Silkwave Inc — Capital/Financing Update 2002

Jul 16, 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.

		SOUTH CHINA HOLDINGS LIMITED			SOUTH CHINA BROKERAGE COMPANY LIMITED
	(incorporated in the Cayman Islands with limited liability)			(incorporated in the Hong Kong Special Administrative Region of the People’s Republic of China with limited liability)

JOINT ANNOUNCEMENT
UNDERWRITING AGREEMENT
CONNECTED TRANSACTION

The board of directors of South China Holdings Limited (“SCH”) and South China Brokerage Company Limited (“SCB”) announce that on 10 July 2002, South China Securities Limited, an indirect subsidiary of SCH and a wholly owned subsidiary of SCB entered into a conditional underwriting and placing agreement with Capital Publications Limited (“Capital Publications”) relating to the placing of 50,648,000 shares of Capital Publications. SCH holds approximately 74.59% of the issued share capital of SCB.

Capital Publications is offering 50,648,000 new shares of HK$0.01 each (the “Placing Shares”) and has applied to The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) for a listing of and permission to deal in the shares in issue and to be issued on the Growth Enterprise Market of the Stock Exchange. Mr. Ng Hung Sang, Robert has beneficial interests of approximately 74% and 66% (immediately after the placing as defined in the subject agreement) in and is the Chairman of SCH and Capital Publications respectively. Mr. Ng Hung Sang, Robert also has personal interest of approximately 0.15% in and is the Chairman of SCB. Mr. Richard Howard Gorges has personal interest of 0.33% in and is a director of SCB and is also a director of SCH. Ms. Cheung Choi Ngor is a director of both SCH and SCB. Mr. Ng Hung Sang, Robert, Mr. Richard Howard Gorges and Ms. Cheung Choi Ngor are the initial management shareholders of Capital Publications.

The transaction constitutes a connected transaction for SCH in accordance with 14.25(1) of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) which require disclosure and not subject to the approval of the independent shareholders of SCH. Since irrevocable commitments from investors were received by SCB in connection with the underwriting of the Placing Shares which had resulted in the reduction of financial exposure of SCB under the Underwriting Agreement, SCB wrongly believed that the transaction only constituted a connected transaction according to 14.25(1). SCB subsequently realised that SCB’s gross underwriting commitment exceeded the threshold provided under the Listing Rules and according to 14.26 of the Listing Rules the Stock Exchange will normally require such transaction be approved by the independent shareholders in general meeting. As all the Placing Shares have already been placed to independent third parties, no remedial measure would be taken by SCB and SCB undertakes to make announcement in case it takes up any shares of Capital Publications under the Underwriting Agreement. The Stock Exchange reserves its rights to take appropriate action. The directors of SCB will ensure that no such breach will occur in future and calculate the threshold to include the gross underwriting commitment before making any underwriting commitment.

Underwriting and Placing Agreement (the “Underwriting Agreement”) made on 10 July 2002

The board of directors of South China Holdings Limited (“SCH”) and South China Brokerage Company Limited (“SCB”) announce that on 10 July 2002, South China Securities Limited (“SCS”), an indirect subsidiary of SCH and a wholly owned subsidiary of SCB entered into a conditional underwriting and placing agreement with Capital Publications Limited (“Capital Publications”) relating to the placing of 50,648,000 shares of Capital Publications, a company to be listed on the Growth Enterprise Market.

Parties

The Underwriting Agreement entered into between, among others, Capital Publications and SCS.

Capital Publications is an exempted company incorporated in the Cayman Islands with limited liability. The principal business activity of Capital Publications and its subsidiaries is the publication of monthly Chinese language magazine for middle-to-high income professionals, financials, traders and manufacturers, namely “Capital” magazine.

SCS is incorporated in the Hong Kong Special Administrative Region of the People’s Republic of China and is a wholly owned subsidiary of SCB, which is a subsidiary of SCH. SCS is a registered dealer in securities with the Securities and Futures Commission of Hong Kong. Its principal activity is stock broking.

Underwriting arrangement

According to the Underwriting Agreement, Capital Publications is offering 50,648,000 new shares of HK$0.01 each (the “Placing Shares”) for subscription at the price of HK$0.30 each.

Subject to, among others, the listing sub-committee of the board of The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) with responsibility for the Growth Enterprise Market operated by the Stock Exchange granting the listing and permission to deal in, the shares of HK$0.01 each of Capital Publications on or before 9 August 2002, SCS has agreed to subscribe or procure subscribers for the Placing Shares, on the terms and conditions as set out in the Underwriting Agreement. None of the Placing Shares has been placed to or taken up by SCH, SCB or SCS or third parties connected with the respective directors, chief executives or substantial shareholders of SCH, SCB and SCS.

Commission to be received

SCS will receive a normal market underwriting commission of 2.5% on the issue of all the Placing Shares. The total commissions received are estimated to be approximately HK$380,000.00 which will be deducted from the proceeds of the placement of the Placing Shares.

Completion

Completion of the placement of the Placing Shares will take place on the close of business on 16 July 2002.

Terms

The terms of the Underwriting Agreement were arrived at after arm’s length negotiations between the relevant parties.

The boards of directors of SCH and SCB (collectively the “Directors”), including the independent non-executive Directors of SCH and SCB, consider the terms of the transaction to be normal commercial terms and are fair and reasonable and in the interests of all shareholders of SCH and SCB.

Reasons for the transaction

The entering into the Underwriting Agreement allows SCB to receive an underwriting commission which will be used for general working capital purpose. Both SCH and SCB do not currently have any specific plans for the use of the proceeds.

Information on SCH

SCH and its subsidiaries (“SCH Group”) are principally engaged in trading and manufacturing, securities and commodities brokerage and trading, margin financing, money lending, provision of corporate advisory services, information and technology related businesses, real estate investment and development, implementation and marketing of software applications, publishing and printing businesses, marketing and promotional services, sale of air tickets and provision of other related travel services. SCH holds approximately 74.59% of the issued share capital of SCB.

Information on SCB

SCB and its subsidiaries (the “SCB Group”) are principally engaged in securities, bullion and commodities broking and trading, margin financing, money lending, provision of corporate advisory and underwriting services, property investment and investment holding.

Listing Rules implications

Mr. Ng Hung Sang, Robert has beneficial interests of approximately 74% and 66% (immediately after the placing as defined in the subject agreement) in and is the Chairman of SCH and Capital Publications respectively. Mr. Ng Hung Sang, Robert also has personal interest of approximately 0.15% in and is the Chairman of SCB. Mr. Richard Howard Gorges has personal interest of 0.33% in and is a director of SCB and is also a director of SCH. Ms. Cheung Choi Ngor is a director of both SCH and SCB. Mr. Ng Hung Sang, Robert, Mr. Richard Howard Gorges and Ms. Cheung Choi Ngor are the initial management shareholders of Capital Publications. The transaction therefore constitutes a connected transaction for SCH according to 14.25(1) of the Rules Governing the Listing of Securities on the Stock Exchange (the “Listing Rules”) which require disclosure and not subject to the approval of the independent shareholders of SCH. Since irrevocable commitments from investors were received by SCB in connection with the underwriting of the Placing Shares which had resulted in the reduction of financial exposure of SCB under the Underwriting Agreement, SCB wrongly believed that the transaction constituted a connected transaction according to 14.25(1). SCB subsequently realised that SCB’s gross underwriting commitment exceeded the threshold provided under the Listing Rules and according to 14.26 of the Listing Rules the Stock Exchange will normally require such transaction be approved by the independent shareholders in general meeting. The Underwriting Agreement has been entered into and all the Placing Shares have already been placed to independent third parties, no remedial measure would be taken by SCB and SCB undertakes to make announcement in case it takes up any shares of Capital Publications under the Underwriting Agreement. The Stock Exchange reserves its rights to take appropriate action. The directors of SCB will ensure that no such breach will occur in future and calculate the threshold to include the gross underwriting commitment before making any underwriting commitment.

Details of the transaction will be included in the next annual report of SCH and SCB pursuant to the Listing Rules.

By order of the Board
South China Holdings Limited
Yuen Kam Tim, FrancisCompany Secretary

By order of the Board
South China Brokerage Company Limited
Yuen Kam Tim, FrancisCompany Secretary15 July 2002

Hong Kong Special Administrative Region of
the People’s Republic of China

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