China Water Industry Group Limited — Capital/Financing Update 2002

Apr 25, 2002

IMPORTANT

If you are in doubt as to any aspect of this document, you should consult your stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in Sky Hawk Computer Group Holdings Limited, you should at once hand this document and the accompanying form of proxy to the purchaser or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.

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

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SKY HAWK COMPUTER GROUP HOLDINGS LIMITED

(incorporated in the Cayman Islands with limited liability)

Executive Directors: Wang Chia Chin Wang Chia Chun Ko Wen Jui Chen Fang Yu Chen Ho Fa

Independent non-executive Directors:

Chen Chin Ming Lui Cho Tak

Registered office: Century Yard Cricket Square Hutchins Drive P.O. Box 2681GT George Town Grand Cayman British West Indies

Head office and principal place of business in Hong Kong: Suite 301, Tower A Hung Hom Commercial Centre 39 Ma Tau Wai Road Kowloon Hong Kong

25 April 2002

To the Shareholders

Dear Sir or Madam

PROPOSED GRANT OF GENERAL MANDATES FOR THE ALLOTMENT AND ISSUE OF UNISSUED SHARES AND FOR THE REPURCHASE OF ITS OWN SHARES

INTRODUCTION

Pursuant to the written resolutions of all shareholders of Sky Hawk Computer Group Holdings Limited (‘‘Company’’) passed on 28 December 2001, the directors (‘‘Directors’’) of the Company were granted a general mandate to allot, issue and deal with shares (each a ‘‘Share’’) of HK$0.10 each in the capital of the

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Company and a general mandate to purchase Shares on The Stock Exchange of Hong Kong Limited (‘‘Stock Exchange’’). These mandates will expire at the conclusion of the forthcoming annual general meeting (‘‘Annual General Meeting’’) of the Company convened to be held at Chater Room II, The Ritz-Charlton, 3 Connaught Road Central, Hong Kong on 17 June 2002 at 10: 00 a.m.. At the Annual General Meeting, among other businesses, the following resolutions will be proposed:

• (a) to grant a general mandate (‘‘General Mandate’’) to the Directors to exercise the power of the Company to allot, issue and otherwise deal with new Shares up to a maximum of 20% of the aggregate nominal amount of the share capital of the Company in issue at the the date of passing of such resolution;

• (b) to grant a general mandate (‘‘Repurchase Mandate’’) to the Directors to enable them to repurchase the Shares on the Stock Exchange; and

• (c) to authorise the increase of the number of new Shares which may be allotted and issued under the General Mandate by an additional number representing such number of Shares actually repurchased under the Repurchase Mandate (such authorisation is referred to below as the ‘‘Extension Mandate’’).

Under the Rules (‘‘Listing Rules’’) Governing the Listing of Securities on the Stock Exchange, the Company is required to give to its shareholders all information which is reasonably necessary to enable its shareholders to make an informed decision as to whether to vote for or against the resolution to renew the grant to the Directors of the Repurchase Mandate. This document is prepared for such purpose. The explanatory statement required by the Listing Rules to be included in this document is set out in the Appendix.

THE GENERAL AND THE EXTENSION MANDATES TO ISSUE NEW SHARES

The Directors have no immediate plans to allot and issue any new Shares other than Shares which may fall to be issued under the share option scheme of the Company or pursuant to any scrip dividend scheme which may be approved by the shareholders of the Company.

THE REPURCHASE MANDATE

On pages 57 to 60 of the annual report of the Company in respect of the financial year ended 31 December 2001 is the notice of the Annual General Meeting. At the Annual General Meeting, as part of the special businesses of the Annual General Meeting, an ordinary resolution will be proposed to grant the Repurchase Mandate to the Directors.

ACTION TO BE TAKEN

Whether or not you intend to attend the Annual General Meeting, you are requested to complete and return the accompanying form of proxy in accordance with the instructions printed thereon to the Company’s branch share register, Hong Kong Registrars Limited, at 2nd Floor, Vicwood Plaza, 199 Des Voeux Road Central, Hong Kong, as soon as possible and in any event not later than 48 hours before the time appointed for holding the Annual General Meeting or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the Annual General Meeting or any adjournment thereof if you so wish.

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RECOMMENDATION

The Directors believe that the General Mandate, the Repurchase Mandate and the Extension Mandate are in the best interests of the Company and its shareholders. An exercise of the powers under the Repurchase Mandate may, depending on market conditions and funding arrangements at the time, lead to an enhancement of the net asset value and/or earnings per Share. Such an exercise will only be made when the Directors believe that repurchase of Shares will benefit the Company and its shareholders.

An exercise of the Repurchase Mandate in full could have a material adverse impact on the working capital and/or gearing position of the Company compared with that as at 31 December 2001, being the date of its latest audited consolidated financial statements. The Directors do not, however, intend to make any repurchase in circumstances that would have a material adverse impact on the working capital or gearing of the Company.

The Directors believe that an exercise of the General Mandate and the Extension Mandate to issue and allot new Shares will enable the Company to take advantage of market conditions to raise additional capital for the Company.

Accordingly, the Directors recommend that all shareholders of the Company should vote in favour of the resolutions approving the grant of the General Mandate, the Repurchase Mandate and the Extension Mandate to the Directors.

Yours faithfully, For and on behalf of the board of Directors of Sky Hawk Computer Group Holdings Limited Wang Chia Chin Chairman

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EXPLANATORY STATEMENT

APPENDIX

This Appendix serves as an explanatory statement, as required by the Listing Rules, to provide requisite information to you for your consideration of the Repurchase Mandate.

1. LISTING RULES RELATING TO THE REPURCHASE OF SECURITIES

The Listing Rules permit companies whose primary listing is on the Stock Exchange to repurchase their securities on the Stock Exchange subject to certain restrictions, the more important of which are summarised below. The Company is empowered by its memorandum of association and the articles of association to repurchase its own securities.

(a) Shareholders’ approval

The Listing Rules provide that all on-market securities repurchases by a company with its primary listing on the Stock Exchange must be approved in advance by an ordinary resolution, either by way of a general mandate or by specific approval with reference to a specific transaction.

(b) Source of funds

Repurchase must be funded out of funds which are legally available for the purpose and in accordance with the memorandum of association and the articles of association of the Company and the Companies Law, Chapter 22 (Law 3 of 1961, as consolidated and amended) of the Cayman Islands (‘‘Companies Law’’). A listed company may not repurchase its own securities on the Stock Exchange for a consideration other than cash or for settlement otherwise than in accordance with the trading rules of the Stock Exchange. Under the Cayman Islands law, repurchases by the Company may only be made out of profits of the Company or out of the proceeds of a fresh issue of shares made for the purpose, or, if so authorised by its articles of association and subject to the provisions of the Companies Law, out of capital. Any premium payable on a redemption or purchase over the par value of the shares to be purchased must be provided for out of profits of the Company or out of the Company’s share premium account, or, if so authorised by its articles of association and subject to the provisions of the Companies Law, out of capital.

2. SHARE CAPITAL

As at 22 April 2002, being the latest practicable date (‘‘Latest Practicable Date’’) prior to the printing of this document, the issued share capital of the Company comprised 415,000,000 Shares.

Subject to the passing of the proposed resolution for the grant of the Repurchase Mandate and on the basis that no Shares are issued or repurchased by the Company prior to the Annual General Meeting, the Company will be allowed under the Repurchase Mandate to repurchase a maximum of 41,500,000 Shares.

3. REASONS FOR THE REPURCHASE

The Directors believe that it is in the best interests of the Company and its shareholders for the Directors to have general authority from its shareholders to enable the Company to repurchase Shares in the market. Such repurchases may, depending on market conditions and funding arrangements at the time, lead to an enhancement of the net asset value per Share and/or earnings per Share and will only be made if the Directors believe that such repurchases of Shares will benefit the Company and its shareholders.

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EXPLANATORY STATEMENT

APPENDIX

4. FUNDING OF REPURCHASES

In repurchasing securities, the Company may only apply funds legally available for such purpose in accordance with its memorandum of association and articles of association, the Listing Rules and the applicable laws of the Cayman Islands.

Taking into account the current working capital position of the Company, the Directors consider that, if the Repurchase Mandate were to be exercised in full, it might have a material adverse effect on the working capital and/or the gearing position of the Company as compared with the position as at 31 December 2001. However, the Directors do not intend to make any repurchases to such an extent as would, in circumstances, have a material adverse effect on the working capital requirements or the gearing position of the Company which in the opinion of the Directors are from time to time appropriate for the Company.

5. SHARE PRICES

The highest and lowest prices at which the Shares have been traded on the Stock Exchange since 17 January 2002, being the date of listing of the Shares, in each month were as follows:

	Highest	Lowest
	HK$	HK$
January 2002	0.770	0.385
February 2002	0.590	0.440
March 2002	0.550	0.485
April 2002 (Note)	0.700	0.500

Note: Up to the Latest Practicable Date

6. DIRECTORS’ INTERESTS IN SHARE CAPITAL

As at the Latest Practicable Date, the interests of the Directors in the share capital of the Company and its associated corporations (within the meaning of the Securities (Disclosure of Interests) Ordinance (Chapter 396 of the Laws of Hong Kong), the ‘‘SDI Ordinance’’) which had been notified to the Company and the Stock Exchange pursuant to section 28 of the SDI Ordinance (including the interests which they were deemed or taken to have under section 31 or Part I of the Schedule to the SDI Ordinance) or which were required pursuant to section 29 of the SDI Ordinance, to be entered in the register referred to therein or which were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Companies contained in the Listing Rules, to be notified to the Company and the Stock Exchange were as follows:

(a)

		Number of Shares	Number of Shares	Number of Shares
	Corporate	Personal	Family	Other	Total
Directors	interests	interests	interests	interests	interests
Wang Chia Chin	—	136,300,000	123,000,000	—	259,300,000
			(Note)
Wang Chia Chun	—	28,600,000	—	—	28,600,000
Ko Wen Jui	—	600,000	—	—	600,000
Chen Fang Yu	—	1,980,000	—	—	1,980,000
Chen Ho Fa	—	524,000	—	—	524,000

Note: These Shares are held by Ms. Ko Su Mei, wife of Mr. Wang Chia Chin.

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APPENDIX

EXPLANATORY STATEMENT

• (b) Each of Mr. Wang Chia Chin and Mr. Wang Chia Chun has beneficial interests in his personal capacity in the following number of non-voting deferred shares of HK$1 each in Eagle Lord Development Limited, one of the subsidiaries of the Company:

Name			Number	of	non-voting	deferred	shares
Wang	Chia	Chin					4,920
Wang	Chia	Chun					980

Save as disclosed herein, as at the Latest Practicable Date, none of the Directors had any interest in the share capital of the Company or any associated corporations (within the meaning of the SDI ordinance) which were required to be notified to the Company and the Stock Exchange pursuant to section 28 of the SDI Ordinance (including the interests which they were deemed or taken to have under section 31 or part I of the Schedule to the SDI Ordinance) or pursuant to the Model Code for Securities Transactions by Directors of Listed Companies contained in the Listing Rules or which are required, pursuant to section 29 of the SDI Ordinance, to be entered in the register referred to therein.

7. SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, according to the register of members kept by the Company pursuant to section 16 of the SDI Ordinance and so far as is known to, or can be ascertained after reasonable enquiry by the Directors, save as disclosed in the paragraph headed ‘‘Directors’ interests in share capital’’ of this Appendix, the following person was directly or indirectly interested in 10% or more of the issued capital of the Company:

		Approximate
Name	Number of Shares	percentage
Wang Chia Chin (Note)	136,300,000	32.84%
Ko Su Mei (Note)	123,000,000	29.64%

Note: Wang Chia Chin and Ko Su Mei are husband and wife. Under the SDI Ordinance, both Wang Chia Chin and Ko Su Mei are taken to be interested in the Shares held by each other. Accordingly each of Wang Chia Chin and Ko Su Mei were deemed to have approximately 62.48% interest in the Company as at the Latest Practicable Date.

Save as disclosed above, no person has notified the Company that it has an interest amounting to 10% or more of the issued share capital of the Company at the Latest Practicable Date pursuant to section 16(1) of the SDI Ordinance.

8. DISCLOSURE OF INTERESTS, THE TAKEOVERS CODE AND MINIMUM PUBLIC HOLDING

None of the Directors or, to the best of their knowledge, having made all reasonable enquiries, their associates, have any present intention to sell to the Company or its subsidiaries any of the Shares if the Repurchase Mandate is approved at the Annual General Meeting and exercised.

The Directors have undertaken to the Stock Exchange that, so far as the same may be applicable, they will exercise the powers of the Company to make repurchases pursuant to the Repurchase Mandate in accordance with the Listing Rules and the applicable laws of the Cayman Islands.

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EXPLANATORY STATEMENT

APPENDIX

Assuming that none of the substantial shareholders disposes of their Shares, if the Repurchase Mandate were exercised in full, the respective percentage shareholdings of the substantial shareholders before and after such repurchase would be as follows:

	Before repurchase	After repurchase
Wang Chia Chin (Note)	32.84%	36.49%
Ko Su Mei (Note)	29.64%	32.93%

Note: Wang Chia Chin and Ko Su Mei are husband and wife. Under the SDI Ordinance, both Wang Chia Chin and Ko Su Mei are taken to be interested in the Shares held by each other. Accordingly each of Wang Chia Chin and Ko Su Mei were deemed to have approximately 62.48% interest in the Company as at the Latest Practicable Date.

If a shareholder’s proportionate interest in the voting rights of the Company increases on the Company exercising its powers to repurchase securities pursuant to the Repurchase Mandate, such increase will be treated as an acquisition for the purposes of Rule 32 of the Hong Kong Code on Takeovers and Mergers (‘‘Takeovers Code’’). As a result, a shareholder or group of shareholders acting in concert could obtain or consolidate control of the Company and become obliged to make a mandatory offer in accordance with Rules 26 and 32 of the Takeovers Code.

On the basis of the shareholdings held by the substantial shareholders named above, an exercise of the repurchase mandate in full will not have any implications under the Takeovers Code.

Assuming that there is no issue of shares in the Company between the date of this document and the date of a repurchase and no disposal by any of the substantial shareholders of the Company of their interests in the Shares, an exercise of the Repurchase Mandate whether in whole or in part will result in less than 25% of the shares of the Company being held by the public. The Directors have no intention to exercise the Repurchase Mandate to an extent as may result in a public shareholding of less than 25%.

9. SHARE REPURCHASE MADE BY THE COMPANY

The Company has not purchased any of its Shares (whether on the Stock Exchange or otherwise) since 17 January 2002, being the date of listing of the Shares on the Stock Exchange.

10. GENERAL

No connected person of the Company has notified the Company that he has a present intention to sell any securities to the Company nor has any such connected person undertaken not to sell any of the securities held by him to the Company in the event that the Repurchase Mandate is granted.

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