Rego Interactive Co., Ltd — Capital/Financing Update 2005

Aug 9, 2005

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

(Stock code: 1065)

CONNECTED TRANSACTION

Capital Increase Agreement

The Board is pleased to announce that on 8 August, 2005, the Company entered into the Capital Increase Agreement with Urban Construction Bureau. Pursuant to the Capital Increase Agreement, the registered capital of Water Recycling Company will be increased by RMB80 million, from RMB20 million to RMB100 million, of which the Company will contribute an additional capital contribution of RMB80 million to the registered capital of Water Recycling Company in cash from its internal resources. Urban Construction Bureau will waive its pre-emptive right to contribute to the additional registered capital of Water Recycling Company. Following the completion of the Capital Increase, the Company’s shareholding in Water Recycling Company will be increased from 90% to 98%, whereas Urban Construction Bureau’s shareholding in Water Recycling Company will be decreased from 10% to 2%.

Given that Tianjin Municipal Investment Company Limited, a substantial shareholder of the Company, is under the supervisory control of Urban Construction Bureau and Urban Construction Bureau is a substantial shareholder of Water Recycling Company before the Capital Increase, the Capital Increase will constitute a connected transaction of the Company under the Listing Rules, which shall be subject to the reporting and announcement requirements set out in Rules 14A.45 to 14A.47 of the Listing Rules.

INTRODUCTION

The Board is pleased to announce that on 8 August, 2005, the Company entered into the Capital Increase Agreement with Urban Construction Bureau, major terms of which are set out below:

CAPITAL INCREASE AGREEMENT

Date: 8 August, 2005

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Parties

The Company; and

Urban Construction Bureau: the supervisor of Tianjin Municipal Investment Company Limited, a substantial shareholder of the Company, and a substantial shareholder of Water Recycling Company before the Capital Increase, thus, it is regarded as a connected person of the Company. Urban Construction Bureau’s principal operations include roads, highways, bridges, sewage, subway trains, construction design, sewage water treatment, real estate etc.

Description

Water Recycling Company is a joint venture company established in the PRC in January 2001. Its existing registered capital is RMB20 million, which is owned as to 90% by the Company and 10% by Urban Construction Bureau respectively as at the date of this announcement.

According to the Capital Increase Agreement, the registered capital of Water Recycling Company will be increased by RMB80 million, from RMB20 million to RMB100 million, of which the Company will make an additional capital contribution of RMB80 million to the registered capital of Water Recycling Company in cash from its internal resources. Pursuant to the Capital Increase Agreement, the additional capital contribution has to be paid within 30 days from the date of the signing of the Capital Increase Agreement. Urban Construction Bureau, due to insufficient capital resources, waived its pre-emptive right to contribute to the additional registered capital of Water Recycling Company. Save as disclose above, there is no other major terms for the Capital Increase Agreement and no compensation has been made to Urban Construction Bureau for giving up its pre-emptive right. Following the completion of the Capital Increase, the Company’s shareholding in Water Recycling Company will be increased from 90% to 98%, whereas Urban Construction Bureau’s shareholding in Water Recycling Company will be decreased from 10% to 2%.

Other than the increase in the registered capital and the change of shareholding structure of Water Recycling Company, no other amendments will be made to the existing articles of association and the existing joint venture agreement of Water Recycling Company as a result of the Capital Increase.

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The shareholding structure and the amount of capital contributions made or to be made by the Company and Urban Construction Bureau in Water Recycling Company prior to and after the completion of the Capital Increase are set out below:

				Capital
			Additional	contribution	Shareholding
	Capital		capital	after the	after the
	contribution	Shareholding	contribution	completion	completion
	prior to	prior to	pursuant to	of the	of the
	the Capital	the Capital	the Capital	Capital	Capital
Shareholders	Increase	Increase	Increase	Increase	Increase
	(RMB)		(RMB)	(RMB)
The Company	18,000,000	90%	80,000,000	98,000,000	98%
Urban Construction
Bureau	2,000,000	10%	0	2,000,000	2%
TOTAL	20,000,000	100%	80,000,000	100,000,000	100%

Profit/loss before and after the Capital Increase

The parties involved will implement and complete the Capital Increase as well as fulfilling obligations of capital contribution in accordance with specific provisions under the Capital Increase Agreement and the relevant laws and regulations in the PRC. In accordance with the relevant requirements under the PRC Financial Accounting System, the shareholders of Water Recycling Company have agreed that the accumulated losses of Water Recycling Company arose before the Capital Increase would be shared between the shareholders of Water Recycling Company based on the former capital contribution ratio. The unaudited accumulated losses of Water Recycling Company up to 30th June 2005 were approximately RMB11 million and therefore, Urban Construction Bureau is responsible for approximately RMB1.1 million, whereas the Company is responsible for approximately RMB9.9 million of the accumulated losses. Profit or loss of Water Recycling Company arose after the Capital Increase, would be allocated based on the new capital contribution ratio.

The unaudited accumulated losses of Water Recycling Company for the year of 2004 and 2003 were RMB6.57 million and RMB6.18 million respectively. The unaudited net asset value of Water Recycling Company as at 30 June 2005, and as at 31 December 2004 and 31 December 2003 were RMB8.9 million, RMB13.4 million and RMB13.82 million respectively. The unaudited revenues from Water Recycling Company’s core operations for the first six months of 2005 and for the year of 2004 and 2003 were approximately RMB0.528 million, RMB0.06 million and RMB0 million respectively. The unaudited net loss of Water Recycling Company for the first six months of 2005 and for the year of 2004 and 2003 were RMB4.53 million, RMB0.23 million and RMB3.27 million respectively. As the Company owned 90% of Water Recycling Company before the Capital Increase, the financial accounts of Water Recycling Company were consolidated into the Company’s group results and the same accounting treatment will apply after the Capital Increase.

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REASONS FOR THE CAPITAL INCREASE

The main reasons for the Capital Increase are to enlarge the production capacity of Water Recycling Company and to facilitate the realisation of potential future business opportunities of Water Recycling Company.

The increased registered capital of RMB80 million contributed by the Company pursuant to the Capital Increase will be applied on the following areas:

• (i) raising the technological level of Jizhuangzi Sewage Water Recycling Plant so as to satisfy the water demand from industrial users in that area; and

• (ii) funding the construction of Xianyanglu Sewage Water Recycling Plant project, which is under preparation.

INFORMATION OF WATER RECYCLING COMPANY

Water Recycling Company is principally engaged in the development, construction and operation of water recycling projects; production and sales of recycled water, research and development on the technique and equipment for processing recycled water; consultation on the technology for processing recycled water; manufacturing, installing, commissioning and the operation of equipment for recycled water and car washing business.

Since the establishment of Water Recycling Company, it has built Jizhuangzi Sewage Water Recycling Plant, with a daily production capacity of 50,000 cubic metre, which has started to provide recycled water for nearby residential districts. As the utilisation of recycled water is still in an initial stage, the sales volume of Jijuangzhi Sewage Water Recycling Plant was low since its operation, and the Company has yet to reach its break even. In 2004, the Water Recycling Company has procured the Tianjin Municipal Government and the relevant department to promulgate a series of recycled water promotion and utilisation policies, including government ancillary policy on the construction of water recycling piping network, recycled water pricing policy, exemption of water recycling business from water resources fees and utility surcharges, mandatory installation of both recycled water and drinking water piping in newly constructed residential areas. All of these have established a good foundation for the utilisation of recycled water and its commercialisation development in Tianjin. In view of shortage of water supply in Tianjin and the overall planning of Tianjin, Water Recycling Company proactively organises the construction of Xianyanglu Sewage Water Recycling Plant at present in order to capture the recycling water market share in Tianjin. Xianyanglu Sewage Water Recycling Plant serves a planned scope of residential districts and industrial customers like Yangliuqing Power Plant. Its designed production capacity is 50,000 cubic meter per day. The estimated project investment amount will be RMB134,294,600. The construction period will last for about two years.

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INFORMATION OF THE COMPANY

The Company is principally engaged in the provision of urban construction and environmental protection related businesses in Tianjin, the PRC. The Capital Increase Agreement will be entered into on normal commercial terms after arm’s length negotiation between the parties. The Directors, including the independent non-executive Directors, consider that the proposed terms and conditions of the Capital Increase Agreement are fair and reasonable, and are in the interests of the Shareholders as a whole.

CONNECTED TRANSACTION

In view of the fact that Tianjin Municipal Company Limited, a substantial shareholder of the Company, is under the supervisory control of Urban Construction Bureau, and that Urban Construction Bureau is a substantial shareholder of Water Recycling Company before the Capital Increase, Urban Construction Bureau is regarded as a connected person of the Company under the Listing Rules. In that regard, the Capital Increase will constitute a connected transaction of the Company under the Listing Rules. As each of the percentage ratios (other than the profits ratio) of the Capital Increase is less than 2.5%, approval from the independent Shareholders is not required under the Listing Rules and the Capital Increase shall be subject to the reporting and announcement requirements set out in Rules 14A.45 to 14A.47 of the Listing Rules.

DEFINITIONS

• “Board” the board of Directors; “Capital Increase” an additional capital contribution in the sum of RMB80 million contributed by the Company to the registered capital of Water Recycling Company in cash pursuant to the Capital Increase Agreement;

• “Capital Increase an agreement entered into between the Company and Urban Agreement” Construction Bureau in respect of the Capital Increase, pursuant to which the registered capital of Water Recycling Company will be increased from RMB20 million to RMB100 million;

• “Company” Tianjin Capital Environmental Protection Company Limited ( ), a joint stock limited company established in the PRC whose A shares and H shares are listed on the Shanghai Stock Exchange and the Stock Exchange respectively;

• “Directors” the directors of the Company; “Listing Rules” the Rules Governing the Listing of Securities on the Stock Exchange;

• “PRC” the People’s Republic of China;

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the lawful currency of the PRC;

“RMB” the lawful currency of the PRC; “Shareholders” the holders of the shares of the Company; “Stock Exchange” The Stock Exchange of Hong Kong Limited; “Urban Construction Urban Construction Bureau of the Tianjin Municipality Bureau” ( ); and “Water Recycling Tianjin Water Recycling Company Limited Company” ( ), a joint venture company established by the Company and Urban Construction Bureau in the PRC in January 2001, which is owned as to 90% by the Company and as to 10% by Urban Construction Bureau respectively.

As at the date of this announcement, the Board comprises executive Directors: Ms. Ma Baiyu, Mr. An Pindong, Mr. Gu Qifeng, Mr. Wang Zhanying, Mr. Tan Zhaofu and Ms. Fu Yana and independent non-executive Directors: Mr. Wang Xiangfei, Mr. Gao Zongze and Mr. Ko Poming.

By order of the Board Ma Baiyu Chairman

Tianjin, the PRC 8 August, 2005

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

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