CMON Limited — M&A Activity 2002

Nov 29, 2002

The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this announcement, 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 announcement.

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瀋陽公用發展股份有限公司 SHENYANG PUBLIC UTILITY HOLDINGS COMPANY LIMITED

(a joint stock limited company incorporated in the People’s Republic of China with limited liability)

DISCLOSEABLE AND CONNECTED TRANSACTIONS PROPOSED ACQUISITION OF

(1) 70% EQUITY INTEREST IN ZHUHAI EDUCATION; (2) 100% EQUITY INTEREST IN SHANGHAI EDUCATION; AND (3) 50% EQUITY INTEREST IN BEIDA ONLINE AND ONGOING CONNECTED TRANSACTIONS

Financial adviser to Shenyang Public Utility Holdings Company Limited

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Tai Fook Capital Limited

• On 28 November, 2002, the Company entered into:

• (1) the Zhuhai Agreement with the Vendors, pursuant to which the Vendors agreed to sell, and the Company agreed to acquire the 70% equity interest held by the Vendors in Zhuhai Education at a cash consideration of approximately RMB166.6 million;

• (2) the Shanghai Agreement with the Vendors, pursuant to which the Vendors agreed to sell, and the Company and its subsidiary, the Real Estate Company, agreed to acquire the 100% equity interest held by the Vendors in Shanghai Education at a cash consideration of approximately RMB194.4 million; and

• (3) the Beida Online Agreement with the Beida Online Vendors, pursuant to which the Beida Online Vendors agreed to sell, and the Company agreed to acquire the 50% equity interest held by the Beida Online Vendors in Beida Online at a cash consideration of approximately RMB94.4 million.

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• The aggregate consideration of the Zhuhai Transaction, the Shanghai Transaction and the Beida Online Transaction pursuant to the Zhuhai Agreement, the Shanghai Agreement and the Beida Online Agreement respectively amounts to approximately RMB455.4 million and will be financed by the Company’s internal resources. The terms of the Zhuhai Agreement, the Shanghai Agreement and the Beida Online Agreement have been arrived at after arm’s length negotiation between the parties involved with reference to (i) the Zhuhai PRC Valuation and the Zhuhai International Valuation, in the case of the Zhuhai Transaction; (ii) the Shanghai PRC Valuation and the Shanghai International Valuation, in the case of the Shanghai Transaction; and (iii) the Beida Online Business Valuation, in the case of the Beida Online Transaction, and are based on normal commercial terms.

• Each of the Zhuhai Agreement, the Shanghai Agreement and the Beida Online Agreement is independent of and not inter-conditional on each other.

• The Directors believe that the Zhuhai Transaction and the Shanghai Transaction would provide a valuable opportunity for the Company to further participate in the property development of education complexes located in prime cities of the PRC and benefit from steady rental income generated from leasing of properties on such education complexes. The Directors also believe that the Beida Online Transaction would allow the Company to establish a foothold in the business of online education provision by investing in an established online education platform with a close association with Peking University.

• Peking University beneficially owns over 50% equity interest in each of the Vendors. One of the Beida Online Vendors, Jade Bird Software, is a wholly-owned subsidiary of Peking University. Peking University also has over 50% beneficial interest in Beida Hi-Tech, which in turn has a 50% equity interest in the total registered share capital of SPU, the controlling shareholder of the Company. Pursuant to the Listing Rules, the Zhuhai Transaction and the Shanghai Transaction constitute discloseable and connected transactions of the Company and the Beida Online Transaction constitutes a connected transaction of the Company.

• In connection with the Zhuhai Transaction and the Shanghai Transaction, on 28 November, 2002, the Company also entered into the Zhuhai Master Lease Agreement and the Shanghai Master Lease Agreement respectively with one of the Vendors, Beida Education Investment, and the transactions contemplated thereunder will constitute ongoing connected transactions of the Company under the Listing Rules.

• The Directors believe that strict compliance with the disclosure and/or shareholders’ approval requirements under the Listing Rules would be impractical and unduly onerous on the part of the Company in view of the continuing and recurring nature of the Zhuhai Lease Transactions. Accordingly, the Company has applied to the Stock Exchange for a waiver from the disclosure and/or shareholders’ approval requirements in connection with the Zhuhai Lease Transactions under the Listing Rules.

• The detail terms of the lease transactions contemplated under the Shanghai Formal Lease Agreement are expected to be finalised in around mid 2004. The Company will strictly comply with the relevant provisions under the Listing Rules when the Shanghai Formal Lease Agreement is entered into and may apply for a wavier in this regard as and when appropriate.

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• Each of the Proposed Acquisitions and the Zhuhai Lease Transactions are subject to, among other things, the approval of the Independent Shareholders. In view of the interest of Peking University and Beida Hi-Tech in the Proposed Acquisitions and the Zhuhai Lease Transactions, SPU and its associate will abstain from voting at the Extraordinary General Meeting.

• A circular containing, among other things, details relating to the Proposed Acquisitions and the Zhuhai Lease Transactions, the letter from the independent financial adviser containing its advice to the Independent Board Committee and the recommendation of the Independent Board Committee regarding the Proposed Acquisitions and the Zhuhai Lease Transactions, will be dispatched to the Shareholders as soon as practicable in compliance with the requirements of the Listing Rules.

1. THE PROPOSED ACQUISITIONS

A. The Zhuhai Agreement dated 28 November, 2002

Parties:

Vendors: Beida Education Investment Beida Public School

Peking University has over 50% beneficial interest in each of Beida Education Investment and Beida Public School

Purchaser: the Company

Equity interest to be acquired:

Pursuant to the Zhuhai Agreement, the Company will acquire 35% equity interest in Zhuhai Education from each of Beida Education Investment and Beida Public School respectively. Upon completion of the Zhuhai Transaction, the Company will own an aggregate of 70% equity interest in Zhuhai Education. The remaining 30% equity interest in Zhuhai Education is owned by an independent third party not connected with the directors, the promoters, the supervisors, chief executive or substantial shareholders of the Company or any of its subsidiaries or an associate of any of them.

The consideration for the Zhuhai Transaction:

The consideration payable by the Company for the Zhuhai Transaction is approximately RMB166.6 million, which will be satisfied by cash from the Company’s internal resources. The consideration has been determined after arm’s length negotiation between the parties involved with reference to each of the Zhuhai PRC Valuation and Zhuhai International Valuation prepared by the PRC Valuer and the International Valuer respectively. The PRC Valuer valued the net assets of Zhuhai Education as at 31 October, 2002 at approximately RMB238.0 million (including land and buildings of approximately RMB289 million). The International Valuer valued the land and buildings owned by Zhuhai Education as at 31 October, 2002 at approximately RMB289 million. The Directors consider that the terms of the Zhuhai Agreement are based on normal commercial terms and are fair and reasonable.

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Pursuant to the Zhuhai Agreement, the Company will deposit the full consideration amount of approximately RMB166.6 million into an escrow account in a PRC bank to be agreed between the parties on or before 31 December, 2002 and such amount will remain in such escrow account until completion of the Zhuhai Transaction which is expected to be on or before the end of May 2003. Upon completion of the Zhuhai Transaction, the full amount of the consideration will be paid to the Vendors. Also pursuant to the Zhuhai Agreement, upon completion of the Zhuhai Transaction, the Company will become the sole beneficial owner of the economic benefits (including all rights and obligations) relating to the 70% equity interest in Zhuhai Education as from and including 1 January, 2003. The Directors consider that the terms of the Zhuhai Agreement are fair and reasonable so far as the Shareholders are concerned.

Conditions precedent to completion of the Zhuhai Transaction:

Completion of the Zhuhai Transaction is conditional upon, among other things, the following:

• (1) the passing by the Independent Shareholders of an ordinary resolution to approve the Zhuhai Transaction at the Extraordinary General Meeting;

• (2) filing being made to the relevant PRC authorities in relation to the Zhuhai PRC Valuation;

• (3) approval being obtained by Zhuhai Education from relevant PRC authorities in relation to the Zhuhai Transaction and the corresponding amendments to the articles of association and business license of Zhuhai Education;

• (4) approval being obtained by Zhuhai Education from relevant PRC authorities in relation to the proposed termination of the business relating to Compulsory Education and the proposed incorporation of property leasing business in the business activities of Zhuhai Education and the corresponding amendments to the articles of association and business license of Zhuhai Education; and

• (5) waiver being obtained from the existing equity holder of Zhuhai Education other than the Vendors in respect of the pre-emptive rights to acquire the 70% equity interest in Zhuhai Education sold by the Vendors to the Company.

Pursuant to the Zhuhai Agreement, none of the above conditions may be waived by either party. In addition, the Zhuhai Agreement is independent of and not inter-conditional on either the Shanghai Agreement or the Beida Online Agreement.

B. The Shanghai Agreement dated 28 November, 2002

Parties:

Vendors: Beida Education Investment Beida Public School

Peking University has over 50% beneficial interest in each of Beida Education Investment and Beida Public School

Purchasers: the Company

the Real Estate Company

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Equity interest to be acquired:

Pursuant to the Shanghai Agreement, the Company and its approximately 99.86% directly owned subsidiary, the Real Estate Company, will acquire 80% and 20% equity interest in Shanghai Education from Beida Education Investment and Beida Public School respectively. Upon completion of the Shanghai Transaction, the Company will directly own 80% equity interest in Shanghai Education with the remaining equity interest of 20% to be directly held by the Real Estate Company.

The consideration for the Shanghai Transaction:

The consideration payable by the Company and the Real Estate Company for the Shanghai Transaction is approximately RMB155.5 million and approximately RMB38.9 million respectively, which will be satisfied by cash from the internal resources of the Company and the Real Estate Company respectively. The consideration has been determined after arm’s length negotiation between the parties involved with reference to each of the Shanghai PRC Valuation and Shanghai International Valuation prepared by the PRC Valuer and the International Valuer respectively. The PRC Valuer valued the net assets of Shanghai Education as at 31 October, 2002 at approximately RMB194.4 million (including the land of approximately RMB95.6 million). The International Valuer valued the land owned by Shanghai Education as at 31 October, 2002 at approximately RMB95.6 million. The Directors consider that the terms of the Shanghai Agreement are based on normal commercial terms and are fair and reasonable.

Pursuant to the Shanghai Agreement, the Company will deposit the full consideration amount of approximately RMB194.4 million into an escrow account in a PRC bank to be agreed between the parties on or before 31 December, 2002 and such amount will remain in such escrow account until completion of the Shanghai Transaction which is expected to be on or before the end of May 2003. Upon completion of the Shanghai Transaction, the full amount of the consideration will be paid to the Vendors. Also pursuant to the Shanghai Agreement, upon completion of the Shanghai Transaction, the Company and the Real Estate Company will become the beneficial owner of the economic benefits (including all rights and obligations) relating to 80% and 20% equity interest respectively in Shanghai Education as from and including 1 January, 2003. The Directors consider that the terms of the Shanghai Agreement are fair and reasonable so far as the Shareholders are concerned.

Conditions precedent to completion of the Shanghai Transaction:

Completion of the Shanghai Transaction is conditional upon, among other things, the following:

• (1) the passing by the Independent Shareholders of an ordinary resolution to approve the Shanghai Transaction at the Extraordinary General Meeting;

• (2) filing being made to the relevant PRC authorities in relation to the Shanghai PRC Valuation;

• (3) approval being obtained by Shanghai Education from relevant PRC authorities in relation to the Shanghai Transaction and the corresponding amendments to the articles of association and business license of Shanghai Education; and

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• (4) approval being obtained by Shanghai Education from relevant PRC authorities in relation to the proposed incorporation of property leasing business as the business activities of Shanghai Education and the corresponding amendments to the articles of association and business license of Shanghai Education.

Pursuant to the Shanghai Agreement, none of the above conditions may be waived by either party. In addition, the Shanghai Agreement is independent of and not inter-conditional on either the Zhuhai Agreement or the Beida Online Agreement.

C. The Beida Online Agreement dated 28 November, 2002

Parties:

Beida Online Vendors: Jade Bird Software Mr. Xu Zhen Dong Mr. Qi Li Feng

Jade Bird Software is a direct wholly owned subsidiary of Peking University. Mr. Qi Li Feng is independent of and not connected with the directors, the promoters, the supervisors, chief executive or substantial shareholders of the Company or any of its subsidiaries or an associate of any of them. Mr. Xu Zhen Dong is the Chairman of Beida Hi-Tech, which has a 50% equity interest in the registered capital of SPU, the controlling shareholder of the Company.

Purchaser: the Company

Equity interest to be acquired:

Pursuant to the Beida Online Agreement, the Company will acquire 30%, 18% and 2% equity interest in Beida Online from Jade Bird Software, Mr. Xu Zhen Dong and Mr. Qi Li Feng respectively. Upon completion of the Beida Online Transaction, the Company will own a 50% equity interest in Beida Online. The remaining 50% equity interest in Beida Online is owned by Peking University.

The consideration for the Beida Online Transaction:

The aggregate consideration payable by the Company for the Beida Online Transaction is approximately RMB94.4 million, which will be satisfied by cash from the Company’s internal resources. The consideration has been determined after arm’s length negotiation between the parties involved with reference to the Beida Online Business Valuation prepared by the PRC Valuer. The PRC Valuer valued the business value of Beida Online as at 31 October, 2002 at approximately RMB188.8 million. The Directors consider that the terms of the Beida Online Agreement are based on normal commercial terms and are fair and reasonable.

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Pursuant to the Beida Online Agreement, the Company will deposit the full consideration amount of approximately RMB94.4 million into an escrow account in a PRC bank to be agreed between the parties on or before 31 December, 2002 and such amount will remain in such escrow account until completion of the Beida Online Transaction which is expected to be on or before the end of May 2003, upon which the full amount of the consideration will be paid to the Beida Online Vendors. Also pursuant to the Beida Online Agreement, upon completion of the Beida Online Agreement, the Company will become the sole beneficial owner of the economic benefits (including all rights and obligations) relating to the 50% equity interest in Beida Online, which will then become a subsidiary of the Company, as from and including 1 January, 2003. The Directors consider that the terms of the Beida Online Agreement are fair and reasonable so far as the Shareholders are concerned.

Conditions precedent to completion of the Beida Online Transaction:

Completion of the Beida Online Transaction is conditional upon, among other things, the following:

• (1) the passing by the Independent Shareholders of an ordinary resolution to approve the Beida Online Transaction at the Extraordinary General Meeting;

• (2) filing being made to the relevant PRC authorities in relation to the Beida Online Business Valuation prepared by the PRC Valuer;

• (3) approval being obtained by Beida Online from the relevant PRC authorities (including but not limited to the Ministry of Information Industry) in relation to the Beida Online Transaction and the corresponding amendments to the articles of association and business license of Beida Online;

• (4) waiver being obtained from Peking University in respect of the exercise of the preemptive rights to acquire the 50% equity interest in Beida Online sold by the Beida Online Vendors to the Company; and

• (5) the collection of the other receivable of Beida Online due from Beijing Beida Jade Bird Company Limited in the amount of approximately RMB37.8 million as at 31 October, 2002 by Beida Online.

Pursuant to the Beida Online Agreement, none of the above conditions may be waived by either party. In addition, the Beida Online Agreement is independent of and not inter-conditional on either the Zhuhai Agreement or the Shanghai Agreement.

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2. INFORMATION ON ZHUHAI EDUCATION, SHANGHAI EDUCATION AND BEIDA ONLINE

A. Information on Zhuhai Education:

Zhuhai Education is a limited liability company incorporated in the PRC on 22 May, 2001 with a registered capital of RMB 20 million. Zhuhai Education is engaged mainly in the provision of education services, education training, education project investment, education related software and hardware development, technology transfer, technology services, training and consultancy. At present, the major asset of Zhuhai Education is the land (the “Zhuhai Land”) acquired from Zhuhai Municipal Government pursuant to《珠海市國有土地使用 權出讓合同書》(State Owned Land Use Rights Sales Agreement) dated 22 July, 2001, 《關於北大教育科學園用地面積的函》(Document in relation to the Area of Beida Education Science Park) and 《房地產權証》(Property Right Certificate) (collectively, the “Zhuhai Approvals”). The Zhuhai Land is located at Zhuhai, the PRC with an area of approximately 420,000 square meters. As stipulated in the Zhuhai Approvals, the Zhuhai Land can only be developed for provision of education facilities and services. Based on the development plan of Zhuhai Education, an education park will be established on the Zhuhai Land (the “Zhuhai Education Park”) with facilities and buildings catered for multi-areas of education such as primary and secondary school, post graduate school and on-the-job training, etc. Generally speaking, an education park refers to projects which are built upon the concept of “education” i.e. constructed around school buildings, and normally comprise school buildings, commercial buildings and in some cases residential buildings. The business model of the Zhuhai Education Park is to capitalize on the commercial potential of its close association with Peking University.

The construction plan of the Zhuhai Education Park is divided into three phases with an estimated total floor area of approximately 152,000 square meters. Phase I of the Zhuhai Education Park, which comprises facilities for primary and secondary education and includes 15 buildings with a total floor area of approximately 61,000 square meters, is expected to be completed by no later than August 2003. Phase II and Phase III of the Zhuhai Education Park will focus on education facilities other than facilities for Compulsory Education which include facilities for research and development, office buildings and training centres. It is estimated that the total construction cost for Phase II and Phase III of the Zhuhai Education Park will amount to approximately RMB152 million and will be completed by September 2004.

The land and the buildings relating to Phase I of the Zhuhai Education Park will be leased to Beida Education Investment (please refer to the section headed “Zhuhai Lease Transactions and Future Ongoing Connected Transactions” below for further details). It is currently intended that Phase II and Phase III of the Zhuhai Education Park, when completed, will either be leased to third parties (which may or may not be connected persons as defined under the Listing Rules) or used by the Company for provision of education services, such as professional training and corporate training. Based on the Zhuhai PRC Valuation, the value of the net assets (including the Zhuhai Land and the buildings relating to Phase I of approximately RMB289 million) of Zhuhai Education as at 31 October, 2002 amounted to approximately RMB238.0 million. In accordance with the Zhuhai International Valuation, the value of the Zhuhai Land and the buildings as at 31 October, 2002 amounted to approximately RMB289 million. Based on the unaudited management accounts of Zhuhai Education, the net tangible asset value of Zhuhai Education as at 31 October, 2002 amounted to approximately RMB78.0 million.

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The Directors intend to finance the construction costs of Phase II and Phase III of Zhuhai Education Park by the internal resources of Zhuhai Education and external financing to be obtained by Zhuhai Education and therefore the Company is not expected to be required to provide financing for the completion of the project.

B. Information on Shanghai Education:

Shanghai Education is a limited liability company incorporated in the PRC on 24 October, 2002 with a registered capital of RMB 100 million. Shanghai Education is engaged mainly in education project investment, computer software and hardware technology development, technology transfer, technology training and consultancy. At present, the major asset of Shanghai Education is the land (the “Shanghai Land”) acquired from Shanghai State Owned Land Planning Bureau pursuant to《土地權屬證明》(Proof of Land Ownership) dated 30 October, 2002 issued by 上海市青浦區房屋土地管理局 (Shanghai Qing Pu District Property and Land Administration Bureau) and 《建設用地規劃許可證》(Construction Land Planning Permit) issued by 上海市青浦區規劃管理局 (Shanghai Qing Pu District Planning Administration Bureau) (collectively, the “Shanghai Approvals”). The Shanghai Land is located at 青浦區 (Qing Pu District) of Shanghai, the PRC with an area of approximately 318,400 square meters. As stipulated in the Shanghai Approvals, the Shanghai Land can only be developed for provision of education facilities and services. Based on the development plan of Shanghai Education, an education park will be established on the Shanghai Land (the “Shanghai Education Park”) with facilities and buildings catered for multi-areas of education such as primary and secondary school, post graduate school and on-the-job training, etc. The business model of the Shanghai Education Park is to capitalize on the commercial potential of its close association with Peking University. The construction plan of the Shanghai Education Park is divided into two phases with an estimated total floor area of approximately 137,000 square meters. It is estimated that the total construction cost for the Shanghai Education Park will amount to approximately RMB229 million, of which approximately RMB119 million and RMB110 million will be applied for the investment in Phase I and Phase II of the Shanghai Education Park respectively.

The construction work of Phase I and Phase II are expected to be completed by August 2004 and August 2005 respectively. The land and the buildings relating to Phase I of the Shanghai Education Park will be leased to Beida Education Investment (please refer to the section headed “Zhuhai Lease Transactions and Future Ongoing Connected Transactions” below for further details). It is currently intended that Phase II of the Shanghai Education Park, when completed, will either be leased to third parties (which may or may not be connected persons as defined under the Listing Rules) or used by the Company for provision of education services, such as professional training and corporate training. Based on the Shanghai Valuation prepared by the PRC Valuer, the value of the net assets (including the Shanghai Land having a value of approximately RMB95.6 million) of Shanghai Education as at 31 October, 2002 amounted to approximately RMB194.4 million. In accordance with the Shanghai Valuation prepared by the International Valuer, the value of the Shanghai Land as at 31 October, 2002 amounted to approximately RMB95.6 million. Based on the unaudited management accounts of Shanghai Education, the net asset value of Shanghai Education as at 31 October, 2002 amounted to approximately RMB100 million.

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The Directors intend to finance the construction costs of Phase I and Phase II of Shanghai Education Park by the internal resources of Shanghai Education and external financing to be obtained by Shanghai Education and therefore the Company is not expected to be required to provide financing for the completions of the project.

C. Information on Beida Online:

Beida Online is a limited liability company incorporated in the PRC on 22 September 2000 with a registered capital of RMB70 million. Beida Online is engaged principally in online provision of post secondary education and business and career training. Beida Online has collaborated with a number of faculties of Peking University including the 法學院 (Law Faculty), 經濟學院 (Economics Faculty) and 政府管理學院 (Government Management Faculty) to provide online specialized education. Also, Beida Online has collaborated with 最 高人民法院 (The Supreme People’s Court of China), 最高人民檢察院 (The Supreme People’s Procuratorate of China) and 解放軍總參謀部 (The General Staff of the People Liberation Army) to provide online post secondary education. In respect of corporate training, as of August 2002, Beida Online has secured contracts to provide online business training courses to over 20 large-scale corporations in the PRC. Based on the Beida Online Business Valuation prepared by the PRC Valuer, the business value of Beida Online as at 31 October, 2002 amounted to approximately RMB188.8 million. Based on the unaudited management accounts of Beida Online, the net assets of Beida Online as at 31 October, 2002 amounted to approximately RMB40.8 million. Based on the unaudited accounts of Beida Online, the net loss of Beida Online for the year ended 31 December, 2001 was approximately RMB13.5 million.

3. REASONS FOR THE PROPOSED ACQUISITION AND SOURCE OF INTERNAL FUND TO FINANCE THE CONSIDERATION FOR THE PROPOSED ACQUISITIONS

Prior to the disposal of the water purification business, the Group was principally engaged in production and sale of purified water, the development and sale of real estate and the production and sale of electricity and heat through a joint venture. As stated in the circular of the Company dated 5 July 2002 in relation to its disposal of the water purification business (the “Circular”), the proceeds from the disposal of the water purification business (the “Disposal”) was RMB900 million, of which RMB590 million would be used to finance the property and education project in Shenyang. Therefore, there is an amount of RMB310 million which has not yet been utilised or designated for other uses. The aggregate consideration for the acquisitions under the Agreements amounts to approximately RMB455.4 million. The Directors intend to use the remaining proceeds from the Disposal of RMB310 million to partly finance the acquisitions and the remaining balance of approximately RMB145.4 million required for the acquisitions will be financed by the Group’s internal resources.

As explained in the Circular , the Company intends to form alliance with prestigious university in the PRC to jointly develop education projects which not only refer to development of properties for rental income but other education related projects e.g. development and sale of residential complexes built in large education parks, provision of non Compulsory Education services. In line with such intention, the Directors believe that the Zhuhai Transaction and the Shanghai Transaction would provide a valuable opportunity for the Company to further participate in the property development of education complexes with a close association with Peking University and located in prime cities of the PRC and benefit from steady rental income generated from leasing of properties on such

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education complexes. Peking University is one of the most famous universities in the PRC, having a long history. Being located in Beijing, the capital city of the PRC, Peking University is one of the most respected and well-known universities in the PRC. Therefore, jointly developing education projects in association with Peking University will definitely raise the profile and enhance the success of the education projects to be undertaken by the Company. Also, the Directors believe that the Beida Online Transaction would allow the Company to establish a foothold in the business of online education provision by investing in an established online education platform supported by Peking University.

4. ZHUHAI LEASE TRANSACTIONS AND FUTURE ONGOING CONNECTED TRANSACTIONS

A. Background:

According to existing PRC laws and regulations, provision of Compulsory Education in the PRC can only be conducted by enterprises incorporated in the PRC which has no direct or indirect foreign investor’s equity participation. Upon completion of the Zhuhai Transaction and the Shanghai Transaction, each of Zhuhai Education and Shanghai Education, each being a subsidiary of the Company, which is a H-share company listed on the main board of the Stock Exchange, will have some foreign investment in its equity. Given that Phase I of the Zhuhai Education was designed and built for use relating to provision of Compulsory Education, Zhuhai Education cannot, by itself, utilise Phase I to provide Compulsory Education. Therefore, it will have to lease the properties of Phase I to an enterprise which is qualified to provide Compulsory Education. In this regard, the Company has entered into the Zhuhai Master Lease Agreement with Beijing Education Investment on 28 November, 2002, which sets out the major terms (including the contract term, the subject of the lease and the rental rates) to be incorporated into a formal lease agreement (“Zhuhai Formal Lease Agreement”) to be entered into as soon as practicable after completion of the Zhuhai Agreement or completion of Phase I of the Zhuhai Education Park whichever is later.

Similar to the Zhuhai Education Park, Phase I of the Shanghai Education Park is designed and built for use relating to provision of Compulsory Education. The Company has entered into the Shanghai Master Lease Agreement with Beijing Education Investment on 28 November, 2002, which sets out some of the broad terms of the lease. A formal lease agreement (“Shanghai Formal Lease Agreement”) setting out all the details of the lease will be entered into as soon as practicable after completion of the Shanghai Agreement or completion of Phase I of the Shanghai Education Park whichever is later.

B. The Zhuhai Master Lease Agreement:

Pursuant to the Zhuhai Master Lease Agreement, as soon as practicable after completion of the Zhuhai Agreement or completion of Phase I of the Zhuhai Education Park whichever is later, Zhuhai Education and the Beida Education Investment or its subsidiary or associate (the “Tenant”) will enter into the Zhuhai Formal Lease Agreement in relation to the leasing of

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Phase I of the Zhuhai Education Park. As stipulated in the Zhuhai Master Lease Agreement, the principal terms of the Zhuhai Formal Lease Agreement are stated below:

• Landlord : Zhuhai Education

• Tenant : Beida Education Investment or its subsidiary or associate

• Premises : Phase I of the Zhuhai Education Park having a site area of 175,000 square meters and a total of 15 buildings with an aggregate gross floor area of 61,000 square meters

• Tenancy period : 20 years commencing on 1 September, 2003, renewable for further period subject to terms to be agreed between the parties

• Annual rental : The annual rental will comprise a fixed amount only (the “Zhuhai Fixed Rent”) for the three years ending 31 August, 2006 and from then onward, the Zhuhai Fixed Rent and a variable amount (the “Zhuhai Variable Rent”).

The Zhuhai Fixed Rent will be as follows:

• RMB7.5 million for the year ending 31 August, 2004

• – RMB15 million for the year ending 31 August, 2005

• – RMB25 million for the year ending 31 August, 2006 and each of the year thereafter

The Zhuhai Variable Rent for each year during the remaining period of the lease under the Zhuhai Lease Transactions (i.e. commencing from 1 September, 2006) will equal to:

(Actual no. of students for the relevant year – Expected no. of students for the relevant year) Zhuhai Fixed Rent x x 30% Expected no. of students for the relevant year

Condition : The Zhuhai Master Lease Agreement is conditional upon completion of the Zhuhai Agreement

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C. The Shanghai Master Lease Agreement

Pursuant to the Shanghai Master Lease Agreement, as soon as practicable after completion of the Shanghai Agreement or completion of Phase I of the Shanghai Education Park whichever is later, Shanghai Education and the Beida Education Investment or its subsidiary or associate will enter into the Shanghai Formal Lease Agreement in relation to the leasing of Phase I of the Shanghai Education Park. As stipulated in the Shanghai Master Lease Agreement, the broad terms of the Shanghai Formal Lease Agreement are stated below:

• Landlord : Shanghai Education

• Tenant : Beida Education Investment or its subsidiary or associate

• Tenancy period : 20 years commencing on 1 September, 2004, renewable for further period subject to terms to be agreed between the parties

• Annual rental : The annual rent will be determined at the time by the two parties when entering into the Shanghai Formal Lease Agreement provided that the annual fixed rent will be no less than 5% of the sum of (i) the value of the Shanghai Land as at 31 October, 2002 used for Phase I of the Shanghai Education Park (calculated based on the area of the land occupied by Phase I of the Shanghai Education Park and the valuation of the Shanghai Land as valued by the International Valuer); and (ii) the total construction cost for Phase I of the Shanghai Education Park.

• Condition : The Shanghai Master Lease Agreement is conditional upon completion of the Shanghai Agreement

5. WAIVER APPLICATION

A. Reason for the application:

Subsequent to completion of the Zhuhai Transaction and the Shanghai Transaction, the lease contemplated under the Zhuhai Formal Lease Agreement and the Shanghai Formal Lease Agreement (the major terms of which are based on the Zhuhai Master Lease Agreement and the Shanghai Master Lease Agreement) will be entered into in the ordinary course of business of the Company and on a continuous basis. Peking University has an effective interest of approximately 66% in Beida Education Investment. Peking University also beneficially owns over 50% equity interest of Beida Hi-Tech which in turn owns 50% of the registered capital of SPU, the controlling shareholder of the Company with an approximate equity interest of 58.8% in the issued share capital of the Company. Given the fact that Beida Hi-Tech is a substantial shareholder of the Company and Beida Education Investment is an associate of Beida Hi-Tech, Beida Education Investment is a connected person of the Company pursuant to the Listing Rules. Accordingly, the transactions contemplated under the Zhuhai Master Lease Agreement and Shanghai Master Lease Agreement and subsequently, the Zhuhai Formal Lease Agreement and the Shanghai Formal Lease Agreement will constitute ongoing connected transactions of the Company pursuant to the Listing Rules.

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Given that the Shanghai Master Lease Agreement only sets out some broad terms of the lease to be incorporated into the Shanghai Formal Lease Agreement, which in turn will not be entered into until sometime in future before 1 September, 2004, the Directors consider that it is not in the interest of the Shareholders and the Company as a whole to apply for a waiver application in respect of the proposed lease arrangement under the Shanghai Master Lease Agreement from strict compliance with the provision under Chapter 14 of the Listing Rules at this stage. The Company will strictly comply with the relevant provision under Chapter 14 of the Listing Rules when the Shanghai Formal Lease Agreement is entered into and may apply for waiver in this regard as and when it is appropriate.

In relation to the Zhuhai Master Lease Agreement, its terms are negotiated between the Company and Beida Education Investment on an arm’s length basis. The Directors consider that the terms under the Zhuhai Master Lease Agreement are based on normal commercial terms which are fair and reasonable so far as the Shareholders, taken as a whole, are concerned. The Directors consider that the strict compliance with the announcement or shareholders’ approval requirements under Rule 14.26 of the Listing Rules in respect of the Zhuhai Lease Transactions will be impracticable and onerous to the Company. Accordingly, Tai Fook Capital Limited, the financial adviser of the Company, has applied to the Stock Exchange on behalf of the Company for a waiver from strict compliance with the announcement and shareholders’ approval requirements under Rule 14.26 of the Listing Rules in respect of the Zhuhai Lease Transactions for the three years ending 31 December 2005 subject to the following conditions:

• (i) the Zhuhai Lease Transactions will be entered into:

• (a) in the ordinary and usual course of business of the Company;

• (b) either on normal commercial terms or, if there are not sufficient comparable transactions to judge whether they are on normal commercial terms, on terms no less favourable than terms available to or from (as the case may be) independent third parties;

• (c) in accordance with the relevant agreements governing the Zhuhai Lease Transactions on terms that are fair and reasonable and in the interests of the Shareholders as a whole; and

• (d) with the annual aggregate value of the receipts under the Zhuhai Lease Transactions not exceeding the relevant Annual Caps as defined below;

• (ii) details of the Zhuhai Lease Transactions shall be disclosed in the Company’s annual report and accounts as set out in Rule 14.25(1)(A) to (D) of the Listing Rules;

• (iii) the independent non-executive Directors shall review annually the Zhuhai Lease Transactions and confirm in the Company’s annual report and accounts for the financial year in question that the transactions have been conducted in the manner as stated in (i) (a) to (d) above;

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• (iv) each year the auditors of the Company shall review the Zhuhai Lease Transactions and provide a letter (the “Letter”) to the Board (with a copy to the Listing Division of the Stock Exchange) confirming that :

• (a) the Zhuhai Lease Transactions have been entered into in accordance with terms of the relevant agreement governing the transaction;

• (b) the Zhuhai Lease Transactions have received the approval of the Board;

• (c) the receipts under the Zhuhai Lease Transactions have not exceeded the Annual Cap as defined below; and

where, for whatever reasons, the auditors of the Company decline to accept the engagement or are unable to provide the Letter, the Board should notify the Stock Exchange immediately;

• (v) the Company and Beida Education Investment shall allow the auditors of the Company sufficient access to their records for the purpose of reporting on the Zhuhai Lease Transactions;

• (vi) the Company shall promptly notify the Listing Division of the Stock Exchange if it knows or has reason to believe that the independent non-executive Directors and/or the auditors of the Company will not be able to confirm the matters set out in (iii) and (iv) above respectively, in which case the Company may have to seek re-approval from Independent Shareholders to re-comply with Rule 14.26 and any other conditions the Listing Division of the Stock Exchange considers appropriate in respect of the Zhuhai Lease Transactions; and

• (vii) the Company shall comply with all disclosure and shareholders’ approval requirements of the Listing Rules upon expiry of the waiver unless a further waiver, if applied for by the Company, is granted by the Stock Exchange.

B. The Cap Amounts:

Based on the terms of the Zhuhai Master Lease Agreement, it is expected that the annual cap amounts (the “Annual Caps”) in respect of the annual rent to be received from the Tenant in relation to the Zhuhai Lease Transactions for the three years ending 31 December 2005 will be as follows:

Financial year ending	Annual Cap
	RMB
	(Note)
31 December 2003	2,500,000
31 December 2004	10,000,000
31 December 2005	18,400,000

Note: Based on the Zhuhai Fixed Rent for the three years ending 31 August, 2006 in the amount of RMB7.5 million, RMB15 million and RMB25 million respectively.

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6. GENERAL

Tai Fook Capital Limited acts as the financial adviser of the Company in respect of the Proposed Acquisitions and Zhuhai Lease Transactions.

Peking University beneficially owns over 50% interest in each of the Vendors. One of the Beida Online Vendors, Jade Bird Software, is a wholly owned subsidiary of Peking University. Peking University also has over 50% beneficial interest in Beida Hi-Tech, which in turn has a 50% equity interest in the registered capital of SPU, the controlling shareholder of the Company. Pursuant to the Listing Rules, the Zhuhai Transaction and the Shanghai Transaction constitute discloseable and connected transactions of the Company and the Beida Online Transaction constitutes a connected transaction of the Company.

In connection with the Zhuhai Transaction and the Shanghai Transaction, on 28 November, 2002, the Company also entered into Zhuhai Master Lease Agreement and Shanghai Master Lease Agreement with one of the Vendors, Beijing Education Investment, and the transactions contemplated thereunder will constitute ongoing connected transactions of the Company under the Listing Rules.

Each of the Proposed Acquisitions and the Zhuhai Lease Transactions are subject to, among other things, the approval of the Independent Shareholders. In view of the interest of Peking University in the Proposed Acquisitions and the Zhuhai Lease Transactions, SPU and its associates will abstain from voting at the Extraordinary General Meeting in these regards.

A circular containing, among other things, details relating to the Proposed Acquisitions and the Zhuhai Lease Transactions, the letter from the independent financial adviser containing its advice to the Independent Board Committee and the recommendation of the Independent Board Committee regarding the Proposed Acquisitions and the Zhuhai Lease Transactions, will be dispatched to the Shareholders as soon as practicable in compliance with the requirements of the Listing Rules.

7. DEFINITION

In this announcement, the following expressions have the meanings set out below unless the context requires otherwise:–

“associates” has the meaning ascribed to it in the Listing Rules “Beida Education 北京北大教育投資有限公司 (Beijing Beida Education Investment” Investment Company Limited), a limited liability company incorporated in the PRC on 6 December, 2000 and is beneficially owned as to approximately 66% by Peking University

“Beida Hi-Tech” 北京北大高科技產業投資有限公司 (Beijing Beida Hi-tech Industrial Investment Limited), a company incorporated in the PRC with limited liability and is over 50% beneficially owned by Peking University

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“Beida Online”

北京北大在㵟網絡有限責任公司 (Beijing Beida-Online Internet Company Limited), a limited liability company incorporated in the PRC on 22 September, 2000 and is directly owned as to 50% by Peking University

“Beida Online Agreement” the conditional sale and purchase agreement dated 28 November, 2002 and entered into between the Company and the Beida Online Vendors in relation to the acquisition of the 50% equity interest in Beida Online by the Company from the Beida Online Vendors “Beida Online Transaction” the proposed acquisition under the Beida Online Agreement “Beida Online Business the valuation prepared by PRC Valuer on the business value of Beida Valuation” Online as at 31 October, 2002 “Beida Online Vendors” Jade Bird Software, Mr. Xu Zhen Dong and Mr. Qi Li Feng “Beida Public School” 北京北大公學教育投資有限公司 (Beijing Beida Public School Education Investment Co. Ltd.), a limited liability company incorporated in the PRC in April 2001 and is beneficially owned as to approximately 54% by Peking University “Board” the board of Directors “Company” 瀋陽公用發展股份有限公司 (Shenyang Public Utility Holdings Company Limited), a joint stock limited company established in the PRC with limited liability, the H Shares of which are listed on the Stock Exchange “Compulsory Education” primary and junior high school education in the PRC “Directors” the directors of the Company “Extraordinary General an extraordinary general meeting of the Company to be convened to Meeting” consider and, if thought fit, approve, among other things, the Proposed Acquisitions and the Zhuhai Lease Transactions “Group” the Company and its subsidiaries “Hong Kong” the Hong Kong Special Administrative Region of the PRC “H Share(s)” overseas listed foreign invested shares in the registered share capital of the Company with a Renminbi-denominated nominal value of RMB1.00 each, which are listed on the Stock Exchange and subscribed for and traded in Hong Kong dollars “Independent Board an independent committee of the Board comprising Messrs. Zhang Committee” Ying Jian, Wang Se, Geng Jian We, Chan Kam Ling, Lin Wen Bin, Choy Shu Kwan, Cheng Wei and Michel ignore Detay

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• “Independent Shareholders” The Shareholders other than SPU and its associates and any connected persons having an interest in the Proposed Acquisitions and the Zhuhai Lease Transactions

• “International Valuer” Vigers Hong Kong Limited, a professional valuer in Hong Kong which is independent of and not connected with the directors, the promoters, the supervisors, chief executive or substantial shareholders of the Company or any of its subsidiaries or an associate of any of them

• “Jade Bird Software” 北京市北大青鳥軟件糸統公司 (Beijing Beida Jade Bird Software System Company), a company incorporated in the PRC with limited liability on 19 November, 1994 and a wholly owned subsidiary of Peking University

• “Listing Rules” The Rules Governing the Listing of Securities on the Stock Exchange

“Peking University” Peking University is a comprehensive and a national key university in the PRC

• “PRC” or “China” the People’s Republic of China which for the purpose of this announcement, excludes Hong Kong, Macau Special Administrative Region and Taiwan

• “PRC Valuer” 中資資產評估公司 (China Assets Appraisal Corporation Ltd) , a professional valuer in the PRC which is independent of and not connected with the directors, the promoters, the supervisors, chief executive or substantial shareholders of the Company or any of its subsidiaries or an associate of any of them

• “Proposed Acquisitions” the Zhuhai Transaction, the Shanghai Transaction and the Beida Online Transaction

• “Real Estate Company” 瀋陽發展房產開發有限公司 (Shenyang Development Real Estate Company Limited), a limited liability company incorporated in the PRC, the equity interest of which is owned as to approximately 99.86% by the Company and 0.14% by Shenyang Hot Electricity Company Limited, a party independent of and not connected with the directors, the promoters, the supervisors, chief executive or substantial shareholders of the Company or any of its subsidiaries or an associate of any of them

• “Shanghai Agreement” the conditional sale and purchase agreement dated 28 November, 2002 and entered into between the Company, the Real Estate Company and the Vendors in relation to the acquisition of the entire equity interest in Shanghai Education by the Company and the Real Estate Company from the Vendors

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“Shanghai Education”

• 上海北大青鳥教育投資有限公司 (Shanghai Beida Jade Bird Education Investment Company Limited), a limited liability incorporated in the PRC on 24 October, 2002

• “Shanghai International Valuation”

• the valuation prepared by the International Valuer on the property of the Shanghai Education as at 31 October, 2002

• “Shanghai Master Lease Agreement”

• the master lease agreement dated 28 November, 2002 entered into between the Company and the Beida Education Investment setting out the broad major terms of the lease in relation to Phase I of the Shanghai Education Park

• “Shanghai PRC Valuation” the valuation prepared by the PRC Valuer on the assets and liabilities of Shanghai Education as at 31 October, 2002

• “Shanghai Transaction”

• the proposed acquisition under the Shanghai Agreement and the proposed lease arrangement under the Shanghai Master Lease Agreement

• “Share(s)”

State Share(s) and H Share(s)

• “Shareholder(s)” the holder(s) of the Share(s)

• “SPU” 瀋陽公用集團有限公司 (Shenyang Public Utility Group Company Limited), a company established in the PRC with limited liability and the existing controlling shareholder of the Company with an approximately interest of 58.8% in the issued share capital of the Company

• “State Share(s)” ordinary shares with a nominal value of RMB1.00 each in the capital of the Company, issued by the Company to SPU credited as fully paid

• “Stock Exchange” The Stock Exchange of Hong Kong Limited

• “Supervisor(s)” member(s) of the supervisory committee of the Company “Vendors” Beida Education Investment and Beida Public School

“Zhuhai Agreement” the conditional sale and purchase agreement dated 28 November, 2002 and entered into between the Company and the Vendors in relation to the acquisition of 70% equity interest in Zhuhai Education by the Company from the Vendors

“Zhuhai Education” 珠海北大教育科學園有限公司 (Zhuhai Beida Education Science Park Company Limited), a limited liability company incorporated in the PRC on 22 May, 2001

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“Zhuhai International	the valuation prepared by the International Valuer on the property of
Valuation”	the Zhuhai Education as at 31 October, 2002
“Zhuhai Lease Transactions”	the transactions contemplated under the Zhuhai Master Lease
	Agreement and subsequently, the Zhuhai Formal Lease Agreement
“Zhuhai Master Lease	the master lease agreement dated 28 November, 2002 entered into
Agreement”	between the Company and the Beida Education Investment setting
	the major terms of the lease in relation to Phase I of the Zhuhai
	Education Park
“Zhuhai PRC Valuation”	the valuation prepared by the PRC Valuer on the assets and liabilities
	of Zhuhai Education as at 31 October, 2002
“Zhuhai Transaction”	the proposed acquisition under the Zhuhai Agreement and the proposed
	lease arrangement under the Zhuhai Master Lease Agreement

For the purpose of this announcement, unless otherwise indicated, conversion of Renminbi into HK dollars is calculated at the approximate exchange rate of HK$0.9346 to RMB1.00. The use of such rates of exchange is not a representation that the Renminbi or HK dollars can be exchanged at this rate or at any other rates at all.

By Order of the Board Wang Se Executive Director

Shenyang, the PRC, 28 November, 2002

“Please also refer to the published version of this announcement in The Standard”.

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