Innovax Holdings Limited — Proxy Solicitation & Information Statement 2004

Jun 7, 2004

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult a licensed securities dealer, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in Kith Holdings Limited, you should at once hand this circular to the purchaser or transferee 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 circular, 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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(Incorporated in Bermuda with limited liability) (Stock Code: 1201)

DISCLOSEABLE TRANSACTION

A letter from the board of Directors is set out on pages 3 to 6 of this circular.

4th June, 2004

CONTENTS

	Page
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	3
THE JOINT VENTURE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	3
REASONS FOR AND BENEFITS OF THE ACQUISITION. . . . . . . . . . . . . . . . . . . . . . . .	5
APPENDIX – GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7

DEFINITIONS

In this circular, unless the context otherwise requires, the following expressions have the following meanings:

“Board” the board of Directors “CNPF” 滁州報社印刷廠 (Chuzhou Newspaper Printing Factory), a state owned enterprise incorporated in the PRC, which is owned by the government of Chuzhou City, Auhui Province

“Company” Kith Holdings Limited, a company incorporated in Bermuda and the shares of which are listed on the Stock Exchange

• “Directors” the directors of the Company

“GIL” Gainful Investments Limited, a company incorporated in Hong Kong with limited liability, an indirectly wholly owned subsidiary of the Company

• “Group” the Company and its subsidiaries

• “HK$” Hong Kong dollars, the lawful currency of Hong Kong

• “Hong Kong” Hong Kong Special Administrative Region of the PRC

• “Independent Third Parties” persons who, to the best of the Directors’ knowledge, information and belief, having made all reasonable enquires, are third parties independent of and are not connected persons of the Company, its Directors, chief executive or substantial Shareholders or their respective associates as defined in the Listing Rules

• “Joint Venture Agreement” the agreement dated 16th May, 2004 between GIL and CNPF for the establishment of the Joint Venture Company

“Joint Venture Company” Anhui Qiaofeng Package Printing Co. Ltd. (安徽僑豐包裝印刷 有限公司)

• “Joint Venture Parties” CNPF and GIL

• “Latest Practicable Date” means 3rd June, 2004, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining certain information in this circular

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

“Master Cartons”

each master carton contains 2,500 packs of tobacco

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DEFINITIONS

“PRC”	the People’s Republic of China, but for the purposes of this circular
	and for geographical reference only excludes Taiwan, Macau and
	Hong Kong
“RMB”	Renminbi, the lawful currency of the PRC
“SFO”	Securities and Futures Ordinance (Chapter 571 of the Laws of
	Hong Kong)
“Share(s)”	the ordinary share(s) of HK0.1 each in the share capital of the
	Company
“Shareholder(s)”	holder(s) of Share(s)
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“US$”	US dollars, the lawful currency of the United States of America

For the purposes of this circular, unless otherwise indicated, the exchange rates of HK$7.80 = US$1.00 and HK$1.00 = RMB 1.06604 have been used for currency conversion, where applicable. This is for illustration purpose only and does not constitute a representative that any amounts in HK$, RMB or US$ have been, could have been, or may be converted, at these or such other rates.

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LETTER FROM THE BOARD

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(Incorporated in Bermuda with limited liability)

Executive Directors: Mr Hui King Chun, Andrew (Chairman) Mr Yau Chau Min, Paul Mr Hui Bin Long Mr Li Chun Ren Mr Zhou Jin Mr Wang Feng Wu

Independent Non-Executive Directors: Mr Lam Ping Cheung, Andrew Mr Ng Chi Yeung, Simon

Registered Office: Clarendon House 2 Church Street Hamilton HM11 Bermuda

Principal Place of Business in Hong Kong: 1st Floor Hing Lung Commercial Building 68 Bonham Street East Hong Kong

To the Shareholders

4th June, 2004

Dear Sir and Madam,

DISCLOSEABLE TRANSACTION

INTRODUCTION

Reference is made to the announcement of the Company dated 18th May, 2004, regarding the entering into the Joint Venture Agreement by GIL and CNPF on 16th May, 2004 for the establishment of the Joint Venture Company, a sino-foreign equity joint venture in the PRC. The total investment of the Joint Venture Company will be US$12,800,000 (equivalent to about HK$99,840,000). GIL will contribute 65% of the registered capital of the Joint Venture Company, being US$4,148,000 (equivalent to about HK$32,354,400) and CNPF will contribute 35% of the registered capital of the Joint Venture Company, being US$2,232,000 (equivalent to about HK$17,409,600).

The purpose of this circular is to provide you with further information in relation to the Joint Venture Agreement.

THE JOINT VENTURE AGREEMENT

Date of the Joint Venture Agreement:

16th May, 2004

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LETTER FROM THE BOARD

Joint Venture Parties:

• (1) CNPF, an Independent Third Party

• (2) GIL, an indirectly wholly owned subsidiary of the Company

Joint Venture Company

The proposed name is Anhui Qiaofeng Package Printing Co. Ltd. (安徽僑豐包裝印刷有限公司 )

Proposed term

50 years from the date of issue of the business licence

Proposed business scope

Design, manufacture and operation of the sale of printed packaging products, printed materials, trademarks and raw materials for printing.

Capital commitment

The Joint Venture Company is proposed to have a registered capital of US$6,380,000 (equivalent to about HK$49,764,000) and a total investment amount is proposed to be US$12,800,000 (equivalent to about HK$99,840,000). The Joint Venture Parties’ respective obligation to make capital contribution to the Joint Venture Company is as follows:

					Percentage of
Joint	Venture				total registered
Party			Amount of capital commitment		capital
		US$		HK$ equivalent	%
CNPF		2,232,000	(in the form of land use right and	17,409,600	35
		fixed assets appropriate for the production
		and if insufficient, the remaining by cash)
		(Note 1)
GIL		4,148,000	(Note 2)	32,354,400	65
Total		6,380,000		49,764,000	100

Note 1: The land use right to be injected refers to the piece of land owned by CNPF which is situated at 104 National Highway, Southern Side, Eastern District Industrial Area, Chuzhou City, Auhui Province with an area of 96 acre. This will be injected at the agreed price of RMB2,880,000 (being RMB30,000 per acre). This agreed price is determined by reference to a recent marketing publication issued by the government of Chuzhou City, Anhui Province in the end of 2003 in which the value of land use rights in the Eastern District Industrial Area of Chuzhou City was stated to be around RMB30,000 per acre. The land use right and the fixed assets owned by CNPF appropriate for the production to be injected shall be subject to valuation by Independent Third Parties to be appointed by the Joint Venture Parties. The identity of such fixed assets has not been determined as of the Latest Practicable Date. Any shortfall in capital contribution must be made in cash.

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LETTER FROM THE BOARD

Note 2: The capital commitment is to be paid in cash.

Each of the Joint Venture Parties is obliged to contribute 60% of their respective share of 65% and 35% of the registered capital, being US$3,828,000 (equivalent to about HK$29,858,400) within six months from the date of the issue of the business licence to the Joint Venture Company. The remaining 40% of the registered capital, being US$2,552,000 (equivalent to about HK$19,905,600) shall be contributed by the Joint Venture Parties promptly so as to ensure that the Joint Venture Company could meet the planned schedule (see the section headed “Reason for and Benefits of the Acquisition” below). The capital injection by CNPF in the form of land use right and fixed assets appropriate for production will be made within six months from the date of the issue of the business licence to the Joint Venture Company. The Joint Venture Parties do not currently have a schedule for the capital injection of the remaining 40% of the registered capital.

Application has been made to the relevant PRC regulatory authorities for the approval of the establishment of the Joint Venture Company as a sino-foreign equity joint venture in the PRC. The business licence will only be issued after the completion of such approval procedures.

The remaining part of the total investment amount of the Joint Venture Company, being US$6,420,000 (equivalent to about HK$50,076,000) may be obtained by way of bank borrowings by the Joint Venture Company and any additional capital injection required by the Joint Venture Company is to be separately agreed between the Joint Venture Parties in due course.

The profit or loss of the Joint Venture Company will be shared pro-rata to the Joint Venture Parties’ contribution and interest in the registered capital of the Joint Venture Company.

Pre-emptive right

The transfer of interest in registered capital of the Joint Venture Company by one Joint Venture Party is subject to the other Joint Venture Parties’ consent and pre-emptive right and is subject to the approval by the relevant authority in the PRC.

Board composition

The board of the Joint Venture Company will consist of six directors, four to be appointed by GIL and the remaining two to be appointed by CNPF.

The chairman of the board of the Joint Venture Company will be appointed by GIL and the vicechairman of the board of the Joint Venture Company will be appointed by CNPF.

REASONS FOR AND BENEFITS OF THE ACQUISITION

The Company is an investment holding company. The principal activities of the Group encompasses printing and manufacturing of high quality, multi-colour packaging products in the PRC.

CNPF was established in the 1970s in Anhui Province, the PRC. To date, CNPF is one of the largest scale medium size enterprises in Wan Dong District, Anhui Province. It is principally engaged in the printing and manufacturing of tobacco packaging products in the PRC.

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LETTER FROM THE BOARD

The Joint Venture Company will be a sino-foreign equity joint venture whose currently proposed operations are design, manufacture and operation of the sale of printed packaging products, printed materials, trademarks and raw materials for printing. The land use right and fixed assets appropriate for the production to be injected by CNPF will be used by the Joint Venture Company whilst the new production facilities are being set up. The Joint Venture Company will enable the Group to further expand its core business of printing and manufacturing of high quality, multi-colour packaging products in the PRC, alongside its two existing production facilities in Yunnan Province and Heilongjiang Province, to enhance its competitive strength and market penetration by capturing the potential markets in Anhui Province and nearby regions in the PRC.

Based on the existing production figures and orders from existing major customers of CNPF made available to the Company, the Joint Venture Parties target that for first year after the setting up of the new production facilities, the Joint Venture Company is expected to have a production capacity of 400,000 Master Cartons of tobacco packaging products (excluding packaging for wine and pharmaceutical products). The target production capacity of the Joint Venture Company for the third to the fifth year after the setting up of the new production facilities is expected to have 800,000 Master Cartons of tobacco packaging products (excluding packaging for wine and pharmaceutical products).

The capital injection by GIL towards the establishment of the Joint Venture Company has been determined after arm’s length negotiations between the Joint Venture Parties by reference to the costs of establishment and the amount of total investment which in the Group’s experience is required to achieve the intended scale of printing and packaging manufacturing operations in Chuzhou City, Anhui Province, the PRC. As the Company will own more than 50% interests in the Joint Venture Company, the Joint Venture Company will be treated as a subsidiary in the Company’s accounts. Other than this, the Joint Venture Agreement will not cause any immediate impact on the earnings and assets and liabilities of the Company.

The Directors are of the view that the establishment of the Joint Venture Company is in the interest of the Company and the terms of the Joint Venture Agreement are fair and reasonable and in the interests of the Company and Shareholders as a whole.

Yours faithfully, By order of the Board Kith Holdings Limited Hui King Chun, Andrew Chairman

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GENERAL INFORMATION

APPENDIX

RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors collectively and individually accept full responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable enquires, that to the best of their knowledge and belief there are no other facts the omission of which would make any statement herein misleading.

DISCLOSURE OF INTERESTS

(a) Interests of Directors

As at the Latest Practicable Date, the interests and short positions of the Directors and chief executive of the Company in the Shares, underlying Shares and debentures of the Company or any associated corporation (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they are taken or deemed to have under such provisions of the SFO), the Model Code for Securities Transactions by Directors of Listed Companies and which were required to be entered into the register required to be kept under section 352 of the SFO were as follows:

Interest in the Company

		Number of Shares
		interested	Percentage
Name of Director	Capacity	(Long position)	interest
Mr. Hui King Chun, Andrew_(Note)_	Held by Trust	199,500,000	74.93%

Note: The 199,500,000 Shares are registered in the name of Accufit Investments Inc., which is 100% owned by Basab Inc. as trustee of The Basab Unit Trust. The Basab Unit Trust is a unit trust owned by Guardian Trustee Limited as trustee of a discretionary trust, the beneficiaries of which are the family members of Mr. Hui King Chun, Andrew.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors or chief executive of the Company had any interests and short positions in the Shares, underlying Shares and debentures of the Company or any associated corporation (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they are taken or deemed to have under such provisions of the SFO), the Model Code for Securities Transactions by Directors of Listed Companies and which were required to be entered into the register required to be kept under section 352 of the SFO.

(b) Interests of Substantial Shareholders

As at the Latest Practicable Date, so far as is known to the Directors and the chief executive of the Company, the following persons (other than a Director or chief executive of the Company) had an interest or short position in the Shares and underlying Shares which fall to be disclosed to the Company under the provisions of Division 2 and 3 of Part XV of the SFO.

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GENERAL INFORMATION

APPENDIX

Interest in the Company

		Number of
	Interest in	Shares interested	Percentage
Name	the Company	(Long position)	interest
Basab Inc_. (Note)_	Trustee Interest	199,500,000	74.93%
Guardian Trustee Limited_(Note)_	Trustee Interest	199,500,000	74.93%

Note: The 199,500,000 Shares are registered in the name of Accufit Investments Inc, which is 100% owned by Basab Inc. as trustee of The Basab Unit Trust. The Basab Unit Trust is a unit trust owned by Guardian Trustee Limited as trustee of a discretionary trust. The family members of Mr. Hui King Chun, Andrew, are the beneficiaries of the discretionary trust.

As at the Latest Practicable Date, so far as is known to the Directors and the chief executive of the Company, the following persons (other than a Director or chief executive of the Company) had an interest in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meeting of the members of the Group.

Interest in other members of the Group

Name of the	Name of the		Percentage
Company	shareholder	Capacity	interest
雲南僑通包裝印刷有限公司	Yunnan Zhaotong Cigarette	Corporate	10%
(Yunnan Qiaotong Package	Factory
Printing Co., Ltd)
	Finance Bureau of	Corporate	30%
	Zhaotong City,
	Yunnan Province
昆明僑通印刷設計有限公司	昆明嘉佳廣告有限公司	Corporate	30%
	Finance Bureau of Zhaotong	Corporate	21%
	City, Yunnan Province
哈爾濱高美印刷有限公司	Harbin Cigarette Factory	Corporate	25%
(Harbin Gaomei Printing
Company Limited )	哈爾濱九隆印刷一廠	Corporate	20%

Save as disclosed above, the Directors and the chief executive of the Company are not aware that there is any person (other than a Director or chief executive of the Company) who, as at the Latest Practicable Date, had an interest or short position in the Shares and underlying Shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who is, directly or indirectly, interested in 10 per cent. or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meeting of any other member of the Group.

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GENERAL INFORMATION

APPENDIX

MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors are not aware of any material adverse change in the financial or trading position of the Company since 31st December, 2003, the date to which the latest published audited consolidated financial statements of the Group were made up.

COMPETING INTERESTS

None of the Directors (as defined in the Listing Rules) and their respective associates have any interests in a business, which competes or may compete with the business of the Group.

SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors has entered into or proposed to enter into any service contract with the Company which will not expire or may not be terminated by the Company within a year without payment of any compensation (other than statutory compensation).

LITIGATION

As at the Latest Practicable Date, no member of the Group was engaged in any litigation or claims of material importance and, so far as the Directors are aware, no litigation or claims of material importance are pending or threatened by or against any member of the Group.

MISCELLANEOUS

• (a) The registered office of the Company is situated at Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda. The head office and principal place of business of the Company is at 1st Floor, Hing Lung Commercial Building, 68 Bonham Street East, Hong Kong.

• (b) The company secretary and qualified accountant of the Company is Mr. Chan Chi Ngai, John. Mr. Chan is an associate member of the Hong Kong Society of Accountants and a fellow member of Association of Chartered Certified Accountants. He is also a Certified Public Accountant in Hong Kong.

• (c) The English version of this circular shall prevail over the Chinese text.

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