Novautek Technologies Group Limited — M&A Activity 2001

Jul 4, 2001

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.

KONG SUN HOLDINGS LIMITED

江山控股有限公司

(Incorporated in Hong Kong with limited liability)

Financial Adviser to Kong Sun Holdings Limited

UOB Asia (Hong Kong) Limited

DISCLOSEABLE TRANSACTIONS

ACQUISITIONS OF 50% INTEREST IN

CHINA ANTI-FLOODING SYSTEM

MONITOR LIMITED AND

50% INTEREST IN CHINA ENVIRONMENTAL SYSTEM MONITOR LIMITED

Kong Sun, through Count Wealth Investments Limited, entered into two acquisition agreements with Vendor A and Vendor B on 29 June 2001.

First acquisition

Kong Sun has agreed to acquire 50% of the issued share capital of China Anti-Flooding for a total consideration of HK$30 million. The consideration will be satisfied by:

· the issue and allotment of 140 million new Kong Sun shares at an issue price of HK$0.20 per share; and

· HK$2 million in cash.

The new Kong Sun shares represent:

· about 14.76% of its existing issued share capital;

· about 12.86% of its enlarged issued share capital following completion of the first acquisition; and

· about 11.59% of its enlarged issued share capital following completion of the first acquisition and the second acquisition.

Second acquisition

Kong Sun has agreed to acquire 50% of the issued share capital of China Environmental for a total consideration of HK$26 million. The consideration will be satisfied by:

· the issue and allotment of 120 million new Kong Sun shares at an issue price of HK$0.20 per share; and

· HK$2 million in cash.

The new Kong Sun shares represent:

· about 12.65% of its existing issued share capital;

· about 11.23% of its enlarged issued share capital following completion of the second acquisition; and

· about 9.93% of its enlarged issued share capital following completion of the first acquisition and the second acquisition.

Kong Sun directors have identified the importance and potential of environmental protection businesses. They believe that the acquisitions would strengthen Kong Sun's investment portfolio and broaden its income base.

Vendor A and Vendor B (and their respective beneficial owners) are independent third parties not connected with Kong Sun directors, chief executive, substantial shareholders, subsidiaries or any associates of any of them (as associates are defined in the Listing Rules). Vendor A and Vendor B (and their respective beneficial owners) are independent from each other and have no existing shareholding interest in Kong Sun.

The first acquisition and the second acquisition will be aggregated to constitute discloseable transactions for Kong Sun under the Listing Rules. The issue of the new Kong Sun shares will require shareholders' approval at an extraordinary general meeting. A circular will be sent to shareholders shortly.

At the request of Kong Sun, trading of its securities was suspended at 10:00 a.m. on 3 July 2001. Kong Sun will apply to the Stock Exchange for trading resumption from 10:00 a.m. on 4 July 2001.

ACQUISITION AGREEMENTS DATED 29 JUNE 2001

Parties

First acquisition

Vendor A : Beachfield Holdings Limited, a company incorporated in the British Virgin Islands with limited liability and is beneficially owned by Mr. Lo Hoi Sing. The only asset of Beachfield is a 50% equity interest in China Anti-Flooding.

Purchaser : Count Wealth, a wholly-owned subsidiary of Kong Sun

Second acquisition

Vendor B : Green Earth Group Limited, a company incorporated in the British Virgin Islands with limited liability and is beneficially owned by Mr. Hui Tat Hung. The only asset of Green Earth is a 50% equity interest in China Environmental.

Purchaser : Count Wealth

Assets to be acquired

First acquisition

50% of the existing China Anti-Flooding shares. After completion, China Anti-Flooding will be accounted for as an associate of Kong Sun.

Second acquisition

50% of the existing China Environmental shares. After completion, China Environmental will be accounted for as an associate of Kong Sun.

Consideration

First acquisition

HK$30,000,000

Second acquisition

HK$26,000,000

The two considerations were arrived at after arm's length negotiations between Kong Sun and the Vendors based on normal commercial terms. Kong Sun has taken the following factors regarding China Anti-Flooding and China Environmental into consideration: independent appraisal reports, future prospects and revenue generation potential. Kong Sun directors consider the terms of the acquisitions to be fair and reasonable.

Payment terms

First acquisition

· the issue and allotment of 140 million new Kong Sun shares at HK$0.20 each; and

· HK$2 million in cash to be paid from Kong Sun's internal resources.

The 140 million new Kong Sun shares represent:

· about 14.76% of its existing issued share capital;

· about 12.86% of its enlarged issued share capital following completion of the first acquisition; and

· about 11.59% of its enlarged issued share capital following completion of the first acquisition and the second acquisition.

Second acquisition

· the issue and allotment of 120 million new Kong Sun shares at HK$0.20 each; and

· HK$2 million in cash to be paid from Kong Sun's internal resources.

The 120 million new Kong Sun shares represent:

· about 12.65% of its existing issued share capital;

· about 11.23% of its enlarged issued share capital following completion of the second acquisition; and

· about 9.93% of its enlarged issued share capital following completion of the first acquisition and the second acquisition.

The issue price of HK$0.20 per share for both acquisitions was determined with reference to Kong Sun's recent trading prices and represents:

· a discount of about 9.09% to the closing price of HK$0.22 per share as quoted on the Stock Exchange on 29 June 2001 (being the latest date of trading of Kong Sun shares prior to suspension on 3 July 2001);

· a discount of about 10.31% to the average closing price of HK$0.223 per share as quoted on the Stock Exchange for the last five trading days up to and including 29 June 2001; and

· a discount of about 11.50% to the average closing price of HK$0.226 per share as quoted on the Stock Exchange for the last ten trading days up to and including 29 June 2001.

Ranking

The new Kong Sun shares, when fully paid, will rank equally with its existing shares.

Buyback

Kong Sun directors confirm that no buyback has been performed within 30 days before 29 June 2001.

Lock-up

Unless with Kong Sun's prior written consent:

· Vendor A cannot dispose more than 70 million new Kong Sung shares for a period of 6 months and the balance of 70 million new Kong Sun shares for a period of 12 months after the date of completion of the first acquisition agreement.

· Vendor B cannot dispose any of the new Kong Sun shares for a period of 12 months from the date of completion of the second acquisition agreement.

Conditions

First acquisition

· the Listing Committee grants the listing of and permission to deal in the new Kong Sun shares;

· the issue and allotment of the new Kong Sun shares to Vendor A being approved by Kong Sun's shareholders at the extraordinary general meeting;

· Kong Sun is satisfied with the results of the due diligence review and the PRC legal opinion on China Anti-Flooding's assets, liabilities, operations and affairs;

· the obtaining by Vendor A of all necessary consents, approvals or waivers from the regulatory and other relevant PRC government authorities or other competent authorities;

· no adverse matters that affect the legality and going-concern of China Anti-Flooding; and

· Chinanet Communication Limited having waived any pre-emption rights and all other priority interest, right of first refusal, option and similar rights and claims in respect of the China Anti-Flooding shares to be sold to Count Wealth.

Second acquisition

· the Listing Committee grants the listing of and permission to deal in the new Kong Sun shares;

· the issue and allotment of new Kong Sun shares to Vendor B being approved by Kong Sun's shareholders at the extraordinary general meeting;

· Kong Sun is satisfied with the results of the due diligence review and PRC legal opinion on China Environmental's assets, liabilities, operations and affairs;

· the obtaining by Vendor B of all necessary consents, approvals or waivers from the regulatory and other relevant PRC government authorities or other competent authorities;

· no adverse matters that affect the legality and going-concern of China Environmental; and

· Chinanet Communication Limited having waived any pre-emption rights and all other priority interest, right of first refusal, option and similar rights and claims in respect of the China Environmental shares to be sold to Count Wealth.

Kong Sun will apply to the Listing Committee of the Stock Exchange for the listing of and permission to deal in the new Kong Sun shares.

The first acquisition and the second acquisition are not inter-conditional.

Expected dates of completion and long-stop dates

First acquisition

The first acquisition is expected to be completed on 28 August 2001. If the above conditions are not completed on the said date, then the acquisition agreement will end.

Second acquisition

The second acquisition is expected to be completed on 28 August 2001. If the above conditions are not completed on the said date, then the acquisition agreement will end.

Connection between the parties

Vendor A and Vendor B (and their respective beneficial owners) are independent of and not connected with Kong Sun directors, chief executive, substantial shareholders, subsidiaries or any associates of any of them (as associates are defined in the Listing Rules). Vendor A and Vendor B (and their respective beneficial owners) are independent from each other and having no existing shareholding interest in Kong Sun.

Information on China Anti-Flooding

China Anti-Flooding is a company incorporated in Samoa with limited liability and has a fully paid-up capital of US$100 (about HK$780). China Anti-Flooding commenced its business in June 2001 and has no audited financial information. It is principally engaged in the development and sale of flood monitoring system with telemetry capability and services in areas of hydrology in the PRC. Based on the independent appraisal report performed by American Appraisal, as at 31 May 2001, the fair market value of the entire equity interest in China Anti-Flooding was RMB61,000,000 (about HK$57,009,346).

At present, Chinanet Communication and Vendor A own China Anti-Flooding equally. Chinanet Communication is incorporated in Hong Kong with limited liability and is a wholly owned subsidiary of Asia Supernet Corporation, a company listed on NASDAQ. At completion, Chinanet Communication and Count Wealth will own China Anti-Flooding equally.

The board of China Anti-Flooding has one director. After completion, Kong Sun will appoint at least one director to the board of China Anti-Flooding. Chinanet Communication, however, will have control of the board of China Anti-Flooding.

Information on China Environmental

China Environmental is a company incorporated in Samoa with limited liability and has a fully paid-up capital of US$100 (about HK$780). China Environmental commenced its business in June 2001 has no audited financial information. It is principally engaged in the development and sale of air and factory waste pollutants detection and pollution monitoring system with telemetry capability in the PRC. Based on the independent appraisal report performed by American Appraisal, as at 31 May 2001, the fair market value of the entire equity interest in China Environmental was RMB58,000,000 (about HK$54,205,607).

At present, Chinanet Communication and Vendor B own China Environmental equally. At completion, Chinanet Communication and Count Wealth will own China Environmental equally.

The board of China Environmental has one director. After completion, Kong Sun will appoint at least one director to the board of China Environmental. Chinanet Communication, however, will have control of the board of China Environmental.

Reasons of the acquisitions

Kong Sun is an investment holding company and its subsidiaries are engaged in finance, information technology development, property development and investment, as well as investment activities. Kong Sun directors have identified the importance and potential of the environmental protection businesses. They believe that the acquisitions would strengthen Kong Sun's investment portfolio and broaden its income base.

Shareholding interest

Kong Fa Holding Limited and KSE are Kong Sun's existing controlling shareholders. They will remain to be Kong Sun's controlling shareholders after completion of the first acquisition and the second acquisition.

Information for shareholders

The first acquisition and the second acquisition will be aggregated to constitute discloseable transactions for Kong Sun under the Listing Rules. The issue of the new Kong Sun shares will require shareholders' approval at an extraordinary general meeting. A circular will be sent to shareholders shortly.

Suspension and resumption

At the request of Kong Sun, trading of its securities was suspended at 10:00 a.m. on 3 July 2001. Kong Sun will apply to the Stock Exchange for trading resumption from 10:00 a.m. on 4 July 2001.

By Order of the Board

Kong Look Sen

Chairman and Managing Director

Hong Kong, 3 July 2001

Please also refer to the published version of this announcement in the Hong Kong iMail.