancing the marketing return on investment. The grocery sector represents around 46% of the over $4 billion United States retail market. In certain markets, such as New York/New Jersey, the nation’s largest retail market, the Company believes that the “FITTI^®” brand share is much greater than conventional market share tracking companies would indicate. This is because a much higher percentage of “FITTI^®” diapers and training pants are sold through urban wholesalers and inner city retailers that typical market research does not track. The Company concentrates its efforts and marketing activities in providing wholesalers and retailers with above average category profits through the use of packaging with greater shelf impact, consumer preferred pre-priced packaging, creative promotional support, creative consumer marketing vehicles, efficient distribution, electronic data interchange and a high level of customer service. The Company has maintained its strategy of providing the best EDLP on its “FITTI^®” and “CUDDLES^®” brands, offering the consumer “the best product for the price” all the time. The Company provides consumers with quality products at affordable price, unique product features and consistent value. The Company has grown its branded business with a concentrated effort against a primary diaper selling class of trade : grocery with key retail partners such as Shoprite, A&P, Pathmark, Kroger and Super Valu. However, excellent distribution and sales gains have been made in other non-grocery outlets such as Walgreens Drug, Meijer stores and the U.S. military. The Company continues to benefit from new product ideas and unique retailer profit opportunities for the

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disposable baby products segment.

The Company recognizes that private brands represent more than 30% of the category sales in adult incontinence with steady growth at retail. The greatest retail sales opportunity exists within this sector of adult incontinence. The Company will continue to target this private brand segment with a range of superior products in terms of product features and performance. The Company’s strategy is to provide products to the marketplace that are superior to other available products and that are also more affordable than the advertised brands. The drug store trade still represents the majority of adult incontinence retail sales with approximately 50% share of the over $550 million category. Growth potential for the entire category remains high as the population continues to age, people who are incontinent become more open to treatment solutions and better products are developed.

Institutional Volume and Activity The institutional providers supply adult incontinence products to medical care facilities, nursing homes, extended care facilities and home health care outlets. It is worth noting that the institutional market still represents more than 60% of the total adult incontinence volume in North America or more than $720 million in sales. The adult category represents an area of significant sales and distribution growth for the Company, and significant gains have been captured. Since its launch in 1996, the adult category volume now represents more than 10% of the Company’s total sales. The Company enjoys an excellent working relationship with Medline Industries, Inc., one of North America’s premier institutional suppliers of medical related products.

b. Asia

i. Products

The Company manufactures disposable baby diapers primarily under its own brands in Asia. The Company’s leading brands are “FITTI^®” and “PET PET^®”, and economy brands are “BABY LOVE^®”, “COSIFITS^®”, “FITTI^® Basic” and “BABYJOY^®”. The Company also manufactures private labels on a selective basis. Both “FITTI^®” and “PET PET^®” enjoy substantial market share, are well supported by advertising and promotional activities, and are priced strategically lower than the major U.S. national brands and the Japanese brands sold in Asia. The Company’s economy brands are basic products targeted to compete strictly on price and value with local brands.

The Company manufactures and distributes adult incontinence products under its own brands “DISPO 123^™”, “HANDY^™” and “CERTAINTY^®”. The Company also manufactures adult incontinence products in private labels. The “DISPO 123^™” product is an ultra anatomic diaper, featuring multi-strand leg elastics, frontal tape closure system and stand-up leg gathers, “HANDY^™” and “CERTAINTY^®” has similar features as “DISPO 123^™” except for the stand-up leg gathers and slight specifications change.

ii. Sales and Marketing

The Company continues to command strong market positions in the mature markets of both Hong Kong and Singapore. The Company enjoys first-mover advantages in most of the markets in the Asian region and has established

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invaluable brand image and strong positions for the Company’s products. The Company continues to focus on expansion of sales in the PRC, Thailand, Malaysia and Indonesia by capitalizing on the increasing usage of disposable baby diapers that are well supported by strategic pricing and wisely designed advertising and promotional activities. The Company also sells its products in India and, to a lesser extent, Brunei, Vietnam and Cambodia.

The volume of disposable baby diaper usage varies significantly in different markets, depending to a large extent on the level of per capita disposable incomes. The disposable baby diaper usage is relatively high in Hong Kong and Singapore. Although these two mature markets contracted since the aftermath of Asian financial turmoil, the Company has been able to pursue strategies to maintain its market share in these markets. Disposable baby diaper usage is relatively low in other Asian countries, but the Company believes that the usage will increase as income levels in these countries continue to increase. However, the Company is unable to predict how the recent outbreak of Severe Acute Respiratory Syndrome (SARS) will affect its business in its Asia and South East Asian markets or the impact it may have on short or long-term market growth.

In Asia, the Company has identified Malaysia, the PRC, Thailand and Indonesia as the markets that will expand rapidly in the next decade. The Company’s strategy is to offer a variety of premium branded products targeted to compete with major U.S. and Japanese brands and to offer economy brands to compete in the fastest growing segment of the markets. The Company also ensures flexibility in product features, packaging and marketing functions to satisfy the ever-changing needs and trends of the different markets in Asia.

In Hong Kong, the Company has its own sales force. Its products are sold in all major pharmacy outlets and department stores which account for 60% of all disposable baby diaper sales, while the remaining 40% are sold in major retail supermarket and hypermarket chains such as Park’N Shop, Wellcome and China Resources Company. The disposable baby diaper market in Hong Kong has contracted due to low birth rates and a weak economy. Around 80% of the Company’s sales in Hong Kong are sales of “FITTI^®” and “PET PET^®” brands of products which collectively have around 20% share of the market. The “FITTI^®” and “PET PET^®” brands are supported by advertising and promotion programs, which not only impact sales in the local market but also in the Pearl River Delta area of Guangdong province in the PRC.

In Singapore, the disposable baby diaper market is mature but relatively small. The Company sells and distributes its products, of which 89% were branded products and 11% were private label products, by its own sales force in major retail chains, department stores and hypermarkets.

In Malaysia, the disposable baby diaper market dropped slightly due to the contraction in total diaper market volume. The Company’s “FITTI^®” and “PET PET^®” brands of products have been selling in the market for many years; however, with the establishment of the manufacturing facility in Selangor, Malaysia in 1999, the Company was able to compete with the local economy products manufacturers. The Company’s economy brands, “COSIFITS^®”, “BABY LOVE^®” and “FITTI^® Basic”, expanded rapidly and have gained a significant share in the economy segment of the market. The Company’s products are distributed nationwide by its own sales forces directly to the major chain stores such as The Store, Ocean, Giant and Carrefour, as well as to the other secondary chain stores, independent supermarkets and to lower-end

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retail outlets.

In the PRC, another fast growing market that the Company has identified, the Company’s leading brands are distributed in hypermarkets, supermarket chains, department stores and independent retail stores in most of the provinces, such as Guangdong, Fujian, Zhejiang, Jiangsu, Shandong, Shanxi, Hebei, Shaanxi, Liaoning, Jilin and major municipals and cities, such as Guangzhou, Shenzhen, Shanghai, Shantou, Zhongshan, Tianjin and Beijing. To cope with the rapid development of foreign invested hypermarkets and state-owned supermarket chains in the PRC, the Company cultivates good relationships with the major players like Carrefour, Wal-mart, Metro, Trust-Mart and Makro, as well as Hualian, Century Lianhua, and others and the Company’s products are listed and sold in these hypermarkets and supermarket chains. The Company’s sales operation in Beijing directly services the Beijing and Tianjin markets and expands sales and distribution to northern and northeastern markets such as Shandong, Shanxi and Liaoning provinces. The Company also established a sales and marketing operation in Shanghai, not only directly servicing the Shanghai market and serving as a logistic center for the markets in the eastern part of the PRC, but also overseeing the nationwide market in the PRC. The Company established two sales offices in Wuhan and Chengdu in order to expand its distribution network to the provinces and municipals in the Central and Western part of the PRC, such as Wuhan, Chengdu, Sichuan, Chongqing, Yunan, Hunan and Hubei, and continues to expand its distribution network with the goal of covering all the provinces of the PRC. The Company’s sales expansion in the PRC is well supported by its strategic products and pricing together with customized advertising and promotion programs. The Company estimates that the current usage of disposable baby diapers in the PRC is around 3% to 4% and will grow in accordance with the anticipated rapid economic growth of the country.

In Thailand, although the usage of disposable baby diapers is relatively low, the disposable baby diaper market has been growing rapidly in the past few years. The Company’s major brands in the market are “FITTI^®”, “PET PET^®” and “BABY LOVE^®”. The Company’s sales have been increasing with the growth of the market and from the expansion of the Company’s distribution networks throughout the country. Over 70% of the Company’s sales in Thailand were in the Bangkok metropolitan area, with the rest of the sales coming from the suburban provinces. The Company’s products are distributed to supermarkets and department stores by its own nationwide sales force. The Company has been able to capitalize on the market growth and sustained a market share of about 22% in 2002. The Company also manufactures private label products for a supermarket chain. The Company’s adult incontinence products are distributed to hospitals, supermarkets and department stores. The Company estimates that its share of the Thailand adult incontinence market was approximately 69% in 2002. The Company is also expanding its sales of adult incontinence products in other Asian markets.

The Company’s brands “FITTI^®” and “PET PET^®” are the leading brands in the Indonesian market. With the joint venture manufacturing facility near Jakarta, the Company is able to reduce its product costs as a result of an import duty exemption on raw materials and minimize the adverse effect of currency fluctuation. The Company’s products are sold in all major hypermarkets and supermarket chains and its major competitors in the market are imported U.S. major brands and a local brand.

The Company presently does not plan to export its products to Japan, Taiwan and Korea because current non-tariff barriers and complex distribution arrangements make entry into these markets difficult for foreign products.

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In countries that have high rates of import duties on products and high risk of currency fluctuation, the Company believes that it is more efficient and economical to service their markets through domestic manufacturing facilities. The Company presently has manufacturing facilities in Hong Kong, Thailand, the PRC, Indonesia and Malaysia.

c. Europe

i. Products

The Company manufactures and markets branded and private label disposable baby diapers in the United Kingdom. The Company’s brands currently in production are “FITTI^®”, “COSIFITS^®” and “CARES^®”. “FITTI^®” is a value brand baby diaper with full features such as leg gathers, wetness indicator, cloth-like backsheet, extra-dry sub-layer and mechanical fasteners. “COSIFITS^®” and “CARES^®” are economy brands featuring frontal tape and an extra-dry sub-layer.

ii. Sales and Marketing

The U.K. retail disposable baby diaper market in 2002 was approximately $729 million. Approximately 89%⁽¹⁾ of the market was branded products and the rest were made up of various private label brands of retailers supplied by European diaper manufacturers.

The Company focused on selling its branded products to regional retailers and wholesalers by offering a value-oriented product with good profit margins and a high level of service. The Company also produces its own label for certain U.K. grocery chains.

6. Dependent Patents, Licenses and Contracts

a. Patents, Trademarks and Licenses

Brand identification is an important element in marketing the Company’s products, and the Company recognizes the importance of its trademarks to the success of its business. The Company has registered its major trademarks or has applications pending in each of the major markets in which its products are sold, and it has applications pending in several other countries for many of its other trademarks. As the Company decides to pursue opportunities in new markets, it seeks registration of the trademarks under which it will market its products in those countries.

The Company has licenses to use certain patented technology relating to certain features of the disposable diapers it manufactures. In 1997, P&G claimed that certain of the Company’s diaper products infringe P&G’s patents and demanded payment for past infringement and an agreement to pay future royalties. The Company and P&G reached settlement of this claim for the United States market in 1998. On May 21, 2001, the Company entered into an agreement with P&G to settle

⁽¹⁾ FSA Survey U.K.

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any potential liability of the Company which may have existed with respect to any past infringement on P&G patents prior to January 1, 2001 and to agree on royalty payments relating to sales on certain of the Company’s products in the Asian Pacific and Australian regions after December 31, 2000 ($546,000 and $532,000 for the year ended December 31, 2002 and 2001, respectively). The agreement encompasses fixed payments totalling $300,000 relating to the period prior to January 1, 2001 and payment of royalties based on a percentage of sales of certain products in the Asian Pacific region beginning January 1, 2001. The amount of $300,000 relating to periods prior to January 1, 2001 was recorded in the statement of operations for the year ended December 31, 2000 as a component of selling, general and administrative expenses.

b. Contracts

The Company is a contract manufacturer for certain customers to supply private label products for baby disposable diapers and adult incontinence products.

The Company entered into financial contracts with certain Banks and Financial Institutions for various financing facilities of revolving working capital lines, equipment leasing and term loans (See Notes 12 and 13 of the Notes to Consolidated Financial Statements of the Annual Report to Shareholders).

In March 2001, one of the Company’s U.S. subsidiaries (the “Subsidiary”) entered into an amended financing agreement with the existing financial institution (the “Senior Lender”) under which the Subsidiary received a term loan of $11 million (the “Term Loan”), a capital expenditure line of up to $5 million, and a revolving credit facility (based on the lesser of a percentage of eligible accounts receivable and inventory or $15 million). Such financing was entered into in connection with the Subsidiary’s purchase of certain assets of the North American operations of Drypers Corporation as discussed in Note 20 to Consolidated Financial Statements of the Annual Report to Shareholders. The full amount of the $11 million Term Loan was borrowed, with interest payable at the LIBOR for one portion of the loan and prime plus 2.75% per year for the other portion. The financing agreement was amended in December 2001, and the remaining principal balance on the Term Loan was $8.7 million as of December 31, 2001 was divided into three separate term loans in the amount of $2.8 million, $2.9 million and $3.0 million. These loans are repayable in monthly installments of principal in the amount of $183,300 plus interest and collateralized by the Subsidiary’s assets. In addition, the Subsidiary had outstanding borrowings of approximately $5.8 million and $11.9 million of the $15.0 million revolving credit facility as of December 31, 2002 and 2001, respectively. These amounts were recorded as a component of short-term borrowings in the Company’s Consolidated Balance Sheets (see Note 12 of the Notes to Consolidated Financial Statements of the Annual Report to Shareholders). The Company had approximately $9.2 million available for additional borrowings under the revolving credit facility at December 31, 2002.

Among other things, the Senior Lender Loan agreement contains certain restrictive covenants, including the maintenance of earnings before interest, taxes, depreciation, and amortization (“EBITDA”) and tangible net worth, and places limitations on acquisitions, dispositions, capital expenditures, and additional indebtedness. At December 31, 2001, the Company was not in compliance with the EBITDA covenant due to the legal settlement as discussed in Note 4 of the Notes to Consolidated Financial Statements of the Annual Report to Shareholders. These violations were waived by the Senior Lender on April 17, 2002.

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In connection with the waiver of these covenant violations, the Senior Lender and the Company amended the revolving credit facility ($1.5 million plus the lesser of a percentage of eligible accounts receivable and inventory or $15 million) to allow for additional advances of up to $1.5 million for the legal settlement, increased the capital expenditure line to $7.0 million and revised certain covenants including capital expenditures, payments and prepayments, and additional indebtedness. Through December 31, 2002, the Company has not borrowed any amounts under the capital expenditure line. As a result, the Company had approximately $7.0 million available for additional borrowings under the capital expenditure line at December 31, 2002.

In addition in March 2001, the Company borrowed $15 million under a term loan (the “$15 million Term Loan”) from an overseas financial institution. One of the Company’s non-executive directors holds a seat on the Board of Directors of this company. The loan bears annual interest at a rate of 14.5% increasing to 17.5% if any amounts payable under the loan were not repaid when due. Interest was payable monthly while principal was due in March 2002. The Company had the option to repay all or a portion of the loan after the six-month anniversary of the initial borrowing. The loan was secured by the Company’s ownership interest in its Australian subsidiaries. In addition, the loan agreement contains certain restrictive covenants, including minimum tangible net worth and EBITDA of the Australian subsidiaries. The borrowings were guaranteed by the Company’s Chairman and Chief Executive Officer. The Company repaid the $15 million Term Loan in September 2001.

In conjunction with the $15 million Term Loan, the Company committed to issue share purchase warrants to the lender. The warrants allowed the lender to purchase Ordinary Shares of the Company at a price of $0.01 per share. The number of warrants issued equaled 0.75% of the Company’s diluted Ordinary Shares outstanding for each month the principal balance of the loan was outstanding. Due to the repayment of the $15 million Term Loan after the six-month anniversary of the initial borrowing, the Company issued 4.5% of the Company’s diluted Ordinary Shares, equivalent to 314,510 shares. The fair value of the warrants of $1.4 million was treated as interest expense in 2001. The fair value of the warrants was estimated using the Black-Scholes Model. The assumptions used in the model included: fair value of ordinary shares of $4.81 per share, volatility rate of 80%, a discount rate of 3.41% and an estimated life of one year.

Under the Sale and Purchase Agreement between Associated Hygienic Products LLC and Drypers Corporation dated February 20, 2001 and pursuant to the order of the U.S. Bankruptcy Court based in Houston, Texas Associated Hygienic Products LLC agreed to buy and Drypers Corporation agreed to sell its North American assets. The gross value of assets acquired was $39.6 million, which was subsequently reduced by $3.7 million due to a working capital adjustment. The transaction closed on March 14, 2001. See Note 20 of the Notes to Consolidated Financial Statements of the Annual Report to Shareholders for additional information regarding this acquisition.

Under the Sale and Purchase Agreement between DSG International Limited (“DSGIL”) and Castle Harlan Australian Mezzanine Partners Pty. Limited (“CHAMP”), dated November 11, 2002, CHAMP agreed to purchase and DSGIL agreed to sell its Australian subsidiaries. The gross value of the transaction was A$53 million (approximately US$29.6 million). The transaction closed on December 6, 2002. See Note 5 of the Notes to Consolidated Financial Statements of the Annual Report to Shareholders for additional information regarding this transaction.

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7. Competition

The disposable baby diaper industry is dominated world-wide by the brands of two major U.S. manufacturers : P&G and KC. The market position of these manufacturers, relative to the Company, varies from one geographic area to another, but due to their substantial financial, technical and marketing resources, both of these major manufacturers have the ability to exert significant influence and gain substantial market share in any of their marketing areas. Despite the disparity in relative strength, however, the Company has been able to secure its position in the face of very strong competition from the industry leaders by remaining innovative, flexible and financially responsible.

a. North America

The North American disposable baby diaper market remains dominated by the brands of the two major U.S. manufacturers : P&G and KC. Their combined market share of the disposable baby diaper market is 77%; including the disposable training pant, youth pant and swim pant products. Total category unit sales are declining at a rate of about 9%, with volume continuing to shift from the grocery and drug classes of trade to the mass merchandisers. Consumers continue to move to larger packs for a lower price and more savings. These two major manufacturers continued their strategy of driving their business with aggressive retail pricing, rather than competing solely on the basis of consumer-driven marketing programs and product innovations. In the fourth quarter of 2002, the leading brands moved to lower package counts, combined with a minimal price increase. KC led the charge and P&G responded by matching the lower unit price, but holding count reductions until early 2003. A number of major retailers remain concerned with the negative impact that the advertised brand’s strategy has had on their own private label sales and margins. Some of these retailers have taken corrective actions such as addition promotional activities to protect their own brands. All of the moves made by the advertised national brands have resulted in lower retail prices and the narrowing of retail price spreads between the advertised brands and private label offerings. Manufacturers and retailers alike are waiting anxiously to see how long this price strategy can be maintained in the face of continuous reductions in gross profit margins.

The continued moves by the major manufacturers to keep retail prices depressed, promote aggressively and keep the retailers satisfied with minimal margins in favor of sales volume, have put serious sales and margin pressure on smaller brand and private label manufacturers. In response to this competitive activity, the Company has reallocated its promotional spending and has maintained a strategy in line with “everyday low prices”, targeted trade promotions, enhanced product features and tightened cost controls. This strategy on its core “FITTI^®” and “DRYPERS^®” brands has allowed the Company to protect its share in critical markets and expand its private label base of business.

In the adult incontinence arena, the Company is in a good competitive position, having the capability to provide key retailers, institutions and consumers with product technology that is superior to what some other manufacturers can currently provide. There is an added advantage that comes from the demand for better products in order to meet the performance and comfort requirements of incontinent consumers. In spite of the tough competitive climate, overall margin potential in the adult products remain slightly better than in the baby products.

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b. Asia

The Company’s main competition in Asia comes from the brands of the two major U.S. manufacturers, and several manufacturers from Japan and Taiwan. The Company believes that it has been able to maintain a significant share of the Asian market due to its longer presence and well established brands in that region and the logistical advantage which results from the strategic location of its manufacturing operations.

c. Europe

In the United Kingdom, the disposable baby diaper market continues to be dominated by P&G, which has a market share of approximately 55%, and KC, which has a market share of approximately 34%. Both companies continued to heavily promote and discount their brands in the U.K. market. Due to such consistent promotion activities, the private label brands have been reduced to a level of about 11% market share.

8. Government Regulations

a. Customs and Import Duties

Some of the raw materials used in manufacturing the Company’s products are subject to import duties at varying rates in the countries in which the Company’s manufacturing facilities are located. However, import duties on raw materials do not represent a significant part of the cost of the finished product and, in most cases, the import duties are refundable if the finished goods are exported from the countries of manufacture.

Imports of finished products to some of the markets are subject to import duties at various rates. However, such duties are usually incorporated in the selling price of the finished product.

b. Environment

The Company believes that operations at all of its manufacturing facilities are conducted in compliance with applicable environmental laws, and that none of the material substances used or disposed of by the Company in its manufacturing operations are considered to be toxic or hazardous substances under such laws.

The Company closely monitors environmental laws and regulations pertaining to disposal of solid waste, which includes household refuse, packaging and paper materials, and yardwaste, in addition to disposable diapers, in each of the markets in which its products are sold. The Company is not aware of any such laws or regulations which would have a material adverse effect on the Company’s business as presently conducted and proposed to be conducted. A number of states in the United States have passed legislation that is intended to discourage the use of disposable products such as beverage containers, certain packaging materials and disposable diapers, or to encourage the use of non-disposable or recyclable products. The Company believes that it will not have to make any changes to its products to comply with presently existing environmental laws and regulations in the markets in which its products are sold.

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The Company endeavors to develop products which are environmentally responsible by closely monitoring world-wide developments in various raw material components and actively works with suppliers to develop and market products utilizing such components.

c. Insurance

All of the Company’s plant, machinery and inventories are covered by fire and extended coverage insurance. The Company maintains product liability insurance in amounts it believes to be adequate in all its operations, except for its operations in Asia where local manufacturers customarily do not carry product liability insurance because the risk of product liability lawsuits is considered to be slight.

C. Organizational Structure

The Company’s significant subsidiaries are:

Name	Country of incorporation	Ownership interest
Advance Medical Supply Company Limited	Thailand	80%
Associated Hygienic Products Inc.	Wisconsin, USA	100%
Associated Hygienic Products LLC	Delaware, USA	100%
Disposable Soft Goods (Malaysia) Sdn. Bhd.	Malaysia	100%
Disposable Soft Goods (S) Pte Limited	Singapore	100%
Disposable Soft Goods (UK) Plc.	U.K.	100%
Disposable Soft Goods (Zhongshan) Limited	PRC	100%
Disposable Soft Goods Limited	Hong Kong	100%
DSG (Malaysia) Sdn. Bhd.	Malaysia	100%
DSG International (Thailand) Limited	Thailand	80%
PT DSG Surya Mas Indonesia	Indonesia	60%

D. Description of Property

The Company now operates nine manufacturing facilities, with plants located in : the United States at Marion, Ohio, Vancouver, Washington and Oconto Falls, Wisconsin; the PRC at Hong Kong and Zhongshan, Guangdong; Chesterfield, U.K.; Bangkok, Thailand; Cikande, Indonesia and Selangor, Malaysia.

The Company utilizes an aggregate of approximately 1,343,415 square feet of space in its manufacturing operations. The Company believes that its plant facilities are adequate for its present operations.

The Company operates 25 productive disposable baby diaper, training pants and adult incontinence machines. The gross productivity of the machines ranges from 350 pieces to 600 pieces per minute for disposable baby diapers, 100

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pieces to 150 pieces per minute for training pants and adult incontinence products. The productivity of the machines is dependent on the machine types, sizes and packing configurations of the products.

The following table summarizes the physical properties that are used by the Company in its manufacturing and distribution operations :

Location	Use	Approximate size (Sq. feet)		Owned/ leased	Lease expiration date
Marion, OH	Manufacturing	440,000		Leased	Oct. 2007
Cikande, Indonesia	Manufacturing	174,000		Leased	Sep. 2027
Oconto Falls, WI	Manufacturing	165,684		Owned	N/A
Selangor, Malaysia	Manufacturing	130,681		Leased	Nov. 2004
Zhongshan, PRC	Manufacturing	122,321		Leased	Oct. 2044
Vancouver, WA	Manufacturing	106,029		Leased	N/A
Hong Kong, PRC	Manufacturing	70,895		Leased	Jun. 2003
Bangkok, Thailand	Manufacturing	68,805		Owned	N/A
Chesterfield, U.K.	Manufacturing	65,000		Leased	May 2008
Duluth, GA	Office	226,625	(1)	Owned	N/A
Bangkok, Thailand	Office	22,822		Leased	Dec. 2003
Singapore	Office	16,500		Leased	May 2003
London, U.K.	Office	3,500		Owned	N/A
Duluth, GA	Office	2,250		Leased	May 2004
Beijing, PRC	Office	2,166		Leased	Oct. 2003
Shanghai, PRC	Office	3,875		Leased	Apr. 2004
Guangzhou, PRC	Office	734		Leased	May 2003
Wuhan, PRC	Office	689		Leased	Jun. 2003
Chengdu, PRC	Office	510		Leased	Jun. 2003

⁽¹⁾ This property is currently “Held for Sale”.

Item 5. Operating and Financial Review and Prospects.

A. Operating Results

The information required is contained in the Consolidated Statements of Operations of the Annual Report to Shareholders, and is incorporated herein by reference.

B. Liquidity and Capital Resources

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The information required is contained in the Operating and Financial Review and Prospects of the Annual Report to Shareholders, and is incorporated herein by reference.

C. Significant Accounting Policies

The information required is contained in the Operating and Financial Review and Prospects of the Annual Report to Shareholders, and is incorporated herein by reference.

D. Accounting Changes

The information required is contained in the Operating and Financial Review and Prospects of the Annual Report to Shareholders, and is incorporated herein by reference.

E. Research and Development, Patents and Licenses

The Company actively monitors trends in the United States and Europe in relation to changes in product features, consumer preferences, and the impact of environmental laws and regulations on the disposable diaper industry. Although the Company does not devote substantial expenditure to research and development, it constantly seeks to improve its products by substitution of materials and components, and of product features, to systematically improve the performance of its diapers for better absorbency and improved leakage protection. In particular, the Company monitors world-wide developments in various raw material components to enable the Company to take advantage of the latest developments, and in certain cases the Company has worked closely with suppliers to pioneer the use of such materials in the manufacture of disposable diapers.

F. Trend Information

1. Industry Trends

The Company believes that the most significant industry trends are:

• fluff wood pulp costs and other raw material costs decreased moderately in 2002, it is expected that fluff wood pulp costs will increase moderately in 2003, but may be otherwise negatively impacted due to rising petro-chemical costs resulting from uncertain market conditions;

• increasing demand for cloth-like breathable backsheet, mechanical closure tape and thin core pads products, which the Company is meeting through modifications to its machinery and product development effort;

• the domination of industry leaders in most of the markets putting pressure on retailers’ margins, which the Company is finding difficult to respond to by providing retailers with higher profit margins in the current highly competitive market conditions.

The Company is unable to predict whether the other trends noted above would have a material effect on its future financial condition or results of operations and, if so, whether such an effect will be positive or negative.

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2. Inventory Practice and Order Backlog

The disposable diaper industry is generally characterized by prompt delivery by manufacturers and rapid movement of the product through retail outlets. The lead-time between placing an order and shipment to the local customer averages five to ten days. The Company maintains varying levels of raw materials and finished products inventory depending on lead-time and shipping schedules. The Company’s inventory levels generally vary between three to eight weeks. Due to the short lead-time between order and delivery of products, the Company does not maintain a significant backlog.

Item 6. Directors, Senior Management and Employees.

A. Directors and Senior Management

The directors and executive officers of the Company are:

Name	Age	Present position
Brandon Wang	57	Director, Chairman of the Board and President
Johnny Tsui	62	Director, Vice President and Secretary
Patrick Tsang	57	Director and Vice President
Terence Leung	52	Director and Vice President
Peter Chang	56	Director and Vice President
Owen Price	76	Director
Anil Thadani	57	Director

Brandon Wang is married to Eileen Wang-Tsang, who is Patrick Tsang’s sister. Peter Chang is married to Brandon Wang’s sister.

Brandon Wang founded the Company in Hong Kong in 1973 and has been a director and the Company’s Chairman and Chief Executive Officer since that time. Mr. Wang is a graduate of St. Francis Xavier’s College in Kowloon, Hong Kong.

Johnny Tsui helped Brandon Wang establish the Company in 1973 and has served as a director and Vice President of the Company since that time. In September 1995, he was appointed as Secretary of the Company. He has also served as Chief Operating Officer of the Company’s Asian operations since 1991.

Patrick Tsang has been a director of the Company since 1980, and was appointed a Vice President in January 1992. He was Secretary of the Company from March 1992 to September 1995. In 1988, he started up the Company’s Australian operations. Since July 1993 he has also served as Chief Operating Officer of the Company’s European operations. Mr.

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Tsang has a Ph.D. in Engineering from the University of London. He also attended a Management Science course at Imperial College, London.

Terence Leung was the Company’s Chief Financial and Accounting Officer from 1988 to 2001. He was appointed a director in 1991 and a Vice President in January 1992. Before joining the Company in 1978, Mr. Leung worked as an accountant with several major trading corporations in Hong Kong. Mr. Leung is a certified public accountant in the United Kingdom and Hong Kong.

Peter Chang has been the Chief Operating Officer of the Company’s U.S. operations from 1988 to 2001. Mr. Chang became a director in 1991 and a Vice President in January 1992 and currently serves as the Chairman of the Company’s North American operations. Prior to joining the Company, Mr. Chang held various engineering and management positions with major U.S. airlines, based in New York. Mr. Chang has a Master’s Degree in Operations Research from Kansas State University.

Owen Price became a director in April 1994. In 1993 he retired as the Managing Director of Dairy Farm International Holdings Limited which he joined in 1974. Prior to that time, he had 27 years experience with a large Australian retailer, Woolworths Ltd., where he started as an Executive Trainee and worked his way through to become Chief Executive in 1971. He has served on a number of retail councils in different countries and has been an adviser to the Australian government on trade matters. He is a director of numerous companies in the Asia-Pacific region including three other listed public companies : Dairy Farm International Holdings Limited, Cycle And Carriage Limited (alternate director), and The Hour Glass Limited.

Anil Thadani advises the Company on financial matters, corporate strategy and development, and was a director of the Company from 1989 until April 1995, when he resigned as a result of his interest in the going private transaction. He was re-elected to the Board in September 1995. Mr. Thadani is the Chairman of Schroder Capital Partners (Asia) Limited, a direct investment company, which he founded in July 1992 in joint venture with the Schroders Group of the United Kingdom. Prior to this, he was the Managing Director and a founding partner of Arral & Partners Limited, a private investment company based in Hong Kong. He is also a director of numerous companies, some of which are public listed companies in Singapore, Thailand and India. Mr. Thadani has a Master’s Degree in Chemical Engineering from the University of Wisconsin, Madison, and an M.B.A. from the University of California at Berkeley.

OTHER KEY MANAGEMENT PERSONNEL

In addition to the above-named officers and directors, the following persons hold key management positions with the Company:

Edmund Schwartz, joined the Company in October 2001 as its Chief Financial Officer. Prior to joining the Company, Mr. Schwartz was with Lund International Holdings, Inc. a manufacturer of automotive accessory parts and served as its Chief Financial Officer from 1999 to 2001. Prior to Lund, Mr. Schwartz was with Electrolux Corporation, a manufacturer of floor care products from 1984 to 1999 and served as its Chief Financial Officer from 1990 to 1999. He

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holds a B.S. degree in Business Administration—Accounting from the University of Hartford, West Hartford, CT and an M.B.A. degree from the University of New Haven, New Haven, CT.

George Jackson was appointed to the position of Chief Executive Officer of the Company’s North American operations in March 2001. Prior to that, Mr. Jackson was Chief Executive of the Company’s Australian operation from mid 1997 to 2001. Mr. Jackson joined the Company in 1987 and prior to his transfer to Australia, he was the National Sales Manager with the Company’s U.S.A. operations. Prior to joining the Company, he held various management positions in accounting and manufacturing with Weyerhaeuser Company. He holds a B.A. degree in Business Administration – Accounting (1977) from the University of Washington, Seattle, WA.

Patrick Wong was promoted in 2001 to Chief Operating Officer of the Company’s South East Asian region. Mr. Wong graduated from Centro Escolar University (Philippines) as a Doctor of Dentistry in 1982. He started his career in sales and marketing in 1984 as a detailman in the pharmaceutical industry in Hong Kong. In 1990, Mr. Wong worked for U.S. Secure Co. Ltd., a Hong Kong company engaged in the marketing of disposable adult diapers in Hong Kong. Mr. Wong joined the Company’s Hong Kong operation in 1993 as Marketing Manager (Asia Pacific) for Thailand, Philippines and Indonesia markets. He was promoted to Executive Director of DSG International (Thailand) Ltd. in 1994 and transferred to Thailand in the same year for the establishment of the Company’s Thailand operation. From 1997 to 2001, he worked for the Company’s Hong Kong operation to establish its Health Care Division.

Steven Pankow has been the Executive Vice President of Sales & Marketing for the U.S. operations since 2001. Mr. Pankow served as Vice President of Sales & Marketing for the U.S. operations from 1987 until 2001. Prior to joining the Company, Mr. Pankow held a number of sales management positions with major companies including Johnson & Johnson, Inc. and Duracell, Inc. He has more than 28 years experience in the sales and marketing of consumer products. Mr. Pankow has a B.A. degree in business management from Northeastern Illinois University in Chicago.

B. Compensation

In 2002 the aggregate remuneration paid by the Company and its subsidiaries to all directors and senior managers of the Company listed in this 20-F report as a group (11 persons) for services in all capacities was approximately $6,565,000.

C. Board Practices

All directors are elected for a one-year term at the Annual Meeting of the shareholders. The appointment of all officers is subject to the discretion of the Board of Directors.

The Executive Committee of the Board of Directors consists of Brandon Wang, Johnny Tsui, Patrick Tsang, Terence Leung and Peter Chang. The Executive Committee has authority to take any action, other than appointment of auditors, election and removal of directors and appointment of officers, which can be taken only by the Board of Directors.

Neither the Company nor any of its subsidiaries provide post-retirement benefits for directors upon termination of

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employment.

During 2002, the Company’s Audit Committee consisted of Anil Thadani, and Owen Price. Mr. Thadani is qualified and has been designated as the committee’s financial expert. Mr. Thadani is considered independent as defined in Rule 10A-3b(1)(i) of the Securities Exchange Act of 1934. The principal functions of the Audit Committee are (i) to recommend the independent auditors to be employed by the Company; (ii) to consult with the independent auditors with regard to the plan of audit; (iii) to review, in consultation with the independent auditors, their audit report or proposed audit report; and (iv) to consult with the independent auditors with regard to the adequacy of the Company’s internal accounting controls. The Company’s Audit Committee met three times in 2002.

Pursuant to Section 406 of the Sarbanes-Oxley Act, the Company adopted a code of ethics during 2002. A copy of this code of ethics is attached as Exhibit 10.1 to this 20-F in the form of the “Company’s Business Code of Conduct Policy”. This policy covers all of the Company’s employees and in particular has been adopted for senior financial officers, including its principal financial officer and any persons performing similar functions.

During 2002, the Company did not appoint a compensation committee.

D. Employees

The Company has a total of approximately 1,592 full time employees at its manufacturing facilities as of December 31, 2002:

	2002	2001	2000
North America	543	700	383
Asia	1,005	906	760
Europe	44	60	54
Total	1,592	1,666	1,197

The Company does not have a significant number of temporary employees.

The Company considers its relationships with its employees to be good in all of its plants, and none of the Company’s plants has ever experienced any material work stoppage.

The Company believes that all of its manufacturing facilities are in compliance with applicable occupational, health and safety legislation.

E. Share Ownership

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For information concerning the beneficial ownership of the Company’s Ordinary Shares by Directors and Senior Management and major shareholders, see Item 7 of this Report.

During March 2002, the Company filed an S-8 Registration Statement for 1,500,000 shares on March 21, 2002 establishing an Equity Participation Plan (the “Option Plan”). On March 19, 2003, the Company granted the executive directors and senior management 1,175,000 restricted shares and 195,000 options to purchase shares of the Company under this Option Plan.

In conjunction with the $15 million Term Loan, the Company committed to issue share purchase warrants to the lender. The warrants allowed the lender to purchase Ordinary Shares of the Company at a price of $0.01 per share. The number of warrants issued equaled 0.75% of the Company’s diluted Ordinary Shares outstanding for each month the principal balance of the loan was outstanding. Due to the repayment of the $15 million Term Loan after the six-month anniversary of the initial borrowing, the Company issued 4.5% of the Company’s diluted Ordinary Shares, equivalent to 314,510 shares. The fair value of the warrants of $1.4 million was treated as interest expense in 2001. The fair value of the warrants was estimated using the Black-Scholes Model. The assumptions used included: fair value of ordinary shares of $4.81 per share, volatility rate of 80%, a discount rate of 3.41% and an estimated life of one year.

Item 7. Major Shareholders and Related Party Transactions.

A. Major Shareholders

As of December 31, 2002, the total number of record holders was 36, of which 24, representing 36.57% of the Company’s Ordinary Shares, were in the United States.

The Company is not owned or controlled by another corporation or by any foreign government. The following table sets forth information regarding beneficial ownership of the Ordinary Shares of the Company by each person who on December 31, 2002 is known by the Company to own 5% or more of the Company’s outstanding Ordinary Shares and by all directors and officers as a group.

	Ordinary shares beneficially owned
Name of beneficial owner	Number		Percent
10% or more shareholders (Brandon Wang)	3,321,680	(1)	47.53	%
Directors and officers as a Group (7 persons)	3,988,680	(1)	57.07	%
Johnny Tsui	234,000		3.35	%
Peter Chang	124,000		1.77	%
Patrick Tsang	122,000		1.75	%
Terence Leung	117,000		1.67	%
Anil Thadani	70,000		1.00	%
Owen Price	—		—

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⁽¹⁾ Includes 140,580 Ordinary Shares owned by Brandon Wang’s wife, Eileen Wang, as to which he disclaims beneficial ownership.

Brandon Wang and four other members of Management own more than 50% of the Company’s outstanding Ordinary Shares and, acting together, are able to control the election of the Board of Directors, and thus the direction and future operations of the Company, including decisions regarding acquisitions and other business opportunities, the declaration of dividends and the issuance of additional Ordinary Shares and other securities, in each case without the supporting vote of any other shareholder of the Company. In addition, Brandon Wang is a controlling shareholder of the Company and thus may be deemed to be a parent of the Company under the rules and regulations of the Securities Exchange Act of 1934.

The Company knows of no arrangements the operation of which may at a subsequent date result in a change in control of the Company.

B. Related Party Transactions

The information required is contained in Note 14 of the Notes to Consolidated Financial Statements of the Annual Report to Shareholders, and is incorporated herein by reference.

The following table sets forth the aggregate amount of loans made by the Company to Brandon Wang, the founder, principal shareholder and Chief Executive Officer of the Company and to a trust of which he is a beneficiary since January 1, 1996:

	Loan balance at beginning of year		Loans extended		Loans repaid		Balance at end of year
	(dollars in thousands)
Year ended December 31, 2002	$	10,744	$	1,868	$	4,061	$	8,551
Year ended December 31, 2001	$	11,612	$	3,046	$	3,914	$	10,744
Year ended December 31, 2000	$	2,811	$	10,744	$	1,943	$	11,612

In 2002, 2001 and 2000 the Company advanced $1.9 million, $3.0 million and $10.7 million, respectively, to Brandon Wang, the founder, substantial shareholder and Chief Executive Officer of the Company and to a trust of which he is a beneficiary. These advances were made under a loan and security agreement in which the Company agreed to make loans to Brandon Wang from time to time, subject to any limit on such loans which may be imposed by the Board of Directors. The loans were repayable on demand evidenced by promissory notes (the “Notes”) bearing interest at a rate equal to 1.5% over LIBOR or such other rate that the Board of Directors and the borrower shall agree in writing.

In January 2000, the Company’s U.S. subsidiary borrowed amounts under a term loan facility which was used to repay the balance of a loan payable by Brandon Wang to a bank, amounting to $5.3 million. This amount has been

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aggregated with the receivable from Brandon Wang under the Notes, which amounted to $2.8 million at December 31, 1999, and is repayable on demand and carries the same interest terms as those of the Notes.

Brandon Wang is required to provide as collateral shares of the Company held by him. The security agreement with Brandon Wang requires that the total amounts due from him should not exceed 80% of the fair market value of the pledged shares. The loan balance exceeded 80% of the fair value of the shares pledged as collateral as a result of a decline in the quoted market price of such shares subsequent to December 31, 2001 and 2002.

In 2002, the Board of Directors of the Company approved a plan whereby Brandon Wang has committed to make payments such that the outstanding balance decreases by $1.0 million each year beginning in 2002. The Board of Directors of the Company also has decided not to take any further action on this matter at this time, including any available to it as a result of the decrease in the fair value of the shares pledged as collateral.

At December 31, 2002 and 2001, the Company has classified the balances owed by Brandon Wang as a reduction from shareholders’ equity. During 2002, 2001 and 2000, Brandon Wang and a trust controlled by him repaid $4.1 million, $3.9 million and $1.9 million, respectively, to the Company. Interest of $230,000, $445,000 and $470,000 was charged on these advances in 2002, 2001 and 2000, respectively (see Note 14 of the Notes to Consolidated Financial Statements of the Annual Report to Shareholders). In March 2003, the Board of Directors authorized certain transactions which are described in Note 22 of the Notes to Consolidated Financial Statements of the Annual Report to Shareholders. As a result of these series of transactions, it is expected that the shareholder loan balance of $8.5 million as of December 31, 2002 will be substantially repaid by December 31, 2003.

Item 8. Financial Information.

A. Consolidated Statements and Other Financial Information

Our Consolidated Financial Statements are set forth under Item 18.

DIVIDENDS AND DIVIDEND POLICY

It is the Company’s general policy to determine the actual annual amount of future dividends based upon the Company’s growth during the preceding year. Future dividends will be in the form of cash or stock or a combination of both. There can be no assurance that any dividend on the Ordinary Shares will be declared, or if declared, what the amounts of dividends will be or whether such dividends, once declared, will continue for any future period. The Company did not pay any dividends in 2002, 2001 and 2000.

The Company announced on March 21, 2003 the payment of a 70-cent dividend which related to the receipt of proceeds in connection with the sale of the Australian subsidiaries to shareholders of record on April 11, 2003. The dividend was paid on April 25, 2003.

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LEGAL PROCEEDINGS

The Company and its subsidiaries are from time to time involved in routine legal matters incidental to their business.

In February 1995, the Company and its U.S. subsidiary were named as defendants in Action No. 95-19-2-ALB-AMER (WLS) brought by the plaintiffs John M. Tharpe, Robert E. Herrin and R & L Engineering, Inc., a Georgia corporation, (collectively the “Plaintiffs”) in the United States District Court for the Middle District of Georgia. The complaint alleged that the Company, its United States subsidiary and certain European suppliers of disposable diaper manufacturing equipment (the “Defendants”) have infringed U.S. Patent No. 5,308,345 which relates to a certain process for elasticizing the waistband of disposable diapers; that the Company and its U.S. subsidiary breached a confidentiality agreement with the Plaintiffs by using certain information relating to the waistband applicator disclosed to them in confidence by the Plaintiffs; and theft by the Defendants of the Plaintiffs’ trade secrets concerning the waistband applicator. On March 20, 2002 the United States District Court for the Middle District of Georgia entered a $4.0 million judgment in favor of the Plaintiffs. On March 29, 2002 an amended final order and judgment was entered by the United States District Court for the Middle District of Georgia awarding the Plaintiffs $10.4 million in actual and increased damages for patent infringement and prejudgment interest on the patent claim. Subsequent to the entering of this final order and judgment, the Company began to negotiate a settlement with the Plaintiffs. On April 9, 2002, the Company entered into a Settlement Agreement with the Plaintiffs. The terms of this Settlement Agreement required the Company to make a lump sum payment of $4.2 million to the Plaintiffs no later than April 18, 2002 to settle all asserted claims in the original lawsuit. The $4.2 million lump sum payment was made to the Plaintiffs on April 17, 2002. On April 18, 2002, the Company along with the Plaintiffs filed a “Stipulated Final Order of Dismissal” dismissing with prejudice both the judgment dated March 20, 2002 and the amended final order and judgment dated March 29, 2002. Effective with the filing of the “Stipulated Final Order of Dismissal”, the lawsuit has been settled and the judgments of March 20th and March 29th have been vacated. The Company recorded the $4.2 million settlement as a loss on settlement of legal cases in the Company’s Consolidated Statements of Operations of the Annual Report to Shareholders for the year ended December 31, 2001.

A claim was made by Ms. Rhonda Tracy, the owner of U.S. Patent No. 5,797,824 for disposable diapers with a padded waistband and leg holes, asserting that the Company has been manufacturing and/or selling diapers which infringe her patent. No lawsuit has been filed against the Company to date. The Company, however, had filed a lawsuit against Ms. Tracy in the U.S. District Court for the Northern District of Georgia for a declaration that her patent is invalid and/or not infringed. The Company settled this claim with Rhonda Tracy on March 15, 2002 for $375,000. The Company has recorded the $375,000 as a loss on settlement of legal cases in the Company’s Consolidated Statements of Operations of the Annual Report to Shareholders for the year ended December 31, 2001.

B. Significant Changes

The information required is contained in Notes 3, 4, 5, 15, 20 and 22 of the Notes to Consolidated Financial Statements of the Annual Report to Shareholders, and is incorporated herein by reference.

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Item 9. Stock Price History.

A. Listing Details

The Company’s Ordinary Shares are listed on the NASDAQ National Market System under the trading symbol DSGIF, and are not listed for trading in any foreign trading market.

ORDINARY SHARE PRICE:

	2002		2001		2000		1999		1998
High	$	4.220	$	7.906	$	7.000	$	10.625	$	9.500
Low		1.110		3.450		4.000		2.750		2.813

	2003				2002				2001
Quarter	High		Low		High		Low		High		Low
First	$	5.980	$	3.390	$	4.220	$	3.190	$	7.906	$	4.063
Second		—		—		3.499		2.011		7.125		5.410
Third		—		—		2.860		1.110		6.100		4.350
Fourth		—		—		3.590		1.700		4.400		3.450

	May 2003		Apr 2003		Mar 2003		Feb 2003		Jan 2003		Dec 2002
High	$	6.000	$	4.600	$	4.300	$	4.230	$	5.980	$	3.590
Low		4.600		3.500		3.500		3.390		3.750		2.300

B. Plan of Distribution

Not applicable.

Item 10. Other Information.

A. Share Capital

The Company’s authorized share capital consists of 20,000,000 Ordinary Shares, $0.01 par value per share. At May 31, 2003, there were 7,764,116 Ordinary Shares of the Company outstanding, all of which were fully paid.

B. Memorandum and Articles of Association

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The following is a brief description of the rights of holders of fully paid Ordinary Shares. This description does not purport to be complete and is qualified in its entirety by reference to the Memorandum and Articles of Association of the Company, which have been previously filed as an exhibit, and to the relevant provisions of the British Virgin Islands International Business Companies Act.

1. General

All of the issued Ordinary Shares are credited as fully paid and non-assessable, except that a share issued for a promissory note or other written obligation for payment of a debt may be subject to forfeiture, and accordingly no further contribution of capital may be required by the Company from holders of Ordinary Shares. Under British Virgin Islands (“BVI”) law, non-residents of the BVI may freely hold, vote and transfer their Ordinary Shares in the same manner as BVI residents.

2. Dividends

Holders of Ordinary Shares are entitled to participate in the payment of dividends in proportion to their holdings. The Board of Directors may declare and pay dividends in respect of any accounting period out of the profits legally available for distribution. Dividends, if any, will be paid in U.S. dollars.

The Company’s dividend policy will depend on the Company’s earnings, capital requirements, financial condition and other factors considered relevant by the Board of Directors. For a discussion of taxation of dividends, see “Taxation”.

The Company did not pay any dividend in 2002.

The Company announced on March 21, 2003 the payment of a 70-cent dividend in relation to the sale of the Australian subsidiaries to shareholders of record on April 11, 2003. The dividend was paid on April 25, 2003.

3. Voting Rights

In order to avoid certain adverse U.S. income tax consequences to the Company, the voting rights of any shareholder who holds more than 10% of the Company’s outstanding shares will be suspended as to shares held by such shareholder in excess of 10% of the Company’s outstanding shares (“Excess Shares”). Excess Shares are not counted as voting shares for purposes of establishing a quorum at shareholders’ meetings. However, the Board of Directors has discretion to exempt any such Excess Shares from these restrictions if it is satisfied, on the basis of evidence and assurances acceptable to it, that the holding of shares in excess of 10% of the Company’s outstanding shares by such shareholder will not result in the Company being classified as a controlled foreign corporation (“CFC”), foreign personal holding company (“FPHC”) or personal holding company (“PHC”) within the meaning of the U.S. Internal Revenue Code (“Code”). See “Taxation”; “Restrictions on Transfer and Voting; Redemption of Ordinary Shares”.

Every shareholder who is present in person or by proxy at a meeting of the Company shall have one vote for each

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Ordinary Share of which he is the holder. A poll may be demanded by the chairman of the meeting, or by any shareholder present in person or by proxy.

The Articles of Association of the Company make no provision for cumulative voting. Accordingly, the controlling shareholders have a sufficient number of Ordinary Shares to elect all of the Company’s directors.

4. Restrictions on Transfer and Voting; Redemption of Ordinary Shares

The Company’s Memorandum and Articles of Association contain certain provisions which are intended to avoid situations in which the Company may be classified as a CFC, FPHC or PHC. See “Taxation”. These provisions are intended only to avoid the adverse U.S. income tax consequences which would result from such classification.

The following is a summary of the relevant provisions of the Memorandum and Articles :

(i) Restricted Transfers of Ordinary Shares. The Board of Directors may, but is not obliged to, refuse to register the transfer of any of the Ordinary Shares of the Company if, in the opinion of the Board, such transfer might cause the Company to be classified as a CFC, FPHC or PHC.

(ii) Restrictions on Voting Rights. In the event that any person holds more than 10% of the Company’s outstanding shares, any shares in excess of 10% of the Company’s outstanding shares shall be “Excess Shares”, which shall not be entitled to any voting rights and shall not be considered voting shares for purposes of establishing a quorum. However, the Board of Directors may exempt any such Excess Shares from these restrictions if it is satisfied, on the basis of evidence and assurances acceptable to it, that the holding of shares in excess of 10% of the Company’s outstanding shares by such shareholder will not result in the Company being classified as a CFC, FPHC or PHC. In addition, these restrictions on voting rights do not apply to shares acquired in a cash tender offer for all outstanding shares of the Company where a majority of the outstanding shares of the Company are duly tendered and accepted pursuant to such cash tender offer.

(iii) Disclosure of Certain Information to the Company. Any person who directly owns 5% or more of the Company’s outstanding shares is required to file with the Company, within 60 days of the end of the Company’s taxable year (which is currently the calendar year) and prior to any transfer of shares by or to such person, an affidavit setting forth the number of shares (1) owned directly by such person or by a nominee of such person, and (2) owned indirectly or constructively by such person by reason of the attribution rules of Sections 542, 544 and 958 of the Code or by reason of application of the attribution rules of Rule 13(d) of the U.S. Securities Exchange Act of 1934 (“Exchange Act”). The affidavit filed with the Company must set forth all the information required to be reported (1) in returns of shareholders required to be filed under U.S. Income Tax Regulations Section 1.6035-1 (including shareholder related information for inclusion in IRS Form 5471), and (2) in reports required to be filed under Section 13(d) of the Exchange Act. All shares held by any person who fails to comply with this reporting requirement shall be deemed Excess Shares and shall be subject to the voting restrictions and redemption provisions described herein.

(iv) Redemption of Ordinary Shares. The Company may, in the discretion of the Board of Directors, redeem

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any Excess Shares at a price equal to (1) the average of the high and low sales price of the shares on the last business day prior to the redemption date on the principal national securities exchange on which such shares are listed or admitted to trading, or (2) if the shares are not listed or admitted to trading, the average of the highest bid and lowest asked prices on such last business day as reported by the National Quotation Bureau Incorporated or similar organization selected from time to time by the Company, or (3) if not determinable as aforesaid, as determined in good faith by the Board of Directors.

The directors of the Company, in a meeting held on January 6, 1992, resolved that the principal shareholder, Brandon Wang, is exempt from the foregoing restrictions. The directors have also approved exemption of certain institutional shareholders from the foregoing restrictions as the Board was satisfied that such exemption would not have any of the adverse tax consequences described above.

5. Rights of Shareholders under British Virgin Islands Law may be less than in U.S. Jurisdictions

The Company’s corporate affairs are governed by its Memorandum and Articles of Association and by the International Business Companies Act of the British Virgin Islands. Principles of law relating to such matters as the validity of corporate procedures, the fiduciary duties of Management and the rights of the Company’s shareholders may differ from those that would apply if the Company were incorporated in a jurisdiction within the United States. The rights of shareholders under British Virgin Islands law are not as clearly established as the rights of shareholders under legislation or judicial precedent in existence in most U.S. jurisdictions. Thus, the public shareholders of the Company may have more difficulty in protecting their interests in the face of actions by the Board of Directors or the principal shareholders than they might have as shareholders of a corporation incorporated in a U.S. jurisdiction. In addition, it is unlikely that the courts of the British Virgin Islands would enforce, either in an original action or in an action for enforcement of judgments of U.S. courts, liabilities which are predicated upon the securities laws of the United States. See “Description of Securities”.

6. Directors

Under the Company’s Articles of Association, the subscribers to the Memorandum of Association must appoint the first directors, and thereafter the directors may be appointed by the shareholders, or by the directors to fill a vacancy or as an addition to the existing directors. Directors may be removed, with or without cause, by a resolution of the shareholders of the Company, or with cause by a resolution of the other directors.

7. Powers of Directors

The business and affairs of the Company is managed by the directors of the Company who exercise all such powers of the Company as are not by the Act or by the Memorandum or these Articles required to be exercised by the members of the Company, subject to any delegation of such powers as may be prescribed by a resolution of members; but no requirement made by a resolution of members shall prevail if it be inconsistent with the Articles nor shall such requirement invalidate any prior act of the directors which would have been valid if such requirement had not been made.

The directors may, by a resolution of directors, appoint any person, including a person who is a director, to be an

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officer or agent of the Company. The resolution of directors appointing an agent may authorize the agent to appoint one or more substitutes or delegates to exercise some or all of the powers conferred on the agent by the Company.

Every officer or agent of the Company has such powers and authority of the directors, including the power and authority to affix the Seal, as are set forth in the Articles or in the resolution of directors appointing the officer or agent, except that no officer or agent has any power or authority with respect to the matters requiring a resolution of directors under the Memorandum, the Articles, or the Act.

The continuing directors may act notwithstanding any vacancy in their body, save that if their number is reduced to their knowledge below the number fixed by or pursuant to these Articles as the necessary quorum for a meeting of directors, the continuing directors or director may act only for the purpose of appointing directors to fill any vacancy that has arisen or for summoning a meeting of members.

The directors may, by resolution of directors exercise all the powers of the Company to borrow money and to mortgage or charge its undertakings and property or any part thereof, to issue debentures, debenture stock and other securities whenever money is borrowed, or as security for any debt, liability or obligation of the Company or of any third party.

All cheques, promissory notes, drafts, bills of exchange and other negotiable instruments and all receipts for moneys paid to the Company, shall be signed, drawn, accepted, endorsed or otherwise executed, as the case may be, in such manner as shall from time to time be determined by resolution of directors.

The Company may determine by resolution of directors to maintain at its registered office a register of mortgages, charges and other encumbrances in which there shall be entered the following particulars regarding each mortgage, charge and other encumbrance: (a) the sum secured; (b) the assets secured; (c) the name and address of the mortgagee/chargee or other encumbrancer; (d) the date of creation of the mortgage, charge or other encumbrance; and (e) the date on which the particulars specified above in respect of the mortgage, charge or other encumbrance are entered in the register.

The Company may further determine by a resolution of directors to register a copy of the register of mortgages, charges or other encumbrances with the Registrar of Companies.

8. Quorum

The quorum required to constitute a valid general meeting of shareholders consists of shareholders present in person or by proxy holding at least a majority of all issued Ordinary Shares entitled to vote. If a meeting is adjourned for lack of quorum, it will stand adjourned to the next business day at the same time and place or to such other day and at such other time and place as the directors may determine, and if at the adjourned meeting there are present within one hour from the time appointed for the meeting at least one-third of the shares entitled to vote at the meeting, the shareholder or shareholders present shall be a quorum. However, a meeting convened on the requisition of the shareholders shall be dissolved if a quorum is not present at the first meeting.

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9. Resolutions

Resolutions may be adopted at shareholders’ meetings by the affirmative vote of a simple majority of the Ordinary Shares entitled to vote thereon.

Certain actions may be taken by a resolution of the directors. Such actions include an amendment of the Company’s Memorandum and Articles of Association, an increase or reduction in the Company’s authorized capital, and a change in the Company’s name.

10. Rights in a Winding-up

Holders of Ordinary Shares are entitled to participate in proportion to their holdings in any distribution of assets after satisfaction of liabilities to creditors in a winding-up.

11. Authorized but Unissued Shares

Under the Company’s Memorandum and Articles of Association, there are 13,010,884 authorized but unissued Ordinary Shares. Those additional authorized but unissued Ordinary Shares may be utilized for a variety of corporate purposes, including future public or private offerings to raise additional capital or for facilitating corporate acquisitions. In addition, the Company cancelled 603,000 shares in 1996 and 1,037,394 shares in 1997, which were repurchased under the share repurchase plan adopted during 1994 and amended in 1995 and the tender offer transaction which was completed in December 1996. The Company does not currently have any plans to issue additional Ordinary Shares.

12. Transfers of Ordinary Shares

The Company’s Memorandum and Articles of Association do not restrict the transferability of fully paid Ordinary Shares, except that the Board of Directors may refuse to register the transfer of any of the Ordinary Shares if, in the opinion of the Board, such transfer might result in the Company becoming a CFC, FPHC or PHC. See “Restrictions on Transfer and Voting; Redemption of Ordinary Shares”.

13. New Issues of Ordinary Shares

Under the Company’s Articles of Association, the Board of Directors is authorized to exercise the power of the Company to offer, allot, grant options over or otherwise dispose of all of the remaining unissued Ordinary Shares of the Company, which comprise 13,010,884 Ordinary Shares as of December 31, 2002. The Board of Directors may, without further shareholder action, increase the number of authorized shares of the Company.

In addition the Board of Directors may, without further shareholder action, designate any of the authorized but unissued Ordinary Shares as preferred shares by amending the Company’s Memorandum of Association. Upon filing such amendment with the BVI Registrar of Companies, the Board of Directors would have authority to fix the dividend rights and

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rates, voting rights, redemption provisions and liquidation preference, all of which may take precedence over comparable rights of the existing Ordinary Shares.

The Company issued 314,510 Ordinary Shares in 2001 (See Note 13 of the Notes to Consolidated Financial Statements of the Annual Report to Shareholders).

In March 2002, the Company registered under the Securities Exchange Act of 1933 1,500,000 Ordinary Shares under its Equity Participation Plan (the “Option Plan”).

14. Merger; Dissenters’ Rights

BVI law provides for mergers whereby there occurs either an absorption by one company of another company and the simultaneous dissolution of the other company, or the formation of a new company that absorbs two companies and the automatic dissolution of both absorbed companies. BVI law provides for compulsory acquisition or appraisal of the interests of a shareholder who objects to the transfer of the ownership or assets of a company.

Under section 83 of the BVI International Business Companies Act, a shareholder of a company incorporated under the Act has the right to object to a proposed merger of the Company. If the shareholder complies fully with the requirements of section 83 and the merger is approved by a majority of shareholders, the dissenting shareholder may require the Company to pay fair value (as agreed or appraised) for his shares.

Pursuant to section 83 (11) of the Act, a shareholder who chooses to enforce dissenting shareholders’ rights may not enforce other remedial rights to which he might otherwise be entitled by virtue of his holding shares, except that the shareholder shall retain the right to institute proceedings to obtain relief on the ground that the merger is illegal.

15. Joint Shareholders

If two or more persons who hold shares jointly are present at a meeting in person or by proxy they must vote as one. Dividends and notices may be paid or sent, in the case of joint holders, to any one of the persons named as joint shareholders in the register of members.

16. Fiduciary Responsibilities

Under U.S. law majority and controlling shareholders generally have certain “fiduciary” responsibilities to the minority shareholders. Shareholder action must be taken in good faith and actions by controlling shareholders which are obviously unreasonable may be declared null and void. BVI law protecting the interests of minority shareholders may not be as protective in all circumstances as the law protecting minority shareholders in U.S. jurisdictions.

While BVI law does permit a shareholder of a BVI company to sue its directors derivatively (i.e., in the name of and for the benefit of the Company) and to sue the Company and its directors for his benefit and for the benefit of others

38

similarly situated, the circumstances in which any such action may be brought, and the procedures and defenses that may be available in respect of any such action, may result in the rights of shareholders of a BVI company being more limited than those of shareholders in a U.S. company.

17. Indemnification of Officers and Directors

Under its Memorandum and Articles of Association, the Company is authorized to indemnify any person who is made or threatened to be made a party to a legal or administrative proceeding by virtue of being a director, officer or agent of the Company, provided such person acted in the best interests of the Company and, in the case of a criminal proceeding, such person had no reasonable cause to believe that his conduct was unlawful. The Company is obliged to indemnify any director, officer or agent of the Company who was successful in any proceeding against reasonable expenses incurred in connection with the proceeding, regardless of whether such person met the standard of conduct described in the preceding sentence.

18. Transfer Agent and Registrar

Mellon Investor Services, LLC serves as the Transfer Agent and Registrar for the Ordinary Shares.

C. Material Contracts

The following summarizes each material contract, other than contracts entered into in the ordinary course of business, to which the Company or any subsidiary of the Company is a party, for the two years immediately preceding the filing of this report, and which are filed as Exhibits hereto :

Sale and Purchase Agreement between DSG-TEK Limited, a wholly owned subsidiary of the Company as seller and IVF Hartmann AG as buyer dated October 20, 2000 under which the seller sells to the buyer all shares of Vlesia AG, a wholly owned subsidiary of the seller, for the consideration of Swiss Franc 8.5 million.

Loan and Security Agreement between Associated Hygienic Products LLC as borrower and Foothill Capital Corporation as lender dated March 14, 2001 and as amended under which the lender agrees to make a term loan, a capital expenditure line and revolver advances to the borrower up to $27.5 million. See “Dependent Patents, Licenses and Contracts” in Item 4.B.6. and Notes 12 and 13 of the Notes to Consolidated Financial Statements of the Annual Report to Shareholders.

Short Term Financing Agreement between DSG International Limited as borrower and Breakers Investment Holding Limited as lender dated March 14, 2001 under which the lender agrees to make a term loan of $15.0 million to the borrower. DSG International Limited granted the lender 314,510 warrants priced at $0.01 per share.

Sale and Purchase Agreement between Associated Hygienic Products LLC as buyer and Drypers Corporation as seller dated February 20, 2001 under which and pursuant to the order the U.S. Bankruptcy Court based in Houston, Texas the

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buyer agrees to buy and the seller agrees to sell its North American assets. The gross value of assets acquired was $39.6 million, which was subsequently reduced by $3.7 million due to a working capital adjustment. The acquisition was accounted for as a purchase in accordance with Accounting Principles Board Opinion 16, “Business Combinations”. This transaction closed on March 14, 2001.

Sale and Purchase Agreement between DSG International Limited and certain of its subsidiaries (the “Seller”) and Castle Harlan Australian Mezzanine Partners Pty. Limited (the “Purchaser”), the Purchaser agrees to purchase and the Seller agrees to sell its Australian subsidiaries. The gross value of the transaction was A$53 million (approximately $29.6 million). The transaction closed on December 6, 2002.

D. Exchange Controls

There are no exchange control restrictions on payment of dividends, interest, or other payments to non-resident holders of the Company’s securities or on the conduct of the Company’s operation in Hong Kong, where the Company’s principal executive offices are located or the British Virgin Islands, where the Company is incorporated. Other jurisdictions in which the Company conducts operations may have various exchange controls and the Company believes that such controls will not have a material effect on the Company’s liquidity or cash flow.

E. Taxation

The following discussion is a summary of certain anticipated U.S. federal income tax and BVI tax consequences of ownership of Ordinary Shares. The discussion does not address all possible tax consequences relating to ownership of Ordinary Shares and does not purport to describe the tax consequences applicable to all categories of owners, some of which (such as dealers in securities, insurance companies and tax-exempt entities) may be subject to special rules. In particular, the discussion does not address the tax consequences under state, local and other national (e.g., non-U.S. and non-BVI) tax laws. Accordingly, each shareholder should consult its own tax advisor regarding the particular tax consequences to it of its ownership of the Ordinary Shares. The following discussion is based upon laws and relevant interpretations thereof in effect as of the date of this Annual Report, all of which are subject to change.

1. United States Federal Income Taxation

The following discussion only addresses the U.S. federal income taxation of a U.S. person (e.g., an individual who is a citizen or resident of the U.S., a U.S. corporation, an estate subject to U.S. tax on all of its income regardless of source, and a trust if a court within the U.S. may exercise primary supervision over the administration of such trust and one or more U.S. persons have the authority to control substantial decisions of the trust.) (a “U.S. Investor”) owning Ordinary Shares. In addition, the following discussion does not address the tax consequences to a U.S. person who owns (or will own) directly, indirectly or constructively, 10% or more of the Ordinary Shares (a “10% Shareholder”). Non-U.S. persons and 10% Shareholders are advised to consult their own tax advisors regarding the tax considerations incident to ownership of the Ordinary Shares.

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A U.S. Investor receiving a distribution with respect to the Ordinary Shares will be required to include such distribution in gross income as a taxable dividend to the extent such distribution is paid from earnings and profits of the Company as determined under U.S. federal income tax principles. Any distributions in excess of the earnings and profits of the Company will first be treated, for U.S. federal income tax purposes, as a nontaxable return of capital to the extent of the U.S. Investor’s basis in the Ordinary Shares, and then as a gain from the sale or exchange of a capital asset, provided that the Ordinary Shares constitute capital assets in the hands of the U.S. Investor. U.S. corporate shareholders will not be entitled to any deduction for distributions received as dividends on the Ordinary Shares.

Gain or loss on the sale or exchange of the Ordinary Shares will be treated as capital gain or loss if the Ordinary Shares are held as a capital asset by the U.S. Investor. Such capital gain or loss will be a long-term capital gain or loss if the U.S. Investor has a holding period of more than one year with respect to the Ordinary Shares at the time of the sale or exchange.

Various provisions contained in the U.S. Internal Revenue Code (the “Code”) impose special taxes in certain circumstances on non-U.S. corporations and their shareholders. The following is a summary of certain provisions which could have an adverse impact on the Company and the U.S. Investors :

a. Personal Holding Companies

Sections 541 through 547 of the Code relate to the classification of certain corporations (including foreign corporations) as personal holding companies (“PHCs”) and the consequent taxation of such corporations on certain of their U.S.-sourced income (including certain types of foreign sourced income which are effectively connected with the conduct of a U.S. trade or business) to the extent amounts at least equal to such income are not distributed to their shareholders. A PHC is a corporation (i) more than 50% of the value of the stock of which is owned, directly or indirectly, by five or fewer individuals (without regard to their citizenship or residence), and (ii) which, if a foreign corporation, receives 60% or more of such U.S.-related gross income, as specially adjusted, from certain passive sources (such as dividends, interest, royalties or rents). If the Company is classified as a PHC, a tax will be levied at the rate of 38.6% on the Company’s undistributed U.S. taxable income.

While more than 50% of the Ordinary Shares may be treated as owned (either directly or indirectly) by five or fewer individuals, the Company intends to cause its indirect U.K. subsidiary, the owner of the U.S. branch, together with such corporation’s immediate U.K.-resident parent corporation, to distribute any amounts which would otherwise be characterized as “undistributed personal holding company income” in the hands of either corporation with the intent that such distributions would cause such distributed amounts to lose their character as “United States source” taxable income subject to the PHC tax.

b. Foreign Personal Holding Companies

Sections 551 through 558 of the Code relate to foreign personal holding companies (“FPHCs”) and impute undistributed income of certain foreign corporations to U.S. persons who are shareholders of such corporations. A foreign

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corporation will be classified as a FPHC if (i) five or fewer individuals, who are U.S. citizens or residents, directly or indirectly own more than 50% of the corporation’s stock (measured either by voting power or value) (the “shareholder test”) and (ii) the Company receives 60% or more of its gross income (regardless of source), as specially adjusted, from certain passive sources (the “income test”).

The Company believes that it is not currently and has not been a FPHC for any taxable year since its formation because for each such year either or both of the income test and the shareholder test were not met. It is possible that subsequent events would cause the Company to meet either or both of the income test and the shareholder test. In the opinion of the Company, however, it is unlikely that the shareholder test would be met, especially in view of the inclusion of certain transfer restrictions in the Company’s governing documents. See “Description of Securities”.

If the Company is classified as a FPHC after application of the shareholder test and the income test, a pro rata portion of its undistributed income would be imputed to its shareholders who are U.S. persons (including U.S. corporations) and would be taxable to such persons as a dividend, even if no cash dividend is actually paid. In that event (promptly after receiving an opinion of counsel or final determination) the Company intends to distribute to its shareholders sufficient amounts so that U.S. shareholders would receive cash at least equal to the product of 150% of the highest federal income tax rate which could apply to any U.S. shareholder and the amount of the dividend that would otherwise be imputed to them. If the Company is classified as a FPHC in the year preceding the death of a shareholder, the Ordinary Shares held by such shareholder would obtain a tax basis equal to the lesser of their fair market value or their tax basis in the hands of the decedent.

c. Passive Foreign Investment Companies

Sections 1291 through 1297 of the Code relate to passive foreign investment companies (“PFICs”) and impose an interest charge on “excess distributions” made from a PFIC. A foreign corporation is a PFIC if (i) 75% or more of its gross income for the taxable year is passive income as defined under Section 954(c) of the Code (the “passive income test”), or (ii) 50% or more of the average value (or adjusted tax basis if the corporation is a CFC) of the assets held by the corporation during the taxable year consist of assets that produce or are held for the production of passive income (the “passive asset test”). Certain look-through rules take into account the assets and activities of related corporations from which the foreign corporation either receives income or in which it holds an interest. Although a determination whether a corporation is a PFIC is made annually, in general, once a corporation has been classified as a PFIC, it cannot thereafter lose its status as a PFIC.

A distribution from a PFIC will generally be characterized as an excess distribution to the extent such distribution, when combined with all other distributions received by the U.S. Holder in such taxable year, exceeds 125% of the average distributions received by such shareholder in the three preceding taxable years (or its holding period if shorter). Once the amount of the excess distribution is determined, it is allocated ratably to all days in the shareholder’s holding period for the shares of the PFIC. Amounts allocated to the current year or a year prior to the date upon which the corporation was a PFIC are included in the shareholder’s income as ordinary income. Amounts allocated to prior years in which the corporation was a PFIC are subject to the highest rate of tax for the year to which allocated, and each of the resulting amounts of tax is

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subject to an interest charge as if it were an underpayment of taxes for such tax year.

The Company does not believe that it should, in the current year or any prior year, be classified as a PFIC. Under Section 1296(c) of the Code for purposes of determining PFIC status, a foreign corporation is deemed to hold its proportionate share of the assets and to receive directly its proportionate share of the income of its subsidiaries in which it owns 25 percent or more of the stock (determined by value). The Company, through its more than 25 percent owned subsidiaries, is engaged in substantial manufacturing activities and holds few assets (and receives little income) which would be classified as passive assets or would be classified as passive income under the applicable authorities.

d. Controlled Foreign Corporations

Sections 951 through 964 and section 1248 of the Code relate to controlled foreign corporations (“CFC”) and impute undistributed income to certain shareholders and convert into dividend income gains on dispositions of shares which would otherwise qualify for capital gains treatment. The CFC provisions only apply if 10% Shareholders (as defined above), own, in the aggregate, more than 50% (measured by voting power or value) of the shares of a foreign corporation. Even if the Company were to become classified as a CFC, however, the income imputation rules referred to above would only apply with respect to such 10% Shareholders.

e. United States Backup Withholding

A holder of an Ordinary Share may be subject to “backup withholding” at the rate of 30% with respect to dividends paid on such Ordinary Share if such dividends are paid by a paying agent, broker or other intermediary in the United States or by a U.S. broker or certain United States-related brokers to such holder outside the United States. In addition, the proceeds of the sale, exchange or redemption of an Ordinary Share may be subject to backup withholding if such proceeds are paid by a paying agent, broker or other intermediary in the United States.

Actual backup withholding may be avoided by the holder of an Ordinary Share if such holder (i) is a corporation or comes within certain other exempt categories, and when required, demonstrates this fact or (ii) provides a correct taxpayer identification number, certifies that such holder is not subject to backup withholding and otherwise complies with the backup withholding rules. In addition, holders of Ordinary Shares who are not U.S. persons (“non-U.S. holders”) are generally exempt from backup withholding, although such holders may be required to comply with certification and identification procedures in order to prove their exemption.

Any amounts withheld under the backup withholding rules from a payment to a holder will be refunded (or credited against the holder’s U.S. federal income tax liability, if any) provided that the amount withheld is claimed as federal taxes withheld on the holder’s U.S. federal income tax return relating to the year in which the backup withholding occurred. A holder who is not otherwise required to file a U.S. income tax return must generally file a claim for refund (or, in the case of non-U.S. holders, an income tax return) in order to claim refunds of withheld amounts.

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2. British Virgin Islands Taxation

Under the laws of the BVI as currently in effect, a holder of Ordinary Shares who is not a resident of the British Virgin Islands is exempt from BVI income tax on gains realized during that year on sale or disposal of such shares; the British Virgin Islands does not impose a withholding tax on dividends paid by the Company.

There are no capital gains, gift or inheritance taxes levied by the British Virgin Islands. In addition, the Ordinary Shares are not subject to any transfer taxes, stamp duties or similar charges in the BVI.

There is no income tax treaty or convention currently in effect between the United States and the British Virgin Islands, nor is any such treaty or convention currently being negotiated.

F. Dividends and Paying Agents

Mellon Investor Services, LLC serves as the Company’s Dividend Disbursing Agent.

G. Statement by Experts

Not applicable.

H. Documents on Display

The Annual Report on Form 20-F of DSG International Limited as filed with the Securities and Exchange Commission and Exhibits thereto and documents referenced therein will be made available upon written request to the Company’s Principal Executive Office.

Item 11. Quantitative and Qualitative Disclosures about Market Risk.

A. Currency Fluctuation

1. Exchange Rate Information

The Consolidated Financial Statements of the Company are prepared in U.S. dollars. The financial statements of foreign subsidiaries are translated into U.S. dollars in accordance with Statement of Financial Accounting Standards No. 52.

The Australian dollar, Pound Sterling, Deutsche Mark, Belgian Franc, Singapore dollar, Thai Baht, and Indonesian Rupiah are convertible into U.S. dollars at freely floating rates. The Hong Kong dollar and Malaysian Ringgit are tied to and allowed to fluctuate within a narrow range against the value of the U.S. dollar. There are currently no restrictions on the flow of such currencies, except Renminbi, Thai Baht and Malaysian Ringgit, between such countries and the United States.

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Fluctuations in the value of foreign currencies cause U.S. dollar translated amounts to change in comparison with previous periods and, accordingly, the Company cannot quantify in any meaningful way, the effect of such fluctuations upon future income. This is due to the number of currencies involved, the constantly changing exposure in these currencies, and the fact that all foreign currencies do not react in the same manner against the U.S. dollar.

The Company is unable to predict whether the trends noted above would have a material effect in its future financial condition or results of operations and, if so, whether such an effect will be positive or negative.

2. Exchange Rate Fluctuation

	2002			2001
	High	Low	Average	High	Low	Average
First quarter
Australian dollar	1.96	1.90	1.94	2.02	1.83	1.92
Malaysian Ringgit	3.80	3.80	3.80	3.80	3.80	3.80
Singapore dollar	1.85	1.83	1.84	1.74	1.72	1.73
Thai Baht	44.07	43.35	43.75	42.79	42.44	42.55
Indonesian Rupiah	10,320.00	9,655.00	10,075.00	10,465.00	9,750.00	9,988.46
Pound Sterling	0.71	0.70	0.70	0.70	0.69	0.69
Euro	1.16	1.14	1.15	1.12	1.09	1.10
Hong Kong dollar	7.80	7.80	7.80	7.80	7.80	7.80
Renminbi	8.28	8.28	8.28	8.28	8.28	8.28
Second quarter
Australian dollar	1.84	1.77	1.79	1.96	1.92	1.95
Malaysian Ringgit	3.80	3.80	3.80	3.80	3.80	3.80
Singapore dollar	1.80	1.77	1.79	1.82	1.80	1.81
Thai Baht	43.24	41.53	42.40	45.48	45.09	45.26
Indonesian Rupiah	9,316.00	8,730.00	8,943.67	11,675.00	11,058.00	11,391.00
Pound Sterling	0.69	0.65	0.67	0.71	0.69	0.70
Euro	1.11	1.01	1.06	1.18	1.12	1.15
Hong Kong dollar	7.80	7.80	7.80	7.80	7.80	7.80
Renminbi	8.28	8.28	8.28	8.28	8.28	8.28
Third quarter
Australian dollar	1.85	1.82	1.83	2.03	1.88	1.96
Malaysian Ringgit	3.80	3.80	3.80	3.80	3.80	3.80
Singapore dollar	1.78	1.75	1.76	1.80	1.74	1.77
Thai Baht	43.38	42.23	42.62	45.62	44.07	44.68
Indonesian Rupiah	9,108.00	8,867.00	8,996.67	9,700.00	8,918.00	9,356.00
Pound Sterling	0.65	0.64	0.64	0.70	0.68	0.69
Euro	1.02	1.02	1.02	1.14	1.09	1.11
Hong Kong dollar	7.80	7.80	7.80	7.80	7.80	7.80
Renminbi	8.28	8.28	8.28	8.28	8.28	8.28
Fourth quarter
Australian dollar	1.80	1.77	1.78	1.97	1.91	1.94
Malaysian Ringgit	3.80	3.80	3.80	3.80	3.80	3.80
Singapore dollar	1.77	1.73	1.76	1.84	1.82	1.83
Thai Baht	43.50	43.21	43.34	44.57	43.98	44.18
Indonesian Rupiah	9,233.00	8,940.00	9,049.67	10,490.00	10,400.00	10,440.00

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Pound Sterling	0.64	1.62	1.64	0.70	0.69	0.69
Euro	1.02	0.96	0.99	1.13	1.10	1.12
Hong Kong dollar	7.80	7.80	7.80	7.80	7.80	7.80
Renminbi	8.28	8.28	8.28	8.28	8.28	8.28

3. Forward-Looking Statements

Certain written and oral statements made by the Company and its management may be considered “forward-looking statements” as defined under the Private Securities Litigation Reform Act of 1995, including statements made in this Annual Report on Form 20-F, public releases of information and other filings with the Securities and Exchange Commission. Generally, words such as “anticipate”, “estimate”, “will”, “project”, “expect”, “believe” and similar expressions identify forward-looking statements. All forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from the Company’s historical experience or our present expectations. Therefore, caution should be taken not to place undue reliance on any such forward-looking statements since such statements speak only as of the date when made. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Such forward-looking statements are subject to certain risks, uncertainties and assumptions, including without limitation to those identified below. Should one or more of these risks or uncertainties materialize, or should any of the underlying assumptions prove incorrect, actual results of current and future operations may vary materially from those anticipated, estimated or projected. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their respective dates.

B. Foreign Currency Risk

As of December 31, 2002, the Company had no open forward contracts or option contracts. The Company’s cash on hand as of December 31, 2002 was $31,505,000 of which $3,814,000 equivalent was held in various foreign currencies, such as Hong Kong dollar, Renminbi, Thai Baht, Malaysian Ringgit, Indonesian Rupiah, Singapore dollar and Pound Sterling. The U.S. dollar equivalents of the cash in foreign currencies may vary subject to exchange rate fluctuation.

C. Interest Rate Fluctuations

The Company’s interest expenses and income are sensitive to change in interest rates. The Company had short-term debts and long-term debts of $24,309,000 as of December 31, 2002, bearing various rates of interest, any fluctuation in the interest rate will have direct impact on the Company’s interest expenses.

The Company will be exposed to interest rate fluctuations on any borrowings under the various loan facilities and any change in interest rate could affect its results of operations and cash flows. The potential effect of a hypothetical 0.5% increase in interest rate for year 2002 outstanding indebtedness would be a reduction in net income of approximately $117,000.

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Item 12. Description of Securities Other than Equity Securities.

Not applicable.

PART II

Item 13. Defaults, Dividend Arrearages and Delinquencies.

In 2002, the Company’s Wisconsin operation was not in compliance with the requirement to file its audited financial statements within 120 days to the finance company and the existing covenant violation was subsequently waived.

The Company also violated the covenant of the Senior Lender Loan requiring the submission of audited financial statements within 90 days of December 31, 2002. The Senior Lender issued a waiver with respect to this violation.

Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds.

Not applicable.

Item 15. [Reserved]

Item 16. [Reserved]

PART III

Item 17. Financial Statements.

Financial statements are presented in Item 19.A.

Item 18. Financial Statements.

The information required by Item 18 is contained in Item 19.A.

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Item 19. Financial Statements and Schedules and Exhibits.

A. Financial Statements

The following financial statements are contained in the Annual Report to Shareholders at the pages referred to below, which pages are incorporated herein by reference:

	Page
Management Report	27
Independent Auditors’ Report	28
Consolidated Statements of Operations and Comprehensive Income for the three years ended December 31, 2002	29-30
Consolidated Balance Sheets as of December 31, 2002 and 2001	31-32
Consolidated Statements of Cash Flows for the three years ended December 31, 2002	33-34
Consolidated Statements of Shareholders’ Equity for the three years ended December 31, 2002	35
Notes to Consolidated Financial Statements	36-63

B. Financial Statement Schedule

No financial statement schedules are provided because the information is not required or is contained in the Notes to Consolidated Financial Statements of the Annual Report to Shareholders.

C. Exhibit Index

Exhibit Number	Description
4.1	Land Sales Agreement No. 003/2002 dated October 31, 2002 between S I L Industrial Land Co. Ltd. and DSG International (Thailand) Co. Ltd.
4.2	Sales and Purchase Agreement dated December 6, 2002 between DSG International Limited and Castle Harlan Australian Mezzanine Partners Pty. Limited
4.3	Joint Venture Agreement dated February 10, 2003 between DSG International Limited, Mitsubishi Corporation and Japan Absorbent Technology Institute
4.4	Sixth Amendment & Waiver to Loan Agreement between Associated Hygienic Products LLC and Foothill Capital Corporation dated November 14, 2002
4.5	Third Amendment & Waiver to Loan Agreement between Associated Hygienic Products LLC and Foothill Capital Corporation dated September 10, 2001, (incorporated by reference included as Exhibit 3.5 with Form 20-F filed June 14, 2002)
4.6	Fourth Amendment & Waiver to Loan Agreement between Associated Hygienic Products LLC and Foothill Capital Corporation dated December 19, 2001, (incorporated by reference included as Exhibit 3.6 with Form 20-F filed June 14, 2002)
4.7	Fifth Amendment & Waiver to Loan Agreement between Associated Hygienic Products LLC and

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	Foothill Capital Corporation dated April 17, 2002, (incorporated by reference included as Exhibit 3.8 with Form 20-F filed June 14, 2002)
4.8	Contract dated April 9, 2002 between Shanghai Waigaoqiao Free Trade Zone 3UDC as Transferor and DSG International Limited as Transferee, (incorporated by reference included as Exhibit 3.7 with Form 20-F filed June 14, 2002)
4.9	Equity Participation Plan, (incorporated by reference filed on Form S-8 Registration Statement on March 21, 2002)
4.10	Settlement Agreement dated April 9, 2002 between John M. Tharpe, Robert M. Herrin and R & L Engineering, Inc. and DSG International Limited, (incorporated by reference included as Exhibit 5.1 with Form 20-F filed June 14, 2002)
10.1	The Company’s Business Code of Conduct Policy No. I-DSGILAF-001-123102
10.2	Press Release issued on Form 6-K, (incorporated by reference filed on March 24, 2003-No.000-19804; Film No. 03613241)
11	Computation of Net Income Per Ordinary Share
13	2002 Annual Report to Shareholders
23	Independent Auditors’ Consent
99.1	Certification by the Company’s Chief Financial Officer as adopted pursuant to § 302 of the Sarbanes-Oxley Act of 2002
99.2	Certification by the Company’s Chief Executive Officer as adopted pursuant to § 302 of the Sarbanes-Oxley Act of 2002
99.3	Certification by the Company’s Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002
99.4	Certification by the Company’s Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002

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SIGNATURES

Pursuant to the requirement of Section 12 of the Securities Exchange Act of 1934, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form 20-F and has duly caused the Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized, in Hong Kong, on June 16, 2003.

DSG INTERNATIONAL LIMITED
By	/s/ EDMUND J. SCHWARTZ
	Edmund J Schwartz
	Chief Financial Officer

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EX-4.1

                                                                     EXHIBIT 4.1

                                                          AGREEMENT NO. 003/2002

                              LAND SALES AGREEMENT

                                     BETWEEN

                          S I L INDUSTRIAL LAND CO. LTD

                                       AND

                      DSG INTERNATIONAL (THAILAND) CO. LTD



                                 [ Translation ]

                              LAND SALES AGREEMENT

                             AGREEMENT NO. 003 /2002

                                         Made at S I L Industrial Land Co., Ltd.

                                         Date October 31, 2002

     This Agreement is made and entered into by and between:

S I L Industrial Land Co., Ltd., having its principal place of business at No.
111 Moo 7, Nong Pla Kradi Road, Tambon Nong Pla Moh, Amphur Nong Khae, Saraburi
Province, represented by Mr. Udom Siripanich, Managing Director, as its
authorized representative, hereinafter referred to as "Seller" of the one part,
and DSG International (Thailand) Co., Ltd., "Purchaser" having its principal
place of business at 448/11 Ladprao 53 (Choke Chai 4), Ladprao Road, Ladprao,
Bangkok, represented by Mr. Wong Po Wah, Chief Operating Officer - South East
Asia and Mr. Praphan Anuwongnukroh, Director Consultant, as its authorized
representative. Both parties hereby agree as follows:

     The Seller represents that the Land is free and clear of all liens and
encumbrance, and that the Seller shall not create any lien, encumbrance or any
disturbance over the Land as from the date here of.

     Clause 1. The Seller is the owner of a piece of land Plot No. 57/1. The
area of the land is approximately 15 Rai, located in the S I L Industrial Land,
Amphur Nong Khae, Saraburi Province owned by the Seller (hereinafter referred to
as the "Land"). Details of the plot shall be attached hereto and made a part
hereof.

     Clause 2. The Seller agrees to sell and the Purchaser agrees to purchase
the Land as specified in Clause 1 at the price of 2,000,000 Baht per Rai (Two
Million Baht per Rai), totalling 30,000,000 Baht (Thirty Million Baht). In the
event that the area of the Land is more or less than the specified area, both
parties agree to increase or decrease the price of Land proportionately.

                                       1




                              [ Translation ]

     The Purchaser agrees to pay for the price of land to The Seller in
accordance with the following terms:

     2.1  First payment 9,000,000 Baht (Nine Million Baht) shall be paid on the
          signing date of this Agreement.

     2.2  Second payment 9,000,000 Baht (Nine Million Baht) shall be paid within
          60 (sixty) days after the signing date.

     2.3  Third payment 9,000,000 Baht (Nine Million Baht) shall be paid with in
          120 (one hundred and twenty) days after the signing date.

     2.4  Last payment 3,000,000 Baht (Three Million Baht) shall be paid within
          180 (one hundred and eighty) days after the signing date. The title
          deed shall be transferred on that day.

The Purchaser agrees to make the total payment to the Seller on the title
transfer registration date to be notified by the Seller under Clause 3 ("Title
Transfer Date").

     The Purchaser agrees to payfor the total Land price to the Seller by
cheque, except for the last payment which shall be paid by cashier's cheque. The
payment of the Land price pursuant to this Agreement shall be valid only when
the Seller shall have issued the receipt to the Purchaser and the Seller shall
have deposited the cheque into its bank account and such cheque has been
completely honoured.

     Clause 3. The Seller shall register the transfer of Land title pursuant to
Clause 2 above to the Purchaser and The Purchaser shall register the transfer of
Land title in accordance with the date, time and place as notified by the
Seller.

     In the case that the Seller cannot transfer the land title deed as
specified in this agreement after the Purchaser had paid. The Seller shall
return to the Purchaser all the money which has been paid to The Seller and this
agreement shall be terminated.

                                       2



                                 [ Translation ]

     In the event that the Purchaser fails to make payment in any installment or
neglects or fails to accept the transfer of Land title as per the date and time
specified hereabove for reasons attributable to the Purchaser. the Purchaser
agrees to pay to the Seller a penalty at the rate of 1% per month of the default
installment, calculated from the date of default upto the date when the
Purchaser shall have complied with its obligations hereunder and the exercise of
right pursuant to clause 14 by the Seller shall not be affected thereby.

     The time fixed for the Title Transfer Date as per the preceding paragraph
shall not be applied if the Seller or the Purchaser fails to do so for reasons
beyond its control or from the delay of any governmental agency concerned or
force majeure. In such cases, both parties shall agree to fix the new Title
Transfer Date without delay.

     All fees, taxes and stamp duties, as well as other costs and expenses
relating to the registration of the transfer of Land title shall be borne by the
Seller.

     Clause 4. The Seller agrees to develop the Land in order that the Purchaser
shall be able to operate its factory conveniently and shall provide the
Purchaser with the following facilities:

     4.1  High-voltage electricity lines upto the frontage of the Land;

     4.2  Water pipes to be used in the industry upto the frontage of the Land;

     4.3  Natural gas pipes passing along the Land which the Purchaser shall be
          able to connect such pipes for its own use;

     4.4  Telephone numbers not exceeding the numbers provided by the Seller;

     4.5  Connecting roads within the S I L Industrial Land upto the frontage of
          the Land and to the public roads;

     4.6  Drain pipes from the Seller's waste water treatment plant upto the
          frontage of the Land;

     4.7  Flood protection system

     4.8  Other services as stipulated in clause 6

                                       3



                                 [ Translation ]

     Clause 5. The Purchaser covenants that it shall comply with all standards,
provisions, laws and/or regulations relating to the Land usage and the
construction of industrial factory for the operation of business in the area of
the Seller's Industrial Land as stipulated and may be stipulated in the future.

     Clause 6. The Purchaser agrees to utilize all public utilities services
provided by the Seller, the terms and conditions of which shall be in accordance
with the Declaration of Siam Cement Industrial Zone, Saraburi.

     No.1/2000 General Utility Service Rates
     No.2/2000 Industrial Water Price Rates
     No.3/2000 Central Waste Water Treatment Service Rates
     No.4/2000 Garbage Disposal Service Rates

     Whenever the Purchaser wishes to transfer the Land, whether by sale,
exchange or disposition by any other means, the Purchaser shall inform the
Seller and ask for the Seller's prior written consent. The Land transferee shall
have the qualifications, and agree to comply with all conditions, stipulated in
the related agreements which the Purchaser has entered into with the Seller.

     Clause 7. The Purchaser agrees to make use of the Land for its intended
purpose by only use as contracted to establish and operate a disposable diaper
factory. The expansion of the factory or the change in manufacturing activity,
products processing or any conduct which may cause the increase of pollution or
the increase use of the public utilities system as provided by the Seller shall
not be permitted unless a prior written consent of the Seller shall have been
obtained.

     Clause 8. The Purchaser shall be entitled to enter into possession of the
Land on the execution date hereof and to continue in possession so long as it is
not in default in the performance of this Agreement. However, before making use
of or constructing the factory for its operation within the Land, the Purchaser
shall have the following obligations:

                                       4



                                 [ Translation ]

     8.1  To show the Seller the layouts of the factory buildings, office
          buildings or other buildings which shall be in conformity with the
          standards of the Land usage set by the Seller as attached hereto and
          made a part hereof. The Seller reserves the right to express
          disagreement, express opinion, advise or modify the said layouts:

     8.2  To present to the Seller the detailed information concerning the
          electricity and water consumption requirement necessary for use in the
          operation of the factory in each day and each month.

     8.3  To inform the Seller of the type of fuel or energy to be utilized in
          the operation of the factory and whether the Purchaser requires to
          use the natural gas, if so, the amount of natural gas to be used in
          each day and each month.

     8.4  To inform the Seller of the amount of telephone numbers necessary to
          be used in the factory.

     8.5  To inform the Seller of the kind or type of products to be
          manufactured and the estimated production capacity in each day and
          each month.

     8.6  To inform the Seller of the volume of waste water from the factory,
          the amount of waste materials, toxic materials, and scrap of any used
          materials in each day and month.

     8.7  To inform the Seller of the number of workers or employees who will be
          working in the factory.

     All obligations shall be deemed fulfilled when the Purchaser has achieved
all the abovementioned obligations. The Purchaser shall comply with those
obligations not yet achieved within 180 days from the signing date hereof.

     Clause 9. The Purchaser hereby agrees to purchase all kinds of facilities
and public utilities provided by the Seller within the S I L Industrial Land on
the following conditions:

                                       5



                                 [ Translation ]

     9.1  The Seller shall, at its own costs, construct the electricity
          substation in the S I L Industrial Land and proceed to have the
          electricity available upto the frontage of the Land at the volume
          necessary for the Purchaser to use in the operation of its factory as
          informed to the Seller in advance pursuant to Clause 8 above.

          The Purchaser shall have an obligation to pay the electricity bills
          directly to the Provincial Electricity Authority of Thailand ("PEA")
          in accordance with the actual amount consumed as per the binding
          obligations agreed upon between the Purchaser and the PEA.

     9.2  The Telephone Organization of Thailand ("TOT") has installed the
          telephone exchange for the S I L Industrial Land as applied by the
          Seller and shall provide the Purchaser with the telephone numbers as
          specified in Clause 8 above, but not exceeding the amount advised by
          the Seller. The Purchaser shall, at its own costs and expenses, apply
          for permission of the installation and execute the services agreement
          directly with the TOT.

          The Purchaser shall have an obligation to pay the telephone bills
          directly to the TOT in accordance with the actual amount used as per
          the binding obligations agreed upon between the Purchaser and the TOT.

     9.3  The Petroleum Authority of Thailand ("PTT") shall invest in the
          installation of natural gas pipeline upto the frontage of the Land, as
          applied by the Seller and required by the Purchaser, which shall be in
          accordance with the terms and conditions mutually agreed by the
          Purchaser and the PTT.

          The Purchaser shall have an obligation to pay the natural gas bills or
          other expenses directly to the PTT in accordance with the binding
          obligations agreed upon between the Purchaser and the PTT.

                                       6



                                 [ Translation ]

     9.4  The Purchaser agrees to purchase water to be used for its industry and
          other purposes. The Seller shall arrange to have the water pipeline
          connected up to the frontage of the Land and start distributing water
          to the Purchaser on the commencement date required by the Purchaser
          and informed to the Seller. The Purchaser shall pay to the Seller for
          the water bills as per the volume utilized in each month at the
          standard rate set by the Seller. The Seller shall be entitled to
          adjust the rate of price as per the terms and conditions specified in
          the Declaration of Siam Cement Industrial Zone, Saraburi. No.2/2000
          Industrial Water Price Rates

     9.5  The Purchaser agrees to be bound by any other obligations set forth in
          the Declaration of Siam Cement Industrial Zone, Saraburi either
          stipulated or may be stipulated in the future.

     Clause 10. The Seller shall provide the roads within the S I L Industrial
Land upto the frontage of the Land so that the Purchaser shall be able to make
use thereof. It is expressly understood that the Seller is the sole owner of the
said roads and shall have the right to modify and make changes whenever it deems
appropriate, provided that the Seller shall inform the Purchaser prior to such
modification or change is made.

     Clause 11. All kinds of vehicles, whether used for the transportation of
personnel, goods, machinery or others, and whether owned by the Purchaser, its
personnel or other persons, entering or leaving the factory or the Land in the
S I L Industrial Land shall have Seller's permission in advance. The Seller
shall have the right to inspect and examine such vehicles whenever they are
entering or leaving the said area.

     Clause 12. The Purchaser covenants to make use of the Land only in order to
operate its factory with no living quarters, whether for workers, employees or
other persons who work within the area of the Land or the factory. Workers,
employees or other persons shall leave the area of the Land or S I L Industrial
Land after work, except those who are on guard or on duty for the factory or the
Land security.

                                       7



                                 [ Translation ]

     Clause 13. The Purchaser shall be responsible for all damages which may be
incurred to the Seller due to the act of the Purchaser's employees, workers or
agents while performing their duties to the Purchaser. The Purchaser shall be
liable and reimburse to the Seller until all damages shall have been fully paid.

     Clause 14. In the event that either party commits a breach of any or all of
the provisions hereof, the other party shall be entitled to terminate this
Agreement, and claim for damages as permitted by the applicable Thai laws.

     Clause 15. Each party hereby represents to the other party that:

     15.1 it is a corporation duly organized and validly existing under the laws
          of its incorporation and has full legal right, power and authority to
          execute and deliver this Agreement, to enter into the transactions and
          incur the obligations provided for in this Agreement, and to perform
          and observe the terms and conditions hereof;

     15.2 it has taken all appropriate and necessary corporate and other action
          to authorize the execution and delivery of this Agreement, and to
          authorize the performance and observance of the terms and conditions
          hereof;

     15.3 this Agreement, when executed and delivered, shall constitute legal
          valid and binding obligations, enforceable in accordance with their
          respective terms;

     15.4 this Agreement shall not violate or contravene any provision of law or
          other governmental directive, shall not conflict with its Memorandum
          and Articles of Association or other corporate documents, and shall
          not conflict with or result in the breach of any provision of any
          agreement to which it is a party.

     Clause 16. All of the terms and conditions of this Agreement between the
parties are stated herein and no representations or inducements have been made
to the Purchaser by the Seller other than those expressly stated in this
Agreement.

                                       8



                                 [ Translation ]

     Clause 17. The Purchaser shall in no event assign this Agreement without
the prior written consent of the Seller.

     Clause 18. The waiver of any breach of this Agreement by either party shall
not constitute a waiver of any subsequent breach either of the same or another
provision of this Agreement.

     Clause 19. This Agreement shall be governed by the laws of Thailand.

     This Agreement is made in duplicate with identical wording. Both parties
have read and found the same to be in accordance with their intentions, thus
caused their authorized representatives to sign their names hereinbelow in the
presence of the witnesses. Each party retains one copy.

                   S I L INDUSTRIAL LAND CO., LTD. The Seller


                         Sign             signature
                              --------------------------------
                                    (Mr. Udom Siripanich)
                                      Managing Director


              DSG INTERNATIONAL (THAILAND) CO., LTD. The Purchaser


   Sign            signature                Sign            signature
        -------------------------------          -------------------------------
               (Mr. Wong Po Wah)                    (Mr. Praphan Anuwongnukroh)
            Chief Operating Officer                     Director Consultant
                South East Asia


                         Sign             signature              Witness
                              --------------------------------
                                   (Mr. Anont Bukkanasuta)


                         Sign             signature              Witness
                              --------------------------------
                                 (Mr. Pairat Anuwongnukroh)

                                       9



                       Land Plot for Land Sales Agreement

                                October 31, 2002

                                  NO. 003/2545

                                    Land Plot

                                    No. A57/1

                                   15-0-00 Rai

                                                                           [MAP]

                                                      
S I L INDUSTRIAL LAND CO., LTD. The Seller               DSG INTERNATIONAL (THAILAND) CO., LTD. The Purchaser


Sign            signature                                Sign            signature
     ------------------------------- Managing Director        ------------------------------- Chief Operating Officer
          (Mr. Udom Siripanich)                                      (Mr. Wong Po Wah)        South East Asia


Sign            signature                                Sign            signature
     ------------------------------- Witness                  ------------------------------- Director Consultant
         (Mr. Anont Bukkanasuta)                                (Mr. Praphan Anuwongnukroh)


                                                         Sign             signature
                                                              ------------------------------- Witness

EX-4.2

                                                                     EXHIBIT 4.2

                               SHARE PURCHASE DEED

Dated                                                                       2002

                                     PARTIES

                        ASSOCIATED HYGIENIC PRODUCTS INC.

                            DSG INTERNATIONAL LIMITED

                            NAPPIES NEWCO PTY LIMITED

                            APPP FINANCE PTY LIMITED



DEED made                             2002

PARTIES   ASSOCIATED HYGIENIC PRODUCTS INC. a company incorporated in the State
          of Wisconsin, USA of 205 East Highland Drive, Oconto Falls, Wisconsin
          54154, United States of America ("AHPI")

AND       DSG INTERNATIONAL LIMITED a company incorporated in the British Virgin
          Islands under IBC No 54212 of 17/K Watson Centre, 16-22 Kung Yip
          Street, Kwai Chung, N.T., Hong Kong ("DSGI")

AND       NAPPIES NEWCO PTY LIMITED ACN 102 609 094 of 1-3 Lake Drive, Dingley
          Village, Victoria 3172, Australia ("Nappies Newco")

AND       APPP finance PTY LIMITED, a company incorporated in the State of
          Victoria Australia ACN 102 578 503 of Level 2, The Terrace, 155 George
          Street, Sydney NSW 2000, Australia ("Purchaser")

INTRODUCTION

A.   The Companies are incorporated under the Corporations Act 2001. They have
     issued capital as set out in Schedule 2 of this Deed. The Shares are fully
     paid.

B.   The Shares and their numbers and classes are legally and beneficially owned
     by the Vendors as set out against their names in Schedule 2.

C.   The Companies carry on the business of the manufacture, distribution and
     sale of nappies, diapers and adult incontinence products and related
     products in the Territory.

D.   The Vendors have agreed to sell the Shares to the Purchaser and the
     Purchaser has agreed to buy the Shares from the Vendors on the terms of
     this Deed.




IT IS AGREED

1.   Definitions and Interpretation

1.1  Definitions

     In this Deed:

     (1)  "Accounts Date" means 31 December 2001;

     (2)  "Accrued Rights" means all accretions and rights attaching to or
          arising from the Shares at or after the date of this Deed including
          all rights to receive dividends except for the dividend specified in
          clause 5.3 and to receive or subscribe for shares, stock units, notes
          or options, declared, paid or issued by the Company;

     (3)  "Annual Accounts" means the statutory audited financial statements for
          the Company for the financial years ending on the Balance Dates;

     (4)  "Assessment" includes a notice, statement, letter, account or other
          document which notifies an assessment or determination of Tax or an
          amendment of a previous assessment or determination of Tax, or which
          requires payment of Tax;

     (5)  "ANZ" means Australia and New Zealand Banking Group Limited;

     (6)  "ANZ Debt" has the meaning given by clause 11.1(2);

     (7)  "Balance Dates" means 31 December 2001 and 31 December 2000, which is
          the last day of the Companies' last two financial years (as the
          context so requires);

     (8)  "Brand Names" means "Babylove", "Lullaby", "Cosies", "Cosifits",
          "Fairytale" and "Merit" in the Territory;

     (9)  "Brand Name IP" means the Intellectual Property relating to the Brand
          Names in the Territory;

     (10) "Brand Name Trademarks" mean the registered trademarks relating to the
          Brand Names as set out in Error! Reference source not found.;

     (11) "Brand Name IP Licence" means the royalty-free Intellectual Property
          licence to use the Brand Name IP (including the Brand Name Trademarks)
          in the Territory, for automatically-renewing ten (10) year terms, to
          be entered into between DSG NEWCO LIMITED as the owner of the Brand
          Name IP and as licensor, and the Purchaser as licensee in the form
          annexed as Annexure F;



     (12) "Business Day" means a day that is not a Saturday, Sunday or any other
          day which is a public holiday or a bank holiday in the place where an
          act is to be performed or a payment is to be made;

     (13) "CHAMP" means Castle Harlan Australian Mezzanine Partners Pty Limited
          ACN 091 067 846 registered in Australia;

     (14) "Companies" means DSG Pty, NDSG and Nappies Newco and "Company" means
          either of them as the context so requires;

     (15) "Completion" means performance of the acts set out in clause 6 to be
          performed on the Purchase 1 Date, Purchase 2 Date and Purchase 3 Date;

     (16) "Conditions" means the conditions precedent specified in clause 4.1;

     (17) "Deed" means this document (including any Schedule or annexure to it);

     (18) "Disclosure Schedule" means Schedule 4;

     (19) "Directors" means the directors of each of the Companies as set out in
          Schedule 1

     (20) "Dollars" or "$" or "A$" means Australian dollars, the lawful currency
          of Australia;

     (21) "DSG Newco Limited" means DSG Newco Limited incorporated in the
          British Virgin Islands under IBC No.150425 of 17/F Watson Centre,
          16-22 Kung Yip Street, Kwai Chung, N.T. Hong Kong;

     (22) "DSG Pty" means DSG Pty Limited ACN 006 884 546, a company registered
          in the State of Victoria, Australia;

     (23) "DSG Pty Shares" means all of the issued share capital of DSG Pty, as
          listed in Part 1 of Schedule 2;

     (24) "DSG Board" means the board of directors of DSG Pty;

     (25) "Effective Date Balance Sheet" means the consolidated balance sheet of
          the Companies prepared as at close of business on the Effective Date;

     (26) "Effective Date" means close of business on 31 October 2002;

     (27) "Environmental Warranty" means the Warranty set in paragraph 27 of
          Schedule 3;

     (28) "Escrow Agent" means Chapman Tripp, Barristers and Solicitors ofLevel
          35, 23-29 Albert Street, PO Box 2206, Auckland, New Zealand;



     (29) "Escrow Agreement" means the Agreement to be entered into by the
          Escrow Agent, the Vendors and the Purchaser in relation to the Share
          Sale Deed in the form annexed as Annexure G;

     (30) "Financial Statements" means the Annual Accounts and the Management
          Accounts;

     (31) "Independent Accountants" or "Expert" means a firm of Chartered
          Accountants agreed between the Vendors and the Purchaser or failing
          agreement determined by the President for the time being of the
          Institute of Chartered Accountants in Australia, Victorian Branch;

     (32) "Intellectual Property" means all trade marks, logos, service marks,
          trade names, brand names, business names, copyrights, designs,
          patents, inventions, processes and other technical know-how,
          confidential information and other rights in industrial property and
          applications for them or licence agreements or other arrangements
          under which a person has the right to use any of them;

     (33) "Internal Revenue Code" means the United State Internal Revenue Code
          of 1986, as amended, and any successor statutory provisions;

     (34) "Liability" includes a present, prospective or contingent liability
          incurred or arising out of events occurring prior to the relevant
          Purchase Date;

     (35) "Management Accounts" means the profit and loss statement, cashflow
          statement and balance sheet for each of the Companies for each of the
          months and years ending January 2002 to September 2002 and the
          consolidated profit and loss account, cashflow statement and balance
          sheet for each of the months and years ending January 2002 to
          September 2002;

     (36) "Marketable Security" means:

          (a)  debentures, stocks, shares or bonds of any government, of any
               local government authority or of any body corporate, association
               or society, and includes any right or option in respect of shares
               in any body corporate and any prescribed interest; and

          (b)  any right, whether actual, prospective or contingent, of any
               person to have issued to that person any of the securities
               described in paragraph (a) above, whether or not on payment of
               any money or other consideration;

     (37) "Material Adverse Change" means a material adverse change or event in
          relation to the structure, business, financial or trading position of
          the Company or in relation to the condition, assets or liabilities,
          profitability or prospects of the Company, as determined by the
          Purchaser;



     (38) "Mortgages" includes legal mortgages and charges, equitable mortgages
          and charges, fixed or floating or both, liens, pledges and other
          security interests in respect of property;

     (39) "Nappies Newco Board" means the board of directors of Nappies Newco;

     (40) "Nappies Newco Shares" means all of the issued or to be issued share
          capital of Nappies Newco as set out in Schedule 2;

     (41) "NASDAQ Announcements" means announcements or releases relating to the
          sale and purchase of the Shares which in the reasonable opinion of the
          Vendor's Attorneys are required by the securities laws of the United
          States of America or regulations of the NASDAQ National Market System;

     (42) "NDSG" means Nappies DSG Pty Ltd ACN 057 041 399, a company registered
          in the State of Victoria, Australia;

     (43) "NDSG Board" means the board of directors of NDSG;

     (44) "NDSG Shares" means all of the issued share capital of NDSG, as listed
          in Part 2 of Schedule 2;

     (45) "Non-NASDAQ Announcements" means all public and internal information
          releases and announcements relating to the sale and purchase of the
          Shares which are not NASDAQ Announcements;

     (46) "P&G Agreement" means the patent licensing agreement between The
          Proctor & Gamble Company and DSGI dated 21 May 2001 with commencement
          date of 1 January 2001;

     (47) "Pacific Islands" means Fiji, the Solomon Islands, Samoa, the Cook
          Islands, Christmas Island, Easter Island, French Polynesia, Tonga,
          Vanuatu and New Caledonia;

     (48) "Parties" means the parties to this Deed;

     (49) "Property" means 1-5 Lake Drive, Dingley, Victoria 3172, Australia;

     (50) "Purchase 1 Completion" means the completion of the sale and purchase
          of the Purchase 1 Shares under this deed;

     (51) "Purchase 2 Completion" means the completion of the sale and purchase
          of the Purchase 2 Shares under this deed;

     (52) "Purchase 3 Completion" means the completion of the sale and purchase
          of the Purchase 3 Shares under this deed;



     (53) "Purchase Dates" means the Purchase 1 Date, Purchase 2 Date and
          Purchase 3 Date and each of them as the context so requires;

     (54) "Purchase 1 Date" means 25 November 2002 or, if later, the date which
          is 5 Business Days after the date on which the Conditions have been
          satisfied or waived, or another date agreed in writing by the Vendors
          and the Purchaser and which completion of the sale and purchase of the
          Purchase 1 Shares occurs;

     (55) "Purchase 2 Date" means the date of completion of the sale and
          purchase of the Purchase 2 Shares, being the Purchase 1 Date subject
          to Purchase 1 having first completed;

     (56) "Purchase 3 Date" means the date of completion of the sale and
          purchase of the Purchase 3 Shares, being the Business Day after the
          Purchase 2 Date subject to Purchase 2 having first completed;

     (57) "Purchase Price" means the purchase price stated in clause 3.1;

     (58) "Purchase 1 Shares" means the DSG Pty Shares and 1 ordinary share in
          the capital of NDSG, to be acquired by the Purchaser;

     (59) "Purchase 2 Shares" means 1 ordinary share in the capital of NDSG, to
          be acquired by Nappies Newco;

     (60) "Purchase 3 Shares" means all of the issued share capital of Nappies
          Newco as set out in Schedule 2;

     (61) "Purchaser Sale" means a transfer of the shares of DSG Pty as a result
          of which any person would hold or acquire beneficial ownership of or
          over that number of shares which in aggregate confers 100 per cent of
          the voting rights normally exercisable at general meetings of DSG Pty
          provided however there shall be no Purchaser Sale as a result of any
          transfer between members of the Purchaser's Group, or due to a listing
          of shares on any recognised stock exchange;

     (62) "Purchaser Sale Shares" means shares in DSG Pty to be sold under a
          Purchaser Sale;

     (63) "Purchaser's Group" means the Purchaser and any of its Related Bodies
          Corporate or Related Entities and any investor in any fund or
          affiliate of any fund advised by CHAMP for the time being;

     (64) "Purchaser Warranties" means the warranties given by the Purchaser
          pursuant to clause 9.10;

     (65) "Related Body Corporate" means a body corporate that is related to
          another body corporate because it is:



          (a)  the holding company of the other body corporate;

          (b)  a subsidiary of the other body corporate; or

          (c)  a subsidiary of a holding company of the other body corporate;

     (66) "Related Entities" means, in relation to a body corporate, any of the
          following:

          (a)  a promoter of the body;

          (b)  a relative, or de facto spouse, of such a promoter;

          (c)  a relative of a spouse, or of a de facto spouse, of such a
               promoter;

          (d)  a director or member of the body or of a related body corporate;

          (e)  a relative, or de facto spouse, of such a director or member;

          (f)  a relative of a spouse, or of a de facto spouse, of such a
               director or member;

          (g)  a body corporate that is related to the first-mentioned body;

          (h)  a beneficiary under a trust of which the first-mentioned body is
               or has at any time been a trustee;

          (i)  a relative, or de facto spouse, of such a beneficiary;

          (j)  a relative of a spouse, or of a de facto spouse, of such a
               beneficiary;

          (k)  a body corporate one of whose directors is also a director of the
               first-mentioned body;

          (l)  a trustee of a trust under which a person is a beneficiary, where
               the person is a related entity of the first-mentioned body
               because of any other application or applications of this
               definition;

     (67) "Shares" means the DSG Pty Shares, NDSG Shares and the Nappies Newco
          Shares;

     (68) "Stock" means all stock in trade, materials and supplies (including
          finished goods, raw materials, packaging and containers, and
          work-in-progress) in use or intended for use in connection with the
          business of DSG Pty as at close of business on the Effective Date
          including items in transit or on consignment with any customer or
          distributor of the business;



     (69) "Subsidiary" means a body corporate (in this definition called the
          first body) that is a subsidiary of another body corporate because:

          (a)  the other body:

               (i)  controls the composition of the first body's board;

               (ii) is in a position to cast, or control the casting of, more
                    than one-half of the maximum number of votes that might be
                    cast at a general meeting of the first body; or

               (iii) holds more than one-half of the issued share capital of the
                    first body (excluding any part of that issued share capital
                    that carries no right to participate beyond a specified
                    amount in a distribution of either profits or capital); or

          (b)  the first body is a subsidiary of a subsidiary of the other body;

          For the purposes of the definition of "Subsidiary" without limiting by
          implication the circumstances in which the composition of a body
          corporate's board is to be taken to be controlled by another body
          corporate, the composition of the board is taken to be so controlled
          if the other body, by exercising a power exercisable (whether with or
          without the consent or concurrence of any other person) by it, can
          appoint or remove all, or the majority, of the directors of the
          first-mentioned body, and, for the purposes of this Deed, the other
          body is taken to have power to make such an appointment if:

          (c)  a person cannot be appointed as a director of the first-mentioned
               body without the exercise by the other body of such a power in
               the person's favour; or

          (d)  a person's appointment as a director of the first-mentioned body
               follows necessarily from the person being a director or other
               officer of the other body;

     (70) "Tax" means taxes, duties, fees, rates, charges and imposts of all
          kinds assessed, levied or imposed by the Commonwealth of Australia, a
          state or any other government, regional, municipal or local authority
          (Australian or overseas) and includes capital gains tax, fringe
          benefits tax, income tax, prescribed payments tax, superannuation
          guarantee charge, training guarantee levy, undistributed profits tax,
          payroll tax, goods and services tax, group tax, land tax, import duty,
          excise, stamp duty, municipal and water rates, interest on tax
          payments withholding tax and additional tax by way of penalty;

     (71) "Tax Warranties" means the Warranties which relate to Tax, as set out
          in paragraphs 11 and 12 of Schedule 3;



     (72) "Territory" means Australia, New Zealand, Papua New Guinea and the
          Pacific Islands;

     (73) "Vendors" means AHPI and DSGI;

     (74) "Vendor Group" means the Vendors and their Related Bodies Corporate
          and a member of the Vendor Group means any one of them;

     (75) "Vendors' Attorneys" means Pillsbury Winthrop LLP of 50 Fremont
          Street, San Francisco, CA, USA;

     (76) "Warranties" means the warranties given by the Vendors as set out in
          Schedule 3.

1.2  Interpretation

     (1)  Reference to:

          (a)  one gender includes the others;

          (b)  the singular includes the plural and the plural includes the
               singular;

          (c)  a person includes a body corporate;

          (d)  a Party includes the Party's executors, administrators,
               successors and permitted assigns;

          (e)  a statute, regulation or provision of a statute or regulation
               ("Statutory Provision") includes:

               (i)  that Statutory Provision as amended or re-enacted from time
                    to time; and

               (ii) a statute, regulation or provision enacted in replacement of
                    that Statutory Provision; and

          (f)  money is to Australian dollars, unless otherwise stated.

     (2)  "Including" and similar expressions are not words of limitation.

     (3)  Where a word or expression is given a particular meaning, other parts
          of speech and grammatical forms of that word or expression have a
          corresponding meaning.

     (4)  Headings, the table of contents and the table of key data are for
          convenience only and do not form part of this Deed or affect its
          interpretation.



     (5)  A provision of this Deed must not be construed to the disadvantage of
          a Party merely because that Party was responsible for the preparation
          of the Deed or the inclusion of the provision in the Deed.

     (6)  If an act must be done on a specified day which is not a Business Day,
          it must be done instead on the next Business Day.

1.3  Parties

     (1)  If a Party consists of more than 1 person, this Deed binds each of
          them separately and any 2 or more of them jointly.

     (2)  An obligation, representation or warranty in favour of more than 1
          person is for the benefit of them separately and jointly.

     (3)  A Party which is a trustee is bound both personally and in its
          capacity as a trustee.

     (4)  An obligation, warranty or representation by the Vendors binds each
          Vendor separately and any 2 or more of them jointly.

2.   Sale and Purchase

2.1  The Vendors agree to sell to the Purchaser and the Purchaser agrees to
     purchase from the Vendors the full legal and beneficial ownership in the
     Shares together with all Accrued Rights free from Mortgages and other
     encumbrances with effect from the Effective Date with the intention that
     the Purchaser is entitled to all trading profits and bears all trading
     losses of the Companies between the Effective Date and the Purchase 3 Date.

2.2  The Vendors shall sell to the Purchaser the Shares as follows and in
     accordance with clause 6 (the Completion of each sale and purchase
     transaction specified below being interdependent with each of the others
     and subject to each of the other transactions occurring on the relevant
     Purchase Date):

     (1)  the sale and purchase of the Purchase 1 Shares shall occur on the
          Purchase 1 Date;

     (2)  the sale and purchase of the Purchase 2 Shares shall occur on the
          Purchase 2 Date;

     (3)  the sale and purchase of the Purchase 3 Shares shall occur on the
          Purchase 3 Date.



2.3  The Vendors hereby waive any pre-emptive rights they may have in relation
     to the Shares pursuant to the memorandum and articles of association of the
     Companies or otherwise.

3.   Purchase Price

3.1  The Purchase Price for the Shares is A$53,000,000 as adjusted pursuant to
     clause 3.3(4).

     No part of the Purchase Price is apportionable to the agreement in clause
     16.

3.2  The Purchase Price is apportioned between the Purchase 1 Shares, Purchase 2
     Shares and Purchase 3 Shares of the Companies as set out in Schedule 2.

3.3  Subject to the Vendors performing their obligations under clause 6, the
     Purchaser must pay the Purchase Price to the Vendors as follows:

     (1)  the Purchaser shall pay or procure the payment by DSG Pty to ANZ the
          outstanding balance owing to ANZ by DSG Pty at the Purchase 1 Date
          (after the amount referred to in clause 3.3(3) has been applied to
          reduce the balance owed to ANZ);

     (2)  the Purchaser shall pay to DSGI on behalf of DSG Pty the amount of any
          intercompany debt owed by DSG Pty and NDSG to the Vendor Group at the
          Effective Date (other than the intercompany debt owed by NDSG to DSG
          Pty and less any intercompany debt owed by the Vendor Group to the
          Companies) and DSGI shall procure the repayment of that debt to the
          Vendor Group;

     (3)  the Purchaser shall pay to DSG Pty on behalf of NDSG the amount of any
          intercompany debt owed by NDSG to DSG Pty at the Effective Date and
          the Vendors shall procure that such amount will be applied by DSG Pty
          in part satisfaction of the outstanding balance owed to ANZ by DSG Pty
          at the Purchase 1 Date;

     (4)  the Purchaser shall pay to the Vendors in accordance with any written
          directions given by the Vendors under clause 8, the balance, being
          A$53,000,000 less the aggregate of the ANZ Debt outstanding at the
          Effective Date after all cash on hand at the Effective Date has
          reduced that balance and the amount paid under clause 3.3(2) of this
          Deed.

3.4  The amounts paid by the Purchaser pursuant to clauses 3.3(1), 3.3(2) and
     3.3(3) will be treated as loans from the Purchaser to DSG Pty and NDSG.



4.   Conditions Precedent

4.1  The obligations of the Parties which relate to the sale and purchase of the
     Shares are subject to the following conditions precedent:

     (1)  the Vendors having registered share transfers effecting the transfer
          of 2,000,000 Cumulative Preference Shares and 749,999 ordinary shares
          in DSG Pty by DSGI to AHPI, in the company books of DSG Pty and having
          provided evidence satisfactory to the Purchaser in relation to the
          same;

     (2)  the Vendors having registered share transfers effecting the transfer
          of one ordinary share held by each of Shamsher Kanji and Patrick Tsang
          in NDSG to DSGI in the company books of NDSG and having provided
          evidence satisfactory to the Purchaser in relation to the same;

     (3)  The Vendors having registered the share transfer effecting the
          transfer of one ordinary share held by Patrick Tsang in DSG Pty to
          DSGI, and consequently having registered a transfer of that one
          ordinary share from DSGI to AHPI in the company books of DSG Pty and
          having provided evidence satisfactory to the Purchaser in relation to
          the same;

     (4)  no Material Adverse Change having occurred;

     (5)  the Purchaser not having become aware of any material breach of
          Warranty (whether as a result of a notification under clause 5.3 or
          otherwise) since the date of this Deed or any materially misleading
          statement or omission having been made by the Vendors or the Directors
          in relation to the Companies;

     (6)  the loan facilities between the Companies and ANZ having been
          terminated and all amounts outstanding under them having been repaid
          and all obligations under them having been discharged;

     (7)  all other loan facilities, loans and similar arrangements between the
          Companies and Related Entities of the Companies having been
          terminated, all amounts outstanding under them having been repaid and
          all obligations under them having been discharged;

     (8)  AHPI and DSGI having provided evidence satisfactory to the Purchaser
          of releases of any charges which affect the Shares and any consents to
          the transactions under this Deed required by AHPI's or DSGI's
          financing documents;

     (9)  a new agreement between DSG Pty and The Proctor and Gamble Company
          regarding patent licensing arrangements in the form attached as
          Annexure A having been duly executed by the parties thereto;



     (10) the assignment of the Brand Name IP (other than the Brand Name
          Trademarks) having been executed between DSG-Tek Limited, Disposable
          Soft-Goods UK plc and DSG Newco Limited;

     (11) the assignment of:

          (a)  the Brand Name Trademarks from DSG-Tek Limited to Disposable Soft
               Goods (UK) plc having been registered with IP Australia and the
               IP registration authority in New Zealand (IPONZ) so far as it
               relates to Australia and New Zealand; and

          (b)  the subsequent assignment of the Brand Name Trademarks from
               Disposable Soft Goods (UK) plc to DSG Newco Limited having been
               recorded by IP Australia and the IP registration authority in New
               Zealand (IPONZ), and DSG Newco Limited having been recorded as
               current registered holder of the Australian and New Zealand Brand
               Name Trademarks;

     (12) the Brand Name IP Licence in favour of DSG Pty having been duly
          executed by DSG Newco Limited and provided to the Purchaser;

     (13) the Vendor having obtained the written consent of Vlesia AG to the
          change of control of DSG Pty occurring pursuant to this Deed as
          required under the Distribution Agreement between Vlesia AG and DSG
          Pty;

     (14) the Purchaser having obtained notification from the Treasurer of the
          Commonwealth of Australia that no objection is made to the acquisition
          by the Purchaser of the Shares under the Foreign Acquisitions and
          Takeovers Act 1975 or if any conditions are imposed to such consent,
          such consent and conditions being granted on terms reasonably
          acceptable to the Purchaser;

     (15) the Purchaser having obtained sufficient bank financing to enable it
          to perform its obligations under this Deed and for future working
          capital purposes, on terms and conditions acceptable to the Purchaser;

     (16) new employment contracts being entered into between DSG Pty and each
          of Colin Lamond, Paul Llewellyn, Stuart Vohmann, Steve Carroll and
          Hugh Gilmartin substantially in the form of Annexure C.

4.2  Each of the Parties must use its best endeavours to obtain the fulfilment
     of the Conditions except for Conditions 4.1(14) to 4.1(16) inclusive by 21
     November 2002. The Purchaser must use its best endeavours to obtain the
     fulfilment of Conditions 4.1(14) to 4.1(16) (inclusive) by 21 November
     2002.

4.3  If:



     (1)  any of the Conditions are not fulfilled to the reasonable satisfaction
          of the Purchaser or waived in writing by the Purchaser by 31 December
          2002 or a later date agreed in writing by the Vendors and the
          Purchaser; or

     (2)  any consent or approval required under any of the Conditions is not
          granted on terms acceptable to the Purchaser in its absolute
          discretion,

     then, if the Purchaser has complied with clause 4.2, the Purchaser may
     terminate this Deed at any time before Purchase 1 Completion by notice to
     the Vendors.

4.4  The Purchaser may waive any of the Conditions in clause 4.1 either
     unconditionally or on the basis that the waiver is only of the Condition as
     a condition precedent to Completion, in which case the Condition (other
     than Conditions 4.1(14) to 4.1(16) inclusive) becomes and remains a matter
     which the Vendors are obliged to use their best endeavours to satisfy.

4.5  If this Deed is terminated under clause 4.3:

     (1)  each Party must return immediately to the Party from which they were
          obtained all documents provided by that other Party pursuant to this
          Deed; and

     (2)  the Vendors must pay any cost reimbursements required to be paid under
          clause 17.6;

4.6  If this Deed is terminated under clause 4.3 then, in addition to any other
     rights, power or remedies provided by law:

     (1)  each Party is released from its obligations to further perform this
          Deed except for obligations of confidentiality and under clause 17.6;

     (2)  each Party retains the rights it has against any other Party in
          respect of any past breach.

5.   Procedure Prior to Purchase 3 Completion

5.1  Until Purchase 3 Completion the Vendors must, unless the Purchaser
     otherwise agrees, procure that each Company:

     (1)  carries on its business in a normal manner in accordance with standard
          commercial practice;

     (2)  uses all reasonable endeavours to preserve the goodwill of its
          business;

     (3)  maintains its assets at levels consistent with past practice over the
          12 months prior to the date of this Deed; and



     (4)  carries out repairs and maintenance to the Company's plant and
          equipment and business premises in accordance with standard commercial
          practice and standards of maintenance.

5.2  Until Purchase 3 Completion the Vendors must, except with the prior consent
     in writing of the Purchaser, procure that each Company does not:

     (1)  increase, reduce or otherwise alter its share capital or grant any
          options for the issue of shares or other securities;

     (2)  declare or pay a dividend other than as permitted by clause 5.3;

     (3)  make a distribution or revaluation of assets except for the
          revaluation of Stock consistent with the accounting policies set out
          in Schedule 5;

     (4)  buy back any of its shares;

     (5)  create, incur or assume any debt, liability or obligation directly or
          indirectly whether an accrued liability, contingent liability or
          otherwise, other than in the ordinary course of trading consistent
          with past practice (excluding borrowings under the existing ANZ debtor
          financing facility of the Companies);

     (6)  grant any Mortgage;

     (7)  lend any money or provide any financial accommodation in excess of
          A$50,000 (other than in the ordinary course of trading);

     (8)  enter into any transaction with a Related Body Corporate or Related
          Entity other than as expressly contemplated by this Deed;

     (9)  acquire or dispose of any asset with a market value in excess of
          A$50,000 (other than in the ordinary course of trading);

     (10) employ or offer to employ any person on a salary of more than A$50,000
          or change or seek to change the conditions of employment of any person
          at managerial level or with a salary of more than A$50,000 other than
          as expressly contemplated by this Deed; or

     (11) institute or defend any proceedings in any court;

     (12) allow any Company to take or omit to take any action that would amount
          to or result in a breach of Warranty;

     (13) refuse or prevent the Companies from occurring or undertaking or all
          capital expenditure recommended to be undertaken by the chief
          operating officer of DSG Pty;



     (14) pay any bonuses to employees or officers of the Companies;

     (15) change any accounting policies of the Companies including but not
          limited to the terms and timing of collection of receivables or the
          terms and timing of payments to creditors;

     (16) change any provisions or policies relating to accounting provisions,
          including but not limited to provisions for bad or doubtful debts;

     (17) procure that Nappies Newco does not enter into any transaction or
          arrangement other than the acquisition of one ordinary share in NDSG
          as set out in this Deed.

5.3  To the extent of retained earnings and as permitted by law, the Vendors may
     procure that before or on the Purchase 1 Date NDSG declares a franked
     dividend of A$1,000,000 (assuming all of the dividend is fully franked) to
     DSGI utilising substantially all of the balance outstanding in the NDSG
     franking account as at the Effective Date ("Pre-Completion Dividend"). Such
     dividend shall be accounted for as if it were paid prior to or as at the
     Effective Date and the intercompany loan amount owed by NDSG to DSGI shall
     be increased by the amount of the Pre-Completion Dividend in the Effective
     Date Balance Sheet.

5.4  The Vendors must promptly notify the Purchaser in writing of any material
     breach of any Warranty occurring or expected to occur during the period
     from the date of this Deed up to and including Purchase 3 Completion.

5.5  In the period prior to Purchase 3 Completion the Vendors must consult and
     procure that other officers of the Company consult with a representative of
     the Purchaser identified for the purposes of this clause ("Purchaser's
     Representative") on all material business decisions of the Company.

5.6  Without limiting clause 5.5, in the period prior to Purchase 3 Completion
     the Parties must use all reasonable efforts to prepare for a smooth
     transition of the Company and its business activities into the control of
     the Purchaser including that:

     (1)  the Vendors must procure that the Companies give the Purchaser
          reasonable access during normal business hours to the Companies'
          premises and make available to the Purchaser and its management
          personnel, consultants, accountants and lawyers such of the business
          records and contracts as the Purchaser, its management personnel,
          consultants, accountants or lawyers may reasonably request to assist
          in an orderly transfer of control of the Companies; and

     (2)  in relation to announcements:

          (a)  DSGI and the Purchaser must consult and agree on Non-NASDAQ
               Announcements that are to be made;



          (b)  the Vendors must inform the Purchaser of the nature and content
               of any NASDAQ Announcements or releases it makes or intends to
               make and shall use its best endeavours to ensure such information
               is provided to Purchaser for comment prior to such NASDAQ
               Announcements being made or announced.

5.7  The Purchaser must ensure that all documents and information, together with
     any data, information and other documents provided to the Purchaser
     pursuant to this clause 5:

     (1)  are maintained in strict confidence by the Purchaser, its management
          personnel, consultants, accountants, lawyers and financiers in
          accordance with this Deed; and

     (2)  are used by the Purchaser, its management personnel, consultants,
          accountants, lawyers and financiers exclusively for purposes
          associated with the purchase and sale contemplated by this Deed.

6.   Procedure at Completion

6.1  Purchase 1 Completion will take place at 10.00am on the Purchase 1 Date at
     the offices of Chapman Tripp located at Level 35, 23-29 Albert Street
     Auckland, New Zealand.

6.2  At Purchase 1 Completion the Vendors must deliver (or, where appropriate,
     procure that the Companies deliver) to the Purchaser or the Purchaser's
     nominees:

     (1)  registrable transfers of the Purchase 1 Shares in favour of the
          Purchaser or the Purchaser's nominees;

     (2)  any declaration required by the Stamps Office;

     (3)  share certificates for the Purchase 1 Shares;

     (4)  deed of release of charge and Australian Securities and Investment
          Commission Form 312 (Notification of discharge or release of property
          from a charge) of registered charge No 819963 dated 30 August 2001
          given to ANZ over DSG Pty Ltd, duly executed by ANZ;

     (5)  deed of release of charge and Australian Securities and Investments
          Commission Form 312 (Notification of discharge or release of property
          from a charge) of registered charge No 819955 dated 30 August 2001
          given to ANZ over NDSG, duly executed by ANZ;

     (6)  discharge of mortgage 5187121F over certificate of title volume 9986
          Folio 515 (1-5 Lake Drive, Dingley, Victoria), duly executed by ANZ;



     (7)  all documents of DSG Pty referred to in Schedule 4 or its appendices;

     (8)  all seals, minute books, statutory books and registers, books of
          account, trading and financial records, copies of taxation returns and
          other documents and papers of DSG Pty;

     (9)  authorities directed to DSG Pty's bankers authorising the operation of
          each of DSG Pty's bank accounts in accordance with the Purchaser's
          directions;

     (10) instruments in a form approved by the Purchaser's solicitors executed
          as a deed by the Vendors releasing the Companies from all claims of
          any kind which the Vendors or any one or more of them may have against
          the Companies as at and from the Purchase 1 Date save for claims
          pursuant to this Deed;

     (11) a management services agreement in the form annexed as Annexure E,
          duly executed by appropriate members of the Vendor Group; and

     (12) the royalty free Brand Name IP Licence in the form annexed as Annexure
          F duly executed by DSG Newco Limited;

     (13) the deed of restrictive covenant executed by Brandon Wang in the form
          annexed as Annexure F;

     (14) such other matters that the Purchaser reasonably requires in
          connection with the completion of the acquisition of the Shares in
          accordance with this Deed.

6.3  At Purchase 1 Completion the Vendors must procure:

     (1)  a direction in writing signed by all shareholders of DSG Pty and NDSG
          that the Board register the transfers of the Purchase 1 Shares (as
          applicable);

     (2)  approval by the DSG Pty Board of the transfers of the DSG Pty Shares
          and approval by the NDSG Board of the NDSG Shares comprising the
          Purchase 1 Shares to the Purchaser for registration (and to the extent
          not already approved, approval of the share transfers listed in
          Conditions 4.1(2) and 4.1(3));

     (3)  appointment to the Board of DSG Pty of those persons nominated by the
          Purchaser and resignations from those boards of those of the present
          directors whom the Purchaser requests to resign, and in the case of
          each director resigning an acknowledgment in such form as the
          Purchaser may require that he or she has no claim of any nature
          against DSG Pty (and vice versa except in relation to fraud or gross
          negligence) for salary, fees, compensation for loss of office or
          otherwise; and

     (4)  delivery into the control of the Purchaser of all keys and codes of
          whatever nature required to enter or gain access to any property of
          DSG Pty and without limitation



          including all keys and combinations required to unlock each safe
          deposit box at a bank, cupboards, safes, storage rooms, filing
          cabinets and desk drawers, and all keys and codes necessary to gain
          access to computer programmes;

     (5)  that upon the release of the ANZ securities referred to in clauses
          6.2(4), 6.2(5) and 6.2(6) the Vendors will procure that they and the
          directors of the Companies do all things necessary to enable and
          permit the Purchaser's debt financiers to take security on the
          Purchase 1 Date over the assets and undertaking of NDSG and the
          Property.

6.4  Subject to Purchase 1 Completion occurring, on the Purchase 2 Date the
     Vendors shall procure that Nappies Newco shall acquire the Purchase 2
     Shares in respect of Purchase 2 Completion. On the Purchase 1 Completion,
     the Vendors must deliver to the Escrow Agent:

     (1)  undated registrable transfers of the Purchase 2 Shares in favour of
          Nappies Newco;

     (2)  the share certificates for the Purchase 2 Shares;

     (3)  all seals, minute books, statutory books and registers, books of
          account, trading and financial records, copies of taxation returns and
          other documents and papers of NDSG;

     (4)  delivery into the control of the Purchaser of all keys and codes of
          whatever nature required to enter or gain access to any property of
          NDSG and without limitation including all keys and combinations
          required to unlock each safe deposit box at a bank, cupboards, safes,
          storage rooms, filing cabinets and desk drawers, and all keys and
          codes necessary to gain access to computer programmes.

6.5  On the Purchase 1 Completion the Vendors must procure and deliver to the
     Escrow Agent in respect of the Purchase 2 Completion:

     (1)  a direction in writing signed by all shareholders of NDSG that the
          Board register the transfers of the Purchase 2 Shares (as applicable);

     (2)  approval by the NDSG Board of the transfers of the Purchase 2 Shares
          to Nappies Newco for registration and the actual registration of the
          transfer in the Company books of NDSG;

     (3)  appointment to the Board of NDSG of those persons nominated by the
          Purchaser and resignations from those boards of those of the present
          directors whom the Purchaser requests to resign, and in the case of
          each director resigning an acknowledgment in such form as the
          Purchaser may require that he or she has no claim of any nature
          against NDSG (and vice versa except in relation to fraud or gross
          negligence) for salary, fees, compensation for loss of office or
          otherwise as at the Purchase 2 Date;



6.6  Each of the items in clause 6.5 shall be irrevocable and unconditional
     except that they are subject to the Purchase 1 Completion occurring.

6.7  On the Purchase 2 Date, Nappies Newco shall issue 4,050,000 ordinary shares
     credited as fully paid at A$1 per share to DSGI in consideration for the
     acquisition of the Purchase 2 Shares from DSGI and shall issue a share
     certificate in the name of DSGI in relation to the same, which shall be
     delivered to the Escrow Agent in accordance with clause 6.8(2).

6.8  On the Purchase 1 Completion, in respect of the Purchase 3 Completion the
     Vendors must deliver (or, where appropriate, procure that the Companies
     deliver) to the Escrow Agent:

     (1)  undated registrable transfers of the Purchase 3 Shares in favour of
          the Purchaser or the Purchaser's nominees;

     (2)  share certificates for the Purchase 3 Shares;

     (3)  all documents of Nappies Newco referred to in Schedule 3 or its
          appendices;

     (4)  all seals, minute books, statutory books and registers, books of
          account, trading and financial records, copies of taxation returns and
          other documents and papers of Nappies Newco;

     (5)  authorities directed to the Companies' bankers authorising the
          operation of each of Nappies Newco's and NDSG's bank accounts (if any)
          in accordance with the Purchaser's directions.

6.9  At Purchase 1 Completion the Vendors must procure and deliver to the Escrow
     Agent in respect of the Purchase 3 Completion:

     (1)  a direction in writing signed by all shareholders of Nappies Newco
          that the Nappies Newco Board register the transfers of the Purchase 3
          Shares (as applicable);

     (2)  approval by the Nappies Newco Board of the transfers of the Purchase 3
          Shares to the Purchaser for registration; and

     (3)  appointment to the Boards of Nappies Newco of those persons nominated
          by the Purchaser and resignations from those boards of those of the
          present directors whom the Purchaser requests to resign, and in the
          case of each director resigning an acknowledgment in such form as the
          Purchaser may require (and vice versa except in relation to fraud or
          gross negligence) that he or she has no claim of any nature against
          Nappies Newco and NDSG for salary, fees, compensation for loss of
          office or otherwise.

6.10 Each of the items in clause 6.9 shall be irrevocable and unconditional
     except that they are subject to the Purchase 1 and Purchase 2 Completions
     occurring.



6.11 On the Purchase 3 Date and after repayment of the ANZ Debt to ANZ pursuant
     to clause 3.3(1), the Purchaser shall procure that DSG Pty pays to DSGI the
     sum of A$200,000. This payment shall be in full and final satisfaction of
     any and all accrued royalties and payments payable to the Vendor Group by
     DSG Pty in respect of any Proctor and Gamble Company patent fees for all
     and any periods up to the Effective Date.

6.12 On the Purchase 3 Date the parties shall procure that the Companies enter
     into an instrument in the agreed form executed as a deed releasing the
     Vendors from all claims of any kind which the Companies may have against
     the Vendors as at and from the Purchase 3 Date, save for claims pursuant to
     this Deed and claims for fraud or gross negligence.

6.13 Despite clause 6.2(8):

     (1)  the Vendors are entitled to retain after Completion copies of any
          records necessary for the Vendors to comply with their legal
          obligations including their tax obligations; but

     (2)  the Vendors must not disclose any confidential information contained
          in those records unless required by law or the regulations of any
          recognised stock exchange, or until the information becomes public
          (otherwise than by a breach by the Vendors of their obligations under
          this clause 6.11);

     (3)  the Vendors may have reasonable access on advance notice and during
          business hours to such of the books and records of the Companies (but
          only to the extent they relate to the period prior to Completion or in
          relation to any franking credits arising under clause 12.5) as are
          reasonably required by the Vendors for proper purposes. Any request
          for access shall be in writing and shall state particulars of the
          books and records requested and the purpose for which the access is
          requested.

6.14 At 9.00am (New Zealand time) on the Purchase 3 Date, the documents held by
     the Escrow Agent shall be automatically released from Escrow pursuant to
     the Escrow Agreement and dealt with in accordance with the terms of the
     Escrow Agreement.

7.   Continuance of Obligations after Completion

7.1  If any obligation of the Vendors is not performed at Completion, and
     regardless of whether it is waived as a condition or requirement of
     Completion, the Vendors remain obliged to perform that obligation.

8.   Payment

8.1  All money payable by the Purchaser to the Vendors must be paid to a bank
     account/s specified by the Vendors under a written direction of the Vendors
     provided by the



     Vendors or the Vendors' Attorneys to the Purchaser a reasonable time before
     Completion. Payment of the Purchase Price to one or more of the Vendors
     shall be good discharge to the Purchaser of its obligations to pay the
     Purchase Price in respect of all of the Vendors and the Vendors shall sign
     any receipts reasonably required by the Purchaser in respect of payment of
     the Purchase Price.

8.2  All payments under this Deed must be made by telegraphic transfer from an
     authorised deposit-taking institution as defined in the Banking Act 1959,
     or by other mechanism agreed between DSGI and the Purchaser.

8.3  Following Completion, any payments made by a Party to another Party under
     this Deed will be an adjustment to the Purchase Price.

9.   Warranties

9.1  The Vendors jointly and severally warrant to the Purchaser in the terms of
     the Warranties, each of which is a separate Warranty in no way limited by
     any other Warranty.

9.2  Each of the Warranties applies at:

     (1)  the date set out at the commencement of this Deed; and

     (2)  the Purchase 3 Date.

9.3  A Warranty which refers to "so far as the Vendors are aware", the
     "knowledge, information and belief" of a Vendor or a Director, or that
     person's "knowledge", or contains words to that effect, and a Warranty that
     a Vendor or a Director or the Company is aware or is not aware of a matter,
     must be treated as including an additional warranty that the Vendors, the
     Directors or the Company (as the case may be) have made due and careful
     inquiries as to the matter.

9.4  The Vendors shall not be liable under the Warranties:

     (1)  in respect of any specific matters fully and fairly disclosed in
          Schedule 4 (Disclosure Schedule); and

     (2)  in respect of any product liability claims in respect of Stock sold
          ex-factory after the Effective Date.

9.5  Subject to clause 9.6 in the absence of fraud or wilful concealment on the
     part of the Vendors or the Vendors' agents or advisers, the liability of
     the Vendors in respect of:

     (1)  the Warranties (excluding the Tax and Environmental Warranties) shall
          terminate on the date 2 years after the Purchase 3 Date Purchase 3;
          and



     (2)  the Tax Warranties and Environmental Warranty shall terminate on the
          date which is five years after the Purchase 3 Date,

     except in respect of any claim of which notice in writing providing such
     reasonable details of the circumstances as is reasonably practicable for
     the Purchaser to supply, is given to any of the Vendors or the Vendors'
     Solicitors before the applicable date.

9.6  In relation to the Warranties set out in paragraph 2 and paragraph 25.2 of
     Schedule 3 the limitations set out in clauses 9.5 and 9.7 shall not apply.

9.7  In the absence of fraud, or wilful concealment, the Purchaser cannot make
     any claim against the Vendors for a breach of any Warranty unless and until
     the aggregate amount of all claims in respect of that and any other breach
     of Warranty is A$250,000 (or A$500,000 in the case of the Environmental
     Warranty) or more but in relation to any such claim or claims the Purchaser
     shall be entitled to claim the entire aggregate amount and such claims
     shall not be limited to the excess over A$250,000.

9.8  Except in the case of fraud or wilful concealment, the maximum amount
     recoverable from the Vendors under the Warranties is AUD$30,000,000.

9.9  If the Vendors make payment to the Purchaser under the Warranties and the
     Companies recover part or all of the loss the subject of the Warranty Claim
     from an insurer then the Purchaser shall reimburse the Vendors to the
     extent of the proceeds received by the Companies from the insurer less any
     out of pocket costs of making the insurance claim (including any excess
     attributable to the making of that claim.)

9.10 The Purchaser warrants to the Vendors as follows:

     (1)  Corporate Organization: It is a private limited company duly
          incorporated, validly existing and in good standing under the laws of
          the State of Victoria, Australia and has the corporate power and
          authority to acquire and own the Shares. The Purchaser has conducted
          no business other than entering into this Deed and engaging in
          transactions contemplated by this Deed and no other corporate
          proceedings are necessary to authorise this Deed and the transaction
          contemplated hereby.

     (2)  Authorization of Agreement; No violation. The Board of Directors of
          the Purchaser has duly authorised the execution and delivery of this
          Deed.

     (3)  Litigation. There are no action, suits, proceedings or investigations,
          either at law or in equity, or before any commission or other
          administrative authority in Australia or and foreign jurisdiction, of
          any kind now pending or threatened or proposed in any manner, or any
          circumstances which should or could reasonably form the basis of any
          such action, suit, proceeding or investigation, involving the
          Purchaser or any of its properties or assets that (i) questions the
          validity of this Deed or (ii) seeks to delay, prohibit or restrict in
          any manner any action taken or to be taken by the Purchaser under this
          Deed.



     (4)  Other than in connection with or in compliance with the provisions of
          Foreign Acquisitions and Takeovers Act 1975, no authorisation, consent
          or approval of, or filing with, any public body or authority is
          necessary for the consummation by the Purchaser of the transactions
          contemplated by this Deed.

9.11 The Vendors' liability under the Environmental Warranty shall be limited as
     follows:

     (1)  for the purpose of clause 9.7 the aggregate amount of all claims under
          the Environmental Warranty must not be less than A$500,000;

     (2)  to the extent that the claims under the Environmental Warranty exceed
          A$500,000 the Vendors shall only be liable for 50% of the excess over
          A$500,000.

10.  Stock

10.1 The value of Stock is determined in accordance with this clause 10 and
     Schedule 6.

10.2 The parties must procure that DSG Pty must at DSG Pty's expense carry out a
     full physical stocktake in accordance with Schedule 6. DSG Pty immediately
     after the close of business on the Effective Date in the presence of
     representatives of the Purchaser and compile a complete list of Stock.

10.3 The Vendors must provide a copy of the list referred to in clause 10.2 to
     the Purchaser on its completion within 5 Business Days of the Effective
     Date.

10.4 The values ascribed to each item of Stock must be the lower of cost and net
     realisable value calculated in accordance with Approved Accounting Standard
     AASB 1019 or as otherwise agreed between DSGI and the Purchaser. Any
     dispute in relation to the values ascribed to Stock shall be resolved in
     accordance with clause 11.

10.5 The Vendors and the Purchaser must use their reasonable endeavours to
     ensure that the stocktake of Stock is completed prior to the opening of
     business on the business day after the Effective Date.

11.  Effective Date Balance Sheet

11.1 The Parties will procure that DSG Pty will prepare the Effective Date
     Balance Sheet as soon as practicable after the Effective Date but in any
     event within 15 days after the Effective Date. The stocktake of DSG Pty
     pursuant to clause 10 shall be used to calculate the value of Stock for the
     Effective Date Balance Sheet. The Vendors and the Purchaser are entitled to
     be consulted in connection with the preparation of the Effective Date
     Balance Sheet. The Effective Date Balance Sheet will:

     (1)  be prepared as the relevant Effective Date;



     (2)  be used to determine the amount of indebtedness of the Companies to
          ANZ ("ANZ Debt") at the Effective Date for the purpose of clause 3.3;
          and

     (3)  be prepared in accordance with the accounting policies set out in
          Schedule 5.

11.2 DSG Pty shall deliver to the Vendors and the Purchaser the Effective Date
     Balance Sheet for their review within 15 days of the Effective Date.

11.3 If the Vendors or the Purchaser dispute any item or calculation in the
     Effective Date Balance Sheet, they shall give notice containing full
     details of and reasons for the amount and nature of the dispute and any
     adjustments they believe should be made to reflect ANZ Debt and an
     Effective Date Balance Sheet prepared in accordance with Schedule 5 to the
     other Parties and DSG Pty within 15 Days after delivery of the Effective
     Date Balance Sheet by DSG Pty to them. The Vendors and the Purchaser shall
     then discuss the dispute and adjustments with a view to agreeing the
     adjustments to be made to the Effective Date Balance Sheet. In the absence
     of any notice pursuant to this clause being given by the Vendors or the
     Purchaser each of them (in respect of themselves only), the Vendors shall
     be deemed to have accepted the Effective Date Balance Sheet, on the day
     which is 16 Days from delivery of the Effective Date Balance Sheet to them.

11.4 If the items in dispute under clause 11.3 have not been agreed in writing
     by the Vendors and the Purchaser within 30 Days after delivery of the
     Effective Date Balance Sheet the item or items in dispute must be
     determined by the Independent Accountants.

11.5 The Independent Accountants must act on the following basis:

     (1)  the Independent Accountants will act as experts and not as
          arbitrators;

     (2)  their terms of reference must be to determine an amount which in their
          opinion represents the item or items in dispute and any adjustments to
          be made, as notified to them in writing by AHPI and DSGI (acting
          jointly) or the Purchaser within 30 days of their appointment;

     (3)  the Purchaser and the Vendors must provide the Independent Accountants
          with all information which they reasonably require and the Independent
          Accountants are entitled to base their opinion on such information and
          on the accounting and other records of the Companies, and the Vendors
          and Purchaser shall provide and procure that the Companies provide the
          Independent Accountants reasonable access during normal business hours
          to their own and the Companies' premises, books and records,
          accountants, advisers and personnel to assist and to enable the
          Independent Accountants to make their determination;

     (4)  if the Independent Accountants deem fit they may seek submissions from
          AHPI and DSGI (acting jointly) and the Purchaser as to the matters in
          dispute and the manner in which each party believes the adjustments
          should be made in order to



          reflect ANZ Debt at the Effective Date and a Effective Date Balance
          Sheet which is prepared in accordance with Schedule 4. The Independent
          Accountants may interview key personnel and the parties shall
          co-operate and respond within the timeframe allocated by the
          Independent Accountants;

     (5)  the determination of the Independent Accountants will (in the absence
          of manifest error) be conclusive; and

     (6)  their costs will be borne by the Purchaser and the Vendors in equal
          one half shares.

12.  Taxation

12.1 If at any time the Commissioner of Taxation or other competent person or
     authority issues to any Company an Assessment in respect of a financial
     year or period ending on or prior to the Purchase 3 Date in which the Tax
     payable exceeds or is additional to the amount of Tax on the same account
     previously notified as payable or provided for in the Financial Statements
     for that financial year or period, then the Purchaser must immediately
     provide or must cause that Company to immediately provide the Vendors with
     a statement of the circumstances of the Assessment.

12.2 If so required by the Vendors, the Purchaser must permit the Vendors at
     their own cost and expense, but in the name of the Companies, to take any
     reasonable action the Vendors reasonably require to contest any Assessment
     and for this purpose the Purchaser must procure the Companies to make
     available to the Vendors the relevant records and books of account of the
     relevant Company. If the Vendors reasonably require the Assessment to be
     contested under this clause 12.2 then the Vendors shall be required to pay
     the excess or additional Tax (including interest and penalties) ultimately
     determined to be payable as soon as possible after the dispute has been
     finally determined or settled, as the case may be.

12.3 Subject to clause 12.4, the Purchaser must account or must procure that the
     Companies account to the Vendors for any refund of Tax received by the
     Purchaser or Companies under this clause 12.

12.4 The Purchaser and the Companies are entitled to deduct and set off the
     amount of any costs incurred by the Purchaser or the Companies pursuant to
     this clause 12, which the Vendors have not previously paid or caused to be
     paid, from the amount of any refund of Tax payable to the Vendors under
     clause 12.3.

12.5 If any additional franking credits of the Companies arise as a result of
     any payment by the Vendors pursuant to this clause 12 then to the extent of
     the additional franking credit amount ("Additional Franking Credits") in
     the event that a dividend utilising the Additional Franking Credits is
     paid, the Purchaser shall reimburse the Vendors or procure that the Company
     shall reimburse the Vendors an amount equal to the Additional



     Franking Credits used by the Companies within 14 days of utilising the
     Additional Franking Credits. In determining when a dividend utilising the
     Additional Franking Credits is paid, the Franking accounts of the Companies
     will be deemed to be utilised on a first-in-first-out basis.

13.  Goods and Services Tax

13.1 In this clause:

     (1)  "GST" means GST as defined in the A New Tax System (Goods and Services
          Tax) Act 1999 as amended from time to time ("GST Act") or any
          replacement or other relevant legislation and regulations;

     (2)  words used in this clause which have a particular meaning in the "GST
          law" (as defined in the GST Act, and also including any applicable
          legislative determinations and Australian Taxation Office public
          rulings) have the same meaning, unless the context otherwise requires;

     (3)  any reference to GST payable by a party includes any corresponding GST
          payable by the representative member of any GST group of which that
          party is a member; and

     (4)  if the GST law treats part of a supply as a separate supply for the
          purpose of determining whether GST is payable on that part of the
          supply or for the purpose of determining the tax period to which that
          part of the supply is attributable, such part of the supply is to be
          treated as a separate supply.

13.2 The consideration expressed to be payable under any other clause of this
     Deed for any supply made under or in connection with this Deed excludes
     GST.

13.3 If GST is or will be imposed on a supply made by the Vendor under or in
     accordance with this Deed, the Vendor may, to the extent that the
     consideration otherwise provided for that supply under this Deed is not
     stated to include an amount in respect of GST on the supply:

     (1)  increase the consideration otherwise provided for that supply under
          this Deed by the amount of that GST; or

     (2)  otherwise recover from the Purchaser the amount of that GST.

13.4 Each party agrees to do all things, including providing tax invoices and
     other documentation, that may be necessary or desirable to enable or assist
     the other party to claim any input tax credit, adjustment or refund in
     relation to any amount of GST paid or payable in respect of any supply made
     under or in connection with this Deed.



13.5 If a payment to a party under this Deed is a payment by way of
     reimbursement or indemnity and is calculated by reference to the GST
     inclusive amount of a loss, cost or expense incurred by that party, then
     the payment is to be reduced by the amount of any input tax credit to which
     that party is entitled in respect of that loss, cost or expense.

14.  Indemnities

14.1 The Vendors hereby jointly and severally indemnify the Purchaser and the
     Companies against any costs, claims, expenses, liabilities or losses,
     (including reasonable legal fees on a solicitor and own client basis) in
     relation to:

     (1)  any delay or failure to stamp and register the transfers of DSG Pty
          Shares from DSGI to AHPI in the company books of DSG Pty at the time
          of the transfers in 2001 including any cost, claims, expenses,
          liabilities or losses (including reasonable legal fees on a solicitor
          and own client basis) arising out of or in relation to the delay in
          registration in the DSG Pty company books and the transfer of
          ownership, including any Tax connected with the same;

     (2)  any delay or failure to stamp and register in Australia and New
          Zealand the assignments of the Brand Name Trademarks as detailed in
          condition 4.1(11);

     (3)  subject to the limitations in clause 9, any breach of the Warranties;

     (4)  any failure by the Vendors to fulfil their obligations under this Deed
          or due to any other covenant or representation of the Vendors in this
          Deed being untrue or inaccurate;

14.2 The Purchaser hereby indemnifies the Vendors against any costs, claims,
     expenses, liabilities or losses (including reasonable legal fees on a
     solicitor and own client basis) arising out of any breach by the Purchaser
     of its obligations under this Deed or the Purchaser Warranties.

15.  Continuing Obligations

15.1 The Vendors must in consultation with the Company and the Purchaser use
     their best endeavours to encourage the Companies current clients customers
     and suppliers and new clients customers or suppliers to utilise the goods
     and services of the Companies business.

15.2 Subject to clause 9, each obligation and warranty of a Party (except an
     obligation fully performed or unconditionally waived by the Purchaser in
     writing at the relevant Completion) continues in force despite Completion.

15.3 The Vendors must provide any assistance the Purchaser reasonably requires
     to create, re-create or rectify any books or records of the Companies.



15.4 Without the prior written consent of AHPI (which consent may not be
     unreasonably withheld), the Purchaser shall not make, and shall not allow
     any other person treated as the "purchasing corporation" within the meaning
     of Section 338(g)(2) of the Internal Revenue Code to make, an election
     under Section 338 of the Internal Revenue Code with respect to the
     acquisition of the DSG Pty Shares pursuant to this Deed.

16.  Restraint

16.1 The Vendors (for themselves and as agents and attorneys for the Vendor
     Group) jointly and severally agree (on behalf of themselves and the Vendor
     Group) with the Purchaser that in order to protect the goodwill of the
     Companies and their respective businesses the Vendors and the Vendor Group
     will not either directly or indirectly at any time:

     (1)  within each of the following areas:

          (a)  Australia, New Zealand, Papua New Guinea and the Pacific Islands;

          (b)  Australia, New Zealand and Papua New Guinea;

          (c)  Australia and New Zealand;

          (d)  Australia;

          (e)  Victoria, New South Wales, Queensland, Western Australia and
               South Australia;

          (f)  Victoria, New South Wales, Queensland and Western Australia;

          (g)  Victoria and New South Wales; and

          (h)  Victoria;

     (2)  for a period up to and including the Purchase 3 Date ("Pre-completion
          Period") and:

          (a)  of 5 years after the Purchase 3 Date;

          (b)  of 4 years after the Purchase 3 Date;

          (c)  of 3 years after the Purchase 3 Date;

          (d)  of 2 years after the Purchase 3 Date;

          (e)  of 1 year after the Purchase 3 Date.



     either:

     (3)  canvass or solicit (other than, during the Pre-completion Period, for
          the Companies):

          (a)  orders for goods or services supplied by the Companies in the 12
               months prior to the Purchase 3 Date, or

          (b)  business the same as or similar to the business of the Companies
               in the 12 months prior to the Purchase 3 Date,

          from any person who is or has been in the 12 months prior to the
          Purchase 3 Date a client or customer of the Companies;

     or:

     (4)  engage or be concerned or interested in any business:

          (a)  the same as or similar to the business of the Companies on the
               Purchase 3 Date;

          (b)  the same as or similar to a material part of the business of the
               Companies on the Purchase 3 Date;

          (c)  competitive with the business of the Companies on the Purchase 3
               Date; or

          (d)  competitive with a material part of the business of the Companies
               on the Purchase 3 Date;

          (e)  the manufacture, direct distribution or sale of diapers, nappies,
               adult incontinence products, training pants and related products;

          other than, during the Pre-completion Period, the business of the
          Companies;

     (5)  solicit for a period of 5 years after the Completion within or outside
          the areas specified in clause 16.1(1) the services of any person who
          was an employee of either Company in the 3 months prior to the
          Purchase 3 Date or any person who becomes a former employee of either
          Company after the Purchase 3 Date and in particular the services of
          Colin Lamond, Stuart Vohmann, Hugh Gilmartin, Steve Carroll, Ken Chen,
          Carl Neys, Germaine Wong, Greg Brown or Paul Llewellyn.

16.2 The agreement by the Vendors in clause 16.1 applies to any of them acting:

     (1)  either alone or in partnership or association with another person;

     (2)  as principal, agent, representative, director, officer or employee;



     (3)  as member, shareholder, debenture holder, note holder or holder of any
          other security;

     (4)  as trustee of or as a consultant or adviser to any person (other than
          the Purchaser); or

     (5)  in any other capacity.

16.3 Clause 16.1 has effect as comprising each of the separate provisions which
     results from each combination of a capacity referred to in clause 16.2, an
     area referred to in clause 16.1(1), a period referred to in clause 16.1(2)
     and a category of conduct referred to in clause 16.1(3) or 16.1(4). Each of
     these separate provisions operates concurrently and independently.

16.4 If any separate provision referred to in clause 16.3 is unenforceable,
     illegal or void that provision is severed and the other provisions remain
     in force. Each of the Vendors acknowledges that each of those separate
     provisions is a fair and reasonable restraint of trade.

16.5 This clause 16 does not preclude the Vendors from owning Marketable
     Securities of a corporation or trust which are listed on a recognised stock
     exchange in Australia or elsewhere provided that they hold not more than 5%
     in the aggregate of the total Marketable Securities of any corporation or
     trust carrying on a business of a type referred to in this clause 16.

16.6 Each of the Vendors covenants to the Purchaser that, subject to Purchase 3
     Completion occurring, that it will not sell the whole or substantially the
     whole of its business or undertaking to any person after the date of this
     Deed unless it has procured that the buyer provides a covenant to the
     Purchaser in substantially the same terms as this Clause 16 on or prior to
     completion of the sale on the basis that the covenant shall expire on the
     date which is 5 years from the Purchase 3 Date.

16.7 The parties agree that the provisions of this Clause 16 shall cease to
     apply to any Vendor in the event of a sale of all the shares in that Vendor
     to a competitor of DSG Pty in Australia providing that the competitor has
     been a competitor of DSG Pty in Australia for not less than 6 months, prior
     to the date of the sale of shares.

17.  Default

17.1 Definitions

     In this clause 17 "Defaulting Party" has the meaning given to it in clauses
     17.2 and 17.3.



17.2 Events of Default

     Any Vendor or the Purchaser ("Subject Party") is a Defaulting Party for the
     purposes of this clause 17.2 if any of the following apply:

     (1)  the Subject Party fails to carry out any material provision of this
          Deed and does not remedy that failure within 7 days after notice to
          the Subject Party requiring it to be remedied;

     (2)  any other event occurs or circumstance arises which, is likely
          materially and adversely to affect the ability of the Subject Party to
          perform all or any of its joint or several material obligations under
          or otherwise to comply with the material terms of this Deed;

     (3)  the Subject Party suspends payment of its debts; or

     (4)  where the Subject Party is a body corporate:

          (a)  the Subject Party becomes an externally-administered body
               corporate under the Corporations Act 2001;

          (b)  steps are taken by any person towards making the Subject Party an
               externally-administered body corporate;

          (c)  a controller (as defined in section 9 of the Corporations Act
               2001) is appointed of any of the property of the Subject Party or
               any steps are taken for the appointment of such a person;

          (d)  the Subject Party is taken to have failed to comply with a
               statutory demand within the meaning of section 459F of the
               Corporations Act 2001;

          (e)  a resolution is passed for the reduction of capital of the
               Subject Party or notice of intention to propose such a resolution
               is given, without the prior written consent of the other Party;

          (f)  in the case of a Subject Party incorporated outside Australia,
               any equivalent or substantially equivalent situation occurs to
               those detailed in clauses 17.2(4)(a) to 17.2(4)(d) in that
               Company's jurisdiction of incorporation; or

          (g)  chapter 11 proceedings or procedures are commenced in the United
               States of America in respect of a Subject Party;

          (h)  a receiver, administrator, liquidator or other insolvency manager
               is appointed over the Subject Party's assets and undertaking or
               any part of them or steps are instigated to wind up or liquidate
               or apply for winding up or liquidation of the Subject Party.



17.3 Termination for Default

     If any of the Vendors or the Purchaser is a Defaulting Party the Purchaser
     or the Vendors, as the case may be, may at any time (without prejudice to
     its other rights and remedies under this Deed or at law) terminate this
     Deed by giving notice in writing to the other Parties. Termination pursuant
     to this clause 17.3 does not prejudice any claim which the Party who is not
     in default may have against the other Parties at the time of termination.

17.4 Extension of Purchase 1 Date

     If a Party gives a notice referred to in clauses 17.2(1) within 7 days
     prior to the Purchase 1 Date, then the Purchase 1 Date is extended to
     coincide with the expiry of the notice period.

17.5 Rights on Termination by Purchaser

     If the Purchaser terminates this Deed under either clause 4.3, clause 17.3
     or any other provision of this Deed, the Vendors must, without prejudice to
     any other rights and remedies of the Purchaser, comply with clause 17.6.

17.6 Costs on Default

     If the Vendors fail to satisfy any of the conditions in clause 4.1,
     resulting in the Purchaser terminating this Deed (save where such
     termination arises due to the Purchaser's failure to satisfy conditions
     4.1(14) to 4.1(16) inclusive, or if this Deed is terminated under any other
     provision of this Deed including clause 17.3 or clause 18.1 attributable to
     a default of the Purchaser, the Vendors must on demand pay to the Purchaser
     or as the Purchaser directs actual third party costs and out of pocket
     expenses incurred by the Purchaser or CHAMP in connection with their
     investigation, due diligence, negotiation and engagement of advisers in
     relation to this Deed and the acquisition of the Shares, or shall pay such
     costs directly to parties as directed in writing by the Purchaser or CHAMP,
     up to a maximum amount of A$500,000.

     Should notice be served on more than one Party in connection with the same
     breach or default the Liability of those Parties under this clause 17 is
     joint and several.

17.7 This Deed may not be terminated by any Party after Completion.

18.  Termination

18.1 In the event that Purchase 3 Completion has not occurred on or before 31
     December 2002 then the Vendors or the Purchaser may terminate this Deed by
     giving 7 days' prior written notice of termination to the other parties.



19.  Right of First Offer

19.1 In the event that the Purchaser wishes to effect a Purchaser Sale then it
     shall give notice ("the Transfer Notice") to DSGI specifying its intention
     or desire to effect a Purchaser Sale.

19.2 DSGI shall have a period of 20 days from service of the Transfer Notice (or
     such other time period as agreed between the Purchaser and DSGI) to
     exercise its right of first offer in relation to the Purchaser Sale Shares
     by serving written notice on the Purchaser confirming its interest in
     acquiring the Purchaser Sale Shares and the purchase price and key terms on
     which it is prepared to effect a Purchaser Sale. In the absence of such
     notice DSGI shall be deemed to have elected not to have exercised its right
     of first offer and the Purchaser may offer the Purchaser Sale Shares (or
     any part of them) to any other person on any terms and conditions that it
     deems fit. The Purchaser shall be entitled to use its absolute discretion
     as to whether or not to proceed with any offer from DSGI and may consider
     offers from other persons (either in conjunction with or separate from any
     offer by DSGI) after the expiry of the 20 day period set out in this clause
     19.2.

19.3 The Purchaser shall not sell or enter into an unconditional agreement to
     sell the Purchaser Sale Shares (or any part of them) to a third party until
     the 20 day period in clause 19.2 has expired.

20.  Confidentiality

20.1 Subject to clause 20.2, each Party must up to and following Purchase 3
     Completion keep confidential any information about the existence and terms
     of this Deed (and any draft of this Deed) and any information obtained
     under or pursuant to this Deed and must not disclose such information to
     any person except:

     (1)  any director, officer, employee, adviser or associated entity of the
          Party that has a clear need to use that information;

     (2)  pursuant to any applicable law or order or rule of any court,
          regulatory body, governmental agency or stock exchange, including for
          the avoidance of applicable doubt, securities laws of the United
          States of America or the regulations of the NASDAQ National Market
          System; or

     (3)  the Purchaser shall be entitled to disclose such information to CHAMP
          funds and their investors or its financiers.

20.2 In relation to Non-NASDAQ Announcements no Party will make any public or
     press announcement or statement concerning this Deed or Completion without
     the prior approval of the other parties. The Purchaser and the Vendors must
     in good faith agree at or before Purchase 1 Completion on the form of any
     Non-NASDAQ press announcement or public statement that they will each make.



20.3 In relation to NASDAQ Announcements the Vendors shall inform the Purchaser
     in advance of the nature and content of such announcements and shall use
     its best endeavours to ensure that the content and form of any NASDAQ
     announcement is provided to the Purchaser for comment before the making of
     or release of the relevant NASDAQ Announcement.

20.4 Without limiting clause 20.1 but subject to clauses 20.2 and 20.3, the
     Vendors and Directors must keep confidential and must use its best
     endeavours to procure that its directors and employees keep confidential
     all information concerning the Companies and the Companies' business which
     is in their knowledge, possession or control and must not disclose such
     information to any person except pursuant to any applicable law or order or
     rule of any court, regulatory body, governmental agency or stock exchange.

21.  Time of the Essence

21.1 Time is of the essence of this Deed.

21.2 If the Parties agree to vary a time requirement, the time requirement so
     varied is of the essence of this Deed.

21.3 An agreement to vary a time requirement must be in writing.

22.  Further Assurance

22.1 Each Party must promptly at its own cost do all things (including executing
     all documents) necessary or desirable to give full effect to this Deed.

23.  Severability

23.1 If anything in this Deed is unenforceable, illegal or void then it is
     severed and the rest of this Deed remains in force.

24.  Entire Understanding

24.1 This Deed:

     (1)  is the entire agreement and understanding between the parties on
          everything connected with the subject matter of this Deed; and

     (2)  supersedes any prior agreement or understanding on anything connected
          with that subject matter.



25.  Variation

25.1 An amendment or variation to this Deed is not effective unless it is in
     writing and signed by the Parties.

26.  Counterparts

26.1 This Deed may be executed in any number of counterparts. Each counterpart
     is an original but the counterparts together shall constitute one and the
     same agreement.

27.  Waiver

27.1 A Party's failure or delay to exercise a power or right does not operate as
     a waiver of that power or right.

27.2 The exercise of a power or right does not preclude either its exercise in
     the future or the exercise of any other power or right.

27.3 Waiver of a power or right is effective only in respect of the specific
     instance to which it relates and for the specific purpose for which it is
     given.

28.  Costs and Outlays

28.1 Subject to clause 17.6, each Party must pay its own costs and outlays
     connected with the negotiation, preparation and execution of this Deed.

28.2 The Purchaser must pay all stamp duty and other government imposts payable
     in connection with this Deed (save any stamp duty or other government
     imposts in connection with any transfers of the Shares to AHPI and DSGI
     which shall be payable by the Vendors) and all other documents and matters
     referred to in this Deed when due or earlier if requested in writing by the
     Vendors.

29.  Notices

29.1 A notice or other communication connected with this Deed ("Notice") has no
     legal effect unless it is in writing.

29.2 In addition to any other method of service provided by law, the Notice may
     be:

     (1)  sent by prepaid registered post to the address for service of the
          addressee, if the address is in Australia and the Notice is sent from
          within Australia;



     (2)  sent by prepaid ordinary mail to the address for service of the
          addressee, if the address is in Australia and the Notice is sent from
          within Australia;

     (3)  sent by prepaid airmail to the address for service of the addressee,
          if the address is outside Australia or if the Notice is sent from
          outside Australia;

     (4)  sent by facsimile to the facsimile number of the addressee; or

     (5)  delivered at the address for service of the addressee.

29.3 A certificate signed by a Party giving a Notice or by an officer or
     employee of that Party stating the date on which that Notice was sent or
     delivered under clause 29.2 is prima facie evidence of the date on which
     that Notice was sent or delivered.

29.4 If the Notice is sent or delivered in a manner provided by clause 29.2, it
     must be treated as given to and received by the Party to which it is
     addressed:

     (1)  if mailed from within Australia to an address in Australia, on actual
          delivery to that address as evidenced by Australia Post documentation;

     (2)  if mailed from within Australia to an address in Australia, on the 2nd
          Business Day (at the address to which it is mailed) after mailing;

     (3)  if mailed to an address outside Australia or mailed from outside
          Australia, on the 5th Business Day (at the address to which it is
          mailed) after mailing;

     (4)  if sent by facsimile before 5 p.m. on a Business Day at the place of
          receipt, on the day it is sent and otherwise on the next Business Day
          at the place of receipt; or

     (5)  if otherwise delivered before 5 p.m. on a Business Day at the place of
          delivery, upon delivery, and otherwise on the next Business Day at the
          place of delivery.

29.5 Despite clause 29.4(4):

     (1)  a facsimile is not treated as given or received unless at the end of
          the transmission the sender's facsimile machine issues a report
          confirming the transmission of the number of pages in the Notice; and

     (2)  a facsimile is not treated as given or received if it is not received
          in full and in legible form and the addressee notifies the sender of
          that fact within 3 hours after the transmission ends or by 12 noon on
          the Business Day on which it would otherwise be treated as given and
          received, whichever is later.

29.6 If a Notice is served by a method which is provided by law but is not
     provided by clause 29.2, and the service takes place after 5 p.m. on a
     Business Day, or on a day which is not a Business Day, it must be treated
     as taking place on the next Business Day.



29.7 A Notice sent or delivered in a manner provided by clause 29.2 must be
     treated as validly given to and received by the Party to which it is
     addressed even if:

     (1)  the addressee has been liquidated or deregistered or is absent from
          the place at which the Notice is delivered or to which it is sent; or

     (2)  the Notice is returned unclaimed.

29.8 The Vendors' address for service and facsimile number are:

     Name          :   Associated Hygienic Products Inc.
     Attention     :   Peter Chang
     Address       :   205 East Highland Drive, Oconto Falls, Wisconsin 54154,
                       United States of America
     Facsimile No. :   +1 (920) 846 3026

     Name          :   DSG International Limited
     Attention     :
     Address       :   17/F Watson Centre 16-22 Kung Yip Street Kwai Chung,
                       N.T. Hong Kong
     Facsimile No. :   + (852) 2480 4491

     Copy to:

     Name          :   Robert E. Sullivan
     Attention     :   Pillsbury Winthrop LLP
     Address       :   50 Fremont Street
                       San Francisco, CA 94105, USA

     Facsimile No. :   +1 (415) 983 1200

     The Purchaser's address for service and facsimile number are:

     Name          :   APPP Finance Pty Limited
     Attention     :   William Ferris/Cameron Buchanan
     Address       :   Level 2, The Terrace, 155 George Street
                       Sydney NSW 2000  Australia

     Facsimile No. :   +61 (0)2 9247 5551

29.9 A Party may change its address for service or facsimile number by giving
     Notice of that change to each other Party.

29.10 If the Party to which a Notice is intended to be given consists of more
     than 1 person then the Notice must be treated as given to that Party if
     given to any of those persons.

29.11 Any Notice by a Party may be given and may be signed by its solicitor.



29.12 Any Notice to a Party may be given directly to its attorney by any of the
     means listed in clause 29.2 to the attorney's business address or facsimile
     number whether or not such notice has also been served on the relevant
     Party.

30.  Governing Law and Jurisdiction

30.1 The law of Victoria, Australia governs this Deed.

30.2 The Parties submit to the exclusive jurisdiction of the courts of Victoria
     and of the Commonwealth of Australia.



                                   Schedule 1

                                  The Companies

 1.   Name:                       DSG Pty Ltd

 2.   ACN:                        006 884 546

 3.   Australian Business No:     33 006 884 546

 4.   State of Registration:      Victoria, Australia

 5.   Date of Registration:       19 November 1987

 6.   Registered Office:          1-3 Lake Drive, Dingley Village  VIC  3172

 7.   Issued & Paid up Capital:   2,000,000 Cumulative Preference Shares
                                  750,000 Ordinary Shares

 8.   Directors:                  Brandon WANG Shui Ling
                                  Shamsher KANJI
                                  Patrick TSANG King Yu

 9.   Company Secretaries:        Patrick TSANG King Yu
                                  Carl Alexander NEYS

10.   Shareholders:               As detailed in Schedule 2

 1.   Name:                       Nappies DSG Pty Limited

 2.   ACN:                        057 041 399

 3.   Australian Business No:     33 006 884 546

 4.   Place of Registration:      Victoria, Australia

 5.   Date of Registration:       4 August 1992

 6.   Registered Office:          c/- DSG Pty Ltd, 1-3 Lake Drive,
                                  Dingley Village  VIC  3172



 7.   Issued & Paid up Capital:   2 Ordinary Shares

 8.   Directors:                  Brandon WANG Shui Ling
                                  Shamsher KANJI
                                  Patrick TSANG King Yu

 9.   Company Secretaries:        Patrick TSANG King Yu
                                  Carl Alexander NEYS

10.   Shareholders:               As detailed in Schedule 2

 1.   Name:                       Nappies Newco Pty Limited

 2.   ACN:                        102 609 094

 3.   Australian Business No:     None

 4.   Place of Registration:      Victoria, Australia

 5.   Date of Registration:       24 October 2002

 6.   Registered Office:          c/- DSG Pty Ltd, 1-3 Lake Drive,
                                  Dingley Village  VIC  3172

 7.   Issued & Paid up Capital:   2 Ordinary Shares

 8.   Directors:                  Peter Chang
                                  Colin Lamond

 9.   Company Secretaries:        None

10.   Shareholders:               As detailed in Schedule 2



                                   Schedule 2

                                   The Shares

                          Introduction A and B, 1.1(62)



- ----------------------------------------------------------------------------------------------------------
                                                DSG Pty Ltd
- ----------------------------------------------------------------------------------------------------------
                          Beneficial                   Class of        Total       Purchase
                           Owner of         Number      Shares     Subscription      Price      Timing of
       Vendor               Shares        of Shares      Held        Price A$         A$       Acquisition
- ----------------------------------------------------------------------------------------------------------
                                                                             
Associated Hygienic       Associated      2,000,000   Cumulative     2,000,000     2,100,000   Purchase 1
Products Inc          Hygienic Products               Preference                                  Date
                             Inc                        Shares
- ----------------------------------------------------------------------------------------------------------
Associated Hygienic       Associated        750,000    Ordinary        750,000    42,799,998   Purchase 1
Products Inc          Hygienic Products                 Shares                                    Date
                             Inc
- ----------------------------------------------------------------------------------------------------------




- ----------------------------------------------------------------------------------------------------
                                         Nappies DSG Pty Ltd
- ----------------------------------------------------------------------------------------------------
                      Beneficial                                  Total       Purchase
                       Owner of       Number      Class of    Subscription     Price      Timing of
      Vendor            Shares      of Shares   Shares Held     Price A$         A$      Acquisition
- ----------------------------------------------------------------------------------------------------
                                                                       
DSG International        DSG            1         Ordinary          1        4,050,000   Purchase 1
Limited             International                   Share                                   Date
                       Limited
- ----------------------------------------------------------------------------------------------------
DSG International        DSG            1         Ordinary          1                    Purchase 2
Limited             International                  Share                                    Date
                       Limited
- ----------------------------------------------------------------------------------------------------






- ----------------------------------------------------------------------------------------------------------
                                         Nappies Newco Pty Limited
- ----------------------------------------------------------------------------------------------------------
                      Beneficial                        Class of       Total        Purchase
                       Owner of         Number of        Shares     Subscription     Price      Timing of
      Vendor            Shares            Shares          Held        Price A$         A$      Acquisition
- ----------------------------------------------------------------------------------------------------------
                                                                             
DSG International        DSG        2 (at signing and   Ordinary         2             2       Purchase 3
Limited             International       Purchase 3       Share                                    Date
                        Limited        Completion)
- ----------------------------------------------------------------------------------------------------------
DSG International        DSG          4,050,000 (at     Ordinary         in        4,050,000   Purchase 3
                    International       Purchase 2       Shares    consideration                  Date
                        Limited        Completion)                  of transfer
                                                                     of 1 NDSG
                                                                       Share
- ----------------------------------------------------------------------------------------------------------




                                   Schedule 3

                                   Warranties

                                    Clause 9

The Vendors, give, and shall be deemed to give the Warranties set out in this
Schedule 3 such that each reference to "the Company shall be deemed to be a
reference to each of DSG Pty, NDSG and Nappies Newco.

1.   Due Diligence

1.1  So far as the Vendors are aware, the written responses to questions put to
     officers and employees of the Company by the Purchaser, the Purchaser's
     lawyers and accountants and the Purchaser' consultants in carrying out due
     diligence investigations into the Company's affairs have been true,
     accurate, and not misleading in all material respects.

1.2  So far as the Vendors are aware, there were no material documents relating
     to the issues examined by the Purchaser, the Purchaser's lawyers and
     accountants and the Purchaser's consultants in the course of due diligence
     other than those contained in the materials provided by the Company.

1.3  All written information and documents supplied to the Purchaser, the
     Purchaser's lawyers and the Purchaser's consultants in the course of due
     diligence are and remain true, and correct and not misleading in all
     material respects.

2.   The Shares

2.1  AHPI is the registered holder and beneficial owner of all of the DSG Pty
     Shares at the date of this Deed and up until the Purchase 1 Completion and
     has power to transfer title to the DSG Pty Shares.

2.2  DSGI is the registered holder and beneficial owner of all of the NDSG
     Shares at the date of this Deed and up until the Purchase 1 Completion and
     50 per cent of the NDSG Shares from Purchase 1 Completion up until the
     Purchase 2 Completion and has power to transfer title to the NDSG Shares.

2.3  DSGI is the registered holder and beneficial owner of all of the Nappies
     Newco Shares at the date of this Deed and at all times thereafter up until
     the Purchase 3 Completion and has power to transfer title to the Nappies
     Newco Shares.



2.4  At the Purchase 2 Date, the Shares will be fully paid and are free from all
     Mortgages and encumbrances and the NDSG Shares comprise the whole of the
     issued capital of the NDSG, the DSG Pty Shares comprise the whole of the
     issued capital of DSG Pty and the Nappies Newco Shares comprise the whole
     of the issued capital of Nappies Newco.

2.5  At the Purchase 1 Date, there will be no restrictions on the transfer of
     the Shares save that the approval of the Board may be required in order to
     register the transfers.

2.6  The Company has not granted to any person a right to subscribe for or
     acquire any of the Company's unissued shares.

2.7  At the relevant Purchase Date, no person will have any pre-emptive right
     with respect to any of the Shares that has not been waived.

2.8  There are no shareholders agreements or other agreements impacting upon the
     Shares or unissued share capital of each Company.

3.   The Companies

3.1  The details of the Company as set out in Schedule 1 are true and correct
     and up to date.

3.2  The copy of the constitution of the Company initialled for identification
     by an officer of the Company and produced to the Purchaser prior to
     executing this Deed is a true copy and includes all amendments made up to
     the date of this Deed.

3.3  No resolution to alter the Company's constitution as produced to the
     Purchaser has been passed.

3.4  The Company is not:

     (1)  wound up, no resolution for its winding up has been passed and no
          meeting of members or creditors has been convened for that purpose;

     (2)  the subject of a winding up application which has been made to a
          court, and no event has occurred which would entitle any person to
          apply to a court to wind up the Company;

     (3)  a party to a composition or arrangement with any of its creditors;

     (4)  the recipient of a demand under section 459E of the Corporations Act
          2001;

     (5)  in receivership and none of its assets is in the possession of or
          under the control of a mortgagee or chargee;

     (6)  subject to administration under Part 5.3A of the Corporations Act
          2001;



     (7)  insolvent.

3.5  The Company has not received from the Australian Securities and Investments
     Commission any notice warning of possible cancellation of registration of
     the Company.

3.6  The Company has not since the Accounts Date declared or paid a dividend or
     effected any other distribution of profits or carried out or agreed to
     carry out any alteration to its capital structure except for the 5 percent
     dividend on the cumulative redeemable preference shares of A$100,000 paid
     by DSG Pty to AHPI on 23 August 2002.

3.7  So far as the Vendor is aware, no event has occurred which would entitle a
     government or government agency to take any proceeding or step the effect
     of which would warrant an inspection or investigation of the affairs of the
     Company.

3.8  All mortgages and encumbrances over the assets and undertaking of the
     Company are set out in Appendix 3.

3.9  Except in relation to the acquisition of 1 share in NDSG as permitted by
     this Deed, Nappies Newco has not traded or incurred any liability
     whatsoever.

4.   Names

4.1  The Vendor Group has not allowed or consented to or suffered:

     (1)  the use by any other person; or

     (2)  the registration as a business name;

     of the name "Australian Pacific Paper Products" or "APPP" in the Territory
     and, so far as the Vendors are aware, no other person is using the name
     "Australian Pacific Paper Products" or "APPP" in the Territory.

5.   Litigation and Outstanding Undertakings, Preservation of Rights

5.1  The Company:

     (1)  has no unsatisfied fines, judgments or awards outstanding against it
          and is not party to any undertaking or assurance given to any court
          arbitrator or government agency or tribunal which is still in force;
          and

     (2)  is not engaged in or so far as the Vendors are aware threatened with
          prosecution, litigation or arbitration.



5.2  None of the Vendors are aware of any facts or circumstances which are
     likely to lead to prosecution, litigation or arbitration involving the
     Company or any person for whose acts or defaults the Company may be liable.

5.3  The Company is not involved in any proceeding before or investigation by
     any governmental or statutory appointee agency tribunal committee or board
     of inquiry nor by any Royal Commission and so far as the Vendors are aware
     no such proceeding or investigation is pending or threatened against the
     Company.

5.4  So far as the Vendors are aware the Company's rights, contracts,
     agreements, options and arrangements described in Part A of Appendix 2 and
     in Appendix 8 and Appendix 9, are all of the Company's material rights,
     contracts, agreements, options and arrangements and, are unimpaired current
     and exercisable or enforceable, and except as disclosed in Part B of
     Appendix 2:

     (1)  none of the Company's rights, contracts, agreements, options or
          arrangements is likely to lapse by reason of any act, default or
          neglect on the part of the Company;

     (2)  no claim or action which at the Balance Date the Company was entitled
          to bring has become or prior to 3 months after the Purchase 3 Date may
          become contractually or statutorily barred or impaired by reason of
          time or delay; and

     (3)  no claim or action which at the Balance Date the Company was entitled
          to defend, resist or claim set-off against has been, or prior to 3
          months after the Purchase 3 Date may be advanced against the Company
          for want of action by the Company in due time.

6.   Product Liability

6.1  There are no product liability claims, or so far as the Vendors are aware
     no threatened claims or notifications against the Company made by customers
     or other parties except for minor claims of less than A$50.

6.2  So far as the Vendors are aware there is no material deficiency or defect
     in a product or service supplied or provided by the Company which may
     result in a claim being made against the Company.

7.   Subsidiaries and Marketable Securities

7.1  Each Company:

     (1)  has no Subsidiaries; and

     (2)  is not the holder or beneficial owner of any Marketable Security (and
          in particular of any Marketable Security which is not fully paid up).



8.   Associations with Others

8.1  The Company is not a member of any partnership, joint venture, society or
     other unincorporated association.

9.   Area of Business

9.1  The Company has not during the previous 7 years had a place of business,
     branch or permanent establishment outside Australia, and the Company is
     duly recognised or registered and authorised to do business in every
     country or other jurisdiction in which the nature of its business or
     property makes such recognition, registration or authorisation necessary.

10.  Financial Matters

10.1 The Financial Statements:

     (1)  Have been prepared in accordance with the policies and principles in
          Schedule 5 and with generally accepted accounting concepts and
          practices and in accordance with the accounting concepts and practices
          adopted by the Company in the previous 2 financial years

10.2 (1)  The Annual Accounts accurately disclose the assets and Liabilities of
          the Company at the date at which they are prepared. The Annual
          Accounts provide fully for all Liabilities of the Company for Tax as
          at the date at which they are prepared;

     (2)  The Annual Accounts are not affected by any unusual or non-recurring
          item; and

     (3)  The Annual Accounts take account of all gains and losses arising from
          foreign currency transactions.

10.3 The Annual Accounts present a true and fair view of the profit or loss of
     the Company for the accounting period expiring on the Balance Date at which
     they are prepared and the state of affairs of the Company as at the Balance
     Date at which they are prepared.

10.4 The Management Accounts are in accordance with the books and records of the
     Companies and although the Management Accounts are not audited and do not
     contain the footnotes which would be required in audited financial
     statements, in other respects present fairly and materially accurately the
     financial position, assets and liabilities of the Companies and the results
     of their operations, and changes in financial position for the respective
     periods indicated and reflect all necessary accruals, all in conformity
     with generally accepted accounting concepts and practices (GAAP) applied on
     a consistent basis. The Management Accounts contain all adjustments
     required to be made by



     GAAP, subject to normal year end adjustments consistent with the Audited
     Accounts as at the date to which they are prepared.

10.5 Since the Accounts Date no Material Adverse Change has taken place in the
     financial position or business affairs of the Company.

10.6 All guarantees, indemnities, undertakings, letters of comfort and analogous
     obligations and assurances which the Company has given are listed in
     Appendix 4.

10.7 The provisions for accrued holiday pay and long service leave in the
     Financial Statements are adequate, and the provision for long service leave
     is calculated in respect of each employee with more than 5 years' service
     with the Company and its predecessors in business at the date at which the
     relevant Financial Statements are prepared.

10.8 The Company has no Liability of more than A$10,000 to any person and in
     aggregate no Liability of more than A$10,000 in respect of a pension, lump
     sum or other allowance or benefit relating to or arising from cessation of
     employment or termination of office.

10.9 The Company does not have any debts or Liabilities other than those debts
     and Liabilities disclosed in the Financial Statements and debts and
     Liabilities which:

     (1)  have been incurred in the ordinary course of the ordinary business of
          the Company up to the Purchase 3 Date; and

     (2)  are neither:

          (a)  of an unusual nature; nor

          (b)  of an unusually large amount.

10.10 So far as the Vendors are aware, particulars of all bills of exchange,
     promissory notes and other negotiable or transferable instruments in
     respect of which the Company has any Liability (other than cheques drawn by
     the Company in the ordinary course of business) have been fully disclosed
     to the Purchaser.

10.11 The trade debts (net of the provisions for doubtful debts, advertising,
     promotional expenses, discounts/rebates and quantity buys) owing at the
     Accounts Date and the Effective Date are good debts and will produce the
     full amount of the debts without deduction.

10.12 The aggregate written down value attributed to the fixed assets of the
     Company in the Financial Statements does not exceed the aggregate current
     market value of the assets at the Accounts Date.

10.13 The rate of depreciation applied in respect of each depreciable asset of
     the Company in the Financial Statements has been consistently applied over
     the previous accounting



     periods of the Company and is adequate to write down the value of each
     fixed asset to its realisable value at the end of its effective working
     life.

11.  Taxation Matters

11.1 The Company has:

     (1)  furnished full and accurate Tax returns as required by law for all
          financial years ended on or prior to the Purchase 3 Date;

     (2)  furnished full and accurate Tax returns as required by law for all Tax
          periods ended on or prior to the Purchase 3 Date; paid or made
          provision in the Financial Statements for all Tax liability in respect
          of income derived up to and including the Balance Date;

     (3)  deducted amounts required by law to be deducted by the Company from
          payments by the Company to employees and other persons or entities and
          has paid those amounts to the appropriate authority.

11.2 The Company has no dispute or question outstanding with and the Company and
     the Vendors are not currently under investigation by the revenue
     authorities in Australia or elsewhere in relation to the Company.

11.3 With respect to the assets of the Company:

     (1)  the Company has no assets which it purchased for the purpose of profit
          making by sale or for the carrying on or carrying out of any profit
          making undertaking or plan within the meaning of section 15-15 of the
          Income Tax Assessment Act 1997;

     (2)  the Company has no assets which have been rolled over into the Company
          pursuant to any roll over provisions of Chapter 3 of the Income Tax
          Assessment Act 1997 which by reason of the making of this Deed will be
          deemed to be disposed of for the purposes of any provision in the
          Income Tax Assessment Act 1997;

     (3)  all depreciating assets of the Company have been depreciated under the
          most appropriate method for tax purposes available under Division 40
          of the Income Tax Assessment Act 1997 and any assets entitled to
          accelerated depreciation under Division 40 of the Income Tax
          (Transitional Provisions) Act 1997 have been so depreciated if
          appropriate;

     (4)  all calculations or assessments by the Company of effective life of
          its depreciating assets for purposes of depreciation under Division 40
          of the Income Tax Assessment Act 1997 are accurate;



     (5)  the Company has obtained all relevant information regarding methods of
          depreciation and effective life of assets acquired from associates (as
          defined in section 318 of the Income Tax Assessment Act 1936) and has
          complied with all notices from such associates requiring this
          information from the Company, as required by Division 40 of the Income
          Tax Assessment Act 1997.

11.4 All Tax payable by the Company where due for payment has been paid by the
     due date.

11.5 All documents which are subject to stamp duty and in the enforcement of
     which the Company may be interested have been duly and sufficiently
     stamped. No document belonging to the Company subject to ad valorem stamp
     duty is liable to have additional duty assessed.

11.6 Without prejudice to Warranty 11.3(2), DSGI and Nappies Newco have not
     chosen to obtain a rollover of the share in NDSG into shares in Nappies
     Newco in relation to the transfer of the NDSG Share under clause 6 of this
     Deed.

12.  Franking Account

12.1 The Company currently maintains a franking account and has at all times
     maintained franking accounts as required by Part IIIAA of the Income Tax
     Assessment Act 1936.

12.2 The Company does not have a tainted share capital account under Division 7B
     of Part IIIAA of the Income Tax Assessment Act 1936.

13.  Statutory Returns

13.1 The Company has completed and lodged all returns and statements required to
     be lodged by law with any agency, department, authority or commission and
     the returns and statements so lodged were true and correct in every
     material respect except where the failure to have done so will not have a
     material adverse effect.

13.2 The books, records and registers of the Company are in accordance with all
     statutory requirements.

14.  Disclosures

14.1 The facts set out in the schedules, appendices and annexures are true,
     complete and accurate in all material respects.

14.2 All disclosures, representations and statements made in writing (including
     the Warranties in this Deed) already made or which may up to the Purchase 3
     Date be made by any of the Vendors, or any person on behalf of the Vendors
     or any one or more of them relating to the business activities, affairs,
     operations, assets or Liabilities of the Company are or



     will when made (taken as a whole and taking into account all corrections
     and changes notified to the Purchaser) be true, accurate and comprehensive
     in all material respects and are not or will not when made be misleading in
     any material respect.

15.  Conduct of the Business

15.1 The business of the Company has been conducted in a normal and proper
     manner and there has not been any capital expenditure or agreement to incur
     capital expenditure exceeding A$10,000 in aggregate other than that capital
     expenditure disclosed in the Financial Statements or capital expenditure in
     the ordinary course of business.

15.2 Except for the Annual Target Objective Bonus Scheme disclosed in writing to
     the Purchaser and agents commissions disclosed in writing to the Purchaser
     and royalty payments under Intellectual Property licenses to The Proctor
     and Gamble Company or the Vendor Group, no schemes or arrangements operated
     by or relating to the Company exist, which provide to any officer,
     employee, independent contractor or agent of the Company a commission,
     remuneration or other payment calculated by reference to the whole or part
     of the turnover, profits or sales of the Company.

15.3 Subject to the exceptions in clause 15.2, the Company is not a party to any
     agreement pursuant to which it is or may be bound to share its profits or
     pay any royalties or to waive or abandon any rights to which it is
     entitled.

16.  Employment

16.1 The Company does not pay wages or provide other benefits (except those
     referred to in Appendix 5) to any employee at a rate or in a manner
     exceeding that employee's entitlement under that employee's employment
     agreement, the legislation, industrial awards and registered industrial
     agreements applicable to that employee.

16.2 Set out in Appendix 5 are all superannuation or pension schemes and
     arrangements whether legally enforceable or not relating to the Company.

16.3 Each scheme and arrangement set out in Appendix 5 is fully funded.

16.4 All employees and contractors of the Company receive the minimum
     superannuation guarantee contributions required by law and the Company has
     made all compulsory superannuation contributions.

16.5 There are no industrial disputes relevant to the conduct of the business of
     the Company and none of the Vendors are aware of any claims or other facts
     or circumstances which may result in an industrial dispute.

16.6 There are no claims made by former employees for compensation or
     reinstatement as a consequence of termination of employment.



16.7 None of the Vendors are aware of any other claims respecting benefits
     conferred or to be conferred on employees their families or dependants or
     of any facts or circumstances which are likely to lead to any such other
     claims.

16.8 The Company complies with relevant occupational health and safety laws for
     the state of Victoria, Australia and the Companies have taken reasonable
     measures to prevent injury.

17.  Directors' and Officers' Remuneration etc.

17.1 The remuneration and other emoluments as defined in section 9 of the
     Corporations Act 2001 and terms of employment or engagement of each of the
     directors and other officers of the Company have been disclosed in writing
     and will not be changed prior to Purchase 3 Completion without the prior
     written agreement of the Purchaser.

17.2 Since the Accounts Date the Company has not given or agreed to give any
     remuneration or other emoluments or benefits to or for the benefit directly
     or indirectly of any director or other officer except remuneration and
     emoluments to which paragraph 17.1 applies.

17.3 The Company has not at any time given any remuneration or other emoluments
     to its directors in excess of the amount of directors' remuneration and
     emoluments which would be an allowable deduction in the calculation of the
     income tax payable by the Company in the relevant year.

17.4 There are no contracts, understanding or arrangements whereby a director or
     employee of the Company is entitled to receive any benefit, bonus, payment
     or payment in kind of any nature from the Company or the Vendor Group upon
     completion of or in connection with this Deed.

18.  Vehicles, Plant and Equipment

18.1 Each vehicle and item of plant and equipment used in connection with the
     business of the Company which is owned by the Company is listed in Appendix
     6 and is owned by the Company.

18.2 Each vehicle and item of plant and equipment used in connection with the
     business of the Company which is not owned by the Company is listed in
     Appendix 7 together with details of the contract, agreement or lease
     pursuant to which the Company is entitled to possession of it.

19.  Insurance, Performance Bonds and Bills of Exchange

19.1 All property of the Company of an insurable nature is insured consistent
     with general industry practice against loss or damage by fire, storm,
     tempest, theft, malicious damage



     and other usual risks and the Company is and, so far as the Vendors are
     aware, has at all times has been adequately covered by public risk and
     product liability insurances.

19.2 All insurance required by law to be effected by the Company has been
     effected and is current and not void or voidable.

19.3 None of the Vendors and the Company is aware of anything which would lead
     to any contracts of insurance to which the Company is an insured party or
     an insurance claim made by the Company being avoided, repudiated or denied.

19.4 The Company:

     (1)  has made and will make all notifications to and claims on insurers;
          and

     (2)  has served or given all notices required for the purposes of ensuring
          that third parties meet their obligations in respect of policies of
          insurance in relation to which the Company is entitled to benefit or
          has any Liability;

     in the form required and within the times required so as to comply with
     each applicable policy of insurance.

19.5 The details of all insurance policies of the Companies are set out in
     Appendix 8.

20.  No Contravention of any Law

20.1 To the best of the knowledge, information and belief of the Vendors within
     the 5 years preceding the Purchase 3 Date the Company, its officers, agents
     and employees (during the course of their duties in relation to the
     Company) have not permitted or omitted to do any act or thing the
     commission or omission of which is or could be in contravention of any law
     and which could have a material adverse effect on the business or net
     assets of the Company.

20.2 The Company is not a party to any contract, arrangement or understanding
     which is in breach of the Trade Practices Act 1974.

21.  Contracts

21.1 All material agreements and arrangements binding on the Company and not
     entered into in the ordinary course of trading of the Company are described
     in Appendix 9.

21.2 There are no service, employment, consultancy or other similar agreements
     with the Company determinable on more than 5 weeks notice other than
     service agreements with management.



21.3 To the knowledge, information and belief of the Vendors, there is no
     agreement or arrangement with the Company in respect of which any person is
     in default (without regard to any requirement of notice or period of grace
     or both).

21.4 Other than in relation to the patent licence agreement between The Proctor
     and Gamble Company and DSGI International Limited dated 21 May 2001, and
     the Distribution Agreement between Vlesia AG and DSG Pty, the Company is
     not party to any agreement or arrangement which may be terminated by any
     other party by reason of a change in the ownership of the Shares or any of
     the Shares or by reason of the change being subject to the consent of the
     other party which consent has not been obtained.

21.5 There is no offer, tender or quotation given or made by the Company other
     than in the ordinary course of business of the Company and still
     outstanding capable of giving rise to a contract by unilateral act of a
     third party.

21.6 The Vendors after reasonable enquiry are not aware of any reason or
     circumstance which might cause any agreement or arrangement to which the
     Company is a party to not be fully performed and completed in accordance
     with its terms.

21.7 The work in progress, progress claims lodged, claims lodged in excess of
     work performed, and value of work not yet claimed set out in Appendix 10
     represent a true and fair view of the value of those items at that date or
     dates stated in Appendix 10, to the knowledge, information and belief of
     the Vendors the amount of the claims lodged is fully recoverable within the
     time set out against each claim in Appendix 10, and there will not prior to
     the Purchase 3 Date be any Material Adverse Change to the recoverability of
     the Company's claims for payment for work performed, whether lodged before,
     on or after the date stated at the commencement of this Deed.

22.  Intellectual Property

22.1 All Intellectual Property of or used by the Company is listed with a brief
     description in Appendix 11 which also discloses:

     (1)  whether it is duly registered or an application for registration has
          been made and;

     (2)  the name of the registered owner of the Intellectual Property.

22.2 No proceedings have been instituted or are pending or are to the knowledge
     of the Vendors threatened which challenge the validity of the ownership by
     the Company or by the Vendor Group of the Intellectual Property.

22.3 The Vendor Group has not licensed anyone other than the Companies to use
     any of the Brand Name IP.

22.4 The Companies have not licensed anyone to use any of the Brand Name IP.



22.5 The Vendor Group and the Company have no reason to suspect any infringing
     use or infringement of the Target IP by any other person.

22.6 The Company owns or possesses adequate and enforceable licences or other
     rights to use all Intellectual Property now used in the conduct of its
     business and has not received any notice of conflict with or infringement
     of the rights of any other person.

22.7 The Company has not passed off any of its goods or services as those of any
     other person and its own use of the Brand Name IP does not infringe the
     Intellectual Property of any other person.

23.  P & G Agreement

23.1 The Vendor Group has accrued or paid all licence fees payable to date under
     the P&G Agreement.

24.  Licences, Permits etc.

24.1 The Company holds all permits, licences, authorities, rights to use and
     consents necessary for carrying on the business of the Company
     (collectively "Permits"). Brief particulars of the Permits are set out in
     Appendix 12. The Permits are valid and in good standing. To the knowledge,
     information and belief of the Vendors, the Company has not failed to comply
     with any requirements of any of them.

24.2 So far as the Vendors are aware, there is no circumstance or fact involving
     the Company or its affairs which may result in the variation in any
     material respect or revocation of any of the Permits which it holds in
     connection with its business.

25.  Authorities to Act

25.1 There is no subsisting power of attorney, appointment of agent or other
     authority to act on behalf of the Company given by the Company to any
     person except to executive directors and employees acting in the normal
     course of their employment.

25.2 The Vendors have appropriate and lawful authority to sell the Shares and
     have passed any requisite resolutions and obtained any authorities required
     to enter into and to complete this Deed.

26.  Land

26.1 All land and interests in land owned, leased occupied or used by the
     Company are set out in Appendix 13.



26.2 The buildings and other improvements constructed on or in the land owned,
     leased, occupied or used by the Company are in good condition and repair
     taking into account normal wear and tear.

27.  No Contamination/Environmental matters

27.1 (1)  To the Vendors' knowledge, the Companies are in compliance with all
          Environmental Laws. There are no events, conditions, circumstances,
          activities, practices, incidents, actions or plans in any way related
          to the Companies' business which will, or would reasonably be expected
          to, give rise to any Environmental Claim.

     (2)  As used in this Warranty:

          "Environmental Claim" means any and all administrative or judicial
          actions, suits, orders, claims, Liens, notices, violations or
          proceedings related to any applicable Environmental Law brought,
          issued or asserted by: (i) a governmental authority for compliance,
          damages, penalties, removal, response, remedial or other action
          pursuant to any applicable Environmental Law; or (ii) a third party
          seeking damages, contribution, remediation or other action for
          personal injury or property damage resulting from the release of a
          government regulated hazardous material at, to or from any real
          property upon which the business of either Company is located or
          operated.

          "Environmental Law" means all applicable federal, state and local
          laws, statutes, ordinances, codes, rules and regulations related to
          protection of the environment and/or the handling, presence, use,
          generation, treatment, storage, transportation, release, discharge,
          emission or disposal of government regulated hazardous materials in
          effect on or before the Purchase 3 Date.

28.  Stock

28.1 Except to the extent, if any, that the records of the Company indicate
     otherwise, all stock, work in progress, whether in hand in transit or in
     bond are of good and merchantable quality fit for the purpose for which
     they are intended to be used in the business of the Company and conform
     with all relevant descriptions specifications and standards and with any
     relevant statutory or regulatory requirements.

29.  The Vendors

29.1 Corporate Organization. AHPI is a corporation duly incorporated, validly
     existing and in good standing under the laws of the State of Wisconsin USA
     and DSGI is a corporation incorporated in the British Virgin Islands and
     the Vendors have the corporate power and authority to sell the Shares.



29.2 Authorisation of Agreement; No violation. The Vendors' Boards of Directors
     have duly authorised the execution and delivery of this Deed and the sale
     and the consummation of the other transactions contemplated hereby.

29.3 Litigation. There are no action, suits, proceedings or investigations,
     either at law or in equity, or before any commission or other
     administrative authority in the United States British Virgin Islands or any
     foreign jurisdiction, of any kind now pending or threatened or proposed in
     any manner, or any circumstances which should or could reasonably form the
     basis of any such action, suit, proceeding or investigation, involving the
     Vendors or any of its properties or assets that (i) questions the validity
     of this Deed or (ii) seeks to delay, prohibit or restrict in any manner any
     action taken or to be taken by the Vendors under this Deed.

29.4 No authorisation, consent or approval of, or filing with, any public body
     or authority is necessary for the consummation by the Vendor of the
     transactions contemplated by this Deed.

30.  No Unauthorised Disclosures

30.1 None of the Vendors, and the Company has knowledge of any unauthorised
     disclosure of any of the financial or trade secrets or other confidential
     information of the Company.

EX-4.3

                                                                     EXHIBIT 4.3

                             JOINT VENTURE AGREEMENT

                                     Between

                           DSG International Limited,

                             Mitsubishi Corporation,

                                       And

                      Japan Absorbent Technology Institute

                                February 10, 2003



CONTENTS

                                                                            Page
                                                                            ----

ARTICLE  1  : Definition                                                      2

ARTICLE  2  : Representation and Warranties                                   3

ARTICLE  3  : Establishment of New Companies                                  3

ARTICLE  4  : Issue of Shares                                                 5

ARTICLE  5  : General Meeting of Shareholders                                 5

ARTICLE  6  : Board of Directors                                              7

ARTICLE  7  : Transfer of Shares                                              9

ARTICLE  8  : Financing                                                      11

ARTICLE  9  : Remittance of Dividends                                        12

ARTICLE 10  : Accounting                                                     13

ARTICLE 11  : Auditors                                                       13

ARTICLE 12  : License                                                        14

ARTICLE 13  : Supply of Raw Materials                                        14

ARTICLE 14  : Sales of Products                                              14

ARTICLE 15  : Governmental Approval and Term                                 15

ARTICLE 16  : Termination                                                    15

ARTICLE 17  : Notice                                                         18

ARTICLE 18  : Governing Law                                                  19

ARTICLE 19  : Language                                                       19

ARTICLE 20  : Non-Assignment                                                 19

ARTICLE 21  : Entire Agreement                                               19

ARTICLE 22  : Settlement of Dispute                                          19

ARTICLE 23  : Secrecy Provisions                                             20

ARTICLE 24  : Priority of Joint Venture Agreement                            20



                             JOINT VENTURE AGREEMENT

This Agreement, made and entered into this 10th day of February, 2003, by and
between Japan Absorbent Technology Institute, a corporation duly organized and
existing under the laws of Japan and having its principal place of business at
26-5, Nihonbashi-hamacho 2-chome, Chuo-ku, Tokyo, Japan (herein after called
"JATI"), MITSUBISHI CORPORATION, a corporation duly organized and existing under
the laws of Japan and having its principal place of business at 6-3, Marunouchi
2-chome, Chiyoda ku, Tokyo, Japan (hereinafter called "MC", MC and JATI
hereinafter sometimes collectively called the "Japanese Shareholders"), and DSG
International Limited., a corporation duly organized and existing under the laws
of British Virgin Islands and having its principal executive office at 17th
Floor, Watson Centre, Kung Yip Street, Kwai Chung, Hong Kong (hereinafter called
"DSG"),

                                   WITNESSETH:

WHEREAS, JATI has developed and owns certain valuable and proprietary patents,
and related technical information, trademarks, and other intellectual property
rights, for the manufacture of the Products (as hereinafter defined),

WHEREAS, MC has received a license under the Patents (hereinafter defined) and
Technical Information (as hereinafter defined) from JATI and has granted such a
license to DSG, and desires to sell raw materials for the Products as a supplier
and to purchase and sell a certain quantity of the Products manufactured by
SSC (as hereinafter defined).

WHEREAS, DSG is engaged in manufacture of absorbent products such as disposable
baby and incontinent diapers, feminine hygiene products and the like, in Hong
Kong, China and other areas, and desires to manufacture the End Products (as
hereinafter defined) by using the Products, and

WHEREAS, the parties hereto (hereinafter individually called the "Party", and
hereinafter collectively called the "Parties") desire (a) to establish a new
company under the laws of British Virgin Island as a holding company
(hereinafter called "SHC"), (b) to cause SHC to issue such number of shares to
the Parties so that they will hold shares in SHC in the ratio stated in Article
3.01 hereof, and (c) to cause SHC to invest in and establish (i) a new company
under the laws of People's Republic of China as a production company in
Waigaoqiao Free Trade Zone, People's Republic of China in order to manufacture
the Products (hereinafter called "SSC") and (ii) a new company under the laws
of Macau as a

                                        1



marketing company in Macau in order to sell the Products (hereinafter called
"SMC").

NOW THEREFORE, it is agreed by all the Parties as hereinafter set forth:

ARTICLE 1. Definition

Whenever used in this Agreement, unless otherwise clearly indicated in the
context, the following terms shall have only the meanings as defined in this
Article 1:

1.01 "End Products" means absorbent products such as disposable baby and
     incontinent diapers and feminine hygiene products into which the Products
     are incorporated.

1.02 "New Companies" means SHC, SSC and SMC.

1.03 "Patents" shall mean the China Patents and the Other Patents. "China
     Patents" means Chinese application for invention No.97181473.2, and other
     related Chinese applications and their counterparts in Hong Kong that have
     been or will be filed, and any patents to issue upon any such patent
     application and divisions, continuations, continuations-in-part, or
     reissues of any of the foregoing, now owned by JATI, or other patents
     subsequently acquired by JATI or under which JATI has royalty-free
     sublicensing rights, which patents would be infringed by the manufacture,
     use or sale of the Products or the End Products if their manufacture, use
     or sales in the Territory (as hereinafter defined) were not authorized.
     "Other Patents" shall mean any patents of JATI relating to the technology
     that would be infringed by DSG or MC's distribution, use, or sale of the
     End Products anywhere in the world if DSG or MC's distribution, use, and
     sale of the End Products were not authorized.

1.04 "Products" means certain highly absorbent sheet materials for use in
     absorbent products such as disposable baby and incontinent diapers,
     feminine hygiene products and the like, as covered by the Patents.

1.05 "Technical Information" means confidential technical information and
     know-how JATI has acquired as a result of scientific research, practical
     experience, and otherwise that is reasonably related to the practice of the
     Patents for the manufacture and use of the Products and the End Products.

1.06 "Territory" means the Exclusive Territory and the Nonexclusive Territory.
     "Exclusive Territory" means the People's Republic of China and Hong Kong.
     "Nonexclusive Territory" means Australia, Brunei, India, Indonesia, the
     Republic of Korea, Malaysia,

                                       2



     New Zealand, the Philippines, Singapore, Taiwan, Thailand, and Vietnam.

ARTICLE 2. Representation and Warranties,

2.01 DSG represents and warrants to the other Parties as follows:

          (a)  DSG is a duly organized corporation existing in good standing
               under the laws of British Virgin Island.
          (b)  The making and performance of this Agreement are within DSG's
               corporate powers, have been duly authorized by all necessary
               corporate actions of DSG and do not contravene any provisions of
               law or of the Articles of Association of DSG or of any contract
               binding on DSG.

2.02 JATI represents and warrants to the other Parties as follows:

          (a)  JATI is a duly organized corporation existing in good standing
               under the laws of Japan.
          (b)  The making and performance of this Agreement are within JATI's
               corporate powers, have been duly authorized by all necessary
               corporate actions of JATI and do not contravene any provisions of
               law or of the Articles of Association of JATI or of any contract
               binding on JATI.

2.03 MC represents and warrants to the other Parties as follows:-

          (a)  MC is a duly organized corporation existing in good standing
               under the laws of Japan.
          (b)  The making and performance of this Agreement are within MC's
               corporate powers, have been duly authorized by all necessary
               corporate actions of MC and do not contravene any provisions of
               law or of the Articles of Association of MC or of any contract
               binding on MC.

ARTICLE 3. Establishment of New Companies

3.01 Establishment of SHC Within one (1) month after the execution of this
     Agreement, subject to necessary approval of the Governments of British
     Virgin Island, the Parties shall establish SHC in accordance with the
     provisions of this Agreement and following conditions:

                                       3



          (a)  The name of SHC shall be "Shuiling Holding Company Limited", or
               such other name as may be mutually agreed upon by the Parties.
          (b)  The primary objects of SHC shall be holding all shares of SSC and
               SMC to control and manage these two companies.
          (c)  The Principal office of SHC shall be located at [Address at Hong
               Kong].
          (d)  The authorized capital of SHC at the time of establishment shall
               be five million US Dollars (US$ 5,000,000), divided into five
               million (5,000,000) ordinary shares with par value of one US
               Dollar (US$1.00) each.
          (e)  The Memorandum of Association and the Article of Association of
               SHC shall be substantially in the form and substance as EXHIBITs
               A and B attached hereto respectively.

3.02 Establishment of SSC Immediately after the establishment of SHC, the
     Parties shall cause SHC to begin the procedure of establishing SSC in
     accordance with the laws of Peoples Republic of China (PRC), the provisions
     of this Agreement and following conditions:

          (a)  The name of SSC shall be ("Shanghai DSG MegaThin Company
               Limited"), or such other name as may be mutually agreed upon by
               the Parties.
          (b)  The primary objects of SSC shall be to manufacture and sell the
               Products.
          (c)  The registered office of SSC shall be located at [Address at
               People's Republic of China]. (The location of the land at
               Waiguoqiao)
          (d)  The registered capital of SSC at the time of establishment shall
               be five million US Dollars (US$ 5,000,000).
          (e)  The Memorandum and Article of Association of SSC shall be
               substantially in the form and substance as EXHIBITs C and D
               attached hereto.

3.03 Establishment of SMC After the establishment of SHC, the Parties shall
     cause SHC to begin the procedure of establishing SMC in accordance with the
     laws of Macau, Special Administration Region (SAR), the provisions of this
     Agreement and following

                                       4



     conditions:

          (a)  The name of SMC shall be "Shuiling (Macau) Company Limited", or
               such other name as may be mutually agreed upon by the Parties.
          (b)  The primary objects of SMC shall be to market and sell the
               Products.
          (c)  The registered office of SMC shall be located at Macau.
          (d)  The authorized capital of SMC at the time of establishment shall
               be one thousand US Dollars (US$ 1,000), divided into one thousand
               (1,000) ordinary shares with par value of one US Dollar (US$1.00)
               each.
          (e)  The Memorandum of Association and the Article of Association of
               SMC shall be substantially in the form and substance as EXHIBITs
               E and F attached hereto respectively.

ARTICLE 4. Issue of Shares

4.01 Issue of Shares Immediately after the establishment of the SHC, SHC shall
     issue five million (5,000,000) ordinary shares, and each of the Parties
     shall subscribe and pay fully in cash for such shares at par in the
     following ratio:

Name   Ratio   Number of Shares
- ----   -----   ----------------
JATI   :  5%         250,000
MC     : 20%       1,000,000
DSG    : 75%       3,750,000

4.02 Additional Shares In the event the issued share capital of SHC is increased
     from time to time, each of the Parties shall have the obligation to
     subscribe and pay -in full for such new shares in proportion to the ratio
     of its then shareholding.

ARTICLE 5. General Meeting of Shareholders

5.01 Annual General Meeting An ordinary general meeting of shareholders shall be
     held within six (6) months after the end of each accounting period of SHC.

5.02 Extraordinary General Meeting An extraordinary general meeting of
     shareholders may be convened by the request of any shareholder when it is
     deemed necessary or appropriate.

                                       5



5.03 Notice of General Meeting Prior written notice of all general meetings of
     shareholders shall be sent to all shareholders at least twenty one (21)
     days before the meeting, specifying the time and place of the meeting and
     indicating all matters to be considered thereat, together with copies for
     reports, studies and any other data relating thereto, provided, however,
     that notice may be waived by the written consent of all the shareholders of
     SHC.

5.04 Quorum The quorum for all general meetings of shareholders shall be two (2)
     shareholders representing not less than fifty one percent (51%) of then
     issued and outstanding shares.

5.05 Vote At any general meeting of shareholders, any shareholder may attend and
     vote in person or by proxy appointed by an instrument in writing. Each
     shareholder shall be entitled to one vote for each share owned by it.

5.06 Chairman DSG shall appoint the chairman of the general meeting of
     shareholders. The chairman of the general meeting shall not be entitled to
     a second or casting vote.

5.07 Resolution Unless prohibited by any applicable law, to approve the
     following types of resolutions, the affirmative vote of not less than
     eighty percent (80%) of the issued and outstanding shares of SHC shall be
     required:

     (a)  Amendment, addition, change, modification or deletion of any portion
          of the Memorandum of Association or Articles of Association of the New
          Companies;
     (b)  Increase or decrease in capital of the New Companies, including
          issuance of shares with any preference;
     (c)  Any merger, acquisition of all or substantially all of the assets of
          the New Companies by the third party, or any transaction with a
          similar effect;
     (d)  Sales, lease, transfer, mortgage, charge, pledge, encumbrance or any
          other disposal of all or a substantial part of the shares, assets or
          business of the New Companies;
     (e)  Any other action for which a special or extraordinary resolution is
          required to

                                       6



          be passed under the laws of British Virgin Island with respect to SHC.

     (f)  Transaction between the New Companies and any shareholder of the New
          Companies or any person, firm or company that controls, is controlled
          by, or is under common control of any shareholder of the New
          Companies, with not less than the transaction amount US$5,000,000.-;
     (g)  Issuance of debentures, bonds or any other debt securities by the New
          Companies;
     (h)  Guarantee for the obligation or indebtedness of any person, firm or
          company by the New Companies;

     To approve any of the following types of resolutions with respect to the
     New Companies, a unanimous vote of the issued and outstanding shares shall
     be required:

     (a)  Liquidation or dissolution;

ARTICLE 6. Board of Directors

6.01 Directors The Board of Directors of SHC shall consist of four (4) members,
     three (3) of whom shall be nominated and may be removed by DSG and the
     remaining one (1) shall be nominated and may be removed by MC

     If for any reason there is a vacancy in any office of the directors, such
     vacancy shall be filled solely by nomination by the party who nominated the
     director whose absence creates such vacancy to be filled.

6.02 Remuneration No director shall be entitled to receive any remuneration for
     his services from the New Companies except actual expenses for attending
     the meeting of the Board of Directors, provided, however, that nothing
     herein contained shall preclude any director from serving the New Companies
     in any other capacity and receiving remuneration therefor.

6.03 Board of Directors The directors may meet together for the dispatch of
     business, adjourn and otherwise regulate the meetings of the Board of
     Directors as they think fit. A director may at any time, and the secretary
     of the New Companies, who shall be

                                       7



     nominated by DSG, (hereinafter referred to as the "Secretary") shall, on
     the request of a director, convene a meeting of the Board of Directors.

6.04 Notice of Board of Directors Prior written notice of meetings of the Board
     of Directors shall be sent to all directors at least seven (7) days before
     the meeting, specifying the time and place of the meeting and indicating
     all matters to be considered thereat, together with copies of reports,
     studies and any other data relating thereto, provided, however, that notice
     may be waived by the unanimous consent of all directors in writing.

6.05 Quorum The quorum for all meetings of the Board of Directors shall be three
     (3).

6.06 Votes

     (a)  Each director shall have one vote.

          In lieu of a validly constituted meeting as above described, unless
          prohibited under the applicable laws or regulations, any resolution of
          the Board of Directors shall be considered to have been validly passed
          if consented in writing by at least three directors of the Board.

     (b)  Unless prohibited in any applicable law or regulation, the party may
          by prior notice in writing SHC to nominate and appoint any person to
          act as alternate director for a director, whom the party has
          nominated, in the event of his absence. The alternate director shall
          be granted full power and authority to act as director in meeting of
          the Board of Directors.

6.07 Managing Director The Managing Director shall be appointed from among the
     directors nominated by DSG and shall act as the chairman of the meeting of
     the Board of Directors. In the event of his absence from the meeting of the
     Board of Directors, DSG shall appoint one director from the Board of
     Directors to act as the chairman of the meeting. The chairman shall not
     have a second or casting vote in the event of a tie at any meeting of the
     Board of Directors.

     Unless otherwise provided for in any other provisions of this Agreement,
     the Memorandum of Association or the Articles of Association of the New
     Companies, the Managing Director shall have the general power and authority
     to manage and control all business and affairs of the New Companies except
     for those matters stipulated in Article 6.08 below.

                                       8



     In the event the shareholding ratio of SHC mentioned in Article 4.01 is
     changed due to additional shares mentioned in Article 4.02 and the transfer
     of shares stipulated in Article 7.01 and 7.02, the number of directors whom
     each party hereto shall be entitled to nominate shall be revised according
     to the new shareholding ratio.

6.08. Resultions

     The duty, power and authority of the Board of Directors shall be provided
     in the Memorandum of Association and Articles of Association.

ARTICLE 7. Transfer of Shares

7.01 Restriction on Transfer of Shares For three (3) years from the date of the
     establishment of the New Companies, no Party may sell, transfer, assign,
     hypothecate, encumber, pledge or otherwise dispose of all or any part of
     its shares in SHC without the prior written consent of all the other
     Parties. To avoid any doubt, this Article shall not prohibit any
     substantial change in the ownership of any Party, whether by merger or
     sales of stock. Notwithstanding the foregoing, each Party (in this Article
     7.01, called the "Asset Seller") may transfer all (not a part) of its
     shares in SHC to any third party (in this Article 7.01, called the "Asset
     Purchaser") when the Asset Seller sells all or substantial part of its
     assets to the Asset Purchaser, on condition that the Asset Purchaser
     informs the Parties in written form of its consent to assume all
     obligations of the Asset Seller under this Agreement and any agreement
     mentioned herein.

7.02 First Right of Refusal

     (a)  In the event that any of the Parties desires to sell, transfer,
          assign, hypothecate, encumber, pledge or otherwise dispose of all or
          any part of its shares in SHC to any third party(s), such Party (in
          Article 7.02 and 7.03 called the "Transferor") shall first offer in
          writing to sell such shares to each of the other Parties (in this
          Article 7, called the "Offerees") in proportion to the ratio of its
          then shareholding in the New Companies or to sell such shares to the
          other Offeree if any one of the Offerees has declined the said offer.
          The offer made by Transferor to each of the Offerees must be accepted
          in full and not just to a part of the shares so offered to it.

     (b)  In the event that the Offerees do not give to the Transferor written
          notice, within sixty (60) days from the date of the offer of its or
          their desire to purchase the

                                       9



          shares so offered, the said offer shall deem to have been declined.

     (c)  In the event that either or both of the other Offerees give to the
          Transferor written notice, within sixty (60) days from the date of the
          offer, of its or their desire to purchase the shares so offered but
          the Transferor and such Offeree or Offerees (hereinafter referred to
          as the "Price Disagreeing Offeree") are unable to agree upon a
          purchase price within thirty (30) days from the date of such notice,
          then the book value of the shares on the basis of the financial
          condition of SHC on the last day of the calendar month immediately
          preceding the date of the said notice as determined by the firm of
          independent certified public accountants then employed to audit the
          books and accounts of SHC shall be determined as a suggested purchase
          price (the "Suggested Price"). Within thiry (30) days from the date of
          the determination of the Suggested Price, the Price Disagreeing Party
          or Price Disagreeing Parties shall give to the Transferor the notice
          of whether it or they agree or decline to purchase the offered shares
          at such Suggested Price.

     (d)  In the event that either or both of the Price Disagreeing Parties do
          not give such notice to the Transferor within thirty (30) days from
          the date of the determination of the Suggested Price, the Price
          Disagreeing Party or Price Disagreeing Parties shall be deemed to have
          declined to purchase the offered shares at the Suggested Price.

   The offer made by Transferor to each of the Offerees must be accepted in full
   not a part of the shares offered. If either of the Offerees, decline the
   offer or does not make cash payment in full within thirty (30) days from the
   date of the agreement as to the purchase price, then the Transferor shall
   offer those shares to the other Offerees.

7.03 Transfer to Third Party

     (a)  If all the shares which the Transferor desires to sell are not
          purchased after the procedures mentioned in the preceding provisions
          of this Article 7.02 have been taken, the Transferor may sell,
          transfer, assign, hypothecate, encumber, pledge or otherwise dispose
          of all or any part of such shares to any third party(s); provided,
          however, that, in case of sale, the price shall not be less than
          (I) the price which Transferor and any of the Offerees agreed upon or
          (II) Suggested Price as determined pursuant to Article 7.02.

     (b)  In case the Transferor should be unable so to dispose of all or a part
          of such shares

                                       10



          to any third party(s) within three (3) months after the other parties
          have declined to purchase them, then the Transferor shall no longer be
          free so to dispose of the shares without again following the
          procedures set out in the preceding provisions of this Article 7.

     (c)  In the event that (i) any Offeree, whose shareholding ratio in SHC is
          less than fifty percent (50%) (hereinafter called the "Minority
          Shareholder"), declines (or is deemed to decline) the offer mentioned
          in the Article 7.02 and (ii) the Transferor sells all or part of such
          shares in SHC to any third party (hereinafter referred to as the
          "Possible Purchaser" and this transaction shall be hereinafter
          referred to as the "Proposed Transfer"), then the Minority
          Shareholders shall have the right to require the Transferor, prior to
          the Proposed Transfer, offer to sell the Minority Shareholders' shares
          in SHC in addition to those owned by the Proposed Transferor at the
          same price and on the same terms as set forth in the Proposed
          Transfer.

7.04 Transfer to Subsidiaries Notwithstanding any of the provisions of this
     Article 7; Any of the Parties may sell or transfer all or any part of its
     shares in SHC to its wholly owned subsidiary(s), provided, however, that no
     such sale or transfer shall relieve such transferor of its obligations
     hereunder.

ARTICLE 8. Financing

8.01 Self Financing All necessary funds for the operations and activities of the
     New Companies which cannot be covered by the subscribed and paid up capital
     shall be secured by the New Companies by means of procuring loan(s) from
     independent sources and/or issuing bond(s), debenture(s) or other debt
     securities.

8.02 Financial Obligation, If the New Companies cannot secure such necessary
     funds by itself, all the Parties shall, subject to necessary internal
     approval of them, procure such funds for the New Companies in proportion to
     the ratio of their then respective shareholdings in SHC by way of making
     direct loan(s) to the New Companies, guaranteeing or furnishing collateral
     to banking institutions (hereinafter called the "Lender") for the benefit
     of the New Companies or rendering other appropriate financial assistance to
     the New Companies.

8.03 Maximum Financial Obligations of Shareholders In any event, the total
     amount of financial obligations (including payment for shares provided in
     Article 4.01) of the

                                       11



     Parties shall not exceed the amount as follows (hereinafter referred to as
     the "Maximum Financial Obligations")
     JATI  : US$ 1,350,000.-
     MC    : US$ 5,400,000.-
     DSG   : US$20,250,000.-
     TOTAL : US$27,000,000.-

     In the event that JATI is unable to meet its financial obligations
     (excluding payment for shares provided in Article 4.01) in terms of
     providing security, collateral, guarantee and financial assistance for the
     New Companies, MC, subject to its necessary internal approval, undertakes
     to assume the financial obligations of JATI.

     In the event that the maximum financial obligation is exceeded, each
     parties shall decide individually whether or not to increase additional
     financial arrangement for the New Company.

8.04 Assumption of the Obligation of Financial Assistance Upon completion of a
     Party's (hereinafter called the "Purchasing Party") purchase of all of the
     shares of SHC held by another Party (hereinafter called the "Selling
     Party"), the Purchasing Party shall irrevocably and unconditionally assume
     and agree to perform, in due course and without any delay, all the
     financial obligations of the Selling Party under, or being provided
     pursuant to, Article 8.02 at the time of the sale and purchase of such
     shares. The Selling Party shall be released and discharged from the
     financial obligations; provided, however, that, in the event that the
     Lenders do not grant their consent to the release and discharge of the
     financial obligations of the Selling Party, the Purchasing Party shall
     guarantee all such obligations of the Selling Party and indemnify and hold
     harmless the Selling Party from all the losses, damages and costs incurred
     by the Selling Party in connection with the financial obligations.

ARTICLE 9. Remittance of Dividends

9.01 Dividends SHC shall remit dividends in U.S. Dollars, if any, declared at
     the general meeting of shareholders to each of the shareholders of SHC
     within forty-five (45) days after its resolution for payment of such
     dividends. SHC has intention to provide at least 20% of all consolidated
     accumulated surplus earnings of the New Company to shareholder, and the
     Board of Directors of the New Company will decide whether or not SHC is in
     a position to provide such cash distribution. SSC and SMC shall remit

                                       12



     dividends, if any, to SHC within thirty (30) days after its resolution for
     payment of such dividends.

9.02 Approval The New Companies shall take all necessary steps at their own
     expenses to obtain any legal or official approval(s) required for the
     payment of dividends.

9.03 Withholding Tax In the event that it is required to deduct withholding tax
     from dividends payable to the Parties or SHC under the laws of the country
     of the New Company paying the dividend, the New Companies shall furnish to
     such Parties official tax receipts or other evidence issued by the tax
     authorities of the country sufficient to enable the Parties or SHC to
     establish payment of such withholding tax in support of a claim for tax
     credit, if any, in the country of the Parties or SHC.

ARTICLE 10. Accounting

10.01 Accounting Period The accounting period of the New Companies shall
     commence on the 1st day of January and end on the 31st day of December in
     each year.

10.02 Accounting Record The New Companies shall keep true and correct accounting
     records and books with regard to all of its operations and activities. Each
     of the Parties shall have the right to inspect, during any business hours
     of the New Companies, such records and books by itself or its authorized
     representative at its expense without interrupting the normal operations
     and activities of the New Companies.

10.03 Accounting Report Each of the New Companies shall furnish audited
     financial report as of the end of each accounting period to all the Parties
     within one hundred twenty (120) days after the end of such accounting
     period. Such financial report must be certified by the firm of independent
     certified public accountants appointed at the Annual General Meeting.

ARTICLE 11. Auditors

11.01 Auditors All New Companies shall have one auditor who shall be nominated
     in the first year to appoint the current existing DSG's auditor.

11.02 Vacancy of Auditors If for any reason there occurs a vacancy in the office
     of auditor, such vacancy shall be filled solely by nomination by the Party
     or Parties who have

                                       13



     nominated the auditor whose absence creates the vacancy to be filled.

ARTICLE 12. License

12.01 License Agreement MC has granted to DSG a license to manufacture, use and
     sell the Products in Hong Kong and People's Republic of China. For this
     purpose, a separate "License agreement" has been executed between MC and
     DSG, the genuine copy of which is attached hereto as EXHIBIT G and all the
     rights and obligations of DSG under the License Agreement shall be
     transferred to SHC and a corresponding license agreement between SHC (as
     licenser) and SSC (as licensee) shall be executed when SSC is duly
     established by SHC."

ARTICLE 13. Supply of Raw Materials

13.01 Materials Supply Agreement MC shall have the right to supply super
     absorbent polymer (SAP), to SSC with competitive quality, quantity, price,
     service and free of patent infringement. For this purpose, separate
     "purchase agreement of raw materials" shall be executed between MC and SSC
     substantially in the form and substance as EXHIBIT H attached hereto
     respectively.

ARTICLE 14. Sale of Products

14.01 Sales Agreement between SSC and SMC Each Party agrees that SSC shall
     appoint SMC as Marketing and Selling Agent for the Products for all
     territories except the People's Republic of China. For this purpose, a
     separate "Sales Agreement A" shall be executed between SSC and SMC
     substantially in the form and substance as EXHIBIT I attached hereto.

14.02 Sales of the Products Each party agrees that the Products manufactured by
     SSC and then purchased by SMC from SSC (hereinafter called the "Sales
     Products") are sold to the customers by DSG and MC as sales agent for sales
     of the Products. For this purpose, a separate "Sales agreement B" shall be
     executed between SMC and DSG substantially in the form and substance as
     EXHIBIT J attached hereto, and a separate "Sales Agreement C" shall be
     executed between SMC and MC substantially in the form and substance as
     EXHIBIT K attached hereto.

     And, Each Party agree that DSG have the right to purchase up to thirty
     percent (30%) of the total production volume of SSC at Standard Costs Plus
     (hereinafter defined) and

                                       14



     for the rest of production volume Sales Products shall be sold to DSG and
     MC, and others at market price basis.

14.03 Standard Costs Plus For the purpose of the purchase by DSG referred in
     14.02 above, the Standard Costs Plus is defined as the costs of production
     including costs of raw materials, packaging, labour, production overheads
     and depreciation plus five percent 5% or a differently percentage number
     mutually agreed upon by all parties.

ARTICLE 15. Governmental Approval and Term

15.01 Term This Agreement shall become effective from the execution hereof,
     subject to any necessary approvals of the Governments of British Virgin
     Island, the PRC and Japan and shall continue for a period of [twenty (20)
     years] commencing on the date hereof. The term shall be automatically
     extended for [one (1) years] and thereafter for the same period
     successively, unless any party gives to the other written notice of
     termination at least three (3) months prior to the expiration of the
     original term or any such extension thereof.

15.02 Governmental Approval If all necessary approvals of the Governments of
     British Virgin Island and the People's Republic of China are not obtained
     within six (6) months from the date hereof, this Agreement shall cease to
     have effect and no party shall have any claim whatsoever against the other
     Party.

ARTICLE 16. Termination

16.01 Event of Termination If one or more of the following events occur with
     regard to any Party (hereinafter called the "Insolvent Party"), any of the
     other Parties (hereinafter individually called the "Non-Insolvent Parties"
     and collectively called the "Non-Insolvent Parties") may, notwithstanding
     the provisions of Article 15.01 hereof, terminate this Agreement by given
     written notice to all the other parties:

     (a)  Appointment of a trustee or a receiver for all or any part of the
          assets of the Insolvent Party;

     (b)  A petition in bankruptcy or insolvency by or against the Insolvent
          Party;

     (c)  Assignment of a substantial part of the assets of the Insolvent Party
          for the

                                       15



          benefit of creditors other than lender (banks or any financing
          institution) as part of ordinary course of business;

     (d)  Attachment of a substantial part of the assets of the Insolvent Party
          other than lender (banks or any financing institution) as part of
          ordinary course of business;

     (e)  Expropriation or nationalization of a substantial part of the assets
          of the Insolvent Party;

     (f)  Dissolution or liquidation of the Insolvent Party; or

     (g)  Default of its obligations hereunder failing to remedy such default
          within a period of sixty (60) days after receiving written
          notification of such default from any of the other parties. In this
          case, the right of termination shall be exercisable within fourteen
          (14) days after the expiration of such sixty (60) days period.

16.02 Notification of Insolvency The Insolvent Party shall notify the other
     Parties immediately in writing for the occurrence of any such event
     enumerated in subparagraphs (a) through (g) above.

16.03 Non-Insolvent Party's Option

     Upon termination of this Agreement pursuant to this Article 16.01, the
     Non-Insolvent Party shall have the right to exercise any one of the
     following rights:

     (a)  to dissolve or liquidate the New Companies; or

     (b)  to purchase all or any part of the shares in SHC then held by the
          Insolvent Party at par value or the book value of the shares as fixed
          pursuant to Article 16.04, whichever lower.

     If both of the Non-Insolvent Parties select option (b) above, each of the
     Non-Insolvent Parties shall have the right to purchase the shares in
     proportion to the ratio of its then shareholding in SHC, provided, however,
     that if the number of shares which one of the Non-Insolvent Parties desires
     to purchase does not amount to the total number of shares which such
     Non-Insolvent Party is entitled to purchase, the

                                       16



     other Non-Insolvent Party shall have the right to purchase all or any part
     of the shares not purchased by the Non-Insolvent Party first mentioned.

     If one of the Non-Insolvent Parties (in this Article 16.03 called the
     "(A)-Party") selects the option (a) above or does not exercise option (a)
     or (b) above and the other Non-Insolvent Party (in this Article 16.03
     called the "(B)-Party") selects option (b) above, the (B)-Party shall have
     the option to purchase all of the shares in SHC then held by the (A)-Party
     at the same price as is mentioned in (b) above. If the (B)-Party does not
     exercise within a reasonable time the option to purchase all of those
     shares, the New Companies shall be dissolved or liquidated.

     If one of the Non-Insolvent Parties selects the option (a) above and the
     other Non-Insolvent Party does not select option (a) or (b) above, the New
     Companies shall be dissolved or liquidated.

     If the Non-Insolvent Party(ies) selects the option (b) above, the provision
     of Article 8.04 shall not be applied to the sales of shares in SHC from the
     Insolvent Party to such Non-Insolvent Party(ies).

16.04 Book Value The book value of the shares stipulated in Article 16.03 and
     16.06 shall be fixed on the basis of the financial condition of SHC on the
     last day of the calendar month immediately preceding the date of the
     exercise of each option as determined by the firm of independent certified
     public accountants then employed to audit the books and accounts of SHC.

16.05 Termination for Special Events If any of the following events occurs,
     Minority Shareholders shall, notwithstanding the provisions of Article
     15.01 hereof, have the right to terminate this Agreement by giving written
     notice to DSG:

     (a)  there is no total net profit on SHC profit and loss statement for
          three (3) consecutive full accounting years from the commencement of
          SSC operation;

     (b)  the consolidated liabilities of the New Companies at any time exceed
          the consolidated assets of the New Companies after three (3) years of
          SHC operation.

                                       17



16.06 Minority Shareholders' Option Upon termination of this Agreement pursuant
     to above Article 16.05, Minority Shareholders shall have the right to
     demand that DSG purchase all or any part of the shares (at Minority
     Shareholders' sole discretion) in SHC then held by Minority Shareholders at
     a price not higher than the book value of the shares as fixed pursuant to
     Article 16.04.

ARTICLE 17 Notice

17.01 Any notice, declaration, demand, request or other communication which is
     required hereunder shall be in writing, in the English language, and shall
     be given to each of the parties at its address or facsimile number set
     forth:

     To JATI:
          JAPAN ABSORBENT TECHNOLOGY INSTITUTE
          2-26-5 Nihonbashi Hamacho, Chuo-ku,
          Tokyo, Japan
          Attention : Dr. Migaku Suzuki
          Facsimile No.: 81-3-3249-7330

     To MC:
          MITSUBISHI CORPORATION
          6-3, Marunouchi 2-chome, Chiyoda-ku,
          Tokyo, Japan
          Attention: Manager of Organic Ammenities Unit
          Facsimile No.: 81-3-3210-5828

     To DSG:
          DSG International Limited
          17th Floor, Watson Centre, Kung Yip Street,
          Kwai Chung, Hong Kong
          Attention :
          Facsimile No. : 852-2427-6951

     Any such notices given by mail shall be considered to have been given on
     the seventh day after having been mailed in the manner provided above.

     Any party may change its address by giving the other parties written notice
     of such

                                       18



     change in the manner provided above.

ARTICLE 18. Governing Law

18.01 This Agreement shall be governed by and construed in all respects in
     accordance with the laws of Singapore.

ARTICLE 19. Language

19.01 English shall be used officially in respect of all matters in connection
     with this Agreement, unless otherwise agreed in writing by all the Parties.

19.02 This Agreement shall be prepared in the English language. In case any
     translations are prepared and any dispute arises over the meaning of any
     provision, the English language version shall be controlling.

ARTICLE 20. Non-Assignment

20.01 This Agreement shall not be assigned to any third party(s) without prior
     written consent of all the other Parties.

ARTICLE 21 Entire Agreement

21.01 This Agreement represents the entire agreement and understanding between
     the Parties with respect to the subject matter of this Agreement and
     supersedes any other agreements or understanding, written or verbal, that
     the Parties may have had; provided, however, that Cost-Sharing Agreement
     among DSG, JATI and MC shall be effective even after the execution of this
     Agreement.

ARTICLE 22. Settlement of Dispute

22.01 Any dispute which may arise between the Parties out of or in relation to
     this Agreement or breach thereof shall, unless settled without undue delay
     by amicable arrangement of the Parties, be referred to arbitration in
     Singapore in accordance with the Arbitration Rules of the Singapore
     International Arbitration Centre. Any arbitration procedure shall be
     conducted in English. The award shall be final and binding upon the
     Parties, and judgement on such award may be entered in any court or

                                       19



     tribunal having jurisdiction there over.

ARTICLE 23. Secrecy Provisions

23.01 Each Party (hereinafter called the "Recipient") shall not, during the term
     of this Agreement, directly or indirectly, disclose or divulge to any third
     party any of the trade secrets, proprietary information or other matters
     deemed confidential by similarly situated business (hereinafter
     collectively called "Confidential Information") received in connection with
     the performance of this Agreement; provided, however, that Confidential
     Information shall not include any information;

     (a)  which is in the public domain at the time of receipt
     (b)  which thereafter enters the public domain through no action or
          inaction by Recipient or those to whom Recipient has disclosed
          Confidential Information;
     (c)  which is in the possession of or known to Recipient prior to its
          receipt thereof;
     (d)  which is rightfully disclosed to Recipient by a third party not in
          violation of any confidential obligation;
     (e)  which is independently developed by Recipient; or
     (f)  which is required to disclose by any applicable orders, rules,
          regulations or laws.

ARTICLE 24. Priority of Joint Venture Agreement

24.01 In the event that there is any discrepancy between the contents in this
     Agreement and those in the Memorandum and Article of Association of the New
     Companies, the Parties agree to apply the former and amend the Memorandum
     and Articles of Association to be consistent with this Agreement.

IN WITNESS WHEREOF, all the parties have caused this Agreement to be executed in
triplicate, each triplicate of which shall be considered an original, by their
respective officers thereunto duly authorized as of the day and year first above
written.

                                       20



                                 Japan Absorbent Technology Institute


                                 /s/ Migaku Suzuki
                                 -----------------------------------------------
                                 Name: Migaku Suzuki
                                 Title: President-Representative Director


                                 Mitsubishi Corporation


                                 /s/ Takuro Maruoka
                                 -----------------------------------------------
                                 Name: Takuro Maruoka
                                 Title: General Manager, Organic Amenities Unit,
                                        Functional Chemicals Division


                                 DSG International Limited


                                 /s/ Brandon Wang
                                 -----------------------------------------------
                                 Name: Brandon Wang
                                 Title: Member of Executive Cabinet
                                        Chairman & Chief Executive

                                       21

EX-4.4

                                                                     EXHIBIT 4.4

                        SIXTH AMENDMENT TO LOAN AGREEMENT

          This SIXTH AMENDMENT TO LOAN AGREEMENT (this "Amendment") is entered
into as of November 14, 2002, among ASSOCIATED HYGIENIC PRODUCTS LLC, a Delaware
limited liability company ("Borrower"), the Lenders signatory hereto, and
FOOTHILL CAPITAL CORPORATION, a California corporation, in its capacity as
administrative agent ("Agent") for the Lenders (as defined below).

                                   WITNESSETH:

          WHEREAS, Borrower, the Lenders (as defined therein) and Agent have
entered into that certain Amended and Restated Loan and Security Agreement dated
as of March 14, 2001, as amended by that certain First Amendment to Loan
Agreement, as further amended by that certain Second Amendment to Loan
Agreement, as further amended by that certain Third Amendment and Waiver to Loan
Agreement, as further amended by that certain Fourth Amendment to Loan
Agreement, and as further amended by that certain Fifth Amendment to Loan
Agreement prior to the date hereof (as the same may be further modified,
amended, restated or supplemented from time to time, the "Loan Agreement"),
pursuant to which the Lenders have agreed to extend credit to Borrower from time
to time; and

          WHEREAS, Borrower has requested that Agent and the Lenders amend the
Loan Agreement to increase the Wal-Mart concentration limit from 25% to 55% for
a period of 60 days, and 50% thereafter; and

          WHEREAS, Borrower, Agent and the Lenders have agreed to amend the Loan
Agreement to provide that Revolver Advances (and not Capital Expenditure Loans
and Term Loans) may only bear interest at the LIBOR Rate; and

          WHEREAS, Borrower, Agent and the Lenders have agreed to amend the Loan
Agreement to provide that the Maximum Amount shall be reduced from $35,000,000
to $30,000,000; and

          WHEREAS, Borrower, Agent and the Lenders have agreed to amend the
provision of the Loan Agreement regarding conditions precedent to all extensions
of credit with regard to any Capital Expenditure Loan; and

          WHEREAS, Borrower has requested that Agent and the Lenders consent to
the purchase of a new high speed diaper machine and the release of two existing
machines as "trade-ins" on such purchased equipment; and

          WHEREAS, Agent and the Lenders have agreed to the requested amendments
on the terms and conditions set forth herein;




          NOW THEREFORE, in consideration of the foregoing premises and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree that all capitalized terms not
otherwise defined herein shall have the meanings ascribed to such terms in the
Loan Agreement and further agree as follows:

     1. Amendments to Loan Agreement.

          (a) Amendments to Section 1.1 of the Loan Agreement. Section 1.1,
"Definitions," is hereby amended and modified as follows:

               (i) The definition of "Eligible Accounts" is hereby amended and
     modified by deleting cause (i)(c) thereof in its entirety and substituting
     the following in lieu thereof:

               "(c) in the case of Wal-Mart, fifty-five percent (55%) of all
     Eligible Accounts from October 31, 2002 to December 31, 2002, and fifty
     percent (50%) of all Eligible Accounts thereafter; and"

               (ii) The definition of "LIBOR Rate Loan" is hereby amended and
     modified by deleting such definition in its entirety and substituting the
     following in lieu thereof:

               ""LIBOR Rate Loan" means each Borrowing of an Advance that bears
     interest at a rate determined by reference to the LIBOR Rate."

               (iii) The definition of "Maximum Amount" is hereby amended and
     modified by deleting such definition in its entirety and substituting the
     following in lieu thereof:

               ""Maximum Amount" means $30,000,000."

          (b) Amendment to Section 2.6 of the Loan Agreement. Section 2.6 of
the Loan Agreement, "Interest Rates and Letter of Credit Fee: Rates. Payments,
and Calculations," is hereby amended and modified by deleting clause (a),
"Interest Rates", thereof in its entirety and substituting the following in lieu
thereof:

               "(a) Interest Rates. Except as provided in clause (c) below, all
     Obligations (except for undrawn Letters of Credit) that have been charged
     to the Loan Account pursuant to the terms hereof shall bear interest on the
     Daily Balance thereof as follows: (i) if the relevant Obligation is an
     Advance made as a LIBOR Rate Loan, at a per annum rate equal to the LIBOR
     Rate plus the margin (as determined below) in effect from time to time in
     connection with LIBOR Rate Loans (the

                                       2



     "LIBOR Rate Margin") with respect to Advances, (ii) if the relevant
     Obligation is a Capital Expenditure Loan or Term Loan, at a per annum rate
     equal to the Base Rate plus the margin (as determined below) in effect from
     time to time in connection with Base Rate Loans (the "Base Rate Margin")
     with respect to Capital Expenditure Loans and the Term Loan, and (iii) all
     other Obligations (except for undrawn Letters of Credit), at a per annum
     rate equal to the Base Rate plus the Base Rate Margin in effect for
     Advances made as Base Rate Loans. From the Closing Date to the First
     Adjustment Date, the Base Rate Margin in connection with Advances shall be
     2.25%, the Base Rate Margin in connection with Capital Expenditure Loans
     and the Term Loan shall be 2.75%, and the LIBOR Rate Margin in connection
     with Advances shall be 3.75%. Commencing on the later of March 31, 2002 or
     the sixth (6th) day following the delivery of Borrower's financial
     statements to Agent for the fiscal year ending December 31, 2001 (the
     "First Adjustment Date") and on each Adjustment Date thereafter, the Base
     Rate Margin and the LIBOR Rate Margin shall each be adjusted to be the
     interest rate margin based upon the Total Debt to EBITDA Ratio for the 12
     fiscal months then ended as set forth in such financial statements
     delivered to Agent pursuant to Section 6.3(a) as of the fiscal quarter end
     preceding such Adjustment Date, and expressed as a per annum rate of
     interest as set forth in the table below.



     ----------------------------------------------------------------------------
                                                        Then the       Then the
                                                       LIBOR Rate      Base Rate
      If the Total Debt          Type of Loan         Margin shall   Margin shall
     to EBITDA Ratio is:         Outstanding:              be:            be:
     ----------------------------------------------------------------------------
                                                                
         Less than or      Advances                       3.25%          1.75%
     equal to 2.5 to 1.0   ------------------------------------------------------
                           Term Loan,                      N/A           2.25%
                           Capital Expenditure Loan
     ----------------------------------------------------------------------------
       Greater than 2.5    Advances                       3.50%          2.00%
       to 1.0 but less     ------------------------------------------------------
       than 3.0 to 1.0     Term Loan,                      N/A           2.50%
                           Capital Expenditure Loan
     ----------------------------------------------------------------------------
       Greater than 3.0    Advances                       3.75%          2.25%
       to 1.0 but less     ------------------------------------------------------
       than 3.5 to 1.0     Term Loan,                      N/A           2.75%
                           Capital Expenditure Loan
     ----------------------------------------------------------------------------
       Greater than 3.5    Advances                       4.00%          2.50%
       to 1.0 but less     ------------------------------------------------------
       than 4.0 to 1.0     Term Loan,                      N/A           3.00%
                           Capital Expenditure Loan
     ----------------------------------------------------------------------------
         Equal to or       Advances                       4.25%          2.75%
       greater than 4.0    ------------------------------------------------------
            to 1.0         Term Loan,                      N/A           3.25%
                           Capital Expenditure Loan
     ----------------------------------------------------------------------------


          (c) Amendments to Section 2.13 of the Loan Agreement. Section 2.13,
"LIBOR Option," is hereby amended and modified as follows:

                                       3



               (i) Clause (a) of Section 2.13 is hereby amended and modified by
     deleting the phrase "Term Loan or Capital Expenditure Loans" from the first
     sentence of such clause.

               (ii) Clause (a) of Section 2.13 is hereby further amended and
     modified by deleting the phrase "or Capital Expenditure Loans or portions
     of the Term Loan" from the last sentence of such clause.

               (iii) Clause (b)(i) of Section 2.13 is hereby amended and
     modified by deleting the phrase "or the Term Loan" from the second sentence
     of such clause.

          (d) Amendment to Section 3.3 of the Loan Agreement. Section 3.3 of the
Loan Agreement, "Conditions Precedent to all Extensions of Credit," is hereby
amended and modified by deleting subsection 3.3(e) in its entirety and
substituting the following in lieu thereof:

               "(e) with regard to any Capital Expenditure Loan, Borrower and
     DSG shall have satisfied all of their respective obligations under the
     Settlement Agreement, and Excess Availability (after subtracting the amount
     of any payables of Borrower that are more than 60 days past due) shall be
     $5,000,000 or more for at least thirty (30) consecutive days prior to the
     date of such Capital Expenditure Loan."

          (e) Amendment to Schedule C-1 of the Loan Agreement. Schedule C-1 of
the Loan Agreement, Commitments, is hereby amended and modified by deleting
Schedule C-1 in its entirety and substituting the schedule attached to this
Amendment as Annex A in lieu thereof.

          (f) Amendment to Schedule L-1 of the Loan Agreement. Schedule L-1 of
the Loan Agreement, Form of LIBOR Notice, is hereby amended and modified by
deleting the following language from the second full paragraph thereof, "an
outstanding portion of the Term Loan / outstanding Capital Expenditure Loans."

          (g) Amendment to Schedule P-1 of the Loan Agreement. Schedule P-1 of
the Loan Agreement, Permitted Liens, is hereby amended and modified by adding
the following language at the end thereof: "Liens on that certain high speed
diaper machine, model number J4-MV Baby Diaper Machine, serial number WM 3270."

          (h) Amendment to Schedule 5.20 of the Loan Agreement. Schedule 5.20 of
the Loan Agreement, Permitted Indebtedness, is hereby amended and modified by
adding the following language at the end thereof: "All obligations of Borrower
under that certain Promissory Note, dated as of October 8, 2002, in the
principal amount of $2,705,250, issued by Borrower in favor of Curt G. JOA,
Inc."

                                       4



          (i) Conversion. To the extent that as of the date of this Amendment
there are outstanding any Obligations constituting a portion of a Capital
Expenditure Loan or a Term Loan made as a LIBOR Rate Loan, then each such
Obligation shall automatically and without further action on the part of the
parties hereto be deemed converted into a Base Rate Loan on the date immediately
following the last day of the Interest Period applicable to such LIBOR Rate
Loan.

     2.   Waivers Regarding Purchase of JOA Equipment.

          (a) Agent and the Lenders hereby consent to the purchase (the "JOA
Purchase") of that certain high speed diaper machine, model number J4-MV Baby
Diaper Machine, serial number WM 3270-1899 (the "Purchased Equipment"), from
Curt G. JOA, Inc. and waive compliance with Sections 5.5, 6.6, 6.9, 7.1, 7.4 and
7.17 of the Loan Agreement, as necessary to permit Borrower to consummate such
purchase transaction, including (i) the transfer of certain existing equipment
to Curt G. JOA, Inc. (model number SN 500-90, serial number 5651043-F and model
number SN 500-90, serial number 660M1073-F; the "Trade-in Equipment") valued at
$262,500 each as "trade-ins" for the Purchased Equipment and (ii) use of
Advances to fund start-up costs necessary to make the Purchased Equipment
operational, upon the following terms and conditions:

          (b) the terms of the JOA Purchase will be set forth in a Purchase
Agreement, a Promissory Note (the "Note") and a Security Agreement, each in
substantially the form attached hereto as Annex B-l, Annex B-2 and Annex B-3,
respectively;

          (c) Borrower shall use proceeds from Advances to make a prepayment in
the aggregate amount of $224,400 towards the outstanding Term Loans associated
with the disposition of the Trade-in Equipment; provided however that, except as
provided herein, no other amounts, advances, fees, costs, borrowings, charges or
the like shall be made or incurred or deemed made or incurred under the Loan
Agreement in connection with the Trade-In Equipment or the JOA Purchase;

          (d) the Lenders shall have the right of first refusal to extend
financing to Borrower on equivalent terms to any valid competing offer to
refinance the final scheduled payment under the Note, and if the Lenders fail to
exercise the foregoing right of first refusal, Borrower may refinance the final
scheduled payment under the Note upon the terms set forth in the valid competing
offer;

          (e) upon satisfaction in full of Borrower's obligations under the Note
or in connection with any third-party refinancing, Agent shall be granted a
first priority security interest in the Purchased Equipment; and

          (f) Borrower shall provide such other information, documents,
instruments or approvals as Agent or Agent's counsel may reasonably require;

                                       5



provided, however, the above-referenced waiver shall not waive any other
requirement or hinder, restrict or otherwise modify the rights and remedies of
Agent or the Lenders following the occurrence of any Default or Event of Default
under the Loan Agreement, including, but not limited to, any future defaults by
Borrower of the covenants contained in Sections 5.5, 6.6, 6.9, 7.1, 7.4 and 7.17
of the Loan Agreement. Agent and the Lenders hereby consent to and authorize
Agent to release any and all liens or security interests held by them pursuant
to the Loan Agreement against the Trade-in Equipment. Agent and the Lenders
acknowledge that, as of the effective date of the JOA Purchase, (A) neither
Agent nor the Lenders shall have a continuing right or interest in the Trade-in
Equipment, or proceeds thereof, and (B) until such time as Borrower's
obligations pursuant to the Note have been satisfied, Agent's Lien On the
Purchased Equipment is subordinated to the first priority security interest of
Curt G.Joa in the Purchased Equipment.

          (g) Upon execution of this Amendment and consummation of the JOA
Purchase, Agent agrees to file such documents as Borrower may reasonably
request, at Borrrower's expense, in order to release Agent's Lien on the
Trade-in Equipment; including without limitation, UCC-2 or UCC-3 Termination
Statements, as appropriate, for filing in each office where a UCC-1 Financing
Statement has been filed or other instruments are required to terminate the
filings or recordings in favor of Agent with respect to the Trade-in Equipment.

     3. No Other Amendments or Waivers. The execution, delivery and
effectiveness of this Amendment shall not operate as a waiver of any right,
power or remedy of Agent or the Lenders under the Loan Agreement or any of the
other Loan Documents, nor constitute a waiver of any provision of the Loan
Agreement or any of the other Loan Documents. Except for the amendments set
forth above, the text of the Loan Agreement and all other Loan Documents shall
remain unchanged and in full force and effect and Borrower hereby ratifies and
confirms its obligations thereunder. This Amendment shall not constitute a
modification of the Loan Agreement or any of the other Loan Documents or a
course of dealing with Agent or the Lenders at variance with the Loan Agreement
or the other Loan Documents such as to require further notice by Agent or the
Lenders to require strict compliance with the terms of the Loan Agreement and
the other Loan Documents in the future, except as expressly set forth herein.
Borrower acknowledges and expressly agrees that Agent and the Lenders reserve
the right to, and do in fact, require strict compliance with all terms and
provisions of the Loan Agreement and the other Loan Documents. Borrower has no
knowledge of any challenge to Agent's or any Lenders' claims arising under the
Loan Documents, or to the effectiveness of the Loan Documents.

     4. Conditions Precedent to Effectiveness. This Amendment shall become
effective as of the date hereof when, and only when, Agent shall have received:

                                       6



          (a) an amendment fee from Borrower in the amount of $30,000, which fee
shall be fully earned and non-refundable when paid (it being understood that, by
execution and delivery of this Amendment, Borrower authorizes Agent to charge
Borrower's Loan Account for such fee and such amount shall thereafter accrue
interest at the rate applicable to Advances under the Loan Agreement in
accordance with Section 2.6 of the Loan Agreement);

          (b) counterparts of this Amendment duly executed and delivered by
Borrower and the Lenders; and

          (c) such other information, documents, instruments or approvals as
Agent or Agent's counsel may reasonably require.

     5. Representations and Warranties of Borrower. Borrower represents and
warrants as follows:

          (a) Borrower is a limited liability company organized, validly
existing and in good standing under the laws of the jurisdiction indicated at
the beginning of this Amendment and all other jurisdictions in which the failure
to be so qualified reasonably could be expected to constitute a Material Adverse
Change;

          (b) The execution, delivery, and performance by Borrower of this
Amendment and the Loan Documents to which it is a party, as amended hereby, are
within Borrower's limited liability company powers, have been duly authorized by
all necessary limited liability company action and do not and will not (i)
violate any provision of federal, state, or local law or regulation applicable
to Borrower, the Governing Documents of Borrower, or any order, judgment, or
decree of any court or other Governmental Authority binding on Borrower, (ii)
conflict with, result in a breach of, or constitute (with due notice or lapse of
time or both) a default under any material contractual obligation of Borrower,
(iii) result in or require the creation or imposition of any Lien of any nature
whatsoever upon any properties or assets of Borrower, other than Permitted
Liens, or (iv) require any approval of Borrower's members or any approval or
consent of any Person under any material contractual obligation of Borrower;

          (c) The execution, delivery, and performance by Borrower of this
Amendment and the Loan Documents to which it is a party, as amended hereby, do
not and will not require any registration with, consent, or approval of, or
notice to, or other action with or by, any Governmental Authority or other
Person;

          (d) This Amendment and each other Loan Document to which Borrower is a
party, and all other documents contemplated hereby and thereby, when executed
and delivered by Borrower will be the legally valid and binding obligations of
Borrower, enforceable against Borrower in accordance with their respective
terms, except as enforcement may be limited by equitable principles or by
bankruptcy, insolvency,

                                       7



reorganization, moratorium, or similar laws relating to or limiting creditors'
rights generally; and

          (e) After giving effect to this Amendment, no Default or Event of
Default exists.

     6. Counterparts. This Amendment may be executed in multiple counterparts,
each of which shall be deemed to be an original and all of which, taken
together, shall constitute one and the same agreement. In proving this Amendment
in any judicial proceedings, it shall not be necessary to produce or account for
more than one such counterpart signed by the party against whom such enforcement
is sought. Any signatures delivered by a party by facsimile transmission shall
be deemed an original signature hereto.

     7. Reference to and Effect on the Loan Documents. Upon the effectiveness of
this Amendment, on and after the date hereof each reference in the Loan
Agreement to "this Agreement," "hereunder," "hereof" or words of like import
referring to the Loan Agreement, and each reference in the other Loan Documents
to "the Loan Agreement" "thereunder," "thereof" or words of like import
referring to the Loan Agreement, shall mean and be a reference to the Loan
Agreement as amended hereby.

     8. Costs, Expenses and Taxes. Borrower agrees to pay on demand all costs
and expenses in connection with the preparation, execution, and delivery of this
Amendment and the other instruments and documents to be delivered hereunder,
including, without limitation, the reasonable fees and out-of-pocket expenses of
counsel for Agent with respect thereto and with respect to advising Agent as to
its rights and responsibilities hereunder and thereunder.

     9. Governing Law. This Amendment shall be deemed to be made pursuant to the
laws of the State of Georgia with respect to agreements made and to be performed
wholly in the State of Georgia, and shall be construed, interpreted, performed
and enforced in accordance therewith.

     10. Loan Document. This Amendment shall be deemed to be a Loan Document for
all purposes.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                       8



          IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Amendment as of the day and year first written above.

BORROWER:                                       ASSOCIATED HYGIENIC PRODUCTS LLC


                                                By: /s/ GEORGE H. JACKSON III
                                                    ----------------------------
                                                Name:  GEORGE H. JACKSON III
                                                Title: CHIEF EXECUTIVE OFFICER


AGENT
and LENDER:                                     FOOTHILL CAPITAL CORPORATION,
                                                as Agent and a Lender


                                                By:
                                                    ----------------------------
                                                Name:
                                                      --------------------------
                                                Title:
                                                       -------------------------

                                       9



          IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Amendment as of the day and year first written above.

BORROWER:                                       ASSOCIATED HYGIENIC PRODUCTS LLC


                                                By:
                                                    ----------------------------
                                                Name:
                                                      --------------------------
                                                Title:
                                                       -------------------------


AGENT
and LENDER:                                     FOOTHILL CAPITAL CORPORATION,
                                                as Agent and a Lender


                                                By: /s/ Drew Stawin
                                                    ----------------------------
                                                Name:  Drew Stawin
                                                Title: Senior Vice President

                                       10



                                     Annex A

                                  Schedule C-1
                                   Commitments



- --------------------------------------------------------------------------------------------
                                  Term Loan A     Term Loan B     Term Loan C
                     Revolver      Commitment      Commitment      Commitment       Total
    Lender          Commitment   (subfacility)   (subfacility)   (subfacility)    Commitment
- --------------------------------------------------------------------------------------------
                                                                  
Foothill Capital   $30,000,000     $2,780,601      $2,934,365      $2,997,034    $30,000,000
Corporation
- --------------------------------------------------------------------------------------------
All Lenders        $30,000,000     $2,780,601      $2,934,365      $2,997,034    $30,000,000
- --------------------------------------------------------------------------------------------




                                    Annex B-1

                    Form Purchase Agreement for JOA Purchase



                                  Attachment A

JOA Model J4-MV Baby Diaper Machine per Specification QW010397 dated November 2,
2001, and QW020159-E, dated October 4, 2002. Equipment includes:

..    3 Dimensional core former
..    Timed debulking unit
..    Upper tissue
..    Waistband applicator & unwind
..    Frontal tape applicator & unwind w/off-line loop material unwind & entrance
     kit
..    On-line glue hardware
..    ADL applicator & unwind
..    Nonwoven unwind with space for AHP uni-cuff folder
..    Soft backsheet laminator
..    Rotomatic tape applicator
..    C-fold
..    Bi-fold
..    5 Sprocket horizontal stacker w/2 discharge stations
..    (1) size change kit to product our Size 6 product
..    Nordson ATS hotmelt system ($275,000 OEM allowance is included)
..    Acrison Gravimetric SAP System ($85,000 allowance is included)
..    3/4" pitch on stacker for no extra cost
..    19.5" width capability for nonwoven included.
..    Full-width lamination capability (up to 15")
..    Innovent pockets at no additional cost
..    Free installation of Vision system
..    Nexen Air clutches instead of standard clutches at no charge (Air Champ TL
     50A-E for most uses, and TL 60-A for knife sections)
..    Vacuum filters on splice units at no cost
..    New style spreader rolls (At appropriate stations) with single bearings
     (cantilevered) at no charge
..    Dual vacuum manifolds on AD applicator unit at no cost
..    30 gallon air accumulator at stacker at no cost
..    Longer stacker carriage capability at no cost
..    End tab detect optics included

PRICE                                                             US $3,650,250
- --------------------------------------------------------------------------------

Trade Option:

Base Price ...................................................    US$3,650,250
   Credit for (2) used JOA Napkin lines "Trade-in" ...........   (US$  525,000)
   Equipment Price ...........................................    US$3,125,250
   Finance Charge ............................................    US$   80,000
                                                                 -------------
   TOTAL PRICE ...............................................    US$3,205,250



NOTE: Price includes 160 hours technical service (travel & living expenses
      by customer).

      Price includes one (1) Lyora unwind vs. the two (2) specified.

The removal of the 2 JOA Napkin lines by Curt G. Joa Inc. can be facilitated
3-4 weeks after October 11, 2002.

Schedule:

Based on today's engineering and manufacturing workload, shipment would be
approximately 18-20 weeks from receipt of purchase order and down payment.

Terms of Payment:
- -----------------
Oct. 11, 2002   Down Payment with Order........................US$  500,000
Apr. 1, 2003    Progress Payment...............................US$  100,000
May 1, 2003     Progress Payment...............................US$  100,000
June 1, 2003    Progress Payment...............................US$  100,000
July 1, 2003    Progress Payment...............................US$  100,000
Aug. 1, 2003    Progress Payment...............................US$  100,000
Sept. 1, 2003   Progress Payment...............................US$  100,000
Oct. 1, 2003    Progress Payment...............................US$  100,000
Nov. 1, 2003    Progress Payment...............................US$  100,000
Dec. 1, 2003    Progress Payment...............................US$  100,000
Jan. 1, 2004    Progress Payment...............................US$  100,000
Feb. 1, 2004    Progress Payment...............................US$  100,000
Mar. 1, 2004    Progress Payment...............................US$  100,000
Apr. 1, 2004    Final Payment..................................US$1,505,250

NOTE: Curt G. Joa, Inc. will hold title of the equipment until final payment is
      received on April 1, 2004 through a promissory note. Foothill Capital
      Corporation will be granted a second priority interest until Final Payment
      is made.

      The April 1, 2003 payment and subsequent payments will be delayed if
      shipment of the machine is delayed. The first $100,000 payment will
      begin the first month after the machine is fully installed and making
      pads no earlier than April 1, 2003..

Future Equipment Purchase Incentive:

Within 12 months from receipt of purchase order of the machine proposed herein,
JOA offers the following discounted price for duplicate machine orders based on
US $3,650,250 base price. If the duplicate machine is ordered within 6 months, a
rebate of $46,000 will be credited against the final payment of the first
machine proposed herein.

Order of Qty. 1, price each.........................................US$3,504,000
Order of Qty. 2, price each.........................................US$3,395,000



                                                    Purchase Order

                                                          
Vancouver Maintenance Parts                                     DUPLICATE
Associated Hygienic Products LLC                             --------------------------------------------------------
Vancouver Maintenance Parts                                     Purchase Order      Date          Revision   Page
801 SE Assembly Ave                                             VANMP 0000003546    10/01/2002                 1
Vancouver WA 98661                                           --------------------------------------------------------
United States                                                   Payment Terms   Freight Terms                Ship Via
                                                                Scheduled       Customer Pickup at Factory   PICKUP
                                                             --------------------------------------------------------
                                                                Buyer: Connelly Owen   Currency Code:        USD
                                                             --------------------------------------------------------
     Vendor: 0000000840                                      Ship To: Associated Hygienic Products LLC
     CURT G JOA INC.                                                  Vancouver Maintenance Parts
     BIN NO 53193                                                     801 SE Assembly Ave
     MILWAUKEE WI 53288                                               Vancouver WA 98661
     United States                                                    United States

                                                             Bill To: Associated Hygienic Products LLC
                                                                      4455 RIVER GREEN PARKWAY
                                                                      DULUTH GA ______
                                                                      United States

Tax Exempt:   Y   Tax Exempt ID: NONE AVAILABL
- ----------------------------------------------------------------------------------------------------------------------
______________        Description                Mfg ID      Quantity   ___     PO Prize     Extended Amt    Due Date
- ----------------------------------------------------------------------------------------------------------------------
                      JOA Model J4-MV Baby                       1.00    __   3,205,250.00   3,205,250.00   01/01/2003
                      Diaper Machine                                        Schedule Total   3,205,250.00
                                                                                             ------------

                                                             Item Total                      3,205,250.00
                                                                                             ------------

SEE ATTACHMENT A

                                                                           Total PO Amount   3,205,250.00
                                                                                             ------------

- ----------------------------------------------------------------------------------------------------------------------


                                                                  Authorized Signature
                                                                                      --------------------------------





                                    Annex B-2

                      Form Promissory Note for JOA Purchase



                                 PROMISSORY NOTE

$2,705,250.00

                                                      Sheboygan Falls, Wisconsin
                                                                October   , 2002
                                                                        --

     FOR VALUE RECEIVED, ASSOCIATED HYGIENIC PRODUCTS LLC, a Delaware limited
liability company (the "Borrower") hereby promises to pay to the order of CURT
G. JOA, INC. (the "Lender"), the principal sum of TWO MILLION SEVEN HUNDRED FIVE
THOUSAND TWO HUNDRED FIFTY AND 00/100 DOLLARS ($2,705,250.00) plus accrued and
unpaid interest on or before April 1, 2004, in the manner set forth hereinafter,
or such earlier date as the outstanding principal balance and accrued and unpaid
interest shall become due pursuant to Section 6(b) below. The Borrower also
promises to pay interest on the outstanding principal balance at the rates and
on the dates set forth in Section 2 below.

     1. Principal Payments. The outstanding principal balance of this Note shall
be repaid as follows: (a) One Million Two Hundred Thousand and 00/100 Dollars
($1,200,000.00) shall be payable in twelve (12) equal consecutive monthly
installments of One Hundred Thousand and 00/100 Dollars ($100,000.00) due on the
first day of each calendar month commencing on April 1, 2003; and (b) a final
payment of One Million Five Hundred Five Thousand Two Hundred Fifty and 00/100
Dollars ($1,505,250.00) due on April 1, 2004.

     2. Interest. Upon the occurrence and during the continuance of an Event of
Default (as defined in Section 6 below), the aggregate unpaid principal amount
of this Note shall bear interest at an annual rate equal to 8%.

     3. Payments. All interest and principal payments due under this Note shall
be made in lawful money of the United States of America to the Lender at the
principal office of the Lender as set forth below, or to such other address, or
by wire transfer to such account, as may be designated from time to time by the
Lender to the Borrower in writing.

     4. Optional Prepayment. The Borrower may, at any time, prepay the
outstanding principal balance of this Notein inverse order of maturity in whole
or in part without premium or penalty; provided, however, that in the event of
any such prepayment, the Borrower shall also pay all accrued and unpaid interest
on the principal amount prepaid. The Borrower may not reborrow the amount of any
such principal prepayment.

     5. Application of Payments. All payments on the indebtedness evidenced by
this Note shall be applied first to pay any and all costs incurred by or on
behalf of the holder hereof and next to pay interest hereon and finally to pay
principal.

     6. Event of Defaults; Remedies.

          (a) Event of Default. As used in this Note, an "Event of Default"
shall mean any one of the following:



               (i) The Borrower shall: (A) become insolvent or take or fail to
take any action which constitutes an admission of inability to pay its debts as
they mature, (B) make a general assignment for the benefit of creditors or to an
agent authorized to liquidate any substantial amount of its assets, (C) become
the subject of an "order for relief" within the meaning of the United States
Bankruptcy Code, (D) file a petition in bankruptcy, or for reorganization, or to
effect a plan or other arrangement with creditors, (E) file an answer to a
creditor's petition, admitting the material allegations thereof, for an
adjudication of bankruptcy or for reorganization or to effect a plan or other
arrangement with creditors, (F) apply to a court for the appointment of a
receiver or custodian for any of its assets or properties, or (G) have a
receiver or custodian appointed for any of its assets or properties, with or
without consent, and such receiver shall not be discharged within sixty (60)
days after his appointment; or

               (ii) The Borrower dissolves or liquidates; or

               (iii) The Borrower shall fail to pay when due any installment of
the principal or interest under this Note;

               (iv) A default occurs under the Selective Business Security
Agreement referred to in Section 8 hereof; or

               (v) Any representation or warranty made or deemed made by or on
behalf of the Borrower to the Lender under or in connection with this Note, the
Selective Business Security Agreement referred to in Section 8 hereof, or any
certificate or information delivered in connection with this Note shall be
materially false on the date as of when made or delivered.

          (b) Remedies.

               (i) Upon the occurrence of any Event of Default, then without
notice, demand or action of any kind by the Lender, the entire amount of unpaid
principal and accrued and unpaid interest under this Note shall be automatically
and immediately due and payable.

               (ii) Upon the occurrence of an Event of Default, the Borrower
agrees to pay all reasonable fees and expenses incurred by the Lender, including
the reasonable fees of counsel, in connection with the protection and
enforcement of the rights of the Lender under this Note, including without
limitation the collection of any amounts due under this Note and the protection
and enforcement of such rights in any bankruptcy, reorganization or insolvency
proceeding involving the Borrower.

               (iii) No remedy herein conferred upon the Lender is intended to
be exclusive of any other remedy and each and every such remedy shall be
cumulative and shall be in addition to every other remedy given under this Note
or now or hereafter existing by law. No failure or delay on the part of the
Lender in exercising any right or remedy hereunder shall operate as a waiver
thereof nor shall any single or partial exercise of any right hereunder preclude
other or further exercise.

     7. Notices. All notices given hereunder shall be in Writing and (a)
delivered, (b) sent by express or first class mail, or (c) sent by facsimile to
the number set forth below, or to such other

                                      -2-



address with respect to either party as such party shall notify the other in
writing; such notices shall be deemed given when delivered, mailed or
transmitted:

          If to the Borrower:

               Associated Hygienic Products LLC
               4455 River Green Parkway
               Duluth, GA 30096
               Facsimile No. (770) 623-8887

          If to the Lender:

               Curt G. Joa, Inc.
               100 Crocker Avenue
               Sheboygan Falls, WI 53085
               Facsimile No. (920) 467-2924

     8. Security. All of the obligations evidenced by this Note are secured by
that certain Selective Business Security Agreement of even date herewith from
the Borrower to the Lender.

     9. Waiver. The Borrower hereby waives presentment for payment, protest and
demand, notice of protest and demand.

     10. Waiver of Jury Trial: THE BORROWER (AND THE LENDER BY ACCEPTANCE OF
THIS NOTE) HEREBY AGREE THAT THE BORROWER AND THE LENDER IRREVOCABLY WAIVE ANY
AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR
RELATING TO THIS NOTE.

     11. Governing Law. This Note shall be governed by the substantive law of
the State of Wisconsin.

     12. No Violation. The Borrower represents that no agreement to which it is
a party would prohibit it from entering into this Note or enforcing any term of
this Note against it.

                                                ASSOCIATED HYGIENIC PRODUCTS LLC


                                                --------------------------------
                                                Its:
                                                     ---------------------------

                                      -3-



                                                     
UCC FINANCING STATEMENT
FOLLOW INSTRUCTIONS (front and back) CAREFULLY
==============================================
A. NAME & PHONE OF CONTACT AT FILER [optional]
   David L. Bourne
- ----------------------------------------------
B. SEND ACKNOWLEDGMENT TO: (Name and Address)

     David L. Bourne
     Quarles & Brady LLP
     411 E. Wisconsin Avenue
     Milwaukee, WI 53202
                                                        THE ABOVE SPACE IS FOR FILING OFFICE USE ONLY
====================================================================================================================================

1. DEBTOR'S EXACT FULL LEGAL NAME - insert only one debtor name (1a or 1b) - do not abbreviate or combine names

   ---------------------------------------------------------------------------------------------------------------------------------
   1a. ORGANIZATION'S NAME

   Associated Hygienic Products LLC
OR ---------------------------------------------------------------------------------------------------------------------------------
   1b. INDIVIDUAL'S LAST NAME                                 FIRST NAME                        MIDDLE NAME         SUFFIX

- ------------------------------------------------------------------------------------------------------------------------------------
1c. MAILING ADDRESS                                           CITY                              STATE  POSTAL CODE  COUNTRY

4455 River Green Parkway                                      Duluth                            GA     30096        U.S.A.
- ------------------------------------------------------------------------------------------------------------------------------------
1d. SEE INSTRUCTIONS  ADD'L INFO RE 1e. TYPE OF ORGANIZATION  1f. JURISDICTION OF ORGANIZATION  1g. ORGANIZATION ID #, if any
                      ORGANIZATION
                      DEBTOR                                  Delaware                                                      [ ] NONE
====================================================================================================================================
2. ADDITIONAL DEBTOR'S EXACT FULL LEGAL NAME - insert only one debtor name (2a or 2b) - do not abbreviate or combine names

   ---------------------------------------------------------------------------------------------------------------------------------
   2a. ORGANIZATION'S NAME

OR ---------------------------------------------------------------------------------------------------------------------------------
   2b. INDIVIDUAL'S LAST, NAME                                FIRST NAME                        MIDDLE NAME         SUFFIX

- ------------------------------------------------------------------------------------------------------------------------------------
2c. MAILING ADDRESS                                           CITY                              STATE  POSTAL CODE  COUNTRY

- ------------------------------------------------------------------------------------------------------------------------------------
2d. SEE INSTRUCTIONS  ADD'L INFO RE 2e. TYPE OF ORGANIZATION  2f. JURISDICTION OF ORGANIZATION  2g. ORGANIZATION ID #, if any
                      ORGANIZATION
                      DEBTOR                                                                                                [ ] NONE
====================================================================================================================================
3. SECURED PARTY'S NAME (or NAME of TOTAL ASSIGNEE of ASSIGNOR S/P)-insert only one secured party name (3a or 3b)

   ---------------------------------------------------------------------------------------------------------------------------------
   3a. ORGANIZATION'S NAME

   Curt G. Joa, Inc.
OR ---------------------------------------------------------------------------------------------------------------------------------
   3b. INDIVIDUAL'S LAST NAME                                 FIRST NAME                        MIDDLE NAME         SUFFIX

- ------------------------------------------------------------------------------------------------------------------------------------
3c. MAILING ADDRESS                                           CITY                              STATE  POSTAL CODE  COUNTRY

100 Crocker Avenue                                            Sheboygan Falls                   WI     53085        U.S.A.
====================================================================================================================================
4. This FINANCING STATEMENT covers the following collateral:

JOA Model J4-MV Baby Diaper Machine, Serial No. WM3270-1899 as offered on Quotation No. QW020159-E dated October 4, 2002.

====================================================================================================================================
5. ALTERNATIVE DESIGNATION [if applicable]: [ ] LESSEE/LESSOR [ ] CONSIGNEE/CONSIGNOR [ ] BAILEE/BAILOR [ ] SELLER/BUYER [ ]
   AG. LIEN [ ] NON-UCC FILING
====================================================================================================================================
6. [ ] This FINANCING STATEMENT is to be filed [for   7. Check to REQUEST SEARCH REPORT(S) [ ] All Debtors [ ] Debtor 1 [ ] Debtor 2
   record] [or recorded] in the REAL ESTATE RECORDS      on Debtor(s) [ADDITIONAL FEE]
   Attach Addendum                     [applicable]      [optional]
====================================================================================================================================
8. OPTIONAL FILER REFERENCE DATA

====================================================================================================================================



FILING OFFICE COPY -- UCC FINANCING STATEMENT (FORM UCC1) (REV. 05/22/02)
WIUCCIPNAT - 10/01/02 C T CORPORATION SYSTEM



                                    Annex B-3

                    Form Security Agreement for JOA Purchase



                      SELECTIVE BUSINESS SECURITY AGREEMENT

                              1. SECURITY INTEREST

Wisconsin Bankers Association 1990                         Dated October  , 2002
                                                                        --

     The undersigned ("Debtor") grants Curt G. Joa, Inc. ("Lender") a security
interest in property, wherever located, checked in Section 2 ("Collateral") to
secure all debts, obligations and liabilities, Debtor to Lender arising out of,
credit contemporaneously granted by Lender to Debtor, ("Obligations").

                          2. DESCRIPTION OF COLLATERAL

One or more boxes must be checked.

     (a)  [ ]  All Collateral. If checked here, all equipment, fixtures,
               inventory (including all goods held for sale, lease or
               demonstration or to be furnished under contracts of service,
               goods leased to others, trade-ins and repossessions, raw
               materials, work in process and materials or supplies used or
               consumed in Debtor's business), documents relating to inventory,
               general intangibles, accounts, contract rights, chattel paper and
               instruments, now owned or hereafter acquired by Debtor (or by
               Debtor with spouse);
     (b)  [ ]  Scheduled Collateral. If checked here, all inventory, accounts,
               contract rights, equipment, general intangibles, instruments,
               documents of title and chattel paper described in the attached
               schedule and any additional schedules delivered by Debtor to
               Lender from time to time;
     (c)  [X]  Specific Collateral. If checked here, the following described
               property now owned or hereafter acquired by Debtor Joa Model
               J4-MV Baby Diaper Machine, Serial No. WM 3270-1899 as purchased
               under Purchase Order No. VNAMP 0000003546 dated Oct, 8, 2002
     (d)  [ ]  All Inventory. If checked here, all inventory and documents
               relating to inventory now owned or hereafter acquired by Debtor
               (or by Debtor with spouse), including all goods held for sale,
               lease or demonstration or to be furnished under contracts of
               service, goods leased to others, trade-ins and repossessions, raw
               materials, work in process and materials or supplies used or
               consumed in Debtor's business;
     (e)  [ ]  All Receivables. If checked here, all acoounts, contract rights,
               chattel paper and instruments now owned or hereafter acquired by
               Debtor (or by Debtor with spouse);
     (f)  [ ]  All equipment. If checked here, all equipment and fixtures now
               owned or hereafter acquired by Debtor (or by Debtor with spouse);
     (g)  [ ]  All General Intangibles. If checked here, all general intangibles
               now owned or hereafter acquired by Debtor (or by Debtor with a
               spouse);

and all additions and accessions to, all spare and repair parts, special tools,
equipment and replacements for, all returned or repossessed goods the sale of
which _______ to, and all proceeds and products of the foregoing.

                             3. DEBTOR'S WARRANTIES

     Debtor warrants that while any at the Obligations are unpaid:

     (a) Ownership. Debtor owns the Collateral free of all encumbrances and
security interests (except Lender's purchase money security interest and
Foothill Capital Corporation's security interest). No financing statement (other
than Lender's and Foothill Capital Corporation's) is on file covering the
Collateral. Debtor, acting alone (having obtained the prior written consent of
Foothill Capital Corporation), may grant a security interest in the Collateral.
     (f) Valid incorporation. Debtor is duly organized, validly existing and in
good standing under the laws of the state of Delaware and is licensed to do
business in Washington.
     (g) Other agreements. Debtor is not in default under any material agreement
for the payment of money.
     (h) Authority to contract. The execution and delivery of this Agreement and
any instruments evidencing Obligations will not violate or constitute a
____________ of Debtor's articles of incorporation, by-laws, partnership
agreement or any agreement or restriction to which Debtor is a party or is
subject.
     (i) Accuracy of information. All information, certificates or statements
given to Lender pursuant to this Agreement shall be true and complete when
given.
     (j) Addresses. The address of Debtor's place of business, or if Debtor has
more than one place of business, then the address of the Debtor's chief
executive office, is shown opposite Debtor's signature. The address where the
Collateral will be kept, if different from that appearing opposite Debtor's
signature, is 801 S.E. Assembly Avenue, Vancouver, NA 98661. Such locations
shall not be changed without prior written consent of Lender, but the parties
intend that the Collateral, wherever located, is covered by this Agreement.
     (k) Change of name or address. Debtor shall immediately advise Lender in
writing of any change in name of chief executive office.
     (l) Environmental laws. To the knowledge of the senior management of
Debtor, Debtor is in compliance with all federal, state or local laws,
regulations, ordinance or rules (collectively, "Environmental Laws"), other than
for such non-compliance as could not reasonably be expected to have a material
adverse effect on the business or operations of Debtor. Debtor shall indemnify
and hold harmless Lender, its directors, officers, employees and agents from all
loss, costs (including reasonable attorneys' fees and legal expenses),
liabilities and damages whatsoever directly or indirectly resulting from,
arising out of, or based upon Debtor's noncompliance with Environmental Laws at
any of its facilities or properties at which the Collateral is located.

                      5. PERSONS BOUND AND OTHER PROVISIONS

     This Agreement benefits Lender, its successor and assigns, and binds Debtor
and its successors and assigns. THIS AGREEMENT INCLUDES ADDITIONAL PROVISIONS ON
REVERSE SIDE.

                                                ASSOCIATED HYGIENIC PRODUCTS LLC


                                  (SEAL)   By:
- ----------------------------------            ----------------------------------

(--------------------------------------)   (-----------------------------------)
          TYPE OF ORGANIZATION                             (TITLE)


By:                                        *
   -------------------------------------    ------------------------------------

(--------------------------------------)
                 (TITLE)                   Address: 4455 River Green Parkway
                                                      See Section 3(_)
*
 ---------------------------------------            Duluth, GA 30096
                                           (County)
                                                   -----------------------------
*    Type or print name above.                       ORIGINAL BANK COPY



                              ADDITIONAL PROVISIONS

                             6. SALE AND COLLECTIONS

     (a) Deposit with Lender. At any time Lender may require that all proceeds
of Collateral received by Debtor upon the disposition of the Collateral shall be
held by Debtor upon an express trust for Lender, shall not be commingled with
any other funds or property of Debtor and shall be turned over to Lender in
precisely the form received (but endorsed by Debtor if necessary for collection)
not later than the business day following the day of their receipt. All proceeds
of Collateral received by Lender upon the disposition of the Collateral directly
or from Debtor shall be applied against the Obligations in such order and at
such times as Lender shall determine.

                              7. DEBTOR'S COVENANTS

     Debtor agrees:

     (a) Maintenance of Collateral. Debtor shall; maintain the Collateral in
good condition and repair and not permit its value to be impaired: keep it free
from all liens, encumbrances and security interests (other than Lender's
security interest); defend it against all claims and legal proceedings by
persons other than Lender; pay and discharge when due all taxes, license fees,
levies, and other charges upon it; not sell, lease or otherwise dispose of it or
permit it to become a fixture or an accession to other goods, except for sales
or leases of inventory as provided in this Agreement, not permit it to be used
in violation of any applicable law, regulation or policy of insurance. Loss of
or damage to the Collateral shall not release Debtor from any of the
Obligations.
     (b) Insurance. Debtor shall keep the Collateral and Lender's interest in it
insured under policies with such provisions, for such amounts and by such
insurers as are typical in Debtor's business, and shall furnish evidence of such
insurance satisfactory to Lender. Debtor assigns (and directs any insurer to
pay) to Lender the proceeds of all such insurance, and authorizes Lender to
indorse in the name of Debtor any instrument for such proceeds and, at the
option of Lender, to apply such proceeds to any unpaid balance of the
Obligations, whether or not due, and/or to restoration of the Collateral,
returning any excess to Debtor.
     (c) Maintenance of security interest. Debtor shall pay all expenses and,
upon request, take any action reasonably deemed advisable by Lender to preserve
the Collateral or to establish, determine priority of, perfect, continue
perfected, terminate and/or enforce Lender's interest in it or rights under this
Agreement.
     (d) Taxes and other charges. Pay and discharge all lawful taxes,
assessments and government charges upon Debtor or against its properties prior
to the date on which penalties attach, unless and to the extent only that such
taxes, assessments and charges are contested in good faith and by appropriate
proceedings by Debtor.
     (e) Records and statements. Debtor shall furnish to Lender financial
statements and such other financial information respecting Debtor at such times
and in such form as Lender may reasonably request. Debtor shall keep accurate
and complete records respecting the Collateral in such form as Lender may
approve. At such times as Lender may reasonably require. Debtor shall furnish to
Lender a statement certified by Debtor and in such form and containing such
information as may be prescribed by Lender, showing the current status and value
of the Collateral.
     (f) Inspection of Collateral. Subject to Lender's execution and delivery to
Debtor of a confidentiality agreement in form and substance reasonably
satisfactory to Lender and Debtor, At reasonable times during normal business
hours Lender may examine the Collateral and Debtor's records pertaining to it,
wherever located, and make copies of record (except confidential or ________
records) Debtor shall assist Lender in so doing.
     (g) Service charge. In addition to the required payments under the
Obligations and this Agreement, Debtor will pay Lender's service charges in
respect of the Collateral as set forth on Exhibit A attached hereto if Debtor
requests such services and Lender provides such services.

                               8. RIGHTS OF LENDER

     (a) Authority to perform for Debtor. Upon the occurrence of an event of
default or it Debtor fails to perform any of Debtor's duties set forth in this
Agreement or in any evidence of or document relating to the Obligations, Lender
is authorized, in Debtor's name or otherwise, to take any such action including
without limitation signing Debtor's name or paying any amount so required, and
the cost shall be one of the Obligations secured by this Agreement and shall be
payable by Debtor upon demand with interest from the date of payment by Lender
at the highest rate stated in any evidence of any Obligation but not in excess
of the maximum rate permitted by law,
     (d) Non-liability of Lender. Lender has no duty to protect, insure, collect
or realize upon the Collateral or preserve rights in it against prior parties.
Debtor releases Lender from any liability for any act or omission relating to
the Obligations, the Collateral or this Agreement, except Lender's gross
negligence willful misconduct.

                                   9. DEFAULT

     Upon the occurrence of one or more of the following events of default,

     Nonperformance. Debtor fails to pay when due any of the Obligations or to
     perform, or rectify breach of, any warranty or other undertaking by Debtor
     in this Agreement or in any evidence of or document relating to the
     Obligations;

     Inability to Perform. Debtor or a surety for any of the Obligations ceases
     to exist, becomes insolvent or the subject of bankruptcy or insolvency
     proceedings;

     Misrepresentation. Any representation made to induce Lender to extend
     credit to Debtor, under this Agreement or otherwise, is false in any
     material respect when made

all of the Obligations shall, at the option of Lender and without any notice or
demand, become immediately payable; and Lender shall have all rights and
remedies for default provided by the Winsconsin Uniform Commercial Code, as well
as any other applicable law and any evidence of or document relating to any
Obligations. With repect to such rights and remedies.

     (a) Repossession. Lender may take possession of Collateral without notice
or hearing, which Debtor waives
     (b) Assembling Collateral. Lender may require Debtor to assemble the
Collateral and to make it available to Lender at any convenient place designated
by Lender.
     (c) Notice of disposition. Written notice, when required by law, sent to
any address of Debtor in this Agreement at least 10 calendar days (counting the
day of sending) before the date of a proposed disposition of the Collateral is
reasonable notice.
     (d) Expenses and application of proceeds. Debtor shall reimburse Lender for
any expense incurred by Lender in protecting or enforcing its rights under this
Agreement before and after judgment, including, without limitation, reasonable
attorneys' fees and legal expenses and all expenses of taking possession,
holding, preparing for disposition and disposing of the Collateral. After
deduction of such expenses, Lender may apply the proceeds of disposition to the
Obligations in such order and amounts as it elects; provided, that once the
Obligations have been satisfied in full, any excess proceeds shall be paid over
to Foothill Capital Corporation.
     (e) Waiver. Lender may permit Debtor to remedy any default without waiving
the default so remedied, and Lender may waive any default without waiving any
other subsequent or prior default by Debtor.

                               10. INTERPRETATION

     The validity, construction and enforcement of this Agreement are governed
by the internal laws of Wisconsin. All terms not otherwise defined have the
meanings assigned to them by the Wisconsin Uniform Commercial Code. Invalidity
of any provision of this Agreement shall not affect the validity of any other
provision. This Agreement is intended by the Debtor and Lender as a final
expression of this Agreement and as a complete and exclusive statement of its
terms, there being no conditions to the enforceability of this Agreement This
Agreement may not be supplemented or modified except in writing.



                                                                       Illegible

                        [LETTERHEAD OF CURT G. JOA, INC.]

SERVICE RATES - EFFECTIVE JUNE 1, 2001

TECHNICAN:

Monday - Saturday    US$800/day (minimum) plus living and travel expenses.
                     US$100/hr. in excess of 8 hrs./day.
Sundays & Holidays   US$1000/day (minimum) plus living and travel expenses.
                     US$125/hr. in excess of 8 hrs./day.

ENGINEER:

Monday - Saturday    US$1000/day (minimum) plus living and travel expenses.
                     US$125/hr. in excess of 8 hrs./day.
Sundays & Holidays   US$1200/day (minimum) plus living and travel expenses.
                     US$150/hr. in excess of 8 hrs./day.

TRAVEL TIME (MINIMUM DAILY CHARGE APPLIES - SEE NOTE 2):

Monday - Friday               US$80/hr.
Saturday, Sunday & Holidays   US$100/hr.

WEEKENDS:            US$150/day plus living expenses for Saturday and Sunday
NOTES:               with no work.

     1.   Travel time and working time occurring on the same day will be
          combined to meet the minimum daily charge.

     2.   Minimum daily charge does not apply to travel time occurring on
          Saturday, Sunday, Holidays, or any day when the technician or engineer
          has worked eight (8) hours in the JOA Factory. In this case, only
          travel time will be billed.

     3.   Weekends and holidays are according to the U.S.A. and Joa calendars,
          unless otherwise agreed at the time service is requested.

     4.   Rates are subject to change and must be confirmed when the service is
          requested.

     5.   Overseas air travel is booked in Business Class. All other flights are
          booked in Coach Class, subject to availability.

     6.   Travel time is determined from the time leaving home, the job site or
          hotel and arriving at destination.

     7.   On extended visits, the technician or engineer is authorized to return
          home for a weekend every two (2) weeks within the continental U.S. and
          Canada or every four (4) weeks when working in any other location. All
          travel time and expenses are to Buyer's account.

                                                            CURT G. JOA, INC.



                                 PROMISSORY NOTE

$2,705,250.00                                         Sheboygan Falls, Wisconsin
                                                               October   , 2002
                                                                       --

     FOR VALUE RECEIVED, ASSOCIATED HYGIENIC PRODUCTS LLC, a Delaware limited
liability company (the "Borrower") hereby promises to pay to the order of CURT
G. JOA, INC. (the "Lender"), the principal sum of TWO MILLION SEVEN HUNDRED FIVE
THOUSAND TWO HUNDRED FIFTY AND 00/100 DOLLARS ($2,705,250.00) plus accrued and
unpaid interest on or before April 1, 2004, in the manner set forth hereinafter,
or such earlier date as the outstanding principal balance and accrued and unpaid
interest shall become due pursuant to Section 6(b) below. The Borrower also
promises to pay interest on the outstanding principal balance at the rates and
on the dates set forth in Section 2 below.

     1. Principal Payments. The outstanding principal balance of this Note shall
be repaid as follows: (a) One Million Two Hundred Thousand and 00/100 Dollars
($1,200,000.00) shall be payable in twelve (12) equal consecutive monthly
installments of One Hundred Thousand and 00/100 Dollars ($100,000.00) due on the
first day of each calendar month commencing on April 1, 2003; and (b) a final
payment of One Million Five Hundred Five Thousand Two Hundred Fifty and 00/100
Dollars ($1,505,250.00) due on April 1, 2004.

     2. Interest. Upon the occurrence and during the continuance of an Event of
Default (as defined in Section 6 below), the aggregate unpaid principal amount
of this Note shall bear interest at an annual rate equal to 8%.

     3. Payments. All interest and principal payments due under this Note shall
be made in lawful money of the United States of America to the Lender at the
principal office of the Lender as set forth below, or to such other address, or
by wire transfer to such account, as may be designated from time to time by the
Lender to the Borrower in writing.

     4. Optional Prepayment. The Borrower may, at any time, prepay the
outstanding principal balance of this Notein inverse order of maturity in whole
or in part without premium or penalty; provided, however, that in the event of
any such prepayment, the Borrower shall also pay all accrued and unpaid interest
on the principal amount prepaid. The Borrower may not reborrow the amount of any
such principal prepayment.

     5. Application of Payments. All payments on the indebtedness evidenced by
this Note shall be applied first to pay any and all costs incurred by or on
behalf of the holder hereof and next to pay interest hereon and finally to pay
principal.

     6. Event of Defaults; Remedies.

          (a) Event of Default. As used in this Note, an "Event of Default"
shall mean any one of the following:



               (i) The Borrower shall: (A) become insolvent or take or fail to
take any action which constitutes an admission of inability to pay its debts as
they mature, (B) make a general assignment for the benefit of creditors or to an
agent authorized to liquidate any substantial amount of its assets, (C) become
the subject of an "order for relief" within the meaning of the United States
Bankruptcy Code, (D) file a petition in bankruptcy, or for reorganization, or to
effect a plan or other arrangement with creditors, (E) file an answer to a
creditor's petition, admitting the material allegations thereof, for an
adjudication of bankruptcy or for reorganization or to effect a plan or other
arrangement with creditors, (F) apply to a court for the appointment of a
receiver or custodian for any of its assets or properties, or (G) have a
receiver or custodian appointed for any of its assets or properties, with or
without consent, and such receiver shall not be discharged within sixty (60)
days after his appointment; or

               (ii) The Borrower dissolves or liquidates; or

               (iii) The Borrower shall fail to pay when due any installment of
the principal or interest under this Note;

               (iv) A default occurs under the Selective Business Security
Agreement referred to in Section 8 hereof; or

               (v) Any representation or warranty made or deemed made by or on
behalf of the Borrower to the Lender under or in connection with this Note, the
Selective Business Security Agreement referred to in Section 8 hereof, or any
certificate or information delivered in connection with this Note shall be
materially false on the date as of when made or delivered.

          (b) Remedies.

               (i) Upon the occurrence of any Event of Default, then without
notice, demand or action of any kind by the Lender, the entire amount of unpaid
principal and accrued and unpaid interest under this Note shall be automatically
and immediately due and payable.

               (ii) Upon the occurrence of an Event of Default, the Borrower
agrees to pay all reasonable fees and expenses incurred by the Lender, including
the reasonable fees of counsel, in connection with the protection and
enforcement of the rights of the Lender under this Note, including without
limitation the collection of any amounts due under this Note and the protection
and enforcement of such rights in any bankruptcy, reorganization or insolvency
proceeding involving the Borrower.

               (iii) No remedy herein conferred upon the Lender is intended to
be exclusive of any other remedy and each and every such remedy shall be
cumulative and shall be in addition to every other remedy given under this Note
or now or hereafter existing by law. No failure or delay on the part of the
Lender in exercising any right or remedy hereunder shall operate as a waiver
thereof nor shall any single or partial exercise of any right hereunder preclude
other or further exercise.

     7. Notices. All notices given hereunder shall be in writing and (a)
delivered, (b) sent by express or first class mail, or (c) sent by facsimile to
the number set forth below, or to such other

                                      -2-



address with respect to either party as such party shall notify the other in
writing; such notices shall be deemed given when delivered, mailed or
transmitted:

        If to the Borrower:

             Associated Hygienic Products LLC
             4455 River Green Parkway
             Duluth, GA 30096
             Facsimile No. (770) 623-8887

        If to the Lender:

             Curt G. Joa, Inc.
             100 Crocker Avenue
             Sheboygan Falls, WI 53085
             Facsimile No. (920) 467-2924

     8. Security. All of the obligations evidenced by this Note are secured by
that certain Selective Business Security Agreement of even date herewith from
the Borrower to the Lender.

     9. Waiver. The Borrower hereby waives presentment for payment, protest and
demand, notice of protest and demand.

     10. Waiver of Jury Trial: THE BORROWER (AND THE LENDER BY ACCEPTANCE OF
THIS NOTE) HEREBY AGREE THAT THE BORROWER AND THE LENDER IRREVOCABLY WAIVE ANY
AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR
RELATING TO THIS NOTE.

     11. Governing Law. This Note shall be governed by the substantive law of
the State of Wisconsin.

     12. No Violation. The Borrower represents that no agreement to which it is
a party would prohibit it from entering into this Note or enforcing any term of
this Note against it.

                                                ASSOCIATED HYGIENIC PRODUCTS LLC


                                                /s/ George H. Jackson
                                                --------------------------------
                                                Its: CHIEF EXECUTIVE OFFICER

                                      -3-



                      SELECTIVE BUSINESS SECURITY AGREEMENT

                              1. SECURITY INTEREST

Wisconsin Bankers Association 1990                        Dated October   , 2002
                                                                        --

     The undersigned ("Debtor") grants Curt G. Joa, Inc., ("Lender") a security
interest in property, wherever located, checked in Section 2 ("Collateral") to
secure all debts, obligations and liabilities of Debtor to Lender arising out
of, credit contemporaneously granted by Lender to Debtor, ("Obligations").

                          2. DESCRIPTION OF COLLATERAL

One or more boxes must be checked.

     (a)  [ ]  All Collateral. If checked here, all equipment, fixtures,
               inventory (including all goods held for sale, lease or
               demonstration or to be furnished under contracts of service,
               goods leased to others, trade-ins and repossessions, raw
               materials, work in process and materials or supplies used or
               consumed in Debtor's business), documents relating to inventory,
               general intangibles, accounts, contract rights, chattel paper and
               instruments, now owned or hereafter acquired by Debtor (or by
               Debtor with spouse);
     (b)  [ ]  Scheduled Collateral. If checked here, all inventory, accounts,
               contract rights, equipment, general intangibles, instruments,
               documents of title and chattel paper described in the attached
               schedule and any additional schedules delivered by Debtor to
               Lender from time to time;
     (c)  [X]  Specific Collateral. If checked here, the following described
               property now owned or hereafter acquired by Debtor: Joa Model
               J4-MV Baby Diaper Machine, Serial No, WM 3270-1899 as purchased
               under Purchase Order No. VNAMP 4000003546 dated Oct, _, 2002
     (d)  [ ]  All Inventory. If checked here, all inventory and documents
               relating to inventory now owned or hereafter acquired by Debtor
               (or by Debtor with spouse), including all goods held for sale,
               lease or demonstration or to be furnished under contracts of
               service, goods leased to others, trade-ins and repossessions, raw
               materials, work in process and materials or supplies used or
               consumed in Debtor's business;
     (e)  [ ]  All Receivables. If checked here, all accounts, contract rights,
               chattel paper and instruments now owned or hereafter acquired by
               Debtor (or by Debtor with spouse);
     (f)  [ ]  All Equipment. If checked here, all equipment and fixtures now
               owned or hereafter acquired by Debtor (or by Debtor with spouse);
     (g)  [ ]  All General Intangibles. If checked here, all general intangibles
               now owned or hereafter acquired by Debtor (or by Debtor with
               spouse);

and all additions and accessions to, all spare and repair parts, special tools,
equipment and replacements for, all returned or repossessed goods the sale of
which _________ to, and all proceeds and products of the foregoing.

                             3. DEBTOR'S WARRANTIES

     Debtor warrants that while any of the Obligations are unpaid:

     (a) Ownership. Debtor owns the Collateral free of all encumbrances and
security interests (except Lender's purchase money security interest and
Foothill Capital Corporation's security interest). No financing statement (other
than Lender's and Foothill Capital Corporation's) is on file covering the
Collateral. Debtor, acting alone (having obtained the prior written consent of
Foothill Capital Corporation), may grant a security interest in the Collateral.
     (f) Valid incorporation. Debtor is duly organized, validly existing and in
good standing under the laws of the state of Delaware and is licensed to do
business in Washington.
     (g) Other agreements. Debtor is not in default under any material agreement
for the payment of money.
     (h) Authority to contract. The execution and delivery of this Agreement and
any instruments evidencing Obligations will not violate or constitute a _______
of Debtor's articles of incorporation, by-laws, partnership agreement or any
agreement or restriction to which Debtor is a party or is subject.
     (i) Accuracy of information. All information, certificates or statements
given to Lender pursuant to this Agreement shall be true and complete when
given.
     (j) Addresses. The address of Debtor's place of business, or if Debtor has
more than one place of business, then the address of the Debtor's chief
executive office, is shown opposite Debtor's signature. The address where the
Collateral will be kept, if different from that appearing opposite Debtor's
signature is 801 S.E. Assembly Avenue, Vancouver, NA 98661. Such locations shall
not be changed without prior written consent of Lender, but the parties intend
that the Collateral, wherever located, is covered by this Agreement.
     (k) Change of name or address. Debtor shall immediately advise Lender in
writing of any change in name of chief executive office.
     (l) Environmental laws. To the knowledge of the senior management of
Debtor, Debtor is in compliance with all federal, state or local laws,
regulations, ordinance or rules (collectively, "Environmental Laws"), other than
for such non-compliance as could not reasonably be expected to have a material
adverse effect on the business or operations of Debtor. Debtor shall indemnify
and hold harmless Lender, its directors, officers, employees and agents from all
loss, costs (including reasonable attorneys' fees and legal expenses),
liabilities and damages whatsoever directly or indirectly resulting from,
arising out of, or based upon Debtor's noncompliance with Environmental Laws at
any of its facilities or properties at which the Collateral is located.

                      5. PERSONS BOUND AND OTHER PROVISIONS

     This Agreement benefits Lender, its successor and assigns, and binds Debtor
and its successors and assigns. THIS AGREEMENT INCLUDES ADDITIONAL PROVISIONS ON
REVERSE SIDE.

                                           ASSOCIATED HYGIENIC PRODUCTS LLC


                                  (SEAL)   By: /s/ George H. Jackson
- ----------------------------------            ----------------------------------
                                              CHIEF EXECUTIVE OFFICER
(--------------------------------------)              (TITLE)
         TYPE OF ORGANIZATION


By:                                           GEORGE H. JACKSON III
   -------------------------------------   -------------------------------------

(--------------------------------------)
                 (TITLE)                   Address: 4455 River Green Parkway
                                                      See Section 3(_)
*
- ----------------------------------------            Duluth, GA 30096
                                           (County) GWINNETT

*    Type or print name above.                      ORIGINAL BANK COPY



                              ADDITIONAL PROVISIONS

                             6. SALE AND COLLECTIONS

     (a) Deposit with Lender. At any time Lender may require that all proceeds
of Collateral received by Debtor upon the disposition of the Collateral shall be
held by Debtor upon an express trust for Lender, shall not be commingled with
any other funds or property of Debtor and shall be turned over to Lender in
precisely the form received (but endorsed by Debtor if necessary for collection)
not later than the business day following the day of their receipt. All proceeds
of Collateral received by Lender upon the disposition of the Collateral directly
or from Debtor shall be applied against the Obligations in such order and at
such times as Lender shall determine.

                              7. DEBTOR'S COVENANTS

     Debtor agrees:

     (a) Maintenance of Collateral. Debtor shall: maintain the Collateral in
good condition and repair and not permit its value to be impaired: keep it free
from all liens, encumbrances and security interests (other than Lender's
security interest); defend it against all claims and legal proceedings by
persons other than Lender: pay and discharge when due all taxes, license fees,
levies, and other charges upon it; not sell, lease or otherwise dispose of it or
permit it to become a fixture or an accession to other goods, except for sales
or leases of inventory as provided in this Agreement, not permit it to be used
in violation of any applicable law, regulation or policy of insurance. Loss of
or damage to the Collateral shall not release Debtor from any of the
Obligations.
     (b) Insurance. Debtor shall keep the Collateral and Lender's interest in it
insured under policies with such provisions, for such amounts and by such
insurers as are typical in Debtor's business; and shall furnish evidence of such
insurance satisfactory to Lender. Debtor assigns (and directs any insurer to
pay) to Lender the proceeds of all such insurance, and authorizes Lender to
indorse in the name of Debtor any instrument for such proceeds and, at the
option of Lender, to apply such proceeds to any unpaid balance of the
Obligations, whether or not due, and/or to restoration of the Collateral,
returning any excess to Debtor.
     (c) Maintenance of security interest. Debtor shall pay all expenses and,
upon request, take any action reasonably deemed advisable by Lender to preserve
the Collateral or to establish, determine priority of, perfect, continue
perfected, terminate and/or enforce Lender's interest in it or rights under this
Agreement
     (d) Taxes and other charges. Pay and discharge all lawful taxes,
assessments and government charges upon Debtor or against its properties prior
to the date on which penalties attach, unless and to the extent only that such
taxes, assessments and charges are contested in good faith and by appropriate
proceedings by Debtor.
     (e) Records and statements. Debtor shall furnish to Lender financial
statements and such other financial information respecting Debtor at such times
and in such form as Lender may reasonably request. Debtor shall keep accurate
and complete records respecting the Collateral in such form as Lender may
approve. At such times as Lender may reasonably require. Debtor shall furnish to
Lender a statement certified by Debtor and in such form and containing such
information as may be presented by Lender, showing the current status and value
of the Collateral.
     (f) Inspection of Collateral. Subject to Lender's execution and delivery to
Debtor of a confidentiality agreement in form and substance reasonably
satisfactory to Lender and Debtor. At reasonable times during normal business
hours Lender may examine the Collateral and Debtor's records pertaining to it,
wherever located and make copies of records (except confidential _____________
records) Debtor shall assist Lender in so doing.
     (g) Service charge. In addition to the required payments under the
Obligations and this Agreement, Debtor will pay Lender's service charges in
respect of the Collateral as set forth on Exhibit A attached hereto if Debtor
requests such services and Lender provides such services.

                               8. RIGHTS OF LENDER

     (a) Authority to perform for Debtor. Upon the occurrence of an event of
default or if Debtor fails to perform any of Debtor's duties set forth in this
Agreement or in any evidence of or document relating to the Obligations, Lender
is authorized, in Debtor's name or otherwise, to take any such action including
without limitation signing Debtor's name or paying any amount so required and
the cost shall be one of the Obligations secured by this Agreement and shall be
payable by Debtor upon demand with interest from the date of payment by Lender
at the highest rate stated in any evidence of any Obligation but not in excess
of the maximum permitted by law.
     (d) Non-liability of Lender. Lender has no duty to protect, insure, collect
or realize upon the Collateral or preserve rights in it against prior parties.
Debtor releases Lender from any liability for any act or omission relating to
the Obligations, the Collateral or this Agreement, except Lender's gross
negligence willful misconduct.

                                    9. DEFAULT

     Upon the occurrence of one or more of the following events of default,

     Nonperformance. Debtor fails to pay when due any of the Obligations or to
     perform, or rectify breach of, any warranty or other undertaking by Debtor
     in this Agreement or in any evidence of or document relating to the
     Obligations;

     Inability to Perform. Debtor, or a surety for any of the Obligations ceases
     to exist, becomes insolvent or the subject of bankruptcy or insolvency
     proceedings;

     Misrepresentation. Any representation made to induce Lender to extend
     credit to Debtor, under this Agreement or otherwise, is false in any
     material respect when made

all of the Obligations shall, at the option of Lender and without any notice or
demand, become immediately payable; and Lender shall have all rights and
remedies for default provided by the Wisconsin Uniform Commercial Code, as well
as any other applicable law and any evidence of or document relating to any
Obligation. With respect to such rights and remedies

     (a) Repossession. Lender may take possession of Collateral without notice
or hearing, which Debtor waives.
     (b) Assembling Collateral. Lender may require Debtor to assemble the
Collateral and to make it available to Lender at any convenient place designate
by Lender.
     (c) Notice of disposition. Written notice, when required by law, sent to
any address of Debtor in this Agreement at least 10 calendar days (counting the
day of sending) before the date of a proposed disposition of the Collateral is
reasonable notice.
     (d) Expenses and application of proceeds. Debtor shall reimburse Lender for
any expense incurred by Lender in protecting or enforcing its rights under this
Agreement before and after judgment, including, without limitation, reasonable
attorneys' fees and legal expenses and all expenses of taking possession,
holding, preparing for disposition and disposing of the Collateral. After
deduction of such expenses Lender may apply the proceeds of disposition to the
Obligations in such order and amounts as it elects; provided, that once the
Obligations have been satisfied in full, any excess procceds shall be paid over
to Foothill Capital Corporation.
     (e) Waiver. Lender may permit Debtor to remedy any default without waiving
the default so remedied, and Lender may waive any default without waving any
other subsequent or prior default by Debtor.

                               10. INTERPRETATION

     The validity, construction and enforcement of this Agreement are governed
by the internal laws of Wisconsin. All terms not otherwise defined have the
meanings assigned to them by the Wisconsin Uniform Commercial Code. Invalidity
of any provision of this Agreement shall not affect the validity of any other
provision. This Agreement is intended by the Debtor and Lender as a final
expression of this Agreement and as a complete and exclusive statement of its
terms, there being no conditions to the enforceability of this Agreement. This
Agreement may not be supplemented or modified except in writing.



                        [LETTERHEAD OF CURT G. JOA, INC.]

SERVICE RATES - EFFECTIVE JUNE 1, 2001

TECHNICIAN:

Monday - Saturday    US$800/day (minimum) plus living and travel expenses.
                     US$100/hr. in excess of 8 hrs./day.
Sundays & Holidays   US$1000/day (minimum) plus living and travel expenses.
                     US$125/hr. in excess of 8 hrs./day.

ENGINEER:

Monday - Saturday    US$1000/day (minimum) plus living and travel expenses.
                     US$125/hr. in excess of 8 hrs./day.
Sundays & Holidays   US$1200/day (minimum) plus living and travel expenses.
                     US$150/hr. in excess of 8 hrs./day.

TRAVEL TIME (MINIMUM DAILY CHARGE APPLIES - SEE NOTE 2):

Monday - Friday               US$80/hr.
Saturday, Sunday & Holidays   US$100/hr.

WEEKENDS:            US$150/day plus living expenses for Saturday and Sunday
NOTES:               with no work.

     1.   Travel time and working time occurring on the same day will be
          combined to meet the minimum daily charge.

     2.   Minimum daily charge does not apply to travel time occurring on
          Saturday, Sunday, Holidays, or any day when the technician or engineer
          has worked eight (8) hours in the JOA factory. In this case, only
          travel time will be billed.

     3.   Weekends and holidays are according to the U.S.A. and Joa calendars,
          unless otherwise agreed at the time service is requested.

     4.   Rates are subject to change and must be confirmed when the service is
          requested.

     5.   Overseas air travel is booked in Business Class. All other flights are
          booked in Coach Class, subject to availability.

     6.   Travel time is determined from the time leaving home, the job site or
          hotel and arriving at destination.

     7.   On extended visits, the technician or engineer is authorized to return
          home for a weekend every two (2) weeks within the continental U.S. and
          Canada or every four (4) weeks when working in any other location. All
          travel time and expenses are to Buyer's account.

                                                       CURT G. JOA, INC.


                                                       /s/ George H. Jackson
                                                       -------------------------
                                                       11/14/02



                               WAIVER AND CONSENT

     This WAIVER AND CONSENT (this "Waiver") is made and entered into as of
March 28, 2003, between ASSOCIATED HYGIENIC PRODUCTS LLC, a Delaware limited
liability company (the "Borrower"), and FOOTHILL CAPITAL CORPORATION, in its
capacity as administrative agent (the "Agent") for the Lenders (as defined
below).

                                   WITNESSETH:

     WHEREAS, the Borrower, the Lenders and the Agent have entered into that
certain Amended and Restated Loan and Security Agreement dated as of March 14,
2001, as amended by that certain First Amendment to Loan Agreement effective as
of May 28, 2001, that certain Second Amendment to Loan Agreement effective as of
July 5, 2001, that certain Third Amendment and Waiver to Loan Agreement dated as
of September 10, 2001, that certain Fourth Amendment to Loan Agreement dated as
of December 19, 2001, that certain Fifth Amendment to Loan Agreement dated as of
April 17, 2002, and that certain Sixth Amendment to Loan Agreement dated as of
November 14, 2002 (as amended and as the same may hereafter be modified,
amended, restated or supplemented from time to time, the "Loan Agreement"),
pursuant to which the Lenders have agreed to make loans and other financial
accommodations to the Borrower from time to time; and

     WHEREAS, the Borrower is required to deliver audited financial statements
for the Borrower and its Subsidiaries for each fiscal year no later than 90 days
after the end of each of its fiscal years pursuant to Section 6.3(b)(i) of the
Loan Agreement; and

     WHEREAS, the Borrower has informed the Agent that it will be unable to
deliver such financial statements for the fiscal year ending December 31, 2002,
within 90 days of such fiscal year end; and

     WHEREAS, the Borrower has requested that the Agent and the Lenders waive
the provisions of Section 6.3(b)(i) of the Loan Agreement with respect to such
financial statements and consent to an extension of the 90 day period to April
30, 2003; and

     WHEREAS, the Agent and the Lenders have agreed to the requested waiver and
consent on the terms and conditions set forth herein;

     NOW THEREFORE, in consideration of the foregoing premises and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree that all capitalized terms not otherwise
defined herein shall have the meanings ascribed to such terms in the Loan
Agreement and further agree as follows:

     1. Waiver and Consent. The Agent and the Lenders hereby waive the
provisions of Section 6.3(b)(i) of the Loan Agreement to the extent necessary to
permit the Borrower to deliver audited financial statements for the Borrower and
its Subsidiaries for the fiscal year ending December 31, 2002, no later than
April 30, 2003.



     2. Representations and Warranties. The Borrower hereby represents and
warrants, for the benefit of the Agent and the Lenders, as follows:

          (a) The Borrower is a limited liability company organized, validly
existing and in good standing under the laws of the jurisdiction indicated at
the beginning of this Waiver and all other jurisdictions in which the failure to
be so qualified reasonably could be expected to constitute a Material Adverse
Change;

          (b) The execution, delivery, and performance by the Borrower of this
Waiver and the Loan Documents to which it is a party are within the Borrower's
limited liability company powers, have been duly authorized by all necessary
limited liability company action and do not and will not (i) violate any
provision of federal, state, or local law or regulation applicable to the
Borrower, the Governing Documents of the Borrower, or any order, judgment, or
decree of any court or other Governmental Authority binding on the Borrower,
(ii) conflict with, result in a breach of, or constitute (with due notice or
lapse of time or both) a default under any material contractual obligation of
the Borrower, (iii) result in or require the creation or imposition of any Lien
of any nature whatsoever upon any properties or assets of the Borrower, other
than Permitted Liens, or (iv) require any approval of the Borrower's members or
any approval or consent of any Person under any material contractual obligation
of the Borrower;

          (c) The execution, delivery and performance by the Borrower of this
Waiver and the Loan Documents to which it is a party do not and will not require
any registration with, consent or approval of, notice to, or other action with
or by, any Governmental Authority or other Person;

          (d) This Waiver and each other Loan Document to which the Borrower is
a party, and all other documents contemplated hereby and thereby, when executed
and delivered by the Borrower, will be the legally valid and binding obligations
of the Borrower, enforceable against the Borrower in accordance with their
respective terms, except as enforcement may be limited by equitable principles
or by bankruptcy, insolvency, reorganization, moratorium, or similar laws
relating to or limiting creditors' rights generally; and

          (e) After giving effect to this Waiver, no Default or Event of Default
is existing.

     3. No Other Waiver or Modification. Except for the waiver and consent set
forth herein, the text of the Loan Agreement and the Loan Documents shall remain
in full force and effect. The Borrower acknowledges and expressly agrees that
the Agent and the Lenders reserve the right to, and do in fact, require strict
compliance with all terms and provisions of the Loan Agreement and the other
Loan Documents.

     4. Counterparts. This Waiver may be executed in multiple counterparts, each
of which shall be deemed to be an original and all of which, taken together,
shall constitute one and the same agreement. In proving this Waiver in any
judicial proceedings, it shall not be necessary to produce or account for more
than one such counterpart signed by the party against whom such enforcement is
sought. Any

                                       2



signatures delivered by a party by facsimile transmission shall be deemed an
original signature hereto.

     5. Loan Document. This Waiver shall be deemed to be a Loan Document for all
purposes.

     6. Costs and Expenses. The Borrower agrees to pay on demand all reasonable
costs and expenses in connection with the preparation, execution, and delivery
of this Waiver and the other instruments and documents to be delivered
hereunder, including, without limitation, the reasonable fees and out-of-pocket
expenses of counsel for the Agent with respect thereto and with respect to
advising the Agent as to its rights and responsibilities hereunder and
thereunder.

     7. Governing Law. This Waiver shall be deemed to be made pursuant to the
laws of the State of Georgia with respect to agreements made and to be performed
wholly in the State of Georgia, and shall be construed, interpreted, performed
and enforced in accordance therewith.

     8. Effectiveness. This Waiver shall be effective as of the date first
written above upon the Agent's receipt of (i) a counterpart hereof duly executed
by the Borrower and the Lenders, and (ii) such other documents executed by the
Borrower and Hygienic as the Agent may reasonably require.

                [Remainder of this page intentionally left blank]

                                       3



     IN WITNESS WHEREOF, the parties hereto have executed this Waiver or caused
it to be executed by their duly authorized officers, effective as of the day and
year first written above.

BORROWER:                                       ASSOCIATED HYGIENIC PRODUCTS LLC


                                                By: /s/ Owen Connelly
                                                    ----------------------------
                                                Name: Owen Connelly
                                                Title: Vice President Accounting
                                                       & Finance


AGENT AND LENDER:                               FOOTHILL CAPITAL CORPORATION


                                                By: /s/ Kristy S. Loucks
                                                    ----------------------------
                                                Name: KRISTY S. LOUCKS
                                                Title: Vice President

EX-10.1

                                                                    EXHIBIT 10.1

                            DSG International Limited
                            Business Code of Conduct

Table of Contents

I.   Confidentiality

          .    How to treat Company confidential and proprietary information

II.  Conflicts of Interest

          .    Definition of potential conflict situations that may face an
               employee.

III. Gifts

          .    Policy on what gifts employees are able to accept.

IV.  Fraudulent Activities

          .    Expected employee conduct in their Company business dealings.

V.   Reporting Information

          .    Compliance requirements in the preparation of Company financial
               information.
          .    Importance of internal controls to safeguard Company assets.
          .    Proper statement of information to the public.

VI.  Communication Channels

          .    Process by which an employee can report unethical or corrupt
               behavior.

Policy No.I-DSGILAF-001-123102     Page 1 of 4




                            DSG International Limited
                                 Code of Conduct

Introduction

This Code of Conduct for DSG International Limited (the "Company") is intended
to provide guidelines to all employees regarding ethical behavior when acting on
behalf of the Company. In addition, this document sets forth a Code of Conduct
for senior financial officers, senior management and other Company officers that
are responsible for the preparation of financial information prior to its public
release.

The underlying principles of this Code embrace the belief that high ethical
standards are expected from all of our employees. The governing principle of the
Company is to protect its reputation in the marketplace by adhering to
fundamental business methods and practices that comply with the laws and
regulations that preside over its business activities.

Confidential/Proprietary Information

Confidential information includes but is not limited to such things as business
or marketing plans, financial data, computer software programs, information
about suppliers, customers, personnel and matters generally not known to the
public. This would also include confidential proprietary information like
copyrights, patents or other intellectual property. All employees are expected
to maintain the confidentiality of such information. Upon cessation of
employment, employees must return to the Company any confidential information in
their possession.

Conflicts of Interest

A conflict of interest arises when an employee engages in any activity that
advances their personal interest to the detriment of the Company's interest. It
is the responsibility of the individual employee to avoid situations that
compromise the interests of the Company for their benefit or personal gain. The
following are some of the activities that would be classified as conflicts of
interests and are prohibited by the Company:

     .    Assisting any competitor.
     .    Performing personal activities that result in any form of competition
          against the Company.
     .    Maintaining a financial interest even if passive in any organization
          doing business with the Company. The ownership of a nominal amount of
          shares of a publicly traded company does not constitute maintaining a
          financial interest for purposes of defining a conflict of interest.
     .    Using "insider" information not generally available to the public to
          promote personal gain. The Company's Insider Trading Policy should be
          referenced for further explanation.

Policy No.I-DSGILAF-001-123102     Page 2 of 4




Gifts

It is inappropriate to receive any gift as an employee from a Company business
partner if there could be a reasonable appearance that receipt of such gift
would influence a business relationship. However, it is proper to accept gifts
of nominal value that are customarily offered to others in similar
relationships. The receipt of any gift which is not nominal or customary must be
reported to your immediate superior. The gift must then be either returned or
disposed of and the provider be reminded in writing of the Company's policy in
this area.

Fraudulent Activities

The Company adheres to policies of "best practices" in all of its business
dealings. The Company will not tolerate any form of fraud or corruption in its
business activities or in the communication to the general public about any of
its business activities. Employees discovered to be engaged in fraudulent or
corrupt activities will be subject to termination and possibly face criminal
penalties from outside law enforcement agencies.

Reporting Information

Information of any type about the Company, but in particular financial
information is always expected to be recorded and reported accurately and
honestly. All officers, managers, and related parties involved with the
preparation of financial data within the Company are expected to comply with the
laws and standards of all regulatory bodies as they record and publish the
financial results of the Company's business. The Company is required to maintain
its books and records in compliance with such standards and laws set forth by
tax authorities, the Securities and Exchange Commission, the NASDAQ National
Market and any other pertinent regulatory agency.

It is imperative that the financial officers of the corporation do everything
possible to ensure that the books and records of the Company accurately reflect
its business transactions. The financial management of the Company is
responsible for the adequate design of systems of internal controls to assure
Company assets are both safe guarded and used for proper corporate purpose.
Financial statements must be prepared in conformity with generally accepted
accounting principles or any other required applicable standards.

Any financial manager or person responsible for the filing of or dissemination
of the Company's financial information is prohibited from knowingly making any
false or misleading statements or omissions of fact in the preparation or
presentation of such information. The Company will take every action necessary,
including legal measures, to protect its assets and reputation against any
employee proven to have knowingly misled the public by making false statements
or omitting facts relating to the financial performance of the Company.

Communication Channels - Speaking Up

If an employee knows of an unlawful or unethical situation they should
immediately communicate the matter to their manager. The manager is responsible
for seeing that the "complaint" is forwarded to the head of Human Resources
within the Company. The Company will review the report of unlawful or unethical
conduct and take necessary

Policy No.I-DSGILAF-001-123102     Page 3 of 4



action. The Company will not tolerate any threats or acts of retaliation against
an employee reporting unlawful or unethical conduct.

Application of the Code of Conduct

This Code of Conduct applies to all directors, officers and employees of the
Company as well as to the partners with whom it does business. The purpose of
this Code is to affirm the Company's strong dedication to expressing the highest
standards of business conduct everywhere it transacts business. Failure to
comply with the standards contained in the Code will result in disciplinary
action that includes possible termination of employment. The Company will refer
incidents of fraudulent or corrupt behavior to public authorities for possible
further action to be taken.

No Code of Conduct can address all specific situations. It is, therefore, every
employee's responsibility to apply the principles set forth in this Code and to
exercise good business judgment. Ethical behavior is good for our business. It
fosters a healthy competitive environment and customer respect and loyalty.

Policy No.I-DSGILAF-001-123102     Page 4 of 4

EX-11

EXHIBIT 11

COMPUTATION OF NET INCOME PER ORDINARY SHARE

	Year ended December 31,
	2002			2001			2000
	(in thousands except per share amounts)
Number of ordinary shares
Ordinary shares outstanding, beginning of year		6,989			6,675			6,675
Ordinary shares issued		—			314			—
Ordinary shares outstanding, end of year		6,989			6,989			6,675
Weighted average shares outstanding during the year		6,989			6,721			6,675
Loss from continuing operations	$	(355	)	$	(29,529	)	$	(566	)
Income from discontinued operations		17,600			1,966			3,529
Net income (loss)	$	17,245		$	(27,563	)	$	2,963
Income (loss) per share:
Continuing operations	$	(0.05	)	$	(4.39	)	$	(0.08	)
Discontinued operations		2.52			0.29			0.52
Income (loss) per share	$	2.47		$	(4.10	)	$	0.44

EX-13

EXHIBIT 13

ABOUT THE COMPANY

DSG International Limited (the “Company”) is a global company specialized in manufacturing and distribution of disposable baby diapers, adult incontinence and training pants products. The Company now has nine manufacturing plants established in Hong Kong, the United States, England, the People’s Republic of China (“PRC”), Thailand, Indonesia and Malaysia. The Company’s products are marketed and distributed throughout Asia, North America and Europe. Its principal brand names are “FITTI^®”, “PET PET^®”, “COSIES^®”, “COSIFITS^®”, “BABY LOVE^®”, “BABYJOY^®”, “LULLABY^®”, “CARES^®”, “CUDDLES^®”, “SUPER FAN-NIES^®”, “DISPO 123^™”, “HANDY^™”, “CERTAINTY^®”, “MERIT^®” and “DRYPERS^®”. These brands are synonymous with high quality and superior value, characteristics that the Company is dedicated to maintaining.

FINANCIAL HIGHLIGHTS

	Year Ended December 31,
	2002			2001			2000			1999		1998
	(In US$ million except per share amounts)
Net sales(1)	$	227.8		$	227.8		$	157.6		$	152.4	$	159.2
(Loss) income from continuing operations	$	(0.4	)	$	(29.5	)	$	(0.5	)	$	0.4	$	(2.2	)
Income from discontinued operations	$	17.6		$	2.0		$	3.5		$	4.0	$	3.8
Net income (loss)	$	17.2		$	(27.5	)	$	3.0		$	4.4	$	1.6
Shareholders’ equity	$	59.0		$	39.0		$	63.4		$	70.3	$	68.0
Income (loss) per share
Continuing operations	$	(0.05	)	$	(4.39	)	$	(0.08	)	$	0.07	$	(0.34	)
Discontinued operations	$	2.52		$	0.29		$	0.52		$	0.59	$	0.58
Net income (loss) per share	$	2.47		$	(4.10	)	$	0.44		$	0.66	$	0.24

⁽¹⁾ The amount of sales incentives included as a deduction from sales in accordance with Emerging Issues Task Force (“EITF”) No. 01-9, “Accounting for Consideration Given by a Vendor or a Customer (Including a Reseller of the Vendor’s Products)”, was $25.0, $26.7, $12.3, $10.8 and $8.3 for the years ended December 31, 2002, 2001, 2000, 1999 and 1998, respectively.

CONTENTS

THE DSG MANAGEMENT TEAM	3
Executive and Non-Executive Directors of DSG
TO OUR SHAREHOLDERS	4
Report on the highlights of 2002 and the outlook for 2003 by Brandon Wang, Chairman
OPERATIONS	6
Report of DSG’s operations world-wide in 2002
OPERATING AND FINANCIAL REVIEW AND PROSPECTS	9
SELECTED CONSOLIDATED FINANCIAL DATA	25
MANAGEMENT REPORT	27
by Edmund J Schwartz, Chief Financial Officer
INDEPENDENT AUDITORS’ REPORT	28
by Deloitte Touche Tohmatsu, Hong Kong
CONSOLIDATED STATEMENTS OF OPERATIONS	29
CONSOLIDATED BALANCE SHEETS	31
CONSOLIDATED STATEMENTS OF CASH FLOWS	33
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY	35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	36
SHAREHOLDER INFORMATION	64
DSG COMPANIES	65
DSG Corporate addresses world-wide

2

THE DSG MANAGEMENT TEAM

DSG EXECUTIVE DIRECTORS	DSG OFFICERS
Brandon S L Wang	Edmund J Schwartz
Chairman and Chief Executive Officer	Chief Financial Officer
Johnny S L Tsui	George Jackson
Member of Executive Cabinet, Chief Operating Officer of Greater China and Company Secretary	Chief Executive of USA
Patrick K Y Tsang	Patrick Wong
Member of Executive Cabinet and Chief Operating Officer of Europe	Chief Operating Officer—South East Asia
Terence Y F Leung	Steven Pankow
Member of Executive Cabinet	Executive Vice President of Sales & Marketing of USA
Peter Chang
Member of Executive Cabinet and Chairman of North American operations
DSG NON-EXECUTIVE DIRECTORS
Anil Thadani
Chairman of Schroder Capital Partners (Asia) Limited, Hong Kong
Owen Price
Formerly Managing Director of Dairy Farm International Holdings, Hong Kong (retired in 1993)

3

TO OUR SHAREHOLDERS

The year 2002 brought with it significantly improved financial performance. The recovery was the direct outcome of the improved financial results of the Company’s North American operations. With the effective integration of the Drypers acquisition completed in the first quarter of the year, the North American business realized the majority of its anticipated cost savings synergies even though sales remained flat compared to one year ago.

The Company also underwent a significant change in its operational structure in 2002 with the sale of its Australian subsidiaries. The sale of the Company’s Australian operations was consummated on December 6, 2002. The business was sold to an affiliate of Castle Harlan Australian Mezzanine Partners Pty Ltd. The ten months’ financial results ending October 31, 2002 for the Australian Operations are included as Discontinued Operations in this report.

In relation to the sale of its Australian subsidiaries the Company announced on March 21, 2003 the payment of a 70-cent dividend to shareholders of record on April 11, 2003. The dividend was paid on April 25, 2003.

Financial Review

Net sales from continuing operations in 2002 of $227.8 million were at par with the comparable period in 2001. In 2002, the Company recorded net loss from continuing operations of $355,000 compared to a net loss of $29.5 million in 2001. The improvement in 2002 resulted primarily from improved operating performance within the Company’s North American operations and the absence of certain charges recorded in 2001, including those related to the settlement of legal cases.

Income from discontinued operations in 2002 was $17.6 million compared to $2.0 million in 2001. The dominant factor in this improvement is related to increased performance within the Company’s Australian operations which were sold in the fourth quarter of 2002 and the $14.8 million gain realized on the sale of the Company’s Australian subsidiaries.

Net income in 2002 including discontinued operations was $17.2 million compared to a $27.6 million net loss in 2001. As previously mentioned, the improvement relates primarily to improved financial performance in North America and recognition of a gain on the sale of the Company’s Australian subsidiaries. On a consolidated basis, in 2002 the Company recorded net income of $2.47 per share versus a net loss of $4.10 per share in 2001.

Operations

North America

By the end of the first quarter of 2002, the North American operations had successfully accomplished the integration of the 2001 Drypers acquisition. The significantly improved financial performance in this region is a firm indication that the North American operations achieved most of its cost reduction goals with the integration of Drypers. Although the North American business operated under difficult market conditions in 2002, it is poised to take advantage of its new synergies as market conditions improve.

4

Asia

As a whole, the net sales in the Asian region dropped by 1.3% during 2002. However, we continued to have double digit sales growth in Thailand and Indonesia. The economies in this region were not as strong as they were in 2001 and the Company is continuing to promote aggressive, competitive and tailored marketing strategies in the various locales of the region. The success of this strategy is most evident in our Thailand operations which are in the process of expanding to a new manufacturing facility to meet increased demand for the Company’s products.

Europe

In Europe, the Company has scaled back its operations. However, the U.K. operation continues to concentrate on both branded and private label disposable diapers for the U.K. market.

Australia

In the fourth quarter of 2002, the Company’s Australian subsidiaries were sold to a venture capital group which is an affiliate of Castle Harlan Australian Mezzanine Partners Pty Ltd. The Company has included the financial results of the Australian subsidiaries for the period ended October 31, 2002 as a part of discontinued operations.

Outlook

The year 2002 was a year of financial recovery for the Company. The successful integration of the Drypers acquisition into the Company’s North American operations led the way to significantly improved profit performance. It was also a year in which a major divestiture occurred with the sale of the Company’s Australian subsidiaries. Once again the challenges of the marketplace did not offer much in the way of relief to the tough competitive environment created by the brand leaders within our industry. Competitive pricing pressures are expected to continue in 2003 in all of our markets. In addition, a new obstacle has been presented primarily in our Greater China (the PRC and Hong Kong) and South East Asian markets with the onset of the disease Severe Acute Respiratory Syndrome (SARS). The Company is unable to predict the impact this disease may have on the short or long-term growth of these markets. However, we continue to progress and follow our strategy of continuous improvement in every aspect of our business within each of our markets. I feel confident that this philosophy will accrue long term benefits to the Company and our efforts will be rewarded in the marketplace. Although we expect to face difficult market conditions and new challenges in the coming year, we remain optimistic about the future for DSG International Limited.

We appreciate the support of our shareholders and look forward to improving on the performance of this past year.

Brandon Wang

Chairman

5

OPERATIONS

DSG International Limited and its subsidiaries, first established in Hong Kong in 1973, is one of the world leading companies specialized in manufacturing disposable baby diapers, adult incontinence and training pants products. The Company now operates nine manufacturing facilities in North America, Asia and Europe with extensive distribution activities around the world.

The principal raw materials for the Company’s disposable products are fluff wood pulp and super absorbent polymer. Other raw materials include polyethylene backsheets, cloth-like breathable backsheets, polypropylene non-woven liners, adhesive closure tapes, mechanical closure tapes, hot melt adhesive, elastic, aloe vera and tissue.

There are different marketing and distribution strategies for each geographic segment of the Company, however, the Company’s fundamental strategies are:

l Producing high quality and value-added products for consumers.

l Providing healthy profit margins to distributors and retailers.

l Manufacturing in a highly flexible and efficient way.

l Responding intelligently to change in the marketplace.

NORTH AMERICA

During 2002 the Company made significant progress toward its goals of eliminating costs, increasing manufacturing efficiencies and improving overall operations by completing the integration of the Drypers acquisition. Net sales improved by 1.9% versus 2001, operating income improved by $18.6 million to $4.3 million. Recruitment of a number of seasoned industry professionals further strengthened the Company’s management team. The Company expects sales growth to be challenging in 2003, but anticipates financial results to continue to improve via its continued cost reduction efforts, combined with continued improvements in its manufacturing operations.

The net sales for the year 2002 were $161.5 million compared to $158.6 million in 2001. The increase in net sales resulted from gains in the private label baby products sector offset by the erosion of branded sales. Operating income increased by $18.6 million in year 2002 versus 2001. This increase is primarily the result of restructuring after the Drypers acquisition, a reduction of excess manufacturing capacity and reduced selling, general and administrative costs.

The Company continued to expand its private label diaper and training pant business, while maintaining key customers and markets in its branded business. On the branded side, the Company has retained national distribution on its DRYPERS^® brand with many retailers including Walgreens Drug Stores. The FITTI^® brand remains very strong in the leading U.S. retail markets of New York and New Jersey, in addition to other major markets throughout the U.S. On the private label side, the Company continued to strengthen its existing private label partnerships with major retailers like Wal-Mart, Kroger, Walgreens, Pathmark, A&P, Meijer, Aldi and others. The Company has expanded its base of private label by adding new customer partners like DeMoulas, Eckerd Drug and Giant Eagle. The Company continued to add new products in the area of disposable baby products. Included in the expansion of our product offering was a new XL size training pant and new features for baby diaper products. The Company will continue to target other major retailers to establish new profitable private label partnerships in all of its product categories.

6

In the adult incontinence area, the Company continued to pursue the strategy of having the capability to provide key retailers, institutions and consumers with product technology that is superior to what other manufacturers can currently provide. The “value” tier fitted briefs introduced by the Company in 1999 for the private label retailers has been well embraced by the consumers. As the result of this success, the Company currently is putting on efforts to bring new programs to more retailers and their primary institutional provider.

In line with the Company’s global fundamental marketing strategies, the Company’s North American operations provide its customers high quality products and superior service with satisfactory profit margins.

The Company’s principal brand names in North America are DRYPERS^®, FITTI^®, CUDDLES^® for disposable baby diapers and CERTAINTY^® for adult incontinence.

ASIA

The Company’s 2002 net sales in Asia dropped marginally to $62.1 million from $63.0 million in 2001. Continued double digit growth in the Company’s Thailand and Indonesia markets was offset by volume losses in the People’s Republic of China (“PRC”) and Malaysia. The Company has increased its efforts in 2003 to regain volume lost in these markets with specifically targeted marketing and sales programs while it continues to face the aggressive price discounting of competitive brands.

The Company’s major brands for disposable baby diapers are FITTI^®, PET PET^®, COSIFITS^®, FITTI^® Basic, BABY LOVE^® and BABYJOY^®. The Company produces and distributes adult incontinence products in Asia under the brand names DISPO 123^™, HANDY^™ and CERTAINTY^®.

The Company provides consumers with a different range of products with price differentiation to maintain its competitiveness against other local brands. The Company also has flexibility in tailoring packaging, brand and product differentiation and advertising and promotional activities to cope with different demands in various markets in the region. Although competition and pricing pressure has become more intense in the region, the Company believes that there is great potential for sales growth due to projected population growth figures and anticipated favorable currency rates. As a pioneer in the region, the Company has an advantage in entering and expanding in these markets by encouraging disposable diaper usage and establishing its brands at an early stage through strategic advertising and promotional activities.

EUROPE

The Company’s net sales in Europe were $4.1 million in 2002 compared to $6.2 million in 2001. The Company has scaled back its operations in Europe, but continues to market branded and private label disposable baby diapers. Operating loss for the year 2002 was $0.9 million compared with an operating loss of $1.4 million in 2001.

The Company’s brands in Europe for baby diapers are FITTI^®, COSIFITS^® and CARES^®. The Company believes that the presence of its branded and private label disposable baby diapers in the United Kingdom can be maintained, but continues to evaluate its market strategy in this region. The Company acknowledges that based on the current size of its operations it will be difficult to penetrate the market share of Procter & Gamble and Kimberly-Clark.

7

AUSTRALIA

The Company sold its Australian operations in the fourth quarter of 2002 to an affiliate of Castle Harlan Australian Mezzanine Partners Pty Ltd. The Company has included the financial results of the Australian operations for the period ended October 31, 2002 as a part of discontinued operations.

8

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion and analysis should be read in conjunction with the Selected Consolidated Financial Data and the Consolidated Financial Statements and related Notes which appear elsewhere in this Annual Report.

General

The Company’s revenues are primarily derived from the manufacture and sale of disposable baby diapers, adult incontinence and training pants products in North America, Asia and Europe, both under its own brands and private label brands of major retailers.

The Company is not taxed in the British Virgin Islands where it is incorporated. The Company’s subsidiaries are subject to taxation in the jurisdictions in which they operate.

The Consolidated Financial Statements of the Company are prepared in U.S. dollars, and the majority of its revenues are received and expenses are disbursed in U.S. dollars. Because certain of the Company’s subsidiaries account for their transactions in currencies other than U.S. dollars, the Consolidated Balance Sheets contain foreign currency translation adjustments and the Consolidated Statements of Operations contain realized exchange gains and losses due to exchange rate fluctuations.

As discussed in Note 5 to the Consolidated Financial Statements, the Company sold its Australian operations in December 2002. Consequently, the results of the Company’s Australian subsidiaries are presented as discontinued operations. References to the Company refer to its continuing operations, with the exception of the discussions regarding discontinued operations below.

Industry Trends

The Company believes that the most significant industry trends are:

l fluff wood pulp costs and other raw material costs decreased moderately in 2002, it is expected that fluff wood pulp costs will increase moderately in 2003, but may be otherwise negatively impacted due to rising petro-chemical costs resulting from uncertain market conditions;

l increasing demand for cloth-like breathable backsheet, mechanical closure tape and thin core pads products, which the Company is meeting through modifications to its machinery and product development effort;

l the domination of industry leaders in most of the markets putting pressure on retailers’ margins, which the Company is finding difficult to respond to by providing retailers with higher profit margins in the current highly competitive market conditions.

The Company is unable to predict whether the industry trends noted above would have a material effect on its future financial condition or results of operations and, if so, whether such an effect will be positive or negative.

9

OPERATING AND FINANCIAL REVIEW AND PROSPECTS—(Continued)

Forward-looking Statements

Certain written and oral statements made by the Company and its management may be considered “forward-looking statements” as defined under the Private Securities Litigation Reform Act of 1995, including statements made in this Annual Report on Form 20-F, public releases of information and other filings with the Securities and Exchange Commission. Generally, words such as “anticipate”, “estimate”, “will”, “project”, “expect”, “believe” and similar expressions identify forward-looking statements. All forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from the Company’s historical experience or our present expectations. Therefore, caution should be taken not to place undue reliance on any such forward-looking statements since such statements speak only as of the date when made. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Risk Factors

Among the factors that have a direct effect on the results of operations and financial condition of the Company are the following:

1. Raw Material Cost

The overall raw material costs decreased moderately during 2002. The Company’s operating results may be adversely affected by any increases in raw material costs in the future, specifically the cost of the main raw materials, fluff wood pulp and super absorbent polymer (“SAP”) which may increase at a greater rate than anticipated in 2003.

2. Branded Product Innovation

Patents and other intellectual property rights are an important competitive factor in the disposable diaper market, mostly because of the industry emphasis on product innovations. Patents held by the main competitors could severely limit the Company’s ability to keep up with branded product innovations, by prohibiting the Company from marketing product with comparable features.

3. Pricing and Volumes

The market position of the Company’s main competitors, The Procter & Gamble Company (“P&G”) and Kimberly-Clark Corporation (“KC”), relative to the Company varies from one geographic area to another; but due to their substantial financial, technical and marketing resources, both of these major manufacturers have the ability to exert significant influence in price and volumes, and gain substantial market share in any of their marketing areas. They have heavily promoted diapers in the multi-pack configuration. These packages offer a lower unit price than previously available to the retailer and consumer. It is possible that as a consequence of this strategy, in those geographic markets in which the main competitors have adopted it, the Company may realize lower selling prices and/or lower sales volumes.

10

OPERATING AND FINANCIAL REVIEW AND PROSPECTS—(Continued)

4. Increased Cost

On May 21, 2001, the Company entered into an agreement with P&G to settle any potential liability of the Company which may have existed with respect to any past infringement on P&G patents prior to January 1, 2001 and to agree on royalty payments relating to sales on certain of the Company’s products in the Asian Pacific and Australian region after December 31, 2000. A similar agreement with P&G was entered into in 1998 relating to the North American region that provides for payments of royalty fees based on a percentage of certain products sold after December 31, 1997 within the North American region.

The Company believes that the royalty being charged by P&G under its respective license agreements is approximately the same royalty that will be paid by its major competitors for similar patent rights. However, these royalties will continue to have an adverse impact on the Company’s future financial condition and results of operations as compared to pre-settlement.

5. Increased Financial Leverage

As a result of the acquisition of the North American assets of Drypers Corporation, the Company has short and long-term debt of $24.3 million, bearing various interest rates as of December 31, 2002.

The Company’s debt levels were reduced from $47.9 million at December 31, 2001 to $24.3 million at December 31, 2002. Even though the Company’s debt has been reduced it still has significant principal and interest obligations resulting from the acquisition of the North American assets of Drypers Corporation. The existing level of the Company’s financial leverage as described above, could adversely affect the Company’s ability to obtain additional financing for working capital, acquisitions or other purposes and could make the Company more vulnerable to economic crisis in the different geographical markets and to competitive pressures from its main competitors.

As a substantial portion of the Company’s available cash from operations will have to be applied to meet debt service requirements, the Company’s liquidity could be affected as well as its ability to fund capital expenditures. Notwithstanding, the Company believes that its cash flow from operations and other sources of liquidity will be adequate to meet its requirements for working capital, capital expenditures, interest payment and scheduled principal payment for the foreseeable future. However, if the Company is unable to generate sufficient cash flow from operations in the future, it may be required to refinance all or a portion of its existing debt or obtain additional financing. There is no assurance that this additional financing could be obtained on terms favorable for the Company.

6. Litigation Risk

As the Company operates in an industry in which patents are numerous and are enforced vigorously, the Company and its subsidiaries are from time to time involved in legal matters. On April 18, 2002 the Company made a lump sum payment of $4.2 million to settle a patent infringement lawsuit brought by Plaintiffs John M. Tharpe, Robert E. Herrin and R & L Engineering, Inc., a Georgia corporation. The Company recorded the $4.2 million settlement as a loss on settlement of legal cases in the accompanying Consolidated Statement of Operations for the year ended December 31, 2001.

11

OPERATING AND FINANCIAL REVIEW AND PROSPECTS—(Continued)

The Company is currently not defending itself in any significant litigation matters. Although it cannot be certain, in management’s opinion, none of the legal proceedings in which the Company is currently involved, individually or in the aggregate, is expected to have a material adverse effect on the Company’s business, financial condition or results of operation.

Receivable from Shareholder

In 2002, 2001 and 2000, the Company advanced $1.9 million, $3.0 million and $10.7 million, respectively, to Brandon Wang, the founder, substantial shareholder and Chief Executive Officer of the Company and to a trust of which he is a beneficiary. These advances were made under a loan and security agreement in which the Company agreed to make loans to Brandon Wang from time to time, subject to any limit on such loans which may be imposed by the Board of Directors. The loans were repayable on demand evidenced by promissory notes (the “Notes”) bearing interest at a rate equal to 1.5% over LIBOR or such other rate that the Board of Directors and the borrower shall agree in writing.

In January 2000, the Company’s U.S. subsidiary borrowed amounts under a term loan facility which was used to repay the balance of a loan payable by Brandon Wang to a bank, amounting to $5.3 million. This amount has been aggregated with the receivable from Brandon Wang under the Notes, which amounted to $2.8 million at December 31, 1999, and is repayable on demand and carries the same interest terms as those of the Notes.

Brandon Wang is required to provide as collateral shares of the Company held by him. The security agreement with Brandon Wang requires that the total amounts due from him should not exceed 80% of the fair market value of the pledged shares. The loan balance exceeded 80% of the fair value of the shares pledged as collateral as a result of a decline in the quoted market price of such shares subsequent to December 31, 2001 and 2002.

In 2002, the Board of Directors of the Company approved a plan whereby Brandon Wang has committed to make payments such that the outstanding balance decreases by $1.0 million each year beginning in 2002. The Board of Directors of the Company also has decided not to take any further action on this matter at this time, including any available to it as a result of the decrease in the fair value of the shares pledged as collateral.

At December 31, 2002 and 2001, the Company has classified the balances owed by Brandon Wang as a reduction from shareholders’ equity. During 2002, 2001 and 2000, Brandon Wang and a trust controlled by him repaid $4.1 million, $3.9 million and $1.9 million, respectively, to the Company. Interest of $230,000, $445,000 and $470,000 was charged on these advances in 2002, 2001 and 2000, respectively (see Note 14 to Consolidated Financial Statements). In March 2003, the Board of Directors authorized certain transactions which are described in Note 22 to Consolidated Financial Statements. As a result of these transactions, it is expected that the shareholder loan balance of $8.5 million as of December 31, 2002 will be substantially repaid by December 31, 2003.

12

OPERATING AND FINANCIAL REVIEW AND PROSPECTS—(Continued)

Results of Operations

1. Overall

On November 11, 2002, the Company entered into a definitive agreement to sell its Australian subsidiaries effective November 1, 2002 and the sale was completed on December 6, 2002. Accordingly, the operating results of the Australian subsidiaries for the ten-months ended October 31, 2002 have been segregated from the Company’s continuing operations and reported as a separate line item on the consolidated statement of operations in 2002. The Company has also restated its prior years’ consolidated financial statements to present the operating results of these subsidiaries as discontinued operations.

The following table sets forth the percentage of net sales represented by the specified components of income and expense for the years ended December 31, 2002, 2001 and 2000:

	Year Ended December 31,
	2002		2001		2000
Net sales	100.0	%	100.0	%	100.0	%
Cost of sales	74.8		78.3		74.7
Gross profit	25.2		21.7		25.3
Selling, general and administrative expenses	(23.5	)	(25.7	)	(23.8	)
Restructuring costs and impairment loss	(0.6	)	(2.8	)	—
Gain (loss) on disposals of property, plant and equipment	0.1		(0.1	)	0.1
Operating income (loss)	1.2		(6.9	)	1.6
Interest expense	(0.9	)	(2.0	)	(0.9	)
Interest income	0.1		0.3		0.5
Exchange gain (loss)	0.2		(1.2	)	(0.8	)
Settlement of legal cases	—		(2.0	)	—
(Loss) gain on disposal of subsidiaries	—		(0.3	)	0.1
Other expense, net	—		(0.2	)	—
Income (loss) from continuing operations before income taxes and minority interests	0.6		(12.3	)	0.5
Provision for income taxes	(0.2	)	(0.5	)	(0.8	)
Minority interest	(0.5	)	(0.2	)	—
Loss from continuing operations	(0.1	)	(13.0	)	(0.3	)
Discontinued operations
Income from discontinued operations before income taxes (including gain on disposal of 6.8% in 2002)	8.3		0.9		2.4
Provision for income taxes (including tax on gain on disposal of 0.3% in 2002)	(0.6	)	—		(0.2	)
Income from discontinued operations	7.7		0.9		2.2
Net income (loss)	7.6	%	(12.1	)%	1.9	%

13

OPERATING AND FINANCIAL REVIEW AND PROSPECTS—(Continued)

2. Comparison of 2002, 2001 and 2000

The Company’s net sales from the continuing operations in 2002 were $227.8 million which was at par with the corresponding period in 2001. The sales growth in North American and South East Asian markets were predominantly offset by the shortfall in the Company’s Greater China (the PRC and Hong Kong) markets and to a lesser extent by volume decreases in the European market due to the divestiture in 2001. The markets in both PRC and Malaysia were softened due to shifts in demand for product created by significant competitive pricing pressure from brand market leaders.

The Company’s gross profit margin from the continuing operations improved by 3.5% from 21.7% in 2001 to 25.2% in 2002. The improvement was primarily due to the elimination of excess production capacity and manufacturing overhead in the North American operations that resulted from the 2001 Drypers acquisition and improved manufacturing efficiencies in the South East Asian operations. Selling, general and administration expense as a percentage of net sales from the continuing operations reduced to 23.5% in 2002 compared with 25.7% in 2001 due to cost reduction efforts associated with completing the integration of the Drypers business into the Company’s North American operations. The Company recorded a $1.4 million impairment loss on long-lived assets related to the U.K. operations, Drypers trademarks and assets held-for-sale in the North American operations (see Notes 3, 8, 10 and 11 to the Company’s Consolidated Financial Statements). The Company’s interest expense from the continuing operations in 2002 reduced significantly to $2.0 million from $4.4 million in 2001 due to reduced debt levels associated with the Drypers acquisition.

Net income from discontinued operations in 2002 was $17.6 million compared with $2.0 million in 2001. The Company realized a $14.8 million gain on the disposal of its Australian subsidiaries, which is equivalent to 6.8% of net sales. Including discontinued operations, the net income in the year 2002 was $17.2 million compared with a net loss of $27.6 million in 2001.

Net sales of the Company from continuing operations in 2001 increased by 44.5% to $227.8 million compared with $157.6 million in 2000. The growth was significantly contributed to by the acquisition of Drypers, the sales growth in the Asian Pacific regions, offset in part by the effects of the divestiture of an investment in the Company’s European operations.

14

OPERATING AND FINANCIAL REVIEW AND PROSPECTS—(Continued)

The Company’s gross profit margin from continuing operations was 21.7% in 2001, which declined by 3.6% compared to 2000. The lower cost of raw materials was offset by a $6.7 million one-time expense related to manufacturing inefficiencies experienced with assimilating the Drypers manufacturing operations and the write off of Drypers inventory of $1.0 million to its net realizable value. Selling, general and administrative expenses as a percentage of net sales from continuing operations increased to 25.7% in 2001 compared to 23.8% in 2000, primarily due to a higher selling and administrative expenses associated with the newly acquired Drypers operation and a charge to provision for bad and doubtful debts of $0.8 million for Ames Department Stores which filed for Chapter 11 voluntary bankruptcy in 2001. Restructuring cost of $6.4 million was incurred in 2001 due to the assimilation of Drypers into the Company’s U.S. operation. The Company also provided $4.6 million for settlement of legal cases in North America (see Note 4 to the Company’s Consolidated Financial Statements). The Company’s interest expense increased to $4.4 million in 2001 compared to $1.5 million in 2000 as a result of the increased financial leverage resulting from additional borrowings related to the purchase of Drypers. The Company issued warrants to purchase 314,510 Ordinary Shares at a fair value of $1.4 million and recorded these warrants as interest expense in 2001. The Company also experienced an increase in foreign exchange losses of $1.5 million to $2.8 million in 2001, primarily due to unfavorable currency fluctuation of Australian currencies against the U.S. dollar. On the other hand, the Company continued to divest its investment in Europe and recorded a loss of $672,000 in the write off of this investment, and the recording of redundancy and liquidation costs.

Net income from discontinued operations in 2001 was $2.0 million compared with $3.5 million in 2000. Including discontinued operations, the net loss in the year 2001 was $27.6 million compared with net income of $3.0 million in 2000.

15

OPERATING AND FINANCIAL REVIEW AND PROSPECTS—(Continued)

Discontinued Operations

The operating results from the discontinued operations of the Company’s Australian subsidiaries for the ten months period ended October 31, 2002 and the two years ended December 31, 2001 and 2000 were as follows:

	For the period January 1 to October 31, 2002			December 31 2001			December 31 2000
	(Dollars in thousands)
Net sales	$	38,445		$	39,342		$	39,184
Cost of sales		(28,170	)		(30,296	)		(28,005	)
Gross profit		10,275			9,046			11,179
Selling, general and administrative expenses		(6,467	)		(6,754	)		(7,281	)
(Loss) gain on disposals of property, plant and equipment		(3	)		6			21
Operating income		3,805			2,298			3,919
Interest expense		(305	)		(254	)		(123	)
Interest income		12			34			53
Exchange gain (loss)		8			5			(27	)
Gain on disposal		15,525			—			—
Other (expense) income, net		(68	)		(90	)		8
Income before income taxes		18,977			1,993			3,830
Provision for income taxes (including tax on gain on disposal of $692 in 2002)		(1,377	)		(27	)		(302	)
Net income from discontinued operations	$	17,600		$	1,966		$	3,528

The net sales of the Company’s discontinued operations in Australia in 2002 were $38.4 million which reflect operating results for the 10 months ended October 31, 2002. Gross profit margin in 2002 was 26.7% compared with 23.0% in 2001. Selling, general and administrative expense as a percentage of net sales was 16.8% in 2002 compared with 17.2% in 2001. As a result, operating income as a percentage of net sales in 2002 was 9.9% compared with 5.8% in 2001.

The net sales of the Company’s discontinued operations in Australia in 2001 grew by 0.4% to $39.3 million over 2000. The actual growth was over 10.0% when net sales are compared in the domestic currency. The Australian dollar devalued by over 10.0% against the U.S. dollar during 2001. Gross profit margin declined by 5.5% to 23.0% in 2001 from 28.5% in 2000. Selling, general and administrative expense was 1.4% lower as a percentage of net sales. As a result, operating income as a percentage of net sales in 2001 decreased by 4.2% to 5.8%.

16

OPERATING AND FINANCIAL REVIEW AND PROSPECTS—(Continued)

Geographic Segment Information

As the results of the Company’s operations differ significantly from one market to another, the following discussion considers the Company’s results in each of the geographic regions in which it operates. The tables below set forth the Company’s net sales and operating income in each geographic region in 2002, 2001 and 2000, and the percentage change over the preceding period:

1. North America

	Year Ended December 31,							Increase/(Decrease)
	2002		2001			2000		2002		2001		2000
	(Dollars in thousands)
Net sales	$	161,528	$	158,568		$	85,757	1.9	%	84.9	%	(2.3	)%
Operating income (loss)		4,290		(14,274	)		5,301	—		—		6.0

The Company’s net sales were $161.5 million in 2002 compared with $158.6 million in 2001. Gross profit margin was 22.5% in 2002 compared with 19.1% in 2001. In 2002, the Company aligned its manufacturing capacity with its net sales and focused on improvement to its manufacturing processes. This contributed to increased gross margin from the prior year. General and administrative expenses as a percentage of net sales in 2002 decreased to 19.9% from 24.1% a year ago. This decrease was attributable to the reduction of certain costs associated with completing the integration of the Drypers business into the Company’s North American operations, the reduction in bad debt expense related to a write off of $800 related to Ames Department Stores in 2001 and the overall reduction in administrative expenses in 2002. Operating income for the year 2002 increased by $18.6 million from the previous year’s loss to an operating profit of $4.3 million.

The Company’s net sales were $158.6 million in 2001 compared with $85.8 million in 2000. The increase in sales was attributable to the acquisition of Drypers North America in the first quarter of 2001. Gross profit margin was at 19.1% in 2001 compared with 23.2% in 2000. Lower cost of raw material was offset by manufacturing labor costs and unutilized capacity caused by the purchase of the Drypers North American business. This unutilized capacity from Drypers’ manufacturing facilities significantly contributed to the reduction of gross margins from the prior year. General and administrative expenses as a percentage of net sales in 2001 increased to 24.1% from 17.1% a year ago. This increase was attributable to certain costs associated with integrating the Drypers business into its North American operations, additional costs associated with the promotion of future sales of the “DRYPERS^®” brand and a provision established for bad and doubtful debts for Ames Department Stores which filed for Chapter 11 voluntary bankruptcy in 2001.

2. Asia

	Year Ended December 31,						Increase/(Decrease)
	2002		2001		2000		2002		2001		2000
	(Dollars in thousands)
Net sales	$	62,138	$	62,976	$	55,361	(1.3	)%	13.4	%	34.8	%
Operating income		4,543		5,119		4,609	(11.3	)	11.1		20.1

17

OPERATING AND FINANCIAL REVIEW AND PROSPECTS—(Continued)

The Company’s net sales in Asia decreased by 1.3% to $62.1 million in 2002 compared to $63.0 million in 2001. The sales momentum continued in Thailand and Indonesian markets but was offset by the shortfall in the Greater China and Malaysian markets due to the intense competition. The Company’s gross profit margin in 2002 was 32.6%, an improvement of 4.0% over prior year. The improvement was due to the completed localization of production facilities in the region in 2002. Selling, general and administrative expense as a percentage of net sales in 2002 was 25.3% compared to 20.5% in 2001 due to the higher level of advertising programs in the PRC and Malaysian markets. Operating income for the year 2002 was $4.5 million, a drop of 11.3% compared to prior year.

The Company’s net sales in Asia increased by 13.4% to $63.0 million in 2001 compared to $55.4 million in 2000. The major sales growth contributors were from the Malaysian, Greater China, Thailand and Indonesian markets. The Company’s gross profit margin in 2001 was 28.6%, which decreased by 2.3% over the prior year. Selling, general and administrative expense as a percentage of net sales in 2001 was 20.5% compared to 22.6% in 2000. The decrease was due to lower spending on advertising programs in the PRC market. Operating income was $5.1 million in 2001, which increased by 11.1% over the prior year.

3. Europe

	Year Ended December 31,									Increase/(Decrease)
	2002			2001			2000			2002		2001		2000
	(Dollars in thousands)
Net sales	$	4,131		$	6,225		$	16,495		(33.6	)%	(62.3	)%	(29.9	)%
Operating loss		(876	)		(1,361	)		(2,371	)	(35.6	)	(42.6	)	42.2

The Company’s net sales in Europe were $4.1 million in 2002 compared to $6.2 million in 2001. The Company has scaled back its operations in Europe, but continues to market branded and private label disposable baby diapers in the United Kingdom. Operating loss for the year 2002 was $0.9 million compared with an operating loss of $1.4 million in 2001.

The Company’s net sales in Europe were $6.2 million in 2001 compared with $16.5 million in 2000. The decrease in sales in 2001 was the result of the disposal of the Company’s Swiss adult incontinence operation in 2000. The operating loss in 2001 declined by $1.0 million to $1.4 million compared to 2000.

4. Corporate

	Year Ended December 31,						Increase/(Decrease)
	2002		2001		2000		2002		2001		2000
	(Dollars in thousands)
Operating loss	(5,341	)	(5,244	)	(4,983	)	1.8	%	5.2	%	9.2	%

The Company’s operating loss in corporate expense was $5.3 million in 2002 compared to $5.2 million in 2001. The increase was primarily due to an impairment loss of $160,000 provided for the Company’s U.K. operation at the corporate level after impairment assessment.

18

OPERATING AND FINANCIAL REVIEW AND PROSPECTS—(Continued)

The Company’s operating loss in corporate expense increased 5.2% to $5.2 million compared to $5.0 million in 2000 primarily due to increase in legal and professional fee incurred for corporate matters.

Liquidity and Capital Resources

The Company has cash and cash equivalent of $31.5 million at the year ended 2002, an increase of $22.1 million from $9.4 million in 2001. The cash and cash equivalents were held by individual operations of the Company in their local currencies and were from time to time invested in interest bearing deposit accounts. The Company did not use any financial instruments for hedging.

On November 11, 2002, the Company entered into a definitive agreement to sell its Australian subsidiaries. The sale of these subsidiaries was completed on December 6, 2002 for $29.6 million. The sale proceeds were reduced by the repayment of bank indebtedness of $6.3 million and repayment of inter-company loans in the amount of $2.9 million, accruals for capital gain tax of $692,000 and certain other items. All the sales proceeds were received by the Company in cash in 2002. Accordingly, the statement of cash flows of these operations has been segregated from continuing operations and reported as a separate line item on the consolidated statement of cash flows. The Company has also restated its prior years’ consolidated statements of cash flows to present the cash flows of these subsidiaries as discontinued operations.

Net cash provided by operating activities from continuing operations in 2002 was $18.6 million. The increase in cash flows was derived from a net decrease in working capital components of $7.5 million from continuing operations in 2002 primarily due to an improvement in accounts receivable, other receivables, inventories and accounts payable of $1.0 million, $1.5 million, $7.0 million and $2.9 million respectively, offset by a decrease in accrued expenses of $5.6 million. Net cash provided by operating activities from discontinued operations in 2002 was $4.7 million.

Net cash used in investing activities from continuing operations was $2.2 million. The Company invested $5.6 million in capital expenditures for additions and modifications to property, machinery and equipment in the Company’s various continuing operations. The Company made advances of $1.9 million to a shareholder and the shareholder repaid $4.1 million to the Company during 2002. Additional information on the advances to shareholder is provided in Note 14 to Consolidated Financial Statements. Net cash provided by investing activities from discontinued operations in 2002 was $20.7 million, of which $21.6 million was due to cash proceeds from the sale of the Company’s Australian subsidiaries.

The Company utilized $10.6 million in short-term bank credit lines out of total available credit facilities of $28.7 million from continued operations as of December 31, 2002. Short-term bank borrowings decreased by $11.8 million in 2002 versus an increase of $11.4 million during 2001. In addition, the Company repaid $7.1 million of its long-term debts during 2002. The weighted average interest rate on borrowings at the year ended 2001 was 5.97%. Additional information on short-term borrowings and long-term debt is set out in Notes 12 and 13 to Consolidated Financial Statements. Net cash used in financing activities from discontinued operations in 2002 was $0.6 million.

19

OPERATING AND FINANCIAL REVIEW AND PROSPECTS—(Continued)

Contractual Obligations and Commitments

As of the year ended December 31, 2002, the Company’s contractual obligations and commitments were summarized as follows:

	Payment due by year
	Total		2003		2004		2005		2006		2007 and thereafter
	(Dollars in thousands)
Short-term borrowings	$	10,597	$	10,597	$	—	$	—	$	—	$	—
Long-term debt		13,937		4,631		4,240		2,761		2,305		—
Operating leases		7,726		3,966		1,342		846		803		769
Purchase of license use right		1,875		1,875		—		—		—		—
Joint venture investment		17,750		17,750		—		—		—		—
Capital expenditures		3,131		1,326		1,805		—		—		—
Total	$	55,016	$	40,145	$	7,387	$	3,607	$	3,108	$	769

In addition, the Company announced on March 21, 2003 the payment of a 70-cent dividend in relation to the sale of the Australian subsidiaries to shareholders of record on April 11, 2003. The dividend totaling $5.7 million was paid on April 25, 2003. Also, the Company signed a letter of intent in May 2003 to purchase an additional land use right in Waigaoqiao, Shanghai, PRC for $1.8 million.

The Company entered into an agreement with an individual shareholder on May 21, 2003 for the repurchase of 400,000 shares for $2.0 million.

Over the last few years, the Company’s cash requirements have been primarily provided by internally generated funds and bank borrowings. In the opinion of the Company, the cash on hand of $31.5 million plus expected cash flow from operating activities is sufficient to fund its liquidity, contractual obligations and commitments needs for the next twelve months. However, the Company may require additional borrowings in order to finance expansion, capital expenditure, other investments or other business requirements. Additional information on short-term borrowings, long-term debt and commitments and contingencies is set out in Notes 12, 13 and 15 to Consolidated Financial Statements.

20

OPERATING AND FINANCIAL REVIEW AND PROSPECTS—(Continued)

Accounting Changes

New accounting standards adopted—The provisions of Emerging Issues Task Force (“EITF”) No. 01-9, “Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Products)”, were adopted during 2002. The adoption of EITF No. 01-9 resulted in the reclassification of certain sales incentives previously classified as selling expenses to reductions from sales. Prior year amounts have been reclassified to conform to the current year’s presentation. These changes had no effect on the Company’s operating results. The amount of sales incentives included as a deduction from sales in accordance with EITF No. 01-9 was $25.0 million, $26.7 million and $12.3 million for the years ended December 31, 2002, 2001 and 2000, respectively.

In addition, as described in Note 2 to the Consolidated Financial Statements, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets”, and SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”.

New accounting standards not yet adopted—In August 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 143, “Accounting for Asset Retirement Obligations”. This statement addressed the diverse accounting practices for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The Company will be required to adopt this standard on January 1, 2003. Management has determined that the adoption of SFAS No. 143 will not have a material impact on the Company’s financial position or results of operations.

In April 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statements 4, 44 and 64, Amendment to FASB Statement 13. and Technical Corrections”. One of the major changes of this statement is to change the accounting for the classification of gains and losses from the extinguishment of debt. Upon adoption, the Company will follow APB No. 30, “Reporting the Results of Operations”—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions in determining whether such extinguishment of debt may be classified as extraordinary. The provisions of this statement related to debt extinguishment are effective for fiscal years beginning after May 15, 2002. Management has determined that the adoption of SFAS No. 145 will not have a material impact on the Company’s financial position or results of operations.

In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”. This statement requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF No. 94-3, a liability for an exit cost as defined in EITF No. 94-3 was recognized at the date of an entity’s commitment to an exit plan. A fundamental conclusion reached by FASB in this statement is that an entity’s commitment to a plan, by itself, does not create a present obligation to others that meets the definition of a liability. Therefore, this statement eliminates the definition and requirements for recognition of exit costs in EITF No. 94-3. This statement also established that fair value is the objective for initial measurement of the liability and the liability should be measured at fair value only when the liability is incurred. The provisions of this statement are effective for exit or disposal activities that are initiated after December 31, 2002. The Company will adopt this statement prospectively for exit and disposal activities.

21

OPERATING AND FINANCIAL REVIEW AND PROSPECTS—(Continued)

In October 2002, the FASB issued SFAS No. 147 “Acquisition of Certain Financial Institutions”. This statement removes acquisitions of financial institutions from the scope of both Statement 72 and Interpretation 9 and requires that those transactions be accounted for in accordance with FASB Statements No. 141, “Business Combinations”, and No. 142, “Goodwill and Other Intangible Assets”. Thus, the requirement in paragraph 5 of Statement 72 to recognize (and subsequently amortize) any excess of the fair value of liabilities assumed over the fair value of tangible and identifiable intangible assets acquired as an unidentifiable intangible asset no longer applies to acquisitions within the scope of this statement. In addition, this statement amends FASB Statement No. 144, “Accounting for the Impairment or Disposal of Long-lived Assets”, to include in its scope long-term customer-relationship intangible assets of financial institutions such as depositor- and borrower-relationship intangible assets and credit cardholder intangible assets. Consequently, those intangible assets are subject to the same undiscounted cash flow recoverability test and impairment loss recognition and measurement provisions that Statement 144 requires for long-lived assets that are held and used. Management has determined that SFAS No. 147 will not have a material impact on the Company’s financial position or results of operations.

In November 2002, the FASB issued Interpretation (“FIN”) 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”. FIN 45 requires disclosure of guarantees. It also requires liability recognition for the fair value of guarantees made after December 31, 2002. The Company will adopt the liability recognition requirements of FIN 45 effective January 1, 2003. Management has determined that the adoption of FIN 45 will not have a material impact on the Company’s financial position or results of operations.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation and Disclosure”, which amends SFAS No. 123 and provides alternative methods of transition for a voluntary change to the fair value-based method of accounting for stock-based compensation. This statement is effective for financial statements for fiscal years ending after December 15, 2002. Management has determined that the adoption of SFAS No. 148 will not have a material impact on the Company’s financial position or results of operations.

In January 2003, the FASB issued FIN 46, “Consolidation of Variable Interest Entities”, which interprets Accounting Research Bulletin 51, “Consolidated Financial Statements”, and requires consolidation of certain entities in which the primary beneficiary has a controlling financial interest despite not having voting control of such entities. It applies in the first fiscal year or interim period beginning after June 15, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. Management has determined that the adoption of FIN 46 will not have a material impact on the Company’s financial position or results of operations.

In April 2003, the FASB issued SFAS No. 149, “Amendment to Statement 133 on Derivative Instruments and Hedging Activities”. SFAS No. 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133. SFAS No. 149 is applied prospectively and is effective for contracts entered into or modified after June 30, 2003, except for SFAS No. 133 implementation issues that have been effective for fiscal quarters that began prior to June 15, 2003 and certain provisions relating to forward purchases and sales on securities that do not yet exist. The Company has not determined the effect, if any, that SFAS No. 149 will have on its consolidated financial statements.

22

OPERATING AND FINANCIAL REVIEW AND PROSPECTS—(Continued)

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity”. The statement establishes standards for how an issuer classifies and measures certain financial instruments. This statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The statement requires that certain financial instruments that, under previous guidance, could be accounted for as equity be classified as liabilities, or assets in some circumstances. This statement does not apply to features embedded in a financial instrument that is not a derivative in its entirety. The statement also requires disclosures about alternative ways of settling the instruments and the capital structure of entities whose shares are mandatorily redeemable. Management has determined that the adoption of SFAS No. 150 will not have a material impact on the Company’s financial statements.

Significant Accounting Policies

The Company prepares its consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. On an on-going basis, the Company evaluates its estimates and judgments, including those related to bad and doubtful debts, inventories, income taxes, impairment of assets, intangible assets and litigation. The Company bases its estimates and judgments on historical experience and on various other factors that the Company believes are reasonable. Actual results may differ from these estimates under different assumptions or conditions.

The following significant accounting policies encompass the more substantial judgments and estimates used in the preparation of the Company’s Consolidated Financial Statements.

Bad and doubtful debts—The Company maintains allowances for its bad and doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of its customers changed, changes to these allowances may be required, which would impact the Company’s future operating results.

Inventories—Inventories, consisting of finished goods, raw materials and packaging materials, are stated at the lower of cost or market with cost determined using the first-in, first-out method. The Company makes certain obsolescence and other assumptions to adjust inventory based on historical experience and current information. The Company writes down inventory for estimated obsolete or unmarketable inventory equal to the difference between the costs of inventory and estimated market value, based upon assumptions about future demand and market conditions. These assumptions, although consistently applied, can have a significant impact on current and future operating results and financial position.

23

OPERATING AND FINANCIAL REVIEW AND PROSPECTS—(Continued)

Income taxes—The Company records a valuation allowance to reduce its deferred tax assets to the amount that the Company believes is more likely than not to be realized. In the event the Company was to determine that it would be able to realize its deferred tax assets in the future in excess of its recorded amount, an adjustment to the deferred tax asset would increase income in the period such determination was made. Likewise, should the Company determine that it would not be able to realize all or part of its net deferred tax asset in the future, an adjustment to the deferred tax asset would be charged to income in the period such determination was made.

Impairment of assets—Effective from January 1, 2002, the Company adopted SFAS No. 142, “Goodwill and Other Intangible Assets”, issued by FASB. In accordance with the guidelines of this accounting standard, goodwill and indefinite-lived intangible assets are no longer amortized, and instead, are assessed for impairment on at least an annual basis. Purchased intangible assets other than goodwill and indefinite-lived intangible assets are amortized over their estimated useful lives, and reviewed for impairment whenever events or changes in circumstances indicate the carrying amount may not be recoverable. As a result, declines in fair value of long-term assets would result in impairment charges which would impact future operating results.

Litigation—The Company records contingent liabilities relating to litigation or other loss contingencies when it believes that the likelihood of loss is probable and the amount of the loss can be reasonably estimated. Changes in judgments of outcome and estimated losses are recorded, as necessary, in the period such changes are determined or become known. Any changes in estimates would impact its future operating results. Significant contingent liabilities, which the Company believes are at least possible, are disclosed in the Notes to the Consolidated Financial Statements.

24

SELECTED CONSOLIDATED FINANCIAL DATA

(in thousands except per share amounts)

	Year Ended December 31,
	2002			2001			2000			1999			1998
Statement of Operations Data
Net sales(1)	$	227,797		$	227,769		$	157,613		$	152,355		$	159,157
Cost of sales		(170,422	)		(178,413	)		(117,711	)		(112,259	)		(123,244	)
Gross profit		57,375			49,356			39,902			40,096			35,913
Selling, general and administrative expenses		(53,613	)		(58,561	)		(37,569	)		(38,405	)		(36,297	)
Restructuring costs and impairment loss		(1,390	)		(6,356	)		—			—			(897	)
Gain (loss) on disposals of property, plant and equipment		244			(199	)		223			921			91
Operating income (loss)		2,616			(15,760	)		2,556			2,612			(1,190	)
Interest expense		(1,966	)		(4,398	)		(1,471	)		(2,083	)		(2,367	)
Interest income		328			677			816			751			747
Exchange gain (loss)		506			(2,801	)		(1,329	)		(1,068	)		(307	)
Settlement of legal cases		—			(4,575	)		—			—			—
(Loss) gain on disposal of subsidiaries		—			(672	)		214			—			—
Other (expense) income		(68	)		(459	)		45			562			183
Income (loss) from continuing operations before income taxes and minority interest		1,416			(27,988	)		831			774			(2,934	)
(Provision) credit for income taxes		(502	)		(1,117	)		(1,255	)		(191	)		703
Minority interest		(1,269	)		(424	)		(141	)		(122	)		(3	)
(Loss) income from continuing operations		(355	)		(29,529	)		(565	)		461		$	(2,234	)
Discontinued operations
Income from discontinued operations before income taxes (including gain on disposal of $15,525 in 2002)		18,977			1,993			3,830			4,770			4,811
Provision for income taxes (including tax on gain on disposal of $692 in 2002)		(1,377	)		(27	)		(302	)		(796	)		(955	)
Income from discontinued operations		17,600			1,966			3,528			3,974			3,856
Net income (loss)	$	17,245		$	(27,563	)	$	2,963		$	4,435		$	1,622
Income (loss) per share :
Continuing operations	$	(0.05	)	$	(4.39	)		(0.08	)		0.07			(0.34	)
Discontinued operations		2.52			0.29			0.52			0.59			0.58
Net income (loss) per share	$	2.47		$	(4.10	)	$	0.44		$	0.66		$	0.24
Weighted average number of shares outstanding		6,989			6,721			6,675			6,675			6,675

The Company has not declared any dividend during the above periods.

⁽¹⁾ The amount of sales incentives included as a deduction from sales in accordance with EITF No. 01-9, “Accounting for Consideration Given by a Vendor or a Customer (Including a Reseller of the Vendor’s Products)”, was $24,961, $26,686, $12,295, $10,811 and $8,281 for the years ended December 31, 2002, 2001, 2000, 1999 and 1998, respectively.

25

SELECTED CONSOLIDATED FINANCIAL DATA—(Continued)

(in thousands)

	December 31,
	2002		2001		2000		1999		1998
Balance Sheet Data
Working capital	$	27,956	$	3,144	$	32,423	$	36,000	$	30,091
Total assets		129,867		138,648		111,409		120,945		133,909
Long-term debt		9,197		13,218		5,577		11,894		20,957
Shareholders’ equity		59,032		38,981		63,447		70,302		68,013

26

MANAGEMENT REPORT

To the Shareholders of DSG International Limited

The financial statements of the Company published in this report were prepared by the Company’s management, which is responsible for their integrity and objectivity. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States, applying certain estimates and judgments as required. The financial information elsewhere in this Annual Report is consistent with that in the financial statements.

The Company maintains a system of internal accounting controls and procedures adequate to provide reasonable assurance at an appropriate cost/benefit relationship that its transactions are properly recorded and reported, its assets are protected and its established policies are followed. This system is maintained by the establishment and communication of policies and a qualified financial staff.

Our independent auditors, Deloitte Touche Tohmatsu, are appointed by the Audit Committee of the Board of Directors and ratified by our Company’s shareholders. Deloitte Touche Tohmatsu conducts its audit of the Company’s Consolidated Financial Statements in conformity with auditing standards generally accepted in the United States. The report of the independent auditors, based upon their audit of the Consolidated Financial Statements of DSG International Limited is contained in this Annual Report.

The Audit Committee of the Board of Directors, comprised solely of outside directors, meets with the independent auditors and representatives from management to evaluate the adequacy and effectiveness of the audit functions, control systems and quality of our financial accounting and reporting.

Edmund J Schwartz

Chief Financial Officer

June 16, 2003

27

INDEPENDENT AUDITORS’ REPORT

To the Shareholders and the Board of Directors of DSG International Limited

We have audited the accompanying consolidated balance sheets of DSG International Limited and its subsidiaries as of December 31, 2002 and 2001, and the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2002. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material respects, the financial position of DSG International Limited and its subsidiaries as of December 31, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 2 to the accompanying consolidated financial statements, in 2002 the Company changed its method of accounting for goodwill and other intangible assets to conform to Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets”.

Deloitte Touche Tohmatsu

Hong Kong

May 16, 2003

28

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands except per share amounts)

	Year Ended December 31,
	2002			2001			2000
Net sales	$	227,797		$	227,769		$	157,613
Cost of sales		(170,422	)		(178,413	)		(117,711	)
Gross profit		57,375			49,356			39,902
Selling, general and administrative expenses (Note 2)		(53,613	)		(58,561	)		(37,569	)
Restructuring costs and impairment loss (Notes 3, 8, 10 and 11)		(1,390	)		(6,356	)		—
Gain (loss) on disposals of property, plant and equipment		244			(199	)		223
Operating income (loss)		2,616			(15,760	)		2,556
Interest expense		(1,966	)		(4,398	)		(1,471	)
Interest income		328			677			816
Exchange gain (loss)		506			(2,801	)		(1,329	)
Settlement of legal cases (Note 4)		—			(4,575	)		—
(Loss) gain on disposal of subsidiaries (Note 5)		—			(672	)		214
Other (expense) income, net		(68	)		(459	)		45
Income (loss) from continuing operations before income taxes and minority interests		1,416			(27,988	)		831
Provision for income taxes (Note 6)		(502	)		(1,117	)		(1,255	)
Minority interest		(1,269	)		(424	)		(141	)
Loss from continuing operations		(355	)		(29,529	)		(565	)
Discontinued operations (Note 5)
Income from discontinued operations before income taxes (including gain on disposal of $15,525 in 2002)		18,977			1,993			3,830
Provision for income taxes (including tax on gain on disposal of $692 in 2002)		(1,377	)		(27	)		(302	)
Income from discontinued operations		17,600			1,966			3,528
Net income (loss)	$	17,245		$	(27,563	)	$	2,963
Income (loss) per share:
Continuing operations	$	(0.05	)	$	(4.39	)	$	(0.08	)
Discontinued operations		2.52			0.29			0.52
Net income (loss) per share	$	2.47		$	(4.10	)	$	0.44
Weighted average number of shares outstanding		6,989			6,721			6,675

See accompanying notes to consolidated financial statements.

29

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

	Year Ended December 31,
	2002		2001			2000
Net income (loss)	$	17,245	$	(27,563	)	$	2,963
Other comprehensive income (loss)
Foreign currency translation adjustments		613		854			(1,017	)
Comprehensive income (loss)	$	17,858	$	(26,709	)	$	1,946

See accompanying notes to consolidated financial statements.

30

CONSOLIDATED BALANCE SHEETS

(in thousands)

	December 31,
	2002		2001
ASSETS
Current assets:
Cash and cash equivalents	$	31,505	$	9,364
Accounts receivable, less allowance for doubtful accounts of $1,956 in 2002 and $2,621 in 2001		28,982		38,970
Other receivables		1,820		3,342
Inventories (Note 7)		22,835		33,840
Prepaid expenses and other current assets		1,659		1,710
Income taxes receivable		181		855
Total current assets		86,982		88,081
Property, plant and equipment—at cost: (Note 8)
Land		2,648		2,519
Buildings		7,669		9,366
Machinery and equipment		64,268		73,826
Furniture and fixtures		2,503		2,645
Motor vehicles		1,480		1,433
Leasehold improvements		1,208		1,139
Total		79,776		90,928
Less: Accumulated depreciation and amortization		50,510		55,814
Net property, plant and equipment		29,266		35,114
Loan receivable, less allowance for doubtful accounts of $Nil in 2002 and $300 in 2001 (Note 9)		373		254
Deferred income taxes		1,141		499
Other assets (Note 10)		8,440		9,961
Goodwill (Note 11)		—		27
Intangible assets (Note 11)		3,665		4,712
Total long-term assets		42,885		50,567
Total assets	$	129,867	$	138,648

31

CONSOLIDATED BALANCE SHEETS—(Continued)

(in thousands except shares and per share amounts)

	December 31,
	2002			2001
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Short-term borrowings (Note 12)	$	10,597		$	28,675
Current portion of long-term debt (Note 13)		4,515			6,038
Accounts payable		27,035			27,207
Accrued advertising and promotion		4,956			5,212
Accrued payroll and employee benefits		3,271			4,006
Accruals for settlement of legal cases (Note 4)		—			4,575
Accrued restructuring costs (Note 3)		—			2,295
Other accrued expenses		6,959			5,862
Income taxes payable (Note 6)		1,691			1,011
Deferred income taxes (Note 6)		2			56
Total current liabilities		59,026			84,937
Long-term debt (Note 13)		9,197			13,218
Minority interest		2,612			1,512
Shareholders’ equity:
Ordinary shares, $0.01 par value—authorized 20,000,000 shares; issued and outstanding 6,989,116 shares in 2002 and 2001		70			70
Additional paid-in capital		19,673			19,673
Retained earnings		55,346			38,101
Accumulated other comprehensive loss		(7,506	)		(8,119	)
Less: Receivable from a shareholder (Note 14)		(8,551	)		(10,744	)
Total shareholders’ equity		59,032			38,981
Total liabilities and shareholders’ equity	$	129,867		$	138,648

See accompanying notes to consolidated financial statements.

32

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Year Ended December 31,
	2002			2001			2000
Cash flows from operating activities
Net loss from continuing operations	$	(355	)	$	(29,529	)	$	(565	)
Adjustments to reconcile net loss from continuing operations to net cash provided by operating activities:
Depreciation and amortization		7,596			9,070			7,822
Provision for doubtful debts		1,454			2,802			256
Impairment loss on long-lived assets		1,390			2,514			—
(Gain) loss on disposals of property, plant and equipment		(244	)		199			(223	)
Gain on disposal of subsidiaries		—			—			(214	)
Deferred income taxes		(462	)		29			(279	)
Minority interest		1,269			424			141
Warrant interest		—			1,372			—
Other		470			830			625
Changes in working capital components from continuing operations, net of effects from sale of subsidiaries and acquisition of a business:
Accounts receivable		986			2,271			(5,072	)
Other receivables		1,481			3,013			83
Inventories		6,952			3,421			(4,423	)
Prepaid expenses and other current assets		(19	)		(1,285	)		129
Accounts payable		2,894			16,875			(2,470	)
Accrued expenses		(5,634	)		7,727			(132	)
Income taxes payable		881			(72	)		(925	)
Net cash provided by (used in) operating activities from continuing operations		18,659			19,661			(5,247	)
Net cash provided by (used in) operating activities from discontinued operations		4,729			(1,030	)		6,922
Net cash provided by operating activities		23,388			18,631			1,675
Cash flows from investing activities
Expenditures for property, plant and equipment		(5,569	)		(1,596	)		(4,147	)
Proceeds from disposals of property, plant and equipment		870			810			1,245
Proceeds from sale of subsidiaries, net of cash forfeited		—			—			4,842
Advances to a shareholder		(1,868	)		(3,046	)		(10,744	)
Repayments by a shareholder		4,061			3,914			1,943
Cost of acquisition, net of cash acquired		—			(35,878	)		—
Decrease (increase) in other assets		283			(1,381	)		(39	)
Net cash used in investing activities from continuing operations		(2,223	)		(37,177	)		(6,900	)
Net cash provided by (used in) investing activities from discontinued operations		20,720			(942	)		(1,466	)
Net cash provided by (used in) investing activities	$	18,497		$	(38,119	)	$	(8,366	)

33

CONSOLIDATED STATEMENTS OF CASH FLOWS—(Continued)

(in thousands)

	Year Ended December 31,
	2002			2001			2000
Cash flows from financing activities
(Decrease) increase in short-term borrowings	$	(11,846	)	$	11,397		$	3,712
Increase in long-term debt		—			24,613			6,251
Repayment of long-term debt		(7,113	)		(21,292	)		(7,625	)
Issue of ordinary shares		—			3			—
Dividend paid to minority shareholders		(167	)		(107	)		(255	)
Net cash (used in) provided by financing activities from continuing operations		(19,126	)		14,614			2,083
Net cash (used in) provided by financing activities from discontinued operations		(618	)		3,961			815
Net cash (used in) provided by financing activities		(19,744	)		18,575			2,898
Effect of exchange rate changes on cash and cash equivalents		—			(50	)		(232	)
Increase (decrease) in cash and cash equivalents		22,141			(963	)		(4,025	)
Cash and cash equivalents, beginning of year		9,364			10,327			14,352
Cash and cash equivalents, end of year	$	31,505		$	9,364		$	10,327
Supplemental disclosures of cash flow information
Cash paid during the year for:
Continued operations:
Interest	$	1,874		$	1,799		$	1,454
Income taxes, net of tax refund		14			1,091			2,276
Discontinued operations:
Interest		305			255			125
Income taxes		385			167			1,324

Non-cash transactions

Additions to property, plant and equipment which were financed by a vendor loan and new capital leases during the year ended December 31, 2002, 2001 and 2000 totalled $1,837, $7,263 and $303, respectively.

34

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in thousands)

	Ordinary shares			Additional paid-in Capital		Retained Earnings			Accumulated other comprehensive income (loss)			Receivable from shareholder (Note 14)			Total shareholders’ equity
	Shares	Amount
Balance at January 1, 2000	6,675	$	67	$	18,301	$	62,701		$	(7,956	)	$	(2,811	)	$	70,302
Net income	—		—		—		2,963			—			—			2,963
Foreign currency translation adjustment	—		—		—		—			(1,017	)		—			(1,017	)
Transfer of balance of net receivable from a shareholder	—		—		—		—			—			(8,801	)		(8,801	)
Balance at December 31, 2000	6,675		67		18,301		65,664			(8,973	)		(11,612	)		63,447
Issuance of shares	314		3		1,372		—			—			—			1,375
Net loss	—		—		—		(27,563	)		—			—			(27,563	)
Foreign currency translation adjustment	—		—		—		—			854			—			854
Net repayment of receivable from a shareholder	—		—		—		—			—			868			868
Balance at December 31, 2001	6,989		70		19,673		38,101			(8,119	)		(10,744	)		38,981
Net income	—		—		—		17,245			—			—			17,245
Foreign currency translation adjustment	—		—		—		—			613			—			613
Net repayment of receivable from a shareholder	—		—		—		—			—			2,193			2,193
Balance at December 31, 2002	6,989	$	70	$	19,673	$	55,346		$	(7,506	)	$	(8,551	)	$	59,032

See accompanying notes to consolidated financial statements.

35

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

1. ORGANIZATION AND BASIS OF PRESENTATION

The Company is incorporated in the British Virgin Islands. It operates through subsidiary companies located in North America, Australia, Asia and Europe which manufacture and distribute disposable baby diapers, adult incontinence and training pants products.

In March 2001, the Company acquired the North American assets of Drypers Corporation. The acquisition was accounted for as purchase and their operating results are included in the Consolidated Statements of Operations from the date of acquisition (see Note 20).

On November 11, 2002, the Company entered into a definitive agreement to sell its Australian subsidiaries as of November 1, 2002 and the sale was completed on December 6, 2002. Accordingly, the operating results of the Australian subsidiaries have been segregated from the Company’s continuing operations and reported as a separate line item on the consolidated statement of operations in 2002. The Company has also restated its prior years’ Consolidated Financial Statements to present the operating results of these subsidiaries as discontinued operations (see Note 5).

The financial statements of the Company and its subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of consolidation—The Consolidated Financial Statements include the assets, liabilities, revenues and expenses of all subsidiaries. Intercompany balances and transactions are eliminated in consolidation.

Cash and cash equivalents—Cash and cash equivalents include cash on hand, cash accounts, interest bearing savings accounts, commercial paper and time certificates of deposit with a maturity of three months or less when purchased.

Inventories—Inventories are stated at the lower of cost determined by the first-in, first-out method, or value determined by the market. Finished goods inventories consist of raw materials, direct labor, and overhead associated with the manufacturing process.

Depreciation and amortization of property, plant and equipment—Depreciation is provided on the straight line method at rates based upon the estimated useful lives of the property, generally three to ten years except for buildings which are 40 years. Costs of leasehold improvements are amortized over the life of the related asset or the term of the lease, whichever is shorter.

Revenue recognition—The Company recognizes revenue at the time shipments of product are made to customers at which time, title and the risk of loss transfers to the customer. Provision for discounts and rebates to customers, and returns and other adjustments are provided for in the same period the related sales are recorded.

36

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES—continued

The provisions of Emerging Issues Task Force (“EITF”) No. 01-9 “Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Products)” were adopted during 2002. The adoption of EITF No. 01-9 resulted in the reclassification of certain sales incentives previously classified as selling expenses to reductions from sales. Prior year amounts have been reclassified to conform to the current year’s presentation. These changes had no effect on the Company’s operating results. The amount of sales incentives included as a deduction from sales in accordance with EITF No. 01-9 was $24,961, $26,686 and $12,295 for the years ended December 31, 2002, 2001 and 2000, respectively.

Shipping costs—Shipping costs are recorded as a component of selling, general and administrative expenses and totaled $9,194, $9,235 and $5,446 for the years ended December 31, 2002, 2001 and 2000, respectively.

Income taxes—Income taxes are provided based on an asset and liability approach for financial accounting and reporting of income taxes. Deferred income tax liabilities or benefits are recorded to reflect the tax consequences in future years of differences between tax basis of assets and liabilities and the financial reporting amounts and operating loss carryforwards. A valuation allowance is recorded if it is more likely than not that some portion of, or all of, a deferred tax asset will not be realized.

Valuation of long-lived assets—The Company evaluates the carrying value of long-lived assets to be held and used when events and circumstances warrant such a review. The carrying value of a long-lived asset is considered not recoverable when the anticipated undiscounted cash flow from such asset is separately identifiable and is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset. Fair value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Losses on long-lived assets to be disposed of represent the excess of the carrying value over the fair value less disposal costs.

Effective from January 1, 2002, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. The statement requires a single accounting model for long-lived assets to be disposed of and significantly changes the criteria that would have to be met to classify an asset as held-for-sale. Classification as held-for-sale is an important distinction since such assets are not depreciated and are stated at the lower of fair value and carrying amount. The statement also requires expected future operating losses from discontinued operations to be recorded in the period(s) in which the losses are incurred, rather than as of the measurement date as previously required. The Company disposed of its Australian subsidiaries during 2002 and the respective operations have been disclosed as discontinued operations pursuant to SFAS No. 144.

Foreign currency translation—The Company uses the United States dollar as its reporting currency. Assets and liabilities of foreign subsidiaries are translated at year end exchange rates, while revenues and expenses are translated at average currency exchange rates during the year. Adjustments resulting from translating foreign currency financial statements are reported as a separate component of shareholders’ equity. Gains or losses from foreign currency transactions are included in net income.

37

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES—continued

Postretirement and postemployment benefits—The Company does not provide postretirement benefits, and postemployment benefits, if any, are not significant.

Earnings per share—Basic earnings per share are based on the weighted average number of Ordinary Shares outstanding. Diluted earnings per share are based on the weighted average number of Ordinary Shares outstanding plus dilutive common stock equivalents. Diluted earnings per share are not presented in 2001 as the effect of the warrants outstanding during the year was antidilutive. There were no common stock equivalents outstanding during 2000 and 2002.

Concentration of credit risk—The Company sells to distributors and retailers located in each of the countries in which it operates. The Company grants credit to all qualified customers on an unsecured basis but does not believe it is exposed to any undue concentration of credit risk to any significant degree.

Comprehensive income—Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners.

Intangible assets—Intangible assets consist of Drypers Trademarks, patents, and private label customer relationships. Patents and private label customer relationships are amortized five to seven years using the straight-line method. Through December 31, 2001, goodwill and the Drypers Trademarks were amortized over five to ten years.

Effective from January 1, 2002, the Company adopted SFAS No. 142, “Goodwill and Other Intangible Assets”. In accordance with SFAS No. 142, goodwill and the Drypers Trademark (an indefinite-life intangible asset) are no longer amortized. Instead they are assessed for impairment at least annually. The Company completed an impairment test of goodwill and the Drypers Trademark as of January 1, 2002 and determined that no impairment existed.

Net income (loss) and earnings (loss) per share for 2002, 2001 and 2000 would have been as follows, assuming the non-amortization provisions of SFAS No. 142 were adopted on January 1, 2000:

	2002			2001			2000
Loss from continuing operations	$	(355	)	$	(29,529	)	$	(565	)
Goodwill amortization, net of tax		—			108			265
Trademark amortization, net of tax		—			164			—
Adjusted loss from continuing operations		(355	)		(29,257	)		(300	)
Income from discontinued operations		17,600			1,966			3,528
Goodwill amortization, net of tax		—			15			—
Adjusted income from discontinued operations		17,600			1,981			3,528
Adjusted net income (loss)	$	17,245		$	(27,276	)	$	3,228

38

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands except shares and per share amounts)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES—continued

	2002			2001			2000
Adjusted income (loss) per share:
Continuing operations	$	(0.05	)	$	(4.35	)	$	(0.05	)
Discontinued operations		2.52			0.29			0.53
Net income (loss) per share	$	2.47		$	(4.06	)	$	0.48

New accounting standards not yet adopted—In August 2001, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 143, “Accounting for Asset Retirement Obligations”. This statement addressed the diverse accounting practices for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The Company will be required to adopt this standard on January 1, 2003. Management has determined that the adoption of SFAS No. 143 will not have a material impact on the Company’s financial position or results of operations.

In April 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statements 4, 44 and 64, Amendment to FASB Statement 13 and Technical Corrections”. One of the major changes of this statement is to change the accounting for the classification of gains and losses from the extinguishment of debt. Upon adoption, the Company will follow APB No. 30, “Reporting the Results of Operations”—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions in determining whether such extinguishment of debt may be classified as extraordinary. The provisions of this statement related to debt extinguishment are effective for fiscal years beginning after May 15, 2002. Management has determined that the adoption of SFAS No. 145 will not have a material impact on the Company’s financial position or results of operations.

In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”. This statement requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF No. 94-3, a liability for an exit cost as defined in EITF No. 94-3 was recognized at the date of an entity’s commitment to an exit plan. A fundamental conclusion reached by FASB in this statement is that an entity’s commitment to a plan, by itself, does not create a present obligation to others that meets the definition of a liability. Therefore, this statement eliminates the definition and requirements for recognition of exit costs in EITF No. 94-3. This statement also established that fair value is the objective for initial measurement of the liability and the liability should be measured at fair value only when the liability is incurred. The provisions of this statement are effective for exit or disposal activities that are initiated after December 31, 2002. The Company will adopt this statement prospectively for exit and disposal activities.

39

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES—continued

In October 2002, the FASB issued SFAS No. 147 “Acquisition of Certain Financial Institutions”. This statement removes acquisitions of financial institutions from the scope of both Statement 72 and Interpretation 9 and requires that those transactions be accounted for in accordance with FASB Statements No. 141, “Business Combinations”, and No. 142, “Goodwill and Other Intangible Assets”. Thus, the requirement in paragraph 5 of Statement 72 to recognize (and subsequently amortize) any excess of the fair value of liabilities assumed over the fair value of tangible and identifiable intangible assets acquired as an unidentifiable intangible asset no longer applies to acquisitions within the scope of this statement. In addition, this statement amends FASB Statement No. 144, “Accounting for the Impairment or Disposal of Long-lived Assets”, to include in its scope long-term customer-relationship intangible assets of financial institutions such as depositor- and borrower-relationship intangible assets and credit cardholder intangible assets. Consequently, those intangible assets are subject to the same undiscounted cash flow recoverability test and impairment loss recognition and measurement provisions that Statement 144 requires for long-lived assets that are held and used. Management has determined that SFAS No. 147 will not have a material impact on the Company’s financial position or results of operations.

In November 2002, the FASB issued Interpretation (“FIN”) 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”. FIN 45 requires disclosure of guarantees. It also requires liability recognition for the fair value of guarantees made after December 31, 2002. The Company will adopt the liability recognition requirements of FIN 45 effective January 1, 2003. Management has determined that the adoption of FIN 45 will not have a material impact on the Company’s financial position or results of operations.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation and Disclosure”, which amends SFAS No. 123 and provides alternative methods of transition for a voluntary change to the fair value-based method of accounting for stock-based compensation. This statement is effective for financial statements for fiscal years ending after December 15, 2002. Management has determined that the adoption of SFAS No. 148 will not have a material impact on the Company’s financial position or results of operations.

In January 2003, the FASB issued FIN 46, “Consolidation of Variable Interest Entities”, which interprets Accounting Research Bulletin 51, “Consolidated Financial Statements”, and requires consolidation of certain entities in which the primary beneficiary has a controlling financial interest despite not having voting control of such entities. It applies in the first fiscal year or interim period beginning after June 15, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. Management has determined that the adoption of FIN 46 will not have a material impact on the Company’s financial position or results of operations.

40

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES—continued

In April 2003, the FASB issued SFAS No. 149, “Amendment to Statement 133 on Derivative Instruments and Hedging Activities”. SFAS No. 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133. SFAS No. 149 is applied prospectively and is effective for contracts entered into or modified after June 30, 2003, except for SFAS No. 133 implementation issues that have been effective for fiscal quarters that began prior to June 15, 2003 and certain provisions relating to forward purchases and sales on securities that do not yet exist. The Company has not determined the effect, if any, that SFAS No. 149 will have on its consolidated financial statements.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity”. The statement establishes standards for how an issuer classifies and measures certain financial instruments. This statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The statement requires that certain financial instruments that, under previous guidance, could be accounted for as equity classified as liabilities, or assets in some circumstances. This statement does not apply to features embedded in a financial instrument that is not a derivative in its entirety. The statement also requires disclosures about alternative ways of settling the instruments and the capital structure of entities whose shares are mandatorily redeemable. Management has determined that the adoption of SFAS No. 150 will not have a material impact on the Company’s financial statements.

Use of estimates—The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates. Actual results could differ from those estimates.

Reclassifications—Certain reclassifications have been made to prior-period amounts to conform with the 2002 presentation. These reclassifications had no effect on the results of operations or financial position for any year presented.

3. RESTRUCTURING COSTS AND IMPAIRMENT LOSS

As a result of the Drypers acquisition, the Company consolidated its operations in the United States and recorded restructuring costs of $6,356 during 2001. The components of these costs were as follows:

Write down of assets held for sale	$	2,514
Write off of discontinued inventory		1,547
Redundancy payment costs		1,137
Office closure and other costs		1,158
Total	$	6,356

41

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands)

3. RESTRUCTURING COSTS AND IMPAIRMENT LOSS—continued

Redundancy payments, office closure and other costs were recorded and related principally to the closure of the manufacturing facility located in Duluth, Georgia; a liability totaling $2,295 was recorded by the Company during 2001 relating to these costs. The carrying values of the manufacturing plant in Duluth along with certain equipment located therein, which are held for sale, were adjusted to their estimated fair value. In addition, in conjunction with these activities, management discontinued certain product offerings resulting in the write off of inventories on hand related to these discontinued lines and all discontinued inventories were disposed during 2002.

The redundancy payments related principally to the termination of approximately 326 employees at the Duluth facility; these employees were terminated in the first quarter of 2002. Office closure and other costs accrued in 2001 were substantially incurred during 2002. Activities relating to accrued restructuring costs are summarized below.

	Redundancy Payment Costs			Office Closure and Other Costs			Total
Provision recorded in 2001 and accrued balance at December 31, 2001	$	1,137		$	1,158		$	2,295
Costs incurred		(1,337	)		(1,158	)		(2,495	)
Changes in estimates recorded		200			—			200
Balance at December 31, 2002	$	—		$	—		$	—

The Company also recorded an impairment loss of $160, $576 and $654 related to its U.K. operation, Drypers trademark and assets held-for-sale in the United States operation, respectively, in 2002 (see Notes 8, 10 and 11).

42

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands)

4. SETTLEMENT OF LEGAL CASES

In February 1995, the Company and its U.S. subsidiary were named as defendants in Action No. 95-19-2-ALB-AMER (WLS) brought by the plaintiffs John M. Tharpe, Robert E. Herrin and R & L Engineering, Inc., a Georgia corporation, (collectively the “Plaintiffs”) in the United States District Court for the Middle District of Georgia. The complaint alleged that the Company, its United States subsidiary and certain European suppliers of disposable diaper manufacturing equipment (the “Defendants”) have infringed U.S. Patent No. 5,308,345 which relates to a certain process for elasticizing the waistband of disposable diapers, that the Company and its U.S. subsidiary breached a confidentiality agreement with the Plaintiffs by using certain information relating to the waistband applicator disclosed to them in confidence by the Plaintiffs, and theft by the Defendants of the Plaintiffs’ trade secrets concerning the waistband applicator. On March 20, 2002 the United States District Court for the Middle District of Georgia entered a $4,000 judgment in favor of the Plaintiffs. On March 29, 2002 an amended final order and judgment was entered by the United States District Court for the Middle District of Georgia awarding the Plaintiffs $10,400 in actual and increased damages for patent infringement and prejudgment interest on the patent claim. Subsequent to the entering of this final order and judgment, the Company began to negotiate a settlement with the Plaintiffs. On April 9, 2002, the Company entered into a Settlement Agreement with the Plaintiffs. The terms of this Settlement Agreement required the Company to make a lump sum payment of $4,200 to the Plaintiffs no later than April 18, 2002 to settle all asserted claims in the original lawsuit. The $4,200 lump sum payment was made to the Plaintiffs on April 17, 2002. On April 18, 2002, the Company along with the Plaintiffs filed a “Stipulated Final Order of Dismissal” dismissing with prejudice both the judgment dated March 20, 2002 and the amended final order and judgment dated March 29, 2002. Effective with the filing of the “Stipulated Final Order of Dismissal”, the lawsuit has been settled and the judgments of March 20 and March 29 have been vacated. The Company recorded the $4,200 settlement as a loss on settlement of legal cases in the Company’s Consolidated Statements of Operations for the year ended December 31, 2001.

A claim was made by Ms. Rhonda Tracy, the owner of U.S. Patent No. 5,797,824 for disposable diapers with a padded waistband and leg holes, asserting that the Company has been manufacturing and/or selling diapers which infringe her patent. No lawsuit has been filed against the Company to date. The Company, however, had filed a lawsuit against Ms. Tracy in the U.S. District Court for the Northern District of Georgia for a declaration that her patent is invalid and/or not infringed. The Company settled this claim with Rhonda Tracy on March 15, 2002 for $375. The Company has recorded the $375 as a loss on settlement of legal cases in the Company’s Consolidated Statements of Operations for the year ended December 31, 2001.

The Company is currently not defending itself in any significant litigation matters. Although it cannot be certain, in management’s opinion, none of the legal proceedings in which the Company is currently involved, individually or in the aggregate, is expected to have a material adverse effect on the Company’s business, financial condition or results of operations.

43

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands)

5. DISPOSAL OF SUBSIDIARIES

Discontinued Operations

On November 11, 2002, the Company entered into a definitive agreement to sell its Australian subsidiaries effective November 1, 2002 and the sale was completed on December 6, 2002. Accordingly, the operating results of the Australian subsidiaries for the ten-months ended October 31, 2002 have been segregated from the Company’s continuing operations and reported as a separate line item on the consolidated statement of operations in 2002. The sale of these subsidiaries was completed for consideration of $29,608. The sale proceeds were reduced by the repayment of bank indebtedness of $6,345 and repayment of inter-company loans in the amount of $2,919, accruals of capital gain tax of $692, and certain other items. The gain on disposal totalled $14,833 (net of $692 taxes). All the sale proceeds were received by the Company in cash in 2002.

The net sales and income before income taxes of the discontinued operations of the Company’s Australian subsidiaries for the ten month period ended October 31, 2002 and two years ended December 31, 2001 and 2000 were as follows:

	For the period January 1 to October 31, 2002		For the year ended
			December 31 2001		December 31 2000
Net sales	$	38,445	$	39,342	$	39,184
Income before income taxes (excluding gain on disposal of $15,525)	$	3,452	$	1,993	$	3,830

The amount of sales incentives included as a reduction from sales in accordance with EITF No. 01-09 was $5,842, $5,980 and $5,569 for the ten months period ended October 31, 2002 and two years ended December 31, 2001 and 2000, respectively.

44

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands)

5. DISPOSAL OF SUBSIDIARIES—continued

The components of assets and liabilities of the Australian subsidiaries as of December 31, 2001 are summarized below:

	December 31, 2001
ASSETS
Current assets:
Cash and cash equivalents	$	6
Accounts receivable, net of allowance for doubtful accounts		7,648
Other receivables		69
Inventories		3,818
Prepaid expenses and other current assets		226
Income taxes receivable		49
Total current assets		11,816
Net property and equipment		5,694
Total assets	$	17,510
LIABILITIES AND SHAREHOLDER’S EQUITY
Current liabilities:
Short-term borrowings	$	6,262
Accounts payables		3,208
Accrued expenses and other liabilities		2,236
Income tax payable		—
Current portion of long-term debt		270
Total current liabilities		11,976
Long-term debt		2,845
Total shareholder’s equity		2,689
Total liabilities and shareholder’s equity	$	17,510

Other Disposals

Due to the decision made in 2001 to liquidate a business in Europe, the Company recorded a loss of $672 relating to the write off of assets and the recording of closure and liquidation costs. The operating results of this business prior to the liquidation are included within the results of continuing operations in the accompanying 2001 and 2000 consolidated statements of operations and were not significant.

In October 2000, the Company sold its investment in the adult incontinence manufacturing operation in Switzerland and a distribution office in Germany for a cash consideration of $4,963, resulting in a gain of $214. The operating results of this business prior to the sale are included within the results of continuing operations in the accompanying 2000 consolidated statements of operations and were not significant.

45

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands)

6. PROVISION FOR INCOME TAXES

Income is subject to taxation in the various countries in which the Company and its subsidiaries operate. The Company is not taxed in the British Virgin Islands where it is incorporated.

The components of income (loss) from continuing operations before income taxes and minority interest are as follows:

	2002			2001			2000
U.S.	$	(788	)	$	(21,078	)	$	4,446
Foreign		2,204			(6,910	)		(3,615	)
	$	1,416		$	(27,988	)	$	831

The provision for income taxes of continuing operations consists of the following:

	2002			2001			2000
Current
U.S.	$	(135	)	$	29		$	554
Foreign		2,518			1,795			1,075
Benefit of loss carryforwards		—			—			(95	)
Benefit of loss carryback		(1,419	)		(736	)		—
Deferred taxes		(462	)		29			(279	)
	$	502		$	1,117		$	1,255

A reconciliation between the provision for income taxes of continuing operations computed by applying the United States Federal statutory tax rate to income (loss) from continuing operations before taxes and minority interest and the actual provision for income taxes is as follows:

	2002			2001			2000
Provision for income taxes at statutory rate on income (loss) from continuing operations for the year	$	495		$	(9,796	)	$	291
Effect of different tax rates applicable to foreign earnings		102			(258	)		449
Foreign losses which are not deductible		889			3,536			1,020
Foreign profits which are not taxable		(464	)		1,779			(2,177	)
Change in valuation allowance		883			6,110			1,379
Withholding tax on interest and royalty income		618			484			264
Benefit of loss carryback		(1,419	)		(736	)		—
Other		(602	)		(2	)		29
	$	502		$	1,117		$	1,255

46

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands)

6. PROVISION FOR INCOME TAXES—continued

The Company’s subsidiary incorporated in the People’s Republic of China (the “PRC”) is entitled to a two-year exemption from state and local income taxes commencing from the first profitable year of operations, which was 1998, followed by a 50% reduction in tax rates for the next three years. The year ended December 31, 2000 was the first year for the subsidiary to be under a 50% reduction in the prevailing tax rate. Since the subsidiary has operating losses since 2000, this tax holiday did not have any effect on the Company’s net income (loss) or earnings (loss) per share in 2002, 2001 and 2000.

Certain subsidiaries have operating loss carryforwards for income tax purposes which may be applied to reduce future taxable income. The loss carryforwards are available on a country by country basis and are not available for use except in the country in which the loss occurred. At December 31, 2002 the tax loss carryforwards by country and their future expiration dates are as follows:

	Total		2002		2003-2005		2006		2007		2010-2021		Indefinite
United Kingdom	$	106,019	$	—	$	—	$	—	$	—	$	—	$	106,019
U.S.A.—Federal		8,970		—		—		—		—		8,970		—
U.S.A.—State		20,729		—		—		—		—		20,729		—
PRC		1,845		—		—		263		1,582		—		—
	$	137,563	$	—	$	—	$	263	$	1,582	$	29,699	$	106,019

Included in United Kingdom operating loss carryforwards for income tax purposes is approximately $74,242 relating to tax losses at the date of acquisition of a company acquired in 1993. Utilization of these losses will result in a reduction in future tax expense and is dependent on both the earning of sufficient otherwise taxable income in the relevant countries and the satisfaction of technical requirements of applicable law. In the case of the United Kingdom, this includes the requirement that there not be a “major change” in business activities.

In March 2002, the United States amended its regulations allowing the losses of 2001 to be carried back five years instead of its normal two years carryback period. As a result, the Company carried back $4,483 of its losses resulting in an additional benefit of $1,419. This benefit was recorded during 2002, the period in which the change was enacted.

47

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands)

6. PROVISION FOR INCOME TAXES—continued

Deferred income tax balances at December 31 are related to:

	2002						2001
	Assets			Liabilities			Assets			Liabilities
Inventories	$	1		$	—		$	3		$	—
Accounts receivable and prepaid expenses		179			—			153			(9	)
Property, plant and equipment		—			(1,236	)		—			(1,255	)
Other		759			(225	)		290			(212	)
Tax loss carryforwards		41,929			—			37,761			—
Valuation allowances		(40,268	)		—			(36,288	)		—
Total	$	2,600		$	(1,461	)	$	1,919		$	(1,476	)

In addition to the amounts above, the Company has a tax loss of $3,353 which is available for carryforward to offset capital gains in the United States. The Company has recorded a valuation allowance of an equal amount given the uncertainty of realizing the benefit of such losses.

At December 31, 2002, accumulated retained earnings of subsidiaries of the Company totaled $34,857. No provision for withholding taxes has been made because it is expected that such earnings will be reinvested indefinitely. The determination of the withholding taxes that would be payable upon remittance of these earnings and the amount of unrecognized deferred tax liability on these unremitted earnings is not practicable.

7. INVENTORIES

Inventories by major categories are summarized as follows:

	2002		2001
Raw materials	$	10,589	$	14,000
Finished goods		12,246		19,840
	$	22,835	$	33,840

48

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands)

8. PROPERTY, PLANT AND EQUIPMENT

Included in property, plant and equipment are assets acquired under capital leases with the following net book values:

	2002			2001
At cost:
Machinery and equipment	$	7,390		$	12,659
Motor vehicles		145			145
		7,535			12,804
Less: Accumulated amortization		(1,981	)		(3,531	)
Net book value	$	5,554		$	9,273

As a result of continuing losses of the Company’s U.K. operation, the Company performed an impairment assessment during 2002, which resulted in an impairment charge recorded of $160.

9. LOAN RECEIVABLE

The loan receivable is due from a minority shareholder of a subsidiary and is non-interest bearing.

During 2002, a repayment plan was agreed to with the minority shareholder. Under the agreement, the loan is repayable in five equal annual installments beginning in 2002. During 2002, the first annual installment was paid. As a result of reaching agreement on a payment plan and receiving the first installment payment, the Company reversed the allowance for doubtful accounts of $300 recorded in 2001 relating to this receivable. At December 31, 2002, the current portion of the note receivable of $124 is included in other receivables. At December 31, 2001, the entire note was included as a long-term asset as no specific repayment plan had existed at that time.

10. OTHER ASSETS

Other assets consist of the following:

	2002		2001
Assets held-for-sale	$	6,300	$	7,776
Prepayment of long-term loan fee		535		777
Deposit for a license use right (see Notes 15 and 22)		625		500
Deposit for land		417		121
Deposits for new machinery		563		787
	$	8,440	$	9,961

Assets held-for-sale relate to the manufacturing plant in Duluth, Georgia and certain equipment located therein (see Note 3). During 2002, the Company reassessed the carrying value of assets held-for-sale due to market conditions, which resulted in an impairment charge recorded of $654.

49

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands)

11. GOODWILL AND INTANGIBLE ASSETS

Goodwill and intangible assets consist of the following:

	2002			2001
Goodwill	$	—		$	558
Less: Accumulated amortization		—			(531	)
Net book value	$	—		$	27
Drypers trademarks	$	1,328		$	2,068
Patents		1,990			1,990
Private label customer relationship		1,150			1,150
		4,468			5,208
Less: Accumulated amortization		(803	)		(496	)
Net book value	$	3,665		$	4,712

The net carrying value of goodwill and the Drypers Trademarks totalled $1,328 and $1,931 at December 31, 2002 and 2001, including accumulated amortization of $695 at December 31, 2001 which is included in the carrying value at January 1, 2002 as a result of adoption of SFAS No. 142 (see Note 2).

As a result of the adoption of SFAS No. 142, the Company no longer amortizes goodwill or the Drypers Trademarks beginning January 1, 2002. Instead, these assets are assessed for impairment at least annually. During the fourth quarter of 2002, the Company performed its annual impairment test as a result of declining sales related to the Drypers Trademarks, which resulted in an impairment loss of $576. The fair value of these assets encompassed in the impairment test was determined using weighted average of relief from royalty, gross profit advantage and residual income method. Amortization expense relating to intangible assets with definite lives (patents and private label customer relationship) charged to income from operations for the years ended December 31, 2002, 2001 and 2000 was $498, $744 and $206, respectively.

Estimated amortization expense of the patents and private label customer relationship for the next five years is as follows:

2003	$	449
2004		449
2005		449
2006		448
2007		448
Thereafter		94
Total	$	2,337

50

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands)

12. SHORT-TERM BORROWINGS

These include borrowings in the form of trade acceptances, loans and overdrafts with various banks:

	2002			2001
Credit facilities granted	$	28,651		$	37,008
Utilized	$	10,597		$	28,675
Weighted average interest rate on borrowings at end of year		5.97	%		4.43	%

The Company maintains short-term bank credit lines in each of the countries in which it operates. Interest rates are generally based on the banks’ prime lending rates and cost of funds and the credit lines are normally subject to annual review. The amounts outstanding as of December 31, 2002 and 2001 include $5,820 and $11,900, respectively, relating to the revolving credit facility provided by the Senior Lender discussed in Note 13. The credit facilities utilized and granted, excluding the revolving credit facility provided by the Senior Lender, totalled $4,777 and $13,651, respectively, at December 31, 2002 ($16,775 and $22,008 respectively, at December 31, 2001). At December 31, 2002 and 2001, amounts available for additional borrowings, excluding those available under the revolving credit facility provided by the Senior Lender discussed in Note 13, totalled $8,874 and $5,233, respectively. At December 31, 2002 and 2001, borrowings of $7,005 and $15,760 were collateralized by the pledge of machinery and equipment, accounts receivable and inventory of subsidiaries with a book value of $28,119 and $35,641, respectively. In addition, borrowings of $846 and $7,323 are collateralized by the pledge of land and buildings with a net book value of $2,162 and $5,096 as of December 31, 2002 and 2001, respectively.

51

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands)

13. LONG-TERM DEBT

Long-term debt consists of:

	2002		2001
Term loans bearing interest at U.S. Prime rate plus 2.25% per annum (7.0% and 6.68% per annum at December 31, 2002 and 2001, respectively) principal payable in monthly installments of $183.3 plus accrued interest, secured by substantially all the assets of the Company’s Georgia, Ohio and Washington facilities	$	5,538	$	8,712
Loan from a finance company (the “Wisconsin Loan”) at London Inter-Bank Offered Rate (“LIBOR”) plus 3.0% per annum, principal payable in monthly installments of $41.7 plus accrued interest, 4.425% and 5.5% per annum at December 31, 2002 and 2001, respectively, secured by substantially all the assets of the Company’s Wisconsin facilities		1,417		1,917
Mortgage loan bearing interest at LIBOR plus 1.25% per annum (2.6875% and 3.4375% per annum at December 31, 2002 and 2001, respectively), interest payable quarterly with entire principal due in November 2006		2,080		2,087
Vendor loan bearing interest at 7.0% per annum at December 31, 2002, principal payable biannually of $612.5 plus accrued interest, secured by a machine in the Company’s Malaysian facility		1,531		—
Capital leases bearing interest rates ranging from 4.50% to 12.00% per annum at December 31, 2002 and 2001		3,146		6,540
Total		13,712		19,256
Current portion of long-term debt		4,515		6,038
Long-term debt, less current portion	$	9,197	$	13,218

Maturities of long-term debt as at December 31, 2002 are as follows:

	Loans		Capital leases		Total
Year ending December 31,
2003	$	3,313	$	1,202	$	4,515
2004		3,313		853		4,166
2005		1,860		868		2,728
2006		2,080		223		2,303
Total	$	10,566	$	3,146	$	13,712

The capital lease commitments amounts above exclude implicit interest of $116, $44, $33, and $2 payable in the years ending December 31, 2003, 2004, 2005 and 2006, respectively.

52

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands)

13. LONG-TERM DEBT—continued

In March 2001, one of the Company’s U.S. subsidiaries (the “Subsidiary”) entered into an amended financing agreement with its existing financial institution (the “Senior Lender”) under which the Subsidiary received a term loan of $11,000 (the “Term Loan”), a capital expenditure line of up to $5,000, and a revolving credit facility (based on the lesser of a percentage of eligible accounts receivable and inventory or $15,000). Such financing was entered into in connection with the Subsidiary’s purchase of certain assets of the North American operations of Drypers Corporation as discussed in Note 20. The full amount of the $11,000 Term Loan was borrowed, with interest payable at the LIBOR for one portion of the loan and prime plus 2.75% per year for the other portion. The financing agreement was amended in December 2001, and the remaining principal balance on the Term Loan of $8,712 as of December 31, 2001 was divided into three separate term loans in the amount of $2,781, $2,934 and $2,997. These loans are repayable in monthly installments of principal in the amount of $183.3 plus interest and are collateralized by the Subsidiary’s assets. In addition, the Subsidiary had outstanding borrowings of approximately $5,820 and $11,900 of the $15,000 revolving credit facility as of December 31, 2002 and 2001, respectively. These amounts were recorded as a component of short-term borrowings in the Company’s Consolidated Balance Sheets (see Note 12). The Company had approximately $9,180 available for additional borrowings under the revolving credit facility at December 31, 2002.

Among other things, the Senior Lender Loan agreement contains certain restrictive covenants, including the maintenance of earnings before interest, taxes, depreciation, and amortization (“EBITDA”) and tangible net worth, and places limitations on acquisitions, dispositions, capital expenditures, and additional indebtedness. At December 31, 2001, the Company was not in compliance with the EBITDA covenant due to the legal settlement discussed in Note 4. These violations were waived by the Senior Lender on April 17, 2002.

In connection with the waiver of these covenant violations, the Senior Lender and the Company amended the revolving credit facility ($1,450 plus the lesser of a percentage of eligible accounts receivable and inventory or $15,000) to allow for additional advances of up to $1,450 for the legal settlement, increased the capital expenditure line to $6,975 and revised certain covenants including capital expenditures, payments and prepayments, and additional indebtedness. Through December 31, 2002, the Company has not borrowed any accounts under the capital expenditure line. As a result, the Company had approximately $6,975 available for additional borrowings under the capital expenditure line at December 31, 2002.

In addition in March 2001, the Company borrowed $15,000 under a term loan (the “$15 million Term Loan”) from an overseas financial institution. One of the Company’s non-executive directors holds a seat on the Board of Directors of this company. The loan bears annual interest at a rate of 14.5% increasing to 17.5% if any amounts payable under the loan were not repaid when due. Interest was payable monthly while principal was due in March 2002. The Company had the option to repay all or a portion of the loan after the six-month anniversary of the initial borrowing. The loan was secured by the Company’s ownership interest in its Australian subsidiaries. In addition, the loan agreement contains certain restrictive covenants, including minimum tangible net worth and EBITDA of the Australian subsidiaries. The borrowings were guaranteed by the Company’s Chairman and Chief Executive Officer. The Company repaid the $15 million Term Loan in September 2001.

53

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands except shares and per share amount)

13. LONG-TERM DEBT—continued

In conjunction with the $15 million Term Loan, the Company committed to issue share purchase warrants to the lender. The warrants allowed the lender to purchase Ordinary Shares of the Company at a price of $0.01 per share. The number of warrants issued equaled 0.75% of the Company’s diluted Ordinary Shares outstanding for each month the principal balance of the loan was outstanding. Due to the repayment of the $15 million Term Loan after the six-month anniversary of the initial borrowing, the Company issued 4.5% of the Company’s diluted Ordinary Shares, equivalent to 314,510 shares. The fair value of the warrants of $1,372 was treated as interest expense in 2001. The fair value of the warrants was estimated using the Black-Scholes Model. The assumptions used in the model included: fair value of ordinary shares of $4.81 per share, volatility rate of 80%, a discount rate of 3.41% and an estimated life of one year.

The Company violated the covenant of the Wisconsin Loan requiring the submission of audited financial statements of the Company’s Wisconsin subsidiary within 120 days of December 31, 2001. The Lender issued a waiver with respect to this violation. The Company also violated the covenant of the Senior Lender Loan requiring the submission of audited financial statements within 90 days of December 31, 2002. The Senior Lender issued a waiver with respect to this violation.

14. RECEIVABLE FROM SHAREHOLDER

In 2002, 2001 and 2000, the Company advanced $1,868, $3,046 and $10,744, respectively, to Brandon Wang, the founder, substantial shareholder and Chief Executive Officer of the Company and to a trust of which he is a beneficiary. These advances were made under a loan and security agreement in which the Company agreed to make loans to Brandon Wang from time to time, subject to any limit on such loans which may be imposed by the Board of Directors. The loans were repayable on demand evidenced by promissory notes (the “Notes”) bearing interest at a rate equal to 1.5% over LIBOR or such other rate that the Board of Directors and the borrower shall agree in writing.

In January 2000, the Company’s U.S. subsidiary borrowed amounts under a term loan facility which was used to repay the balance of a loan payable by Brandon Wang to a bank, amounting to $5,250. This amount has been aggregated with the receivable from Brandon Wang under the Notes, which amounted to $2,811 at December 31, 1999, and is repayable on demand and carries the same interest terms as those of the Notes.

Brandon Wang is required to provide as collateral shares of the Company held by him. The security agreement with Brandon Wang requires that the total amounts due from him should not exceed 80% of the fair market value of the pledged shares. The loan balance exceeded 80% of the fair value of the shares pledged as collateral as a result of a decline in the quoted market price of such shares subsequent to December 31, 2001 and 2002.

In 2002, the Board of Directors of the Company approved a plan whereby Brandon Wang has committed to make payments such that the outstanding balance decreases by $1,000 each year beginning in 2002. The Board of Directors of the Company also has decided not to take any further action on this matter at this time, including any available to it as a result of the decrease in the fair value of the shares pledged as collateral.

54

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands)

14. RECEIVABLE FROM SHAREHOLDER—continued

At December 31, 2002 and 2001, the Company has classified the balances owed by Brandon Wang as a reduction from shareholder equity. During 2002, 2001 and 2000, Brandon Wang and a trust controlled by him repaid $4,061, $3,914 and $1,943, respectively, to the Company. Interest of $230, $445 and $470 was charged on these advances in 2002, 2001 and 2000, respectively.

In March 2003, the Board of Directors authorized certain transactions which are described in Note 22. As a result of these transactions, it is expected that the shareholder loan balance of $8,551 as of December 31, 2002 will be substantially repaid by December 31, 2003.

15. COMMITMENTS AND CONTINGENCIES

The Company and its subsidiaries lease land, facilities and equipment under operating leases, many of which contain renewal options and escalation clauses. Rental expense under operating leases was $4,386 in 2002, $3,582 in 2001 and $1,650 in 2000.

At December 31, 2002, the Company and its subsidiaries were obligated under operating leases requiring minimum rentals as follows:

Year ending December 31,
2003	$	3,966
2004		1,342
2005		846
2006		803
2007		698
2008 and thereafter		71
Total	$	7,726

In August 2001, the Company signed a license agreement to purchase a license use right (the “License Use Right”) for $2,500 for the manufacture and sale of disposable baby, adult incontinence and feminine hygiene products in certain territories. As of December 31, 2002 and 2001, the Company paid a $625 and $500 deposit for the use of license right and recorded this amount as other assets in the accompanying consolidated balance sheets at December 31, 2002 and 2001, respectively. In addition, the Company must pay a royalty fee ranging from 3%—5% for twenty years of certain product sales. Through December 31, 2002, no products related to the license agreement were sold and no royalty was paid.

In February 2003, the Company signed a joint venture agreement with Japanese parties to establish a joint venture with a registered capital of $5,000 in Shanghai, the PRC and the Company owns 75% of the equity of the joint venture. The joint venture will engage in manufacture of absorbent products such as baby diapers, feminine napkins and adult incontinence products and the Japanese parties will provide the proprietary patents, related technology and certain raw materials. The Company committed a maximum financial obligation of $20,250 in the investment, which includes the $2,500 commitment related to the License Use Right.

55

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands except shares and per share amounts)

15. COMMITMENTS AND CONTINGENCIES—continued

In addition, the Company has a total capital commitment of $3,131 for the purchase of land and the acquisition of machinery for use in Thailand and a United States facility as of year ended December 31, 2002.

On May 21, 2001, the Company entered into an agreement with The Procter & Gamble Company (“P&G”) to settle any potential liability of the Company which may have existed with respect to any past infringement on P&G patents prior to January 1, 2001 and to agree on royalty payments relating to sales on certain of the Company’s products in the Asian Pacific and Australian region after December 31, 2000 ($546 and $532 for the year ended December 31, 2002 and 2001, respectively). The agreement encompasses fixed payments totaling $300 relating to the period prior to January 1, 2001 which was recorded in the statement of operations for the year ended December 31, 2000 as a component of selling, general and administrative expense.

The Company and its subsidiaries are, from time to time, involved in routine legal matters incidental to their business. As discussed in Note 4, the Company settled the R&L lawsuit and the Rhonda Tracy claim for $4,200 and $375 in April and March 2002, respectively. The Company is currently not defending itself in any significant litigation matters. Although it cannot be certain, in management’s opinion, none of the legal proceedings in which the Company is currently involved, individually or in the aggregate, is expected to have a material adverse effect on the Company’s business, financial condition or results of operation.

On March 21, 2003, the Board of Directors authorized a series of transactions which are described in Note 22.

16. EMPLOYEE BENEFIT PLANS

The Company’s United States subsidiary has established a 401(k) plan under which the Company matches employee contributions up to 5% of employees’ base compensation. The Company’s other international subsidiaries have defined contribution plans, covering substantially all employees, which are determined by the boards of directors of the subsidiaries. These plans provide for annual contributions by the Company from 2% to 22.5% of eligible compensation of employees based on length of service.

Total expense related to the above plans was $1,576 in 2002, $1,662 in 2001 and $1,075 in 2000.

56

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands)

16. EMPLOYEE BENEFIT PLANS—continued

In March 2002, the Company adopted an Equity Participation Plan (the “Plan”). The Plan allows for the awarding of restricted shares, non-qualified stock options, incentive stock options and stock appreciation rights. The purpose of the Plan is to provide eligible employees of the Company an opportunity to acquire an equity interest in the Company. Subject to adjustment under the Plan, 1,500,000 Ordinary Shares are available for awards under the Plan and no more than 375,000 Ordinary Shares may be granted or awarded to a participant during a calendar year. There were no shares awarded under the Plan in 2002. However, on March 19, 2003, the Company granted and issued 1,175,000 restricted shares and 195,000 share options under the Plan to executive directors and key employees. Included in this amount were 375,000 restricted shares issued to Mr. Brandon Wang, the Company’s Chief Executive Officer. The vesting period of the restricted shares is six months for those awarded to Mr. Brandon Wang and one year for all others. The options vest over a period of 2 to 4 years.

17. SUPPLEMENTARY INFORMATION

Valuation and qualifying accounts:

	Balance at beginning of year		Disposal of a subsidiary			Charged to cost and expenses		Deductions			Balance at end of year
Year ended December 31, 2002
Allowances for doubtful accounts	$	2,921	$	(41	)	$	1,454	$	(2,378	)	$	1,956
Provision for inventory obsolescence		1,710		(104	)		645		(490	)		1,761
	$	4,631	$	(145	)	$	2,099	$	(2,868	)	$	3,717
Year ended December 31, 2001
Allowances for doubtful accounts	$	897	$	—		$	2,802	$	(778	)	$	2,921
Provision for inventory obsolescence		490		—			1,414		(194	)		1,710
	$	1,387	$	—		$	4,216	$	(972	)	$	4,631
Year ended December 31, 2000
Allowances for doubtful accounts	$	724	$	(41	)	$	256	$	(42	)	$	897
Provision for inventory obsolescence		376		(76	)		457		(267	)		490
	$	1,100	$	(117	)	$	713	$	(309	)	$	1,387

Deductions relate to write-offs of accounts receivable as bad debts and disposals of inventories. In addition, the reversal of $300 allowance relating to the note receivable recorded in 2002 (see Note 9) is included as a deduction in the table above.

57

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands)

18. FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of cash and cash equivalents, accounts and other receivables, loan receivable, receivable from shareholder, accounts payable, short-term borrowings, and long-term debt are reasonable estimates of their fair value. The interest rate on the Company’s long-term debt approximates that which would have been available at December 31, 2002 for debt of the same remaining maturities.

The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. The estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange.

19. SEGMENT INFORMATION

The Company is engaged in one industry segment, the manufacturing and marketing of disposable hygienic products. However, the Company had four principal geographic segments before the disposal of the Australian subsidiaries in 2002, and three segments thereafter, for operating management purposes. The principal measures of operating performance are operating income (loss) and income (loss) before income taxes.

Within these industry segments, the Company derived its revenues of continuing operations from the following product lines for the years ended December 31, 2002, 2001 and 2000:

	2002		2001		2000
Products
Disposable baby diapers	$	180,646	$	179,206	$	108,245
Adult incontinence products		32,956		30,305		39,909
Training pants, youth pants and sanitary napkins		14,195		18,258		9,459
Total net sales from continuing operations	$	227,797	$	227,769	$	157,613

Certain financial information of continuing operations by geographic area are as follows:

	2002		2001		2000
Net sales
North America (principally the U.S.)	$	161,528	$	158,568	$	85,757
Asia		62,138		62,976		55,361
Europe		4,131		6,225		16,495
Net sales from continuing operations	$	227,797	$	227,769	$	157,613

Intersegment sales were not significant.

58

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands)

19. SEGMENT INFORMATION—continued

	2002			2001			2000
Operating income (loss)
North America (principally the U.S.)	$	4,290		$	(14,274	)	$	5,301
Asia		4,543			5,119			4,609
Europe		(876	)		(1,361	)		(2,371	)
Corporate		(5,341	)		(5,244	)		(4,983	)
Operating income (loss) from continuing operations	$	2,616		$	(15,760	)	$	2,556
Income (loss) before income taxes and minority interest
North America (principally the U.S.)	$	2,540		$	(20,970	)	$	4,451
Asia		4,916			4,718			3,914
Europe		(810	)		(1,991	)		(2,435	)
Corporate		(5,230	)		(9,745	)		(5,099	)
Income (loss) before income taxes and minority interest from continuing operations	$	1,416		$	(27,988	)	$	831

The income before income tax and minority interest in 2002 included impairment loss of $160 relating to Europe, and $654 and $576 relating to the Company’s North American operations. The loss before income taxes and minority interest in 2001 included restructuring costs of $6,356, provision of bad and doubtful debts for Ames Department Stores of $800, settlement of legal cases of $4,575 relating to the North American operations and loss on divestiture of $672 relating to the European operation.

	2002		2001		2000
Interest expenses
North America (principally the U.S.)	$	1,576	$	1,455	$	882
Asia		257		340		285
Europe		7		11		145
Corporate		126		2,592		159
Interest expenses from continuing operations	$	1,966	$	4,398	$	1,471

The fair value of the warrants interest of $1,372 was recorded as a component of corporate expense in 2001 in the table above.

	2002		2001		2000
Interest income
North America (principally the U.S.)	$	23	$	136	$	204
Asia		33		35		34
Europe		8		3		63
Corporate		264		503		515
Interest income from continuing operations	$	328	$	677	$	816

59

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands)

19. SEGMENT INFORMATION—continued

	2002		2001		2000
Assets, at end of year
North America (principally the U.S.)	$	63,683	$	79,397	$	46,599
Asia		35,155		35,281		39,194
Europe		1,053		1,648		2,876
Corporate assets		29,976		4,812		3,381
Assets, at the end of year of continuing operations	$	129,867	$	121,138	$	92,050
Expenditures for property, plant and equipment
North America (principally the U.S.)	$	2,112	$	8,025	$	2,645
Asia		3,831		775		1,528
Europe		30		59		197
Corporate assets		1,433		—		80
	$	7,406	$	8,859	$	4,450
Depreciation and amortization
North America (principally the U.S.)	$	4,484	$	5,731	$	3,875
Asia		2,792		2,933		2,901
Europe		141		320		978
Corporate assets		179		86		68
Depreciation and amortization from continuing operations	$	7,596	$	9,070	$	7,822
Property, plant and equipment, end of year
North America (principally the U.S.)	$	19,673	$	21,600	$	19,431
Asia		8,636		7,254		9,776
Europe		189		—		166
Corporate assets		768		566		522
Property, plant and equipment, end of year of continuing operations	$	29,266	$	29,420	$	29,895

A customer of the Company accounted for approximately 16% of the net sales in 2002. Accounts receivable from this customer totalled approximated $2,251 of total receivables as of December 31, 2002.

60

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands except shares and per share amounts)

20. BUSINESS ACQUISITION

In March 2001, one of the Company’s U.S. subsidiaries acquired the North American assets of Drypers Corporation pursuant to the order of the U.S. Bankruptcy Court based in Houston, Texas for approximately $39,625, including acquisition costs, less working capital adjustments of $3,747. The assets are located in Marion, Ohio; Vancouver, Washington and Houston, Texas and relate to the manufacture and sale of disposable baby diapers and training pants. The acquisition was accounted for as a purchase in accordance with Accounting Principles Board Opinion 16, “Business Combinations”, and the purchase price was allocated based on the relative fair values of the assets acquired.

The fair value of assets acquired and consideration paid were as follows:

Fair value of tangible assets acquired	$	30,670
Fair value of Drypers trademarks, patents and customer relationships		5,208
	$	35,878

The operating results of the Drypers assets acquired have been included in the Company’s Consolidated Statements of Operations from March 14, 2001, the acquisition date. The unaudited pro forma results of continuing operations of the Company for the years ended December 31, 2001 and 2000, assuming the acquisition occurred at the beginning of each period are as follows:

	2001		2000
Net sales	$	278,811	$	365,684
Loss from continuing operations	$	29,117	$	8,094
Net loss	$	27,151	$	4,565
Loss per share from continuing operations	$	4.33	$	1.21
Net loss per share	$	4.04	$	0.68

The acquisition was financed by existing cash balances of the Company, proceeds from term loans and a revolving credit line (see Notes 12 and 13).

61

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands except shares and per share amounts)

21. QUARTERLY DATA (UNAUDITED)

	1st Quarter			2nd Quarter			3rd Quarter			4th Quarter
2002
Net sales	$	55,538		$	55,835		$	57,718		$	58,706
Gross profit		13,128			14,637			14,586			15,024
Income (loss) from continuing operations(1)		(826	)		(108	)		106			473
Income from discontinued operations(2)		820			936			781			15,063
Net income (loss)(1 and 2)		(6	)		828			887			15,536
Income (loss) per share:
Income (loss) from continuing operations		(0.12	)		(0.01	)		0.02			0.06
Income from discontinued operations		0.12			0.13			0.11			2.16
Net income (loss) per share		(0.00	)		0.12			0.13			2.22
2001
Net sales	$	44,622		$	64,135		$	61,009		$	58,003
Gross profit		9,452			13,645			12,626			13,633
Loss from continuing operations(3)		(490	)		(5,262	)		(12,373	)		(11,404	)
Income from discontinued operations		382			170			606			808
Net loss(3)		(108	)		(5,092	)		(11,767	)		(10,596	)
Income (loss) per share:
Loss from continuing operations		(0.08	)		(0.79	)		(1.85	)		(1.67	)
Income from discontinued operations		0.06			0.03			0.09			0.11
Net loss per share		(0.02	)		(0.76	)		(1.76	)		(1.56	)

⁽¹⁾ Includes impairment loss of $160 on the Company’s U.K. operation in the third quarter, and $654 and $576 on the assets held-for-sale and the Drypers trademarks in the fourth quarter.

⁽²⁾ Includes net gain on disposal of discontinued operations of $14,833 (net of tax of $692) in the fourth quarter.

⁽³⁾ Includes restructuring cost of $256, $4,610 and $1,490 from second to fourth quarter, provision of bad and doubtful debts relating to Ames Department Stores of $800 in second quarter, and loss on divestiture and settlement of legal cases of $672 and $4,575, respectively, in the fourth quarter.

62

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(dollars in thousands except shares and per share amounts)

22. POST BALANCE SHEET EVENTS

On March 21, 2003, the Company announced a series of transactions authorized by the Board of Directors. As a part of the series of transactions authorized, the Company announced the payment of a special cash dividend of 70-cents per share to shareholders of record on April 11, 2003, which was paid on April 25, 2003 totalling $5,715. The dividends received by Mr. Wang ($2,489) will be used to repay the shareholder loan due to the Company (see Note 14).

The Board of Directors of the Company also authorized a share repurchase program of up to approximately 10% of the Company’s outstanding ordinary shares. The actual number of shares repurchased and the timing of the transactions will depend upon prevailing market conditions and other factors. Purchases may be made in the open market, through block trades or otherwise. In May 2003, the Company purchased 400,000 shares pursuant to the repurchase program.

The Board has authorized the purchase of the London residence of its Chairman and Chief Executive Officer, Mr. Brandon Wang, for its estimated fair value determined by an independent appraiser, approximately $12,000. The net proceeds of this transaction of approximately $5,500 will be used to repay a portion of the shareholder loan due to the Company (see Note 14). Mr. Wang will enter into an agreement with the Company for lease of this London property at a market rate determined by an independent appraiser (approximately $425 annually) for a yet to be determined period.

On March 19, 2003, 375,000 restricted shares were granted to Mr. Brandon Wang under the Company’s Equity Participation Plan (see Note 16). These restricted Ordinary Shares are considered bonus shares that have a six-month vesting period from the date of grant. Dependent upon market conditions and other factors, Mr. Brandon Wang intends to sell these restricted Ordinary Shares back to the Company at the end of the vesting period. The proceeds from the sale of these shares will be used to reduce his shareholder loan due to the Company. It is anticipated, as a result of these series of transactions, that the shareholder loan balance of $8,551 as of December 31, 2002 will be substantially repaid by December 31, 2003 (see Note 14).

The Company signed a letter of intent in May 2003 to purchase an additional land use right in Waigaoqiao, Shanghai, PRC for $1,777.

63

SHAREHOLDER INFORMATION

Annual Meeting

The next annual meeting of shareholders will be held in Kuala Lumpur, Malaysia on November 12, 2003 at 10:00 a.m. local time. Notice of the meeting and proxy statement will be mailed to shareholders before the meeting.

Market Information

The Company’s shares are traded on the NASDAQ National Market System under the Symbol DSGIF.

Stock Transfer Agent

Mellon Investor Services LLC

P.O. Box 3315

South Hackensack

New Jersey 07606

U.S.A.

Phone	:	1-800-356 2017
		(1) 201-329-8660 (Foreign)
		1-800-231-5469 (TDD for Hearing-Impaired)
Website	:	www.melloninvestor.com

Independent Auditors

Deloitte Touche Tohmatsu

26th Floor, Wing On Centre

111, Connaught Road, Central

Hong Kong

Principal Executive Office

DSG International Limited

17th Floor, Watson Centre

16-22 Kung Yip Street

Kwai Chung

Hong Kong

Phone : (852) 2484-4820

Form 20-F

The Company’s 2002 report to the Securities and Exchange Commission on Form 20-F provides additional details about the Company’s business as well as other financial information not included in this annual report. A copy of this report is available to shareholders upon written request to the Company’s Principal Executive Office.

64

DSG COMPANIES

Asia		North America
Disposable Soft Goods Limited		Associated Hygienic Products LLC
17/F Watson Centre		4455 River Green Parkway
16-22 Kung Yip Street		Duluth, GA 30096
Kwai Chung, N T		U.S.A.
Hong Kong		Telephone	:     (1) 770-497 9800
Telephone	:     (852) 2427 6951	Facsimile	:     (1) 770-623 8887
Facsimile	:     (852) 2480 4491
		Associated Hygienic Products Inc.
Disposable Soft Goods (S) Pte Limited		205 E. Highland Drive
No. 1, Joo Koon Crescent		Oconto Falls, WI 54154
4th Floor, Yeow Heng Industrial Building		U.S.A.
Singapore 629087		Telephone	:     (1) 920-846 8444
Telephone	:     (65) 6861 9155	Facsimile	:     (1) 920-846 3026
Facsimile	:     (65) 6861 9313
		Europe
Disposable Soft Goods (Zhongshan) Limited
Jin Chang Road		Disposable Soft Goods (UK) Plc
Jin Sha Industrial Zone		Boythorpe Works
Shalang, Zhongshan, Guangdong		Derbyshire
People’s Republic of China		Chesterfield, S40 2PH
Postal Code	:     528411	U.K.
Telephone	:     (86) 760-855 9866	Telephone	:     (44) 1246-221 228
Facsimile	:     (86) 760-855 8794	Facsimile	:     (44) 1246-274 773
DSG International (Thailand) Limited
835 Moo 4 Prakasa
Muang
Samutprakarn 10280
Thailand
Telephone	:     (66) 2-709 4153
Facsimile	:     (66) 2-709 3884
PT DSG Surya Mas Indonesia
Jl. Pancatama Raya Kav. 18
Desa Leuwilimus, Cikande
Serang, Jawa Barat
Indonesia
Telephone	:     (62) 254-400 934
Facsimile	:     (62) 254-400 939
DSG (Malaysia) Sdn Bhd
Lot 542, Jalan Subang 2
Sg Penaga Industrial Park
47500 Subang Jaya, Selangor Darul Ehsan
Malaysia
Telephone	:     (60) 3-8023 1833
Facsimile	:     (60) 3-8024 9033

65

DSG International Limited
Principal Executive Office 17/F Watson Centre 16-22 Kung Yip Street Kwai Chung, N T Hong Kong
Telephone	:	(852) 2484 4820
Facsimile	:	(852) 2480 4491

66

EX-23

EXHIBIT 23

INDEPENDENT AUDITORS’ CONSENT

We consent to the incorporation by reference in Registration Statement No. 333-84898 of DSG International Limited on Form S-8 of our report dated May 16, 2003, incorporated by reference in this Annual Report on Form 20-F of DSG International Limited for the year ended December 31, 2002.

Deloitte Touche Tohmatsu

Hong Kong

June 16, 2003

EX-99.1

EXHIBIT 99.1

CERTIFICATION AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Edmund J. Schwartz, Chief Financial Officer of DSG International Limited, certify that:

1. I have reviewed this annual report on Form 20-F of DSG International Limited;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have;

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officer and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: June 16, 2003

/s/    EDMUND J. SCHWARTZ

Edmund J. Schwartz

EX-99.2

EXHIBIT 99.2

CERTIFICATION AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Brandon Wang, Chairman and Chief Executive Officer, of DSG International Limited, certify that:

1. I have reviewed this annual report on Form 20-F of DSG International Limited;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have;

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

d) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

e) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6. The registrant’s other certifying officer and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: June 16, 2003

/s/    BRANDON WANG

Brandon Wang

EX-99.3

EXHIBIT 99.3

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of DSG International Limited (the “Company”) on Form 20-F for the period ending December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Edmund J. Schwartz, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that: to the best of my knowledge the Annual Report of the Company on Form 20-F for the period ended December 31, 2002 fully complied with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition of the Company at the end of such period and the results of operations of the Company for such period.

/s/     EDMUND J. SCHWARTZ

Edmund J. Schwartz

EX-99.4

EXHIBIT 99.4

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of DSG International Limited (the “Company”) on Form 20-F for the period ending December 31, 2002 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Brandon Wang, Chairman and Chief Executive Officer, of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that: to the best of my knowledge the Annual Report of the Company on Form 20-F for the period ended December 31, 2002 fully complied with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition of the Company at the end of such period and the results of operations of the Company for such period.

/s/    BRANDON WANG

Brandon Wang