IMPORTANT
If you are in any doubt about this prospectus, you should consult your stockbroker, bank manager, solicitor, accountant or other professional advisers.
36.com Holdings Limited incorporated in Bermuda with limited liability)
Listing on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited by way of Placing and Public Offer Number of Shares under the Share Offer : 280,000,000 +subject to Over-allotment Option) +with one Warrant for every Offer Share) Number of Placing Shares : 238,000,000 +subject to Over-allotment Option and reallocation) +with one Warrant for every Placing Share) Number of Public Offer Shares : 42,000,000 +subject to reallocation) +with oneWarrantforeveryPublicOfferShare) Issue Price : HK$0.36 per Offer Share payable in full on application Nominal value : HK$0.0001 each GEM stock code : 8036 GEM warrant code : 8351 Sponsor
Worldsec Corporate Finance Limited
Lead Manager
Worldsec International Limited
Co-Managers HSBC Broking Securities +Asia) Limited BNP Prime Peregrine Securities Limited JSCresvale International Limited Celestial Capital Limited OSK Asia Securities Limited Kingsway SW Securities Limited
The Stock Exchange of Hong Kong Limited and Hong Kong Securities Clearing Company Limited take no responsibility for the contents of this prospectus, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this prospectus. A copy of this prospectus, together with the documents specified in the paragraph headed ``Documents delivered to the Registrar of Companies'' in Appendix VI to this prospectus, has been registered by the Registrar of Companies in Hong Kong as required by Section 342C of the Companies Ordinance of Hong Kong. The Securities and Futures Commission and the Registrar of Companies in Hong Kong take no responsibility as to the contents of this prospectus or any other documents referred to above. A copy of this prospectus, together with copies of the application forms, has been filed with the Registrar of Companies in Bermuda and, in addition, the Bermuda Monetary Authority has given its consent for the issue of Shares pursuant to the Share Offer. In accepting the prospectus for filing and in granting its consent for the issue of the Shares pursuant to the Share Offer, neither the Registrar of Companies in Bermuda nor the Bermuda Monetary Authority accept any responsibility for the contents of this prospectus.
18th July, 2000 IMPORTANT
Characteristics of the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited:
GEM has been established as a market designed to accommodate companies to which a high investment risk may be attached. In particular, companies may list on GEM with neither a track record of profitability nor any obligation to forecast future profitability. Furthermore, there may be risks arising out of the emerging nature of companies listed on GEM and the business sectors or countries in which the companies operate. Prospective investors should be aware of the potential risks of investing in such companies and should make the decision to invest only after due and careful consideration. The greater risk profile and other characteristics of GEM mean that it is a market more suited to professional and other sophisticated investors.
Given the emerging nature of companies listed on GEM, there is a risk that securities traded on GEM may be more susceptible to high market volatility than securities traded on the Main Board and no assurance is given that there will be a liquid market in the securities traded on GEM.
The principal means of information dissemination on GEM is publication on the Internet website operated by the Stock Exchange. GEM-listed companies are not generally required to issue paid announcements in gazetted newspapers. Accordingly, prospective investors should note that they need to have access to the GEM website at www.hkgem.com in order to obtain up-to-date public information on GEM-listed issuers.
ÐiÐ CONTENTS
You should rely only on the information contained in this prospectus to make your investment decision.
The Company has not authorised anyone to provide you with information that is different from what is contained in this prospectus.
Any information or representation not made in this prospectus must not be relied on by you as having been authorised by the Company, Worldsec, the Underwriters, any of their respective directors or any other person involved in the Share Offer.
Page
EXPECTED TIMETABLE ...... 1
SUMMARY ...... 2
DEFINITIONS ...... 15
GLOSSARY OF TECHNICAL TERMS ...... 21
RISK FACTORS ...... 25
WAIVERSFROM COMPLIANCE WITH THE GEM LISTINGRULES AND COMPANIESORDINANCE ...... 41
INFORMATION ABOUT THISPROSPECTUSAND THE SHARE OFFER ...... 45
DIRECTORSAND PARTIESINVOLVED IN THE SHARE OFFER ...... 51
CORPORATE INFORMATION ...... 56
INDUSTRY OVERVIEW ...... 58
BUSINESS
Corporate structure ...... 65
History and development ...... 66
The Group's objectives and business model ...... 70
Statement of active business pursuits ...... 88
Largest customers and suppliers ...... 92
The Group's strengths ...... 92
Business objectives, future plans and implementation schedule ...... 93
ÐiiÐ CONTENTS
Page
Competition ...... 99
Key business alliance ...... 99
Strategic alliances ...... 100
Office ...... 106
Intellectual property rights ...... 106
Use of proceeds ...... 107
Year 2000 compliance ...... 108
DIRECTORS, SENIOR MANAGEMENT AND STAFF ...... 109
SUBSTANTIAL AND INITIAL MANAGEMENT SHAREHOLDERS ...... 116
SHARE CAPITAL ...... 120
FINANCIAL INFORMATION ...... 123
SPONSOR'S INTERESTS ...... 130
UNDERWRITING ...... 131
STRUCTURE OF THE SHARE OFFER ...... 135
HOW TO APPLY FOR THE PUBLIC OFFER SHARES +WITH WARRANTS) .... 141
PROCEDURE FOR QUALIFYING SUBSCRIBERS APPLYING FOR QUALIFYING SHARES +WITH WARRANTS) ...... 148
APPENDICES
Appendix I Ð Accountants' report ...... 151
Appendix II Ð Property valuation report ...... 164
Appendix III Ð Summary of the constitution of the Company and Bermuda company law ...... 168
Appendix IV Ð Summary of the terms of the Warrants ...... 200
Appendix V Ð Statutory and general information ...... 208
Appendix VI Ð Documents delivered and available for inspection ...... 256
ÐiiiÐ EXPECTED TIMETABLE
2000
Application lists open Note 2) ...... 11:45a.m.onFriday,21stJuly
Latest time to lodge WHITE, YELLOW and BLUE applicationforms ...... 12:00noononFriday,21stJuly
Applicationlistsclose...... 12:00noononFriday,21stJuly
Announcement of the indication of level of interests in the Placing, basis of allotment and results of applications for the Public Offer and the Qualifying Shares to be published in the South China Morning Post 'in English), the Hong Kong Economic Times 'in Chinese) and the GEM website at www.hkgem.com on or before ...... Tuesday, 25th July
Despatch of share and warrant certificates and refund cheques in respect of wholly or partially unsuccessful applications on or before Note 3) ...... Wednesday,26thJuly
Dealings in the Shares and the Warrants on GEM to commence on ...... Friday, 28th July
Notes:
'1) All times refer to Hong Kong local time. Details of the structure of the Share Offer, including its conditions, are set out in the section headed ``Structure of the Share Offer''.
'2) If there is a ``black'' rainstorm warning or a tropical cyclone warning signal number 8 or above in force in Hong Kong at any time between 9: 00 a.m. and 12: 00 noon on Friday, 21st July, 2000, the application lists will not open on that day. Further information is set out in the paragraph headed ``Effect of bad weather on the opening of the application lists'' under the section headed ``How to apply for the Public Offer Shares 'with Warrants)''.
'3) Applicants who have applied on WHITE application forms for 1,000,000 Shares or more under the Public Offer and/or on BLUE application forms for 1,000,000 Qualifying Shares or more and have indicated on their application forms that they wish to collect refund cheques and 'where applicable) share and warrant certificates in person from the Company's Hong Kong branch share registrar may collect refund cheques and 'where applicable) share and warrant certificates in person from the Company's Hong Kong branch share registrar, Tengis Limited, from 9: 00 a.m. to 1: 00 p.m. on Wednesday, 26th July, 2000. Identification and 'where applicable) authorisation documents acceptable to Tengis Limited must be produced at the time of collection.
Applicants who have applied on YELLOW application forms for 1,000,000 Shares or more under the Public Offer may collect their refund cheque 'where applicable) in person but may not elect to collect their share and warrant certificates 'where applicable) which will be deposited into CCASS for the credit of their designated CCASS participants' stock accounts or investor participant stock accounts, as appropriate. The procedure for collection of refund cheques for YELLOW application form applicants is the same as those for WHITE application form applicants.
Uncollected share and warrant certificates and refund cheques will be despatched by ordinary post at the applicants' own risk to the addresses specified in the relevant application forms. Further information is set out in the paragraph headed ``Collection/posting of share and warrant certificates/refund cheques and deposit of share and warrants certificates into CCASS'' under the section headed ``How to apply for the Public Offer Shares 'with Warrants)''.
Ð1Ð SUMMARY
This summary aims to give you an overview of the information contained in this prospectus. As it is a summary, it does not contain all the information that may be important to you. You should read the whole document before you decide to invest in the Offer Shares with Warrants).
There is greater risk associated with investment in companies listed on GEM. Some of the particular risks of investing in the Offer Shares with Warrants) are set out in the section headed ``Risk factors''. You should read that section carefully before you decide to invest in the Offer Shares with Warrants).
SUMMARY OF THE BUSINESS
Introduction
The rapid growth in popularity of the web has introduced fundamental changes in the way information can be produced, distributed and consumed. The web allows users to view selected information that is of particular interest to them in a cost effective and timely manner. The web is achieving increasing popularity as a supplement and in some cases an alternative to other more traditional forms of media.
The Group believes that its strategy of developing content rich vertical portals each focused on a specific area of interest and targetted at the global Chinese community well positions the Group to capitalise on the growth in popularity of the web as a form of information transmission.
Over time the Group's vertical portals will become to an extent geographically localised by the launch of localised versions of its vertical portals targetted at the Chinese communities in various population centres around the world, including the PRC, North America, Asia and Australasia. Such localised content is intended to better appeal to the preferences of the target market and to provide a more focused platform for the Group to use to engage in e-commerce activities and attract advertisers.
Current business activities
The Group's primary business is the provision of focused Chinese language content through its vertical portals targetted at the global Chinese community. The Group has launched the following vertical portals:
. Finance
This vertical portal contains information relating to the finance sector and is targetted at retail investors interested in the Hong Kong stock market. The portal features real-time information 'including commentaries, market news and stock quotes on automatically refreshed screens) during trading hours on the Stock Exchange and comprehensive information at all hours 'including market commentaries, market news, selected brokers' reports and company data). Analytical and charting tools are also available online, in addition to a number of interactive features.
Ð2Ð SUMMARY
. Consumer
This vertical portal features a detailed shopping guide designed to assist shoppers to choose among different consumer products and merchants in Hong Kong. The portal includes detailed product profiles, regularly updated feature articles and product comparison tables for selected product categories.
The portal also features a search engine to help callers identify the lowest priced international direct dialling telephone service providers for 21 destinations at any given time of day or night. In addition the portal has a number of interactive features. The Group also intends to provide intermediary services linking consumers using this portal with selected merchants.
. News
This vertical portal sets out to complement traditional newspapers by providing more frequently updated news, exclusive feature articles and news chat rooms and forums featuring popular commentators, including ``Tai Pan'' Cheng Albert Jinghan.
. Entertainment
This vertical portal focuses on providing features relating to mass market entertainment. The portal contains regularly updated news regarding a variety of entertainers, a movie guide, a ``ghost'' channel and various interactive services.
. Teenager
This vertical portal focuses on providing content and online community services designed to appeal to students and teenagers including online games.
. Fortune-telling
This vertical portal includes free interactive fortune-telling services based upon I-ching hexagon, the Chinese Zodiac and bone-weighting 'an ancient Chinese technique relating to the user's hour of birth). Interactive services for selecting auspicious dates and for naming individuals are also available online. The portal also features regularly updated articles on feng-shui and oriental astrology.
. Eating
This vertical portal provides a restaurant guide and search engine with a database of information on over 5,000 restaurants in Hong Kong.
. Sports
This vertical portal focuses on providing content to sports enthusiasts, particularly those interested in soccer and basketball.
Ð3Ð SUMMARY
. Horse-racing
This vertical portal provides information targetted at followers of horse-racing in Hong Kong. The portal includes various databases and statistics, race analysis, betting strategies and betting tips.
. Automobile
This portal focuses on providing information about automobiles. It features regularly updated news, feature articles on latest automotive products and trends, detailed model profiles and comparison tables for selected automobile categories.
The portal also provides a search engine to help users obtain information based on user-defined criteria on second-hand automobiles which are for sale.
The volume of traffic generated by the website www.36.com through the Group's content and services will provide a platform for online advertisers effectively to market their products to their target audience. The Group provides banner advertising and title sponsorship to various advertisers.
The Group is also engaged in providing various media-related services to its clients including developing media communications strategies for clients, conducting media audits and reviews, and providing media training and development programmes for executives to prepare them for dealing with customers, suppliers, employees and shareholders. In addition the Group provides Internet-related consulting and integration services to its clients.
Statement of business prospects
The Directors believe that its focused content-rich Chinese language vertical portals will continue to attract significant viewers and will increase in popularity amongst the global Chinese community.
The Group's revenue model is as follows:
. Advertising-driven revenues will be generated by the Group hosting advertisements on and soliciting sponsorship for its vertical portals. This revenue stream is directly related to the number of pageviews that the Group's vertical portals receive. As the Group's content and pageviews continue to build up over time, the Directors expect that the Group's portal network will provide a foundation for the development of direct advertising.
. Transaction-driven revenues are expected to be generated by the launch of e-commerce platforms on certain of the Group's vertical portals. The Group will charge clients a fee based upon a percentage of the revenue the Group's clients generate from these e-commerce platforms.
Ð4Ð SUMMARY
. Content distribution-driven revenues are expected to be generated by the Group from the distribution of its content to Internet and other media providers as the Group's content builds up and further develops over time.
. Service-driven revenues are generated by assisting merchants and corporations to manage their media image and their relationships with their customers, including Internet users and by providing Internet related consulting and integration services to clients.
A graphical presentation of the currently scheduled progress of the implementation of the Group's business plans during the period up to 31st March, 2001 and the four consecutive six- month periods thereafter up to 31st March, 2003 is set out below:
Period ending Six monthsending Strategic Implementation 31st March, 30th September, 31st March, 30th September, 31st March, components 2001 2001 2002 2002 2003
Develop new . e-cards HK/NA/PRC vertical portals . Women's portal HK/NA/PRC . e-tailing portal HK/PRC . IBM's portal HK . New portals through HK HK/NA/ HK joint venture or PRC/AA acquisition
Launch . News portal NA localized versions of . Consumer portal NA/PRC AA existing portals . Finance portal NA PRC . Entertainment portal NA/PRC/AA . Other portals NA/PRC*/ AA
Increase . Launch English HK depth of language version of existing Finance portal portals . Introduce intermediary HK HK services on Consumer portal . Enhance features and HK HK/NA/PRC HK HK HK content of existing portals . Commence e-business HK/NA/ HK in target markets PRC/AA . Broaden range of HK HK HK e-tailing products
Enhance . Introduce wireless HK/NA/PRC technology platform for shopping . Introduce broadband HK NA/PRC/AA version of Entertainment and e-card portals
Content . Distribution of content HK/NA/PRC AA distribution to third party networks
Key: HK Ð Hong Kong NA Ð North America PRC Ð the People's Republic of China 'excluding for these purposes Hong Kong, Macau and Taiwan) AA Ð Asia/Australasia * Ð excluding the Group's News portal
Ð5Ð SUMMARY
To be a successful player in the Internet industry, the Group will need to be tremendously flexible to adapt to the rapidly evolving market environment. Organic growth may not be adequate to achieve the Group's target growth in terms of geographic reach and business scope. The Directors believe that forming strategic partnerships or mergers and acquisitions are effective means to acquire capabilities critical to the business without making prohibitive investments or losing first-mover advantage.
Therefore, the Group does not rule out the possibility to engage in mergers and acquisitions at either the Group or vertical portal levels in the future. In addition, it may also spin off certain vertical portals through separate listing. However, the Group currently has no concrete timetable or plan for any spin-offs.
Warning:
The aforesaidplansare basedon the existingplansand intentionsof the Group. Assuch intentions and plans are based on assumptions of future events which by their nature are subject to uncertainty, the Group's actual course of action may vary from the intentions and planssetout above. Although the Directorswill endeavour to execute suchplansin accordance with the aforesaid timeframe, there is no assurance that the plans of the Group will materialise or result in the conclusion of any agreement or be executed in accordance with the aforesaid timeframe or that the objectives of the Group will be fully accomplished or be accomplished at all.
Ð6Ð SUMMARY
TRADING RECORD
The following is a summary of the combined results of the Group for the two years ended 31st March, 2000 which have been extracted from the accountants' report set out in Appendix I. The combined results are prepared on the basis of presentation set out in the same accountants' report.
Year ended 31st March, 1999 2000 HK$ HK$
Turnover Ð 2,814,482
Other revenue Ð 363,589 Software acquisition and hardware maintenance costs Ð '2,159,876) Depreciation expenses Ð '688,860) Rental expenses '75,068) '377,286) Staff costs Ð '6,063,485) Advertising and marketing expenses Ð '6,405,896) Other operating expenses '50,428) '4,551,011)
Loss from operating activities '125,496) '17,068,343)
Finance costs Ð '25,673)
Loss before tax '125,496) '17,094,016)
Tax Ð Ð
Loss from ordinary activities attributable to shareholders '125,496) '17,094,016)
Dividends Ð Ð
Loss per Share Note) 0.006 cents 0.79 cents
Note: The calculation of the loss per Share is based on the Group's loss from ordinary activities attributable to shareholders for the two years ended 31st March, 2000 and on 2,161,026,000 Shares in issue at the date of the prospectus being deemed to be in issue throughout the two years ended 31st March, 2000.
REASONS FOR THE SHARE OFFER
The Directors consider that the Share Offer will enhance both the Group's corporate profile and its financial strength. A public listing status on the Stock Exchange will offer the Group access to the capital market to raise funds to meet its future business development.
Ð7Ð SUMMARY
USE OF PROCEEDS
The net proceeds from the Share Offer are estimated to amount to approximately HK$87 million before the exercise of the Over-allotment Option. It is presently intended that the net proceeds will be applied as follows:
. approximately HK$7 million for expansion of the Group's network infrastructure, computer equipment and software applications outside Hong Kong, including in North America, the PRC, Asia and Australasia;
. approximately HK$7 million for marketing and advertising in Hong Kong;
. approximately HK$7 million for marketing and advertising outside Hong Kong, including in North America, the PRC, Asia and Australasia;
. approximately HK$17 million for content development and acquisition in Hong Kong and approximately HK$9 million for content development and acquisition outside Hong Kong, including in North America, the PRC, Asia and Australasia;
. approximately HK$15 million for IT development and maintenance in Hong Kong and approximately HK$6 million for IT development and maintenance outside Hong Kong, including in North America, the PRC, Asia and Australasia;
. approximately HK$5 million for business development in Hong Kong and approximately HK$4 million for business development outside Hong Kong, including in North America, the PRC, Asia and Australasia;
. approximately HK$10 million for general working capital.
In the event that the Over-allotment Option is exercised in full, the additional net proceeds of approximately HK$15 million will be applied by the Company for marketing and advertising activities, for further enhancing the Group's network infrastructure, for purchasing additional software applications and for general working capital purposes.
To the extent that the net proceeds of the Share Offer are not immediately required for the above purposes, it is the present intention of the Directors that such net proceeds will be placed on deposit with financial institutions in Hong Kong or invested in short term interest-bearing debt securities.
If any part of the business plans of the Group does not materialise or proceed as planned, the Directors will carefully evaluate the situation and may reallocate the intended funding to other business plans and/or to new projects of the Group and/or to hold such funding in bank accounts or invest such funds in short term interest-bearing debt securities so long as the Directors consider it to be in the best interest of the Group and the Company's shareholders taken as a whole.
If there are any material changes to the use of proceeds as described above, an appropriate announcement will be made by the Company.
Ð8Ð SUMMARY
The Directors believe that the net proceeds from the Share Offer will be sufficient to finance all of the planned and/or intended projects of the Group as described in the paragraph headed ``Business objectives, future plans and implementation schedule'' under the section headed ``Business'' in this prospectus. Should the Group decide to invest in new additional projects which are not part of the currently planned and/or intended projects of the Group, the Group may require further financing to fund any such projects. The Directors anticipate that, after the listing of the Shares and the Warrants on GEM, the Group will be able to finance any such additional projects through, amongst other ways, internal resources, raising funds in the international capital and debt markets, equity issues to strategic investors and bank financing or through a combination of these methods.
For the purposes of Section 28 of the Companies Act, there is no minimum subscription to be raised since the Share Offer is fully underwritten.
SHARE OFFER STATISTICS
HK$
IssuePrice ...... 0.36
Market capitalisation Note 1) ...... 878,769,360
Adjusted net tangible asset value per Share Note 2) ...... 0.06
Adjusted net asset value per Share Note 2) ...... 0.06
Notes:
'1) The calculation of market capitalisation is based on the Issue Price and 2,441,026,000 Shares expected to be in issue immediately after completion of the Share Offer but takes no account of 'i) any Shares which may be issued upon the exercise of the Over-allotment Option, 'ii) any Shares which may be issued upon the exercise of any options granted under the Pre-IPO Share Option Scheme, or options which may be granted under the Share Option Scheme, 'iii) any Shares which may be issued upon the exercise of the subscription rights attaching to the Warrants, or 'iv) any Shares which may be issued or repurchased by the Company pursuant to the mandates referred to in Appendix V to this prospectus.
'2) The adjusted net tangible asset value per Share and the adjusted net asset value per Share have been arrived at after the adjustments referred to in the section headed ``Financial information Ð adjusted net tangible assets'' in this prospectus and on the basis of 2,441,026,000 Shares expected to be in issue immediately after completion of the Share Offer but takes no account of 'i) any Shares which may be issued upon the exercise of the Over- allotment Option, 'ii) any Shares which may be issued upon the exercise of any options granted under the Pre-IPO Share Option Scheme, or options which may be granted under the Share Option Scheme, 'iii) any Shares which may be issued upon the exercise of the subscription rights attaching to the Warrants, or 'iv) any Shares which may be issued or repurchased by the Company pursuant to the mandates referred to in Appendix V to this prospectus. If the Over-allotment Option is exercised in full, the adjusted net tangible asset value per Share will increase.
Ð9Ð SUMMARY
INITIAL MANAGEMENT SHAREHOLDERS, SIGNIFICANT SHAREHOLDERS AND OTHER EXISTING SHAREHOLDERS OF THE COMPANY
As a result of the Company's corporate reorganisation set out in detail in Appendix V to this prospectus, the existing shareholders' interests in the Company are summarised as follows:
Approximate Approximate Number of percentage of average Date of becoming a Sharesheld shareholding effective direct/indirect CCC 9immediately 9immediately acquisition shareholder after Share after Share Lock-in cost per Shareholders Note 1) Offer) Offer) period Share Total cost HK$ HK$
Initial Management Shareholders
Cheng Albert Jinghan 8th November, 1996 617,022,000 25.28% Note 8) 0.0206 12,724,448.20 Note 2) Ip Saimond 1st February, 2000 243,456,000 9.97% Note 8) 0.0144 3,512,405.00 Yeung Kwok Mung 1st February, 2000 68,238,000 2.80% Note 8) 0.0089 604,159.20 Tsang Moses Kwok 1st February, 2000 165,096,000 6.76% Note 8) 0.0303 5,002,499.00 Tai Note 3) Poon Kai Tik Note 1) 85,116,000 3.49% Note 8) 0.0235 2,002,151.00 Note 4) Chung Wai Yang 18th February, 2000 83,166,000 3.41% Note 8) 0.0379 3,150,000.00 Note 5) Huang Erwin Steve 1st February, 2000 25,326,000 1.04% Note 8) 0.0198 500,807.00
Significant Shareholder
ACAEDL Limited 18th February, 2000 326,052,000 13.36% Note 8) 0.0379 12,350,000.00 Note 6) other shareholders
Internet content N/A 98,634,000 4.04% Note 9) 0.0001 9,863.40 providers Group's employees Note 1) 80,226,000 3.29% N/A 0.0164 1,314,186.24 other existing Note 1) 368,694,000 15.10% Note 7) 0.1333 49,159,999.00 shareholders Note 7)
Notes:
1. This represents the actual date on which certain shareholders or its beneficial owner's) first became shareholders of CCC. Certain shareholders under the categories ``Group's employee'' and ``other existing shareholders'' set out above have never been shareholders of CCC. For those who are shareholders of CCC, they obtained their shares between 18th February, 2000 and 17th May, 2000. Poon Kai Tik's wife, Au Tak Yee became a shareholder of CCC on 1st February, 2000. For further information, please refer to sub-paragraph 'b) of the paragraph headed ``Changes in the share capital of the subsidiaries'' in Appendix V.
2. Cheng Albert Jinghan is interested in such Shares in the following manner:
i. 1,326,000 Shares are held by Cheng Albert Jinghan personally.
ii. 13,206,000 Shares are held by Cheng Albert Jinghan's wife, Lo Irene Kam Sheung, and therefore he is deemed to be interested in these Shares 'by virtue of the SDI Ordinance).
Ð10Ð SUMMARY
iii. 602,490,000 Shares are held by Drummond Finance Limited. Drummond Finance Limited is the wholly- owned subsidiary of Umbel Inc., which is a company owned by CIBC Trust Company 'Bahamas) Limited as trustee of the Albert Cheng Family Trust. Cheng Albert Jinghan and his children are discretionary beneficiaries of such trust and Cheng Albert Jinghan is therefore deemed to be interested in these Shares.
3. These Shares are directly or indirectly held by Tsang Moses Kwok Tai in the following manner:
i. 13,290,000 Shares are held by Tsang Moses Kwok Tai personally.
ii. 151,806,000 Shares are held by MKT Holdings 'Cayman Islands) LLC, which is wholly-owned by Tsang Moses Kwok Tai and Tsang Moses Kwok Tai is therefore deemed to be interested in these Shares 'by virtue of the SDI Ordinance).
4. Poon Kai Tik is interested in such Shares in the following manner:
i. 5,910,000 Shares are held by Poon Kai Tik personally.
ii. 79,206,000 Shares are held by Poon Kai Tik's wife, Au Tak Yee, and therefore he is deemed to be interested in these Shares 'by virtue of the SDI Ordinance).
5. These Shares are held by Cyber Channel Limited, which is wholly owned by Chung Wai Yang and therefore he is deemed to be interested in these Shares 'by virtue of the SDI Ordinance).
6. ACAEDL Limited is wholly owned by Chung Po Yang and therefore he is deemed to be interested in these Shares 'by virtue of the SDI Ordinance). Chung Po Yang is the brother of Chung Wai Yang who is a non-executive Director. Chung Wai Yang is also a director of ACAEDL Limited.
7. 321,630,000 of such Shares are held by independent third parties which are not connected with the directors, chief executive, substantial shareholders or management shareholders of the Company or its subsidiaries or their respective associates 'as defined in the GEM Listing Rules) and the remaining 47,064,000 Shares are held by relatives of the Initial Management Shareholders. Of the 321,630,000 Shares held by such independent existing shareholders of the Company, 268,333,740 Shares are subject to undertakings given by such persons to the Company and Worldsec 'on behalf of the Underwriters) not to dispose of 'or enter into any agreement to dispose of) or permit the registered holder to dispose of 'or enter into any agreement to dispose of) any direct or indirect interest in such Shares for the period of six months commencing on the listing date. The 47,064,000 Shares held by relatives of the Initial Management Shareholders are subject to undertakings given by such persons to the Company, the Stock Exchange and Worldsec 'on behalf of the Underwriters) not to dispose of 'or enter into any agreement to dispose of) or permit the registered holder to dispose of 'or enter into any agreement to dispose of) any direct or indirect interest in such Shares for the period of six months commencing on the listing date.
8. 'i) Each of the Initial Management Shareholders and the Significant Shareholders has undertaken to the Company, the Stock Exchange and Worldsec 'on behalf of the Underwriters) that for the period of six months commencing on the listing date, he/it will not dispose of 'or enter into any agreement to dispose of) or permit the registered holder to dispose of 'or enter into any agreement to dispose of) any direct or indirect interest in the Relevant Securities.
'ii) In addition, each of the Initial Management Shareholders has undertaken 'a) to the Company, the Stock Exchange and Worldsec that for the period of six months commencing on the date falling six months after the listing date they will ensure that the aggregate number of Relevant Securities held or controlled by them will represent at least 35 per cent of the voting rights exercisable at general meetings of the Company; and 'b) to the Company and Worldsec 'on behalf of the Underwriters) that without the written consent of Worldsec 'on behalf of the Underwriters) '1) for the period of six months commencing on the date falling six months after the listing date, they will, inter alia, not dispose of 'or enter into any agreement to dispose
Ð11Ð SUMMARY
of) or permit the registered holder to dispose of 'or enter into any agreement to dispose of) any direct or indirect interest in 68 per cent of their respective Relevant Securities; and '2) for a period of twelve months commencing on the first anniversary of the listing date, they will not, inter alia, dispose of 'or enter into any agreement to dispose of) or permit the registered holder to dispose of 'or enter into any agreement to dispose of) any direct or indirect interest in 50 per cent of their respective Relevant Securities.
'iii) Furthermore, each of the Significant Shareholders has undertaken to the Company and Worldsec 'on behalf of the Underwriters) that, inter alia, without the written consent of Worldsec 'on behalf of the Underwriters) neither it nor any of its associates 'as defined in the GEM Listing Rules), any company controlled by it nor any nominee or trustee holding in trust for it will, for a period of eighteen months commencing on the date falling six months after the listing date sell, transfer or otherwise dispose of 'including without limitation the creation of an option over) such number of Relevant Securities as represents 50 per cent of its holding of Relevant Securities 'which will be held in escrow).
9. The Internet content providers 'as referred to in sub-paragraph 'e) of the paragraph headed ``Changes in share capital of the Company'' in this Appendix V) have undertaken to the Company that, they will not dispose of 'or enter into any agreement to dispose of) or permit the registered holder to dispose of 'or enter into any agreement to dispose of) any direct or indirect interest in the Shares acquired pursuant to the subscription agreements 'as referred to under items 'i) to 'v) of the paragraph headed ``Summary of material contracts'' in Appendix V) for differing periods as set out in the relative subscription agreement, but in each case for a period of not less than six months from the listing date.
The operations of the Group involve certain risks, a summary of which is set out in the section headed ``Risk factors'' of this prospectus. These risks can be classified as 'i) risks relating to the Group; 'ii) risks relating to the Internet industry in general; 'iii) political and economic risks; and 'iv) risks relating to the Shares; and are listed below:
Risks relating to the Group
. The Group has a limited operating history
. The Group's Internet business has not been profitable and losses are expected for the foreseeable future
. The Group may require additional funds
. The Group may not be able to implement its strategy for future growth successfully
. The Group depends on certain key executives and personnel
. Failure of the Group to attract and retain qualified personnel could affect and limit its growth
. Failure of third party suppliers to provide software and hardware components could affect the business and operations of the Group
. The Group relies on software and hardware systems that may be susceptible to failure and misuse
. The Group may encounter difficulties with respect to its use of technology rights
Ð12Ð SUMMARY
. The Group may be held liable for information retrieved from its portal network
. The Group may be held liable under the Control of Obscene and Indecent Articles Ordinance 'Chapter 390 of the Laws of Hong Kong)
. Privacy concerns may prevent the Group from selling demographically targetted advertising in the future
. The Group relies on a small number of customers and suppliers
. Proceeds from the Share Offer may not be used in the ways described in this prospectus
. The Group's planned expansion into the PRC market may expose the business of the Group to further risks
. Forward-looking statements contained in this prospectus may not be accurate
Risk relating to the Internet industry in general
. The Internet industry is subject to rapid technological change
. The Internet industry is intensely competitive
. The Asian Internet industry is a developing market and has not been proven as an effective commercial medium
. Government regulation and legal uncertainties could adversely affect the conduct of business on the Internet
. Statistics derived from various unofficial publications have not been independently verified
Political and economic risks
. The economic climate in Asia is volatile
. There are political and economic risks associated with doing business in Hong Kong
. A change in currency exchange rates could increase costs relative to revenues of the Group
. There are political and economic risks associated with doing business in the PRC
Ð13Ð SUMMARY
Risks relating to the Shares
. An active trading market for the Shares and the Warrants may not develop
. The market price of the Shares may fluctuate
. Potential dilution as a result of additional equity fund raising
. Dilution as a result of exercise of share options
. Number of Shares which are freely transferable
Ð14Ð DEFINITIONS
In this prospectus, unless the context otherwise requires, the following expressions have the following meanings:
``affiliated company'' has the meaning ascribed thereto in the GEM Listing Rules
``associate'' has the meaning ascribed thereto in the GEM Listing Rules
``Audit Committee'' the audit committee of the Board
``Board'' the board of Directors
``BVI'' British Virgin Islands
``Cable & Wireless HKT'' Cable & Wireless HKT Limited, a company incorporated in Hong Kong with limited liability, the securities of which are listed on the Main Board and which is a telecommunications and Internet services provider in Hong Kong
``CCASS'' the Central Clearing and Settlement System established and operated by Hongkong Clearing
``CCC'' Cyber Communications Corporation Ltd. 'formerly named Ark Communications Group Limited), a company incorporated in the BVI with limited liability and is a wholly-owned subsidiary of the Company
``CCC Options Conversion an agreement dated 12th June, 2000 entered into between: 'i) the Agreement'' Company; 'ii) CCC; and 'iii) each optionholder under the CCC Option Scheme pursuant to which the optionholders agreed to exchange: 'a) the exercisable options under the CCC Option Scheme for Shares; and 'b) the non-exercisable options under the CCC Option Scheme for options under the Pre-IPO Share Option Scheme, as set out in the paragraphs headed ``Pre-IPO Share Option Scheme'' and ``CCC Option Scheme'' in Appendix V to this prospectus
``CCC Option Scheme'' the share option scheme approved and adopted by CCC on 23rd December, 1999, further details of which are set out in the paragraph ``CCC Option Scheme'' in Appendix V to this prospectus
``Companies Act'' the Companies Act 1981 of Bermuda 'as amended)
``Companies Ordinance'' Companies Ordinance 'Chapter 32 of the Laws of Hong Kong) 'as amended)
``Company'' 36.com Holdings Limited, a company incorporated on 8th May, 2000 in Bermuda with limited liability
Ð15Ð DEFINITIONS
``Compensation the compensation committee of the Board Committee''
``Director's)'' the director's) of the Company
``GEM'' the Growth Enterprise Market of the Stock Exchange
``GEM Listing the listing sub-committee of the board of the Stock Exchange with Committee'' responsibility for GEM
``GEM Listing Rules'' the Rules Governing the Listing of Securities on GEM
``Group'' the Company and its subsidiaries and where the context so requires in respect of the period before the Company became the holding company of its present subsidiaries, the present subsidiaries of the Company
``Hong Kong'' the Hong Kong Special Administrative Region of the PRC
``Hongkong Clearing'' Hong Kong Securities Clearing Company Limited
``IDC'' International Data Corporation Asia Pacific Ltd.
``Initial Management collectively, Cheng Albert Jinghan, Ip Saimond, Yeung Kwok Shareholders'' Mung, Poon Kai Tik, Huang Erwin Steve, Tsang Moses Kwok Tai, Chung Wai Yang, CIBC Trust Company 'Bahamas) Limited 'as trustee of the Albert Cheng Family Trust), Umbel Inc., Drummond Finance Limited, Lo Irene Kam Sheung, MKT Holdings 'Cayman Islands) LLC, Au Tak Yee and Cyber Channel Limited
``Issue Price'' the issue price per Offer Share 'with Warrants) 'excluding brokerage and Stock Exchange transaction levy) of HK$0.36
``Latest Practicable Date'' 10th July, 2000, being the latest practicable date prior to the printing of this prospectus for ascertaining certain information contained herein
``Lead Manager'' or Worldsec International Limited, an investment adviser and ``Worldsec securities dealer registered under the Securities Ordinance International''
``Macau'' the Macau Special Administrative Region of the PRC
Ð16Ð DEFINITIONS
``Main Board'' the stock market operated by the Stock Exchange prior to the establishment of GEM 'excluding the options market) and which continues to be operated by the Stock Exchange in parallel with GEM
``Offer Shares'' the Public Offer Shares and the Placing Shares, where relevant, including any additional Shares issued pursuant to the exercise of the Over-allotment Option
``Over-allotment Option'' the option granted by the Company to the Underwriters 'exercisable by Worldsec International on behalf of the Underwriters) under the Underwriting Agreement pursuant to which the Company may be required to issue and allot up to an aggregate of 42,000,000 additional new Shares 'with Warrants) at the Issue Price representing 15 per cent of the Share Offer to cover over- allocations in the Placing and/or over-subscription of the Public Offer
``Placing'' the conditional placing of the Placing Shares 'with Warrants) at the Issue Price, as further described in the section headed ``Structure of the Share Offer''
``Placing Shares'' 238,000,000 new Shares 'subject to reallocation as described in the section headed ``Structure of the Share Offer'') initially being offered pursuant to the Placing
``Placing Underwriters'' Worldsec International, HSBC Broking Securities 'Asia) Limited, BNP Prime Peregrine Securities Limited, Celestial Capital Limited, JS Cresvale International Limited, Kingsway SW Securities Limited and OSK Asia Securities Limited
``PRC'' the People's Republic of China, for the purpose of this prospectus, excluding Hong Kong, Macau and Taiwan
``Pre-IPO Share Option the share option scheme conditionally approved and adopted by the Scheme'' Company on 12th July, 2000, the principal terms of which are summarised in the paragraph headed ``Pre-IPO Share Option Scheme'' in Appendix V to this prospectus
``Public Offer'' the offer of the Public Offer Shares 'with Warrants) at the Issue Price for subscription by the public, on and subject to the terms and conditions stated herein and in the related application forms
``Public Offer Shares'' 42,000,000 new Shares 'subject to reallocation as described in the section headed ``Structure of the Share Offer'') initially being offered for subscription under the Public Offer
Ð17Ð DEFINITIONS
``Public Offer Worldsec International, HSBC Broking Securities 'Asia) Limited, Underwriters'' BNP Prime Peregrine Securities Limited, Celestial Capital Limited, JS Cresvale International Limited, Kingsway SW Securities Limited and OSK Asia Securities Limited
``Qualifying Shares'' Up to 42,000,000 Shares 'with Warrants) being offered to the Qualifying Subscribers under the Placing
``Qualifying Subscribers'' Hong Kong residents registered as users of the Group's website www.36.com on or before 20th July, 2000
``Regulation S'' Regulation S under the US Securities Act
``Relevant Periods'' the two financial years of the Group ended 31st March, 1999 and 31st March, 2000
``Relevant Securities'' has the meaning ascribed thereto in Rule 13.15 of the GEM Listing Rules
``Reorganisation'' the corporate and business reorganisation which the Group underwent prior to the issue of this prospectus, details of which are set out in the paragraph ``Corporate Reorganisation'' in Appendix V to this prospectus
``SDI Ordinance'' the Securities 'Disclosure of Interests) Ordinance 'Chapter 396 of the Laws of Hong Kong) 'as amended)
``Securities Ordinance'' the Securities Ordinance 'Chapter 333 of the Laws of Hong Kong) 'as amended)
``Share's)'' share's) of HK$0.0001 each in the capital of the Company
``Share Offer'' the Public Offer and the Placing
``Share Option Scheme'' the share option scheme conditionally approved and adopted by the Company on 12th July, 2000, the principal terms of which are summarised in the paragraph headed ``Share Option Scheme'' in Appendix V to this prospectus
``Significant Chung Po Yang and ACAEDL Limited, a company incorporated in Shareholders'' Hong Kong with limited liability and wholly owned by Chung Po Yang. Chung Po Yang is the brother of Chung Wai Yang who is a non-executive Director
Ð18Ð DEFINITIONS
``Sponsor'' or ``Worldsec'' Worldsec Corporate Finance Limited, an investment adviser registered with the Securities and Futures Commission under the Securities Ordinance
``Stock Exchange'' The Stock Exchange of Hong Kong Limited
``Topspin'' Topspin Associates Limited, a company incorporated in the British Virgin Islands with limited liability and a wholly-owned subsidiary of the Company
``Topspin Options an agreement dated 24th May, 2000 as supplemented by a Conversion Agreement'' supplemental agreement dated 14th June, 2000 entered into between: 'i) the Company; 'ii) Topspin; and 'iii) each optionholder under the Topspin Option Scheme pursuant to which the optionholders agreed to exchange: 'a) the exercisable options under the Topspin Option Scheme for Shares; and 'b) the non- exercisable options under the Topspin Option Scheme for options under the Pre-IPO Share Option Scheme, as set out in the paragraphs headed ``Pre-IPO Share Option Scheme'' and ``Topspin Option Scheme'' in Appendix V to this prospectus
``Topspin Option Scheme'' the share option scheme approved and adopted by Topspin on 23rd December, 1999, further details of which are set out in the paragraph ``Topspin Option Scheme'' in the section headed ``Share Options'' in Appendix V to this prospectus
``TSCI'' TSCI Research 'H.K.) Limited, a company incorporated in Hong Kong with limited liability, which provides financial data services
``Underwriters'' the Public Offer Underwriters and the Placing Underwriters
``Underwriting the conditional underwriting and placing agreement dated 17th July, Agreement'' 2000 entered into between, among others, the Company and the Underwriters as described under the section headed ``Underwriting'' in this prospectus
``US'' or ``United States'' the United States of America
``US Securities Act'' the US Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder
Ð19Ð DEFINITIONS
``Warrants's)'' the warrant's) to be issued by the Company to the successful subscribers under the Public Offer and the placees under the Placing in the proportion of one Warrant for every Offer Share, conferring rights to the holders thereof to subscribe up to HK$112,000,000 'or HK$128,800,000 taking into account full exercise of the Over- allotment Option) in aggregate in cash for a total of 280,000,000 new Shares 'or 322,000,000 new Shares taking into account full exercise of the Over-allotment Option) at an initial subscription price of HK$0.40 per Share, subject to adjustment, at any time from 28th July, 2000 to 27th July, 2002, the terms of which are summarised in Appendix IV to this prospectus
``HK$'' , ``$'' or `` HK Hong Kong dollars and cents respectively, the lawful currency of Dollars'', ``cents'' or Hong Kong ``¢''
``US$'' or ``US Dollars'' US dollars, the lawful currency of the United States
``sq.ft.'' square feet
``sq.m.'' square metres
Unless otherwise specified in this prospectus, amounts denominated in US$ have been translated, for the purpose of illustration only, into Hong Kong Dollars at a rate of HK$7.80 = US$1.00.
No representation is made that any amount in US$ or HK$ could have been or could be converted at the above rate or at any other rates or at all.
Ð20Ð GLOSSARY OF TECHNICAL TERMS
The glossary contains explanations of certain terms used in this prospectus in connection with the Group and its business. The terms and their meanings may not correspond to standard industry meaning or usage of these terms.
``business-to-business'' in the context of e-commerce, a model whereby businesses transact with other businesses online
``business-to-consumer'' in the context of e-commerce, a model whereby businesses transact with consumers online
``channels'' website features which provide users with an efficient and easy way to explore and utilise content on the Internet through a series of guides and directories
``chat'' a common name for a type of messaging done over a network, involving short messages sent from one node to another. Chatting sometimes happens in real-time, sometimes in just short messages
``client'' in the context of information technology, clients are devices and software that request information. Clients are objects that use the resources of another object
``content'' all types of information Ð books, business documents, video, movies, music Ð contained in a website
``domain name'' the name of a world wide website through which Internet users can visit and send e-mail
``domain suffix'' a part of a domain name which identifies the nature of the organization. Only a selected few suffix can be registered, including ``.com'' 'commercial), ``.edu'' 'educational institution), ``.gov'' 'government) etc.
``download'' to receive data from another computer via a network or using a modem
``e-card'' or ``e-greeting electronic greeting card sent through the Internet card''
``e-commerce'' using electronic information technologies to conduct business between trading partners using EDI 'Electronic Data Interchange) or the Internet
``encryption'' the transformation of data into a form unreadable by anyone without a secret decryption key. Its purpose is to ensure privacy by keeping the information hidden from anyone for whom it is not intended
Ð21Ð GLOSSARY OF TECHNICAL TERMS
``e-mail'' electronic mail
``e-tailing'' retailing conducted by electronic commerce, that is, over the Internet and the world wide web
``GDP'' gross domestic product or the value of final goods produced within a country
``homepage'' the first page that browsers see of the information posted on a website. A homepage typically contains information which a visitor will find at the website by clicking hypertext links
``HTML'' HyperText Markup Language, a coding language used to make hypertext documents for use on the web. HTML resembles old- fashioned typesetting code, where a block of text is surrounded by codes that indicate how it should appear. HTML allows text to be ``linked'' to another file on the Internet
``HTTP'' HyperText Transfer Protocol. HTTP is the actual protocol used by the web server and the client browser to communicate over the ``wire'' that is invisible to the user. In short, the protocol for moving documents around the Internet
``Internet'' a global network of interconnected, separately administered public and private computer networks
``Internet penetration rate'' number of Internet subscribers divided by the subject population
``ISP'' Internet service provider, a vendor who provides access for customers 'companies and private individuals) to the Internet and the world wide web. The ISPtypically provides a core group of Internet utilities and services. The user typically reaches his/her ISP by either dialing up with his/her own computer, modem and phone line, or over a dedicated line installed by a telephone company
``IT'' information technology
``Mbps'' megabits per second, which is a measurement of speed for digital signal transmission expressed in millions of bits per second
``netbudsman'' Internet ombudsman
``online'' when a device is actively connected to a computer, it is online. Terminals, PCs, modems and phones are often online
Ð22Ð GLOSSARY OF TECHNICAL TERMS
``pageviews'' a single page view is recorded whenever a page is loaded from the web server
``PC'' personal computer, a computer for one person's use. Its name was used to distinguish it from other computers that existed at the time of the PC's invention. Those other computers were mainframes and mini-computers
``PDA'' personal digital assistant, a consumer electronic gadget that looks like a palmtop computer. Unlike personal computers, PDA will perform specific tasks: acting like an electronic diary, carry-along personal database, multimedia player, personal communicator, memo taker, calculator, alarm clock. The communications will take place through the phone or in a wireless manner
``PNETS'' Public Non-exclusive Telecommunication Service licence for provision of telecommunication services 'e.g. electronic data interchange, electronic mail, store-and-forward data and fax and teleconference) to the public over the public telecommunication networks in Hong Kong
``portal'' an entry point and gateway for using the Internet that provides web- related services and links
``registered members'' unique individuals who identify themselves when visiting a website. This requires the user to take some action, usually completing a survey on the first visit
``search engine'' a program that returns a list of websites 'URLs) that match some user-selected criteria
``server'' a shared computer on the local area network that can be used as simple as a PC set aside to handle print requests to a single printer, or, more usually, it is used as a repository and distributor of large amount of data. It may also be used as a gatekeeper controlling access to voice mail, e-mail, facsimile service
``traffic'' the volume of web users visiting a website
``unique visitors'' individuals who have accessed the website during a given period of time. A single unique visitor is recorded where a web server stores a small piece of information with a browser 'cookie) which uniquely identifies that browser or computer
``URL'' Uniform Resource Locator, the standard addressing system for the world wide web, e.g. http://www.36.com
Ð23Ð GLOSSARY OF TECHNICAL TERMS
``vertical portal'' a one-stop gateway to the Internet that pools, organises and delivers information to meet the needs of users who are interested in specific areas of interest to each of the Group's target markets
``WAP'' wireless application protocol
``web'' or ``world wide the universe of accessible information available on many computers web'' spread through the world and attached to the Internet. The web has a body of softwares, a set of protocols and a set of defined conventions for getting information on the web. The web uses hypertext and multimedia techniques to make the web easy for anyone to roam, browse and contribute to
``web browser'' clients software which navigates a web of interconnected documents on the world wide web, allowing computer users to move easily from one website to another
``web jockey'' a person responsible for hosting a channel within a vertical portal
``web page'' a single file that can be displayed on the web
``website'' any machine on the Internet that is running a web server to respond to requests from remote web browsers. In more common language, it refers to individual sets of web pages that can be visited with web browsers
``Year 2000 problem'' also known as the millennium or Y2K bug, a problem in certain computer systems which use only two digits to represent the year, in that these systems may not function correctly in the year 2000 and beyond as they cannot distinguish between, for example, 1st January, 1900 and 1st January, 2000
Ð24Ð RISK FACTORS
Potential investors should carefully consider all of the information set out in this prospectus and, in particular, should consider the following risks and special considerations associated with an investment in the Company before making any investment decision in relationtotheCompany.
An investment in the Offer Shares involves a high degree of risk and is speculative. You should carefully consider, together with all of the other information included in this prospectus, the following factors before purchasing any of the Offer Shares with Warrants). Further, there may be other risks and uncertainties not presently known to the Company or that the Company currently deems immaterial which could also harm the business, financial condition and operating results of the Company.
RISKSRELATINGTOTHEGROUP
1. The Group hasa limited operating history
The Group commenced its media related businesses in August 1996 and devised its plan to broaden the scope of its activities into interactive media in December 1997 and began exploring Internet-related business opportunities in 1998. The Group's first vertical portals were officially launched on 6th March, 2000. As a result of the Group's short operating history, its business strategy is unproven, and the Directors cannot be certain that the Group will achieve its business objectives or that the Group will be able successfully to compete and achieve market acceptance or otherwise address the risk factors disclosed in this prospectus.
2. The Group's Internet business has not been profitable and losses are expected for the foreseeable future
The Group has not generated any profits for the two financial years ended 31st March, 2000 and thereafter the Group has continued to operate at a loss. The Directors anticipate that the Group will continue to incur operating losses for the foreseeable future due to a high level of planned operating and capital expenditure, potential joint venture partnerships and acquisitions, increased sales and marketing costs, additional personnel hires, greater levels of product development and the Group's general growth objectives. It is likely that the Group's operating losses will increase in the future and possible that the Group will never achieve or sustain profitability.
3. The Group may require additional funds
The Group's business requires significant capital expenditure, as well as marketing, research and development and other operating expenditure. The Group will need to continually expend capital to maintain and upgrade its network, develop its new business lines, and market its existing and new services. The Group expects to incur at least HK$45.8 million of capital expenditure, research and development and marketing expenses during the financial year ending 31st March, 2001.
Ð25Ð RISK FACTORS
Although the Directors believe that the Group's current working capital together with the proceeds of the Share Offer will cover such expenditure, the Group's expenditure plans and financing needs may grow faster than expected. If the Group is unable to obtain financing or finance itself through the cashflow generated by its business, it will be unable to fund its capital expenditure, invest in research and development, expand its business lines or meet any debt service obligations.
4. The Group may not be able to implement its strategy for future growth successfully
During its limited operating history, the Group has not earned any significant profits in the past and does not expect to earn profits in the foreseeable future. A significant portion of the value of the Shares in the future may depend on the Group's success in implementing its long-term strategy. The success of such strategy depends upon a number of factors, both within and beyond the control of the Company. The Directors believe that the success of the Group in the future will substantially depend on, among other things, the Group's success in strengthening its existing portals, in developing and launching new portals and the Group's ability to achieve growth in its advertising revenue. As a result, in addition to those risk factors discussed elsewhere in this prospectus, the Directors believe that the Group's ability successfully to implement its long-term strategy could be adversely affected by the following risk factors:
'a) Although the Group expects to generate revenue from advertising commissions in the future, such revenue may not be substantial
The business plan of the Group is dependent on the anticipated expansion of online advertising in the PRC, North America, Asia and Australasia and the growth in revenue of the Group is dependent on increased revenues generated by advertising, sponsorship and e- commerce. The Directors anticipate that a substantial portion of the Group's future revenues will, in the medium term, continue to be derived from advertising and sponsorship, assuming online advertising becomes more broadly accepted in the PRC, North America, Asia and Australasia. The Directors expect the Group to derive a significant amount of revenue from hosting advertising on www.36.com websites which will be focused initially on the markets in Hong Kong, the PRC, North America, Asia and Australasia.
Online advertising is an unproven business and the ability of the Group to generate and maintain significant advertising revenue will depend on, among other things:
. advertisers' acceptance of the Internet as an effective and sustainable advertising medium;
. the development by the Group of a large base of users of its portals possessing demographic characteristics attractive to advertisers; and
. the effectiveness of advertising delivery, tracking and reporting systems.
Ð26Ð RISK FACTORS
The Directors believe that the number of Internet companies relying on web-based advertising revenue will increase greatly in the future. Accordingly, it is likely that the Group will face increased competition, resulting in increased pricing pressures on the Group's advertising rates which could in turn have a material adverse effect on the Group's business, results of operations and financial condition. In addition to other Internet companies, the Group also faces competition from traditional forms of media advertising such as newspapers, magazines, radio and television.
Finally, the development of web software that blocks Internet advertisements before they appear on a user's screen may hinder the growth of online advertising. The expansion of advertisement blocking on the Internet may decrease advertising revenues because when an advertisement is blocked, it is not downloaded from the Group's server, which means that such advertisement is not tracked as a delivered advertisement. In addition, advertisers may choose not to advertise on the Internet and on the Group's advertising network because of the use of Internet advertisement blocking software. Therefore, the development and use of such software may materially and adversely affect the Group's business.
'b) The Group may not be able successfully to expand in the PRC, North America, Asia and Australasia through organic growth, business alliances, joint venture partnerships and/or acquisitions
As a component of the Group's growth strategy, the Group intends to expand in the PRC, North America, Asia and Australasia with a view to enhancing and diversifying the Group's revenue growth, operations and profitability.
Any organic expansion may require significant amounts of capital and the diversion of management's attention from the Group's other business concerns. Furthermore, the management of the Group may be unfamiliar with market conditions and business practices in such markets.
Any business alliances, joint venture partnerships and/or acquisitions may result in the use of significant amounts of capital, potentially dilutive issuances of equity securities and amortisation expenses related to goodwill and other intangible assets, each of which could materially and adversely affect the business of the Group. Business alliances, joint venture partnerships and/or acquisitions involve numerous risks, including:
. the difficulties in the integration and assimilation of the operations, technologies, products and personnel of the counterparty's businesses;
. the diversion of management's attention from other business concerns;
. the availability of favourable financing for future acquisitions;
. the lack of familiarity with the market conditions and business practices of the markets targetted by the Group;
Ð27Ð RISK FACTORS
. the Group may not have worked out the management of such business alliances or joint venture partnership; and
. possible disagreement or disputes between the Group and its partners.
The Group will need to be able successfully to integrate its business with that of any such counterparty 'if appropriate), and its failure to do so could have a material adverse effect on the business, results of operations and financial condition of the Group.
5. The Group dependson certain key executivesand personnel
The Group depends to a significant extent on the continued services of the following key executive personnel:
. Cheng Albert Jinghan, executive Director and chief i-content architect
. Ip Saimond, chairman and chief executive officer
. Yeung Kwok Mung, executive Director and chief operating officer
. Poon Wan Fung, chief technology officer
. Leung Tak Man, creative director 'Entertainment, Sports, Horse-racing and Automobile)
. Lai Chak Fun, portal director 'Finance)
. Ng Ha Long, portal director 'News)
. Chan Wai Hung, portal director 'Consumer and Eating)
The loss of all or any of the above key executives may have a material adverse impact on the Group.
6. Failure of the Group to attract and retain qualified personnel could affect and limit its growth
The Group will need to recruit additional personnel to accommodate its anticipated growth. Competition for employees with the necessary Internet industry experience is intense. The Group may not be able to retain existing employees or identify or recruit new employees because of that competition. If the Group fails to recruit or retain the necessary personnel, the Group's business could be materially and adversely affected. See the section headed ``Directors, senior management and staff''.
Ð28Ð RISK FACTORS
7. Failure of third party suppliers to provide software and hardware components could affect the business and operations of the Group
The Group depends on third party suppliers of software and hardware components. The Group relies on components that are sourced from a small number of suppliers. The failure of the Group's suppliers to meet increasing demand may prevent them from supplying the Group with components and products as and when the Group requires them. The Group's inability to develop alternative sources for such software and hardware could delay and increase the cost of expanding its network infrastructure and could adversely affect the operating efficiency and results of operations of the Group by, among other things, impairing the Group's ability to execute its strategy of rapidly increasing its market share.
8. The Group relies on software and hardware systems that may be susceptible to failure and misuse
Any system failure or inadequacy that causes interruptions in the availability of services of the Group, or delays the response time of the Group's services, as a result of increased traffic or otherwise, could reduce user satisfaction, future traffic and the attractiveness of the Group's services to advertisers and consumers. The Group has configured its system to enhance its scaling capabilities with a view to being able to accommodate the increasing number of its portals and traffic. However, there can be no assurance that the Group will be able to scale systems proportionately. Web browsers, ISPs and other website operators have experienced significant system failures and electrical outages in the past. The Group is also dependent upon web browsers, ISPs and other website operators in Asia and elsewhere. Users of the Group's website have experienced difficulties in the past due to system failures unrelated to systems and services of the Group.
The Group has deployed data backup and recovery strategy with a view to minimizing possible service outages in the event of data loss. The Group also has an uninterruptable power supply system to prevent any system failure due to power outage. However, the Group does not presently have a disaster recovery plan in the event of damage from fire, floods, typhoons, earthquakes, power loss, telecommunications failures, break-ins and similar events. If any of the foregoing occurs, the Group may experience a complete system shut-down. The Group's insurance coverage may not be adequate to compensate the Group for all losses that may occur in these circumstances. To improve performance and to prevent disruption of its services, the Group may have to make substantial investments to deploy additional servers or one or more copies of the Group's websites to mirror the Group's online resources. To the extent that the capacity restraints described above cannot be addressed, they could have a material adverse effect on the business, results of operations and financial condition of the Group.
Inappropriate use of the Group's Internet services could jeopardise the security of confidential information stored in the Group's computer systems, which may cause losses to the Group. Inappropriate use of the Internet includes attempting to gain unauthorised access to information or systems Ð commonly known as ``cracking'' or ``hacking.'' Although the Group has implemented security measures such as high availability filtering routers and firewall clusters to protect the Group's facilities, such measures may possibly be circumvented. Alleviating
Ð29Ð RISK FACTORS problems caused by computer viruses or other inappropriate uses or security breaches may also require interruptions, delays or cessation in the Group's services. The Group does not carry ``errors and omissions'' or other insurance covering losses or liabilities caused by computer viruses or security breaches.
9. The Group may encounter difficulties with respect to its use of technology rights
The Group currently uses technology licensed to it by third parties. As the Group continues to introduce new services that require new technology, the Directors believe that the Group may be adversely affected by the following risks:
'a) The Group may not be able to obtain technology licences on commercially reasonable terms
The Group anticipates that it may need to obtain technology licences to use additional third party technology. There is no assurance that these technology licences will be available to the Group on commercially reasonable terms, if at all.
The Group's inability to obtain any of these technology licences could delay or compromise the introduction of new services and could materially and adversely affect the business and financial condition of the Group.
'b) The Group may inadvertently infringe the intellectual property rights of others and face liability for such infringements
It is possible that in the course of using new technology, the Group may inadvertently infringe the intellectual property rights of others and face liabilities for such infringements. See the paragraph ``Intellectual Property Rights'' in the section headed ``Business''.
'c) There can be no assurance that steps taken by the Group will prevent misappropriation or infringement of licensed technology
It may be possible that a third party may copy or otherwise obtain and use the Group's licensed services or technology without authorisation, or develop similar technology. In addition, there are countries where effective copyright, trademark and trade secret protection may be unavailable or limited, and the global nature of the Internet makes it difficult to control the ultimate destination of the Group's products. Policing unauthorised use of the licensed technology of the Group is difficult and there can be no assurance that any steps taken by the Group will prevent any such misappropriation or infringement from occurring.
'd) The Group may be involved in future litigation with respect to its use of technology rights
Litigation may be necessary in the future to enforce the intellectual property rights of the Group, including its trade secrets, or to determine the validity and scope of the Group's resources and the outcome of any such litigation could have a material adverse impact on the business, results of operations and financial condition of the Group.
Ð30Ð RISK FACTORS
10. The Group may be held liable for information retrieved from itsportal network
Since the Group's services can be used to download and distribute information to others, there is a risk that claims may be made against the Group for defamation, negligence, copyright or trademark infringement or other claims based on the nature and content of such material such as violation of censorship laws in the PRC. The Group does not carry insurance which would cover potential claims of this type. Any imposition of liability that is not covered by any insurance could have a material adverse impact on the Group's business, results of operations and financial condition.
11. The Group may be held liable under the Control Obscence and Indecent Articles Ordinance 9Chapter 390 of the Lawsof Hong Kong)
Under the Control of Obscene and Indecent Articles Ordinance 'Chapter 390 of the Laws of Hong Kong) any person who publishes, possesses for the purpose of publication or imports for the purpose of publication any obscene article, whether or not the person knows that it is an obscene article, commits an offence and is liable for a fine of up to HK$1 million and imprisonment for up to three years. It is also an offence to publish any indecent article to a person who is a juvenile, whether it is known that it is an indecent article or that the relevant person is a juvenile, punishable by a fine of up to HK$400,000 and imprisonment for up to 12 months. A subsequent conviction will give rise to a fine of up to HK$800,000. Presently, there is uncertainty as to whether portal operators in Hong Kong such as the Group are liable under the Ordinance for obscene or indecent materials distributed over their portals.
12. Privacy concernsmay prevent the Group from sellingdemographically targetted advertising in the future
To the extent that the Group collects data derived from user activity on the Group's portal and from other sources, the Group cannot be certain that any trade secret, copyright or other protection will be available for such data or that others will not claim rights to such data.
Advertising serving technology enables the use of cookies, in addition to other mechanisms, to deliver targeted advertising, to help compile demographic information, and to limit the frequency with which an advertisement is shown to the user. Cookies are bits of information keyed to a specific server, file pathway or directory location that are stored on a user's hard drive and passed to a website's server through the user's browser software. Cookies may be placed on the user's hard drive without the user's knowledge or consent, but can be removed by the user at any time. Due to privacy concerns, some Internet commentators, advocates and governmental bodies have suggested that the use of cookies be limited or eliminated. Any limitation on the Group's ability to use cookies could impair the Group's future targeting capabilities and adversely affect the Group's business.
In Hong Kong, an Internet company will be in contravention of the Personal Data 'Privacy) Ordinance 'Chapter 486 of the Laws of Hong Kong) if it collects information on its users, analyzes the information for a profile of the user's interests and sells or transmits the profiles to
Ð31Ð RISK FACTORS third parties for direct marketing purposes without the user's consent. The Group's future inability to obtain demographic profiles from Internet users that do not consent to such use may have a material adverse impact on the Group's business.
13. The Group relies on a small number of customers and suppliers
The Group only launched its initial vertical portals on 6th March, 2000. Given the limited operating history of the Group's vertical portal business, it has only contracted with a relatively small number of customers and suppliers. If the Group is not able to expand its customer base or if it encounters difficulty in sourcing suppliers, the operation and profitability of the Group may be adversely affected.
14. Proceedsfrom the Share Offer may not be usedin the waysdescribedin thisprospectus
The business plan of the Group as described in the paragraph headed ``Business objectives, future plans and implementation schedule'' in the section headed ``Business'' is based on assumptions of future events which by their nature are subject to uncertainty and there is no assurance that the plans of the Group will materialise as intended. Should any part of the business plans of the Group not materialise or proceed as planned, the proceeds of the Share Offer may not be utilised as described in the paragraph headed ``Use of proceeds'' under the section headed ``Business'' and the Directors may need to reallocate the intended part of the net proceeds of the Share Offer to other business plans or projects of the Group or hold such funds in bank accounts or short term interest-bearing debt securities so long as the Directors consider such use of proceeds to be in the best interests of the Group. If there are any material changes to the use of proceeds, an appropriate announcement will be made.
15. The Group's planned expansion into the PRC market may expose the business of the Group to further risks
A series of regulations adopted since 1993 prohibit direct or indirect foreign investment in, operation of, or participation in the operation of, telecommunications services, including computer information and Internet access services. Under these regulations, foreign companies, their subsidiaries or joint ventures in the PRC, also known as foreign investment enterprises, are not permitted to engage in the provision of value-added or other telecommunications services including Internet services in the PRC.
The anticipated entry of the PRC into the World Trade Organization '``WTO'') following the signing of market access agreements between the United States and the PRC is expected to be accompanied by the adoption of regulations permitting non-PRC investors to invest in telecommunications and services sectors such as the Internet market and e-commerce operations in the PRC. The WTO agreements will not become effective until the PRC's accession to the WTO, and they are adopted as domestic law in the PRC. Until such time, existing laws and regulations will continue to apply. Moreover, the laws and regulations adopted to implement the WTO agreements may contain restrictions on ownership structures or permissible activities.
Ð32Ð RISK FACTORS
In addition to the aforesaid, the planned expansion of the Group into the PRC market through organic growth, acquisitions, joint ventures or other arrangements could also expose the business of the Group to a number of risks including unexpected changes in regulatory requirements, potentially adverse tax and regulatory consequences, export and import restrictions and controls, tariffs and other trade barriers and political instability and fluctuations in currency exchange rates.
The development of the Internet and related technologies is at an even earlier stage in the PRC than in many other jurisdictions. For example, current Internet penetration rates are lower, payment systems less sophisticated and IT infrastructure less advanced than in other more developed jurisdictions. In addition, it has been reported that the PRC government is considering imposing restrictions on the flow of information over the Internet within the PRC. There can be no assurance that the PRC government will not seek to control or regulate the proposed business activities which the Group expects to seek to carry on in the PRC. In addition, there can be no assurance that one or more of the factors discussed above will not have a material adverse effect on the Group's future PRC operations and, consequently, on the Group's business, results of operations and financial condition.
16. Forward-looking statementscontained in thisprospectusmaynot be accurate
Included in this prospectus are various forward-looking statements which can be identified by the use of forward looking terminology such as ``may'', ``will'', ``expect'', ``anticipate'', ``estimate'', ``plan'', ``continue'', ``believe'', ``likely'' and other similar words. The Company and the Directors have made forward-looking statements with respect to, amongst other things, the following, among other things:
. the Group's goals and strategies;
. the importance and expected growth of Internet technology;
. the importance and expected growth of Asian and global e-commerce;
. the pace of change in the Internet marketplace;
. the use of proceeds;
. the demand for Internet services; and
. the Group's revenue model.
Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Group, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding the Group's present and future business strategies and the environment in which the Group will operate in the future. Important factors that could cause the Group's actual results, performance or achievements to differ materially from those in the
Ð33Ð RISK FACTORS forward-looking statements include, among others, the loss of key personnel of the Group, changes relating to technology and the Asian and global Internet industry and changes in general economic and business conditions. Additional factors that could cause actual results, performance or achievements to differ materially include, but are not limited to, those discussed above in this section. These forward-looking statements speak only as at the Latest Practicable Date.
RISKS RELATING TO THE INTERNET INDUSTRY IN GENERAL
1. The Internet industry is subject to rapid technological change
The markets in which the Group operates are relatively new and characterised by rapidly changing technology, evolving industry standards, frequent new service and product announcements, introductions and enhancements and changing customer demands. These market characteristics are exacerbated by the emerging nature of the web and the apparent need of companies from a multitude of industries to offer web-based products and services. Accordingly, the Group's future success will be affected by its ability to adapt to rapidly changing technologies, to adapt its services to evolving industry standards and continually to improve the performance, features and reliability of its services in response to competitive service and product offerings and evolving demands of the market place. The failure of the Group to adapt to such changes would have a material adverse effect on the Group's business, results of operations and financial condition. Further, due to the rapidly evolving characteristics of the industry, new factors may emerge, and/or existing factors which presently have only a minor impact may develop, which may accordingly adversely and materially affect the Group.
In addition, the widespread adoption of new Internet, networking or telecommunications technologies or other technological changes could require substantial expenditures by the Group to modify or adapt its services or infrastructure. There is no assurance that the Group will be able to finance such expenditure and failure to do so could have a material adverse effect on the Group's business, results of operations and financial condition.
2. The Internet industry is intensely competitive
'a) Verticalportaloperations
The vertical portal sector of the Asian Internet market is characterised by an increasing number of entrants attracted by the relatively low start-up costs. In addition, the Internet industry is relatively new and subject to continuing definition and as a result, competitors of the Group may better position themselves to compete in this market as it matures. Many of the existing competitors of the Group, as well as a number of potential new competitors, have longer operating histories in the Internet market, greater name recognition, larger customer bases and databases and significantly greater financial, technical and marketing resources than the Group. The Group competes in the vertical portal sector on the basis of traffic, ease of use and functionality. However, any of the present or future competitors of the Group may provide products and services that provide significant performance, price, creativity or other advantages over those offered by the Group. There can be no assurance that the Group will be able to compete successfully against its current or future competitors.
Ð34Ð RISK FACTORS
'b) Advertising competition
The Directors believe that the number of companies relying on fees from web-based advertising placed on their own websites has increased substantially. As a result, the Group may face increased pricing pressure for the sale of advertisements on its portals, which would have a material adverse effect on the Group's business, results of operations and financial condition.
The Group's competitors may be able to undertake more extensive marketing campaigns, adopt more aggressive pricing policies and make more attractive offers to qualified personnel, distribution partners, advertisers and content providers. Further, the Group can make no assurance that ISPs, web browsers and web content providers will not be perceived by advertisers as having more desirable websites for the placement of advertisements. Accordingly, the Group can provide no assurance that the Group will be able to retain advertisers, maintain or increase traffic on the Group's vertical portals, or that competitors will not experience greater growth in traffic as a result of such relationships.
3. The Asian Internet industryisa developing market and hasnot been proven asan effective commercial medium
The market for Internet services in Asia has only recently begun to develop. As the Internet is a relatively unproven medium for advertising and other commercial services, the future operating results of the Group from online advertising and e-commerce will depend substantially upon the increased use of the Internet for information, publication, distribution and commerce and the emergence of the Internet as an effective medium for promoting and selling products and services relative to traditional print and broadcast media and other sales and distribution channels. Some of the customers of the Group have limited experience with the Internet as an advertising medium or sales and distribution channel, will not have devoted a significant portion of their advertising expenditures or other available funds to web-based advertising or website development and may not find the Internet to be effective for promoting and selling their products and services relative to traditional print and broadcast media and other sales and distribution channels.
4. Government regulation and legal uncertaintiescould adverselyaffect the conduct of business on the Internet
The application of existing laws to the Internet and Internet-related applications is being clarified and refined in Hong Kong and Asia, and a number of new legislative and regulatory proposals applicable to the Internet are under consideration, including in the areas of content liability, e-commerce, encryption and electronic signature technology, data protection and privacy. Depending on the scope and timing of these developments, it is possible that such developments could have a material adverse impact on the business, results of operations and financial condition of the Group.
Ð35Ð RISK FACTORS
5. Statisticsderived from variousunofficial publicationshave not been independently verified
Certain statistics in this prospectus relating to the Internet industry, such as statistics relating to current and projected numbers of installed PCs, Internet usage and e-commerce revenues in various jurisdictions, as well as statistics regarding consumer preferences, are derived from various unofficial publications, in particular, those produced by IDC. Such information has not been independently verified by the Company and may be not accurate, complete or up-to-date. The Company makes no representation as to the correctness or accuracy of such statements and, accordingly, such information should not be unduly relied upon.
POLITICAL AND ECONOMIC RISKS
1. The economic climate in Asia is volatile
Since mid-1997, many countries in Asia have experienced significant economic downturns and related difficulties. As a result of the decline in the value of the region's currencies, many Asian governments and companies experienced difficulties servicing foreign currency- denominated debt and many corporate borrowers defaulted on their debt payments. As the economic crisis spread across the Asian region, certain governments raised interest rates to defend their weakening currencies, which adversely affected domestic growth rates. In addition, liquidity was substantially reduced as foreign investors curtailed investments in the region and domestic banks restricted additional lending activities. The currency fluctuations, as well as higher interest rates and other factors, have materially and adversely affected the economies of many countries in Asia. Estimated real GDPgrowth for many countries comprising the Group's potential advertising territory 'including Hong Kong) decreased during this period. Economic factors in countries throughout Asia could have a material adverse effect on the Group's business, results of operations and financial condition.
The economic crisis and its effect on the Asian economies described above have had and are likely to continue to have an adverse impact on the Group's business in the following respects:
. spending levels by both Asian and non-Asian companies for advertising in the Asian markets may be substantially reduced;
. payments on the Group's accounts receivable may be deferred and may become more difficult to collect or uncollectable;
. the Group's ability to access lines of credit or other financing may be restricted; and
. e-commerce revenues may be adversely affected by falling levels of consumer spending and decreased access to consumer credit, including credit cards.
Ð36Ð RISK FACTORS
2. There are political and economic risks associated with doing business in Hong Kong
Most of the facilities and operations of the Group are currently located in Hong Kong. Hong Kong is a Special Administrative Region of the PRC with its own government and legislature. Hong Kong enjoys a high degree of autonomy from the PRC under the principle of ``one country, two systems''. However, there can be no assurance that Hong Kong will continue to enjoy its current level of autonomy from the PRC, and if it does not, this could have a material adverse effect on the Group's operations.
The HK Dollar has remained relatively constant due to the US Dollar peg and currency board system that has been in effect in Hong Kong since 1983. As a result of the Asian crisis in mid-1997, interest rates in Hong Kong rose significantly, real estate values and retail sales declined and Hong Kong slipped into a recession. Subsequently, Hong Kong suffered deflation, the HK Dollar was subject to currency speculation and the Hong Kong government substantially supported the market for the HK Dollar, both directly and indirectly through the large-scale purchase of securities listed on the Stock Exchange. There can be no assurance that the Hong Kong economy will not become worse or that the historical currency peg of the HK Dollar to the US Dollar will be maintained. Continued recession in Hong Kong, deflation or discontinuation of the historical currency peg could materially and adversely affect the financial condition, results of operations and business of the Group.
3. A change in currency exchange ratescould increasecostsrelative to revenuesof the Group
Historically, substantially all revenues, expenses and liabilities of the Group have been denominated in HK Dollars and US Dollars. In the future, the Group may conduct business in additional jurisdictions which could generate revenues, expenses and liabilities in other currencies. As a result, the Group will be subject to the effects of exchange rate fluctuations with respect to any of such currencies. The Group has not entered into agreements or purchased instruments to hedge the Group's exchange rate risks. Therefore, future exchange rate fluctuations could have a material adverse effect on the business, financial condition and operations of he Group.
4. There are political and economic risks associated with doing business in the PRC
The PRC economy has traditionally been a planned economy. Five and ten-year State Plans are adopted by the PRC government in connection with the development of the economy. Although state-owned enterprises still account for a substantial portion of the PRC's industrial output, in general, the State is reducing the level of direct control which it exercises over the economy through State Plans and other measures, and there is an increasing degree of liberalisation in areas such as allocation of resources, production, pricing and management and a gradual shift in emphasis to a socialist market economy.
Ð37Ð RISK FACTORS
During the last 18 years, the PRC government has been reforming, and is expected to continue to reform, its economic and political systems. Many of the reforms are unprecedented or experimental and are expected to be refined and improved upon over time. Other political, economic and social factors may also lead to further readjustment of the reform measures. The Group's business prospects in the PRC could be adversely affected by changes in the PRC's state plans or political, economic and social conditions or changes in policies by the PRC government, changes in laws and regulations 'or the interpretation thereof), measures which may be introduced to control inflation, changes in the rate or method of taxation, imposition of additional restrictions on currency conversion, and reduction in tariff rates and other import restrictions.
The PRC economy has experienced significant growth in the last five years, but such growth has been unevenly spread, geographically and among various sectors of the economy. The PRC government has implemented from time to time various policies, including, in the second half of 1993, policies to control inflation and regulate economic expansion with a view to preventing overheating of the economy. Although the Group could benefit from the reduction of inflation, such measures or other action by the PRC government could have a material adverse effect on economic conditions in the PRC and therefore the business prospects of the Group.
With effect from 1st January, 1994, the PRC government abolished its two-tier exchange rate system and replaced it with a unified floating exchange rate system largely based on market supply and demand. Since the introduction of this unified floating exchange rate system, movements in the exchange rate of the Renminbi against other currencies, such as the US dollar, have been to an extent subject to market forces. Despite such developments, the Renminbi is still not a freely convertible currency. In addition, there is no assurance that the Renminbi will not be subject to devaluation or depreciation due to administrative or legislative intervention by the PRC government or adverse market movements, or that shortages in the availability of foreign currency will not develop. The value of the Group's investments and the profitability of its future operations may be adversely affected by any devaluation of the Renminbi.
RISKS RELATING TO THE SHARES
1. An active trading market for the Sharesand the Warrantsmay not develop
Prior to the Share Offer, there has been no public market for any of the Shares or the Warrants. There can be no guarantee that an active trading market for Shares and the Warrants will develop, or, if it does develop, it will be sustained following completion of the Share Offer.
2. The market price of the Sharesmay fluctuate
Although the Issue Price was determined based on several factors, the market price for the Shares may vary from the Issue Price and the Issue Price may not be indicative of the price at which the Shares will trade following completion of the Share Offer.
Ð38Ð RISK FACTORS
The trading price of the Shares could also be subject to significant volatility in response to, among other factors, the following:
. investor perceptions of the Group and the Group's plans for its portals and e-commerce business;
. announcement of the Group regarding significant acquisitions, partnerships, joint ventures or capital commitments;
. developments in the Internet industry and, in particular, e-commerce;
. variations in the operating results of the Group;
. announcement of new products or services by the Group or its competitors;
. changes in financial estimates by securities analysts;
. technological innovations;
. changes in pricing made by the Group, the Group's competitors or providers of alternative services;
. changes in share prices of other Internet sector companies;
. the depth and liquidity of the market for the Shares and the development of GEM as a stock market;
. future sales of Shares or other securities; and
. general economic and other factors.
3. Potential dilution as a result of additional equity fund raising
The Group may need to raise additional funds in the future to finance expansion of or new developments relating to its existing operations or new acquisitions. If additional funds are raised through the issuance of new equity or equity-linked securities of the Company other than on a pro rata basis to existing shareholders, the percentage ownership of the shareholders of the Company may be reduced that results in subsequent dilution of the shareholding interest of such shareholders in the Company and/or such securities may have rights preferences and privileges senior to those of the Shares.
4. Dilution as a result of exercise of share options
The Group has in place the Pre-IPO Share Option Scheme under which options in respect of 316,823,077 Shares have been granted conditionally as at the date of this prospectus, details of which are set out in the paragraph headed ``Pre-IPO Share Option Scheme'' in Appendix V to this prospectus. All of these options were granted at exercise prices which are considerably less than the Issue Price. Exercise in full of all options granted under the Pre-IPO Share Option Scheme
Ð39Ð RISK FACTORS would result in the issue of 316,823,077 new Shares by the Company, representing about 11.49 per cent of the number of Shares in issue 'as enlarged thereby) immediately after completion of the Share Offer 'including Shares falling to be issued upon exercise of options under the Pre-IPO Share Option Scheme but taking no account of any Shares which may be issued under the Over- allotment Option or upon any exercise of options which may be granted under the Share Option Scheme or upon any exercise of the subscription rights attaching to the Warrants, or of any Shares which may be issued or repurchased by the Company pursuant to the mandates referred to in Appendix V to this prospectus). In addition, options in respect of 415,484,723 Shares may be granted under the Share Option Scheme as set out in the paragraph headed ``Share Option Scheme'' in Appendix V to this prospectus.
The full exercise of all of these options would result in the issue of 732,307,800 Shares, representing 30% 'taking no account of the issue of the Shares pursuant to any exercise of the Over-allotment Option) and approximately 29.49 per cent 'taking into account the issue of Shares pursuant to full exercise of the Over-allotment Option) of the issued share capital of the Company immediately following listing. This will result in a reduction in the percentage ownership of the shareholders of the Company and may result in a dilution in the assets and earnings per Share.
5. Number of Shareswhich are freely transferable
Immediately upon listing, the shareholding interest of the public shall represent approximately 33.90 per cent of the number of Shares in issue 'taking no account of any Shares which may be issued under the Over-allotment Option) and shall comprise:
'i) Shares representing approximately 11.47 per cent of the number of Shares in issue to be subscribed by the public under the Share Offer;
'ii) Shares held by existing public shareholders representing approximately 18.39 per cent of the number of Shares in issue, of which approximately 3.26 per cent of the number of Shares in issue are not subject to any lock-in, whereas Shares representing approximately 15.13 per cent of the number of Shares in issue are subject to lock-in and are not freely transferable during the period of six months commencing on the listing date; and
'iii) Shares representing approximately 4.04 per cent of the number of Shares in issue held by Internet content providers to the Group, which Shares are subject to lock-in and are not freely transferable for varying periods all of which are for six months or more commencing on the listing date 'details of which are set out in the paragraph headed ``Lock in'' in Appendix V to this prospectus).
Details of the lock-in arrangements for the shareholders of the Company are set out in the paragraph headed ``Lock in'' in Appendix V to this prospectus.
As a result of such lock-in arrangements, only approximately 14.73 per cent of the Shares in issue upon listing will be freely transferable. The Company cannot assure prospective investors that an active trading market for the Shares will develop or give any assurance as to the level of liquidity in trading of the Shares.
Ð40Ð WAIVERS FROM COMPLIANCE WITH THE GEM LISTING RULES AND COMPANIES ORDINANCE
GEM LISTING RULES WAIVERS
For the purpose of the listing of the Shares on GEM, the Company has sought a number of waivers from the GEM Listing Division in relation to certain requirements under the GEM Listing Rules. Details of such waivers are described below.
Two years active business pursuits waiver
Under Rule 11.12 of the GEM Listing Rules, a new applicant must demonstrate that, throughout the period of 24 months immediately preceding the date of the listing document, it i) has, either by itself or through one or more of its subsidiaries, actively pursued one focused line of business under substantially the same management and ownership as exist at the time of the application for listing; and ii)made substantial progress in building up that business.
The Group has a history of 15 months of active business pursuits, which falls short of the 24 months as required by Rule 11.12 of the GEM Listing Rules. As a result of an application made on behalf of the Company, the Stock Exchange has granted a waiver from strict compliance with Rule 11.12 of the GEM Listing Rules to the effect that the two years ``active business pursuits'' be reduced to 15 months.
Lock-upperiodwaivers
The GEM Listing Rules require every initial management shareholder of a new issuer to undertake to the new issuer and the Stock Exchange not, for a period of two years from the listing date, save as provided in Rule 13.17 of the GEM Listing Rules, to dispose of or enter into any agreement to dispose of)or permit the registered holder to dispose of or to enter into any agreement to dispose of)any direct or indirect interest in relevant securities.
Under the GEM Listing Rules, Messrs Cheng Albert Jinghan, Ip Saimond, Yeung Kwok Mung, Tsang Moses Kwok Tai, Poon Kai Tik, Huang Erwin Steve, Chung Wai Yang, CIBC Trust Company ,Bahamas) Limited ,as trustee of the Albert Cheng Family Trust), Umbel Inc., Drummond Finance Limited, Lo Irene Kam Sheung, MKT Holdings ,Cayman Islands) LLC, Au Tak Yee and Cyber Channel Limited are considered to be the initial management shareholders of the Company and would ordinarily be subject to a moratorium period of two years. However, as a result of an application made by the Sponsor on behalf of the Company, the Stock Exchange has granted a waiver to the effect that the moratorium period applicable to the Initial Management Shareholders has been reduced to six months in respect of an aggregate of the 1,287,420,000 Shares ,representing approximately 52.74 per cent of the enlarged issued share capital of the Company immediately upon completion of the Share Offer without taking into account any exercise of the Over-allotment Option) held by it. The effect of this waiver is that the Initial Management Shareholders will no longer be subject to the two-year moratorium period but subject to a reduced moratorium period of six months. Each of the Initial Management Shareholders has undertaken, inter alia, to the Company and the Stock Exchange that ,save as provided in Rule 13.17 of the GEM Listing Rules) for the period of six months commencing on the listing date, he/it will not dispose of ,or enter into any agreement to dispose of) or permit the registered holder to dispose of ,or
Ð41Ð WAIVERS FROM COMPLIANCE WITH THE GEM LISTING RULES AND COMPANIES ORDINANCE enter into any agreement to dispose of) any direct or indirect interest in the Relevant Securities held by each of them. The grant of such waivers has been made on the condition that the Initial Management Shareholders of the Company are not allowed to dispose of any Relevant Securities in the second six-month period after listing if such disposal would result in the group of persons constituting the Initial Management Shareholders ceasing to have, in aggregate, control over 35 per cent of the voting rights at general meetings of the Company. Each of the Initial Management Shareholders has undertaken to the Company and the Stock Exchange that for the period of six months commencing on the date falling six months after the listing date, he/it will ensure that the aggregate number of Relevant Securities held or controlled by them will represent at least 35 per cent of the voting rights exercisable at general meetings of the Company.
In addition, each of the Initial Management Shareholders has undertaken to the Company and Worldsec (on behalf of the Underwriters) that without the written consent of Worldsec (on behalf of the Underwriters) neither he/it nor any of its/his associates (as defined in the GEM Listing Rules), any company controlled by any of him/it nor any nominee or trustee holding in trust for any of him/it will, (i) for a period of six months commencing on the date falling six months after the listing date, inter alia, sell, transfer or otherwise dispose of (including without limitation the creation of an option over) such number of Relevant Securities as represents 68 per cent of his/its holdings in the Relevant Securities (which Relevant Securities will be held in escrow); and (ii) for a period of twelve months commencing on the first anniversary of the listing date inter alia, sell, transfer or otherwise dispose of (including without limitation the creation of an option over) such number of Relevant Securities as represents 50 per cent of his/its holdings in the Relevant Securities (which Relevant Securities will be held in escrow). Furthermore, each of the Significant Shareholders has undertaken to the Company and Worldsec (on behalf of the Underwriters) that without the written consent of Worldsec (on behalf of the Underwriters) neither it nor any of its associates (as defined in the GEM Listing Rules), any company controlled by it nor any nominee or trustee holding in trust for it will, for a period of eighteen months commencing on the date falling six months after the listing date, inter alia, sell, transfer or otherwise dispose of (including without limitation the creation of an option over) such number of Relevant Securities as represents 50 per cent of its holding of Relevant Securities (which will be held in escrow).
Further as a result of an application made on behalf of the Company, the Stock Exchange has granted a waiver from strict compliance by Drummond Finance Limited (a wholly-owned subsidiary of Umbel Inc., which is a company controlled by CIBC Trust Company (Bahamas) Limited as trustee of the Albert Cheng Family Trust of which Cheng Albert Jingham and his children are discretionary beneficiaries) within the two-year moratorium period under Rule 13.16 in respect of a stock borrowing arrangement entered into between Worldsec and Drummond Finance Limited to facilitate settlement of over-allocation in connection with the Share Offer pending exercise of the Over-allotment Option and/or acquisition of Shares in the secondary market.
Ð42Ð WAIVERS FROM COMPLIANCE WITH THE GEM LISTING RULES AND COMPANIES ORDINANCE
The granting of an Over-allotment Option together with the accompanying stock borrowing arrangement is adopted by Worldsec to facilitate the distribution of the Shares under the Share Offer. The waiver application has been made on the basis that 1)such stock borrowing arrangement from Drummond Finance Limited will only be effected by Worldsec for settlement of over-allocation in connection with the Share Offer; 2)the maximum number of Shares borrowed from Drummond Finance Limited will be limited to the maximum number of Shares which may be issued upon exercise of the Over-allotment Option; and 3)the same number of Shares will be returned to Drummond Finance Limited or its nominees as the case may be)no later than three business days following the earlier of i)the last day on which the Over-allotment Option may be exercised or ii)the day on which the Over-allotment Option is exercised in full.
Share Option Scheme waivers
Rule 23.03 2)of the GEM Listing Rules requires that the total number of Shares subject to the Share Option Scheme and any other schemes must not, in aggregate exceed 10 per cent of the issuedsharecapitaloftheCompanyfromtimetotime the``SchemeLimit'').TheCompanyhas applied for a waiver from strict compliance with Rule 23.03 2)of the GEM Listing Rules so that the Scheme Limit can be increased to 30 per cent of the issued capital of the Company from time to time. Such waiver has been granted by the Stock Exchange subject to the following conditions:
1)the total number of Shares which may be acquired pursuant to the exercise of options under the Share Option Scheme and any other scheme including the Pre-IPO Share Option Scheme), must not, in aggregate, exceed 30 per cent of the issued share capital of the Company from time to time;
2)subject to 1)above,the Company may seek approval by shareholders in general meeting to grant options under the Share Option Scheme and any other schemes including the Pre-IPO Share Option Scheme)entitling participants to acquire Shares pursuant to the exercise of options representing up to an aggregate of 10 per cent of the issued share capital of the Company at the time of approval ``General Mandate Limit''), which may be renewed by shareholders in general meeting from time to time;
3)subject to 1)above,the Company may seek a separate shareholders' approval in general meeting to grant options beyond the General Mandate Limit to participants specified by the Company before such approval is sought;
4)any grant of options to a connected person as defined in the GEM Listing Rules)must be approved by all the independent non-executive Directors Further details are set out in the paragraph headed ``Share Option Scheme'' in Appendix V to this prospectus); and
5)details of options granted to each Director and all other participants, and a summary of the major terms of each share option scheme approved by shareholders of the Company must be disclosed in the annual and interim reports of the Group in addition to the disclosures required under Rule 23.08 of the GEM Listing Rules.
Ð43Ð WAIVERS FROM COMPLIANCE WITH THE GEM LISTING RULES AND COMPANIES ORDINANCE
As at the Latest Practicable Date, the number of options granted and remaining exercisable) under the Pre-IPO Share Option Scheme represents approximately 12.98 per cent of the enlarged issued share capital of the Company excluding Shares falling to be issued upon exercise of options under the Pre-IPO Share Option Scheme) or 11.49 per cent including Shares falling to be issued upon exercise of options under the Pre-IPO Share Option Scheme)), details of which are set out in Appendix V to this prospectus. Pursuant to a resolution of shareholders passed on 12th July, 2000 the Company may issue additional options under the Share Option Scheme within the General Mandate Limit which could result in the Company having outstanding options which, when added to the existing approximately 12.98 per cent, represent a total of approximately 22.98 per cent of the Company's enlarged issued share capital excluding Shares resulting from the exercise of options). Any further grant of options would be dependent on Shareholders approving either a renewal of the General Mandate Limit or a grant of options to specified participants.
COMPANIES ORDINANCE WAIVER
For the purpose of the listing of the Shares on GEM, the Company has sought a waiver from The Securities and Futures Commission in relation to certain requirements under the Companies Ordinance. Details of this waiver are described below.
Under paragraph 10 of Part I of the Third Schedule to the Companies Ordinance, this prospectus is required to include details of the number, description and amount of any shares in the Company which any person has, or is entitled to be given, an option to subscribe for, together with certain particulars of each option, namely the period during which it is exercisable, the price to be paid for the Shares subscribed for under it, the consideration if any)given or to be given for it or for the right to it and the name and address of the person to whom it was given. As at the date of this prospectus, the Company has granted options to 81 persons to subscribe for 316,823,077 Shares on the terms set out in Appendix V to this prospectus under the paragraph headed ``Pre- IPO Share Option Scheme'' in the section headed ``Share Options''.
The Company has applied for a waiver from The Securities and Futures Commission from full compliance with the disclosure requirements of paragraph 10 d)of Part I of the Third Schedule to the Companies Ordinance on the ground that full compliance with these requirements would be irrelevant and unduly burdensome for the Company, and The Securities and Futures Commission has granted a waiver to the Company pursuant to Section 342A of the Companies Ordinance on the conditions that i)full details of all such options granted to the Directors and any of the grantees with options in respect of more than 1,000,000 Shares containing the details in respect of each option required under paragraph 10 of Part I of the Third Schedule to the Companies Ordinance)are disclosed in this prospectus and ii)a full list of all optionholders, being 2 executive Directors, 3 non-executive Directors and 76 other employees of the Group, containing the details in respect of each option required under paragraph 10 of Part I of the Third Schedule to the Companies Ordinance is available for inspection in accordance with the paragraph headed ``Documents available for inspection'' in Appendix VI to this prospectus.
Please refer to the paragraphs entitled ``Pre-IPO Share Option Scheme'' in the section headed ``Share options'' in Appendix V to this prospectus for further details of the options referred to above.
Ð44Ð INFORMATION ABOUT THIS PROSPECTUS AND THE SHARE OFFER
DIRECTORS' RESPONSIBILITY FOR THE CONTENTS OF THIS PROSPECTUS
This prospectus, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Companies Ordinance and the GEM Listing Rules for the purpose of giving information with regard to the Group.The Directors, having made all reasonable enquiries, confirm that, to the best of their knowledge and belief:
$a) the information contained in this prospectus is accurate and complete in all material respects and not misleading;
$b) the opinions, expectations and intentions expressed in this prospectus are:
$i) founded on bases and assumptions which are fair and reasonable;
$ii) the true and honest beliefs of the Directors which beliefs are properly held; and
$iii) made on a fair basis and arrived at after due and careful consideration; and
$c) there are no other matters, the omission of which would make any statement in this prospectus misleading.
THE SHARE OFFER
Fully underwritten
This prospectus is published in connection with the Share Offer which is sponsored by Worldsec. The Offer Sharesare fully underwritten by the Underwriterspursuant to the Underwriting Agreement. For further information relating to the underwriting arrangements, please see the section headed ``Underwriting'' in this prospectus.
Public Offer Shares*with Warrants)and Qualifying Shares*with Warrants)to be offered in Hong Kong only
No action has been taken in any jurisdiction to permit the offering of the Offer Shares or the Warrants or the distribution of this prospectus in any jurisdiction other than to permit the offering of the Public Offer Shares $with Warrants) and Qualifying Shares $with Warrants) in Hong Kong. Accordingly, this prospectus may not be used for the purpose of, and does not constitute, an offer or invitation in any other jurisdiction in any circumstances in which such offer or invitation is not authorised or to any person to whom it is unlawful to make an unauthorised offer or invitation.
Placing Shares*with Warrants)to be offered in certain jurisdictionsonly
Pursuant to the Placing, it is expected that the Underwriters or selling agents nominated by the Underwriters shall conditionally place the Placing Shares $with Warrants) on behalf of the Company at the Issue Price with investors in Hong Kong and in certain other jurisdictions.
The Share Offer is subject to the conditions as stated in the paragraph ``Conditions of the Share Offer'' under the section headed ``Structure of the Share Offer''.
Ð45Ð INFORMATION ABOUT THIS PROSPECTUS AND THE SHARE OFFER
The distribution of this prospectus and the offering or sale of the Offer Shares $with Warrants) in certain jurisdictions is restricted by law, in particular, but without limitation to the foregoing:
United States
The Shares and Warrants have not been and will not be registered under the US Securities Act of 1933, as amended $the ``Securities Act''), and may not be offered or sold within the United States or to, or for the account or benefit of, US persons except in certain transactions exempt from the registration requirements of the Securities Act.Terms used in this paragraph have the meanings given to them by Regulation S under the Securities Act.
Each underwriter has agreed that, except as permitted by the Underwriting Agreement, it will not offer or sell the Offer Shares $with Warrants) $i) as part of its distribution at any time or ii) otherwise until one-year after the latest of the commencement of the Share Offer, the closing date of the Share Offer, and the closing date for any exercise of the Over-allotment Option $the ``Distribution Compliance Period''), within the United States or to, or for the account or benefit of, US persons, and it will have sent to each dealer to which it sells Offer Shares $with Warrants) $other than on a sale pursuant to Rule 144A) during the distribution compliance period a confirmation or other notice setting forth the restrictions on offer and sales of the Offer Shares $with Warrants) with the United States or to, or for the account or benefit of, US persons.
The Offer Shares $with Warrants) are being offered and sold outside the United States to non-US persons in reliance on Regulation S.The Underwriting Agreement provides that the Joint Lead Underwriters may through their US broker-dealer affiliates arrange for the offer and the sale of Placing Shares within the United States only to qualified institutional buyers in reliance on an exemption from the registration requirements of the Securities Act.
The offer or sale of the Offer Shares, if made prior to the expiration of a one-year distribution compliance period, shall not be made to a US person or for the account or benefit of a US person $other than a distributor); and
The offer or sale of the Offer Shares, if made prior to the expiration of a one-year distribution compliance period, shall be made only pursuant to the following conditions:
$1) the purchaser of the securities $other than a distributor must certify that it is not a US person and is not acquiring the securities for the account or benefit of any US person or is a US person who purchased securities in a transaction that did not require registration under the Securities Act;
$2) the purchaser of the securities must agree to resell such securities only in accordance with the provisions of the Regulation S pursuant to registration under the Securities Act, or pursuant to an available exemption from registration; and agrees not to engage in hedging transactions with regard to such securities unless in compliance with the Securities Act; and
Ð46Ð INFORMATION ABOUT THIS PROSPECTUS AND THE SHARE OFFER
$3) the issuer must, either by contract or a provision in its bylaws, articles, Charter or comparable document, refuse to register any transfer of the securities not made in accordance with the provisions of the Regulation S, pursuant to registration under the Securities Act, or pursuant to an available exemption from registration; provided however, that if the securities are in bearer form or foreign law prevents the issuer of the securities from refusing to register securities transfers, other reasonable procedures are implemented to prevent any transfer of the securities not made in accordance with provisions of the Regulation S; and
Each distributor selling securities to a distributor, a dealer $as defined in section 2 $A)$12) of the Exchange Act, or a person receiving a selling concession, fee or other remuneration, prior to the expiration of a one-year distribution compliance period must send a confirmation or other notice to the purchaser stating that the purchaser is subject to the same restrictions on offers and sales that apply to a distributor.
An offer or sale of warrants must comply with the following requirements:
$i) Each warrant must bear a legend stating that the warrant and the securities to be issued upon its exercise have not been registered under the Securities Act and that the warrant may not be exercised by or on behalf of any US person unless registered under the Securities Act or an exemption from such registration is available;
$ii) Each person exercising a warrant is required to give:
$A) written certification that it is not a US person and the warrant is not being exercised on behalf of a US person; or
$B) a written opinion of counsel to the effect that the warrant and the securities delivered upon exercise thereof have been registered under the Securities Act or are exempt from registration thereunder; and
$iii) procedures are implemented to ensure that the warrant may not be exercised within the United States, and that the securities may not be delivered within the United States upon exercise, other than in offerings deemed to meet the definition of ``Offshore Transaction'' pursuant to Rule 902 $H) of the Securities Act, unless registered under the Securities Act or an exemption from such registration is available.
In addition, until one year after expiration of the commencement of the Share Offer, the closing date of the Share Offer, and the closing date for any exercise of the Over-allotment Option an offer or sale by any dealer of shares and warrants within the United States $whether or not as a part of the Share Offer) may violate the registration requirements of the Securities Act if such offer or sale is made other than in accordance with Rule 144A or another exemption from the registration requirement of the Securities Act.
Ð47Ð INFORMATION ABOUT THIS PROSPECTUS AND THE SHARE OFFER
United Kingdom
This prospectus has not been approved by an authorised person in the United Kingdom and has not been registered with any registrar of companies in the United Kingdom.In addition, the Company has not authorised any offer of the Offer Shares $or the Warrants) to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995 $the ``Regulations'').Neither the Offer Shares nor the Warrants may lawfully be offered or sold to persons in the United Kingdom except in circumstances which do not result in an offer to the public in the United Kingdom within the meaning of the Regulations or otherwise in compliance with all applicable provisions of the Regulations.In addition, no person may issue or pass on to any person $a ``recipient'') in the United Kingdom any document received by it in connection with the Share Offer unless that recipient is of a kind described in Article 11$3) of the Financial Services Act 1986 $Investment Advertisements) $Exemptions) Order 1996 $as amended) or is a person to whom such document may otherwise lawfully be issued or passed on.
Singapore
This prospectus has not been and will not be registered as a prospectus with the Registrar of Companies and Businesses in Singapore.Accordingly, this prospectus and any other document or material in connection with the offer of the Offer Shares $with Warrants) may not be circulated or distributed in Singapore, nor may any invitation or offer to subscribe for or purchase any Offer Shares $with Warrants) be made, whether directly or indirectly, to the public or any member of the public in Singapore other than $i) to an institutional investor or other person specified in Section 106C of the Singapore Companies Act, Chapter 50 $the ``Singapore Companies Act''); $ii) to a sophisticated investor or other person specified in section 106D of the Singapore Companies Act or $iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provisions of the Singapore Companies Act.The Registrar of Companies and Businesses in Singapore takes no responsibility for the contents of this prospectus or any of the documents referred to above.
Japan
The Share Offer has not been and will not be registered under the Securities and Exchange Law of Japan $the ``Securities and Exchange Law'').None of the Offer Shares $with Warrants) may be offered or sold, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan, except: $i) pursuant to an exemption from the registration requirements of the Securities and Exchange Law; and $ii) in compliance with any other applicable requirements of Japanese law.
Taiwan
The Share Offer has not been and will not be registered with the Taiwan Securities and Futures Commission under the Securities and Exchange Law and Guidelines for the Offering and Issuance of Securities by Foreign Issuers.Accordingly, none of the Offer Shares $with Warrants) may be offered for subscription or purchase, directly or indirectly, in Taiwan.
Ð48Ð INFORMATION ABOUT THIS PROSPECTUS AND THE SHARE OFFER
Bermuda
No offer of the Offer Shares $with Warrants) may be made to the public in Bermuda.
Each person acquiring Offer Shares $with Warrants) in the Share Offer will be required to confirm, or be deemed by its acquisition of Offer Shares to have confirmed, that it is aware of the restrictions on offers and sales of the Offer Shares described in this prospectus.
APPLICATION FOR LISTING ON GEM
Application has been made to the GEM Listing Committee for the listing of, and permission to deal in, the Shares in issue, the Shares to be issued pursuant to the Share Offer $including any Shares to be issued pursuant to the exercise of the Over-allotment Option), the Warrants and any Shares to be issued pursuant to the exercise of any options which have been granted or may be granted under the Pre-IPO Share Option Scheme or the Share Option Scheme and of subscription rights attaching to the Warrants.
No part of the share, warrant or loan capital of the Company is listed or dealt in on any other stock exchange and at present no such listing or permission to deal is being or proposed to be sought.
In compliance with the GEM Listing Rules, after the listing of the Shares and the Warrants on GEM, the Company will be required to maintain a public float of at least 20 per cent of the issued share capital of the Company.Upon listing, the number of Shares held by the public will represent approximately 33.90 per cent of the total number of Shares in issue $without taking into account the exercise of the Over-allotment Option).Details of the number of Shares which are freely transferable are set out on page 40 in the section headed ``Risk factors''.
Any allotment made in respect of any application will be void if permission for listing of, and dealing in, the Shares and the Warrants on GEM has been refused before the expiration of three weeks from 21st July, 2000, or such longer period $not exceeding six weeks) as may, within the said three weeks, be notified to the Company by or on behalf of the Stock Exchange.
COMMENCEMENT OF DEALINGS IN THE SHARES AND WARRANTS
Dealings in the Shares and the Warrants on GEM is expected to commence on or about 28th July, 2000.Shares will be traded in board lots of 10,000 each and the Warrants in board lots of 50,000 each.
SHARES AND WARRANTS WILL BE ELIGIBLE FOR CCASS
Subject to the granting of listing of, and permission to deal in, the Shares and the Warrants on GEM and the compliance with the stock admission requirements of Hongkong Clearing, the Shares and the Warrants will be accepted as eligible securities by Hongkong Clearing for deposit, clearance and settlement in CCASS with effect from the date of commencement of dealings in the
Ð49Ð INFORMATION ABOUT THIS PROSPECTUS AND THE SHARE OFFER
Shares and the Warrants on GEM or on any other date Hongkong Clearing chooses.Settlement of transactions between participants of the Stock Exchange is required to take place in CCASS on the second business day after any trading day.
All activities under CCASS are subject to the General Rules of CCASS and CCASS Operational Procedures in effect from time to time.
All necessary arrangements have been made for the Shares and the Warrants to be admitted into CCASS.
PROFESSIONAL TAX ADVICE RECOMMENDED
If you are unsure about the taxation implications of the subscription, purchase, holding or disposal of, dealing in, or the exercise of any rights in relation to, the Offer Shares $with Warrants), you should consult an expert.
None of the Company, the Sponsor, the Underwriters, any of their respective directors, agents and advisors or any other person involved in the Share Offer accepts responsibility for any tax effects on or liabilities of any person resulting from the subscription for, or purchase, holding or disposal of, dealing in, or the exercise of any rights in relation to, the Offer Shares $with Warrants).
STAMP DUTY
All the Offer Shares and Warrants will be registered on the Hong Kong register of members of the Company.Dealings in Shares and Warrants on that register will be subject to Hong Kong stamp duty.
STRUCTURE AND CONDITIONS OF THE SHARE OFFER
Further details on the structure and conditions of the Share Offer, including details on the Over-allotment Option, are set out in the section headed ``Structure of the Share Offer''.
Ð50Ð DIRECTORS AND PARTIES INVOLVED IN THE SHARE OFFER
Name Address Nationality
Chairman
Ip Saimond Flat D, 7/F, Hoi Tien Mansion Chinese Horizon Garden Taikoo Shing Hong Kong
Executive Directors
Cheng Albert Jinghan 103 Bowen Mansion Chinese 7C Bowen Road Hong Kong
Yeung Kwok Mung B1, 7/F, Flora Garden Australian 50 Cloudview Road North Point Hong Kong
Non-executive Directors
Tsang Moses Kwok Tai House C7, Hillgrove British 18 Cape Drive Chung Hom Kok Hong Kong
Poon Kai Tik Flat 4A, 54 MacDonnell Road British Central Hong Kong
Huang Erwin Steve Flat 1B, G/F British DD165 Lot 1591 Tseng Tau Tsuen Sai Kung N.T. Hong Kong
Chung Wai Yang G-3, Greencliff British 23 Tung Shan Terrace Happy Valley Hong Kong
Ð51Ð DIRECTORS AND PARTIES INVOLVED IN THE SHARE OFFER
Name Address Nationality
Independent non-executive Directors
Wong Richard Yue Chim Flat F, 22/F Chinese Block 3 Estoril Court 55 Garden Road Hong Kong
Shek Abraham Lai Him Flat 18A, Villa Veneto Chinese 3 Kotewall Road Hong Kong
Senior management
Poon Wan Fung 33G, Block 2 Illumination Terrace Chinese 7 Tai Hang Road Hong Kong
Ng Andrew Shu Bun 1±5 Boyce Road Chinese Butler Towers 19/F Block F Jardines Lookout Hong Kong
Kwan Man Chun Flat G, 9/F, Block 3 Chinese Belvedere Garden Phase 3 Tsuen Wan, N.T. Hong Kong
Yuen Kin Chung Flat G, 33/F, Block 11 Chinese Discovery Park Tsuen Wan Hong Kong
Fung Benjamin Flat 9A, Kam Kok Mansion British 82 Kimberley Road Kowloon Hong Kong
Wong Kevin Che Kuen 1063 Parkway Court, 4 Park Road Chinese Hong Kong
Ð52Ð DIRECTORS AND PARTIES INVOLVED IN THE SHARE OFFER
Name Address Nationality
Lam Stephen Tai Wai Flat F, 20/F, Block 3, Majestic Park Canadian 11 Farm Road Kowloon Hong Kong
Ng Ha Long Room 3715, Kwong Hin House Chinese Kwong Tin Estate Lam Tin, Kowloon Hong Kong
Leung Tak Man 15A Sun Tsuen Street Chinese 1/F Tai Hong Hong Kong
Lai Chak Fun 1001 Senior Staff Quarters Chinese Hong Kong Institute of Education 10 Lo Ping Road Tai Po, N.T. Hong Kong
Chan Wai Hung Room 624, Yue Tai House Chinese Yun Wan Estate Chai Wan Hong Kong
Chan Kwok Leung 8/F, Flat B, 6±14 Centre Street Chinese Sai Ying Pun Hong Kong
Ð53Ð DIRECTORS AND PARTIES INVOLVED IN THE SHARE OFFER
Sponsor Worldsec Corporate Finance Limited 33rd Floor, Bank of America Tower 12 Harcourt Road Central Hong Kong
Underwriters Worldsec International Limited 11th Floor, Bank of America Tower 12 Harcourt Road Central Hong Kong
HSBC Broking Securities $Asia) Limited 3rd Floor Hutchison House 10 Harcourt Road Hong Kong
BNP Prime Peregrine Securities Limited 23rd Floor, New World Tower 16±18 Queen's Road Central Hong Kong
JS Cresvale International Limited Suite 601, Asia Pacific Finance Tower Citibank Plaza 3GardenRoad Central Hong Kong
Celestial Capital Limited 22nd Floor, The Center 99 Queen's Road Central Hong Kong
OSK Asia Securities Limited Suite 3601 36th Floor Cheung Kong Center 2 Queen's Road Central Hong Kong
Kingsway SW Securities Limited 5th Floor, Hutchison House 10 Harcourt Road Central Hong Kong
Ð54Ð DIRECTORS AND PARTIES INVOLVED IN THE SHARE OFFER
Legal advisers to the Company As to Hong Kong law: Charltons 56th Floor Bank of China Tower 1GardenRoad Hong Kong
As to Bermuda law: Appleby Spurling & Kempe 5511 The Center 99 Queen's Road Central Hong Kong
Legal advisers to the Underwriters As to Hong Kong law: Koo and Partners 22nd Floor Bank of China Tower 1GardenRoad Hong Kong
Auditorsand reporting accountants Ernst & Young 15th Floor Hutchison House 10 Harcourt Road Central Hong Kong
Property valuer Greater China Appraisal Limited Room 2407, Shui On Centre 6±8 Harbour Road Wanchai Hong Kong
Receiving banker Hang Seng Bank Limited 83 Des Voeux Road Central Hong Kong
Ð55Ð CORPORATE INFORMATION
Registered office Cedar House 41 Cedar Avenue Hamilton HM12 Bermuda
Head office and principal place of 24th Floor business 1063 King's Road Quarry Bay Hong Kong
Website address www.36.com
Company secretary Ng Andrew Shu Bun, ACA
Bermuda Resident Secretary Zina Darrell-Hollinshid*
Resident Representative Graham Simmons*
Assistant Secretary AS&K Services Limited
Compliance officer Ip Saimond
Qualified accountant Ng Andrew Shu Bun, ACA
Audit committee Shek Abraham Lai Him Chairman) Wong Richard Yue Chim
Authorised representatives Ip Saimond Yeung Kwok Mung
Principal share registrar and transfer Reid Management Limited office 4th Floor, Windsor Place 22 Queen Street Hamilton HM 11 Bermuda
Hong Kong branch share registrar Tengis Ltd and transfer office 4th Floor, Hutchison House 10 Harcourt Road Central Hong Kong
* Zina Darrell-Hollinshid and Graham Simmons, Bermuda resident secretary and resident representative will resign from office upon the listing of the Shares and be replaced by AS&K Services Ltd.as resident representative.In addition, AS&K Services Ltd.serves as assistant resident representative, a role it will relinquish once it assumes the role of resident representative.Bermuda law requires each company to have at least two Bermuda resident officers but permits listed companies to have just a resident representative which need not be an individual but may be a body corporate.
Ð56Ð CORPORATE INFORMATION
Principal banker Hang Seng Bank Limited 83 Des Voeux Road Central Hong Kong
Ð57Ð IMPORTANT
Characteristics of the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited:
GEM has been established as a market designed to accommodate companies to which a high investment risk may be attached. In particular, companies may list on GEM with neither a track record of profitability nor any obligation to forecast future profitability. Furthermore, there may be risks arising out of the emerging nature of companies listed on GEM and the business sectors or countries in which the companies operate. Prospective investors should be aware of the potential risks of investing in such companies and should make the decision to invest only after due and careful consideration. The greater risk profile and other characteristics of GEM mean that it is a market more suited to professional and other sophisticated investors.
Given the emerging nature of companies listed on GEM, there is a risk that securities traded on GEM may be more susceptible to high market volatility than securities traded on the Main Board and no assurance is given that there will be a liquid market in the securities traded on GEM.
The principal means of information dissemination on GEM is publication on the Internet website operated by the Stock Exchange. GEM-listed companies are not generally required to issue paid announcements in gazetted newspapers. Accordingly, prospective investors should note that they need to have access to the GEM website at www.hkgem.com in order to obtain up-to-date public information on GEM-listed issuers.
ÐiÐ CONTENTS
You should rely only on the information contained in this prospectus to make your investment decision.
The Company has not authorised anyone to provide you with information that is different from what is contained in this prospectus.
Any information or representation not made in this prospectus must not be relied on by you as having been authorised by the Company, Worldsec, the Underwriters, any of their respective directors or any other person involved in the Share Offer.
Page
EXPECTED TIMETABLE ...... 1
SUMMARY ...... 2
DEFINITIONS ...... 15
GLOSSARY OF TECHNICAL TERMS ...... 21
RISK FACTORS ...... 25
WAIVERSFROM COMPLIANCE WITH THE GEM LISTINGRULES AND COMPANIESORDINANCE ...... 41
INFORMATION ABOUT THISPROSPECTUSAND THE SHARE OFFER ...... 45
DIRECTORSAND PARTIESINVOLVED IN THE SHARE OFFER ...... 51
CORPORATE INFORMATION ...... 56
INDUSTRY OVERVIEW ...... 58
BUSINESS
Corporate structure ...... 65
History and development ...... 66
The Group's objectives and business model ...... 70
Statement of active business pursuits ...... 88
Largest customers and suppliers ...... 92
The Group's strengths ...... 92
Business objectives, future plans and implementation schedule ...... 93
ÐiiÐ CONTENTS
Page
Competition ...... 99
Key business alliance ...... 99
Strategic alliances ...... 100
Office ...... 106
Intellectual property rights ...... 106
Use of proceeds ...... 107
Year 2000 compliance ...... 108
DIRECTORS, SENIOR MANAGEMENT AND STAFF ...... 109
SUBSTANTIAL AND INITIAL MANAGEMENT SHAREHOLDERS ...... 116
SHARE CAPITAL ...... 120
FINANCIAL INFORMATION ...... 123
SPONSOR'S INTERESTS ...... 130
UNDERWRITING ...... 131
STRUCTURE OF THE SHARE OFFER ...... 135
HOW TO APPLY FOR THE PUBLIC OFFER SHARES +WITH WARRANTS) .... 141
PROCEDURE FOR QUALIFYING SUBSCRIBERS APPLYING FOR QUALIFYING SHARES +WITH WARRANTS) ...... 148
APPENDICES
Appendix I Ð Accountants' report ...... 151
Appendix II Ð Property valuation report ...... 164
Appendix III Ð Summary of the constitution of the Company and Bermuda company law ...... 168
Appendix IV Ð Summary of the terms of the Warrants ...... 200
Appendix V Ð Statutory and general information ...... 208
Appendix VI Ð Documents delivered and available for inspection ...... 256
ÐiiiÐ EXPECTED TIMETABLE
2000
Application lists open Note 2) ...... 11:45a.m.onFriday,21stJuly
Latest time to lodge WHITE, YELLOW and BLUE applicationforms ...... 12:00noononFriday,21stJuly
Applicationlistsclose...... 12:00noononFriday,21stJuly
Announcement of the indication of level of interests in the Placing, basis of allotment and results of applications for the Public Offer and the Qualifying Shares to be published in the South China Morning Post 'in English), the Hong Kong Economic Times 'in Chinese) and the GEM website at www.hkgem.com on or before ...... Tuesday, 25th July
Despatch of share and warrant certificates and refund cheques in respect of wholly or partially unsuccessful applications on or before Note 3) ...... Wednesday,26thJuly
Dealings in the Shares and the Warrants on GEM to commence on ...... Friday, 28th July
Notes:
'1) All times refer to Hong Kong local time. Details of the structure of the Share Offer, including its conditions, are set out in the section headed ``Structure of the Share Offer''.
'2) If there is a ``black'' rainstorm warning or a tropical cyclone warning signal number 8 or above in force in Hong Kong at any time between 9: 00 a.m. and 12: 00 noon on Friday, 21st July, 2000, the application lists will not open on that day. Further information is set out in the paragraph headed ``Effect of bad weather on the opening of the application lists'' under the section headed ``How to apply for the Public Offer Shares 'with Warrants)''.
'3) Applicants who have applied on WHITE application forms for 1,000,000 Shares or more under the Public Offer and/or on BLUE application forms for 1,000,000 Qualifying Shares or more and have indicated on their application forms that they wish to collect refund cheques and 'where applicable) share and warrant certificates in person from the Company's Hong Kong branch share registrar may collect refund cheques and 'where applicable) share and warrant certificates in person from the Company's Hong Kong branch share registrar, Tengis Limited, from 9: 00 a.m. to 1: 00 p.m. on Wednesday, 26th July, 2000. Identification and 'where applicable) authorisation documents acceptable to Tengis Limited must be produced at the time of collection.
Applicants who have applied on YELLOW application forms for 1,000,000 Shares or more under the Public Offer may collect their refund cheque 'where applicable) in person but may not elect to collect their share and warrant certificates 'where applicable) which will be deposited into CCASS for the credit of their designated CCASS participants' stock accounts or investor participant stock accounts, as appropriate. The procedure for collection of refund cheques for YELLOW application form applicants is the same as those for WHITE application form applicants.
Uncollected share and warrant certificates and refund cheques will be despatched by ordinary post at the applicants' own risk to the addresses specified in the relevant application forms. Further information is set out in the paragraph headed ``Collection/posting of share and warrant certificates/refund cheques and deposit of share and warrants certificates into CCASS'' under the section headed ``How to apply for the Public Offer Shares 'with Warrants)''.
Ð1Ð SUMMARY
This summary aims to give you an overview of the information contained in this prospectus. As it is a summary, it does not contain all the information that may be important to you. You should read the whole document before you decide to invest in the Offer Shares with Warrants).
There is greater risk associated with investment in companies listed on GEM. Some of the particular risks of investing in the Offer Shares with Warrants) are set out in the section headed ``Risk factors''. You should read that section carefully before you decide to invest in the Offer Shares with Warrants).
SUMMARY OF THE BUSINESS
Introduction
The rapid growth in popularity of the web has introduced fundamental changes in the way information can be produced, distributed and consumed. The web allows users to view selected information that is of particular interest to them in a cost effective and timely manner. The web is achieving increasing popularity as a supplement and in some cases an alternative to other more traditional forms of media.
The Group believes that its strategy of developing content rich vertical portals each focused on a specific area of interest and targetted at the global Chinese community well positions the Group to capitalise on the growth in popularity of the web as a form of information transmission.
Over time the Group's vertical portals will become to an extent geographically localised by the launch of localised versions of its vertical portals targetted at the Chinese communities in various population centres around the world, including the PRC, North America, Asia and Australasia. Such localised content is intended to better appeal to the preferences of the target market and to provide a more focused platform for the Group to use to engage in e-commerce activities and attract advertisers.
Current business activities
The Group's primary business is the provision of focused Chinese language content through its vertical portals targetted at the global Chinese community. The Group has launched the following vertical portals:
. Finance
This vertical portal contains information relating to the finance sector and is targetted at retail investors interested in the Hong Kong stock market. The portal features real-time information 'including commentaries, market news and stock quotes on automatically refreshed screens) during trading hours on the Stock Exchange and comprehensive information at all hours 'including market commentaries, market news, selected brokers' reports and company data). Analytical and charting tools are also available online, in addition to a number of interactive features.
Ð2Ð SUMMARY
. Consumer
This vertical portal features a detailed shopping guide designed to assist shoppers to choose among different consumer products and merchants in Hong Kong. The portal includes detailed product profiles, regularly updated feature articles and product comparison tables for selected product categories.
The portal also features a search engine to help callers identify the lowest priced international direct dialling telephone service providers for 21 destinations at any given time of day or night. In addition the portal has a number of interactive features. The Group also intends to provide intermediary services linking consumers using this portal with selected merchants.
. News
This vertical portal sets out to complement traditional newspapers by providing more frequently updated news, exclusive feature articles and news chat rooms and forums featuring popular commentators, including ``Tai Pan'' Cheng Albert Jinghan.
. Entertainment
This vertical portal focuses on providing features relating to mass market entertainment. The portal contains regularly updated news regarding a variety of entertainers, a movie guide, a ``ghost'' channel and various interactive services.
. Teenager
This vertical portal focuses on providing content and online community services designed to appeal to students and teenagers including online games.
. Fortune-telling
This vertical portal includes free interactive fortune-telling services based upon I-ching hexagon, the Chinese Zodiac and bone-weighting 'an ancient Chinese technique relating to the user's hour of birth). Interactive services for selecting auspicious dates and for naming individuals are also available online. The portal also features regularly updated articles on feng-shui and oriental astrology.
. Eating
This vertical portal provides a restaurant guide and search engine with a database of information on over 5,000 restaurants in Hong Kong.
. Sports
This vertical portal focuses on providing content to sports enthusiasts, particularly those interested in soccer and basketball.
Ð3Ð SUMMARY
. Horse-racing
This vertical portal provides information targetted at followers of horse-racing in Hong Kong. The portal includes various databases and statistics, race analysis, betting strategies and betting tips.
. Automobile
This portal focuses on providing information about automobiles. It features regularly updated news, feature articles on latest automotive products and trends, detailed model profiles and comparison tables for selected automobile categories.
The portal also provides a search engine to help users obtain information based on user-defined criteria on second-hand automobiles which are for sale.
The volume of traffic generated by the website www.36.com through the Group's content and services will provide a platform for online advertisers effectively to market their products to their target audience. The Group provides banner advertising and title sponsorship to various advertisers.
The Group is also engaged in providing various media-related services to its clients including developing media communications strategies for clients, conducting media audits and reviews, and providing media training and development programmes for executives to prepare them for dealing with customers, suppliers, employees and shareholders. In addition the Group provides Internet-related consulting and integration services to its clients.
Statement of business prospects
The Directors believe that its focused content-rich Chinese language vertical portals will continue to attract significant viewers and will increase in popularity amongst the global Chinese community.
The Group's revenue model is as follows:
. Advertising-driven revenues will be generated by the Group hosting advertisements on and soliciting sponsorship for its vertical portals. This revenue stream is directly related to the number of pageviews that the Group's vertical portals receive. As the Group's content and pageviews continue to build up over time, the Directors expect that the Group's portal network will provide a foundation for the development of direct advertising.
. Transaction-driven revenues are expected to be generated by the launch of e-commerce platforms on certain of the Group's vertical portals. The Group will charge clients a fee based upon a percentage of the revenue the Group's clients generate from these e-commerce platforms.
Ð4Ð SUMMARY
. Content distribution-driven revenues are expected to be generated by the Group from the distribution of its content to Internet and other media providers as the Group's content builds up and further develops over time.
. Service-driven revenues are generated by assisting merchants and corporations to manage their media image and their relationships with their customers, including Internet users and by providing Internet related consulting and integration services to clients.
A graphical presentation of the currently scheduled progress of the implementation of the Group's business plans during the period up to 31st March, 2001 and the four consecutive six- month periods thereafter up to 31st March, 2003 is set out below:
Period ending Six monthsending Strategic Implementation 31st March, 30th September, 31st March, 30th September, 31st March, components 2001 2001 2002 2002 2003
Develop new . e-cards HK/NA/PRC vertical portals . Women's portal HK/NA/PRC . e-tailing portal HK/PRC . IBM's portal HK . New portals through HK HK/NA/ HK joint venture or PRC/AA acquisition
Launch . News portal NA localized versions of . Consumer portal NA/PRC AA existing portals . Finance portal NA PRC . Entertainment portal NA/PRC/AA . Other portals NA/PRC*/ AA
Increase . Launch English HK depth of language version of existing Finance portal portals . Introduce intermediary HK HK services on Consumer portal . Enhance features and HK HK/NA/PRC HK HK HK content of existing portals . Commence e-business HK/NA/ HK in target markets PRC/AA . Broaden range of HK HK HK e-tailing products
Enhance . Introduce wireless HK/NA/PRC technology platform for shopping . Introduce broadband HK NA/PRC/AA version of Entertainment and e-card portals
Content . Distribution of content HK/NA/PRC AA distribution to third party networks
Key: HK Ð Hong Kong NA Ð North America PRC Ð the People's Republic of China 'excluding for these purposes Hong Kong, Macau and Taiwan) AA Ð Asia/Australasia * Ð excluding the Group's News portal
Ð5Ð SUMMARY
To be a successful player in the Internet industry, the Group will need to be tremendously flexible to adapt to the rapidly evolving market environment. Organic growth may not be adequate to achieve the Group's target growth in terms of geographic reach and business scope. The Directors believe that forming strategic partnerships or mergers and acquisitions are effective means to acquire capabilities critical to the business without making prohibitive investments or losing first-mover advantage.
Therefore, the Group does not rule out the possibility to engage in mergers and acquisitions at either the Group or vertical portal levels in the future. In addition, it may also spin off certain vertical portals through separate listing. However, the Group currently has no concrete timetable or plan for any spin-offs.
Warning:
The aforesaidplansare basedon the existingplansand intentionsof the Group. Assuch intentions and plans are based on assumptions of future events which by their nature are subject to uncertainty, the Group's actual course of action may vary from the intentions and planssetout above. Although the Directorswill endeavour to execute suchplansin accordance with the aforesaid timeframe, there is no assurance that the plans of the Group will materialise or result in the conclusion of any agreement or be executed in accordance with the aforesaid timeframe or that the objectives of the Group will be fully accomplished or be accomplished at all.
Ð6Ð SUMMARY
TRADING RECORD
The following is a summary of the combined results of the Group for the two years ended 31st March, 2000 which have been extracted from the accountants' report set out in Appendix I. The combined results are prepared on the basis of presentation set out in the same accountants' report.
Year ended 31st March, 1999 2000 HK$ HK$
Turnover Ð 2,814,482
Other revenue Ð 363,589 Software acquisition and hardware maintenance costs Ð '2,159,876) Depreciation expenses Ð '688,860) Rental expenses '75,068) '377,286) Staff costs Ð '6,063,485) Advertising and marketing expenses Ð '6,405,896) Other operating expenses '50,428) '4,551,011)
Loss from operating activities '125,496) '17,068,343)
Finance costs Ð '25,673)
Loss before tax '125,496) '17,094,016)
Tax Ð Ð
Loss from ordinary activities attributable to shareholders '125,496) '17,094,016)
Dividends Ð Ð
Loss per Share Note) 0.006 cents 0.79 cents
Note: The calculation of the loss per Share is based on the Group's loss from ordinary activities attributable to shareholders for the two years ended 31st March, 2000 and on 2,161,026,000 Shares in issue at the date of the prospectus being deemed to be in issue throughout the two years ended 31st March, 2000.
REASONS FOR THE SHARE OFFER
The Directors consider that the Share Offer will enhance both the Group's corporate profile and its financial strength. A public listing status on the Stock Exchange will offer the Group access to the capital market to raise funds to meet its future business development.
Ð7Ð SUMMARY
USE OF PROCEEDS
The net proceeds from the Share Offer are estimated to amount to approximately HK$87 million before the exercise of the Over-allotment Option. It is presently intended that the net proceeds will be applied as follows:
. approximately HK$7 million for expansion of the Group's network infrastructure, computer equipment and software applications outside Hong Kong, including in North America, the PRC, Asia and Australasia;
. approximately HK$7 million for marketing and advertising in Hong Kong;
. approximately HK$7 million for marketing and advertising outside Hong Kong, including in North America, the PRC, Asia and Australasia;
. approximately HK$17 million for content development and acquisition in Hong Kong and approximately HK$9 million for content development and acquisition outside Hong Kong, including in North America, the PRC, Asia and Australasia;
. approximately HK$15 million for IT development and maintenance in Hong Kong and approximately HK$6 million for IT development and maintenance outside Hong Kong, including in North America, the PRC, Asia and Australasia;
. approximately HK$5 million for business development in Hong Kong and approximately HK$4 million for business development outside Hong Kong, including in North America, the PRC, Asia and Australasia;
. approximately HK$10 million for general working capital.
In the event that the Over-allotment Option is exercised in full, the additional net proceeds of approximately HK$15 million will be applied by the Company for marketing and advertising activities, for further enhancing the Group's network infrastructure, for purchasing additional software applications and for general working capital purposes.
To the extent that the net proceeds of the Share Offer are not immediately required for the above purposes, it is the present intention of the Directors that such net proceeds will be placed on deposit with financial institutions in Hong Kong or invested in short term interest-bearing debt securities.
If any part of the business plans of the Group does not materialise or proceed as planned, the Directors will carefully evaluate the situation and may reallocate the intended funding to other business plans and/or to new projects of the Group and/or to hold such funding in bank accounts or invest such funds in short term interest-bearing debt securities so long as the Directors consider it to be in the best interest of the Group and the Company's shareholders taken as a whole.
If there are any material changes to the use of proceeds as described above, an appropriate announcement will be made by the Company.
Ð8Ð SUMMARY
The Directors believe that the net proceeds from the Share Offer will be sufficient to finance all of the planned and/or intended projects of the Group as described in the paragraph headed ``Business objectives, future plans and implementation schedule'' under the section headed ``Business'' in this prospectus. Should the Group decide to invest in new additional projects which are not part of the currently planned and/or intended projects of the Group, the Group may require further financing to fund any such projects. The Directors anticipate that, after the listing of the Shares and the Warrants on GEM, the Group will be able to finance any such additional projects through, amongst other ways, internal resources, raising funds in the international capital and debt markets, equity issues to strategic investors and bank financing or through a combination of these methods.
For the purposes of Section 28 of the Companies Act, there is no minimum subscription to be raised since the Share Offer is fully underwritten.
SHARE OFFER STATISTICS
HK$
IssuePrice ...... 0.36
Market capitalisation Note 1) ...... 878,769,360
Adjusted net tangible asset value per Share Note 2) ...... 0.06
Adjusted net asset value per Share Note 2) ...... 0.06
Notes:
'1) The calculation of market capitalisation is based on the Issue Price and 2,441,026,000 Shares expected to be in issue immediately after completion of the Share Offer but takes no account of 'i) any Shares which may be issued upon the exercise of the Over-allotment Option, 'ii) any Shares which may be issued upon the exercise of any options granted under the Pre-IPO Share Option Scheme, or options which may be granted under the Share Option Scheme, 'iii) any Shares which may be issued upon the exercise of the subscription rights attaching to the Warrants, or 'iv) any Shares which may be issued or repurchased by the Company pursuant to the mandates referred to in Appendix V to this prospectus.
'2) The adjusted net tangible asset value per Share and the adjusted net asset value per Share have been arrived at after the adjustments referred to in the section headed ``Financial information Ð adjusted net tangible assets'' in this prospectus and on the basis of 2,441,026,000 Shares expected to be in issue immediately after completion of the Share Offer but takes no account of 'i) any Shares which may be issued upon the exercise of the Over- allotment Option, 'ii) any Shares which may be issued upon the exercise of any options granted under the Pre-IPO Share Option Scheme, or options which may be granted under the Share Option Scheme, 'iii) any Shares which may be issued upon the exercise of the subscription rights attaching to the Warrants, or 'iv) any Shares which may be issued or repurchased by the Company pursuant to the mandates referred to in Appendix V to this prospectus. If the Over-allotment Option is exercised in full, the adjusted net tangible asset value per Share will increase.
Ð9Ð SUMMARY
INITIAL MANAGEMENT SHAREHOLDERS, SIGNIFICANT SHAREHOLDERS AND OTHER EXISTING SHAREHOLDERS OF THE COMPANY
As a result of the Company's corporate reorganisation set out in detail in Appendix V to this prospectus, the existing shareholders' interests in the Company are summarised as follows:
Approximate Approximate Number of percentage of average Date of becoming a Sharesheld shareholding effective direct/indirect CCC 9immediately 9immediately acquisition shareholder after Share after Share Lock-in cost per Shareholders Note 1) Offer) Offer) period Share Total cost HK$ HK$
Initial Management Shareholders
Cheng Albert Jinghan 8th November, 1996 617,022,000 25.28% Note 8) 0.0206 12,724,448.20 Note 2) Ip Saimond 1st February, 2000 243,456,000 9.97% Note 8) 0.0144 3,512,405.00 Yeung Kwok Mung 1st February, 2000 68,238,000 2.80% Note 8) 0.0089 604,159.20 Tsang Moses Kwok 1st February, 2000 165,096,000 6.76% Note 8) 0.0303 5,002,499.00 Tai Note 3) Poon Kai Tik Note 1) 85,116,000 3.49% Note 8) 0.0235 2,002,151.00 Note 4) Chung Wai Yang 18th February, 2000 83,166,000 3.41% Note 8) 0.0379 3,150,000.00 Note 5) Huang Erwin Steve 1st February, 2000 25,326,000 1.04% Note 8) 0.0198 500,807.00
Significant Shareholder
ACAEDL Limited 18th February, 2000 326,052,000 13.36% Note 8) 0.0379 12,350,000.00 Note 6) other shareholders
Internet content N/A 98,634,000 4.04% Note 9) 0.0001 9,863.40 providers Group's employees Note 1) 80,226,000 3.29% N/A 0.0164 1,314,186.24 other existing Note 1) 368,694,000 15.10% Note 7) 0.1333 49,159,999.00 shareholders Note 7)
Notes:
1. This represents the actual date on which certain shareholders or its beneficial owner's) first became shareholders of CCC. Certain shareholders under the categories ``Group's employee'' and ``other existing shareholders'' set out above have never been shareholders of CCC. For those who are shareholders of CCC, they obtained their shares between 18th February, 2000 and 17th May, 2000. Poon Kai Tik's wife, Au Tak Yee became a shareholder of CCC on 1st February, 2000. For further information, please refer to sub-paragraph 'b) of the paragraph headed ``Changes in the share capital of the subsidiaries'' in Appendix V.
2. Cheng Albert Jinghan is interested in such Shares in the following manner:
i. 1,326,000 Shares are held by Cheng Albert Jinghan personally.
ii. 13,206,000 Shares are held by Cheng Albert Jinghan's wife, Lo Irene Kam Sheung, and therefore he is deemed to be interested in these Shares 'by virtue of the SDI Ordinance).
Ð10Ð SUMMARY
iii. 602,490,000 Shares are held by Drummond Finance Limited. Drummond Finance Limited is the wholly- owned subsidiary of Umbel Inc., which is a company owned by CIBC Trust Company 'Bahamas) Limited as trustee of the Albert Cheng Family Trust. Cheng Albert Jinghan and his children are discretionary beneficiaries of such trust and Cheng Albert Jinghan is therefore deemed to be interested in these Shares.
3. These Shares are directly or indirectly held by Tsang Moses Kwok Tai in the following manner:
i. 13,290,000 Shares are held by Tsang Moses Kwok Tai personally.
ii. 151,806,000 Shares are held by MKT Holdings 'Cayman Islands) LLC, which is wholly-owned by Tsang Moses Kwok Tai and Tsang Moses Kwok Tai is therefore deemed to be interested in these Shares 'by virtue of the SDI Ordinance).
4. Poon Kai Tik is interested in such Shares in the following manner:
i. 5,910,000 Shares are held by Poon Kai Tik personally.
ii. 79,206,000 Shares are held by Poon Kai Tik's wife, Au Tak Yee, and therefore he is deemed to be interested in these Shares 'by virtue of the SDI Ordinance).
5. These Shares are held by Cyber Channel Limited, which is wholly owned by Chung Wai Yang and therefore he is deemed to be interested in these Shares 'by virtue of the SDI Ordinance).
6. ACAEDL Limited is wholly owned by Chung Po Yang and therefore he is deemed to be interested in these Shares 'by virtue of the SDI Ordinance). Chung Po Yang is the brother of Chung Wai Yang who is a non-executive Director. Chung Wai Yang is also a director of ACAEDL Limited.
7. 321,630,000 of such Shares are held by independent third parties which are not connected with the directors, chief executive, substantial shareholders or management shareholders of the Company or its subsidiaries or their respective associates 'as defined in the GEM Listing Rules) and the remaining 47,064,000 Shares are held by relatives of the Initial Management Shareholders. Of the 321,630,000 Shares held by such independent existing shareholders of the Company, 268,333,740 Shares are subject to undertakings given by such persons to the Company and Worldsec 'on behalf of the Underwriters) not to dispose of 'or enter into any agreement to dispose of) or permit the registered holder to dispose of 'or enter into any agreement to dispose of) any direct or indirect interest in such Shares for the period of six months commencing on the listing date. The 47,064,000 Shares held by relatives of the Initial Management Shareholders are subject to undertakings given by such persons to the Company, the Stock Exchange and Worldsec 'on behalf of the Underwriters) not to dispose of 'or enter into any agreement to dispose of) or permit the registered holder to dispose of 'or enter into any agreement to dispose of) any direct or indirect interest in such Shares for the period of six months commencing on the listing date.
8. 'i) Each of the Initial Management Shareholders and the Significant Shareholders has undertaken to the Company, the Stock Exchange and Worldsec 'on behalf of the Underwriters) that for the period of six months commencing on the listing date, he/it will not dispose of 'or enter into any agreement to dispose of) or permit the registered holder to dispose of 'or enter into any agreement to dispose of) any direct or indirect interest in the Relevant Securities.
'ii) In addition, each of the Initial Management Shareholders has undertaken 'a) to the Company, the Stock Exchange and Worldsec that for the period of six months commencing on the date falling six months after the listing date they will ensure that the aggregate number of Relevant Securities held or controlled by them will represent at least 35 per cent of the voting rights exercisable at general meetings of the Company; and 'b) to the Company and Worldsec 'on behalf of the Underwriters) that without the written consent of Worldsec 'on behalf of the Underwriters) '1) for the period of six months commencing on the date falling six months after the listing date, they will, inter alia, not dispose of 'or enter into any agreement to dispose
Ð11Ð SUMMARY
of) or permit the registered holder to dispose of 'or enter into any agreement to dispose of) any direct or indirect interest in 68 per cent of their respective Relevant Securities; and '2) for a period of twelve months commencing on the first anniversary of the listing date, they will not, inter alia, dispose of 'or enter into any agreement to dispose of) or permit the registered holder to dispose of 'or enter into any agreement to dispose of) any direct or indirect interest in 50 per cent of their respective Relevant Securities.
'iii) Furthermore, each of the Significant Shareholders has undertaken to the Company and Worldsec 'on behalf of the Underwriters) that, inter alia, without the written consent of Worldsec 'on behalf of the Underwriters) neither it nor any of its associates 'as defined in the GEM Listing Rules), any company controlled by it nor any nominee or trustee holding in trust for it will, for a period of eighteen months commencing on the date falling six months after the listing date sell, transfer or otherwise dispose of 'including without limitation the creation of an option over) such number of Relevant Securities as represents 50 per cent of its holding of Relevant Securities 'which will be held in escrow).
9. The Internet content providers 'as referred to in sub-paragraph 'e) of the paragraph headed ``Changes in share capital of the Company'' in this Appendix V) have undertaken to the Company that, they will not dispose of 'or enter into any agreement to dispose of) or permit the registered holder to dispose of 'or enter into any agreement to dispose of) any direct or indirect interest in the Shares acquired pursuant to the subscription agreements 'as referred to under items 'i) to 'v) of the paragraph headed ``Summary of material contracts'' in Appendix V) for differing periods as set out in the relative subscription agreement, but in each case for a period of not less than six months from the listing date.
The operations of the Group involve certain risks, a summary of which is set out in the section headed ``Risk factors'' of this prospectus. These risks can be classified as 'i) risks relating to the Group; 'ii) risks relating to the Internet industry in general; 'iii) political and economic risks; and 'iv) risks relating to the Shares; and are listed below:
Risks relating to the Group
. The Group has a limited operating history
. The Group's Internet business has not been profitable and losses are expected for the foreseeable future
. The Group may require additional funds
. The Group may not be able to implement its strategy for future growth successfully
. The Group depends on certain key executives and personnel
. Failure of the Group to attract and retain qualified personnel could affect and limit its growth
. Failure of third party suppliers to provide software and hardware components could affect the business and operations of the Group
. The Group relies on software and hardware systems that may be susceptible to failure and misuse
. The Group may encounter difficulties with respect to its use of technology rights
Ð12Ð SUMMARY
. The Group may be held liable for information retrieved from its portal network
. The Group may be held liable under the Control of Obscene and Indecent Articles Ordinance 'Chapter 390 of the Laws of Hong Kong)
. Privacy concerns may prevent the Group from selling demographically targetted advertising in the future
. The Group relies on a small number of customers and suppliers
. Proceeds from the Share Offer may not be used in the ways described in this prospectus
. The Group's planned expansion into the PRC market may expose the business of the Group to further risks
. Forward-looking statements contained in this prospectus may not be accurate
Risk relating to the Internet industry in general
. The Internet industry is subject to rapid technological change
. The Internet industry is intensely competitive
. The Asian Internet industry is a developing market and has not been proven as an effective commercial medium
. Government regulation and legal uncertainties could adversely affect the conduct of business on the Internet
. Statistics derived from various unofficial publications have not been independently verified
Political and economic risks
. The economic climate in Asia is volatile
. There are political and economic risks associated with doing business in Hong Kong
. A change in currency exchange rates could increase costs relative to revenues of the Group
. There are political and economic risks associated with doing business in the PRC
Ð13Ð SUMMARY
Risks relating to the Shares
. An active trading market for the Shares and the Warrants may not develop
. The market price of the Shares may fluctuate
. Potential dilution as a result of additional equity fund raising
. Dilution as a result of exercise of share options
. Number of Shares which are freely transferable
Ð14Ð DEFINITIONS
In this prospectus, unless the context otherwise requires, the following expressions have the following meanings:
``affiliated company'' has the meaning ascribed thereto in the GEM Listing Rules
``associate'' has the meaning ascribed thereto in the GEM Listing Rules
``Audit Committee'' the audit committee of the Board
``Board'' the board of Directors
``BVI'' British Virgin Islands
``Cable & Wireless HKT'' Cable & Wireless HKT Limited, a company incorporated in Hong Kong with limited liability, the securities of which are listed on the Main Board and which is a telecommunications and Internet services provider in Hong Kong
``CCASS'' the Central Clearing and Settlement System established and operated by Hongkong Clearing
``CCC'' Cyber Communications Corporation Ltd. 'formerly named Ark Communications Group Limited), a company incorporated in the BVI with limited liability and is a wholly-owned subsidiary of the Company
``CCC Options Conversion an agreement dated 12th June, 2000 entered into between: 'i) the Agreement'' Company; 'ii) CCC; and 'iii) each optionholder under the CCC Option Scheme pursuant to which the optionholders agreed to exchange: 'a) the exercisable options under the CCC Option Scheme for Shares; and 'b) the non-exercisable options under the CCC Option Scheme for options under the Pre-IPO Share Option Scheme, as set out in the paragraphs headed ``Pre-IPO Share Option Scheme'' and ``CCC Option Scheme'' in Appendix V to this prospectus
``CCC Option Scheme'' the share option scheme approved and adopted by CCC on 23rd December, 1999, further details of which are set out in the paragraph ``CCC Option Scheme'' in Appendix V to this prospectus
``Companies Act'' the Companies Act 1981 of Bermuda 'as amended)
``Companies Ordinance'' Companies Ordinance 'Chapter 32 of the Laws of Hong Kong) 'as amended)
``Company'' 36.com Holdings Limited, a company incorporated on 8th May, 2000 in Bermuda with limited liability
Ð15Ð DEFINITIONS
``Compensation the compensation committee of the Board Committee''
``Director's)'' the director's) of the Company
``GEM'' the Growth Enterprise Market of the Stock Exchange
``GEM Listing the listing sub-committee of the board of the Stock Exchange with Committee'' responsibility for GEM
``GEM Listing Rules'' the Rules Governing the Listing of Securities on GEM
``Group'' the Company and its subsidiaries and where the context so requires in respect of the period before the Company became the holding company of its present subsidiaries, the present subsidiaries of the Company
``Hong Kong'' the Hong Kong Special Administrative Region of the PRC
``Hongkong Clearing'' Hong Kong Securities Clearing Company Limited
``IDC'' International Data Corporation Asia Pacific Ltd.
``Initial Management collectively, Cheng Albert Jinghan, Ip Saimond, Yeung Kwok Shareholders'' Mung, Poon Kai Tik, Huang Erwin Steve, Tsang Moses Kwok Tai, Chung Wai Yang, CIBC Trust Company 'Bahamas) Limited 'as trustee of the Albert Cheng Family Trust), Umbel Inc., Drummond Finance Limited, Lo Irene Kam Sheung, MKT Holdings 'Cayman Islands) LLC, Au Tak Yee and Cyber Channel Limited
``Issue Price'' the issue price per Offer Share 'with Warrants) 'excluding brokerage and Stock Exchange transaction levy) of HK$0.36
``Latest Practicable Date'' 10th July, 2000, being the latest practicable date prior to the printing of this prospectus for ascertaining certain information contained herein
``Lead Manager'' or Worldsec International Limited, an investment adviser and ``Worldsec securities dealer registered under the Securities Ordinance International''
``Macau'' the Macau Special Administrative Region of the PRC
Ð16Ð DEFINITIONS
``Main Board'' the stock market operated by the Stock Exchange prior to the establishment of GEM 'excluding the options market) and which continues to be operated by the Stock Exchange in parallel with GEM
``Offer Shares'' the Public Offer Shares and the Placing Shares, where relevant, including any additional Shares issued pursuant to the exercise of the Over-allotment Option
``Over-allotment Option'' the option granted by the Company to the Underwriters 'exercisable by Worldsec International on behalf of the Underwriters) under the Underwriting Agreement pursuant to which the Company may be required to issue and allot up to an aggregate of 42,000,000 additional new Shares 'with Warrants) at the Issue Price representing 15 per cent of the Share Offer to cover over- allocations in the Placing and/or over-subscription of the Public Offer
``Placing'' the conditional placing of the Placing Shares 'with Warrants) at the Issue Price, as further described in the section headed ``Structure of the Share Offer''
``Placing Shares'' 238,000,000 new Shares 'subject to reallocation as described in the section headed ``Structure of the Share Offer'') initially being offered pursuant to the Placing
``Placing Underwriters'' Worldsec International, HSBC Broking Securities 'Asia) Limited, BNP Prime Peregrine Securities Limited, Celestial Capital Limited, JS Cresvale International Limited, Kingsway SW Securities Limited and OSK Asia Securities Limited
``PRC'' the People's Republic of China, for the purpose of this prospectus, excluding Hong Kong, Macau and Taiwan
``Pre-IPO Share Option the share option scheme conditionally approved and adopted by the Scheme'' Company on 12th July, 2000, the principal terms of which are summarised in the paragraph headed ``Pre-IPO Share Option Scheme'' in Appendix V to this prospectus
``Public Offer'' the offer of the Public Offer Shares 'with Warrants) at the Issue Price for subscription by the public, on and subject to the terms and conditions stated herein and in the related application forms
``Public Offer Shares'' 42,000,000 new Shares 'subject to reallocation as described in the section headed ``Structure of the Share Offer'') initially being offered for subscription under the Public Offer
Ð17Ð DEFINITIONS
``Public Offer Worldsec International, HSBC Broking Securities 'Asia) Limited, Underwriters'' BNP Prime Peregrine Securities Limited, Celestial Capital Limited, JS Cresvale International Limited, Kingsway SW Securities Limited and OSK Asia Securities Limited
``Qualifying Shares'' Up to 42,000,000 Shares 'with Warrants) being offered to the Qualifying Subscribers under the Placing
``Qualifying Subscribers'' Hong Kong residents registered as users of the Group's website www.36.com on or before 20th July, 2000
``Regulation S'' Regulation S under the US Securities Act
``Relevant Periods'' the two financial years of the Group ended 31st March, 1999 and 31st March, 2000
``Relevant Securities'' has the meaning ascribed thereto in Rule 13.15 of the GEM Listing Rules
``Reorganisation'' the corporate and business reorganisation which the Group underwent prior to the issue of this prospectus, details of which are set out in the paragraph ``Corporate Reorganisation'' in Appendix V to this prospectus
``SDI Ordinance'' the Securities 'Disclosure of Interests) Ordinance 'Chapter 396 of the Laws of Hong Kong) 'as amended)
``Securities Ordinance'' the Securities Ordinance 'Chapter 333 of the Laws of Hong Kong) 'as amended)
``Share's)'' share's) of HK$0.0001 each in the capital of the Company
``Share Offer'' the Public Offer and the Placing
``Share Option Scheme'' the share option scheme conditionally approved and adopted by the Company on 12th July, 2000, the principal terms of which are summarised in the paragraph headed ``Share Option Scheme'' in Appendix V to this prospectus
``Significant Chung Po Yang and ACAEDL Limited, a company incorporated in Shareholders'' Hong Kong with limited liability and wholly owned by Chung Po Yang. Chung Po Yang is the brother of Chung Wai Yang who is a non-executive Director
Ð18Ð DEFINITIONS
``Sponsor'' or ``Worldsec'' Worldsec Corporate Finance Limited, an investment adviser registered with the Securities and Futures Commission under the Securities Ordinance
``Stock Exchange'' The Stock Exchange of Hong Kong Limited
``Topspin'' Topspin Associates Limited, a company incorporated in the British Virgin Islands with limited liability and a wholly-owned subsidiary of the Company
``Topspin Options an agreement dated 24th May, 2000 as supplemented by a Conversion Agreement'' supplemental agreement dated 14th June, 2000 entered into between: 'i) the Company; 'ii) Topspin; and 'iii) each optionholder under the Topspin Option Scheme pursuant to which the optionholders agreed to exchange: 'a) the exercisable options under the Topspin Option Scheme for Shares; and 'b) the non- exercisable options under the Topspin Option Scheme for options under the Pre-IPO Share Option Scheme, as set out in the paragraphs headed ``Pre-IPO Share Option Scheme'' and ``Topspin Option Scheme'' in Appendix V to this prospectus
``Topspin Option Scheme'' the share option scheme approved and adopted by Topspin on 23rd December, 1999, further details of which are set out in the paragraph ``Topspin Option Scheme'' in the section headed ``Share Options'' in Appendix V to this prospectus
``TSCI'' TSCI Research 'H.K.) Limited, a company incorporated in Hong Kong with limited liability, which provides financial data services
``Underwriters'' the Public Offer Underwriters and the Placing Underwriters
``Underwriting the conditional underwriting and placing agreement dated 17th July, Agreement'' 2000 entered into between, among others, the Company and the Underwriters as described under the section headed ``Underwriting'' in this prospectus
``US'' or ``United States'' the United States of America
``US Securities Act'' the US Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder
Ð19Ð DEFINITIONS
``Warrants's)'' the warrant's) to be issued by the Company to the successful subscribers under the Public Offer and the placees under the Placing in the proportion of one Warrant for every Offer Share, conferring rights to the holders thereof to subscribe up to HK$112,000,000 'or HK$128,800,000 taking into account full exercise of the Over- allotment Option) in aggregate in cash for a total of 280,000,000 new Shares 'or 322,000,000 new Shares taking into account full exercise of the Over-allotment Option) at an initial subscription price of HK$0.40 per Share, subject to adjustment, at any time from 28th July, 2000 to 27th July, 2002, the terms of which are summarised in Appendix IV to this prospectus
``HK$'' , ``$'' or `` HK Hong Kong dollars and cents respectively, the lawful currency of Dollars'', ``cents'' or Hong Kong ``¢''
``US$'' or ``US Dollars'' US dollars, the lawful currency of the United States
``sq.ft.'' square feet
``sq.m.'' square metres
Unless otherwise specified in this prospectus, amounts denominated in US$ have been translated, for the purpose of illustration only, into Hong Kong Dollars at a rate of HK$7.80 = US$1.00.
No representation is made that any amount in US$ or HK$ could have been or could be converted at the above rate or at any other rates or at all.
Ð20Ð GLOSSARY OF TECHNICAL TERMS
The glossary contains explanations of certain terms used in this prospectus in connection with the Group and its business. The terms and their meanings may not correspond to standard industry meaning or usage of these terms.
``business-to-business'' in the context of e-commerce, a model whereby businesses transact with other businesses online
``business-to-consumer'' in the context of e-commerce, a model whereby businesses transact with consumers online
``channels'' website features which provide users with an efficient and easy way to explore and utilise content on the Internet through a series of guides and directories
``chat'' a common name for a type of messaging done over a network, involving short messages sent from one node to another. Chatting sometimes happens in real-time, sometimes in just short messages
``client'' in the context of information technology, clients are devices and software that request information. Clients are objects that use the resources of another object
``content'' all types of information Ð books, business documents, video, movies, music Ð contained in a website
``domain name'' the name of a world wide website through which Internet users can visit and send e-mail
``domain suffix'' a part of a domain name which identifies the nature of the organization. Only a selected few suffix can be registered, including ``.com'' 'commercial), ``.edu'' 'educational institution), ``.gov'' 'government) etc.
``download'' to receive data from another computer via a network or using a modem
``e-card'' or ``e-greeting electronic greeting card sent through the Internet card''
``e-commerce'' using electronic information technologies to conduct business between trading partners using EDI 'Electronic Data Interchange) or the Internet
``encryption'' the transformation of data into a form unreadable by anyone without a secret decryption key. Its purpose is to ensure privacy by keeping the information hidden from anyone for whom it is not intended
Ð21Ð GLOSSARY OF TECHNICAL TERMS
``e-mail'' electronic mail
``e-tailing'' retailing conducted by electronic commerce, that is, over the Internet and the world wide web
``GDP'' gross domestic product or the value of final goods produced within a country
``homepage'' the first page that browsers see of the information posted on a website. A homepage typically contains information which a visitor will find at the website by clicking hypertext links
``HTML'' HyperText Markup Language, a coding language used to make hypertext documents for use on the web. HTML resembles old- fashioned typesetting code, where a block of text is surrounded by codes that indicate how it should appear. HTML allows text to be ``linked'' to another file on the Internet
``HTTP'' HyperText Transfer Protocol. HTTP is the actual protocol used by the web server and the client browser to communicate over the ``wire'' that is invisible to the user. In short, the protocol for moving documents around the Internet
``Internet'' a global network of interconnected, separately administered public and private computer networks
``Internet penetration rate'' number of Internet subscribers divided by the subject population
``ISP'' Internet service provider, a vendor who provides access for customers 'companies and private individuals) to the Internet and the world wide web. The ISPtypically provides a core group of Internet utilities and services. The user typically reaches his/her ISP by either dialing up with his/her own computer, modem and phone line, or over a dedicated line installed by a telephone company
``IT'' information technology
``Mbps'' megabits per second, which is a measurement of speed for digital signal transmission expressed in millions of bits per second
``netbudsman'' Internet ombudsman
``online'' when a device is actively connected to a computer, it is online. Terminals, PCs, modems and phones are often online
Ð22Ð GLOSSARY OF TECHNICAL TERMS
``pageviews'' a single page view is recorded whenever a page is loaded from the web server
``PC'' personal computer, a computer for one person's use. Its name was used to distinguish it from other computers that existed at the time of the PC's invention. Those other computers were mainframes and mini-computers
``PDA'' personal digital assistant, a consumer electronic gadget that looks like a palmtop computer. Unlike personal computers, PDA will perform specific tasks: acting like an electronic diary, carry-along personal database, multimedia player, personal communicator, memo taker, calculator, alarm clock. The communications will take place through the phone or in a wireless manner
``PNETS'' Public Non-exclusive Telecommunication Service licence for provision of telecommunication services 'e.g. electronic data interchange, electronic mail, store-and-forward data and fax and teleconference) to the public over the public telecommunication networks in Hong Kong
``portal'' an entry point and gateway for using the Internet that provides web- related services and links
``registered members'' unique individuals who identify themselves when visiting a website. This requires the user to take some action, usually completing a survey on the first visit
``search engine'' a program that returns a list of websites 'URLs) that match some user-selected criteria
``server'' a shared computer on the local area network that can be used as simple as a PC set aside to handle print requests to a single printer, or, more usually, it is used as a repository and distributor of large amount of data. It may also be used as a gatekeeper controlling access to voice mail, e-mail, facsimile service
``traffic'' the volume of web users visiting a website
``unique visitors'' individuals who have accessed the website during a given period of time. A single unique visitor is recorded where a web server stores a small piece of information with a browser 'cookie) which uniquely identifies that browser or computer
``URL'' Uniform Resource Locator, the standard addressing system for the world wide web, e.g. http://www.36.com
Ð23Ð GLOSSARY OF TECHNICAL TERMS
``vertical portal'' a one-stop gateway to the Internet that pools, organises and delivers information to meet the needs of users who are interested in specific areas of interest to each of the Group's target markets
``WAP'' wireless application protocol
``web'' or ``world wide the universe of accessible information available on many computers web'' spread through the world and attached to the Internet. The web has a body of softwares, a set of protocols and a set of defined conventions for getting information on the web. The web uses hypertext and multimedia techniques to make the web easy for anyone to roam, browse and contribute to
``web browser'' clients software which navigates a web of interconnected documents on the world wide web, allowing computer users to move easily from one website to another
``web jockey'' a person responsible for hosting a channel within a vertical portal
``web page'' a single file that can be displayed on the web
``website'' any machine on the Internet that is running a web server to respond to requests from remote web browsers. In more common language, it refers to individual sets of web pages that can be visited with web browsers
``Year 2000 problem'' also known as the millennium or Y2K bug, a problem in certain computer systems which use only two digits to represent the year, in that these systems may not function correctly in the year 2000 and beyond as they cannot distinguish between, for example, 1st January, 1900 and 1st January, 2000
Ð24Ð RISK FACTORS
Potential investors should carefully consider all of the information set out in this prospectus and, in particular, should consider the following risks and special considerations associated with an investment in the Company before making any investment decision in relationtotheCompany.
An investment in the Offer Shares involves a high degree of risk and is speculative. You should carefully consider, together with all of the other information included in this prospectus, the following factors before purchasing any of the Offer Shares with Warrants). Further, there may be other risks and uncertainties not presently known to the Company or that the Company currently deems immaterial which could also harm the business, financial condition and operating results of the Company.
RISKSRELATINGTOTHEGROUP
1. The Group hasa limited operating history
The Group commenced its media related businesses in August 1996 and devised its plan to broaden the scope of its activities into interactive media in December 1997 and began exploring Internet-related business opportunities in 1998. The Group's first vertical portals were officially launched on 6th March, 2000. As a result of the Group's short operating history, its business strategy is unproven, and the Directors cannot be certain that the Group will achieve its business objectives or that the Group will be able successfully to compete and achieve market acceptance or otherwise address the risk factors disclosed in this prospectus.
2. The Group's Internet business has not been profitable and losses are expected for the foreseeable future
The Group has not generated any profits for the two financial years ended 31st March, 2000 and thereafter the Group has continued to operate at a loss. The Directors anticipate that the Group will continue to incur operating losses for the foreseeable future due to a high level of planned operating and capital expenditure, potential joint venture partnerships and acquisitions, increased sales and marketing costs, additional personnel hires, greater levels of product development and the Group's general growth objectives. It is likely that the Group's operating losses will increase in the future and possible that the Group will never achieve or sustain profitability.
3. The Group may require additional funds
The Group's business requires significant capital expenditure, as well as marketing, research and development and other operating expenditure. The Group will need to continually expend capital to maintain and upgrade its network, develop its new business lines, and market its existing and new services. The Group expects to incur at least HK$45.8 million of capital expenditure, research and development and marketing expenses during the financial year ending 31st March, 2001.
Ð25Ð RISK FACTORS
Although the Directors believe that the Group's current working capital together with the proceeds of the Share Offer will cover such expenditure, the Group's expenditure plans and financing needs may grow faster than expected. If the Group is unable to obtain financing or finance itself through the cashflow generated by its business, it will be unable to fund its capital expenditure, invest in research and development, expand its business lines or meet any debt service obligations.
4. The Group may not be able to implement its strategy for future growth successfully
During its limited operating history, the Group has not earned any significant profits in the past and does not expect to earn profits in the foreseeable future. A significant portion of the value of the Shares in the future may depend on the Group's success in implementing its long-term strategy. The success of such strategy depends upon a number of factors, both within and beyond the control of the Company. The Directors believe that the success of the Group in the future will substantially depend on, among other things, the Group's success in strengthening its existing portals, in developing and launching new portals and the Group's ability to achieve growth in its advertising revenue. As a result, in addition to those risk factors discussed elsewhere in this prospectus, the Directors believe that the Group's ability successfully to implement its long-term strategy could be adversely affected by the following risk factors:
'a) Although the Group expects to generate revenue from advertising commissions in the future, such revenue may not be substantial
The business plan of the Group is dependent on the anticipated expansion of online advertising in the PRC, North America, Asia and Australasia and the growth in revenue of the Group is dependent on increased revenues generated by advertising, sponsorship and e- commerce. The Directors anticipate that a substantial portion of the Group's future revenues will, in the medium term, continue to be derived from advertising and sponsorship, assuming online advertising becomes more broadly accepted in the PRC, North America, Asia and Australasia. The Directors expect the Group to derive a significant amount of revenue from hosting advertising on www.36.com websites which will be focused initially on the markets in Hong Kong, the PRC, North America, Asia and Australasia.
Online advertising is an unproven business and the ability of the Group to generate and maintain significant advertising revenue will depend on, among other things:
. advertisers' acceptance of the Internet as an effective and sustainable advertising medium;
. the development by the Group of a large base of users of its portals possessing demographic characteristics attractive to advertisers; and
. the effectiveness of advertising delivery, tracking and reporting systems.
Ð26Ð RISK FACTORS
The Directors believe that the number of Internet companies relying on web-based advertising revenue will increase greatly in the future. Accordingly, it is likely that the Group will face increased competition, resulting in increased pricing pressures on the Group's advertising rates which could in turn have a material adverse effect on the Group's business, results of operations and financial condition. In addition to other Internet companies, the Group also faces competition from traditional forms of media advertising such as newspapers, magazines, radio and television.
Finally, the development of web software that blocks Internet advertisements before they appear on a user's screen may hinder the growth of online advertising. The expansion of advertisement blocking on the Internet may decrease advertising revenues because when an advertisement is blocked, it is not downloaded from the Group's server, which means that such advertisement is not tracked as a delivered advertisement. In addition, advertisers may choose not to advertise on the Internet and on the Group's advertising network because of the use of Internet advertisement blocking software. Therefore, the development and use of such software may materially and adversely affect the Group's business.
'b) The Group may not be able successfully to expand in the PRC, North America, Asia and Australasia through organic growth, business alliances, joint venture partnerships and/or acquisitions
As a component of the Group's growth strategy, the Group intends to expand in the PRC, North America, Asia and Australasia with a view to enhancing and diversifying the Group's revenue growth, operations and profitability.
Any organic expansion may require significant amounts of capital and the diversion of management's attention from the Group's other business concerns. Furthermore, the management of the Group may be unfamiliar with market conditions and business practices in such markets.
Any business alliances, joint venture partnerships and/or acquisitions may result in the use of significant amounts of capital, potentially dilutive issuances of equity securities and amortisation expenses related to goodwill and other intangible assets, each of which could materially and adversely affect the business of the Group. Business alliances, joint venture partnerships and/or acquisitions involve numerous risks, including:
. the difficulties in the integration and assimilation of the operations, technologies, products and personnel of the counterparty's businesses;
. the diversion of management's attention from other business concerns;
. the availability of favourable financing for future acquisitions;
. the lack of familiarity with the market conditions and business practices of the markets targetted by the Group;
Ð27Ð RISK FACTORS
. the Group may not have worked out the management of such business alliances or joint venture partnership; and
. possible disagreement or disputes between the Group and its partners.
The Group will need to be able successfully to integrate its business with that of any such counterparty 'if appropriate), and its failure to do so could have a material adverse effect on the business, results of operations and financial condition of the Group.
5. The Group dependson certain key executivesand personnel
The Group depends to a significant extent on the continued services of the following key executive personnel:
. Cheng Albert Jinghan, executive Director and chief i-content architect
. Ip Saimond, chairman and chief executive officer
. Yeung Kwok Mung, executive Director and chief operating officer
. Poon Wan Fung, chief technology officer
. Leung Tak Man, creative director 'Entertainment, Sports, Horse-racing and Automobile)
. Lai Chak Fun, portal director 'Finance)
. Ng Ha Long, portal director 'News)
. Chan Wai Hung, portal director 'Consumer and Eating)
The loss of all or any of the above key executives may have a material adverse impact on the Group.
6. Failure of the Group to attract and retain qualified personnel could affect and limit its growth
The Group will need to recruit additional personnel to accommodate its anticipated growth. Competition for employees with the necessary Internet industry experience is intense. The Group may not be able to retain existing employees or identify or recruit new employees because of that competition. If the Group fails to recruit or retain the necessary personnel, the Group's business could be materially and adversely affected. See the section headed ``Directors, senior management and staff''.
Ð28Ð RISK FACTORS
7. Failure of third party suppliers to provide software and hardware components could affect the business and operations of the Group
The Group depends on third party suppliers of software and hardware components. The Group relies on components that are sourced from a small number of suppliers. The failure of the Group's suppliers to meet increasing demand may prevent them from supplying the Group with components and products as and when the Group requires them. The Group's inability to develop alternative sources for such software and hardware could delay and increase the cost of expanding its network infrastructure and could adversely affect the operating efficiency and results of operations of the Group by, among other things, impairing the Group's ability to execute its strategy of rapidly increasing its market share.
8. The Group relies on software and hardware systems that may be susceptible to failure and misuse
Any system failure or inadequacy that causes interruptions in the availability of services of the Group, or delays the response time of the Group's services, as a result of increased traffic or otherwise, could reduce user satisfaction, future traffic and the attractiveness of the Group's services to advertisers and consumers. The Group has configured its system to enhance its scaling capabilities with a view to being able to accommodate the increasing number of its portals and traffic. However, there can be no assurance that the Group will be able to scale systems proportionately. Web browsers, ISPs and other website operators have experienced significant system failures and electrical outages in the past. The Group is also dependent upon web browsers, ISPs and other website operators in Asia and elsewhere. Users of the Group's website have experienced difficulties in the past due to system failures unrelated to systems and services of the Group.
The Group has deployed data backup and recovery strategy with a view to minimizing possible service outages in the event of data loss. The Group also has an uninterruptable power supply system to prevent any system failure due to power outage. However, the Group does not presently have a disaster recovery plan in the event of damage from fire, floods, typhoons, earthquakes, power loss, telecommunications failures, break-ins and similar events. If any of the foregoing occurs, the Group may experience a complete system shut-down. The Group's insurance coverage may not be adequate to compensate the Group for all losses that may occur in these circumstances. To improve performance and to prevent disruption of its services, the Group may have to make substantial investments to deploy additional servers or one or more copies of the Group's websites to mirror the Group's online resources. To the extent that the capacity restraints described above cannot be addressed, they could have a material adverse effect on the business, results of operations and financial condition of the Group.
Inappropriate use of the Group's Internet services could jeopardise the security of confidential information stored in the Group's computer systems, which may cause losses to the Group. Inappropriate use of the Internet includes attempting to gain unauthorised access to information or systems Ð commonly known as ``cracking'' or ``hacking.'' Although the Group has implemented security measures such as high availability filtering routers and firewall clusters to protect the Group's facilities, such measures may possibly be circumvented. Alleviating
Ð29Ð RISK FACTORS problems caused by computer viruses or other inappropriate uses or security breaches may also require interruptions, delays or cessation in the Group's services. The Group does not carry ``errors and omissions'' or other insurance covering losses or liabilities caused by computer viruses or security breaches.
9. The Group may encounter difficulties with respect to its use of technology rights
The Group currently uses technology licensed to it by third parties. As the Group continues to introduce new services that require new technology, the Directors believe that the Group may be adversely affected by the following risks:
'a) The Group may not be able to obtain technology licences on commercially reasonable terms
The Group anticipates that it may need to obtain technology licences to use additional third party technology. There is no assurance that these technology licences will be available to the Group on commercially reasonable terms, if at all.
The Group's inability to obtain any of these technology licences could delay or compromise the introduction of new services and could materially and adversely affect the business and financial condition of the Group.
'b) The Group may inadvertently infringe the intellectual property rights of others and face liability for such infringements
It is possible that in the course of using new technology, the Group may inadvertently infringe the intellectual property rights of others and face liabilities for such infringements. See the paragraph ``Intellectual Property Rights'' in the section headed ``Business''.
'c) There can be no assurance that steps taken by the Group will prevent misappropriation or infringement of licensed technology
It may be possible that a third party may copy or otherwise obtain and use the Group's licensed services or technology without authorisation, or develop similar technology. In addition, there are countries where effective copyright, trademark and trade secret protection may be unavailable or limited, and the global nature of the Internet makes it difficult to control the ultimate destination of the Group's products. Policing unauthorised use of the licensed technology of the Group is difficult and there can be no assurance that any steps taken by the Group will prevent any such misappropriation or infringement from occurring.
'd) The Group may be involved in future litigation with respect to its use of technology rights
Litigation may be necessary in the future to enforce the intellectual property rights of the Group, including its trade secrets, or to determine the validity and scope of the Group's resources and the outcome of any such litigation could have a material adverse impact on the business, results of operations and financial condition of the Group.
Ð30Ð RISK FACTORS
10. The Group may be held liable for information retrieved from itsportal network
Since the Group's services can be used to download and distribute information to others, there is a risk that claims may be made against the Group for defamation, negligence, copyright or trademark infringement or other claims based on the nature and content of such material such as violation of censorship laws in the PRC. The Group does not carry insurance which would cover potential claims of this type. Any imposition of liability that is not covered by any insurance could have a material adverse impact on the Group's business, results of operations and financial condition.
11. The Group may be held liable under the Control Obscence and Indecent Articles Ordinance 9Chapter 390 of the Lawsof Hong Kong)
Under the Control of Obscene and Indecent Articles Ordinance 'Chapter 390 of the Laws of Hong Kong) any person who publishes, possesses for the purpose of publication or imports for the purpose of publication any obscene article, whether or not the person knows that it is an obscene article, commits an offence and is liable for a fine of up to HK$1 million and imprisonment for up to three years. It is also an offence to publish any indecent article to a person who is a juvenile, whether it is known that it is an indecent article or that the relevant person is a juvenile, punishable by a fine of up to HK$400,000 and imprisonment for up to 12 months. A subsequent conviction will give rise to a fine of up to HK$800,000. Presently, there is uncertainty as to whether portal operators in Hong Kong such as the Group are liable under the Ordinance for obscene or indecent materials distributed over their portals.
12. Privacy concernsmay prevent the Group from sellingdemographically targetted advertising in the future
To the extent that the Group collects data derived from user activity on the Group's portal and from other sources, the Group cannot be certain that any trade secret, copyright or other protection will be available for such data or that others will not claim rights to such data.
Advertising serving technology enables the use of cookies, in addition to other mechanisms, to deliver targeted advertising, to help compile demographic information, and to limit the frequency with which an advertisement is shown to the user. Cookies are bits of information keyed to a specific server, file pathway or directory location that are stored on a user's hard drive and passed to a website's server through the user's browser software. Cookies may be placed on the user's hard drive without the user's knowledge or consent, but can be removed by the user at any time. Due to privacy concerns, some Internet commentators, advocates and governmental bodies have suggested that the use of cookies be limited or eliminated. Any limitation on the Group's ability to use cookies could impair the Group's future targeting capabilities and adversely affect the Group's business.
In Hong Kong, an Internet company will be in contravention of the Personal Data 'Privacy) Ordinance 'Chapter 486 of the Laws of Hong Kong) if it collects information on its users, analyzes the information for a profile of the user's interests and sells or transmits the profiles to
Ð31Ð RISK FACTORS third parties for direct marketing purposes without the user's consent. The Group's future inability to obtain demographic profiles from Internet users that do not consent to such use may have a material adverse impact on the Group's business.
13. The Group relies on a small number of customers and suppliers
The Group only launched its initial vertical portals on 6th March, 2000. Given the limited operating history of the Group's vertical portal business, it has only contracted with a relatively small number of customers and suppliers. If the Group is not able to expand its customer base or if it encounters difficulty in sourcing suppliers, the operation and profitability of the Group may be adversely affected.
14. Proceedsfrom the Share Offer may not be usedin the waysdescribedin thisprospectus
The business plan of the Group as described in the paragraph headed ``Business objectives, future plans and implementation schedule'' in the section headed ``Business'' is based on assumptions of future events which by their nature are subject to uncertainty and there is no assurance that the plans of the Group will materialise as intended. Should any part of the business plans of the Group not materialise or proceed as planned, the proceeds of the Share Offer may not be utilised as described in the paragraph headed ``Use of proceeds'' under the section headed ``Business'' and the Directors may need to reallocate the intended part of the net proceeds of the Share Offer to other business plans or projects of the Group or hold such funds in bank accounts or short term interest-bearing debt securities so long as the Directors consider such use of proceeds to be in the best interests of the Group. If there are any material changes to the use of proceeds, an appropriate announcement will be made.
15. The Group's planned expansion into the PRC market may expose the business of the Group to further risks
A series of regulations adopted since 1993 prohibit direct or indirect foreign investment in, operation of, or participation in the operation of, telecommunications services, including computer information and Internet access services. Under these regulations, foreign companies, their subsidiaries or joint ventures in the PRC, also known as foreign investment enterprises, are not permitted to engage in the provision of value-added or other telecommunications services including Internet services in the PRC.
The anticipated entry of the PRC into the World Trade Organization '``WTO'') following the signing of market access agreements between the United States and the PRC is expected to be accompanied by the adoption of regulations permitting non-PRC investors to invest in telecommunications and services sectors such as the Internet market and e-commerce operations in the PRC. The WTO agreements will not become effective until the PRC's accession to the WTO, and they are adopted as domestic law in the PRC. Until such time, existing laws and regulations will continue to apply. Moreover, the laws and regulations adopted to implement the WTO agreements may contain restrictions on ownership structures or permissible activities.
Ð32Ð RISK FACTORS
In addition to the aforesaid, the planned expansion of the Group into the PRC market through organic growth, acquisitions, joint ventures or other arrangements could also expose the business of the Group to a number of risks including unexpected changes in regulatory requirements, potentially adverse tax and regulatory consequences, export and import restrictions and controls, tariffs and other trade barriers and political instability and fluctuations in currency exchange rates.
The development of the Internet and related technologies is at an even earlier stage in the PRC than in many other jurisdictions. For example, current Internet penetration rates are lower, payment systems less sophisticated and IT infrastructure less advanced than in other more developed jurisdictions. In addition, it has been reported that the PRC government is considering imposing restrictions on the flow of information over the Internet within the PRC. There can be no assurance that the PRC government will not seek to control or regulate the proposed business activities which the Group expects to seek to carry on in the PRC. In addition, there can be no assurance that one or more of the factors discussed above will not have a material adverse effect on the Group's future PRC operations and, consequently, on the Group's business, results of operations and financial condition.
16. Forward-looking statementscontained in thisprospectusmaynot be accurate
Included in this prospectus are various forward-looking statements which can be identified by the use of forward looking terminology such as ``may'', ``will'', ``expect'', ``anticipate'', ``estimate'', ``plan'', ``continue'', ``believe'', ``likely'' and other similar words. The Company and the Directors have made forward-looking statements with respect to, amongst other things, the following, among other things:
. the Group's goals and strategies;
. the importance and expected growth of Internet technology;
. the importance and expected growth of Asian and global e-commerce;
. the pace of change in the Internet marketplace;
. the use of proceeds;
. the demand for Internet services; and
. the Group's revenue model.
Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Group, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding the Group's present and future business strategies and the environment in which the Group will operate in the future. Important factors that could cause the Group's actual results, performance or achievements to differ materially from those in the
Ð33Ð RISK FACTORS forward-looking statements include, among others, the loss of key personnel of the Group, changes relating to technology and the Asian and global Internet industry and changes in general economic and business conditions. Additional factors that could cause actual results, performance or achievements to differ materially include, but are not limited to, those discussed above in this section. These forward-looking statements speak only as at the Latest Practicable Date.
RISKS RELATING TO THE INTERNET INDUSTRY IN GENERAL
1. The Internet industry is subject to rapid technological change
The markets in which the Group operates are relatively new and characterised by rapidly changing technology, evolving industry standards, frequent new service and product announcements, introductions and enhancements and changing customer demands. These market characteristics are exacerbated by the emerging nature of the web and the apparent need of companies from a multitude of industries to offer web-based products and services. Accordingly, the Group's future success will be affected by its ability to adapt to rapidly changing technologies, to adapt its services to evolving industry standards and continually to improve the performance, features and reliability of its services in response to competitive service and product offerings and evolving demands of the market place. The failure of the Group to adapt to such changes would have a material adverse effect on the Group's business, results of operations and financial condition. Further, due to the rapidly evolving characteristics of the industry, new factors may emerge, and/or existing factors which presently have only a minor impact may develop, which may accordingly adversely and materially affect the Group.
In addition, the widespread adoption of new Internet, networking or telecommunications technologies or other technological changes could require substantial expenditures by the Group to modify or adapt its services or infrastructure. There is no assurance that the Group will be able to finance such expenditure and failure to do so could have a material adverse effect on the Group's business, results of operations and financial condition.
2. The Internet industry is intensely competitive
'a) Verticalportaloperations
The vertical portal sector of the Asian Internet market is characterised by an increasing number of entrants attracted by the relatively low start-up costs. In addition, the Internet industry is relatively new and subject to continuing definition and as a result, competitors of the Group may better position themselves to compete in this market as it matures. Many of the existing competitors of the Group, as well as a number of potential new competitors, have longer operating histories in the Internet market, greater name recognition, larger customer bases and databases and significantly greater financial, technical and marketing resources than the Group. The Group competes in the vertical portal sector on the basis of traffic, ease of use and functionality. However, any of the present or future competitors of the Group may provide products and services that provide significant performance, price, creativity or other advantages over those offered by the Group. There can be no assurance that the Group will be able to compete successfully against its current or future competitors.
Ð34Ð RISK FACTORS
'b) Advertising competition
The Directors believe that the number of companies relying on fees from web-based advertising placed on their own websites has increased substantially. As a result, the Group may face increased pricing pressure for the sale of advertisements on its portals, which would have a material adverse effect on the Group's business, results of operations and financial condition.
The Group's competitors may be able to undertake more extensive marketing campaigns, adopt more aggressive pricing policies and make more attractive offers to qualified personnel, distribution partners, advertisers and content providers. Further, the Group can make no assurance that ISPs, web browsers and web content providers will not be perceived by advertisers as having more desirable websites for the placement of advertisements. Accordingly, the Group can provide no assurance that the Group will be able to retain advertisers, maintain or increase traffic on the Group's vertical portals, or that competitors will not experience greater growth in traffic as a result of such relationships.
3. The Asian Internet industryisa developing market and hasnot been proven asan effective commercial medium
The market for Internet services in Asia has only recently begun to develop. As the Internet is a relatively unproven medium for advertising and other commercial services, the future operating results of the Group from online advertising and e-commerce will depend substantially upon the increased use of the Internet for information, publication, distribution and commerce and the emergence of the Internet as an effective medium for promoting and selling products and services relative to traditional print and broadcast media and other sales and distribution channels. Some of the customers of the Group have limited experience with the Internet as an advertising medium or sales and distribution channel, will not have devoted a significant portion of their advertising expenditures or other available funds to web-based advertising or website development and may not find the Internet to be effective for promoting and selling their products and services relative to traditional print and broadcast media and other sales and distribution channels.
4. Government regulation and legal uncertaintiescould adverselyaffect the conduct of business on the Internet
The application of existing laws to the Internet and Internet-related applications is being clarified and refined in Hong Kong and Asia, and a number of new legislative and regulatory proposals applicable to the Internet are under consideration, including in the areas of content liability, e-commerce, encryption and electronic signature technology, data protection and privacy. Depending on the scope and timing of these developments, it is possible that such developments could have a material adverse impact on the business, results of operations and financial condition of the Group.
Ð35Ð RISK FACTORS
5. Statisticsderived from variousunofficial publicationshave not been independently verified
Certain statistics in this prospectus relating to the Internet industry, such as statistics relating to current and projected numbers of installed PCs, Internet usage and e-commerce revenues in various jurisdictions, as well as statistics regarding consumer preferences, are derived from various unofficial publications, in particular, those produced by IDC. Such information has not been independently verified by the Company and may be not accurate, complete or up-to-date. The Company makes no representation as to the correctness or accuracy of such statements and, accordingly, such information should not be unduly relied upon.
POLITICAL AND ECONOMIC RISKS
1. The economic climate in Asia is volatile
Since mid-1997, many countries in Asia have experienced significant economic downturns and related difficulties. As a result of the decline in the value of the region's currencies, many Asian governments and companies experienced difficulties servicing foreign currency- denominated debt and many corporate borrowers defaulted on their debt payments. As the economic crisis spread across the Asian region, certain governments raised interest rates to defend their weakening currencies, which adversely affected domestic growth rates. In addition, liquidity was substantially reduced as foreign investors curtailed investments in the region and domestic banks restricted additional lending activities. The currency fluctuations, as well as higher interest rates and other factors, have materially and adversely affected the economies of many countries in Asia. Estimated real GDPgrowth for many countries comprising the Group's potential advertising territory 'including Hong Kong) decreased during this period. Economic factors in countries throughout Asia could have a material adverse effect on the Group's business, results of operations and financial condition.
The economic crisis and its effect on the Asian economies described above have had and are likely to continue to have an adverse impact on the Group's business in the following respects:
. spending levels by both Asian and non-Asian companies for advertising in the Asian markets may be substantially reduced;
. payments on the Group's accounts receivable may be deferred and may become more difficult to collect or uncollectable;
. the Group's ability to access lines of credit or other financing may be restricted; and
. e-commerce revenues may be adversely affected by falling levels of consumer spending and decreased access to consumer credit, including credit cards.
Ð36Ð RISK FACTORS
2. There are political and economic risks associated with doing business in Hong Kong
Most of the facilities and operations of the Group are currently located in Hong Kong. Hong Kong is a Special Administrative Region of the PRC with its own government and legislature. Hong Kong enjoys a high degree of autonomy from the PRC under the principle of ``one country, two systems''. However, there can be no assurance that Hong Kong will continue to enjoy its current level of autonomy from the PRC, and if it does not, this could have a material adverse effect on the Group's operations.
The HK Dollar has remained relatively constant due to the US Dollar peg and currency board system that has been in effect in Hong Kong since 1983. As a result of the Asian crisis in mid-1997, interest rates in Hong Kong rose significantly, real estate values and retail sales declined and Hong Kong slipped into a recession. Subsequently, Hong Kong suffered deflation, the HK Dollar was subject to currency speculation and the Hong Kong government substantially supported the market for the HK Dollar, both directly and indirectly through the large-scale purchase of securities listed on the Stock Exchange. There can be no assurance that the Hong Kong economy will not become worse or that the historical currency peg of the HK Dollar to the US Dollar will be maintained. Continued recession in Hong Kong, deflation or discontinuation of the historical currency peg could materially and adversely affect the financial condition, results of operations and business of the Group.
3. A change in currency exchange ratescould increasecostsrelative to revenuesof the Group
Historically, substantially all revenues, expenses and liabilities of the Group have been denominated in HK Dollars and US Dollars. In the future, the Group may conduct business in additional jurisdictions which could generate revenues, expenses and liabilities in other currencies. As a result, the Group will be subject to the effects of exchange rate fluctuations with respect to any of such currencies. The Group has not entered into agreements or purchased instruments to hedge the Group's exchange rate risks. Therefore, future exchange rate fluctuations could have a material adverse effect on the business, financial condition and operations of he Group.
4. There are political and economic risks associated with doing business in the PRC
The PRC economy has traditionally been a planned economy. Five and ten-year State Plans are adopted by the PRC government in connection with the development of the economy. Although state-owned enterprises still account for a substantial portion of the PRC's industrial output, in general, the State is reducing the level of direct control which it exercises over the economy through State Plans and other measures, and there is an increasing degree of liberalisation in areas such as allocation of resources, production, pricing and management and a gradual shift in emphasis to a socialist market economy.
Ð37Ð RISK FACTORS
During the last 18 years, the PRC government has been reforming, and is expected to continue to reform, its economic and political systems. Many of the reforms are unprecedented or experimental and are expected to be refined and improved upon over time. Other political, economic and social factors may also lead to further readjustment of the reform measures. The Group's business prospects in the PRC could be adversely affected by changes in the PRC's state plans or political, economic and social conditions or changes in policies by the PRC government, changes in laws and regulations 'or the interpretation thereof), measures which may be introduced to control inflation, changes in the rate or method of taxation, imposition of additional restrictions on currency conversion, and reduction in tariff rates and other import restrictions.
The PRC economy has experienced significant growth in the last five years, but such growth has been unevenly spread, geographically and among various sectors of the economy. The PRC government has implemented from time to time various policies, including, in the second half of 1993, policies to control inflation and regulate economic expansion with a view to preventing overheating of the economy. Although the Group could benefit from the reduction of inflation, such measures or other action by the PRC government could have a material adverse effect on economic conditions in the PRC and therefore the business prospects of the Group.
With effect from 1st January, 1994, the PRC government abolished its two-tier exchange rate system and replaced it with a unified floating exchange rate system largely based on market supply and demand. Since the introduction of this unified floating exchange rate system, movements in the exchange rate of the Renminbi against other currencies, such as the US dollar, have been to an extent subject to market forces. Despite such developments, the Renminbi is still not a freely convertible currency. In addition, there is no assurance that the Renminbi will not be subject to devaluation or depreciation due to administrative or legislative intervention by the PRC government or adverse market movements, or that shortages in the availability of foreign currency will not develop. The value of the Group's investments and the profitability of its future operations may be adversely affected by any devaluation of the Renminbi.
RISKS RELATING TO THE SHARES
1. An active trading market for the Sharesand the Warrantsmay not develop
Prior to the Share Offer, there has been no public market for any of the Shares or the Warrants. There can be no guarantee that an active trading market for Shares and the Warrants will develop, or, if it does develop, it will be sustained following completion of the Share Offer.
2. The market price of the Sharesmay fluctuate
Although the Issue Price was determined based on several factors, the market price for the Shares may vary from the Issue Price and the Issue Price may not be indicative of the price at which the Shares will trade following completion of the Share Offer.
Ð38Ð RISK FACTORS
The trading price of the Shares could also be subject to significant volatility in response to, among other factors, the following:
. investor perceptions of the Group and the Group's plans for its portals and e-commerce business;
. announcement of the Group regarding significant acquisitions, partnerships, joint ventures or capital commitments;
. developments in the Internet industry and, in particular, e-commerce;
. variations in the operating results of the Group;
. announcement of new products or services by the Group or its competitors;
. changes in financial estimates by securities analysts;
. technological innovations;
. changes in pricing made by the Group, the Group's competitors or providers of alternative services;
. changes in share prices of other Internet sector companies;
. the depth and liquidity of the market for the Shares and the development of GEM as a stock market;
. future sales of Shares or other securities; and
. general economic and other factors.
3. Potential dilution as a result of additional equity fund raising
The Group may need to raise additional funds in the future to finance expansion of or new developments relating to its existing operations or new acquisitions. If additional funds are raised through the issuance of new equity or equity-linked securities of the Company other than on a pro rata basis to existing shareholders, the percentage ownership of the shareholders of the Company may be reduced that results in subsequent dilution of the shareholding interest of such shareholders in the Company and/or such securities may have rights preferences and privileges senior to those of the Shares.
4. Dilution as a result of exercise of share options
The Group has in place the Pre-IPO Share Option Scheme under which options in respect of 316,823,077 Shares have been granted conditionally as at the date of this prospectus, details of which are set out in the paragraph headed ``Pre-IPO Share Option Scheme'' in Appendix V to this prospectus. All of these options were granted at exercise prices which are considerably less than the Issue Price. Exercise in full of all options granted under the Pre-IPO Share Option Scheme
Ð39Ð RISK FACTORS would result in the issue of 316,823,077 new Shares by the Company, representing about 11.49 per cent of the number of Shares in issue 'as enlarged thereby) immediately after completion of the Share Offer 'including Shares falling to be issued upon exercise of options under the Pre-IPO Share Option Scheme but taking no account of any Shares which may be issued under the Over- allotment Option or upon any exercise of options which may be granted under the Share Option Scheme or upon any exercise of the subscription rights attaching to the Warrants, or of any Shares which may be issued or repurchased by the Company pursuant to the mandates referred to in Appendix V to this prospectus). In addition, options in respect of 415,484,723 Shares may be granted under the Share Option Scheme as set out in the paragraph headed ``Share Option Scheme'' in Appendix V to this prospectus.
The full exercise of all of these options would result in the issue of 732,307,800 Shares, representing 30% 'taking no account of the issue of the Shares pursuant to any exercise of the Over-allotment Option) and approximately 29.49 per cent 'taking into account the issue of Shares pursuant to full exercise of the Over-allotment Option) of the issued share capital of the Company immediately following listing. This will result in a reduction in the percentage ownership of the shareholders of the Company and may result in a dilution in the assets and earnings per Share.
5. Number of Shareswhich are freely transferable
Immediately upon listing, the shareholding interest of the public shall represent approximately 33.90 per cent of the number of Shares in issue 'taking no account of any Shares which may be issued under the Over-allotment Option) and shall comprise:
'i) Shares representing approximately 11.47 per cent of the number of Shares in issue to be subscribed by the public under the Share Offer;
'ii) Shares held by existing public shareholders representing approximately 18.39 per cent of the number of Shares in issue, of which approximately 3.26 per cent of the number of Shares in issue are not subject to any lock-in, whereas Shares representing approximately 15.13 per cent of the number of Shares in issue are subject to lock-in and are not freely transferable during the period of six months commencing on the listing date; and
'iii) Shares representing approximately 4.04 per cent of the number of Shares in issue held by Internet content providers to the Group, which Shares are subject to lock-in and are not freely transferable for varying periods all of which are for six months or more commencing on the listing date 'details of which are set out in the paragraph headed ``Lock in'' in Appendix V to this prospectus).
Details of the lock-in arrangements for the shareholders of the Company are set out in the paragraph headed ``Lock in'' in Appendix V to this prospectus.
As a result of such lock-in arrangements, only approximately 14.73 per cent of the Shares in issue upon listing will be freely transferable. The Company cannot assure prospective investors that an active trading market for the Shares will develop or give any assurance as to the level of liquidity in trading of the Shares.
Ð40Ð WAIVERS FROM COMPLIANCE WITH THE GEM LISTING RULES AND COMPANIES ORDINANCE
GEM LISTING RULES WAIVERS
For the purpose of the listing of the Shares on GEM, the Company has sought a number of waivers from the GEM Listing Division in relation to certain requirements under the GEM Listing Rules. Details of such waivers are described below.
Two years active business pursuits waiver
Under Rule 11.12 of the GEM Listing Rules, a new applicant must demonstrate that, throughout the period of 24 months immediately preceding the date of the listing document, it i) has, either by itself or through one or more of its subsidiaries, actively pursued one focused line of business under substantially the same management and ownership as exist at the time of the application for listing; and ii)made substantial progress in building up that business.
The Group has a history of 15 months of active business pursuits, which falls short of the 24 months as required by Rule 11.12 of the GEM Listing Rules. As a result of an application made on behalf of the Company, the Stock Exchange has granted a waiver from strict compliance with Rule 11.12 of the GEM Listing Rules to the effect that the two years ``active business pursuits'' be reduced to 15 months.
Lock-upperiodwaivers
The GEM Listing Rules require every initial management shareholder of a new issuer to undertake to the new issuer and the Stock Exchange not, for a period of two years from the listing date, save as provided in Rule 13.17 of the GEM Listing Rules, to dispose of or enter into any agreement to dispose of)or permit the registered holder to dispose of or to enter into any agreement to dispose of)any direct or indirect interest in relevant securities.
Under the GEM Listing Rules, Messrs Cheng Albert Jinghan, Ip Saimond, Yeung Kwok Mung, Tsang Moses Kwok Tai, Poon Kai Tik, Huang Erwin Steve, Chung Wai Yang, CIBC Trust Company ,Bahamas) Limited ,as trustee of the Albert Cheng Family Trust), Umbel Inc., Drummond Finance Limited, Lo Irene Kam Sheung, MKT Holdings ,Cayman Islands) LLC, Au Tak Yee and Cyber Channel Limited are considered to be the initial management shareholders of the Company and would ordinarily be subject to a moratorium period of two years. However, as a result of an application made by the Sponsor on behalf of the Company, the Stock Exchange has granted a waiver to the effect that the moratorium period applicable to the Initial Management Shareholders has been reduced to six months in respect of an aggregate of the 1,287,420,000 Shares ,representing approximately 52.74 per cent of the enlarged issued share capital of the Company immediately upon completion of the Share Offer without taking into account any exercise of the Over-allotment Option) held by it. The effect of this waiver is that the Initial Management Shareholders will no longer be subject to the two-year moratorium period but subject to a reduced moratorium period of six months. Each of the Initial Management Shareholders has undertaken, inter alia, to the Company and the Stock Exchange that ,save as provided in Rule 13.17 of the GEM Listing Rules) for the period of six months commencing on the listing date, he/it will not dispose of ,or enter into any agreement to dispose of) or permit the registered holder to dispose of ,or
Ð41Ð WAIVERS FROM COMPLIANCE WITH THE GEM LISTING RULES AND COMPANIES ORDINANCE enter into any agreement to dispose of) any direct or indirect interest in the Relevant Securities held by each of them. The grant of such waivers has been made on the condition that the Initial Management Shareholders of the Company are not allowed to dispose of any Relevant Securities in the second six-month period after listing if such disposal would result in the group of persons constituting the Initial Management Shareholders ceasing to have, in aggregate, control over 35 per cent of the voting rights at general meetings of the Company. Each of the Initial Management Shareholders has undertaken to the Company and the Stock Exchange that for the period of six months commencing on the date falling six months after the listing date, he/it will ensure that the aggregate number of Relevant Securities held or controlled by them will represent at least 35 per cent of the voting rights exercisable at general meetings of the Company.
In addition, each of the Initial Management Shareholders has undertaken to the Company and Worldsec (on behalf of the Underwriters) that without the written consent of Worldsec (on behalf of the Underwriters) neither he/it nor any of its/his associates (as defined in the GEM Listing Rules), any company controlled by any of him/it nor any nominee or trustee holding in trust for any of him/it will, (i) for a period of six months commencing on the date falling six months after the listing date, inter alia, sell, transfer or otherwise dispose of (including without limitation the creation of an option over) such number of Relevant Securities as represents 68 per cent of his/its holdings in the Relevant Securities (which Relevant Securities will be held in escrow); and (ii) for a period of twelve months commencing on the first anniversary of the listing date inter alia, sell, transfer or otherwise dispose of (including without limitation the creation of an option over) such number of Relevant Securities as represents 50 per cent of his/its holdings in the Relevant Securities (which Relevant Securities will be held in escrow). Furthermore, each of the Significant Shareholders has undertaken to the Company and Worldsec (on behalf of the Underwriters) that without the written consent of Worldsec (on behalf of the Underwriters) neither it nor any of its associates (as defined in the GEM Listing Rules), any company controlled by it nor any nominee or trustee holding in trust for it will, for a period of eighteen months commencing on the date falling six months after the listing date, inter alia, sell, transfer or otherwise dispose of (including without limitation the creation of an option over) such number of Relevant Securities as represents 50 per cent of its holding of Relevant Securities (which will be held in escrow).
Further as a result of an application made on behalf of the Company, the Stock Exchange has granted a waiver from strict compliance by Drummond Finance Limited (a wholly-owned subsidiary of Umbel Inc., which is a company controlled by CIBC Trust Company (Bahamas) Limited as trustee of the Albert Cheng Family Trust of which Cheng Albert Jingham and his children are discretionary beneficiaries) within the two-year moratorium period under Rule 13.16 in respect of a stock borrowing arrangement entered into between Worldsec and Drummond Finance Limited to facilitate settlement of over-allocation in connection with the Share Offer pending exercise of the Over-allotment Option and/or acquisition of Shares in the secondary market.
Ð42Ð WAIVERS FROM COMPLIANCE WITH THE GEM LISTING RULES AND COMPANIES ORDINANCE
The granting of an Over-allotment Option together with the accompanying stock borrowing arrangement is adopted by Worldsec to facilitate the distribution of the Shares under the Share Offer. The waiver application has been made on the basis that 1)such stock borrowing arrangement from Drummond Finance Limited will only be effected by Worldsec for settlement of over-allocation in connection with the Share Offer; 2)the maximum number of Shares borrowed from Drummond Finance Limited will be limited to the maximum number of Shares which may be issued upon exercise of the Over-allotment Option; and 3)the same number of Shares will be returned to Drummond Finance Limited or its nominees as the case may be)no later than three business days following the earlier of i)the last day on which the Over-allotment Option may be exercised or ii)the day on which the Over-allotment Option is exercised in full.
Share Option Scheme waivers
Rule 23.03 2)of the GEM Listing Rules requires that the total number of Shares subject to the Share Option Scheme and any other schemes must not, in aggregate exceed 10 per cent of the issuedsharecapitaloftheCompanyfromtimetotime the``SchemeLimit'').TheCompanyhas applied for a waiver from strict compliance with Rule 23.03 2)of the GEM Listing Rules so that the Scheme Limit can be increased to 30 per cent of the issued capital of the Company from time to time. Such waiver has been granted by the Stock Exchange subject to the following conditions:
1)the total number of Shares which may be acquired pursuant to the exercise of options under the Share Option Scheme and any other scheme including the Pre-IPO Share Option Scheme), must not, in aggregate, exceed 30 per cent of the issued share capital of the Company from time to time;
2)subject to 1)above,the Company may seek approval by shareholders in general meeting to grant options under the Share Option Scheme and any other schemes including the Pre-IPO Share Option Scheme)entitling participants to acquire Shares pursuant to the exercise of options representing up to an aggregate of 10 per cent of the issued share capital of the Company at the time of approval ``General Mandate Limit''), which may be renewed by shareholders in general meeting from time to time;
3)subject to 1)above,the Company may seek a separate shareholders' approval in general meeting to grant options beyond the General Mandate Limit to participants specified by the Company before such approval is sought;
4)any grant of options to a connected person as defined in the GEM Listing Rules)must be approved by all the independent non-executive Directors Further details are set out in the paragraph headed ``Share Option Scheme'' in Appendix V to this prospectus); and
5)details of options granted to each Director and all other participants, and a summary of the major terms of each share option scheme approved by shareholders of the Company must be disclosed in the annual and interim reports of the Group in addition to the disclosures required under Rule 23.08 of the GEM Listing Rules.
Ð43Ð WAIVERS FROM COMPLIANCE WITH THE GEM LISTING RULES AND COMPANIES ORDINANCE
As at the Latest Practicable Date, the number of options granted and remaining exercisable) under the Pre-IPO Share Option Scheme represents approximately 12.98 per cent of the enlarged issued share capital of the Company excluding Shares falling to be issued upon exercise of options under the Pre-IPO Share Option Scheme) or 11.49 per cent including Shares falling to be issued upon exercise of options under the Pre-IPO Share Option Scheme)), details of which are set out in Appendix V to this prospectus. Pursuant to a resolution of shareholders passed on 12th July, 2000 the Company may issue additional options under the Share Option Scheme within the General Mandate Limit which could result in the Company having outstanding options which, when added to the existing approximately 12.98 per cent, represent a total of approximately 22.98 per cent of the Company's enlarged issued share capital excluding Shares resulting from the exercise of options). Any further grant of options would be dependent on Shareholders approving either a renewal of the General Mandate Limit or a grant of options to specified participants.
COMPANIES ORDINANCE WAIVER
For the purpose of the listing of the Shares on GEM, the Company has sought a waiver from The Securities and Futures Commission in relation to certain requirements under the Companies Ordinance. Details of this waiver are described below.
Under paragraph 10 of Part I of the Third Schedule to the Companies Ordinance, this prospectus is required to include details of the number, description and amount of any shares in the Company which any person has, or is entitled to be given, an option to subscribe for, together with certain particulars of each option, namely the period during which it is exercisable, the price to be paid for the Shares subscribed for under it, the consideration if any)given or to be given for it or for the right to it and the name and address of the person to whom it was given. As at the date of this prospectus, the Company has granted options to 81 persons to subscribe for 316,823,077 Shares on the terms set out in Appendix V to this prospectus under the paragraph headed ``Pre- IPO Share Option Scheme'' in the section headed ``Share Options''.
The Company has applied for a waiver from The Securities and Futures Commission from full compliance with the disclosure requirements of paragraph 10 d)of Part I of the Third Schedule to the Companies Ordinance on the ground that full compliance with these requirements would be irrelevant and unduly burdensome for the Company, and The Securities and Futures Commission has granted a waiver to the Company pursuant to Section 342A of the Companies Ordinance on the conditions that i)full details of all such options granted to the Directors and any of the grantees with options in respect of more than 1,000,000 Shares containing the details in respect of each option required under paragraph 10 of Part I of the Third Schedule to the Companies Ordinance)are disclosed in this prospectus and ii)a full list of all optionholders, being 2 executive Directors, 3 non-executive Directors and 76 other employees of the Group, containing the details in respect of each option required under paragraph 10 of Part I of the Third Schedule to the Companies Ordinance is available for inspection in accordance with the paragraph headed ``Documents available for inspection'' in Appendix VI to this prospectus.
Please refer to the paragraphs entitled ``Pre-IPO Share Option Scheme'' in the section headed ``Share options'' in Appendix V to this prospectus for further details of the options referred to above.
Ð44Ð INFORMATION ABOUT THIS PROSPECTUS AND THE SHARE OFFER
DIRECTORS' RESPONSIBILITY FOR THE CONTENTS OF THIS PROSPECTUS
This prospectus, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Companies Ordinance and the GEM Listing Rules for the purpose of giving information with regard to the Group.The Directors, having made all reasonable enquiries, confirm that, to the best of their knowledge and belief:
$a) the information contained in this prospectus is accurate and complete in all material respects and not misleading;
$b) the opinions, expectations and intentions expressed in this prospectus are:
$i) founded on bases and assumptions which are fair and reasonable;
$ii) the true and honest beliefs of the Directors which beliefs are properly held; and
$iii) made on a fair basis and arrived at after due and careful consideration; and
$c) there are no other matters, the omission of which would make any statement in this prospectus misleading.
THE SHARE OFFER
Fully underwritten
This prospectus is published in connection with the Share Offer which is sponsored by Worldsec. The Offer Sharesare fully underwritten by the Underwriterspursuant to the Underwriting Agreement. For further information relating to the underwriting arrangements, please see the section headed ``Underwriting'' in this prospectus.
Public Offer Shares*with Warrants)and Qualifying Shares*with Warrants)to be offered in Hong Kong only
No action has been taken in any jurisdiction to permit the offering of the Offer Shares or the Warrants or the distribution of this prospectus in any jurisdiction other than to permit the offering of the Public Offer Shares $with Warrants) and Qualifying Shares $with Warrants) in Hong Kong. Accordingly, this prospectus may not be used for the purpose of, and does not constitute, an offer or invitation in any other jurisdiction in any circumstances in which such offer or invitation is not authorised or to any person to whom it is unlawful to make an unauthorised offer or invitation.
Placing Shares*with Warrants)to be offered in certain jurisdictionsonly
Pursuant to the Placing, it is expected that the Underwriters or selling agents nominated by the Underwriters shall conditionally place the Placing Shares $with Warrants) on behalf of the Company at the Issue Price with investors in Hong Kong and in certain other jurisdictions.
The Share Offer is subject to the conditions as stated in the paragraph ``Conditions of the Share Offer'' under the section headed ``Structure of the Share Offer''.
Ð45Ð INFORMATION ABOUT THIS PROSPECTUS AND THE SHARE OFFER
The distribution of this prospectus and the offering or sale of the Offer Shares $with Warrants) in certain jurisdictions is restricted by law, in particular, but without limitation to the foregoing:
United States
The Shares and Warrants have not been and will not be registered under the US Securities Act of 1933, as amended $the ``Securities Act''), and may not be offered or sold within the United States or to, or for the account or benefit of, US persons except in certain transactions exempt from the registration requirements of the Securities Act.Terms used in this paragraph have the meanings given to them by Regulation S under the Securities Act.
Each underwriter has agreed that, except as permitted by the Underwriting Agreement, it will not offer or sell the Offer Shares $with Warrants) $i) as part of its distribution at any time or ii) otherwise until one-year after the latest of the commencement of the Share Offer, the closing date of the Share Offer, and the closing date for any exercise of the Over-allotment Option $the ``Distribution Compliance Period''), within the United States or to, or for the account or benefit of, US persons, and it will have sent to each dealer to which it sells Offer Shares $with Warrants) $other than on a sale pursuant to Rule 144A) during the distribution compliance period a confirmation or other notice setting forth the restrictions on offer and sales of the Offer Shares $with Warrants) with the United States or to, or for the account or benefit of, US persons.
The Offer Shares $with Warrants) are being offered and sold outside the United States to non-US persons in reliance on Regulation S.The Underwriting Agreement provides that the Joint Lead Underwriters may through their US broker-dealer affiliates arrange for the offer and the sale of Placing Shares within the United States only to qualified institutional buyers in reliance on an exemption from the registration requirements of the Securities Act.
The offer or sale of the Offer Shares, if made prior to the expiration of a one-year distribution compliance period, shall not be made to a US person or for the account or benefit of a US person $other than a distributor); and
The offer or sale of the Offer Shares, if made prior to the expiration of a one-year distribution compliance period, shall be made only pursuant to the following conditions:
$1) the purchaser of the securities $other than a distributor must certify that it is not a US person and is not acquiring the securities for the account or benefit of any US person or is a US person who purchased securities in a transaction that did not require registration under the Securities Act;
$2) the purchaser of the securities must agree to resell such securities only in accordance with the provisions of the Regulation S pursuant to registration under the Securities Act, or pursuant to an available exemption from registration; and agrees not to engage in hedging transactions with regard to such securities unless in compliance with the Securities Act; and
Ð46Ð INFORMATION ABOUT THIS PROSPECTUS AND THE SHARE OFFER
$3) the issuer must, either by contract or a provision in its bylaws, articles, Charter or comparable document, refuse to register any transfer of the securities not made in accordance with the provisions of the Regulation S, pursuant to registration under the Securities Act, or pursuant to an available exemption from registration; provided however, that if the securities are in bearer form or foreign law prevents the issuer of the securities from refusing to register securities transfers, other reasonable procedures are implemented to prevent any transfer of the securities not made in accordance with provisions of the Regulation S; and
Each distributor selling securities to a distributor, a dealer $as defined in section 2 $A)$12) of the Exchange Act, or a person receiving a selling concession, fee or other remuneration, prior to the expiration of a one-year distribution compliance period must send a confirmation or other notice to the purchaser stating that the purchaser is subject to the same restrictions on offers and sales that apply to a distributor.
An offer or sale of warrants must comply with the following requirements:
$i) Each warrant must bear a legend stating that the warrant and the securities to be issued upon its exercise have not been registered under the Securities Act and that the warrant may not be exercised by or on behalf of any US person unless registered under the Securities Act or an exemption from such registration is available;
$ii) Each person exercising a warrant is required to give:
$A) written certification that it is not a US person and the warrant is not being exercised on behalf of a US person; or
$B) a written opinion of counsel to the effect that the warrant and the securities delivered upon exercise thereof have been registered under the Securities Act or are exempt from registration thereunder; and
$iii) procedures are implemented to ensure that the warrant may not be exercised within the United States, and that the securities may not be delivered within the United States upon exercise, other than in offerings deemed to meet the definition of ``Offshore Transaction'' pursuant to Rule 902 $H) of the Securities Act, unless registered under the Securities Act or an exemption from such registration is available.
In addition, until one year after expiration of the commencement of the Share Offer, the closing date of the Share Offer, and the closing date for any exercise of the Over-allotment Option an offer or sale by any dealer of shares and warrants within the United States $whether or not as a part of the Share Offer) may violate the registration requirements of the Securities Act if such offer or sale is made other than in accordance with Rule 144A or another exemption from the registration requirement of the Securities Act.
Ð47Ð INFORMATION ABOUT THIS PROSPECTUS AND THE SHARE OFFER
United Kingdom
This prospectus has not been approved by an authorised person in the United Kingdom and has not been registered with any registrar of companies in the United Kingdom.In addition, the Company has not authorised any offer of the Offer Shares $or the Warrants) to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995 $the ``Regulations'').Neither the Offer Shares nor the Warrants may lawfully be offered or sold to persons in the United Kingdom except in circumstances which do not result in an offer to the public in the United Kingdom within the meaning of the Regulations or otherwise in compliance with all applicable provisions of the Regulations.In addition, no person may issue or pass on to any person $a ``recipient'') in the United Kingdom any document received by it in connection with the Share Offer unless that recipient is of a kind described in Article 11$3) of the Financial Services Act 1986 $Investment Advertisements) $Exemptions) Order 1996 $as amended) or is a person to whom such document may otherwise lawfully be issued or passed on.
Singapore
This prospectus has not been and will not be registered as a prospectus with the Registrar of Companies and Businesses in Singapore.Accordingly, this prospectus and any other document or material in connection with the offer of the Offer Shares $with Warrants) may not be circulated or distributed in Singapore, nor may any invitation or offer to subscribe for or purchase any Offer Shares $with Warrants) be made, whether directly or indirectly, to the public or any member of the public in Singapore other than $i) to an institutional investor or other person specified in Section 106C of the Singapore Companies Act, Chapter 50 $the ``Singapore Companies Act''); $ii) to a sophisticated investor or other person specified in section 106D of the Singapore Companies Act or $iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provisions of the Singapore Companies Act.The Registrar of Companies and Businesses in Singapore takes no responsibility for the contents of this prospectus or any of the documents referred to above.
Japan
The Share Offer has not been and will not be registered under the Securities and Exchange Law of Japan $the ``Securities and Exchange Law'').None of the Offer Shares $with Warrants) may be offered or sold, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan, except: $i) pursuant to an exemption from the registration requirements of the Securities and Exchange Law; and $ii) in compliance with any other applicable requirements of Japanese law.
Taiwan
The Share Offer has not been and will not be registered with the Taiwan Securities and Futures Commission under the Securities and Exchange Law and Guidelines for the Offering and Issuance of Securities by Foreign Issuers.Accordingly, none of the Offer Shares $with Warrants) may be offered for subscription or purchase, directly or indirectly, in Taiwan.
Ð48Ð INFORMATION ABOUT THIS PROSPECTUS AND THE SHARE OFFER
Bermuda
No offer of the Offer Shares $with Warrants) may be made to the public in Bermuda.
Each person acquiring Offer Shares $with Warrants) in the Share Offer will be required to confirm, or be deemed by its acquisition of Offer Shares to have confirmed, that it is aware of the restrictions on offers and sales of the Offer Shares described in this prospectus.
APPLICATION FOR LISTING ON GEM
Application has been made to the GEM Listing Committee for the listing of, and permission to deal in, the Shares in issue, the Shares to be issued pursuant to the Share Offer $including any Shares to be issued pursuant to the exercise of the Over-allotment Option), the Warrants and any Shares to be issued pursuant to the exercise of any options which have been granted or may be granted under the Pre-IPO Share Option Scheme or the Share Option Scheme and of subscription rights attaching to the Warrants.
No part of the share, warrant or loan capital of the Company is listed or dealt in on any other stock exchange and at present no such listing or permission to deal is being or proposed to be sought.
In compliance with the GEM Listing Rules, after the listing of the Shares and the Warrants on GEM, the Company will be required to maintain a public float of at least 20 per cent of the issued share capital of the Company.Upon listing, the number of Shares held by the public will represent approximately 33.90 per cent of the total number of Shares in issue $without taking into account the exercise of the Over-allotment Option).Details of the number of Shares which are freely transferable are set out on page 40 in the section headed ``Risk factors''.
Any allotment made in respect of any application will be void if permission for listing of, and dealing in, the Shares and the Warrants on GEM has been refused before the expiration of three weeks from 21st July, 2000, or such longer period $not exceeding six weeks) as may, within the said three weeks, be notified to the Company by or on behalf of the Stock Exchange.
COMMENCEMENT OF DEALINGS IN THE SHARES AND WARRANTS
Dealings in the Shares and the Warrants on GEM is expected to commence on or about 28th July, 2000.Shares will be traded in board lots of 10,000 each and the Warrants in board lots of 50,000 each.
SHARES AND WARRANTS WILL BE ELIGIBLE FOR CCASS
Subject to the granting of listing of, and permission to deal in, the Shares and the Warrants on GEM and the compliance with the stock admission requirements of Hongkong Clearing, the Shares and the Warrants will be accepted as eligible securities by Hongkong Clearing for deposit, clearance and settlement in CCASS with effect from the date of commencement of dealings in the
Ð49Ð INFORMATION ABOUT THIS PROSPECTUS AND THE SHARE OFFER
Shares and the Warrants on GEM or on any other date Hongkong Clearing chooses.Settlement of transactions between participants of the Stock Exchange is required to take place in CCASS on the second business day after any trading day.
All activities under CCASS are subject to the General Rules of CCASS and CCASS Operational Procedures in effect from time to time.
All necessary arrangements have been made for the Shares and the Warrants to be admitted into CCASS.
PROFESSIONAL TAX ADVICE RECOMMENDED
If you are unsure about the taxation implications of the subscription, purchase, holding or disposal of, dealing in, or the exercise of any rights in relation to, the Offer Shares $with Warrants), you should consult an expert.
None of the Company, the Sponsor, the Underwriters, any of their respective directors, agents and advisors or any other person involved in the Share Offer accepts responsibility for any tax effects on or liabilities of any person resulting from the subscription for, or purchase, holding or disposal of, dealing in, or the exercise of any rights in relation to, the Offer Shares $with Warrants).
STAMP DUTY
All the Offer Shares and Warrants will be registered on the Hong Kong register of members of the Company.Dealings in Shares and Warrants on that register will be subject to Hong Kong stamp duty.
STRUCTURE AND CONDITIONS OF THE SHARE OFFER
Further details on the structure and conditions of the Share Offer, including details on the Over-allotment Option, are set out in the section headed ``Structure of the Share Offer''.
Ð50Ð DIRECTORS AND PARTIES INVOLVED IN THE SHARE OFFER
Name Address Nationality
Chairman
Ip Saimond Flat D, 7/F, Hoi Tien Mansion Chinese Horizon Garden Taikoo Shing Hong Kong
Executive Directors
Cheng Albert Jinghan 103 Bowen Mansion Chinese 7C Bowen Road Hong Kong
Yeung Kwok Mung B1, 7/F, Flora Garden Australian 50 Cloudview Road North Point Hong Kong
Non-executive Directors
Tsang Moses Kwok Tai House C7, Hillgrove British 18 Cape Drive Chung Hom Kok Hong Kong
Poon Kai Tik Flat 4A, 54 MacDonnell Road British Central Hong Kong
Huang Erwin Steve Flat 1B, G/F British DD165 Lot 1591 Tseng Tau Tsuen Sai Kung N.T. Hong Kong
Chung Wai Yang G-3, Greencliff British 23 Tung Shan Terrace Happy Valley Hong Kong
Ð51Ð DIRECTORS AND PARTIES INVOLVED IN THE SHARE OFFER
Name Address Nationality
Independent non-executive Directors
Wong Richard Yue Chim Flat F, 22/F Chinese Block 3 Estoril Court 55 Garden Road Hong Kong
Shek Abraham Lai Him Flat 18A, Villa Veneto Chinese 3 Kotewall Road Hong Kong
Senior management
Poon Wan Fung 33G, Block 2 Illumination Terrace Chinese 7 Tai Hang Road Hong Kong
Ng Andrew Shu Bun 1±5 Boyce Road Chinese Butler Towers 19/F Block F Jardines Lookout Hong Kong
Kwan Man Chun Flat G, 9/F, Block 3 Chinese Belvedere Garden Phase 3 Tsuen Wan, N.T. Hong Kong
Yuen Kin Chung Flat G, 33/F, Block 11 Chinese Discovery Park Tsuen Wan Hong Kong
Fung Benjamin Flat 9A, Kam Kok Mansion British 82 Kimberley Road Kowloon Hong Kong
Wong Kevin Che Kuen 1063 Parkway Court, 4 Park Road Chinese Hong Kong
Ð52Ð DIRECTORS AND PARTIES INVOLVED IN THE SHARE OFFER
Name Address Nationality
Lam Stephen Tai Wai Flat F, 20/F, Block 3, Majestic Park Canadian 11 Farm Road Kowloon Hong Kong
Ng Ha Long Room 3715, Kwong Hin House Chinese Kwong Tin Estate Lam Tin, Kowloon Hong Kong
Leung Tak Man 15A Sun Tsuen Street Chinese 1/F Tai Hong Hong Kong
Lai Chak Fun 1001 Senior Staff Quarters Chinese Hong Kong Institute of Education 10 Lo Ping Road Tai Po, N.T. Hong Kong
Chan Wai Hung Room 624, Yue Tai House Chinese Yun Wan Estate Chai Wan Hong Kong
Chan Kwok Leung 8/F, Flat B, 6±14 Centre Street Chinese Sai Ying Pun Hong Kong
Ð53Ð DIRECTORS AND PARTIES INVOLVED IN THE SHARE OFFER
Sponsor Worldsec Corporate Finance Limited 33rd Floor, Bank of America Tower 12 Harcourt Road Central Hong Kong
Underwriters Worldsec International Limited 11th Floor, Bank of America Tower 12 Harcourt Road Central Hong Kong
HSBC Broking Securities $Asia) Limited 3rd Floor Hutchison House 10 Harcourt Road Hong Kong
BNP Prime Peregrine Securities Limited 23rd Floor, New World Tower 16±18 Queen's Road Central Hong Kong
JS Cresvale International Limited Suite 601, Asia Pacific Finance Tower Citibank Plaza 3GardenRoad Central Hong Kong
Celestial Capital Limited 22nd Floor, The Center 99 Queen's Road Central Hong Kong
OSK Asia Securities Limited Suite 3601 36th Floor Cheung Kong Center 2 Queen's Road Central Hong Kong
Kingsway SW Securities Limited 5th Floor, Hutchison House 10 Harcourt Road Central Hong Kong
Ð54Ð DIRECTORS AND PARTIES INVOLVED IN THE SHARE OFFER
Legal advisers to the Company As to Hong Kong law: Charltons 56th Floor Bank of China Tower 1GardenRoad Hong Kong
As to Bermuda law: Appleby Spurling & Kempe 5511 The Center 99 Queen's Road Central Hong Kong
Legal advisers to the Underwriters As to Hong Kong law: Koo and Partners 22nd Floor Bank of China Tower 1GardenRoad Hong Kong
Auditorsand reporting accountants Ernst & Young 15th Floor Hutchison House 10 Harcourt Road Central Hong Kong
Property valuer Greater China Appraisal Limited Room 2407, Shui On Centre 6±8 Harbour Road Wanchai Hong Kong
Receiving banker Hang Seng Bank Limited 83 Des Voeux Road Central Hong Kong
Ð55Ð CORPORATE INFORMATION
Registered office Cedar House 41 Cedar Avenue Hamilton HM12 Bermuda
Head office and principal place of 24th Floor business 1063 King's Road Quarry Bay Hong Kong
Website address www.36.com
Company secretary Ng Andrew Shu Bun, ACA
Bermuda Resident Secretary Zina Darrell-Hollinshid*
Resident Representative Graham Simmons*
Assistant Secretary AS&K Services Limited
Compliance officer Ip Saimond
Qualified accountant Ng Andrew Shu Bun, ACA
Audit committee Shek Abraham Lai Him Chairman) Wong Richard Yue Chim
Authorised representatives Ip Saimond Yeung Kwok Mung
Principal share registrar and transfer Reid Management Limited office 4th Floor, Windsor Place 22 Queen Street Hamilton HM 11 Bermuda
Hong Kong branch share registrar Tengis Ltd and transfer office 4th Floor, Hutchison House 10 Harcourt Road Central Hong Kong
* Zina Darrell-Hollinshid and Graham Simmons, Bermuda resident secretary and resident representative will resign from office upon the listing of the Shares and be replaced by AS&K Services Ltd.as resident representative.In addition, AS&K Services Ltd.serves as assistant resident representative, a role it will relinquish once it assumes the role of resident representative.Bermuda law requires each company to have at least two Bermuda resident officers but permits listed companies to have just a resident representative which need not be an individual but may be a body corporate.
Ð56Ð CORPORATE INFORMATION
Principal banker Hang Seng Bank Limited 83 Des Voeux Road Central Hong Kong
Ð57Ð INDUSTRY OVERVIEW
The information provided in this section is derived from various private and/or government publications. This information has not been prepared or independently verified by the Company, the Sponsor, the Underwriters or their respective advisers.
INDUSTRY OVERVIEW
Development of the Internet
The Internet is a global network of interconnected, separately administered public and private computer networks that enables commercial organisations, educational institutions, government agencies and individuals to communicate, access and share information, provide entertainment and conduct business remotely.The use of the Internet has grown rapidly since the start of its commercialisation in the early 1990s.IDC estimates that the number of Internet users worldwide will grow from approximately 155.6 million at the end of 1998 to approximately 525.6 million by the end of 2003.Asian Internet growth is projected to be equally strong, as IDC forecasts that Asian Internet users $excluding Japan) will increase from approximately 12.9 million users to approximately 77.2 million users during the same period. This increase reflects a compound annual growth rate of about 43.0 per cent.
This rapid growth in the popularity of the Internet is due in large part to increasing PC and modem penetration, development of the web, the introduction of easy-to-use navigational tools and utilities, and the growth in the number of information, entertainment and commercial applications available on the Internet.Technological advances relating to the Internet have improved security and increased value-added services and content.Growth in client/server computing, multimedia personal computers and online computing services and the proliferation of networking technologies have resulted in a large and growing group of people who are accustomed to using networked computers for a variety of purposes, including e-mail, electronic file transfers, online computing and electronic financial transactions.These trends have led businesses increasingly to explore opportunities of providing Internet-based applications and services within their organisations and externally to customers and business partners.
World wide web
An important factor in the widespread adoption of the Internet has been the emergence of a network of servers and information available called the world wide web. The web is a network medium which offers content, activities and services. Examples of content available on the web include magazines, news articles, radio broadcasts, and corporate, product, educational, research and political information; activities include chat and web communities; and customer services include reservations, banking, stock broking, games and discussion groups.
The rapid deployment of the web has introduced fundamental changes in such a way that information can be produced, distributed and consumed, lowering the cost of publishing information and extending its potential reach.Companies from many industries are publishing products and company information or advertising materials through the web and collecting customer feedback and demographic information interactively.The structure of web documents
Ð58Ð INDUSTRY OVERVIEW allows an organisation to publish significant quantities of information while simultaneously allowing each user to view selected information that is of particular interest in a cost effective and timely fashion.
Asia Pacific Internet growth opportunities
IDC forecasts that the number of Internet users in the Asia Pacific region $excluding Japan) will increase from 12.9 million at the end of 1998 to 77.2 million by the end of 2003, reflecting a compound annual growth rate of 43.0 per cent, while in the more developed US Internet market, the number of Internet users will increase from 70.1 million at the end of 1998 to 181.1 million at the end of 2003, reflecting a compound annual growth rate of 20.9 per cent. IDC research projects that Internet users outside the United States will surpass Internet users in the United States by the year 2000.
The Directors believe that the recent economic downturn in the Asia Pacific region has not significantly slowed the rate of Internet penetration down in many individual Asia Pacific markets, as consumers and corporate customers have discovered that Internet applications, such as e-mail and website advertising, represent lower-cost substitutes for comparable non-Internet products and services.In addition, the Directors believe that the recent volatility in the Asia Pacific financial markets has increased the demand for reliable, around-the-clock news and information on local, regional and global events, which is often readily available only through the Internet.
IDC has projected high growth in both Internet usage and PC installations, important indicators for Internet accessibility, in the Asian markets in which the Group currently operates and intends to operate $including Hong Kong, the PRC, North America, Taiwan, Thailand and Australia).The following table summarises key historical and projected data in the Asian markets:
Projected Compound Annual December December Growth Rate 1998 2003 1998±2003 in millions except penetration and growth rates)
Hong Kong Number of Internet users$a) 0.7 2.3 26.9% Number of PCs installed$a) 1.6 3.0 13.9% Internet penetration rate$b) 10.4% 31.1% 24.4% PC penetration rate$c) 23.9% 40.5% 11.2% Population$d) 6.7 7.4 2.0% Asia Pacific *excluding Japan)*e) Number of Internet users$a) 12.9 77.2 43.0% Number of PCs installed$a) 38.4 112.2 23.9% Internet penetration rate$b) 0.5% 2.6% 41.0% PC penetration rate$c) 1.4% 3.8% 22.2% Population$d) 2,751.6 2,954.1 1.4%
Ð59Ð INDUSTRY OVERVIEW
Notes:
$a) IDC, November 1999.
$b) Calculated by dividing the number of Internet users by country population.
$c) Calculated by dividing the number of PCs installed by country population.
$d) Economist Intelligence Unit, 1999.
$e) Sum of the PRC, Hong Kong, Taiwan, Australia, New Zealand, Singapore, Malaysia, Thailand, the Philippines, Indonesia, India, South Korea and Vietnam.
THE INTERNET AS A NEW BUSINESS MEDIUM
The growth in the number of Internet users, the amount of time users spend on the Internet, the increase in the number of websites and the rate of Internet and PC penetration is being driven by the increasing importance of the Internet as a platform for content resources and consumer services, and as an advertising medium.
Content resources
New software-based authoring tools have lowered the cost of publishing content on the Internet relative to conventional publishing methods and have enabled the delivery of new forms of multimedia content.The cost of accumulating, storing and delivering content through the Internet to a large audience can be lower than that of some conventional media, consisting only of the cost of maintaining and operating computer equipment and accessing communications infrastructure.Content is readily accessible by any Internet user and a large part of the information is available free of charge.The Internet is also achieving increasing popularity as an alternative to other entertainment media.Through the wide array of content offerings available from different websites, Internet users are able to view photographs and video clips, listen to music, play interactive real-time games with third parties and communicate with friends.
Consumer services
The Internet is significantly affecting the methods by which consumers and businesses are evaluating and buying goods and services, and by which businesses are providing customer services.Businesses have sought to capitalise on the Internet as a platform for consumer services through the establishment of websites devoted exclusively to the dissemination of information relating to their products and services.
The Internet provides online merchants with the ability to reach a global audience and to operate with minimal infrastructure, reduced overheads and greater economies of scale than by other means, while providing consumers with a broader selection of products, increased pricing power and greater convenience compared to some other shopping methods.As a result, the volume of business transacted on the Internet is expected to grow significantly.
Ð60Ð INDUSTRY OVERVIEW
Advertising
Advertisers have identified the Internet as a means for mass communication of their messages, similar in many respects to the use of advertising in traditional media such as television, radio broadcasting and print publishing.The Directors believe that advertisers have also recognised that web-based advertising may be more effective in a number of respects than traditional media advertising.The Internet allows advertisers to present messages to specific, targeted audiences, and to enable users to interact with advertising information presented in web pages.This characteristic of the Internet also permits advertisers to measure the number of impressions, or times that an advertisement appears in pageviews downloaded by users, through verification by independent third party auditors.Advertisers can also measure the effectiveness of advertising by generating ``click-throughs,'' or user requests for additional information made by clicking on the advertiser's banner linking the user to the advertiser's website.
THE GLOBAL INTERNET MARKET
The substantial increase in the number of Internet users and websites and the development of Internet technologies are fueling the expansion of two key Internet business areas: online advertising and e-commerce.IDC estimates that worldwide e-commerce revenues will grow from US$48.4 billion at the end of 1998 to US$1,303.6 billion by the end of 2003. IDC predicts that Asian online spending $excluding Japan) will increase from US$723 million to US$51.3 billion during the same period.
Hong Kong
According to IDC, the number of Internet users in Hong Kong is expected to increase to 2.3 million by the end of 2003 from 0.7 million at the end of 1998, representing a five-year compound annual growth rate of 26.9 per cent. Given a current population of approximately 7 million who mainly reside in urban areas, Hong Kong had achieved a penetration rate of approximately 10 per cent by the end of 1998.Like Singapore, Hong Kong is relatively technologically advanced, having been one of the first cities in the world to have a fully digitised telecommunications network.Hong Kong is currently developing its broadband Internet access capability to meet expected demand.IDC also forecasts e-commerce revenue to grow significantly.IDC forecasts e- commerce revenue to increase from US$60.8 million at the end of 1998 to US$3.2 billion by the end of 2003.Overall Internet growth is expected to be further enhanced by government-driven incentives to encourage the use of the Internet such as the ``CyberPort'' initiative, which aims to build incubation facilities to establish Hong Kong as a technology/Internet hub in the Asian region.
The PRC
According to IDC, the number of Internet users in the PRC is expected to increase to approximately 25.2 million in 2003 from approximately 2.4 million at the end of 1998, representing a five-year compound annual growth rate of 60.0 per cent. Given a current population of approximately 1.2 billion, this represents an Internet penetration rate of 0.2 per cent at the end of 1998.Although the PRC is still a technologically developing country, Internet
Ð61Ð INDUSTRY OVERVIEW growth in the next five years is expected to be significant.Growth is expected to be supported by a reduction in access costs and proliferation of personal computers.The potential for Internet access through television-based Internet access devices, using telephone lines or through cable or satellite technology, may further accelerate Internet growth.IDC forecasts e-commerce revenue to reach US$6.5 billion by 2003 from US$8 million in 1998. As the Internet becomes more pervasive in the PRC, the opportunities for online advertising and e-commerce are also expected to expand.
North America
North America is the largest and most developed Internet market in terms of Internet users. According to IDC, the number of Internet users in the US is expected to increase to 181.1 million by the end of 2003 from 70.1 million at the end of 1998, representing a five-year compound growth rate of 20.9 per cent. Given a population of approximately 270 million, the US had achieved a penetration rate of 26.0 per cent by the end of 1998. Similarly, Nua Internet Surveys reported that 20.6 per cent of the Canadian population or 6.3 million users were accessing the Internet by the end of 1998.
According to AC Nielsen, nearly half of US Internet users have purchased a product or service online.Books continue to be the most popular item purchased as 42 per cent of Internet users have bought them online.38 per cent have bought music products and 29 per cent have purchased software.Recent research from ComQUEST shows that e-commerce is also popular in Canada, with 12 per cent of Canadians saying that they have purchased products or services online and 11 per cent regularly using Internet banking services.
Taiwan
The Taiwan Internet market is also expected to achieve significant growth in the next five years.IDC estimates that the number of Internet users in Taiwan will increase from 1.0million at the end of 1998 to 4.5 million users by the end of 2003, representing a five-year compound annual growth rate of 35.1 per cent. In the future, however, Internet user growth is expected to be mainly driven by individual user growth.IDC forecasts e-commerce revenues to increase from US$45.2 million at the end of 1998 to US$5.2 billion by the end of 2003.
Thailand
According to IDC, the number of Internet users in Thailand is expected to increase to 3.0 million by the end of 2003 from 0.6 million at the end of 1998, representing a five-year compound growth rate of 40.3 per cent. Given a population of approximately 61 million, Thailand had achieved a penetration rate of 0.9 per cent by the end of 1998. Although Thailand is still a developing country, Internet growth in the next five years is expected to be significant.IDC forecasts e-commerce revenue to reach US$1.3 billion by 2003 from US$9.8 million in 1998. In 1999, personal spending represented 42 per cent of overall e-commerce revenue in Thailand.IDC foresees growth in online personal spending in both the travel and leisure segment and the hardware and software area, as localized web-sellers begin to go online and offer their services.
Ð62Ð INDUSTRY OVERVIEW
Singapore
As one of the most technologically advanced countries in Asia, Singapore has one of the highest Internet penetration rates in Asia, being approximately 16.7 per cent at the end of 1998 according to IDC.According to IDC, Internet users in Singapore are expected to increase from 0.6 million at the end of 1998 to 1.9 million by the end of 2003, representing a five-year compound annual growth rate of 25.9 per cent. Singapore has a highly developed communications infrastructure with a fully digitised telecommunications network that creates a strong base for continued Internet growth.IDC forecasts e-commerce revenue will grow from US$35.2million at the end of 1998 to US$2.8 billion by the end of 2003. IDC expects that continued encouragement from the government to promote Internet usage in business, home and education will accelerate further development of the Internet sector in Singapore, and that Singapore will position itself as a key Asian Internet market.
Australia
According to IDC, the number of Internet users in Australia is expected to increase to 9.9 million by the end of 2003 from 3.8 million at the end of 1998, representing a five-year compound growth rate of 21.5 per cent. Given a population of approximately 19 million, Australia achieved one of the highest penetration rates in Asia of 19.9 per cent at the end of 1998. The general trend in Australia has the individual users taking an increasing percentage of the overall Internet user market. IDC forecasts e-commerce revenue to reach US$14.2 billion by 2003 from US$432.7 million in 1998.In 1999, personal spending already represented 55 per cent of overall e- commerce revenue in Australia.As Australia is looking to promote itself as a prime vacation destination, and the national airlines, Qantas and Ansett, are setting up Internet based business, the travel and leisure sector is a key revenue generator for e-commerce in Australia.
REGULATIONS
Under the Telecommunication Ordinance $Chapter 106 of the Laws of Hong Kong) $``Telecommunication Ordinance''), companies such as the Group that provide telecommunication services to the public in Hong Kong, e.g. Internet access or e-mail, are required to obtain a PNETS licence, from the Office of the Telecommunication Authority of Hong Kong $``OFTA''). OFTA's primary responsibility is to regulate the telecommunication industry in Hong Kong and to ensure that the widest range of quality telecommunication services is available at reasonable cost. OFTA implements and establishes policies and issues licences to companies providing telecommunication services to the public in Hong Kong.OFTA is also empowered to direct a licencee to demonstrate that the licencee's services comply with any technical requirements imposed by relevant legislation or any other regulations which may be issued by OFTA.
A PNETS licence is usually valid for a period of 12 months and is renewable, on payment of the prescribed fee, at the discretion of OFTA.As set out in the Telecommunication Ordinance, a PNETS licence may be cancelled at any time or be suspended for a period not exceeding 12 months in the event of any contravention by the licence holder of the Telecommunication Ordinance or any condition to which such licence holder is subject, and at any time by the Chief Executive of Hong Kong in consideration of public interest.A licence holder is also prohibited
Ð63Ð INDUSTRY OVERVIEW from entering into any agreement or arrangement which will in any way prevent or restrict competition in relation to the operation of its services or any other telecommunication services licensed by OFTA.If a PNETS licence is revoked for any reason, such licence holder will be unable to provide its telecommunication services to its users in Hong Kong.
The Personal Data $Privacy) Ordinance $Chapter 486 of the Laws of Hong Kong) $``Personal Data Ordinance'') applies to ``data users'' in Hong Kong.An Internet advertising company which collects personal information from users such as their name or birth date, will be a data user.In addition, the Personal Data Ordinance applies to an Internet advertising company depending on how ``clicktrails'' information $i.e. information regarding an Internet user's pattern of Internet use) is used.
In relation to ``clicktrails'' information, the Privacy Commissioner has indicated that customer site-to-site activity stored on a server's log is personal data if it is possible to associate such clicktrails with an individual customer.Analysis of ``clicktrails'' information will enable the development of a profile of the user's interests which could be sold or transmitted to third parties for direct marketing purposes.The Privacy Commissioner has stated that a company should not perform such analysis if the user has not provided the data for such use.
Under the Control of Obscene and Indecent Articles Ordinance $Chapter 390 of the Laws of Hong Kong) any person who publishes, possesses for the purpose of publication or imports for the purpose of the publication any obscene article, whether or not the person knows that it is an obscene article, commits an offence and is liable for a fine of up to HK$1 million and imprisonment for up to three years.It is also an offence to publish any indecent article to a person who is a juvenile, whether or not it is known that it is an indecent article or that a person is a juvenile.Such an offence will give rise to a fine of up to HK$400,000 and to imprisonment for 12 months.A subsequent conviction will give rise to a fine of up to HK$800,000.Presently, there is uncertainty as to whether portal operators in Hong Kong such as the Group are liable under the Ordinance for obscene or indecent materials distributed over their portal.
Ð64Ð BUSINESS
CORPORATE STRUCTURE
The following chart sets out the corporate structure of the Group immediately following completion of the Share Offer taking no account of any exercise of the Over-allotment Option):
Significant Initial Management Shareholder (whose Shareholders (whose Public Shares are Shares are subject (Note 1) subject to lock-up) to lock-up)
13.36% 52.74% 33.90%
36.com Holdings Limited (Bermuda)
iFocus Group Limited (BVI)
CCC (BVI) vertical portal builder media services Internet-related services
100% 100% 100% 100% Topspin Associates Quantitative Dymo Group Cybercom Marketing Limited Technology Limited Limited Limited (BVI) (BVI) (BVI) (BVI) management Women's portal editorial media related services
100% 100% 100% 100% Homepage Cyber Station eCyber Creation Worldwide Net Technology Limited Limited Limied Limited (BVI) (HK) (HK) (HK) planned portal News portal Entertainment portal Teenager Channel
100% 100% 100% 100% 100% i-Digital Century e-Commerce Netlink Limited Easy Cyber Limited iTrading Limited Technology Limited Limited (HK) (HK) (HK) (BVI) (HK) Horse-racing registered user Finance portal Eating portal Sports portal portal services
100% 100% 100% 100% 100% 100% Standard Communication Cyber Services Limited Cyber Asia 36.com (Canada) e-Commerce Limited Pacific Coast Limited Logistics Limited (HK) Holdings Limited Limited (Canada) (HK) (HK) (BVI) holding company of (HK) West Canada Fortune-telling registered company Consumer portal software applications planned e-card operations portal services name in Chinese
Notes:
1.The shareholding interest of the public comprises i) Shares representing approximately 11.47per cent of the number of Shares in issue to be subscribed by the public under the Share Offer; ii) Shares held by existing public shareholders representing approximately 18.39 per cent of the number of Shares in issue, of which Shares representing approximately 3.26 per cent of the number of Shares in issue are not subject to any lock-in whereas
Ð65Ð BUSINESS
shares representing approximately 15.13 per cent of the number of Shares in issue are subject to lock-in and are not freely transferable; iii) Shares representing approximately 4.04 per cent of the number of Shares in issue held by the Internet content providers which Shares are subject to lock-in and are not freely transferable.The lock-in arrangements for the shareholders of the Company are set out in the paragraph headed ``Lock in'' in Appendix V to this prospectus.
2.This shareholding percentage does not take into account any exercise of the Over-allotment Option.Uponthe exercise of the Over-allotment Option in full, existing shareholders of the Company will be interested in approximately 87.03 per cent of the enlarged issued share capital of the Company.
3.Upon the exercise in full of all options granted under the Pre-IPO Share Option Scheme taking no account of any exercise of the Over-allotment Option), the shareholding interest of i) the initial management shareholders, ii) the significant shareholder, and iii) the public will respectively become approximately i) 54.55 per cent ii) 11.82 per cent and iii) 33.63 per cent.
4.Of the Offer Shares with Warrants), not more than 15 per cent will to be issued to the Qualifying Subscribers and not more than 5 per cent will be issued to employees of the Group excluding any connected persons).
HISTORY AND DEVELOPMENT
Background
The Group was founded by Mr.Cheng Albert Jinghan in August 1996 by the establishment of CCC with the objective of engaging in and developing media related business.CCC's principal activities initially included developing media communications strategies for clients, conducting media audits and reviews, and providing media training and development programmes for executives to prepare them for dealing with customers, suppliers, employees and shareholders.
From December 1997 to June 1998, CCC worked on developing a plan to broaden the scope of its media services beyond traditional media to cover new, interactive media such as the Internet.Mr.Huang Erwin Steve became involved in assisting CCC in developing this plan.A key element of the plan developed by CCC is the need to develop focused content-rich Internet websites.In line with this plan, Mr.Lai Chak Fun became involved in assisting CCC with the development of its proposed Finance portal.Further, CCC held discussions with a number of potential business partners and investors from June 1998 to June 1999.CCC also engaged consultants to commence initial work on design of the Group's planned website and carried out critical evaluation of the Group's technical platforms during April 1999 to June 1999.By June 1999, the Group had formed its recruitment programme to build senior management and editorial teams to implement this plan and then proceeded to approach and recruit such persons. Meanwhile, the Group continued to refine its business plans and the strategies to implement it.
The Group's head office moved to its present location in November 1999.By the end of December 1999, the Group employed 28 professional and technical staff.
The Directors identified Finance, Consumer, Entertainment and News as content-rich areas upon which to base its 4 anchor vertical portals which would be among the first portals to be launched by the Group.
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Extensive and rigorous product development procedures began in September 1999 and testing procedures commenced in November 1999 culminating in the official launch of the Group's seven initial Chinese language vertical portals on 6th March, 2000 comprising the Finance, Consumer, Entertainment and News anchor portals together with three other vertical portals, namely Eating, Sports and Fortune-telling.
Subsequently, the Group launched its Chinese language Teenager as well as Horse-racing vertical portals on 1st April, 2000 and its Automobile vertical portal on 1st June, 2000.
Creation of the Group's vertical portal business
The idea of developing the Group's vertical portal business was originated by one of its founders, Mr.Cheng Albert Jinghan, who then brought in Mr.Huang Erwin Steve to assist in developing the Group's business model and Mr.Lai Chak Fun to assist with the development of the Group's proposed Finance portal.Recognising the need and potential for expanding the Group's business to encompass the provision of contents via Internet, the Group brought in a number of key investors and recruited a strong management team to develop the Group's business.The Group aims to add to its existing vertical portals a series of further successful vertical portals, each with a focused theme targetted at the global Chinese community.
The Group's senior management and key investors include leading international businessmen, professionals and entrepreneurs from the media and business communities, namely: Mr.Cheng Albert Jinghan, Mr.Tsang Moses Kwok Tai, Dr.Ip Saimond, Mr.Yeung Kwok Mung, Mr.Poon Wan Fung, Mr.Huang Erwin Steve and Mr.Poon Kai Tik.This team has been responsible for further developing and implementing the Group's overall business development strategy.Further, the Group has recruited prominent broadcasters, commentators, journalists and presenters to head the development of each of the Group's four anchor vertical portals.Key investors include ACAEDL Limited, a company wholly owned by Mr.Chung Po Yang, a prominent international business leader and founder and chairman of DHL International Limited.
Building from the foundations laid by Mr.Cheng Albert Jinghan and combining the management's experience in Internet technology and investment, publication, media and project development, the Group is well-placed to develop many content-rich portals targetted at the global Chinese community.
Development of the Group's vertical portals
The Group's management team employed a rigorous 3-phase methodology to develop its vertical portals.These 3 phases comprise: specification, implementation, and trial run.
Phase 1: specification
The Group developed the specifications for its vertical portals based on extensive market research and benchmarking of local and international competitors.The Group extensively utilised focus groups, a proven research technique for assessing potential consumer demand for yet-to-be developed products.
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Phase 2: implementation
To enable speedy and reliable implementation, the Group employed a rapid prototyping methodology during the development of each vertical portal.A prototype for each vertical portal, with most of the key features built in, was developed in-house within 1 month and is continually refined on a weekly basis.
Phase 3: trial run
Each vertical portal was tested by means of a trial run lasting at least one month before its launch.Such trial runs enable the Group to debug any outstanding technical problems, incorporate any comments from Internet users, and optimise the operational procedures for content provision.
Launchof theGroup's vertical portals
The Group formally launched seven Chinese language vertical portals on 6th March, 2000, comprising its four anchor vertical portals: Finance, News, Entertainment and Consumer, and three other vertical portals: Eating, Sports and Fortune-telling.The launch aroused public attention and attracted about 454,000 pageviews on the day of launch.The Group's portal network enjoyed an average of about 798,000 pageviews per day during the month of March 2000.By the end of March 2000, the Group's portal network had attained about 505,000 unique visitors.
The Group subsequently launched its Chinese language Teenager as well as Horse-racing vertical portals on 1st April, 2000.The Group's portal network enjoyed an average of about 1,026,000 pageviews per day during the month of April 2000 and an average of 2,260,000 pageviews per day during the month of May 2000.By the end of April and May 2000, the Group's portal network had attained about 1,084,000 and 1,691,000 unique visitors respectively.
The Group launched its Chinese language Automobile vertical portal on 1st June, 2000.The Group portal network enjoyed an average of about 3,382,000 pageviews per day during the month of June 2000.
Since its launch, the Group's portal network attracted about 4,448,000 pageviews during its peak day and its Finance portal has been the most frequently visited portal of the Group's network.By the end of June 2000 the Group's portal network had attained about 2,283,000 unique visitors and about 218,000 registered members.
The pageview and unique visitor statistics were generated internally by the Company.Ernst & Young has performed a review on the Company's website traffic logging and reporting systems in respect of the adequacy and effectiveness of controls over the integrity of the web server logging process.No issue which would indicate that the statistics are not correct was identified.
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Management Structure of the Group
Executive Office Key Advisors ¥ chief icontent architect — Cheng Albert Jinghan ¥ financial advisor — Tsang Moses Kwok Tai ¥ chairman and chief executive officer ¥ marketing advisor — Poon Kai Tik — Ip Saimond ¥ chief operating officer — Yeung Kwok Mung ¥ technical advisor — Huang Erwin Steve
Content Development ¥ portal director (News) — Ng Ha Long ¥ portal director (Finance) — Lai Chak Fun ¥ creative director (Entertainment, Sports, Horse-racing and Automobile) — Leung Tak Man ¥ portal director (Consumer and Eating) — Chan Wai Hung ¥ portal director (Fortune Telling) — Ip Hon Leung ¥ portal directors (Teenager) — Tam Tak Chi and Chan Chi Chuen ¥ research director — Chan Kwok Leung ¥ portal manager (Sports) — Chu Sheung Yam ¥ portal manager (Horse-racing) — Wu Carlos
Web Development ¥ director of art and production — Wong Kevin Che Kuen ¥ associate director, production — Ho Wai Fat
Technology, Source and Integration ¥ chief technology officer — Poon Wan Fung ¥ director of technology integration — Lam Stephen Tai Wai ¥ architect, technology infrastructure — Kong Kang Chung
Business Development ¥ director of business development — Yuen Kin Chung ¥ associate director, business development — Kwan Man Chun
Sales and Marketing ¥ sales and marketing director — Fung Benjamin ¥ associate director — Au Helena Oi Lun
Finance and Administration ¥ chief financial officer — Ng Andrew Shu Bun
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THE GROUP'S OBJECTIVES AND BUSINESS MODEL
The Group's primary objective is to become a leading builder of popular business-to- consumer vertical portals for the global Chinese community by providing a one-stop gateway to the Internet that pools, organises and delivers information to meet the needs of users who want to be well-informed in specific areas of interest pertaining to each of the Group's target markets.The Group also aims to become a preferred services provider to assist merchants and other corporations to manage their image and relationships with their customers, including Internet users.The initial target markets of the Group are the Chinese communities in Hong Kong, the PRC, North America, Asia and Australasia.
To meet its primary objective, the Group is engaged in three key business activities:
1.Identifying new opportunities for building vertical portals based on potential market demand and existing competitive landscape.
2.Developing and operating the vertical portals.
3.Developing and maintaining a technical platform to enable implementation and further development of the Group's business objectives.The Group has already developed a technical platform with a varied range of business-to-consumer Internet technology including: e-mail, web personal organisers, buddy list, shopping, auction, polling station, chat room, forum, instant translation, free personal homepages and online games.The Group has also customised a software system enabling it to design and publish websites with a high degree of automation.
The Group also intends to continue to provide media-related services to its clients, including developing media communications strategies for its clients, and to continue to provide Internet- related consulting and integration services to its clients.
Content Provider
The Group's topic-based vertical portals provide categorised areas of interest so that users can browse through collections of related information.The Group has so far launched the following Chinese language vertical portals in Hong Kong:
Finance vertical portal )
This portal contains information specifically relating to the finance sector.It primarily targets mass market retail investors interested in the Hong Kong stock market.It also contains a limited amount of information about Hang Seng Index Futures.The features of this portal include:
. real-time information provided through automatically refreshed screen during trading hours on the Stock Exchange, including:
. real-time commentaries on several key stocks updated every 5 minutes and index futures updated about every 15 minutes
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. real-time market news updated about every 5 minutes
. real-time stock quotes
. comprehensive information provided at all hours, including:
. market news updated on an ad hoc basis
. money morning chronicles comprising summaries of key financial news)
. market commentaries updated in the morning prior to the commencement of trading on the Stock Exchange, at midday after the close of the morning trading session and again following the close of the afternoon trading session
. commentaries from various contributors on selected stocks and general market trends
. selected brokers' reports
. company data provided by SHK Financial Data Limited
. analytical and charting tools:
. tools provided by TSCI
. discussions on popular analytical tools and methodology including, price/earning ratio, ``value investment'' method e.g. price-to-net tangible asset value), relative strength index, moving averages and current ratios
. room for users to post stock tips
. an update of foreign currency exchange rates
. interactive services including:
. real-time money chat room
. money forum
. money netbudsman enabling users to post complaints about finance-related issues which the Group will endeavour to follow up)
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A page from the Group's Finance vertical portal
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Consumer vertical portal )
This portal features a detailed shopping guide designed to assist shoppers to choose among different products and merchants in Hong Kong and includes:
. detailed product profiles, regularly updated feature articles and product comparison tables for the following product categories:
. ladies fashion and beauty Ð over 250 products are profiled
. audio-visual e.g. television-related products) Ð over 100 products are profiled
. digital products e.g. personal digital assistants) Ð over 60 products are profiled
. computer and related peripherals Ð over 1,000 products are profiled
. cameras and related products Ð over 70 products are profiled
. mobile phones Ð over 100 products are profiled
. trendy products e.g. skate bikes) Ð over 200 products are profiled
. search engine to help callers identify the lowest priced international direct dialling telephone service providers for 21 different destinations at any given time of the day or night.
. daily updated discount express listing major discounted products for 8 different product categories
. interactive services including:
. consumer infoline for users to volunteer comments on products and merchants)
. consumer forum
. consumer real-time chat room
. consumer netbudsman enabling users to post complaints about specific products or merchants which the Group will endeavour to follow up)
The Group also intends to provide intermediary services linking consumers using the Group's Consumer portal with selected merchants.
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A page from the Group's Consumer vertical portal
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News vertical portal )
This portal sets out to complement traditional newspapers by:
. providing more frequently updated news Ð news is updated every 15 to 30 minutes from 7: 00 a.m. to midnight
. providing exclusive feature articles Ð including, for example, a secondary school league table, based on a survey commissioned by the Company, which was widely quoted in Chinese newspapers
. providing news chat rooms and forums featuring popular commentators including the popular radio and television host ``Tai Pan'' Cheng Albert Jinghan), politicians, government officials and other contributors
The portal also provides news features and news quotes, and reviews of the latest editions of selected popular magazines especially those in Hong Kong.
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A page from the Group's News vertical portal
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Entertainment vertical portal )
This portal is an information portal focusing on mass market entertainment, including:
. news regarding a variety of entertainers updated every 15 to 30 minutes from 7: 00 a.m. to midnight such as the latest news on canto-pop stars)
. an entertainment guide to assist users to choose among different movies, music, and television series, including features such as:
. a movie guide with summaries, commentaries and reviews, key photos, trailers, and show times for all the current movies
. music billboard charts
. 107star index a top-ten billboard of entertainment stars)
. star profiles
. soap opera forum
. interactive services including:
. entertainment chat room
. forum
. entertainment netbudsman enabling users to post complaints about entertainment-related issues which the Group will endeavour to follow up)
. ghost channel including:
. ghost stories
. reports on ghost hunting and ghost sightings by the Group's web-jockeys
. forum for users to post ghost stories/items of interest relating to ghosts
. real-time chat room
The Group produced 5 short television programmes named ``Telling a ghost story to a Vampire'' shown on Asia Television Limited during March and April 2000) featuring winners of a ghost story competition held on the Group's ``ghost'' channel presenting their winning stories on television.
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A page from the Group's Entertainment vertical portal
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Fortune-telling vertical portal )
This portal contains information relating to fortune-telling, including features such as:
. free personalised and automatic services, including:
. fortune-telling based on
1.i-ching hexagon generated online
2.Chinese zodiac relating to user's birthday
3.bone-weighting an ancient Chinese technique) relating to user's time hour) of birth
. selecting auspicious dates e.g. for weddings)
. naming individuals, based on number of strokes in the Chinese characters
. daily horoscope for the 12 star signs of the western zodiac
. regularly updated feature articles on
. feng-shui and home furnishing
. global trends
. the logic behind oriental astrology
Eating vertical portal )
This portal provides a restaurant guide and search engine with a database of information on over 5,000 restaurants in Hong Kong including features such as:
. weekly articles on gourmet choice and trendy eating
. eating infoline for users to publish their personal comments on restaurants
. diner forum
. diner real-time chat room
. diner netbudsman enabling users to post complaints about specific restaurants or food-related matters which the Group will endeavour to follow up)
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Sports vertical portal )
This portal focuses on servicing the sports enthusiasts, particularly those interested in soccer and basketball, including features such as:
. sports news updated on average every 30 to 60 minutes from 7: 00 a.m. to 10: 00 p.m.
. sports infoline
. soccer zone
. NBA zone
. 36 all stars particularly, the profiles of soccer and basketball sports stars)
. 36 hall of fame
. soccer forecast
. sports forum
. sports real-time chat room
. sports netbudsman enabling users to post complaints about specific matters relating to sports which the Group will endeavour to follow up)
Teenager vertical portal )
This portal adopts a thematic approach and contains information and online community services targetted at students and teenagers, including features such as:
. celebrity hosts sharing their views and experiences
. information and responses to users' questions relating to specific topics such as school events and gossip, love affair, teenager problems and teenage trends
. online games
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Horse-racing vertical portal )
This portal provides information for followers of horse racing, including features such as:
. analysis on each race and betting strategy on the racing days
. frequently updated news regarding horse racing
. tips from Wu Carlos and other racing commentators as well as extracted tips from horse-racing newspapers
. a comprehensive database of race horses including the horse's last five-year track record, characteristics, etc.)
. statistics on the results of horse trainers and jockeys
. horse-racing forum
. horse-racing real-time chat room
. horse-racing netbudsman enabling users to post complaints about horse-racing issues which the Group will endeavour to follow up)
Automobile vertical portal )
This portal is an information portal focusing on automobiles, and includes
. regularly updated news and feature articles on
. the latest automobile models and trends
. automobile accessories and modifications
. tips on automobile maintenance and safety
. motor racing
. detailed profiles and comparison tables of over 200 automobiles, including the latest models
. search engine to help users obtain information based on user-defined criteria on second-hand automobiles which are for sale
. interactive services including:
. infoline for users to volunteer comments on latest products and merchants)
. forum
. real-time chat room
. automobile netbudsman enabling users to post complaints about automobile-related issues which the Group will endeavour to follow up)
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ApagefromtheGroup'sAutomobileverticalportal
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Internet-related consulting and integration services
The Group provides its clients with a range of turnkey e-business solutions, including Internet strategy formulation, web page design, application development and website hosting and maintenance.The Group's target clients are companies wishing to utilise the Internet in their businesses but lacking the in-house technological capability to develop their own e-business solutions.In providing such business services, the Group has been able to draw upon its experience in providing media strategy consulting services, its experience in developing its own network of vertical portals and its integrated technological platform with its automatic publishing application and comprehensive suite of business-to-consumer applications.The Group's current clients receiving these services include Maxim Caterer Ltd., IBM China Hong Kong) Limited and Cable & Wireless HKT CSL Limited.
Media-related services
The Group is engaged in providing various media-related services to its clients, including developing media communications strategies for clients, conducting media audits and reviews, and providing media training and development programmes for executives to prepare them for dealing with customers, suppliers, employees and shareholders.
Revenue model
i) Advertising-driven model
The Group intends to generate revenue by hosting advertisements on and soliciting sponsorship for the website www.36.com. As portal content and pageviews build up over time, it is expected that the portal network will provide a foundation for the development of direct advertising.The volume of traffic generated by the website www.36.comthrough the Group's content and services will provide a platform for online advertisers effectively to market their products to their target audiences.
The sales of the Group's advertising space are placed by the Group's own sales and marketing department.
During the period commencing on 1st April, 2000 the beginning of the Company's current financial year) and ending on the Latest Practicable Date, the Group has received orders representing about HK$7.8 million in advertising revenues.
Forms of Internet advertising
Advertisements are displayed on the website www.36.com in the following forms:
. Banner ads
Small, usually banner shape, graphics that appear on most consumer websites. Like roadside billboards, the messages are usually static and appear at the top of a web page.
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. Title sponsorship
This form of advertisement attempts to associate the sponsor's brands and products with the editorial content on the Group's network.The Group can arrange to have sponsorships directed towards individual portals or channels or special events on its network.
It is the Group's intention to also display advertisements in button form.Button-form advertisements are small, rectangular or square in shape and are usually placed at the bottom of a web page and contain only a corporate name or brand.Clicking on the button takes the online viewer directly to the corresponding corporate website which allows advertisers to directly interact with the online viewer.
The Group also plans to offer Internet advertising in the form of e-mail-based marketing and e-card sponsorship.
Advertisers
Based on the breadth of its online content, the Group has the ability to package personalised advertising solutions for advertisers and advertising agencies interested in accessing the Hong Kong, the PRC, North American, Asian and Australasian markets.The Group's sales force works closely with advertisers to enhance the effectiveness of campaigns by customising advertisement delivery with any of its vertical portals.The Group's advertising clients include iASPEC Technologies H.K.) Ltd., Innovative Information Systems Ltd., Sun Microsystems of California Ltd., Yahoo! Holdings Hong Kong) Ltd., Real Media Ltd. and Wing Hang Bank Ltd.
ii) Transaction-driven model
The Group plans to launch e-commerce platforms on its Consumer portal, under which the Group will charge clients a percentage of the revenue the Group's clients generate from these e-commerce platforms.By deriving revenue from these e-commerce activities, the Group expects to benefit from the growth in the value of e-commerce.The Group also intends to extend e-commerce platforms to other portals in the near future.
Commencing in the second half of 2000, the Group intends to launch several intermediary services in its Consumer vertical portal to link up consumers with selected merchants.The Group intends that different types of service will be introduced, including:
1.an auction service for merchants to post their products for consumers to bid to purchase whereby users' bids may be placed and relayed to the relevant merchant by the Group. The Group also provides information on the products for the potential consumers.
2.a group purchase service to allow multiple consumers to group together their orders to enjoy bulk discounts from selected participating merchants.The ordered goods may be collected by the consumers or delivered by the participating merchants.
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3.a bilingual e-commerce service to introduce quality consumer products to the Group's users.The Group has entered into affiliation agreements with over 50 international retail websites whereby the Group will receive commission on any purchase made by users entering such retail websites from the Group's websites.Top international websites that have affiliation agreements with the Company include:
. disneystore.com
. selfcare.com
. hollywood.com
. ibeauty.com
. newyorkfirst.com
. art.com
. CDuniverse.com
. amazon.com
In respect of the auction service and the group purchase service, the Group has signed memoranda of understanding with each of Stuttgart International Motors Limited, Newcentre Limited, IBM China/Hong Kong Limited, Chinese Club Discount Centre Limited, Gameson Trading Co., Tomato Racing Revolution Limited, Sheep Dog Holdings) Co. Limited and Skybest H.K.) Limited, all of which are on a non-exclusive basis. These companies provide various products for sale including:
. computer and related peripherals
. audio-visual products
. mobile phones
. automobile accessories
. trendy products
. health and personal care products
iii) Content distribution Ð driven model
The Group intends to generate revenue from the distribution of its content to Internet and other media such as print and WAP) providers as the Group's content builds up and further develops over time.The Group intends to generate revenue by allowing clients to host certain of the Group's targetted portals.This will also enable the Group to reach a wider user base, which will increase user awareness and recognition of the Group's portals and content.Recent clients
Ð85Ð BUSINESS include Cable & Wireless HKT CSL Limited ``CWHKTCSL'') for which the Group provides financial information including real-time commentaries in voice or text form) to CWHKTCSL's mobile telephone subscribers, and Mass Transit Railway Corporation ``MTRC'') for which the Group provides web content including a movie guide, a consumer/food guide, selected entertainment news and daily horoscope for inclusion in MTRC's website as well as providing ancillary hosting and transmission services to MTRC.
During the period commencing on 1st April, 2000 the beginning of the Company's current financial year) and ending on the Latest Practicable Date, the Group has received orders representing about HK$5.0 million in content distribution fees. A number of the Group's current clients were clients of the Group during its early years.
iv) Service-driven model
This model generates revenue by assisting merchants and corporations to manage their media image and their relationships with their customers, including Internet users.These services include:
1.Communications strategy and implementation.The Group's services assist corporations to use different media effectively, including Internet, print, and broadcasting.These services include overall strategy development, audits and reviews of communication programmes, external communications strategies, media communications training, key stakeholder management and interactive event organisation.
2.Integrated web development.These services include web page design, application development, and website hosting and maintenance.
The level of fees charged by the Group depend on the size and complexity of the project. Recent clients include Maxim Caterer Ltd.which the Company provides services relating to communication strategy as well as integrated web development, and Sheepdog Holdings) Company Limited for which the Group provides services relating to communication strategy and implementation.During the period commencing on 1st April, 2000 the beginning of the Company's current financial year) and ending on the Latest Practicable Date, the Group has received orders representing about HK$5.9 million in service fees. A number of the Group's current clients were clients of the Group during its early years.
The Directors believe that the advertising-driven model will generate relatively higher revenue than the other three models in the near future.
Facilities
Network connections and facilities management
The Group's infrastructure consists of multi-vendor server systems located in Hong Kong, all connected to the Internet primarily through co-locations at major ISP data centre facilities.
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The Group's server systems in Hong Kong are physically located at Cable & Wireless HKT's Telecom House in Hong Kong and are maintained by Cable & Wireless HKT.The Group's Hong Kong servers are responsible for all its vertical portals.The Group's server systems are connected to the Internet by a 100Mbps data circuit currently leased from Cable & Wireless HKT. The terms of such arrangements include below:
. facility management service
. high bandwidth Internet network connection
. continuous monitoring of network bandwidth
. operation management: including preventive system monitoring, first tier basic troubleshooting and second level escalation and data backup
With respect to the development of the Group's e-commerce operations, the Directors intend that the Group will develop the necessary network infrastructure, including transmission capacity, encryption capabilities and other security measures, redundancy and mirroring facilities and otherwise, to have adequate facilities to conduct such operations in line with international practice.The Directors expect that the Group will source software and hardware to develop its e-commerce network facilities from third party suppliers as needed, and that the Group will rely to a significant extent on third parties to provide certain aspects of and to maintain, repair and upgrade its network facilities.The Directors do not believe that the Group will have any material difficulties in the foreseeable future in sourcing and maintaining the equipment and network facilities necessary for the Group's operations.
Sales and Marketing
During the launch of the Group's current vertical portals in Hong Kong, the Group spent an aggregate of approximately HK$6 million, including promotional events, participation in a number of television documentaries including ), and advertising on television, radio, newspapers, magazines, the Mass Transit Railway, buses, and billboards.
The Group issues invoices immediately after signing of agreements with its clients to demand immediate payment.Upon receipt of invoices, clients will typically settle payment within one month.
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STATEMENT OF ACTIVE BUSINESS PURSUITS
The following is a statement of active business pursuits of the Group for the two years ended 31st March, 2000 and for the period from 1st April, 2000 to the Latest Practicable date:
For the years ended 31st March, 1997 and 1998
During this period, the Group provided media-related services to its corporate clients. The Group's services included formulating media communications strategies for its clients, carrying out media audits and reviews and providing media training and development programmes for executives.From December 1997 onwards, the Group revised its plan to broaden the scope of its media-related activities beyond traditional media to cover interactive media such as the Internet.The Group continued to develop such plan and actively began pursuing possible business alliances in this area.
For the year ended 31st March, 1999
By June 1998, the Group had developed its key business concepts; namely to be a developer of content rich, Chinese language websites covering finance, news, entertainment and other mass market content area targetted at the global Chinese community.
During the period from June to September 1998, Mr.Lai Chak Fun the director of the Group's Finance portal) began forming a team of people capable of generating real-time commentaries of interest to retail investors for the Group's proposed Finance portal.This team was based at the Group's office premises at that time.During the period from September 1998 to January 1999, Mr.Lai Chak Fun and the team worked on developing the necessary tools and methodology for the Group to generate real-time stock market commentaries.The team ceased to participate in the development of the Group's planned Finance portal in early 1999 after discussions with a potential partner for a business alliance to launch such a website broke down.Mr.Lai Chak Fun, however, continued to work with the Group to develop its planned Finance portal.
The Group also actively devoted a substantial amount of management's time and effort during this period in actively pursuing potential business alliances and partnerships for the establishment of vertical portals, including Finance, News, Entertainment and Consumer. Whilst such negotiations did not result in the consummation of the alliances and partnerships being negotiated although negotiations with one party are still on-going) such negotiations were an important part of the development and refinement of the Group's business plans and models.
Further, during this period the Group identified and approached a number of people in addition to Mr.Lai Chak Fun) who have become senior management and/or key investors in the Group.A number of such people actively assisted the Group in developing its business although they were not at that time formally employed by the Group.
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For the year ended 31st March, 2000
During the year, the Group actively recruited its senior management and professional staff and continued to refine its business plans and strategies.The Group engaged consultants to commence initial work on design of the Group's website.Critical evaluation of the Group's technical platforms was carried out during April to June 1999.The Group prepared for the launch of its seven initial vertical portals, including design, content focus and development, software sourcing and customising, hardware sourcing and integrating.In preparation for launch, the Group performed product definition and specification tests.On 6th March, 2000 the Group successfully launched the following vertical portals:
. Finance
. News
. Entertainment
. Consumer
. Eating
. Sports
. Fortune-telling
To launch these vertical portals, the Group built a comprehensive technological platform with state-of-the-art Internet hardware and software.Software applications sourced and integrated during this period included e-mail, web personal organisers, buddy list, chat room, forum and online games.The Group also developed strategic alliances with various content providers to increase the depth of content and variety of features in each of the above vertical portals.The Group also customised a software system enabling it to design and publish websites in a standardised format with a high degree of efficiency.
The Group has also bundled its vertical portals with a number of other websites into its website www.36.com network to enable the Group to more effectively market its vertical portal network.In that year the Group signed content provision and revenue-sharing agreements with a number of websites including yahoo.com, 17play.com, magicaldesk.com, hongkong.cnet.com, and healthanswers.com. Further information is set out in the sub- paragraph headed ``Members of the Group's network'' below.
Client services
The Group started to provide banner advertising and title sponsorship to various advertisers such as iASPEC Technologies H.K.) Ltd. and Innovative Information System Ltd.. The Group also provided consulting and integration services to clients.
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Staff
The Group has recruited 6 staff members to develop the technology platform and 29 staff members to develop the content of the Group's vertical portals prior to their launch. The Group had 56 employees as at 31st March, 2000.
For the period from 1st April, 2000 to the Latest Practicable Date 6the ``Period'')
The Group launched its Teenager vertical portal as well as its Horse-racing vertical portal on 1st April, 2000 and its Automobile vertical portal on 1st June, 2000.In addition, the Group continued to develop the content and services provided on its initial seven vertical portals.
During this period, the Group continued to develop its technological platform. Software applications sourced and integrated during this period included instant translation, shopping, auction and free personal homepages.The Group also entered into a number of business alliances as follows:
. Animated e-greeting card portal.The Group entered into a licence agreement on 25th April, 2000 with WhyNot Creations, Inc.``WhyNot'').WhyNot operates a website ynot.com, a popular e-greeting card portal in English, Japanese and five other languages, and is a provider of media-rich e-marketing programs.ynot.com currently has one of the biggest inventories of animated e-greeting cards in the world.Under the licence agreement, WhyNot and the Group are co-developing a Chinese version of WhyNot's e-greeting cards for use on the Group's website.It is intended that the website will also contain selected English language versions of WhyNot's e-greeting cards.The Group will pay WhyNot an agreed setup fee, production fee, slotting fee and service fee for the services provided by WhyNot and the parties will share the advertising revenue generated according to certain agreed proportions.The agreement will have an initial term of 3 years commencing on 25th April, 2000 and thereafter will automatically renew for an additional term of 2 years unless the additional term is terminated by either party by giving not less than 6 months notice of termination prior to the end of the initial term to the other.
. Women's portal.The Group has entered into a service agreement with Leung Anita Fung Yee, a well-known author and television producer, for a term from 10th May, 2000 to 1st July, 2003 to develop a global Chinese women's portal in both traditional and simplified Chinese.It is expected that this portal will be launched during the second half of year 2000.
Features of this portal are planned to include:
. Leung Anita Fung Yee's corner, featuring daily quotes and articles written by Leung Anita Fung Yee, and forums hosted by her
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. career woman, including self-improvement and career tips for professional ladies
. fashion and make-up tips
. romance zone
. women and their families
. women on campus
The Group has entered into the following distribution agreement pursuant to which:
. iChannel.com. Pursuant to a co-branded revenue sharing agreement dated 28th March, 2000, the Group and iChannel.com URL: www.ichannel.com.hk) have agreed to develop two co-branded websites Consumer and Sports).iChannel.com is currently the homepage for CTInets, one of the leading Internet service providers in Hong Kong.This arrangement will enable over 390,000 residential subscribers of CTInets of City Telecom H.K.) Limited in Hong Kong to access directly the Group's Consumer and Sports vertical portals from iChannel.com's homepage.The agreement is for an initial term of 2 years from the date of launching of the co-branded web-site which will be automatically renewed for 1 additional term of 1 year unless otherwise terminated by either party by giving not less than 90 days notice prior to the end of the initial term and the parties will share the revenue generated according to certain agreed proportions.
. IBM's portal. The Group entered into a memorandum of understanding on 7th June, 2000 with IBM China/Hong Kong Limited and Grey Interactive Limited to create a new portal whereby users of IBM PCs will be able to directly access the portal by pressing a pre-programmed button on their keyboard.The portal will serve as an online loyalty channel for users of IBM PCs.The portal will have a minimum of six channels and provide full electronic commerce capability.The Group will receive a share of the revenue derived from both advertising and e- commerce commissions.It is expected this portal will be launched during the second half of year 2000.
Pageviews and registered users
For the month of June, the Group's portal network enjoyed an average of 3,382,000 pageviews per day.As at 30th June, 2000, the Group's portal network had attracted about 2,283,000 unique visitors and about 218,000 registered users.
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LARGEST CUSTOMERS AND SUPPLIERS
During the year ended 31st March, 2000, the turnover from the Group's largest customer accounted for 57.4 per cent of the Group's combined turnover for the year. Turnover derived from the Group's three largest customers accounted for 100 per cent of the Group's turnover for the year.
The aggregate purchases attributable to the Group's five largest suppliers accounted for 46 per cent of total purchase of the Group and purchases from the largest supplier included therein amounted to 21 per cent.
Mr.Tsang Moses Kwok Tai, a non-executive Director, is interested in the above transactions to the extent that he is a director of the holding company of, and a 12 per cent beneficial shareholder in, iASPEC Technologies H.K.) Limited formerly known as Uni-Tech Technologies Limited), which is one of the three largest customers and one of the five largest suppliers of the Group.Save as aforesaid, none of the Directors, their respective associates and shareholders who own more than 5 per cent of the issued share capital of the Company had any interest in any of the five largest customers and suppliers of the Group.
THE GROUP'S STRENGTHS
The Directors believe that the competitive strengths of the Group are as follows:
. The Group's ability rapidly to develop Chinese language vertical portals
The Group distinguishes itself from many of its major competitors by developing vertical portals which are tailored to its target user group based on the results of extensive market research.The Group has launched 10 vertical portals as at the Latest Practicable Date.
. Experienced founding members/management team
The Group's founding members/management team has extensive experience as content providers in media, publishing, broadcasting, finance and banking.It has enabled the Group to develop various content-rich vertical portals in less than a year.Many of its founding members/management are either celebrities or came from prominent international corporations, including Mr.Cheng Albert Jinghan, Dr.Ip Saimond, Mr. Tsang Moses Kwok Tai and Mr.Yeung Kwok Mung who have been actively involved in media, publishing, advertising, finance and/or Internet businesses.
. Ability to attract and retain talented employees
The employees of the Group are remunerated with salary.They are also granted share options.This arrangement enables the Group to attract and retain talented employees. Equally important is the Group's ability to maintain a conducive, meritocratic working environment for these talented and creative individuals to perform.
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. Ability to establish business relationship with worldclass Internet providers.
The Group has entered into a number of business partnerships with established worldclass Internet companies, such as Yahoo! Hong Kong, Magically, Inc., hongkong.cnet.com, Healthanswers and WhyNot, that will enable the Group to provide high quality Internet content.The Group's alliances are further described in the paragraph headed ``Key Business Alliance'' and ``Strategic Alliances'' below.
. Ownership of high traffic network
The Group's ownership of a high traffic network allows it to provide a platform for launching any future vertical portals.The current traffic makes it a frequently visited Chinese content network.
. Vertical portal technological platform
The Group operates an integrated technological platform with automatic publishing application and a comprehensive suite of business-to-consumer applications including e-mail, web organisers, personal web page, buddy list, shopping, auction, polling station, chat room, forum, one-to-one marketing, instant translation.This technological platform enables the Group rapidly to develop any future vertical portals.
. Domain name
Through its use of the domain name 36.com, the Directors believe that the Group is well positioned to market its vertical portals to the global Chinese community since these simple, numeric domain names transcend language and cultural barriers and are easy to remember.
BUSINESS OBJECTIVES, FUTURE PLANS AND IMPLEMENTATION SCHEDULE
Overall objectives
The Directors aim to build a series of content-rich vertical portals and to make each of the vertical portals one of the most popular sites in its specific area of interest for worldwide Internet Chinese users.The Directors intend to cultivate user loyalty to each of its vertical portals by expanding the breadth of the Group's services through the acquisition of businesses, technologies, content and services that are complementary to the specific area of interest.Assuming that e-commerce becomes increasingly acceptable and prevalent in Asia, the Directors intend to build the Group's e-commerce operations and capitalise on the potential growth in this area.
The Directors believe that the traffic generated on the Group's vertical portals provides an attractive platform for online advertising.The Directors believe that its rich content will help the Group's vertical portals become the preferred choices for advertisers seeking targetted advertising.The Directors also believe that online advertising, service provision, transaction commission and content distribution fee will serve as the primary revenue generators for the Group's growth in the future.
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Bases and assumptions
The Directors have assessed the potential of the market and have formulated strategies to achieve the Group's business objectives on the basis of past industry trends and the Group's past experience as well as future growth and anticipated demand.The Directors have made the following principal assumptions in making such assessment and formulation:
a) there will be no material changes in the existing political, legal, fiscal, foreign trade or economic conditions in Hong Kong or other countries in which the Group carries on or intends to carry on business;
b) there will be no material changes in the bases or rates of taxation in those countries in which the Group operates or intends to operate;
c) there will be no material changes in interest rates or foreign currency exchange rates from those currently prevailing;
d) the Group's operations will not be materially affected by year 2000 issues;
e) the use of the Internet and e-commence revenues will grow as projected by IDC as set out in the section headed ``Industry overview''.
f) there will be a sufficient supply of technical staff in the industry in which the Group operates; and
g) the Group will be able to maintain and/or continue to pursue strategic relationships with prominent and internationally recognized businesses in the Internet industry.
Future plans
A. Target market
The Group aims at expanding its market to the PRC, North America, Asia and Australasia in the near future.
the PRC
The Directors perceive the PRC as the Group's major and principal market for expansion.The Group aims at providing content that meets the interests of users in the PRC. Both localised and international content of interest in simplified Chinese will be developed.
The Group has been in discussion with a number of potential content providers to develop a localised version of its vertical portals to suit the tastes and interests of users in the PRC.
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North America
The Group aims at providing localised vertical portals that will meet the interests and needs of the Chinese communities in North America.In the second half of 2000, the Group will start launching location-specific vertical portals in major Chinese population centres such as Toronto and Vancouver in Canada.The Group has commenced recruiting an editorial team in North America to develop localized Chinese language content for the planned localised versions of the Group's Finance, News, and Consumer vertical portals. The Group has also commenced discussions with some potential content providers.
Asia and Australasia
Beginning in 2001, the Group intends to develop localised vertical portals targetted at the Chinese communities in Taiwan, Thailand and Australia.Negotiations are underway with a number of potential partners in these markets to co-develop localised Chinese language content for the Group's different vertical portals.
B. Future plans
The Directors believe that the Group has been successful in developing various vertical portals, each with extensive content and features in each portal's specific area of interest.This has been instrumental in attracting what the Directors believe to be a large and diverse user base to the Group's network of vertical portals.However, the Directors also believe that in order for the Group successfully to meet the challenges of competition, the Group must continue to develop each vertical portal with a view to ensuring high user retention and affinity.Towards this end, the Directors plan to continue to:
. increase the depth of the Group's existing vertical portals so that users can find more information on the relevant topic solely from that portal;
. develop or incorporate through partnerships and acquisitions) new vertical portals on specific topic areas with a similar emphasis on depth of information;
. incorporate technology developed by the Group or licensed from third parties into its products and services to further enhance and distinguish each vertical portal and provide users with an improved online experience;
. develop localised versions of certain vertical portals targetted at the Chinese communities in the PRC, North America, and Asia and Australasia.These localised vertical portals will be tailored to local tastes mainly in terms of design and content.
. launch a range of targetted e-mail marketing services to its registered users.
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C. Implementation Schedule
The Directors intend to adopt the following steps in respect of the development of its network of vertical portals, its content and its e-commerce operations within the time periods set out below.However, it should be noted that the Directors believe that the Internet industry is dynamic, fast-changing and often difficult to predict.The intentions of the Directors set out below therefore only reflect their present intentions.The Directors intend to use their best endeavours to anticipate future changes in the Internet industry and to take steps to remain flexible and versatile in order that the Group may stay ahead of or react quickly to such changes.Based upon the current state of the Internet industry, the Directors propose that the Group will implement the following:
Period Hong Kong NorthAmerica PRC Asia/Australasia
For the period . Launch Chinese . Launch Chinese . Launch Chinese commencing from the and English and English and English Latest Practicable language e-card language e-card language e-card Date and ending portal with portal with portal with 31st March, 2001 WhyNot WhyNot WhyNot . Launch women's . Launch women's . Launch women's portal through portal through portal through partnership with partnership with partnership with Leung Anita Fung Leung Anita Fung Leung Anita Fung Yee Yee Yee . Launch IBM's . Launch localised . Launch localised portal News, Finance Consumer portal . Launch English and Consumer . Launch the version of Finance vertical portals Group's first portal targetted at the e-tailing vertical . Launch the Chinese portal through Group's first community in partnership with e-tailing vertical North America third parties portal through initial targetted . Launch partnership with cities include aggressive third parties Toronto and marketing . Continue Vancouver in programme marketing Canada) . Develop programme . Develop distribution of the . Improve the look distribution of the Group's Chinese and feel of the Group's Chinese language vertical Group's vertical language vertical portals/content portals to make portals/content through other them more user through other third parties friendly and third parties networks attractive networks . Launch intermediary services on the Consumer portal . Develop distribution of the Group's Chinese language vertical portals/content through other third parties networks
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Period Hong Kong NorthAmerica PRC Asia/Australasia
For the period . Continue to . Continue to . Continue to . Launch localised commencing from increase the depth increase the depth increase the depth Entertainment 1st April, 2001 of content and of content and of content and portals targetted and ending variety of features variety of features variety of features at the Chinese 30th September, 2001 on all the Group's on each of the on each of the communities in vertical portals to Group's localised Group's localised Thailand, Taiwan, encourage a rapid vertical portals to vertical portals to and Australasia rate of growth in encourage a rapid encourage a rapid . Launch localised traffic to the rate of growth in rate of growth in Consumer portals portals and in the traffic to the traffic to the targetted at the number of new portals and in the portals and in the Chinese registered users number of new number of new communities in . Continue to registered users registered users Thailand, Taiwan, expand and build . Launch localised . Launch localised and Australasia new portals Entertainment Finance portal . Develop through joint- portal . Launch localised distribution of the venture Entertainment Group's Chinese partnerships portal language vertical including e-tailing portals/content such as e-tailing through other second hand cars) third parties . Roll out further networks intermediary services on the Consumer portal
For the period . Promote wireless . Promote wireless . Promote wireless . Launch localised commencing from platform platform platform versions of 1st October, 2001 capabilities in the capabilities in the capabilities in the further vertical and ending areas of shopping areas of shopping areas of shopping portals of the 31st March, 2002 . Launch new . Launch localised . Launch localised Group targetted at generation versions of further versions of further the Chinese products such as vertical portals of vertical portals of communities in broadband version the Group the Group but Thailand, Taiwan of the . Continue to excluding the and Australasia Entertainment and establish an Group's News . Commence e-card portals e-business in vertical portal) establishment of . Broaden the range target markets . Continue to e-business in of available that offer establish an target markets e-tailing products opportunities e-business that offer such as fashions, . Continue to presence in target opportunities cosmetics explore and markets that offer . Continue to . Continue to capitalise on opportunities explore and establish strategic . Continue to capitalise on e-business in opportunities such explore and strategic target markets as through capitalise on opportunities such that offer acquisition of strategic as through opportunities country specific opportunities such acquisition of . Continue to portals in target as through country specific explore and markets acquisition of portals in target capitalise on country specific markets strategic portals in target opportunities such markets as through acquisition of country specific portals in target markets . Continue to increase the depth of content and varieties of features on each vertical portal
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Period Hong Kong NorthAmerica PRC Asia/Australasia
For the period . Continue to . Launch broadband . Launch broadband . Launch commencing from explore possible version of the version of the broadband 1st April, 2002 opportunities for Entertainment and Entertainment and version of the and ending growth through e-card portals e-card portals Entertainment and 30th September, 2002 acquisition, e-card portals especially in the area of content . Continue to increase the depth of the content and variety of features on 36.com . Continue to develop e-business and explore extending its e-commerce platform to other portals
For the period . Continue to commencing from increase the 1st October, 2002 features on each and ending vertical portal to 31st March, 2003 improve functionality . Continue to develop e-tailing in target markets . Continue to increase the depth of content on each vertical portal
As the Internet is an emerging industry and is developing at a very rapid pace, the Group may need to amend its business plan according to changes in its operating environment.As such, the Directors consider it inappropriate to specify a definite time as to when the net proceeds from the issue of the Offer Shares will be used.In light of the keen competition in the Internet industry, the Directors are also of the view that the amount and timing of payment of such proceeds to be expended on particular business objectives is sensitive and confidential commercial information. Therefore, the Directors consider that it is not in the interests of the Group to state the amount of such proceeds to be used in each of the forward-looking periods in this prospectus.
D. Spin-offs, mergers and acquisitions
To be a successful player in the Internet industry, the Group will need to be tremendously flexible to adopt to the rapidly evolving market environment.Organic growth may not be adequate to achieve the Group's target growth in terms of geographic reach and business scope. The Directors believe that forming strategic partnerships or mergers and acquisitions are effective means to acquire capabilities critical to the business without making prohibitive investments or losing first-mover advantage.
Therefore, the Group does not rule out the possibility to engage in mergers and acquisitions at either Group or vertical portal levels in the future.In addition, it may also spin off certain vertical portals through separate listing.However, the Group currently has no concrete timetable or plan for any spin-offs.
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Warning:
The aforesaid plans are based on the existing plans and intentions of the Group. As such intentions and plans are based on assumptions of future events which by their nature are subject to uncertainty, the Group's actual course of action may vary from the intentions and plans set out above. Although the Directors will endeavour to execute such plans in accordance with the aforesaid timeframe, there is no assurance that the plans of the Group will materialise or result in the conclusion of any agreement or be executed in accordance with the aforesaid timeframe or that the objectives of the Group will be fully accomplished or be accomplished at all.
COMPETITION
The Directors believe that through the operation of a network of business-to-consumer vertical portals, targetted at the global Chinese community, the Group will be able to help satisfy the demand for Chinese language content services.Although the Group does not intend to provide all the services that may be available on the multitude of websites online covering each area of interest, the Directors believe that the services that the Group provides through its network of vertical portals are competitive against other Chinese language websites providing similar services.
A number of content providers in Hong Kong are regarded by the Directors as competitors to the Group's vertical portals.However, the Directors believe that the Group's vertical portals offer content and features competitive with such competitors.
The Directors believe that the Group's vertical portals will continue to experience competition from these competitors as well as from other new competitors who enter the industry in the future.Many of the Group's competitors have significantly more financial, operating and other resources than the Group and more experience than the Group in the Internet industry.
The Directors believe that, in order to react to such competition, the Group must ensure that its vertical portals have diverse content which cultivate users' loyalty and appeal to worldwide Chinese through localised versions.However, the Directors believe that the Group is well- positioned to provide such content to users of its portal sites on the back of its strong professional and technical team.In addition, the Directors have formulated a future strategy for the Group to improve the content of the Group's vertical portals.The Directors intend to introduce a number of new features to the Group's vertical portals in order to attract new users and encourage repetitive visits by users.See the subparagraphs headed ``Future plans'' and ``Implementation schedule'' above.
KEY BUSINESS ALLIANCE
. Yahoo! Hong Kong Pursuant to an agreement dated 28th February, 2000 between the Group and Yahoo! Holdings Hong Kong) Limited ``Yahoo! Hong Kong''), Yahoo! Hong Kong granted a non-executive license to the Group to serve its search engine and
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14 category directory through the Group.The agreement is for an initial term of 1 year from 28th February, 2000 which will be automatically renewed for successive additional 1 year periods unless otherwise terminated by either party by giving not less than 30 days notice prior to the end of a term provided that either party may terminate the agreement at any time upon 30 days prior written notice.The Group is not required to pay Yahoo! Hong Kong for such services.
STRATEGIC ALLIANCES
Technology partnerships
The Group has entered into agreements with a number of technology providers to ensure all its vertical portals have access to leading edge business-to-consumer technologies.These alliances include:
. Magically, Inc. Pursuant to an agreement dated 27th November, 1999 between the Group and Magically, Inc.``Magically''), Magically provides the Group's ``virtual desktop office'' which offers personal web services such as free e-mail and web organiser.The agreement is for an initial term of 1 year from 27th November, 1999 which will be automatically renewed for 1 additional year unless either party provides written notice to the other 60 days prior to the end of the term.Under the agreement, the Group will pay Magically Inc.an agreed setup fee and the parties will share the advertising and e-commerce revenue generated according to certain agreed proportions.
. Radiorepublic.com Pursuant to an agreement dated 16th February, 2000 between the Group and G-World Media Limited ``G-World''), G-World has agreed to distribute the audio version of the Group's content through a co-branded website under radiorepublic.com network. The agreement has no fixed term and may be terminated byeitherpartybygiving30daysnoticeinwritingtotheotherandthepartieswill share the revenue generated according to certain agreed proportions.
. iSilk.com The Group entered into an agreement on 20th April, 2000 with iSilk.com pursuant to which iSilk will provide the Group with its web-based translation application.It is a context-sensitive, word by word translation based on neural net technology developed by the Hong Kong University of Science and Technology.The Group will utilize such technology to offer its users bilingual web surfing of popular US websites.The agreement is for a term of 1 year from 20th April, 2000 pursuant to which the Group will pay iSilk a setup fee and a monthly maintenance fee and to offer iSilk certain free advertisment on its site and the parties will share the advertising revenue generated according to certain agreed proportions.
Co-development partnerships
The Group has entered into extensive partnerships to ensure that each of its vertical portals provides a comprehensive set of quality content and services.
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Finance vertical portal (Instant Market Insight)
. TSCI Pursuant to an agreement dated 10th May, 2000 between the Group and TSCI, TSCI provides the Group's Finance vertical portal with an extensive technical analysis tool kit normally accessible only to professional investors designed to help users interpret market stock movements. The agreement is on a non-exclusive basis and is for a term from 10th May, 2000 to the third anniversary of the listing of the Shares and thereafter will continue until terminated by either party by giving to the other no less than 3 months written notice. The parties will share the revenue generated by the use of the tool kit on a website according to certain agreement proportions.
Pursuant to a licence agreement dated 10th May, 2000, TSCI has granted a licence to the Group to use the brand of TSCI for a term from 10th May, 2000 to the third anniversary of the listing of the Shares at a fixed fee.
. Financial commentators The Group has entered into agreements dated 10th May, 8th May and 10th May, 2000, respectively with Leung Bing Yiu, Tam Ricky Siu Hing and Dr. Chan Yan Chong each of whom is a well-known financial commentator and/or columnist in Hong Kong. They provide finance commentaries, recommendations, interactive forums and chat rooms to users of the Finance portal of the Group.
Each of the agreements with Leung Bing Yiu and Dr. Chan Yan Chong is on an exclusive basis and is for a term from 10th May, 2000 to the third anniversary of the listing of the shares and thereafter will continue until terminated by either party by giving to the other no less than 3 months written notice. Each such agreement provides that the advertising revenue generated shall be shared between the parties according to certain agreed proportions.
Pursuant to 2 licence agreements both dated 10th May, 2000, each of Leung Bing Yiu and Dr. Chan Yan Chong has granted a licence to the Group to use his brand for a term from 10th May, 2000 to the third anniversary of the listing of the Shares at a fixed fee.
The agreement between the Group and Tam Ricky Siu Hing is for a term of 4 months from 10th May, 2000, under which Tam Ricky Siu Hing has agreed to provide the above services and grant to the Group a licence to use his brand at a fixed fee.
. SHK stock screener The Group has entered into a memorandum of understanding dated 3rd May, 2000 with SHK Financial Data Limited to co-develop a website on the Group's Finance vertical portal to allow investors to screen stocks on the Stock Exchange based on user-defined screening criteria (e.g. price/earning ratios). The agreement is for a term of 1 year from 3rd May, 2000. SHK Financial Data Limited and the Group would share the advertising revenue generated according to certain agreed proportions.
. Trading pattern recognition software Pursuant to an agreement signed on 4th May, 2000, Professor Chan Laiwan has granted an exclusive licence to the Group to use a trading pattern recognition software developed by Professor Chan. The agreement is for a term of 1
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year from 4th May, 2000 and Professor Chan and the Group will share the advertising revenue generated by the use of the software on a website according to certain agreed proportions.
Teenager vertical portal
. Celebrities
. Lau Lawrence Tsun Wai ) entered into an agreement with the Group on 10th May, 2000 to provide content for an online ``ghost'' channel.Mr.Lau is a script-writer for many popular ghost movies.
. Law Wing Zee ) pursuant to an agreement dated 10th May, 2000 between the Group and Feel Company Limited provides a ``Problematic Romance Channel'' for the Group.Ms.Law is a popular romance writer in Hong Kong.
. Leong Monk Fung ) pursuant to an agreement dated 10th May, 2000 between the Group and Feel Company Limited, provides a ``Young and wild channel'' for the Group.Mr.Leung is a popular writer in Hong Kong.
Each of the agreements is for a term from 10th May, 2000 to the third anniversary of the listing of the Shares and thereafter will continue until terminated by either party by giving to the other no less than 3 months written notice provided that in respect of the agreements with Feel Company Limited, Feel Company Limited may terminate the agreements by giving 3 months notice to the Group in the event that the Company fails to obtain a listing status by 31st December, 2000.
Each of Lau Lawrance Tsun Wai and Feel Company Limited has, pursuant to the respective agreements, agreed not to provide similar content to any competitors of the Group and the parties will share the advertising revenue generated according to certain agreed proportions.
Pursuant to 3 licence agreements, all dated 10th May, 2000, each of Lau Lawrence Tsun Wai and Feel Company Limited has granted a licence to the Group to use certain brands for a term from 10th May, 2000 to the third anniversary of the listing of the Shares at a fixed fee.
. 17 play The Group entered into an agreement with Asiacontent.com Media H.K.) Ltd. previously called Tricast HK Ltd.) ``ACCM'') on 29th March, 2000. ACCM will provide the Group's fun channel with the Hong Kong version of www.mplayer.com on a non- exclusive basis, a very popular network game website in the US.The agreement is for a term of 9 months from 29th March, 2000 provided that either party may terminate the agreement by giving not less than 60 days prior notice to the other and the Group and ACCM will share the revenue generated from the co-branded web pages according to certain agreed proportions.
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News vertical portal
. Commercial Radio Hong Kong Pursuant to an agreement dated 20th January, 2000 between the Group and Hong Kong Commercial Broadcasting Co.Ltd.``CRHK''), CRHK has granted the Group a licence to serve its real-time news from the CRHK website through the Group's News portal and the Group has agreed to pay CRHK a fixed sum as set-up cost and a fixed monthly fee and to offer CRHK certain free banner advertisement on its sites. The agreement is for an initial term of 6 months from 31st January, 2000 and thereafter will continue for successive renewal terms of 6 months until terminated by either party by giving to the other no less than 30 days notice prior to the end of the relevant term.
Entertainment vertical portal
. Comicinemia.com The Group entered into an agreement with Fortel Technology Limited ``Fortel'') on 12th June, 2000.Fortel owns the website comicinemia.comwhich provides on-line comics.Fortel has agreed to create a regularly updated channel with selected comics on the Group's Entertainment portal.Under the agreement, the Group and Fortel will share the revenue generated from the co-branded web pages according to certain agreed proportions.The agreement will have an initial term of one year commencing on 12th June and thereafter will be automatically extended for successive renewal terms of one year unless terminated by either parties giving not less than 60 days notice prior to the end of the renewal term.
Fortune-telling vertical portal
. Oriental astrology Central Digital Technology Limited entered into an agreement with the Group on 10th May, 2000.Central Digital Technology Limited will provide personalized, automatic services such as key date selection, naming individuals and companies, predicting trends and assessing home feng-shui at the Group's astrology portal.The agreement is for a term from 10th May, 2000 to the third anniversary of the listing of the Shares and thereafter will continue until terminated by either party by giving to the other no less than 3 months written notice.The Group has agreed to pay Central Digital Technology Limited an agreed fee as its production costs and a fixed monthly fee.
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Animated e-greeting card portal
The Group entered into a licence agreement with WhyNot Creations, Inc.on 25th April, 2000.WhyNot operates a website www.ynot.com,a popular e-greeting card portal in English, Japanese and five other languages. The website www.ynot.com currently has one of the biggest inventories of animated e-greeting cards in the world.Under the licence agreement, WhyNot and the Group are co-developing a Chinese version of WhyNot's e-greeting cards for use on the Group's website.It is intended that the website will also contain selected English language versions of WhyNot's e-greeting cards.The parties will share the advertising revenue generated from the site according to certain agreed proportions.
Women's portal
The Group has entered into an agreement on 10th May, 2000 with Dr.Leung Anita Fung Yee for a term from the date of the agreement to 1st July, 2003, a well-known author and television producer, whereby Dr.Leung will develop content for the Group's planned Women's portal to be developed by the Group in both traditional and simplified Chinese.
Pursuant to the above agreement, Dr.Leung was granted an option see paragraph headed ``Quantitative Technology option'' in Appendix V) to subscribe for shares equal to 30% of the equity capital of Quantitative Technology Limited, a wholly owned subsidiary of the Company, in issue as enlarged by such option shares) at a subscription price equal to the average closing price of the Shares for the 60 trading days immediately after the day of exercise of the option as stated in the Stock Exchange's daily quotations sheets multiplied by 64,833,976 subject to adjustment in the event of stock split, bonus issue or other restructuring of the Company).The option is exercisable in one lot during the period commencing on the day falling 6 months after the date of listing of the shares on the Stock Exchange and ending on the day falling 18 months after such listing date and shall be exercised in full and not in part.
Horse-racing vertical portal
Pursuant to an agreement dated 9th May, 2000 between the Group and Winsys International Limited ``Winsys''), Winsys provides the Group with a comprehensive database on recent races and last five-year track record of all horses and jockeys.
Wu Carlos, a well-known horse racing commentator, entered into an agreement with the Group on 8th May, 2000 to provide content and chat room on the Group's Horse-racing vertical portal.
Each of the above agreement is for a term from the date of the agreement to the third anniversary of the listing of the Shares and thereafter will continue until terminated by either party by giving to the other no less than 3 months written notice.The Group will pay Wu Carlos a fixed, monthly fee and will share the revenue generated from the portal according to certain agreed proportions.
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Members of the Group's network
The Group has bundled its own vertical portals with a number of quality websites into a comprehensive network of websites.Key members of this network include:
. CNET Pursuant to an agreement dated 20th December, 1999 between the Group and ACCM, ACCM provides the Group's IT portal with the Hong Kong version of www.cnet.com, hongkong.cnet.com, a leading international IT magazine on the web. Under the agreement, the Group and ACCM will share the revenue generated from the co-branded web pages.The agreement is for an initial term of 1 year from 20th December, 1999 which will be automatically renewed for successive additional 1 year period unless otherwise terminated by either party by giving not less than 30 days notice prior to the end of a term.The parties will share the revenue generated according to certain agreed proportions.
. Healthanswers Pursuant to an agreement dated 22nd February, 2000 between the Group and Healthanswers International Limited ``Healthanswers''), Healthanswers provides the Group's healthcare portal with the Hong Kong version of www.healthanswers.com, a leading international healthcare portal. Under the agreement, the Group and Healthanswers will share the revenue generated from the co-branded web pages.The agreement is for an initial term of 1 year from 22nd February, 2000 which will be automatically renewed for successive additional 1 year periods unless otherwise terminated by either party by giving not less than 90 days notice prior to the end of a term.The parties will share the revenue generated according to certain agreed proportions.
. Christianity The Group signed a memorandum of understanding with Christian Times Limited ``Christian Times'') on 16th November, 1999.Christian Times publishes Christian Times Weekly with a readership numbering over 40,000.Christian Times has agreed to create a daily updated Christian channel with current affairs commentary, sharing of personal experiences by Christian celebrities and devotional material on the Group's religion portal for a period of 1 year from 1st December, 1999. The Group has agreed to pay a monthly fee to Christian Times as sponsorship and the parties will share advertising revenue generated according to certain agreed proportions.
. Buddhism The Group signed up a memorandum of understanding with Buddhist Charity Work Shop Limited ``Buddhist Charity'') on 10th December, 1999.Buddhist Charity publishes a Buddhist magazine in Hong Kong.Buddhist Charity has agreed to provide Buddhist lifestyle, vegetarian diet, zen comics and Buddhist events calendar at the Group's religion portal for a period of 1 year from 20th December, 1999.The Group has agreed to pay a monthly fee to Buddhist Charity for sponsorship and the parties will share advertising revenue generated according to certain agreed proportions.
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Distribution agreements
. Yahoo! Pursuant to an agreement dated 27th March, 2000 between Yahoo! Hong Kong and the Group, Yahoo! Hong Kong will distribute the Group's News vertical portal through Yahoo! Hong Kong network including ``Yahoo! Broadcast''.
. iChannel.com Pursuant to a co-branded revenue sharing agreement dated 28th March, 2000, the Group and iChannel.com URL: www.ichannel.com.hk), have agreed to develop and operate two co-branded websites Consumer and Sports).iChannel.comis currently the homepages) for CTInets, one of the leading Internet Service Providers in Hong Kong.This arrangement will enable over 390,000 residential subscribers of CTInets of City Telecom H.K.) Limited in Hong Kong to access directly the Group's Consumer and Sports vertical portals from iChannel's homepage.The agreement is for an initial term of 2 years from the date of launching of the co-branded web-site which will be automatically renewed for 1 additional term of 1 year unless otherwise terminated by either party by giving not less than 90 days notice prior to the end of the initial term and the parties will share the revenue generated according to certain agreed proportions.
. IBM's portal. The Group entered into a memorandum of understanding on 7th June, 2000 with IBM China/Hong Kong Limited and Grey Interactive Limited to create a new portal whereby users of IBM PCs will be able directly to access the portal by pressing a pre- programmed button on their keyboard.The portal will serve as an online loyalty channel for users of IBM PCs.The portal will have a minimum of six channels and provide full electronic commerce capability.The Group will receive a share of the revenue derived from both advertising and e-commerce commissions.It is expected this portal will be launched during the second half of year 2000.
OFFICE
The Group's head office is located on the 24th Floor, 1063 King's Road, Quarry Bay, Hong Kong with an aggregate of approximately 10,000 square feet of gross office space.
The Directors believe that the office and network connection facilities currently maintained by the Group are adequate to meet the operational requirements of the Group for the foreseeable future.
INTELLECTUAL PROPERTY RIGHTS
The Group has applied for the registration of trademarks and service marks in Hong Kong and several other jurisdictions, details of which are set out in the paragraph headed ``Intellectual property'' in Appendix V to this prospectus.
Ð 106 Ð BUSINESS
USE OF PROCEEDS
The net proceeds from the Share Offer are estimated to be approximately HK$87 million, not including the proceeds arising from any exercise of the Over-allotment Option.The Directors presently intend to use such net proceeds from the Share Offer excluding the proceeds from any exercise of the Over-allotment Option) as follows:
. approximately HK$7 million for expansion of the Group's network infrastructure, computer equipment and software applications outside Hong Kong, including in North America, PRC, Asia and Australasia;
. approximately HK$7 million for marketing and advertising in Hong Kong;
. approximately HK$7 million for marketing and advertising outside Hong Kong, including in North America, PRC, Asia and Australasia;
. approximately HK$17 million for content development and acquisition in Hong Kong and approximately HK$9 million for content development and acquisition outside Hong Kong, including in North America, the PRC, Asia and Australasia;
. approximately HK$15 million for IT development and maintenance in Hong Kong and approximately HK$6 million for IT development and maintenance outside Hong Kong, including in North America, the PRC, Asia and Australasia;
. approximately HK$5 million for business development in Hong Kong and approximately HK$4 million for business development outside Hong Kong, including in North America, the PRC, Asia and Australasia;
. approximately HK$10 million for general working capital.
In the event that the Over-allotment Option is exercised in full, the additional net proceeds of approximately HK$15 million will be applied by the Company for marketing and advertising activities, for further enhancing the Group's network infrastructure, for purchasing additional software applications and for general working capital purposes.
Marketing and advertising expenses to be incurred will include, inter alia, expenses for the following types of activities: brand and product advertising, media advertising, production work, public relations, sponsorships, membership/loyalty programmes, online marketing, other marketing campaigns for services/products.
The amounts to be used by the Group for future acquisitions or investments will depend upon the Group's negotiations with the relevant parties, as Shares might be used in place of cash for consideration.At present, no agreement has been entered into in relation to any such acquisition or investment.
Pending the use of the net proceeds as described above, the net proceeds that are not immediately required for the above purposes will be placed on deposit with financial institutions in Hong Kong or will be invested in short-term interest-bearing debt securities.
Ð 107 Ð BUSINESS
If any part of the business plans of the Group does not materialise or proceed as planned, the Directors will carefully evaluate the situation and may reallocate the intended funding to other business plans and/or to new projects of the Group and/or to hold such funding in bank accounts or invest such funds in short term interest-bearing debt securities so long as the Directors consider it to be in the best interest of the Group and the Company's shareholders taken as a whole.
If there are any material changes to the use of proceeds as described above, an appropriate announcement will be made by the Company.
The Directors believe that the net proceeds from the Share Offer will be sufficient to finance all of the planned and/or intended projects of the Group as described in the paragraph headed ``Business objectives, future plans and implementation schedule''. Should the Group decide to invest in new additional projects which are not part of the currently planned and/or intended projects of the Group, the Group may require further financing to fund any such projects. The Directors anticipate that, after the listing of the Shares and Warrants on GEM, the Group will be able to finance any such additional projects through, among other ways, internal resources, raising funds in the international capital and debt markets, equity issues to strategic investors and bank financing or through a combination of these methods.
YEAR 2000 COMPLIANCE
Even though the Group did not experience any problems with its systems at the commencement of the year 2000 and believes that its systems are year 2000 compliant, the Group cannot be certain that all systems will function adequately until well into 2000.Any failure of its systems could have a material adverse effect on the business, prospects, financial condition and results or operations of the Group.Some of the Group's information technology and non- information technology systems and products are manufactured or supplied by third parties outside the control of the Group.As a result, the Group cannot be certain that the systems of any of those companies will be year 2000 compliant.The Group has attempted to ensure that its own network and telephone systems are backed up with auxiliary power supplies capable of operating for short period of time less than half an hour) should public power supplies fail.Despite the contingency plans, which are intended to avoid singular significant disruptions, the Group cannot be certain that it will not experience numerous disruptions, individually insignificant, but in aggregate sufficient to cause a material disruption to its operations.
Ð 108 Ð DIRECTORS, SENIOR MANAGEMENT AND STAFF
DIRECTORS
Executive Directors
Cheng Albert Jinghan, aged 54, is the founder, an executive Director and the chief icontent architect of the Group. Mr. Cheng is a popular television and radio personality in Hong Kong. Mr. Cheng has vast experience in publishing, broadcasting and other media related industries. He has held many high profile media and publishing positions including president and chief executive officer of Paramount Publishing Group from 1991 to 1994, President of Capital Communications Corporation from 1986 to 1991. Mr. Cheng was voted by Time Magazine in 1997 as ``one of the 25 most influential people in new Hong Kong'' and selected by Business Week in 1998 as ``one of the 50 stars of Asia''. In 1989, Mr. Cheng was elected as Chairman of the Society of Hong Kong Publishers 3now known as the Society of Publishers in Asia). Mr. Cheng participates in various charitable organisations and academic bodies.
Ip Saimond, aged 35, is the chairman and chief executive officer of the Group. Dr. Ip formally joined the Group on 1st October, 1999. Dr. Ip has over 6 years' experience in advising and assisting major multinational corporations in launching e-business in greater China. These e- businesses included an Internet portal site, a personal finance website, a business-to-business trading exchange, an online retailer, an IT service provider, and a broadband Internet provider. In 1995, Dr. Ip developed an innovative software programme called ``Expression'' which has won many awards in the US and Europe. Dr. Ip worked for McKinsey & Company, a leading management consultant company, as a co-leader of their Internet practice for 6 years. Dr. Ip received his Bachelor of Arts in information engineering in 1987 and Doctor of Philosophy in artificial intelligence from Cambridge University in 1992.
Yeung Kwok Mung, aged 35, is an executive Director and the chief operating officer of the Group. Mr. Yeung joined the Group on 1st November, 1999. Prior to joining the Group, Mr. Yeung was the director of Strategic Planning for Coca Cola China Limited, responsible for strategic development. Mr. Yeung also has over 6 years' experience as a management consultant with McKinsey & Company in Hong Kong and Australia, focusing on the telecommunications and electronics industries advising Australian, Asian and greater China clients on market entry strategies, e-commerce opportunities, business re-engineering and corporate restructuring in Asia. Mr. Yeung holds a Bachelor of Science and Master of Science in Electrical Engineering and Computer Science from the Massachusetts Institute of Technology 3MIT).
Non-executive Directors
Tsang Moses Kwok Tai, aged 51, is the non-executive Director. Mr. Tsang became a Director on 11th May, 2000. Mr. Tsang has over 20 years of investment banking and project finance experience. He is a general partner of Ankar Capital Management LLC and chairman of Ankar Capital Management Asia, which focuses in distressed banks investment opportunities in Asia. Mr. Tsang was appointed chairman and managing director of Goldman Sachs 3Asia) Limited 3``Goldman Sachs'') in 1989. Under his chairmanship, Goldman Sach's Hong Kong and Singapore offices grew from 25 people to over 400 and representative offices were opened in Beijing, Shanghai, Seoul and Taipei. Mr. Tsang retired as chairman and was a limited partner of Goldman
Ð 109 Ð DIRECTORS, SENIOR MANAGEMENT AND STAFF
Sachs from 1994 until 1999. Since 1991, Mr. Tsang has worked closely with the Hong Kong Children's Cancer Foundation and he currently serves as a Trustee of the Hong Kong Centre for Economic Research.
Poon Kai Tik, aged 47, is a non-executive Director and the Group's marketing adviser. Mr. Poon became a Director on 11th May, 2000. Mr. Poon is currently an assistant director of the Housing Authority responsible for its division of information and community relations. Mr. Poon has held many directorships in the media and advertising industries including managing director of Capital Publicist Limited, executive director of Saatchi and Saatchi Advertising Limited, creative director of Leo Burnett Limited and McCann Erickson Limited. In addition, Mr. Poon has extensive involvement in many public and charitable organisations including the Hong Kong Aids Foundation and the Society for the Promotion of Hospice Care. Mr. Poon holds a Bachelor of Arts from The University of Hong Kong and a Master of Business Administration from the Chinese University of Hong Kong.
Huang Erwin Steve, aged 34, is a non-executive Director and the Group's technical adviser. Mr. Huang became a Director on 11th May, 2000. Mr. Huang is the chief technology officer and co-founder of Magically Inc., which is an industry leader in the development of ``virtual desktop'' tools such as online diary, address book and other online personal productivity software.
Chung Wai Yang, aged 44, is a non-executive Director. Mr. Chung became a Director on 11th May, 2000. Mr. Chung is the managing director of Gubelin Watch Company Limited, a premium watch retailer in Hong Kong. Prior to this role, Mr. Chung was executive director of Danao International Holdings Ltd. from 1991 to 1994, a property development firm. Before then, Mr. Chung was a director of KPS Limited, which operated a video rental chain.
Independent non-executive Directors
Wong Richard Yue Chim, aged 47, is an independent non-executive Director. Mr. Wong became a Director on 11th May, 2000. He is the director of the School of Business and chair of Economics at The University of Hong Kong. He is a leading figure in advancing economic research on policy issues in Hong Kong through his work as founding director of both the Hong Kong Centre for Economic Research 3since 1987) and the Hong Kong Institute of Economics and Business Strategy 3since 1999). He has served on numerous public bodies and is currently a member of the Hong Kong Government's Economic Advisory Committee 3since 1992), the University Grants Committee 3since 1993), the Housing Authority 3since 1998), and the Exchange Fund Advisory Committee 3since 1999).
He was awarded the Silver Bauhinia Star in 1999 by the Government of the Hong Kong for his contributions in education, housing, industry and technology development.
Shek Abraham Lai Him, JP, aged 54, is an independent non-executive Director. Mr. Shek became a Director on 11th May, 2000. He was the former chief executive of the Land Development Corporation which is tasked with improving the standard of housing and environment in Hong Kong by undertaking, encouraging, promoting and facilitating urban renewal. Prior to joining Land Development Corporation, Mr. Shek held senior management
Ð 110 Ð DIRECTORS, SENIOR MANAGEMENT AND STAFF positions with a number of organizations in Hong Kong, including the Swire and CY Tung Group and the Kowloon-Canton Railway Corporation. Mr. Shek has been a member of the Antiquities Advisory Board since 1996, a consulting professor at Tsing Hua University, Beijing, since 1997 and an honourary lecturer at The University of Hong Kong since 1998.
SENIOR MANAGEMENT
Poon Wan Fung, aged 34, is the chief technology officer of the Group. Mr. Poon joined the Group on 25th October, 1999. Prior to joining the Group, Mr. Poon was the e-commerce architect of Sun-Netscape Alliance Professional Services of Sun Microsystems Inc. 3``Sun-Netscape'') co- leading its regional e-commerce consulting practice and acting as project manager of various pioneering e-commerce projects such as enhancement of Singapore Telecom's Electronic Messaging Systems 3STEMS) and implementation of Network for Electronic Transfer Singapore 3NETS) Online Payment Gateway. Before joining Sun-Netscape, Mr. Poon was a senior consultant at General Electric Information Services of its greater China operations responsible for one of Hong Kong's largest-scale custom and trade declaration e-commerce project at Tradelink 3Electronic Document Services) Limited, from design to production, as well as various major e- commerce projects for clients in the PRC including the Ministry of Post and Telecommunications 3MPT) and the Ministry of Foreign Trade and Economic Co-operation 3MOFTEC). Mr. Poon has been awarded GEIS Vice President Award for Outstanding Consultants in 1995 and 1996. Mr. Poon holds Bachelor of Science 3Eng.) in computer and control engineering from The University of Hong Kong and a Diploma in business management from the Chinese University of Hong Kong.
Ng AndrewShu Bun , aged 38, is the chief financial officer of the Group. Mr. Ng joined the Group on 13th December, 1999. Mr. Ng has extensive financial management experience gained working for multi-national companies and audit firms. Prior to joining the Group in December 1999, Mr. Ng was the general manager for Cadbury Schweppes Plc's joint venture in the PRC. From 1994 to 1997, Mr. Ng was the financial controller for Cadbury Schweppes Plc's Asia Pacific operations, headquartered in Australia. Mr. Ng has over five years' audit experience with two firms of chartered accountants in the United Kingdom. Mr. Ng holds a Bachelor of Arts in economics and accounting from the University of Leeds. Mr. Ng is also a member of the Institute of Chartered Accountants in England and Wales.
Yuen Kin Chung, aged 34, is the director 3business development) of the Group. Dr. Yuen joined the Group on 3rd April, 2000. Dr. Yuen is responsible for identifying strategic business and partnership opportunities for the Group. Before joining the Group, Dr. Yuen was a senior associate with the financial services group of Booz Allen & Hamilton, one of the leading global management consulting firms. For six years, Dr. Yuen advised leading financial institutions in Hong Kong, Japan, Korea, Singapore, Thailand and Malaysia on strategy, organization, operations and risk management issues. Prior to that, he was a research physicist at the European Laboratory for High Energy Physics. His research has been published in major international journals. Dr. Yuen received his doctorate degree in high energy physics and bachelor degree in physics from University College London.
Ð 111 Ð DIRECTORS, SENIOR MANAGEMENT AND STAFF
Kwan Man Chun, aged 25, is the associate director 3business development) of the Group. Mr. Kwan joined the Group on 15th November, 1999. Mr. Kwan is responsible for identifying partnership and strategic alliance opportunities. Prior to joining the Group, Mr. Kwan spent over two years with Bain & Company, one of the leading global management consulting firms, where he was responsible for the telecommunication and technology areas. Mr. Kwan holds a bachelor degree in business administration 3first class honours) from The University of Hong Kong.
Fung Benjamin, aged 45, is the Group's sales and marketing director and the chief executive officer of Cybercom Marketing Limited, a wholly owned subsidiary of the Company, which acts as the in-house sales and marketing arm of the Group. Mr. Fung joined the Group on 6th March, 2000. Mr. Fung has experience in the disciplines of marketing, research and advertising, gained in major corporations, media entities and service agencies. He established and served as the general manager of Voice Information Systems Limited for 3 years. Prior to that, Mr. Fung was a manager in A.S. Watson Limited marketing group, working in the areas of strategic planning and marketing research for the group's retail and manufacturing divisions. Mr. Fung graduated with a double-major in industrial design and marketing studies at the European Institute of Design and Economy, Milan, Italy. Mr. Fung has lectured in ``Marketing Management'' and ``Advertising Management'' at the Hong Kong Management Association.
Wong Kevin Che Kuen, aged 35, is the Group's director of art and production, responsible for all the design work for the Group. Mr. Wong joined the Group on 1st November, 1999. Before joining the Group, Mr. Wong was the art director of Paramount Publishing Group Ltd., for nine years. Mr. Wong has extensive experience in publishing, graphic design and media related business. Mr. Wong received his certificate in advertising and commercial design from Caritas Bianchi College in 1984.
Lam Stephen Tai Wai, aged 33, is the Group's director of technology integration, responsible for implementing the websites' core publishing system. Mr. Lam joined the Group on 25th October, 1999. Mr. Lam was a senior consulting/deployment manager with SINA.com, one of the most popular Chinese website operators, where he was in charge of global deployment and consulting activities. He joined SINA.com from Netscape Communications Corporation 3``Netscape'') where he was a senior consultant specializing in messaging/infrastructure architectural design and deployment for leading telecommunications and banking corporations in North America and Asia Pacific. Prior to joining Netscape, Mr. Lam had spent 5 years with Electronic Data Systems 3Hong Kong) Ltd. in Hong Kong bringing technical solutions to major financial institutions and telecommunications companies. Mr. Lam holds a Bachelor of Science in computational science and management studies from The University of Leeds, England.
Ng Ha Long, aged 33, is the portal director of the Group's News vertical portal. Mr. Ng joined the Group on 10th April, 2000. Mr. Ng had previously been the chief editor of the Sun newspaper and deputy chief editor of Oriental Daily News. Mr. Ng graduated from the National Chengchi University with a Bachelor of Arts degree.
Ð 112 Ð DIRECTORS, SENIOR MANAGEMENT AND STAFF
Leung Tak Man, aged 36, is the creative director of the Group's Entertainment, Sports and Horse-racing vertical portals. Mr. Leung joined the Group on 1st December, 1999. Before joining the Group, Mr. Leung held many editorial and commentator positions including programme host of ``Friends of the Road'' and one of the commentators of ``World Cup 98'' with Commercial Radio Hong Kong, programme host of ``Car Weekly'' with Guangdong Radio, programme host of ``Car Racing'' with Hong Kong Cable TV Limited, editorial director for two magazines called ``Capital Magazine'' and ``Car Plus Magazine'' and chief editor for a magazine called ``Automobile Magazine''. Currently, he is the programme host of ``Entertainment Today'' of Commercial Radio Hong Kong, ``women.com'' with Asia Television Limited and ``Dynamic World of Car Fans'' with Television Broadcast Limited.
Lai Chak Fun, aged 49, is the portal director of the Group's Finance vertical portal. Mr. Lai formally joined the Group on 13th December, 1999. Prior to joining the Group, Mr. Lai was the chief editor of a magazine called ``Capital Magazine'' for over nine years. Mr. Lai also cohosts a popular radio programme on personal finance with Hong Kong Commercial Broadcasting Co. Ltd. Mr. Lai holds a Bachelor of Social Sciences degree from The University of Hong Kong.
Chan Wai Hung, aged 35, is the portal director of the Group's Consumer vertical portal and Eating vertical portal. Mr. Chan joined the Group on 8th January, 2000. Mr. Chan is responsible for the overall content development of the Group's Consumer portal. Mr. Chan has extensive experience in the editorial field through his experience as the managing editor for the supplement section of The Sun Daily from 1997 to 2000, chief editor for ``Car and Driver'' from 1996 to 1997 and as the managing editor from 1991 to 1995. Mr. Chan joined the Group in January 2000.
Chan Kwok Leung, aged 33, is the Group's research director. Mr. Chan joined the Group on 17th December, 1999. Before joining the Group. Mr. Chan was an executive officer of the United Democrats of Hong Kong and a research analyst of the CIM Enterprise Company Limited. Mr. Chan was a member of the Urban Council from 1995 to 1999 and a member of the Kennedy Town Area Committee in 1999. He is also the co-opt member of the Central and Western District Council for 2000. Mr. Chan holds a Bachelor of Science in business administration and a Master of Arts in public policy from University of Melbourne.
AUDIT COMMITTEE
The Company established an audit committee on 11th May, 2000 with written terms of reference based on the guidelines set out in ``A Guide for the Formation of an Audit Committee'' of the Hong Kong Society of Accountants. The primary duties of the audit committee are to review the Company's annual report and accounts, half-yearly reports and quarterly reports and to provide advice and comments thereon to the Board. The audit committee will also be responsible for reviewing and supervising the financial reporting process and internal control procedures of the Group.
Ð 113 Ð DIRECTORS, SENIOR MANAGEMENT AND STAFF
The following sets out the members of the Group's audit committee:
Position in the Position in the Name audit committee board of Directors
Shek Abraham Lai Him Chairman Independent non-executive Director Wong Richard Yue Chim Member Independent non-executive Director
COMPENSATION COMMITTEE
Position in the compensation Position in the Name committee board of Directors
Wong Richard Yue Chim Chairman Independent non-executive Director Shek Abraham Lai Him Member Independent non-executive Director
STAFF
Overviewof staff
As at the Latest Practicable Date, the Group had 88 full-time employees. An analysis by function is as follows:
Accounting and Finance 2 Administration 5 Audio Visual 4 Business Development 2 Editorial 42 Management 2 Sales and Marketing 8 Technical 10 Web Design 13 Total Headcount 88
Group's relationship with staff
The Group has not experienced any significant labour disputes which have led to the disruption of its normal business operations. The Directors consider that the Group maintains a good relationship with its employees.
The Group provides provident fund schemes and a medical insurance scheme for their staff in Hong Kong by participating in the relevant scheme. The Group's Hong Kong employees are members of a defined contribution provident scheme. All contributions are made by the Group at 5 per cent of the employee's basic salary. Benefits are equal to the vested contributions. Where an employee leaves the scheme before the employer's contributions have fully vested; such forfeited contributions may be used by the employer to reduce its existing level of contributions.
Ð 114 Ð DIRECTORS, SENIOR MANAGEMENT AND STAFF
Under the Pre-IPO Share Option Scheme, certain full-time employees 3including the executive and non-executive Directors) of the Group have been granted options to subscribe for in aggregate 316,823,077 Shares. Options to subscribe for 52,319,861 Shares have been granted at an exercise price of HK$0.0909 per Share and options to subscribe for 264,503,216 Shares have been granted at an exercise price of HK$0.0379 per Share. Exercise in full of all options granted under the Pre-IPO Share Option Scheme would result in the issue of 316,823,077 new Shares by the Company, representing about 11.49 per cent of the number of Shares in issue 3as enlarged thereby) immediately after completion of the Share Offer 3including Shares falling to be issued upon the exercise of options under the Pre-IPO Share Option Scheme but taking no account of any Shares which may be issued under Over-allotment Option or upon any exercise of options which may be granted under the Share Option Scheme or upon any exercise of the subscription rights attaching to the Warrants, or of any Shares which may be issued or repurchased by the Company pursuant to the mandates referred to in Appendix V to this prospectus). In addition, the Group has conditionally adopted the Share Option Scheme. The principal terms of the Pre-IPO Share Option Scheme and the Share Option Scheme are summarised are set out in the paragraph headed ``Share Options'' in Appendix V to this prospectus.
Ð 115 Ð SUBSTANTIAL AND INITIAL MANAGEMENT SHAREHOLDERS
SUBSTANTIAL SHAREHOLDERS
After completion of the Share Offer 3taking no account of any Shares which may be issued upon the exercise of the Over-allotment Option), so far as the Directors are aware, the only person 3other than a Director or a chief executive of the Company) directly or indirectly holding an interest in 10 per cent or more of the Shares will be: Approximate Number of Percentage of Name Shares holding
CIBC Trust Company 3Bahamas) Limited 3as trustee of the Albert Cheng Family Trust) 602,490,000 24.68% Umbel Inc. note 1) 602,490,000 24.68% Drummond Finance Limited note 1) 602,490,000 24.68% Lo Irene Kam Sheung note 2) 617,022,000 25.28% ACAEDL Limited Note 3) 326,052,000 13.36% Chung Po Yang Note 3) 326,052,000 13.36%
Notes:
1. Drummond Finance Limited is the wholly-owned subsidiary of Umbel Inc., which is a company owned by CIBC Trust Company 3Bahamas) Limited as trustee of the Albert Cheng Family Trust 3``CIBC'').Cheng Albert Jinghan and his children are discretionary beneficiaries of such trust and Cheng Albert Jinghan is therefore deemed to be interested in these Shares. Therefore, shareholdings stated against CIBC, Umbel Inc. and Drummond Finance Limited are entirely duplicated. Cheng Albert Jinghan is a director of Drummond Finance Limited.
2. Lo Irene Kam Sheung is the wife of Cheng Albert Jinghan and therefore she is deemed to be interested in 603,816,000 Shares in which Cheng Albert Jinghan is interested.
3. ACAEDL Limited is wholly owned by Chung Po Yang and Chung Po Yang is therefore deemed to be interested in these Shares 3by virtue of the SDI Ordinance). Therefore, shareholdings stated against ACAEDL Limited are entirely duplicated in the shareholdings stated against Chung Po Yang. Chung Po Yang is the brother of Chung Wai Yang who is a non-executive Director. Chung Wai Yang is also a director of ACAEDL Limited.
Save as disclosed herein but taking no account of any Shares which may be taken up under the Share Offer, the Directors are not aware of any person who will immediately following completion of the Share Offer be directly or indirectly interested in 10 per cent or more of the Shares then in issue or in any equity interest in any member of the Group representing 10 per cent or more of the equity interest in such company.
INITIAL MANAGEMENT SHAREHOLDERS
Immediately after completion of the Share Offer, Cheng Albert Jinghan, Ip Saimond, Yeung Kwok Mung, Poon Kai Tik, Huang Erwin Steve, Tsang Moses Kwok Tai and Chung Wai Yang and their respective associates 3as defined in the GEM Listing Rules) will collectively be interested in an aggregate of 1,287,420,000 Shares and will in aggregate be entitled to exercise or
Ð 116 Ð SUBSTANTIAL AND INITIAL MANAGEMENT SHAREHOLDERS control the exercise of or be interested in approximately 52.74 per cent of the voting power at general meetings of the Company 3assuming that the Over-allotment Option will not be exercised). Cheng Albert Jinghan, Ip Saimond, Yeung Kwok Mung, Poon Kai Tik, Huang Erwin Steve, Tsang Moses Kwok Tai, Chung Wai Yang, CIBC Trust Company 3Bahamas) Limited 3as trustee of the Albert Cheng Family Trust), Umbel Inc., Drummond Finance Limited, Lo Irene Kam Sheung, MKT Holdings 3Cayman Islands) LLC, Au Tak Yee and Cyber Channel Limited are considered to be initial management shareholders of the Company for the purposes of the GEM Listing Rules. Such persons immediately before and after completion of the Share Offer are entitled to exercise or control the exercise of 5 per cent or more of the voting power at general meetings of the Company and/or able to direct or influence the management of the Company. After completion of the Share Offer, the shareholding interests of the Initial Management Shareholders in the Company will be:
Approximate Number of percentage of Name Shares holding
Cheng Albert Jinghan Note 1) 617,022,000 25.28% CIBC Trust Company 3Bahamas) Limited 3as trustee of the Albert Cheng Family Trust) Note 1) 602,490,000 24.68% Umbel Inc. Note 1) 602,490,000 24.68% Drummond Finance Limited Note 1) 602,490,000 24.68% Lo Irene Kam Sheung Note 1) 617,022,000 25.28% Ip Saimond 243,456,000 9.97% Yeung Kwok Mung 68,238,000 2.80% Tsang Moses Kwok Tai Note 2) 165,096,000 6.76% MKT Holdings 3Cayman Islands) LLC Note 2) 151,806,000 6.22% Poon Kai Tik Note 3) 85,116,000 3.49% Au Tak Yee Note 3) 85,116,000 3.49% Huang Erwin Steve 25,326,000 1.04% Chung Wai Yang Note 4) 83,166,000 3.41% Cyber Channel Limited Note 4) 83,166,000 3.41%
Notes:
1. Cheng Albert Jinghan is interested in 617,022,000 Shares in the following manner:
i. 1,326,000 Shares are held by Cheng Albert Jinghan personally.
ii. 13,206,000 Shares are held by Cheng Albert Jinghan's wife, Lo Irene Kam Sheung, and therefore he is deemed to be interested in these Shares 3by virtue of the SDI Ordinance).
iii. 602,490,000 Shares are held by Drummond Finance Limited. Drummond Finance Limited is the wholly-owned subsidiary of Umbel Inc., which is a company owned by CIBC Trust Company 3Bahamas) Limited as trustee of the Albert Cheng Family Trust. Cheng Albert Jinghan and his children are discretionary beneficiaries of such trust and Cheng Albert Jinghan is therefore deemed to be interested in these Shares. Cheng Albert Jinghan is a director of Drummond Finance Limited.
Ð 117 Ð SUBSTANTIAL AND INITIAL MANAGEMENT SHAREHOLDERS
2. Tsang Moses Kwok Tai is interested in 165,096,000 Shares in the following manner:
i. 13,290,000 Shares are held by Tsang Moses Kwok Tai personally.
ii. 151,806,000 Shares are held by MKT Holdings 3Cayman Islands) LLC, which is wholly-owned by Tsang Moses Kwok Tai and Tsang Moses Kwok Tai is therefore deemed to be interested in these Shares 3by virtue of the SDI Ordinance).
3. Poon Kai Tik is interested in 85,116,000 Shares in the following manner:
i. 5,910,000 Shares are held by Poon Kai Tik personally.
ii. 79,206,000 Shares are held by Poon Kai Tik's wife, Au Tak Yee, and therefore he is deemed to be interested in these Shares 3by virtue of the SDI Ordinance).
4. These Shares are held by Cyber Channel Limited, which is wholly owned by Chung Wai Yang and therefore he is deemed to be interested in these Shares 3by virtue of the SDI Ordinance).
Under Rule 13.16 of the GEM Listing Rules, a new applicant shall procure that every initial management shareholder:
1. places in escrow, with an escrow agent acceptable to the Stock Exchange, his relevant securities for a period of 24 months from the listing date, on terms acceptable to the Stock Exchange; and
2. undertakes to the new applicant and the Stock Exchange that, for a period of 2 years from the listing date, he will not, save as provided in Rule 13.17 of the GEM Listing Rules, dispose of 3or enter into any agreement to dispose of) nor permit the registered holder to dispose of 3or to enter into any agreement to dispose of) any of his direct or indirect interest in the relevant securities.
However, as a result of an application made on behalf of the Company, the Stock Exchange has granted a waiver to the effect that the moratorium period applicable to the Initial Management Shareholders has been reduced to six months in respect of an aggregate of the 1,287,420,000 Shares 3representing approximately 52.74 per cent of the enlarged issued share capital of the Company immediately upon completion of the Share Offer without taking into account the Over- allotment Option) held by them together with Shares falling to be issued to them upon the exercise of options under the Pre-IPO Share Option Scheme. The effect of this waiver is that the Initial Management Shareholders will no longer be subject to the two-year moratorium period but subject to a reduced moratorium period of six months. The grant of such waivers has been made on the condition that the Initial Management Shareholders are not allowed to dispose of any Shares in the second six month period after listing if such disposal would result in the group of persons constituting the initial management shareholders ceasing to have, in aggregate, control over 35 per cent of the voting rights at general meetings of the Company. Details of such waiver are set out in the section headed ``Waivers from compliance with the GEM Listing Rules and Companies Ordinance'' of this prospectus.
Ð 118 Ð SUBSTANTIAL AND INITIAL MANAGEMENT SHAREHOLDERS
A waiver from strict compliance with Rule 13.16 of the GEM Listing Rules has also been granted by the Stock Exchange in respect of the stock borrowing arrangement entered into between Worldsec International and Drummond Finance Limited in order to facilitate settlement of over-allocations in connection with the Share Offer, on the basis that (1) such stock borrowing arrangement with Drummond Finance Limited will only be effected by Worldsec International for settlement of over-allocation in connection with the Share Offer; (2) the maximum number of Shares borrowed from Drummond Finance Limited will be limited to the maximum number of Shares which will be issued upon exercise of the Over-allotment Option; and (3) the same number of Shares will be returned to Drummond Finance Limited or its nominees (as the case may be) no later than three business days following the earlier of (i) the last day on which the Over-allotment Option may be exercised or (ii) the day on which the Over- allotment Option is exercised in full. Details of such waiver are set out in the section headed ``Waivers from compliance with the GEM Listing Rules and Companies Ordinance'' of this prospectus.
DISCLOSURE OF COMPETING BUSINESS OF DIRECTORS AND SUBSTANTIAL SHAREHOLDERS
None of the Directors nor the substantial shareholders have any interest in any business that directly or indirectly compete with the business of the Group except that:
(a) Cheng Albert Jinghan is a director of a company whose principal business includes the provision of media services. The company may, in the future, expand its business activities to the provision of content for broadband web television. Mr. Cheng has the entire shareholding interest in this company;
(b) Tsang Moses Kwok Tai is a director and shareholder of 4 companies whose principal business includes the provision of Internet incubating services and stock trading strategies involving artificial intelligence. The shareholding of Tsang Moses Kwok Tai in each of such companies is less than 30 per cent of the issued share capital. The business activities of each such company would not compete, in any way, with that of the Group unless such company provides incubating services to a financial on-line service company or the Group expands its business into stock trading strategies involving artificial intelligence; and
(c) Wong Richard Yue Chim, as private investments, holds securities in various publicly listed companies, whose business may compete with that of the Group. The shareholding in each case is less than 0.01 per cent of the issued share capital and no management function in such companies or their respective subsidiaries is performed by him.
Ð 119 Ð SHARE CAPITAL
The share capital of the Company, issued and to be issued, fully paid or credited as fully paid, immediately after the completion of the Share Offer, will be as follows:
HK$
Authorised share capital:
5,000,000,000 Shares 500,000.00
Shares issued and to be issued, fully paid or credited as fully paid:
2,161,026,000 Shares in issue 216,102.60 280,000,000 Offer Shares to be issued pursuant to the Share Offer 28,000.00
Total:
2,441,026,000 Shares 244,102.60
Pursuant to Rule 11.2331) of the GEM Listing Rules, at the time of listing and at all times thereafter, the Company must maintain the ``minimum prescribed percentage'' of 20 per cent of the issued share capital of the Company in the hands of the public.
Assumptions
The above assumes that the Share Offer becomes unconditional.
The above takes no account of any Shares which may be issued under the Over-allotment Option or upon any exercise of options which have been or may be granted under the Pre-IPO Share Option Scheme and the Share Option Scheme or upon any exercise of the subscription rights attaching to the Warrants, or of any Shares which may be issued under the general mandate to issue Shares 3see ``General Mandate to Issue Shares'' below) or Shares which may be repurchased by the Company 3see below).
If the Over-allotment Option, all options granted under the Pre-IPO Share Option Scheme prior to the listing of the Shares on GEM and the subscription rights attaching to the Warrants are exercised, the Company will have approximately 3,121,849,077 Shares in issue after completion of the Share Offer.
Ranking
The Offer Shares will rank equally with all Shares now in issue or to be issued 3pursuant to exercise of the Over-allotment Option or upon exercise of options granted under the Pre-IPO Share Option Scheme as upon exercise of options which may be granted under the Share Option Scheme or upon any exercise of the subscription rights attaching to the Warrants or pursuant to the mandates referred to in Appendix V to this prospectus) and will qualify for all dividends or other distributions declared, made or paid after the date of this prospectus.
Ð 120 Ð SHARE CAPITAL
Warrants
The Warrants will be issued in the proportion of one Warrant for every Offer Share in issue immediately upon completion of the Share Offer. Immediately thereafter, Warrants conferring rights to the holders thereof to subscribe up to HK$112,000,000 3or HK$128,800,000 taking into account full exercise of the Over-allotment Option) in aggregate in cash for Shares will be in issue, equivalent to the aggregate subscription price for a total of 280,000,000 Shares 3or 322,000,000 Shares taking into account full exercise of the Over-allotment Option) on the basis of the initial subscription price of HK$0.40 per Share 3subject to the terms set out in Appendix IV to this prospectus).
Share options granted under the Pre-IPO Share Option Scheme
The Company has conditionally adopted the Pre-IPO Share Option Scheme, a summary of the principal terms of which is set out in the paragraph headed ``Pre-IPO Share Option Scheme'' in Appendix V to this prospectus. Under the Pre-IPO Share Option Scheme, a total number of 76 employees and 5 Directors have been granted options to subscribe for 316,823,077 Shares in aggregate representing 11.49 per cent of the issued share capital of the Company 3including the Shares falling to be issued upon the exercise of options under the Pre-IPO Share Option Scheme but taking no account of any Shares which may be issued under the Over-allotment Option or upon any exercise of any option which may be granted under the Share Option Scheme or upon any exercise of the subscription rights attaching to the Warrants, or of any Shares which may be issued or repurchased by the Company pursuant to the mandates referred to in Appendix V to this prospectus).
General mandate to issue Shares
The Directors have been granted a general unconditional mandate to allot or issue and deal with unissued Shares with an aggregate nominal value of not more than the sum of:
3a) 20 per cent of the aggregate nominal value of the share capital of the Company in issue immediately following completion of the Share Offer 3such share capital shall include any Shares which may be issued pursuant to the exercise of the Over-allotment Option); and
3b) the aggregate nominal value of the share capital of the Company repurchased by the Company 3if any) pursuant to the general mandate to repurchase Shares referred to below.
The mandate will expire:
3i) at the conclusion of the Company's next annual general meeting; or
3ii) at the expiration of the period within which the Company is required by law or its bye- laws to hold its next annual general meeting; or
Ð 121 Ð SHARE CAPITAL
3iii) when varied, revoked or renewed by an ordinary resolution of its shareholders in general meeting; whichever is the earliest.
For further details of this general mandate, see the paragraph headed ``Resolutions in writing of the sole shareholder of the Company passed on 12th July, 2000'' in Appendix V.
General mandate to repurchase Shares
The Directors have been granted a general unconditional mandate to exercise all the powers of the Company to repurchase Shares with a total nominal value of not more than 10 per cent of the aggregate nominal value of the share capital of the Company in issue following the completion of the Share Offer 3including any Shares which may be issued pursuant to the exercise of the Over-allotment Option) and to repurchase not more than 10 per cent of the amount of the outstanding Warrants in issue.
This mandate only relates to repurchases made on GEM, or on any other stock exchange on which the Shares and the Warrants are listed 3and which is recognised by The Securities and Futures Commission and the Stock Exchange for this purpose), and which are made in accordance with all applicable laws and/or requirements of the GEM Listing Rules. A summary of the relevant GEM Listing Rules regarding the repurchase of Shares and the Warrants is set out in the paragraph headed ``Repurchase by the Company of its own securities'' in Appendix V.
The mandate will expire:
3a) at the conclusion of the Company's next annual general meeting; or
3b) at the expiration of the period within which the Company is required by law or its bye- laws to hold its next annual general meeting; or
3c) when varied, revoked or renewed by an ordinary resolution of its shareholders in general meeting; whichever is the earliest.
For further details of the general mandate, see the paragraph headed ``Resolutions in writing of the sole shareholder of the Company passed on 12th July, 2000'' in Appendix V.
Ð 122 Ð FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following discussion and analysis of the Group's results of operations and financial condition should be read in conjunction with the financial information and the related notes and the other financial data that appear elsewhere in this prospectus.
Trading record
The following is a summary of the combined results of the Group for the two years ended 31st March, 2000 which have been extracted from the accountants' report set out in Appendix I. The combined results are prepared on the basis of presentation set out in the same accountants' report.
Year ended 31st March, 1999 2000 HK$ HK$
Turnover Ð 2,814,482
Other revenue Ð 363,589 Software acquisition and hardware maintenance costs Ð 32,159,876) Depreciation expenses Ð 3688,860) Rental expenses 375,068) 3377,286) Staff costs Ð 36,063,485) Advertising and marketing expenses Ð 36,405,896) Other operating expenses 350,428) 34,551,011)
Loss from operating activities 3125,496) 317,068,343)
Finance costs Ð 325,673)
Loss before tax 3125,496) 317,094,016)
Tax Ð Ð
Loss from ordinary activities attributable to shareholders 3125,496) 317,094,016)
Dividends Ð Ð
Loss per Share Note) 0.006 cents 0.79 cents
Note: The calculation of the loss per Share is based on the Group's loss from ordinary activities attributable to shareholders for the two years ended 31st March, 2000 and on 2,161,026,000 shares in issue at the date of the prospectus being deemed to be in issue throughout the Relevant Periods.
Ð 123 Ð FINANCIAL INFORMATION
Overviewof the combined results
The Group's primary business is the provision of focused Chinese language content through its vertical portals targetted at the Chinese community. The Group has launched vertical portals covering areas in finance, consumer, news, entertainment, fortune-telling, eating, sports, teenagers and horse-racing.
The Group provides banner advertising and title sponsorship to various advertisers.
The Company launched its services in the initial seven vertical portals on 6th March, 2000. Since launch, the Company's revenue has grown substantially. The Group's expenses have also increased rapidly since the beginning of the second half of 1999 as the Group expanded its personnel base and increased its marketing efforts.
Revenue is recognised on technical consultancy assignments when the related services are rendered; advertising revenue is recognised over the period that the related advertising services are rendered.
The key expense items of the Group are software acquisition and hardware maintenance costs, depreciation, staff costs, rental expenses, advertising and marketing and other operating expenses.
Software acquisition and hardware maintenance costs relate to the software required to support the Group's vertical portals and to the maintenance of computer hardware upon which such software is run.
Depreciation relates primarily to office equipment 3including computer hardware) and furniture, fixtures and other office equipment which the Group has purchased in connection with the provision of its services. Details of the Group's accounting policy on fixed assets and depreciation are set out in the accountants' report in Appendix I.
Staff costs relate to costs for staff payroll.
Rental expenses relate to rent paid for the office in Hong Kong to house the Group's operations. Particulars of the Group's property interests are set out in the paragraph headed ``Property interests'' in this section.
Advertising and marketing expenses consist primarily of advertising costs and other external marketing-related expenses. These include expenses associated with the Group's aggressive marketing programme, involving television, radio, print, billboard, newspaper and periodicals, public relations campaign and online advertising.
Other operating expenses include principally Internet connection and lease-hire charges, telecommunication expenses, administration expenses, travel expenses and utilities charges.
Ð 124 Ð FINANCIAL INFORMATION
For the year ended 31st March, 1999
The Group did not generate any revenue in the year ended 31st March, 1999. The Group incurred expenses of HK$0.1 million, mainly rental expenses. The Group had a net loss from operating activities attributable to shareholders of approximately HK$0.1 million for the year.
For the year ended 31st March, 2000
The Group generated revenue of approximately HK$2.8 million principally from advertising.
The Group recorded interest income of approximately HK$0.4 million on bank deposits as other revenue.
The Group incurred substantial expenses of HK$20.3 million as it rapidly expanded its operations during 2000. The Group's expenses consisted principally of software acquisition and hardware maintenance costs, staff costs, advertising and marketing expenses and other operating expenses, which accounted for 10.7 per cent, 29.9 per cent, 31.6 per cent and 22.4 per cent, respectively, of total expenses of the Group for the year ended 31st March, 2000. The Group had a net loss from operating activities attributable to shareholders of HK$17.1 million as its business incurred substantial overhead costs and recorded minimal revenues at its start-up stage.
TAX
No provision for any profits tax was made as the subsidiaries of the Group had no assessable profits for the two years ended 31st March, 2000.
Major customers and suppliers
During the year ended 31st March, 2000, the turnover from the Group's largest customer accounted for 57.4 per cent of the Group's combined turnover for the year. Turnover derived from the Group's three largest customers accounted for 100 per cent of the Group's turnover for the year.
The aggregate purchases attributable to the Group's five largest suppliers accounted for 46 per cent of total purchases of the Group and purchases from the largest supplier included therein amounted to 21 per cent.
Mr. Tsang Moses Kwok Tai, a non-executive Director, is interested in the above transactions to the extent that he is a director of the holding company of, and a 12 per cent beneficial shareholder in, iASPEC Technologies 3H.K.) Limited 3formerly known as Uni-Tech Technologies Limited), which is one of the three largest customers and one of the five largest suppliers of the Group. Save as aforesaid, none of the directors of the Company or any of their associates or any shareholders 3which to the best knowledge of the Directors own more than 5 per cent of the Company's issued share capital) had any beneficial interests in the Group's five largest customers or suppliers.
Ð 125 Ð FINANCIAL INFORMATION
INDEBTEDNESS
Borrowings
As at the close of business on 31st May, 2000, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this prospectus, the Group had outstanding obligations under finance leases of approximately HK$9.7 million.
As at the close of business on 31st May, 2000, the Group did not have any banking facilities.
Contingent liabilities
As at 31st May, 2000, the Group and the Company did not have any significant contingent liabilities.
Security
As at 31st May, 2000, the Group had outstanding obligations under finance leases of approximately HK$9.7 million, which were secured by personal guarantees and indemnities given by Cheng Albert Jinghan.
Disclaimer
Save as disclosed herein and apart from intra-group liabilities, the Group did not have outstanding at the close of business on 31st May, 2000 any loan capital issued or agreed to be issued, bank overdrafts, loans, debt securities or other similar indebtedness, liabilities under acceptance or acceptance credits, debentures, mortgages, charges, finance leases or hire purchase commitments, guarantees or other material contingent liabilities.
The directors have confirmed that there has not been any material change in respect of the indebtedness and contingent liabilities of the Group since 31st May, 2000.
LIQUIDITY, FINANCIAL RESOURCES AND CAPITAL STRUCTURE
Net current assets
As at 31st May, 2000, the Group had net current assets of approximately HK$46.7 million. The Group's current assets consisted of cash and cash equivalents of approximately HK$49.3 million, pledged time deposits of approximately HK$2.2 million, accounts receivable of HK$1 million and prepayments and deposits of approximately HK$4.8 million. The Group's current liabilities consisted of accounts payable and accruals of approximately HK$4.4 million and finance lease payables of approximately HK$6.2 million.
The Group has no exposure to foreign exchange liabilities.
Ð 126 Ð FINANCIAL INFORMATION
Capital and other commitments
As at 31st May, 2000, the Group had a commitment to pay consultancy fees of HK$1.8 million under a non-cancellable consultancy agreement expiring within one year.
Directors' opinion on the net asset position
Taking into account the estimated net proceeds of the Share Offer, the Directors believe that the Group has sufficient net current assets to meet its present capital expenditure.
Dividends and working capital
Dividends
No dividend has been paid or declared by the Company or its subsidiaries since their respective dates of incorporation.
Working capital
Taking into account the estimated net proceeds of the Share Offer, the Directors are of the opinion that the Group has sufficient working capital for its present requirements.
The Group's businesses have incurred net losses to date and are expected to continue to incur substantial operating losses for the foreseeable future. Consequently, the Group will over time need to seek additional funding either from the equity capital or debt markets.
Financial resources
Prior to the completion of the Share Offer, the Group's operations and investments will be financed principally by its shareholders. At the close of business on 31st May, 2000, the Group had bank balances and cash of approximately HK$49.3 million. The Company intends to finance the Group's future operations, capital expenditure and other capital requirements with the existing bank balances and cash available and the proceeds from the issue of Shares under the Share Offer.
Capital resources
The Company's capital requirements will depend on a number of factors, including the relevant markets' acceptance of its services, the amount of resources to be devoted to expanding its operations in existing and new markets as well as the amount of resources to be devoted to promoting the Company's brand name. Consistent with its rapid growth, the Company has experienced a substantial increase in staff costs, advertising and marketing expenses, capital expenditure and rental expenses since the beginning of the second half of 1999. The Directors expect that these increases will continue in the foreseeable future.
Although the Directors believe that they have sufficient capital resources to meet their present working capital requirements, unanticipated events and opportunities may require the Company to issue additional equity or debt securities or establish new credit facilities to raise capital in order to meet its capital requirements.
Ð 127 Ð FINANCIAL INFORMATION
The Company does not currently hold any derivative financial instruments, derivative commodity instruments or other financial instruments exposing itself to market risk.
DISCLOSURE UNDER CHAPTER 17 OF THE GEM LISTING RULES
As at the Latest Practicable Date, the Directors are not aware of any circumstances which would give rise to a disclosure requirement under Rules 17.15 to 17.21 of the GEM Listing Rules.
PROPERTY INTEREST
The whole of 24th Floor, 1063 King's Road, Quarry Bay, Hong Kong
The Group leases the 24th Floor, 1063 King's Road, Quarry Bay, Hong Kong for a term commencing on 3rd January, 2000 and ending 31st December, 2002. These premises have a lettable floor area of approximately 950 sq.m.
Greater China Appraisal Limited, an independent property valuer, has valued the property interests of the Group as at 31st May, 2000. Details of the valuation and the text of the letter and the valuation certificate from Greater China Appraisal Limited are set out in Appendix II to this prospectus.
DISTRIBUTABLE RESERVES
As at 31st March, 2000, there were no reserves available for distribution to the shareholders of the Company.
ADJUSTED NET TANGIBLE ASSETS
The following statement of adjusted net tangible assets of the Group is based on the audited combined net tangible assets of the Group as at 31st March, 2000, as shown in the accountants' report set out in Appendix I of this prospectus, adjusted as described below:
HK$'000
Audited combined net tangible assets of the Group as at 31st March, 2000 72,804 Combined loss from ordinary activities attributable to shareholders of the Group for April and May 2000, based on its unaudited management accounts 313,470) Estimated net proceeds of the issue of the Share Offer Note 1) 87,000
Adjusted net tangible assets 146,334
Adjusted net tangible asset value per Share Note 2) HK$0.06
Ð 128 Ð FINANCIAL INFORMATION
Notes:
31) The estimated net proceeds from the Share Offer are based on an Issue Price of HK$0.36 per Share and takes no account of any Shares which may be issued pursuant to the Over-allotment Option. If the Over- allotment Option is exercised in full, the estimated net proceeds of the Share Offer will be approximately HK$102 million.
32) The adjusted net tangible asset value per Share is arrived at after the adjustments referred to in this section and on the basis of a total of 2,441,026,000 Shares expected to be in issue immediately following the completion of the Share Offer, but takes no account of any Shares which may fall to be allotted and issued pursuant to the exercise of options that have been granted under the Pre-IPO Share Option Scheme or may be granted under the Share Option Scheme, additional Shares which may be issued pursuant to the Over- allotment Option or Shares which may be allotted and issued or purchased by the Company pursuant to the general mandates for the allotment and issue and purchase of Shares granted to the Directors as referred to in the paragraph headed ``Resolutions in writing of the sole shareholder of the Company passed on 12th July, 2000'' in Appendix V to this prospectus or otherwise.
NO MATERIAL ADVERSE CHANGE
The Directors are not aware of any material adverse change in the financial or trading position or prospects of the Group since 31st March, 2000 3being the date to which the latest audited combined financial statements of the Group were prepared).
Ð 129 Ð SPONSOR'S INTERESTS
Neither Worldsec nor its associates expect to obtain any material benefit as a result of the successful outcome of the Share Offer, other than the following: 3i) by way of underwriting commissions to be paid to its associate, Worldsec International, for acting as one of the Underwriters; 3ii) the advisory and documentation fees to be paid to Worldsec as sponsor to the Share Offer; 3iii) by a sponsor agreement to be entered into between Worldsec and the Company before the date of listing of the Company, pursuant to which Worldsec has been appointed as sponsor of the Company for the remainder of the financial year of the Company ending 31st March, 2001 and for the period of two years commencing from 1st April, 2001 and the Company has agreed to pay an agreed fee to Worldsec for its provision of such services; and 3iv) Cheong Henry Ying Chew, one of the directors of Worldsec, subscribed for 1,500 shares in Cyber Communication Corporation Ltd. at a consideration of HK$750,000 on 17th February, 2000 and becomes a shareholder of the Company after the Group's corporate reorganisation and will hold approximately 0.81 per cent of the Company's issued Shares immediately following the listing of the Company on the GEM. However, Mr. Cheong is neither an initial management shareholder nor a significant shareholder of the Company under the GEM Listing Rules, and Mr. Cheong has not been involved in the application for the listing of and the permission to deal in the Shares and the Warrants on the GEM in the capacity of either a principal supervisor or an assistant supervisor at Worldsec.
Ð 130 Ð UNDERWRITING
UNDERWRITERS
Both the Public Offer Underwriters and the Placing Underwriters are Worldsec International, HSBC Broking Securities Asia) Limited, BNP Prime Peregrine Securities Limited, Celestial Capital Limited, JS Cresvale International Limited, Kingsway SW Securities Limited and OSK Asia Securities Limited.
UNDERWRITING ARRANGEMENTS AND EXPENSES
Underwriting Agreement
Pursuant to the Underwriting Agreement, the Company is offering the Offer Shares with Warrants) for subscription on and subject to the terms and conditions of this prospectus and the application forms relating thereto at the Issue Price.
Subject to the GEM Listing Committee granting listing of and permission to deal in the Shares and the Warrants in issue and to be issued as mentioned herein, and to certain other conditions set out in the Underwriting Agreement, the Public Offer Underwriters have agreed severally to subscribe or procure subscribers for their respective applicable proportions of the Public Offer Shares with Warrants) initially being offered and which are not taken up under the Public Offer.
In connection with the Placing, the Company has entered into the Underwriting Agreement with, inter alia, the Placing Underwriters under which the Placing Underwriters have severally agreed to subscribe or procure subscribers for the Placing Shares with Warrants) subject to adjustment as described herein), on the terms and conditions as set out in the Underwriting Agreement.
Grounds for termination
Worldsec International on behalf of the Underwriters) is entitled to terminate the Underwriting Agreement at any time prior to 8: 00 p.m. on the third business day following the date on which the application lists close expected to be 21st July, 2000) if, inter alia,priorto 5: 30 p.m. on the third business day after the application lists close:
1. there shall develop, occur, exist or come into effect:
A) any new law or regulation or any change in existing laws or regulations or any change in the interpretation or application thereof by any court or other competent authority of any relevant jurisdiction; or
B) any change in, or any event or series of events resulting in any change in local, national or international financial, political, military, industrial, economic, currency or market conditions; or
C) any change in the conditions of local, national or international equity securities or other financial markets; or
Ð 131 Ð UNDERWRITING
D) the imposition of any moratorium, suspension or material restriction on trading in securities generally on the Stock Exchange; or
E) a change, or development involving a prospective change, in taxation or exchange control or the implementation of any exchange control) in Hong Kong, Bermuda, BVI or elsewhere; or
F) any material adverse change or prospective material adverse change in the business or in the financial or trading position of the Company,
for the purpose of construing the foregoing:
i) a change in the system under which the value of the Hong Kong currency is linked to that of the currency of the US shall be taken as an event resulting in a change in currency conditions; and
ii) any normal market fluctuations shall not be construed as events or series of events affecting market conditions referred to above;
which, in the sole opinion of Worldsec International:
A) is or will or is likely to have a material adverse effect on the business, financial or other condition or prospects of the Group or, in the case of paragraph 1 E) above, on any present or prospective shareholder in his/its capacity as such shareholder of the Company; or
B) has or will have or is likely to have a material adverse effect on the success of the Public Offer and/or the Placing or the level of Public Offer Shares with Warrants) being applied for or accepted or the distribution of Placing Shares with Warrants); or
C) makes it impracticable, inadvisable or inexpedient to proceed with the Public Offer and/or the Placing; or
2. there comes to the notice of Worldsec International any matter or event showing any of the representations, warranties or undertakings set out in the Underwriting Agreement to be untrue or misleading in any material respect when given or repeated; or
3. there comes to the notice of Worldsec International any breach on the part of the Company of any of the provisions of the Underwriting Agreement which is considered by Worldsec International to be material in the overall context of the Share Offer, then Worldsec International on behalf of the Underwriters) may, upon giving notice to the Company terminate the Underwriting Agreement with immediate effect.
Ð 132 Ð UNDERWRITING
Commission
The Public Offer Underwriters will receive an underwriting commission of 3.5 per cent of the Issue Price of the Public Offer Shares, out of which they will pay any sub-underwriting commissions. The Placing Underwriters will receive an underwriting commission of 3.5 per cent of the Issue Price of the Placing Shares, out of which they will pay any sub-underwriting commissions. Worldsec will receive a documentation fee. Such fee and commission, together with the Stock Exchange listing fees, capital duty, legal and other professional fees and printing and advertising costs and other expenses relating to the Share Offer, which are estimated to be about HK$13.8 million in aggregate, will be payable by the Company.
Underwriters' interest in the Company
Other than pursuant to the Underwriting Agreement, none of the Underwriters has any shareholding in any member of the Group or any right whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.
Undertakings
Pursuant to the Underwriting Agreement, each of the Initial Management Shareholders who is also a Director and the Significant Shareholders has undertaken to the Company and Worldsec on behalf of the Underwriters) that neither he/it nor any of his/its associates as defined in the GEM Listing Rules), any company controlled by he/it nor any nominee or trustee holding in trust for he/it will transfer or otherwise dispose of including without limitation the creation of any option over) any of the Relevant Securities beneficially owned by any of them or any interest therein after the completion of the Share Offer for a period of six months from the date on which dealings in the Shares commence on the Stock Exchange. In addition, each of the Initial Management Shareholders who is also a Director, has undertaken in respect of himself/itself) to the Company and Worldsec on behalf of the Underwriters) that without the written consent of Worldsec on behalf of the Underwriters) neither he/it nor any of his/its associates as defined in the GEM Listing Rules), any company controlled by any of them nor any nominee or trustee holding in trust for him/it will: i) for a period of six months commencing on the date falling six months after the date on which dealings in the Shares commence on the Stock Exchange, inter alia, sell, transfer or otherwise dispose of including without limitation the creation of an option over) such number of Relevant Securities as represents 68 per cent of his/its holding of Relevant Securities which Relevant Securities will be held in escrow); and ii) for a period of twelve months commencing on the first anniversary of the listing date, inter alia, sell, transfer or otherwise dispose of including without limitation the creation of an option over) such number of Relevant Securities as represents 50 per cent of his/its holding of Relevant Securities which Relevant Securities will be held in escrow). Furthermore, each of the Significant Shareholders has undertaken to the Company and Worldsec on behalf of the Underwriters) that without the written consent of Worldsec on behalf of the Underwriters) neither he/it nor any of his/its associates as defined in the GEM Listing Rules), any company controlled by any of them nor any nominee or trustee holding in trust for any of them will, for a period of eighteen months commencing on the date falling six months after the listing date, inter alia, sell, transfer or otherwise dispose of including without limitation the creation of an option over) such number of Relevant Securities as represents 50 per cent of its holding of Relevant Securities which will be held in escrow). Each
Ð 133 Ð UNDERWRITING of the Initial Management Shareholders has undertaken to the Company and Worldsec that for the period of six months commencing on the date falling six months after the listing date they will ensure that the aggregate number of Relevant Securities held or controlled by them will represent at least 35 per cent of the voting rights exercisable at general meetings of the Company.
The Company and certain other parties to the Underwriting Agreement have undertaken to each of the Underwriters that, save as pursuant to the Share Offer, the exercise of the options granted under the Share Option Scheme, the Pre-IPO Share Option Scheme, the exercise of the Over-allotment Option, the rights to subscribe for Shares under the Warrants or the general mandate granted to the Directors as set out in Appendix V to this prospectus, the Company will not issue any Shares or other securities of the Company or agree to allot or issue or grant or agree to grant options, warrants or other rights to subscribe for Shares or other securities of the Company during the period of six months from the date when dealings of the Shares first commence on GEM without the prior written consent of Worldsec International.
Each of the Initial Management Shareholders (other than the Directors) pursuant to a separate undertaking) has undertaken to the Company and Worldsec (on behalf of the Underwriters) in relation to non-disposal of Relevant Securities on terms similar to those given by the Initial Management Shareholders who are also Directors set out above.
Ð 134 Ð STRUCTURE OF THE SHARE OFFER
PRICE PAYABLE ON APPLICATION
The Issue Price of HK$0.36 per Share plus 1 per cent brokerage and 0.01 per cent Stock Exchange transaction levy amounts to a total of HK$3,636.36 per board lot of 10,000 Shares.
CONDITIONS OF THE SHARE OFFER
Acceptance of your applications for the Offer Shares with Warrants) is conditional upon:
)a) Listing
The GEM Listing Committee of the Stock Exchange granting listing of and permission to deal in all the Shares in issue and to be issued as mentioned herein and the Warrants to be issued as mentioned herein and any Shares which may fall to be issued upon the exercise of the subscription rights attaching to the Warrants or pursuant to exercise of options granted under the Pre-IPO Share Option Scheme and the Share Option Scheme; and
)b) Underwriting Agreement
The obligations of the Underwriters under the Underwriting Agreement becoming unconditional which requires, amongst other things, that the obligations under the Underwriting Agreement not being terminated in accordance with their terms or otherwise.
If these conditions are not fulfilled or, where applicable, waived by Worldsec International on behalf of the Underwriters)) on or before 17th August, 2000, your application monies will be returned to you, without interest. The terms on which your money will be returned to you are set out in the section headed ``Refund of your money'' on the application form.
In the meantime, your application monies will be held in a) separate bank account s) with the receiving banker.
THE SHARE OFFER
The Share Offer comprises 280,000,000 Offer Shares with Warrants) initially offered by the Company for subscription by way of the Placing and the Public Offer. Up to 42,000,000 Offer Shares with Warrants), representing 15 per cent of the total number of Offer Shares initially available, will be offered under the Public Offer. Up to 238,000,000 Offer Shares with Warrants), representing 85 per cent of the total number of Offer Shares initially available, will be offered under the Placing to professional and institutional and other investors in Hong Kong and other jurisdictions outside the United States, United Kingdom, Singapore, Japan, Taiwan and Bermuda other than the PRC), and full-time employees who are not connected persons as defined in the GEM Listing Rules)) of the Company. Up to 42,000,000 Offer Shares with Warrants) will be offered under the Placing to the Qualifying Subscribers. The number of Shares initially offered under the Public Offer, and the number of Shares initially available under the Placing are subject to reallocation in the event that the Public Offer is under-subscribed as described below under the paragraph headed ``Reallocation of Offer Shares between the Placing and the Public Offer''.
Ð 135 Ð STRUCTURE OF THE SHARE OFFER
The Offer Shares with Warrants) represent approximately 11.47 per cent of the Company's enlarged issued share capital immediately after completion of the Share Offer, assuming that the Over-allotment Option is not exercised. If the Over-allotment Option is exercised in full, the Offer Shares with Warrants) will represent approximately 12.97 per cent of the enlarged issued share capital of the Company immediately after completion of the Share Offer and the exercise of the Over-allotment Option.
Investors may apply for Shares with Warrants) under the Public Offer or indicate an interest for Shares with Warrants) under the Placing, but may not do both except the Qualifying Subscribers). The Share Offer is open to members of the public in Hong Kong as well as to institutional and professional investors and Qualifying Subscribers. The Placing will involve selective marketing of Shares with Warrants) to institutional and professional investors, other investors anticipated to have a sizeable demand for such Shares with Warrants), Qualifying Subscribers and certain senior management who are not connected persons as defined in the GEM Listing Rules)) of the Company. Professional investors generally include brokers, dealers, companies including fund managers) whose ordinary business involves dealing in shares and other securities and corporate entities which regularly invest in shares and other securities.
The Public Offer Shares with Warrants) are fully underwritten by the Public Offer Underwriters and the Placing Shares with Warrants) are fully underwritten by the Placing Underwriters in each case on a several basis, each being subject to the conditions set out in the paragraph headed ``Underwriting arrangements and expenses'' under the section headed ``Underwriting'' in this prospectus.
THE PLACING
238,000,000 Offer Shares with Warrants), representing 85 per cent of the Shares initially available under the Share Offer, are being offered for subscription under the Placing. Pursuant to the Placing: a) up to 42,000,000 Placing Shares with Warrants) will be placed to the Qualifying Subscribers through Worldsec International; b) up to 14,000,000 Placing Shares with Warrants) will be placed to employees who are not connected persons as defined in the GEM Listing Rules)) of the Company through Worldsec International; and c) the balance of the Placing Shares with Warrants) will be conditionally placed to professional, institutional and other investors by the Placing Underwriters or through selling agents appointed by them at the Issue Price, on or before the close of the application lists for the Public Offer. Subject to the reallocation of Offer Shares between the Placing and the Public Offer in the event that the Public Offer is under- subscribed, the Placing Shares with Warrants) will represent approximately 8 per cent of the Company's enlarged issued share capital immediately after completion of the Share Offer assuming that the Over-allotment Option is not exercised).
)i) Placing to Qualifying Subscribers
In order to enable registered users of the Group's website www.36.com to participate in the Share Offer on a preferential basis as to allocation only), Qualifying Subscribers are being invited to apply for an aggregate of up to 42,000,000 Qualifying Shares with Warrants)
Ð 136 Ð STRUCTURE OF THE SHARE OFFER
representing 15 per cent of the Offer Shares with Warrants) and approximately 1.72 per cent of the enlarged issued share capital of the Company immediately after completion of the Share Offer assuming that the Over-allotment Option is not exercised)) in the Placing at the Issue Price.
Qualifying Subscribers may apply for Qualifying Shares with Warrants) using the BLUE application forms.
In addition to any application for Qualifying Shares with Warrants), Qualifying Subscribers will be entitled to apply for Public Offer Shares with Warrants) on WHITE or YELLOW application forms under the terms and subject to the conditions of the Public Offer. Qualifying Subscribers will receive no preference as to entitlement or allocation in respect of applications for Public Offer Shares with Warrants) made on WHITE or YELLOW application forms under the Public Offer.
The procedure for application by Qualifying Subscribers under the Placing is set out in the section headed ``Procedure for Qualifying Subscribers applying for Qualifying Shares with Warrants)'' in this prospectus and in the BLUE application forms.
The documents to be issued in connection with the Share Offer will not be registered under any applicable securities legislation of any jurisdictions other than Hong Kong. Accordingly, Qualifying Shares )with Warrants) are only being offered to Hong Kong residents. Applications will not be accepted from non-Hong Kong residents.
The basis of allocation may vary depending on the number of Qualifying Shares applied for and the number Qualifying Subscribers applying therefor and may involve balloting, but will otherwise be made on a pro rata basis. An application made by a Qualifying Subscriber on a BLUE application form cannot be more than 42,000,000 Shares.
Worldsec International has the authority to re-allocate all or any of the Qualifying Shares with Warrants) unsubscribed by Qualifying Subscribers to the placing to professional and institutional investors.
)ii) Placing to employees of the Group
Up to 14,000,000 Placing Shares, representing 5 per cent of the Offer Shares with Warrants) will be offered by the Company to employees of the Group who are not connected persons as defined in the GEM Listing Rules)) at the Issue Price on a preferential basis as to allocation only, under the terms and subject to the condition of the Share Offer by the entering into of several placing letters between Worldsec International and such employees.
The basis of allocation may vary depending on the number of Placing Shares applied for by employees of the Group and the number of employees applying therefor and may involve balloting, but will otherwise be made on a pro rata basis. Worldsec International has the authority to re-allocate all or any of the unallocated Shares with Warrants) under this placing to the placing to professional and institutional investors.
Ð 137 Ð STRUCTURE OF THE SHARE OFFER
Pursuant to the Placing, the Placing Underwriters or Worldsec International or selling agents nominated by them, as the case may be, on behalf of the Company, will conditionally place the Placing Shares with Warrants) at the Issue Price plus 1 per cent brokerage and 0.01 per cent Stock Exchange transaction levy.
The Placing is subject to the same conditions as stated in the paragraph headed ``Conditions of the Share Offer''. The total number of Placing Shares with Warrants) to be allotted and issued pursuant to the Placing may change as a result of any reallocation of unsubscribed Shares with Warrants) originally included in the Public Offer.
)iii) Placing to professional, institutional and other investors
The balance of the Placing Shares with Warrants) will be placed to professional, institutional and other investors in Hong Kong and other jurisdictions outside the United States, United Kingdom, Singapore, Japan, Taiwan and Bermuda other than the PRC) at the Issue Price. Professional investors generally include brokers, dealers, companies including fund managers) whose ordinary business involves dealing in shares and other securities and corporate entities which regularly invest in shares and other securities.
Allocation of Placing Shares with Warrants) to professional, institutional and other investors pursuant to the Placing is based on a number of factors including the level and timing of demand and whether or not it is expected that the relevant investor is likely to buy further Shares and the Warrants, or hold or sell its Shares and the Warrants, after the listing of the Shares and the Warrants on the Stock Exchange. Such allocation is generally intended to result in a distribution of the Placing Shares with Warrants) on a basis which would lead to the establishment of a broad shareholder base to the benefit of the Company and its shareholders as a whole.
Worldsec International has the authority to reallocate all or any of the Placing Shares with Warrants) unsubscribed by professional, institutional and other investors to the placing to Qualifying Subscribers and/or employees of the Group should there be excess demand from Qualifying Subscribers and/or employees of the Group.
THE PUBLIC OFFER
The Company is initially offering 42,000,000 Shares with Warrants) for public subscription under the Public Offer, representing 15 per cent of the Shares being offered in the Share Offer, subject to reallocation on the basis set out below.
Applicants under the Public Offer are required to pay, on application, the Issue Price of HK$0.36 per Share in addition to 1 per cent brokerage and 0.01 per cent Stock Exchange transaction levy payable.
Allocation of Public Offer Shares with Warrants) to investors under the Public Offer will be based solely on the level of valid applications received under the Public Offer. The basis of allocation may vary, depending on the number of Public Offer Shares with Warrants) validly applied for by each applicant, but will otherwise be made strictly on a pro-rata basis. However,
Ð 138 Ð STRUCTURE OF THE SHARE OFFER this may, where appropriate, involve balloting, which would mean that some applicants may be allotted more Shares with Warrants) than others who have applied for the same number of Public Offer Shares with Warrants) and that applicants who are not successful in the ballot may not receive any Public Offer Shares with Warrants).
REALLOCATION OF OFFER SHARES BETWEEN THE PLACING AND THE PUBLIC OFFER
The allocation of Shares with Warrants) between the Placing and the Public Offer will not be subject to adjustment save that if the Public Offer is not fully subscribed, Worldsec International has the authority to re-allocate all or any of the unsubscribed Public Offer Shares with Warrants) originally included in the Public Offer to the Placing in such number as it deems appropriate.
OVER-ALLOTMENT OPTION
Pursuant to the Underwriting Agreement, the Company has granted to Worldsec International on behalf of the Placing Underwriters) the right but not the obligation of the Over-allotment Option, exercisable within 30 days of the date of this prospectus, to require the Company to issue up to an aggregate of 42,000,000 additional Shares with Warrants), representing 15 per cent of the number of Shares initially available under the Share Offer. These Shares with Warrants) will be issued at the Issue Price for the purpose of covering over- allocation in the Placing. In the event that the Over-allotment Option is exercised, the additional Shares with Warrants) issued will be allocated to the Placing at the discretion of Worldsec International who may, at its option, also cover any over-allocations through stock borrowing arrangements with Drummond Finance Limited and the purchase of Shares in the secondary market or otherwise as may be permitted under applicable laws.
STABILISATION
In connection with the Share Offer, Worldsec International on behalf of the Placing Underwriters) may over-allot up to an aggregate of 42,000,000 additional Shares with Warrants) such over-allocations may be covered by exercising the Over-allotment Option in full or in part, at any time up to the thirtieth day from the date of this prospectus or by purchasing Shares in the secondary market) and/or effect transactions which stabilise or maintain the market price of the Shares at levels other than those which might otherwise prevail but which are not higher than the Issue Price. Any such over-allocation purchase transactions will be made in compliance with all applicable laws.
Stabilisation is a practice used by underwriters in some markets to facilitate the distribution of securities. To stabilise, the underwriters may bid or purchase the newly issued securities in the secondary market, during a specified period of time, to retard and, if possible, prevent a decline in the initial public offer prices of the securities. Such transactions may be effected in all jurisdictions where it is permissible to do so, in each case in compliance with all applicable laws and regulatory requirements.
Ð 139 Ð STRUCTURE OF THE SHARE OFFER
In Hong Kong, such stabilisation activities on the Stock Exchange are restricted to cases where the underwriters purchase shares in the secondary market genuinely and solely for the purpose of covering over-allocation in the relevant offer. Such transactions, if commenced, may be discontinued at any time. Should stabilising transactions be effected in connection with the distribution of the Offer Shares with Warrants), they will be done at the absolute discretion of Worldsec International. The stabilisation price to cover the over-allocation will not normally be higher than the Issue Price. Relevant provisions of the Securities Ordinance prohibit market manipulation in the form of pegging or stabilising the price of securities in certain circumstances.
Ð 140 Ð HOW TO APPLY FOR THE PUBLIC OFFER SHARES )WITH WARRANTS)
WHICH APPLICATION FORM TO USE
Use a WHITE application form if you want the Public Offer Shares with Warrants) issued in your own name.
Use a YELLOW application form if you want the Public Offer Shares with Warrants) issued in the name of HKSCC Nominees Limited and deposited directly into CCASS for credit to your investor participant stock account or the stock account of your designated CCASS participant maintained in CCASS.
WHERE TO COLLECT THE APPLICATION FORMS
You can collect a WHITE application form and a prospectus from:
Any participant of the Stock Exchange
or
Worldsec Corporate Finance Limited Worldsec International Limited 33rd Floor, Bank of America Tower 11th Floor, Bank of America Tower 12 Harcourt Road 12 Harcourt Road Central Central Hong Kong Hong Kong
HSBC Broking Securities )Asia) Limited BNP Prime Peregrine Securities Limited 3rd Floor 23rd Floor, New World Tower Hutchison House 16±18 Queen's Road Central 10 Harcourt Road Hong Kong Hong Kong
JS Cresvale International Limited Celestial Capital Limited Suite 601, Asia Pacific Finance Tower 22/F, The Center Citibank Plaza 99 Queen's Road Central 3 Garden Road Hong Kong Central Hong Kong
OSK Asia Securities Limited Kingsway SW Securities Limited Suite 3601 5th Floor, Hutchison House 36th Floor 10 Harcourt Road Cheung Kong Center Central 2 Queen's Road Central Hong Kong Hong Kong
Ð 141 Ð HOW TO APPLY FOR THE PUBLIC OFFER SHARES )WITH WARRANTS) or any of the following branches of Hang Seng Bank Limited:
Hong Kong Island: Head Office 83 Des Voeux Road Central Central District Branch 2 D'Aguilar Street Causeway Bay Branch 28 Yee Wo Street Wanchai Branch 200 Hennessy Road Aberdeen Centre Branch 10 Nam Ning Street Quarry Bay Branch 989 King's Road
Kowloon: Kowloon Main Branch 618 Nathan Road Tsimshatsui Branch 18 Carnarvon Road Kwun Tong Branch 70 Yue Man Square Yaumati Branch 363 Nathan Road Pei Ho Street Branch 151 Pei Ho Street To Kwa Wan Branch 33 To Kwa Wan Road
New Territories: Shatin Branch ShopNo. 18 Lucky Plaza Tsuen Wan Branch 289 Sha Tsui Road Tuen Mun Branch 8 Yan Ching Circuit
You can collect a YELLOW application form and a prospectus from:
. the Service Counter of Hongkong Clearing at 2nd Floor, Vicwood Plaza, 199 Des Voeux Road Central, Hong Kong; or
. the Investor Service Centre of Hongkong Clearing at Room 1901, Chinachem Exchange Square, 1 Hoi Wan Street, Quarry Bay, Hong Kong.
HOW TO COMPLETE THE APPLICATION FORM
There are detailed instructions on each application form. You should read these instructions carefully. If you do not follow the instructions, your application may be rejected.
If your application is made through a duly authorised attorney, the Company and Worldsec International on behalf of the Public Offer Underwriters) as agent for the Company may accept it at their discretion, and subject to any conditions they think fit, including evidence of the authority of your attorney. Worldsec International in its capacity as agent for the Company has full discretion to reject or accept any application, in full or in part, without assigning any reason.
Ð 142 Ð HOW TO APPLY FOR THE PUBLIC OFFER SHARES )WITH WARRANTS)
HOW MANY APPLICATIONS MAY YOU MAKE
There is only one situation where you may make more than one application for Public Offer Shares )with Warrants):
1. If you are a nominee, you may lodge more than one application in your own name on behalf of different owners. In the box on the application form marked ``For nominees'' you must give:
. an account number; or
. some other identification code
for each beneficial owner. If you do not include this information, the application will be treated as being for your benefit.
Otherwise, multiple applications are not allowed.
All of your applications will be rejected as multiple applications if you, or your joint applicants together:
. make more than one application on a WHITE or YELLOW application form; or
. applyononeWHITE or YELLOW application form for more than 100 per cent of the Shares being offered under the Public Offer;
All of your applications will also be rejected as multiple applications if more than one application is made for your benefit. If an application is made by an unlisted company and
. the only business of that company is dealing in securities; and
. you exercise statutory control over that company
then the application will be treated as being for your benefit.
Unlisted company means a company with no equity securities listed on the Stock Exchange.
Statutory control means you:
. control the composition of the board of directors of that company; or
. control more than half the voting power of that company; or
. hold more than half the issued share capital of that company not counting any part of it which carries no right to participate beyond a specified amount in a distribution of either profits or capital).
Ð 143 Ð HOW TO APPLY FOR THE PUBLIC OFFER SHARES )WITH WARRANTS)
HOW MUCH ARE THE PUBLIC OFFER SHARES
The Issue Price of the Public Offer Shares with Warrants) is HK$0.36 each. You must also pay the brokerage of 1 per cent and a Stock Exchange transaction levy of 0.01 per cent on application. This means that for every 10,000 Shares you will pay HK$3,636.36. The application forms have tables showing the exact amount payable for multiples of Shares.
You must pay the Issue Price, brokerage and the Stock Exchange transaction levy in full when you apply for the Shares.
If your application is successful, brokerage is paid to participants of the Stock Exchange, and the transaction levy is paid to the Stock Exchange.
MEMBERS OF THE PUBLIC-TIME FOR SUBSCRIPTION OF PUBLIC OFFER SHARES )WITH WARRANTS)
Completed WHITE or YELLOW application forms, with payment in Hong Kong dollars for the full amount payable on application attached and made payable to ``Hang Seng )Nominee) Limited Ð 36.com Public Offer'', must be lodged by 12: 00 noon on Friday, 21st July, 2000, or, if the application lists are not open on that day, then by 12: 00 noon on the next business day when the application lists are open.
Your completed application form, with payment in Hong Kong dollars for the full amount payable on application attached, should be deposited in the special collection boxes provided at any of the branches of Hang Seng Bank Limited listed on page 142 of this prospectus at the following times:
Tuesday, 18th July, 2000 Ð 9: 00 a.m. to 4: 00 p.m. Wednesday, 19th July, 2000 Ð 9: 00 a.m. to 4: 00 p.m. Thursday, 20th July, 2000 Ð 9: 00 a.m. to 4: 00 p.m. Friday, 21st July, 2000 Ð 9: 00 a.m. to 12: 00 p.m.
The application lists will be open from 11: 45 a.m. to 12: 00 noon on Friday, 21st July, 2000
EFFECT OF BAD WEATHER ON THE OPENING OF THE APPLICATION LISTS
The application lists will not open if there is:
. a tropical cyclone warning signal number 8 or above, or
. a ``black'' rainstorm warning signal in force in Hong Kong at any time between 9: 00 a.m. and 12: 00 noon on Friday, 21st July, 2000. Instead they will open between 11: 45 a.m. and 12: 00 noon on the next business day which does not have either of those warnings in force in Hong Kong at any time between 9: 00 a.m. and 12: 00 noon.
Business day means a day that is not a Saturday, Sunday or public holiday in Hong Kong.
Ð 144 Ð HOW TO APPLY FOR THE PUBLIC OFFER SHARES )WITH WARRANTS)
CIRCUMSTANCES IN WHICH YOU WILL NOT BE ALLOTTED PUBLIC OFFER SHARES )WITH WARRANTS)
Full details of the circumstances in which you will not be allotted Public Offer Shares with Warrants) are set out in the notes attached to the application forms, and you should read them carefully. You should note in particular the following two situations in which Public Offer Shares with Warrants) will not be allotted to you.
. If your application is revoked:
By completing an application form you agree that you cannot revoke your application before the end of the fifth day after the time of the opening of the application lists excluding for this purpose any day which is a Saturday, Sunday or public holiday in Hong Kong), being 28th July, 2000, unless a person responsible for this prospectus under section 40 of the Companies Ordinance gives a public notice under that section which excludes or limits the responsibility of that person for this prospectus. This agreement will take effect as a collateral contract with the Company, and will become binding when you lodge your application form.
If your application has been accepted, it cannot be revoked. Acceptance of application will be constituted by notification to the press and the GEM website at www.hkgem.com of the basis of allocation and, where such basis of allocation is subject to certain conditions or provides for allocation by ballot, such acceptance will be subject to satisfaction of such conditions or the results of such ballot, respectively.
. If the allotment of Shares and the Warrants is void:
Your allotment of Shares and the Warrants will be void if the GEM Listing Committee does not grant permission to list the Shares and the Warrants either:
. within three weeks from the closing of the application lists; or
. within a longer period of up to six weeks if the GEM Listing Committee notifies the Company of that longer period within three weeks of the closing of the lists.
PUBLICATION OF RESULTS
The Company expects to release the level of interest in the Placing, basis of allotment, results of applications for the Public Offer Shares and the Qualifying Shares, and the Hong Kong identity card/ passport/Hong Kong business registration numbers of successful applicants on or before Tuesday, 25th July, 2000 on the GEM website and in the South China Morning Post in English), the Hong Kong Economic Times in Chinese).
COMMENCEMENT OF DEALINGS IN THE SHARES AND WARRANTS
Dealings in the Shares and the Warrants on GEM are expected to commence on Friday, 28th July, 2000.
Ð 145 Ð HOW TO APPLY FOR THE PUBLIC OFFER SHARES )WITH WARRANTS)
The Shares will be traded in board lots of 10,000 each and the Warrants will be traded in board lots of 50,000 each.
COLLECTION/POSTING OF SHARE AND WARRANT CERTIFICATES/REFUND CHEQUES AND DEPOSIT OF SHARE AND WARRANT CERTIFICATES INTO CCASS
WHITE application form:
If you have applied for 1,000,000 Public Offer Shares with Warrants) or above and have indicated on your application form that you will collect your share and warrant certificate s) and/ or refund cheque, you may collect it/them in person from Tengis Limited, 4/F Hutchison House, 10 Harcourt Road, Central, Hong Kong.
Share and warrant certificate s) and refund cheque will be available for collection between 9: 00 a.m. and 1: 00 p.m. on Wednesday, 26th July, 2000.
You must show your identification document to collect your share and warrant certificate s) and/or refund cheque.
If you do not collect your share and warrant certificate s) and/or refund cheque, in person within the time specified for collection, they will be sent to the address on your application form shortly after Wednesday, 26th July, 2000 by ordinary post and at your own risk.
If you have not indicated on your application form that you will collect your share and warrant certificate s) and/or refund cheque in person, then your share and warrant certificate s) and/or refund cheque, if any, will be sent to the address on your application form by ordinary post and at your own risk respectively on or before Wednesday, 26th July, 2000.
YELLOW application form:
Your share and warrant certificate s) will be issued in the name of HKSCC Nominees Limited and deposited into CCASS for credit to your investor participant stock account or the stock account of your designated CCASS participant as instructed by you at the close of business on Wednesday, 26th July, 2000, or under contingent situation, on any other date as shall be determined by Hongkong Clearing or HKSCC Nominees Limited.
If you are applying through a designated CCASS participant other than an investor participant):
. for Public Offer Shares and Warrants credited to the stock account of your designated CCASS participant other than an investor participant), you can check the number of Public Offer Shares and Warrants allotted to you with that CCASS participant.
Ð 146 Ð HOW TO APPLY FOR THE PUBLIC OFFER SHARES )WITH WARRANTS)
If you are applying as an investor participant:
. The Company will publish the results of investor participants' applications together with the results of the Share Offer in the newspapers as stated in the paragraph headed ``Publication of results'' above and on GEM website on Tuesday, 25th July, 2000. You should check against the announcement published by the Company and report any discrepancies to Hongkong Clearing before 12: 00 noon on Wednesday, 26th July, 2000, or such other date as shall be determined by Hongkong Clearing or HKSCC Nominees Limited. On Thursday, 27th July, 2000 the next day following the credit of the Public Offer Shares and Warrants to your stock account) you can check your new account balance via the CCASS Phone System under the procedures contained in Hongkong Clearing's ``An Operating Guide for Investor Participants'' in effect from time to time). Hongkong Clearing will also mail to you an Activity Statement showing the number of Public Offer Shares and Warrants credited to your stock account.
SHARES AND WARRANTS WILL BE ELIGIBLE FOR CCASS
If the Stock Exchange grants the listing of and permission to deal in the Shares and the Warrants on GEM and the Company complies with the stock admission requirements of Hongkong Clearing, the Shares and the Warrants will be accepted as eligible securities by Hongkong Clearing for deposit, clearance and settlement in CCASS with effect from the commencement date of dealings in the Shares and the Warrants on GEM or on any other date as determined by Hongkong Clearing.
Settlement of transactions between participants of the Stock Exchange is required to take place in CCASS on the second business day after any trading day. Investors should seek the advice of their stockbroker or other professional adviser for details of those settlement arrangements as such arrangements will affect their rights and interests.
All necessary arrangements have been made for the Shares and the Warrants to be admitted into CCASS.
All activities under CCASS are subject to the General Rules of CCASS and CCASS Operational Procedures in effect from time to time.
Ð 147 Ð PROCEDURE FOR QUALIFYING SUBSCRIBERS APPLYING FOR QUALIFYING SHARES "WITH WARRANTS)
BLUE APPLICATION FORM
BLUE application forms are for use only by Qualifying Subscribers. Up to 42,000,000 Placing Shares representing 15 per cent of the Offer Shares with Warrants) will be offered by the Company to Qualifying Subscribers. Worldsec International has the authority to allocate any or all of the Qualifying Shares with Warrants) unsubscribed by Qualifying Subscribers to the Placing to professional, institutional and other investors.
WHERE TO COLLECT THE BLUE APPLICATION FORM
You can collect a BLUE application form and a prospectus from:
Worldsec Corporate Finance Limited Worldsec International Limited 33rd Floor, Bank of America Tower 11th Floor, Bank of America Tower 12 Harcourt Road 12 Harcourt Road Central Central Hong Kong Hong Kong
HSBC BrokingSecurities "Asia) Limited BNP Prime Peregrine Securities Limited 3rd Floor 23rd Floor, NewWorld Tower Hutchison House 16±18 Queen's Road Central 10 Harcourt Road Hong Kong Hong Kong
JS Cresvale International Limited Celestial Capital Limited Suite 601, Asia Pacific Finance Tower 22/F, The Center Citibank Plaza 99 Queen's Road Central 3 Garden Road Hong Kong Central Hong Kong
OSK Asia Securities Limited Kingsway SW Securities Limited Suite 3601 5th Floor, Hutchison House 36th Floor 10 Harcourt Road Cheung Kong Center Central 2 Queen's Road Central Hong Kong Hong Kong
Ð 148 Ð PROCEDURE FOR QUALIFYING SUBSCRIBERS APPLYING FOR QUALIFYING SHARES "WITH WARRANTS) or any of the following branches of Hang Seng Bank Limited:
HongKongIsland: Head Office 83 Des Voeux Road Central Central District Branch 2 D'Aguilar Street Causeway Bay Branch 28 Yee Wo Street Wanchai Branch 200 Hennessy Road Aberdeen Centre Branch 10 Nam NingStreet Quarry Bay Branch 989 King's Road
Kowloon: Kowloon Main Branch 618 Nathan Road Tsimshatsui Branch 18 Carnarvon Road Kwun TongBranch 70 Yue Man Square Yaumati Branch 363 Nathan Road Pei Ho Street Branch 151 Pei Ho Street To Kwa Wan Branch 33 To Kwa Wan Road
New Territories: Shatin Branch Shop No. 18 Lucky Plaza Tsuen Wan Branch 289 Sha Tsui Road Tuen Mun Branch 8 Yan ChingCircuit
HOW TO COMPLETE THE BLUE APPLICATION FORM
There are detailed instructions on each BLUE application form. You should read these instructions carefully. In particular, you must quote your www.36.com registered user name and user identification number on the BLUE application form. If you do not followthe instructions stated on the BLUE application form, your application may be rejected.
If your application is made through a duly authorised attorney, the Company and Worldsec International on behalf of the Placing Underwriters) as agent for the Company may accept it at their discretion, and subject to any conditions they think fit, including evidence of the authority of your attorney. Worldsec International in its capacity as agent for the Company has full discretion to reject or accept any application, in full or in part, without assigning any reason.
HOW MANY APPLICATIONS MAY YOU MAKE BY USING BLUE APPLICATION FORM
Only one BLUE application form from each Qualifying Subscriber is recognised for the purpose of the allocation of the Qualifying Shares with Warrants). Applications for Qualifying Shares with Warrants) from Qualifying Subscribers who submit more than one BLUE application form will be revoked. Applications made on one blue application form for more than 100 per cent of the Shares available for subscription by Qualifying Subscribers on a preferential basis under the Placing will be revoked. In addition, applications for Qualifying Shares with Warrants) made on BLUE application forms quoting the same www.36.com registered user name and user identification number as that quoted on another BLUE application form submitted will be revoked.
Ð 149 Ð PROCEDURE FOR QUALIFYING SUBSCRIBERS APPLYING FOR QUALIFYING SHARES "WITH WARRANTS)
APPLICATION MADE BY USING WHITE OR YELLOW APPLICATION FORM
Qualifying Subscribers may also apply for Public Offer Shares with Warrants) using the WHITE or YELLOW application form, in the manner and at the times described in respect of any application for Shares with Warrants) under the WHITE or YELLOW application forms.
TIME FOR RETURNING BLUE APPLICATION FORMS
BLUE application forms, completed in accordance with the instructions printed thereon and accompanied by the appropriate remittance made payable to ``HangSeng"Nominee) Limited Ð 36.com Preferential Offer'', must be returned to the special collection boxes at any one of the branches of Hang Seng Bank Limited listed on page 142 not later than 12: 00 noon on Friday, 21st July, 2000.
PUBLICATION OF RESULTS
The Company expects to release the level of interest in the Placing, basis of allotment, results of applications for the Public Offer Shares and the Qualifying Shares, and the Hong Kong identity card/passport/Hong Kong business registration numbers of successful applicants on or before Tuesday, 25th July, 2000 on the GEM website and in the South China Morning Post in English) and the Hong Kong Economic Times in Chinese).
COLLECTION/POSTING OF SHARE AND WARRANT CERTIFICATES/REFUND CHEQUES
If you have applied for 1,000,000 Qualifying Shares with Warrants) or above and have indicated on your BLUE application form that you will collect your share and warrant certificate s) and/or refund cheque, you may collect it/them in person from Tengis Limited, 4/F Hutchison House, 10 Harcourt Road, Central, Hong Kong. The procedures will be the same as those described on page 146 in respect of applications made under WHITE application forms.
Ð 150 Ð APPENDIX I ACCOUNTANTS' REPORT
15th Floor Hutchison House 10 Harcourt Road Central Hong Kong
18th July, 2000
The Directors 36.com Holdings Limited Worldsec Corporate Finance Limited
Dear Sirs,
We set out below our report on the financial information regarding 36.com Holdings Limited )the ``Company'') and its subsidiaries )hereinafter collectively referred to as the ``Group'') for inclusion in the prospectus of the Company dated 18th July, 2000 )the ``Prospectus'').
The Company was incorporated as an exempted company with limited liability in Bermuda on 8th May, 2000 under the Companies Act 1981 of Bermuda )as amended).Through a group reorganisation, further details of which are set out in the paragraph headed ``Corporate reorganisation'' in the section headed ``Further information about the Company and its subsidiaries'' in Appendix V to this Prospectus, the Company became the ultimate holding company of the Group on 12th July, 2000.
As at the date of this report, the Company had direct and indirect interests in the following subsidiaries, all of which are private companies )or, if incorporated or established outside Hong Kong, have substantially similar characteristics to Hong Kong private companies).Details of these companies are as follows:
Place and date of Attributable Issued and incorporation/ equity fully paid Company operation interest share capital Principal activities
iFocus Group Limited* British Virgin Islands 100% US$1 Investment holding 2nd May, 2000 Ordinary
Cyber Communications British Virgin Islands 100% US$12,960 Vertical portal Corporation Ltd. 8th August, 1996 Ordinary operator
Dymo Group Limited British Virgin Islands 100% US$9,000 China/ED editorial 5th January, 2000 Ordinary office
Quantitative British Virgin Islands 100% US$1 Women's portal Technology Limited 16th March, 2000 Ordinary
Topspin Associates British Virgin Islands 100% US$50,000 Hong Kong portal Limited 2nd July, 1999 Ordinary
Ð 151 Ð APPENDIX I ACCOUNTANTS' REPORT
Place and date of Attributable Issued and incorporation/ equity fully paid Company operation interest share capital Principal activities
Cybercom Marketing British Virgin Islands 100% US$8,000 Media sales arm Limited 5th January, 2000 Ordinary
Homepage Technology British Virgin Islands 100% US$1 Furniture portal Limited 5th January, 2000 Ordinary
Cyber Station Limited Hong Kong 100% HK$2 News portal 22nd March, 2000 Ordinary
e.Cyber Creation Hong Kong 100% HK$2 Entertainment Limited 29th March, 2000 Ordinary portal
Worldwide Net Limited Hong Kong 100% HK$2 Teenager channel 22nd March, 2000 Ordinary
Century e-Commerce Hong Kong 100% HK$2 Finance portal Limited 22nd March, 2000 Ordinary
Easy Cyber Limited Hong Kong 100% HK$2 Eating portal 29th March, 2000 Ordinary
i.Trading Limited Hong Kong 100% HK$2 Sports portal 29th March, 2000 Ordinary
Netlink Limited Hong Kong 100% HK$2 Horse-racing portal 1st March, 2000 Ordinary
Cyber Asia Holdings Hong Kong 100% HK$2 Consumer portal Limited 7th April, 2000 Ordinary
Standard e-Commerce Hong Kong 100% HK$2 Fortune telling Limited 15th March, 2000 Ordinary portal
Pacific Coast Limited Hong Kong 100% HK$2 Software 17th January, 2000 Ordinary applications
Communication British Virgin Islands 100% US$1 E-card services Logistics Limited 16th March, 2000 Ordinary
36.com )Canada) Canada 100% HK$1 West Canada Limited 8th May, 2000 Common Operations
Cyber Services Limited Hong Kong 100% HK$2 Chinese name 24th March, 2000 Ordinary holding company
i-Digital Technology British Virgin Islands 100% US$1 Registered user Limited 31st March, 2000 Ordinary services
* Direct subsidiary of the Company
Ð 152 Ð APPENDIX I ACCOUNTANTS' REPORT
No audited financial statements have been prepared for any company within the Group, with the exception of Cyber Communications Corporation Ltd., as all the other companies in the Group are newly incorporated.We have, however, reviewed all the relevant transactions of these companies since their respective dates of incorporation to the date of this report.
We have acted as auditors of all the companies now comprising the Group for each of the two years ended 31st March, 2000 )the ``Relevant Periods'') or since their respective dates of incorporation, where this is a shorter period.
For the purpose of this report, we have examined the audited financial statements or, where appropriate, the management accounts of all the companies comprising the Group for the Relevant Periods from their respective dates of incorporation to 31st March, 2000.Our examination was made in accordance with the Auditing Guideline ``Prospectuses and the reporting accountant'' as recommended by the Hong Kong Society of Accountants.
The summaries of the combined results of the Group for the Relevant Periods referred to in this report and of the combined net assets of the Group as at 31st March, 2000 )the ``Summaries'') together with the notes thereon set out in this report have been prepared from the audited financial statements or, where appropriate, management accounts of the companies comprising the Group on the basis set out in Section 2 below, after making such adjustments as we consider appropriate for the purpose of preparing our report for inclusion in the Prospectus.The directors of the respective companies of the Group are responsible for preparing these accounts which give a true and fair view.In preparing these accounts, it is fundamental that appropriate accounting policies are selected and applied consistently.
The directors of the Company are responsible for the preparation of the Summaries.It is our responsibility to form an independent opinion on the Summaries.
In our opinion, on the basis of presentation set out in Section 2 below, the Summaries together with the notes thereon give, for the purpose of this report, a true and fair view of the combined results of the Group for the Relevant Periods and of the combined net assets of the Group as at 31st March, 2000.
1. CORPORATE INFORMATION
The registered office of 36.com Holdings Limited is Cedar House, 41 Cedar Avenue, Hamilton HM12, Bermuda.
The Group is involved in the provision of focused Chinese language content through its vertical portals targetted at the Chinese community.
2. BASIS OF PRESENTATION
The Summaries, which are based on the audited financial statements and management accounts of the companies now comprising the Group, after making such adjustments as we consider appropriate, include the results and net assets of the companies now comprising the
Ð 153 Ð APPENDIX I ACCOUNTANTS' REPORT
Group as if the current Group structure had been in existence throughout the Relevant Periods referred to in this report or since their respective dates of incorporation, where this is a shorter period.
All significant intra-group transactions and balances have been eliminated on combination.
The financial information is presented in Hong Kong dollars, the currency in which the majority of the transactions are denominated.They have been prepared under the historical cost convention.
3. SUMMARY OF SIGNIFICANTACCOUNTINGPOLICIES
The principal accounting polices adopted by the Group in arriving at the financial information set out in this report, which conform with the Statements of Standard Accounting Practice issued by the Hong Kong Society of Accountants, are as set out below:
Fixed assets and depreciation
Fixed assets are stated at cost less accumulated depreciation.
The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditure incurred after the fixed assets have been put into operation, such as repairs and maintenance costs, is normally charged to the profit and loss account in the period in which it is incurred.In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the fixed asset, the expenditure is capitalised as an additional cost of that asset.
The carrying amounts of fixed assets are reviewed regularly to assess whether their recoverable amounts have declined below their carrying amounts.When such a decline has occurred, their carrying amount is reduced to their recoverable amount. Recoverable amount is the amount which the Group expects to recover from the future use of the asset, including its residual value on disposal.In determining the recoverable amount, expected future cash flows generated by the assets are not discounted to their present values.The amount of the reduction to recoverable amount is charged to the profit and loss account.
The gain or loss on disposal or retirement of a fixed asset recognised in the profit and loss account is the difference between the sales proceeds and the carrying amount of the relevant asset.
Ð 154 Ð APPENDIX I ACCOUNTANTS' REPORT
Depreciation is calculated on the straight-line basis to write off the cost of each asset over its estimated useful life.The principal annual rates used for this purpose are as follows:
Furniture and fixtures 20% Office equipment 20% 1 Computer equipment 33 /3%
Leased assets
Leases that transfer substantially all the rewards and risks of ownership of assets to the Group, other than legal title, are accounted for as finance leases.At the inception of a finance lease, the cost of the asset is capitalised at the present value of the minimum lease payments and recorded together with the obligation, excluding the interest element, to reflect the purchase and financing.Assets held under capitalised finance leases are included in fixed assets and depreciated over the shorter of the lease terms and the estimated useful lives of the assets.The finance costs of such leases are charged to the profit and loss account so as to produce a constant periodic rate of charge over the lease terms.
Leases where substantially all the rewards and risks of ownership of the assets remain with the lessors are accounted for as operating leases.Rentals applicable to such operating leases are charged to the profit and loss account on the straight-line basis over the lease terms.
Foreign currencies
Foreign currency transactions are recorded at the applicable rates of exchange ruling at the transaction dates.Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated into Hong Kong dollars at the applicable rates of exchange ruling at that date.Exchange differences are dealt with in the profit and loss account.
On combination, the financial statements of overseas subsidiaries are translated into Hong Kong dollars at the applicable rates of exchange ruling at the balance sheet date.The resulting translation differences are included in the exchange fluctuation reserve.
Development costs
All costs incurred in the acquisition, development, enhancement and maintenance of the software required to support the Group's vertical portals are charged to the profit and loss account as incurred.
Ð 155 Ð APPENDIX I ACCOUNTANTS' REPORT
Deferred tax
Deferred tax is provided, using the liability method, on all significant timing differences to the extent it is probable that the liability will crystallise in the foreseeable future.A deferred tax asset is not recognised until its realisation is assured beyond reasonable doubt.
Revenue recognition
Revenue is recognised when it is probable that the economic benefits will flow to the Group and when the revenue can be measured reliably, on the following bases:
)a) technical consultancy income, upon rendering of the related services;
)b) advertising income, on a time proportion basis over the period that the related advertising services are rendered; and
)c) interest income, on a time proportion basis taking into account the principal outstanding and the effective interest rate applicable.
Deferred revenue
Deferred revenue represents advertising income, which has been invoiced, but the related services have not been rendered.Deferred revenue is recognised in the profit and loss account in accordance with the Group's accounting policy on revenue recognition.
Advertising and marketing expenses
Advertising and marketing expenses are charged to the profit and loss account in the period in which they are incurred.
Related parties
Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party, or exercise significant influence over the other party in making financial and operating decisions.Parties are also considered to be related if they are subject to common control or common significant influence.Related parties may be individuals or entities.
Cash equivalents
For the purpose of balance sheet classification, cash equivalents represent assets similar in nature to cash, which are not restricted as to use.
Ð 156 Ð APPENDIX I ACCOUNTANTS' REPORT
4. RESULTS
The following is a summary of the combined results of the Group for each of the two years ended 31st March, 2000 )the ``Relevant Periods''), after making such adjustments as we consider appropriate, and is prepared on the basis set out in Section 2 above:
Year ended 31st March, 1999 2000 Notes HK$ HK$
Turnover )a) Ð 2,814,482
Other revenue Ð 363,589 Software acquisition and hardware maintenance costs Ð )2,159,876) Depreciation expenses Ð )688,860) Rental expenses )75,068) )377,286) Staff costs Ð )6,063,485) Advertising and marketing expenses Ð )6,405,896) Other operating expenses )50,428) )4,551,011)
Loss from operating activities )b) )125,496) )17,068,343)
Finance costs )c) Ð )25,673)
Loss before tax )125,496) )17,094,016)
Tax )f) Ð Ð
Loss from ordinary activities attributable to shareholders )125,496) )17,094,016)
Dividends )g) Ð Ð
Loss per Share )h) 0.006 cents 0.79 cents
Ð 157 Ð APPENDIX I ACCOUNTANTS' REPORT
Notes:
5a) Turnover
Turnover represents the net invoiced value of services rendered.
5b) Loss from operating activities
The Group's loss from operating activities is arrived at after charging:
Year ended 31st March, 1999 2000 HK$ HK$
Depreciation: Owned assets Ð 362,001 Leased fixed assets Ð 326,859
Ð 688,860
Operating lease rentals in respect of land and buildings 75,068 377,286 Auditors' remuneration 20,000 100,000
and after crediting: Interest income Ð 363,589
5c) Finance costs
Year ended 31st March, 1999 2000 HK$ HK$
Interest on bank overdrafts Ð 15,428 Finance lease charges Ð 10,245
Ð 25,673
5d) Emoluments of directors and five highest paid employees
No remuneration was paid or payable to any directors of the Company during the Relevant Periods.
The five individuals with the highest emoluments in the Group for the Relevant Periods did not include any directors of the Company.The emoluments of these highest paid individuals were as follows:
Year ended 31st March, 1999 2000 HK$ HK$
Employees: Salaries, allowances and benefits in kind Ð 2,315,257
The number of individuals whose emoluments fall into the following band is as follows:
Year ended 31st March, 1999 2000 No. of No. of employees employees
HK$Nil to HK$1,000,000 Ð 5
Ð 158 Ð APPENDIX I ACCOUNTANTS' REPORT
During the Relevant Periods, no emoluments were paid by the Group to the directors and the five highest paid individuals as an inducement to join or upon joining the Group or as compensation for loss of office, and no director waived any emoluments during the Relevant Periods.
5e) Retirement benefits
The Group did not have any pension scheme for their employees.As at 31st March, 2000, the Group had no significant obligation for long services payments to its employees in Hong Kong pursuant to the Hong Kong Employment Ordinance.
5f) Tax
No provision for tax has been made as the Group had no assessable profit for the Relevant Periods.
The Group did not have significant unprovided deferred tax in respect of the Relevant Periods.
5g) Dividends
No dividends had been paid or declared by the Company during the Relevant Periods.
5h) Loss per share
The calculation of the loss per Share is based on the Group's loss from ordinary activities attributable to shareholders for the Relevant Periods and on 2,161,026,000 Shares in issue at the date of the prospectus being deemed to be in issue throughout the Relevant Periods.
5i) Related party transactions
During the Relevant Periods, the Group had the following material transactions in the normal course of business with related parties:
Year ended 31st March, 1999 2000 Notes HK$ HK$
Continuing transactions Purchases of fixed assets )i) Ð 5,282,000 Advertising income )i) Ð 1,614,482
Discontinued transactions Consultancy fees )ii) Ð 114,000
Notes:
)i) The advertising income and the purchases of fixed assets were received from/paid to iASPEC Technologies )H.K.) Limited )``iASPEC'') )formerly known as Uni-Tech Technologies Limited), in which Mr.Tsang Moses Kwok Tai, a non-executive director of the Company, has a 12 per cent beneficial equity interest.Mr.Tsang is also a director of the holding company of iASPEC.The transactions were carried out in the usual course of business and on normal commercial terms.
)ii) The consultancy fees were paid to a company controlled by Mr.Albert Cheng, a director of the Company, in respect of the provision of advice on the content, editing and serving of a variety of information on the Group's Web-sites.The transactions were determined at rates agreed between the Group and Mr.Albert Cheng.
In addition to the above related party transactions, during the Relevant Periods, Mr.Albert Cheng provided personal guarantees and indemnities to the lessor for the finance lease facilities granted to the Group.
In the opinion of the directors, the above transactions were carried out on normal commercial terms in the ordinary course of business of the Group.
Ð 159 Ð APPENDIX I ACCOUNTANTS' REPORT
5. NETASSETS
The following is a summary of the combined net assets of the Group as at 31st March, 2000, which is prepared on the basis set out in Section 2 above.
Notes HK$
NON-CURRENT ASSETS Fixed assets )a) 9,705,985
CURRENT ASSETS Accounts receivable 1,000,000 Prepayments and deposits )b) 4,587,450 Pledged time deposit )c) 2,202,770 Cash and cash equivalents )c) 67,767,265
75,557,485
CURRENT LIABILITIES Accounts payable and accruals 5,280,935 Deferred revenue 1,066,667 Finance lease payables )d) 3,391,421 Tax 25,000
9,764,023
NET CURRENT ASSETS 65,793,462
TOTAL ASSETS LESS CURRENT LIABILITIES 75,499,447
NON-CURRENT LIABILITIES Long term portion of finance lease payables )d) 2,695,818
NET ASSETS 72,803,629
Ð 160 Ð APPENDIX I ACCOUNTANTS' REPORT
Notes:
5a) Fixed assets
Accumulated Cost depreciation Net book value HK$ HK$ HK$
Furniture and fixtures 1,479,000 27,557 1,451,443 Office equipment 1,340,542 47,572 1,292,970 Computer equipment 7,575,303 613,731 6,961,572
10,394,845 688,860 9,705,985
The net book value of computer equipment included an amount of HK$5,556,594 in respect of assets held under finance leases.
5b) Prepayments and deposits
HK$
Prepayments 3,622,413 Sundry deposits 965,037
4,587,450
5c) Cash and cash equivalents
HK$
Cash and bank balances 32,767,265 Time deposits 37,202,770
69,970,035 Less: Pledged time deposit )2,202,770)
67,767,265
As at 31st March, 2000, the Group has pledged a time deposit of HK$2,202,770 to a bank to secure a letter of guarantee issued by the bank in favour of the landlord of the Group's office premises.
Included in cash and cash equivalents is an amount of HK$39,999,936 received in respect of the proposed issue of 9,600 ordinary shares of Cyber Communications Corporation Ltd.at HK$4,166.66 per share.The ordinary shares were issued and allotted on 17th May, 2000.
Ð 161 Ð APPENDIX I ACCOUNTANTS' REPORT
5d) Finance lease payables
There were obligations under finance leases at the balance sheet date as follows:
HK$
Amounts payable: Within one year 3,764,081 In the second year 2,878,983 In the third to fifth years, inclusive 130,487 Total minimum finance lease payments 6,773,551
Future finance charges )686,312)
Total net finance lease payables 6,087,239
Portion classified as current liabilities )3,391,421)
Long term portion 2,695,818
The finance lease payables were secured by personal guarantees and indemnities given by Mr.Albert Cheng.
5e) Commitments
)i) Operating lease commitments
At 31st March, 2000, the Group had commitments under a non-cancellable operating lease to make payments in the following year as follows:
HK$
For land and buildings expiring in the second to fifth years, inclusive 870,660
)ii) Other commitments
The Group had consultancy fees of HK$1,800,000 payable under a non-cancellable consultancy agreement expiring within one year, which are contracted but not provided for.
)iii) Save as disclosed above, the Group and the Company had no material capital and financial commitments as at 31st March, 2000.
5f) Contingent liabilities
As at 31st March, 2000, the Group and the Company did not have any significant contingent liabilities.
5g) Distributable reserves
At 31st March, 2000, there was no reserve available for distribution to the shareholders of the Company.
5h) Net assets of the Company
The Company was incorporated on 8th May, 2000.On the basis of presentation set out in Section 2 above, the net assets of the Company as at 31st March, 2000 amounted to HK$72,803,629, representing the Company's investment in its subsidiaries.
Ð 162 Ð APPENDIX I ACCOUNTANTS' REPORT
6. DIRECTORS' EMOLUMENTS
Under the arrangements currently in force, the aggregate remuneration payable to the executive and non-executive directors of the Company for the year ending 31st March, 2001 are estimated to be approximately HK$4,782,000.
7. SUBSEQUENT EVENTS
The following events took place subsequent to 31st March, 2000:
(a) The companies comprising the Group underwent a group reorganisation to rationalise the Group's structure in preparation for listing of the Company's shares on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited, details of which are set out in the paragraph headed ``Corporate reorganisation'' in the section headed ``Further information about the Company and its subsidiaries'' in Appendix V to this Prospectus.
(b) The companies comprising the Group underwent certain alterations to their share capital, details of which are set out in the paragraph headed ``Changes in the share capital of the subsidiaries'' in the section headed ``Further information about the Company and its subsidiaries'' in Appendix V to this prospectus.
Save as aforesaid, no other material events have taken place subsequent to 31st March, 2000.
8. SUBSEQUENT FINANCIAL STATEMENTS
No audited financial statements have been prepared by the Company or any of the companies comprising the Group in respect of any period subsequent to 31st March, 2000.
Yours faithfully, Ernst & Young Certified Public Accountants Hong Kong
Ð 163 Ð APPENDIX II PROPERTY VALUATION REPORT
Room 2407 Shui On Centre 6±8 Harbour Road Wanchai Hong Kong
18th July, 2000
The Directors 36.com Holdings Limited 24th Floor 1063 King's Road QuarryBay Hong Kong
Dear Sirs,
In accordance with your instructions to value the property interest of 36.com Holdings Limited 1referred to as the ``Company'') and its subsidiaries 1collectively referred to as the ``Group''), we confirm that we have carried out inspection, made relevant enquires and obtained such further information as we consider necessaryfor the purpose of providing the capital value of such propertyinterest as at 31st May,2000 1referred to as the ``valuation date'').
This letter which forms parts of our valuation report explains the basis and methodologyof valuation, and sets out our assumptions made, titleship of propertyand the limiting conditions.
Basis of Valuation
Our valuation is our opinion of the open market value which we would define as intended to mean ``the best price at which the sale of an interest in propertywould have been completed unconditionallyfor cash consideration on the date of valuation assuming:
1i) a willing seller;
1ii) that, prior to the date of valuation, there had been a reasonable period 1having regard to the nature of the propertyand the state of the market) for the proper marketing of the interest, for the agreement of price and terms and for the completion of the sale;
1iii) that the state of the market, level of values and other circumstances were, on any earlier assumed date of exchange of contracts, the same as on the date of valuation;
1iv) that no account is taken of anyadditional bid bya purchaser with a special interest; and
1v) that both parties to the transaction had acted knowledgeably, prudently and without compulsion.''
Ð 164 Ð APPENDIX II PROPERTY VALUATION REPORT
Assumptions
Our valuation has been made on the assumption that on the open market the Group sells the propertyinterest in their continued use and in its existing state without the benefit of anydeferred terms contracts, leaseback, joint ventures, management agreements or anysimilar arrangement which would serve to increase the value of the propertyinterest.
We have assumed that all consents, approvals and licenses from relevant government authorities for the buildings and structures erected thereon have been granted. Also, we have assumed that all buildings and structures fall within the site are held bythe owner or permitted to be occupied bythe owner.
Titleship Investigation
We have not been provided with anytitle documents with the exception of a copyof lease agreement regarding the propertyunder valuation. Instead, we have caused search to be made at the Land Registryin Hong Kong, and the recorded propertyowner is Foundasia 1HK) Limited.
According to a lease entered into between Cyber Communications Corporation Limited 1an indirect wholly-owned subsidiary of the Company) and Foundasia 1HK) Limited, the Group is holding the propertyinterest for a term from 3rd January,2000 to 31st December, 2002.
All legal documents disclosed in this report are for reference onlyand no responsibilityis assumed for anylegal matters concerning the legal title to the propertyinterests set out in this report.
Limiting Conditions
We have not carried out detailed site measurements to verifythe correctness of the land or building areas in respect of the relevant propertybut have assumed that the areas shown on the legal documents provided to us are correct. All documents and contracts have been used as reference onlyand all dimensions, measurements and areas are approximations.
We have inspected the exterior and, where possible, the interior of the propertyincluded in the attached valuation certificate. However, no structural surveyhas been made and we are therefore unable to report as to whether the propertyis free from rot, infestation or anyother structural defects. No tests were carried out on anyof the services.
Having examined all relevant documentation, we have relied to a veryconsiderable extent on the information provided bythe Group and have accepted advice given to us byit on such matters as planning approvals, statutorynotices, easements, tenure, occupation, rentals, site and floor areas and in the identification of the propertyin which the Group has valid interests. We have had no reason to doubt the truth and accuracyof the information provided to us bythe Group. We were also advised bythe Group that no material factors have been omitted from the information to reach an informed view, and have no reason to suspect that anymaterial information has been withheld.
Ð 165 Ð APPENDIX II PROPERTY VALUATION REPORT
No allowance has been made in our valuation for anycharges, mortgages or amounts owing on the propertyvalued nor for anyexpenses or taxation which maybe incurred in effecting a sale. Unless otherwise stated, it is assumed that the interest is free of encumbrances, restrictions and outgoings of an onerous nature which could affect its value.
Opinion of Value
The propertyinterest included in this valuation report, which is held under a tenancy agreement, has no commercial value due to inclusion of non-alienation clause or otherwise due to lack of substantial profit rent or short term nature.
Remarks
Our valuation has been prepared in accordance with generallyaccepted valuation procedures and complywith the requirements of The Stock Exchange of Hong Kong Limited for listing.
This valuation report is issued subject to our General Service Conditions.
Yours faithfully, For and on behalf of Greater China Appraisal Limited HenryW.H.Tse ARICS, AHKIS Senior Manager
Ð 166 Ð APPENDIX II PROPERTY VALUATION REPORT
VALUATION CERTIFICATE
Particular of Capital value in Existing Property Description andTenure Occupancy state as at 31st May, 2000
Thewholeof The propertycomprises a whole floor The propertyis currently No commercial value 24th Floor within a 30-storeyoffice development occupied bythe Group 1063 King's Road completed in 1999. as an office. QuarryBay Hong Kong The lettable floor area of the property is approximately950 square metres.
The propertyis held bythe Group under a lease for a term from 3rd January, 2000 to 31st December, 2002 at a monthlyrental of HK$174,132 exclusive of rates and management fees.
Ð 167 Ð APPENDIX III SUMMARY OF THE CONSTITUTION OF THE COMPANY AND BERMUDA COMPANY LAW
1. MEMORANDUM OF ASSOCIATION
The Memorandum of Association states, inter alia, that the liability of members of the Company is limited to the amount, if any, for the time being unpaid on the shares held by the members and that the Company is an exempted company as defined in the Companies Act. The Memorandum of Association also sets out the objects for which the Company was formed, including acting as a holding and investment company, and its powers, including the powers set out in the First Schedule to the Companies Act. As an exempted company, the Company will be carrying on business outside Bermuda from a place of business in Bermuda.
In accordance with and subject to section 42A of the Companies Act, the Memorandum of Association of the Company empowers it to purchase its own shares and this power is exercisable by the Board of Directors %``the Board'') upon such terms and subject to such conditions as it thinks fit.
2. BYE-LAWS
The Bye-laws of the Company were adopted on 10th May, 2000. The following is a summary of certain provisions of the Bye-laws.
a. Directors
%i) Power to allot and issue shares
Without prejudice to any special rights or restrictions for the time being attaching to any shares or any class of shares, any share may be issued upon such terms and conditions and in regard to such preferred, deferred or other special rights, or such restrictions, whether as regards dividend, voting, return of capital or otherwise, as the Company may from time to time by ordinary resolution determine %or, in the absence of any such determination or so far as the same may not make specific provision, as the Board may determine) and any preference share may, subject to the Companies Act and with the sanction of a special resolution, be issued on terms that it is liable to be redeemed upon the happening of a specified event or upon a given date and either at the option of the Company or, if so authorised by the Memorandum of Association of the Company, at the option of the holder. The Board may, subject to the approval of the members in general meeting, issue warrants to subscribe for any class of shares or securities of the Company on such terms as it may from time to time determine.
Subject to the provisions of the Companies Act and the Bye-laws, and to the permission of the Bermuda Monetary Authority being obtained, all unissued shares in the Company shall be at the disposal of the Board, which may offer, allot, grant options over or otherwise dispose of them to such persons, at such times, for such consideration and generally on such terms as it shall in its absolute discretion think fit, but so that no shares shall be issued at a discount.
Ð 168 Ð APPENDIX III SUMMARY OF THE CONSTITUTION OF THE COMPANY AND BERMUDA COMPANY LAW
%ii) Power to dispose of the assets of the Company or any subsidiary
There are no specific provisions in the Bye-laws relating to the disposal of the assets of the Company or any of its subsidiaries although the Board may exercise all powers and do all acts and things which may be exercised or done or approved by the Company and which are not required by the Bye-laws or the statutes to be exercised or done by the Company in general meeting.
%iii) Compensation or payments for loss of office
Payments to any Director or past Director of the Company of any sum by way of compensation for loss of office or as consideration for or in connection with his retirement from office %not being a payment to which the Director is contractually entitled) must be approved by the Company in general meeting.
%iv) Loans to Directors
There are no provisions in the Bye-laws relating to the making of loans to Directors. However, the Companies Act contains restrictions on companies making loans to their directors, the relevant provisions of which are summarized in section 4%n) of this Appendix.
%v) Financial assistance to acquire shares of the Company
%aa) subject, where applicable, to the rules of any relevant stock exchange, the Company may in accordance with an employees' share scheme approved by the members in general meeting provide directly or indirectly money on such terms as the Board thinks fit for the acquisition of fully or partly paid shares in the Company or its holding company. An employees' share scheme is a scheme for encouraging or facilitating the holding of shares or debentures in the Company by or for the benefit of the bona fide employees or former employees %including, notwithstanding section 96 of the Companies Act, any such bona fide employee or former employee who is or was also a Director) of the Company, the Company's subsidiary or holding company or a subsidiary of the Company's holding company, or the wives, husbands, widows, widowers or children or step-children under the age of twenty-one of such employees or former employees;
%bb) subject, where applicable, to the rules of any relevant stock exchange, the Company, the Company's subsidiary or holding company or a subsidiary of the Company's holding company may make loans to persons %including, notwithstanding section 96 of the Companies Act, any such bona fide employee or former employee who is or was also a Director) employed in good faith by the Company with a view to enabling those persons to acquire fullyorpartlypaidsharesintheCompanyoritsholdingcompanytobeheld by them by way of beneficial ownership; and
Ð 169 Ð APPENDIX III SUMMARY OF THE CONSTITUTION OF THE COMPANY AND BERMUDA COMPANY LAW
%cc) the conditions subject to which money and loans are provided may include a provision to the effect that when an employee ceases to be employed by the Company, the shares acquired with such financial assistance shall or may be sold to the Company or such other company on such terms as the Board thinks fit.
%vi) Disclosure of interests in contracts with the Company or any of its subsidiaries
Subject to the Companies Act, a Director may hold any other office or place of profit with the Company %except that of Auditor) in conjunction with his office of Director for such period and upon such terms as the Board may determine, and may be paid such extra remuneration therefor %whether by way of salary, commission, participation in profits or otherwise) as the Board may determine. A Director of the Company may be or become a director or other officer of, or be otherwise interested in, any company promoted by the Company or any other company in which the Company may be interested, and shall not be liable to account to the Company or the members for any remuneration, profit or other benefit received by him as a director or officer of or from his interest in such other company. The Board may also cause the voting power conferred by the shares in any other company held or owned by the Company to be exercised in such manner in all respects as it thinks fit, including the exercise thereof in favour of any resolution appointing the Directors or any of them to be directors or officers of such other company, or voting or providing for the payment of remuneration to the directors or officers of such other company. A Director shall not vote or be counted in the quorum on any resolution of the Board concerning his own appointment as the holder of any office or place of profit with the Company or any other company in which the Company is interested %including the arrangement or variation of the terms thereof, or the termination thereof).
Subject to the provisions of the Companies Act and the Bye-laws, no Director or proposed or intended Director shall be disqualified by his office from contracting with the Company, either with regard to his tenure of any office or place of profit or as vendor, purchaser or in any other manner whatsoever, nor will any such contract or any other contract or arrangement in which any Director is in any way interested be liable to be avoided, nor shall any Director so contracting or being so interested be liable to account to the Company or the members for any remuneration, profit or other benefits realised by any such contract or arrangement by reason of such Director holding that office or the fiduciary relationship thereby established. A Director who to his knowledge is in any way, whether directly or indirectly, interested in a contract or arrangement or proposed contract or arrangement with the Company must declare the nature of his interest at the meeting of the Board at which the question of entering into the contract or arrangement is first taken into consideration, if he knows his interest then exists, or in any other case at the first meeting of the Board after he knows that he is or has become so interested.
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Save as otherwise provided by the Bye-laws, a Director shall not vote %nor shall he be counted in the quorum) on any resolution of the Board in respect of any contract or arrangement in which he is to his knowledge materially interested, and if he does so his vote shall not be counted, but this prohibition will not apply to any of the following matters namely:
%aa) any contract or arrangement for the giving by the Company of any security or indemnity to the Director in respect of money lent by him or obligations incurred or undertaken by him at the request of or for the benefit of the Company and any of its subsidiaries;
%bb) any contract or arrangement for the giving by the Company of any security to a third party in respect of a debt or obligation of the Company which the Director has himself assumed responsibility or guaranteed or secured in whole or in part whether solely or jointly;
%cc) any contract or arrangement concerning an offer of the shares, debentures or other securities of or by the Company or any other company which the Company may promote or be interested in for subscription or purchase where the Director is or is to be interested as a participant in the underwriting or sub-underwriting of the offer;
%dd) any contract or arrangement in which the Director is interested in the same manner as other holders of shares or debentures or securities of the Company by virtue only of his interest in shares or debentures or other securities of the Company;
%ee) any contract or arrangement concerning any other company in which the Director is interested directly or indirectly whether as an officer or a member or in which the Director is beneficially interested other than a company in which the Director together with any of his associates owns five %5) per cent or more of the issued shares or voting rights of any class of shares of such company %or of any third company through which his interest is derived) or of the voting rights;
%ff) any proposal or arrangement for the benefit of employees of the Company or its subsidiaries including the adoption, modification or operation of a pension fund or retirement, death or disability benefit scheme which relates both to Directors and employees of the Company or any of its subsidiaries and does not give the Director any privilege not generally accorded to the class of persons to whom such scheme or fund relates; and
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%gg) any proposal concerning the adoption, modification or operation of any employee's share scheme involving the issue or grant of options over shares or other securities by the Company to, or for the benefit of, the employees of the Company or its subsidiaries under which the Director may benefit.
%vii) Remuneration
The Directors shall be entitled to receive by way of remuneration for their services such sum as is from time to time determined by the Company in general meeting, such sum %unless otherwise directed by the resolution by which it is voted) to be divided amongst the Directors in such proportions and in such manner as the Board may agree, or failing agreement, equally, except that in such event any Director holding office for less than the whole of the relevant period in respect of which the remuneration is paid shall only rank in such division in proportion to the time during such period for which he has held office. The foregoing provisions shall not apply to a Director who holds any salaried employment or office in the Company except in the case of sums paid in respect of Directors' fees. The Directors shall also be entitled to be repaid all travelling, hotel and other expenses reasonably incurred by them respectively in or about the performance of their duties as Directors, including their expenses of travelling to and from board meetings, committee meetings or general meetings, or otherwise incurred whilst engaged on the business of the Company or in the discharge of their duties as Directors. The Board may grant special remuneration to any Director, who being called upon, performs any special or extra services to or at the request of the Company. Such special remuneration may be made payable to such Director in addition to or in substitution for his ordinary remuneration as a Director, and may be made payable by way of salary, commission or participation in profits or otherwise as may be arranged. Notwithstanding the foregoing the remuneration of a managing director, joint managing director, deputy managing director or other executive director or a Director appointed to any other office in the management of the Company may be fixed from time to time by the Board and may be by way of salary, commission or participation in profits or otherwise or by all or any of those modes and with such other benefits %including pension %and/or gratuity) and/or other benefits on retirement) and allowances as the Board may from time to time decide. Such remuneration is in addition to his remuneration as a Director.
The Board also has power to establish and maintain or procure the establishment and maintenance of any contributory or non-contributory pension or superannuation funds for the benefit of, or to give or procure the giving of donations, gratuities, pensions, allowances or emoluments to, any persons who are or were at any time in the employment or service of the Company, or of any company which is a subsidiary of the Company, or is allied or associated with the Company or with any such subsidiary company, or who are or were at any time Directors or officers of the Company or of any such other company as aforesaid, and holding or who have held any salaried employment or office in the Company or such other company, and the spouses, widows, widowers, families and dependents of any such persons and may make
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payments for or towards the insurance of any such persons. Any Director holding any such employment or office is entitled to participate in and retain for his own benefit any such donation, gratuity, pension, allowance or emolument.
%viii) Retirement, appointment and removal
At each annual general meeting one-third of the Directors for the time being %or if their number is not three or a multiple of three, then the number nearest one-third) will retire from office by rotation save for any executive chairman and managing director. The Directors to retire in every year will be those who have been longest in office since their last election but as between persons who became Directors on the same day those to retire shall %unless they otherwise agree between themselves) be determined by lot.
Directors of the Company are entitled to attend and speak at all general meetings.
The number of Directors shall not be less than two. A Director may be removed by a special resolution of the Company before the expiration of his period of office %but without prejudice to any claim which such Director may have for damages for breach of any contract of service between him and the Company). The Company may from time to time in general meeting by ordinary resolution elect any person to be a Director either to fill a casual vacancy or as an addition to the Board. Any Director so appointed shall hold office only until the next following annual general meeting of the Company and shall then be eligible for re-election at the meeting.
There is no shareholding qualification for Directors nor is there any specified age limit for Directors.
The Board may from time to time entrust to and confer upon a managing director, joint managing director, deputy managing director or executive director all or any of the powers of the Board that it may think fit provided that the exercise of all powers by such Director shall be subject to such regulations and restrictions as the Board may from time to time make and impose. The Board may delegate any of its powers to committees consisting of such member or members of its body and such other persons as the Board thinks fit, and it may from time to time revoke such delegation or revoke the appointment of and discharge any such committees either wholly or in part, and either as to persons or purposes, but every committee so formed shall in the exercise of the powers so delegated conform to any regulations that may from time to time be imposed upon it by the Board.
%ix) Borrowing powers
Subject to the provisions of the Companies Act, the Board may from time to time at its discretion exercise all the powers of the Company to raise or borrow or to secure the payment of any sum or sums of money for the purposes of the Company and to mortgage or charge its undertaking, property and uncalled capital or any part thereof. The Board may raise or secure the payment or repayment of such sum or sums in such
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manner and upon such terms and conditions in all respects as it thinks fit and in particular by the issue of debentures, debenture stock, bonds or other securities of the Company, whether outright or as collateral security for any debt, liability or obligation of the Company or of any third party.
b. Alterations to constitutional documents
The Memorandum of Association of the Company may, with the consent of the Minister of Finance of Bermuda, be altered by the Company in general meeting. The Bye- laws may be amended by the Directors subject to the approval of the Company in general meeting. The Bye-laws state that a special resolution is required to alter the Memorandum of Association, to approve any amendment of the Bye-laws or to change the name of the Company.
c. Alterations of capital
The Company may from time to time by ordinary resolution:
%i) increase its share capital by the creation of new shares;
%ii) consolidate or divide all or any of its share capital into shares of larger amount than its existing shares; on any consolidation of fully paid shares into shares of larger amount, the Board may settle any difficulty which may arise as it thinks expedient and in particular %but without prejudice to the generality of the foregoing) may, as between the holders of the shares to be consolidated, determine which particular shares are to be consolidated into each consolidated share, and if it shall happen that any person shall become entitled to fractions of a consolidated share or shares, such fractions may be sold by some person appointed by the Board for that purpose and the person so appointed may transfer the shares so sold to the purchaser thereof and the validity of such transfer shall not be questioned, and so that the net proceeds of such sale %after deduction of the expenses of such sale) may either be distributed among the persons who would otherwise be entitled to a fraction or fractions of a consolidated share or shares ratably in accordance with their rights and interests or may be paid to the Company for the Company's benefit;
%iii) divide its shares into several classes and attach thereto respectively any preferential, deferred, qualified or special rights, privileges or conditions;
%iv) cancel any shares which at the date of the passing the resolution have not been taken or agreed to be taken by any person, and diminish the amount of its share capital by the amount of the shares so cancelled;
%v) sub-divide its shares or any of them into shares of smaller amount than is fixed by the Memorandum of Association, subject nevertheless to the Companies Act, and so that the resolution whereby any shares is sub-divided may determine that, as
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between the holders of the shares resulting from such sub-division, one or more of the shares may have any such preferred or other special rights over, or may have such deferred rights or be subject to any such restrictions as compared with the others as the Company has power to attach to unissued or new shares;
%vi) change the currency denomination of its share capital; and
%vii) subject to applicable regulatory requirements, make provision for the issue and allotment of shares which do not carry any voting rights.
The Company may by special resolution reduce its share capital, any capital redemption reserve fund or any share premium account or other undistributable reserve in any manner authorised and subject to any conditions prescribed by law.
d. Variation of rights of existing shares or classes of shares
If at any time the capital is divided into different classes of shares, all or any of the special rights %unless otherwise provided for by the terms of issue of that class) attached to any class may, subject to the provisions of the Companies Act, be varied or abrogated either with the consent in writing of the holders of not less than three-fourths in nominal value of the issued shares of that class or with the sanction of a special resolution passed at a separate general meeting of the holders of the shares of that class. To every such separate general meeting the provisions of the Bye-laws relating to general meetings will mutatis mutandis apply, but so that the necessary quorum is not less than two persons holding or representing by proxy one-third in nominal value of the issued shares of the class, and that any holder of shares of the class present in person or by proxy or by a duly authorised corporate representative may demand a poll.
e. Special resolutions Ð majority required
A special resolution of the Company must be passed by a majority of not less than three-fourths of the votes cast of such members as, being entitled so to do, vote in person or, where a corporate representative is allowed, by a duly authorised corporate representative or, where proxies are allowed, by proxy at a general meeting of which not less than 21 days' notice, specifying the intention to propose the resolution as a special resolution, has been duly given. However, if it is so agreed by a majority in number of the members having a right to attend and vote at such meeting, being a majority together holding not less than 95 per cent in nominal value of the shares giving that right, a resolution may be proposed and passed as a special resolution at a meeting of which less than 21 days' notice has been given.
f. Voting rights and right to demand a poll
Subject to any special rights, privileges or restrictions as to voting for the time being attached to any class or classes of shares, at any general meeting on a show of hands every member who is present in person or by a duly authorised corporate representative shall have one vote and on a poll, every member present in person or by a duly authorised corporate
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representative or by proxy shall have one vote for every share of which he is the holder which is fully paid up or credited as fully paid %but so that no amount paid up or credited as paid up on a share in advance of calls or instalments is treated for the foregoing purposes as paid up on the share). On a poll, a member entitled to more than one vote need not use all his votes or cast all the votes in the same way.
At any general meeting a resolution put to the vote of the meeting shall be decided on a show of hands unless a poll is %before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll) demanded by %i) the Chairman of the meeting; or %ii) by at least three members present in person or by proxy or by a duly authorised corporate representative for the time being entitled to vote at the meeting; or %iii) by any member or members present in person or by proxy or by a duly authorised corporate representative and representing not less than one-tenth of the total voting rights of all the members having the right to vote at the meeting; or %iv) by a member or members present in person or by proxy or by a duly authorised corporate representative and holding shares in the Company conferring a right to vote at the meeting being shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all the shares conferring that right.
g. Requirements for annual general meetings
An annual general meeting must be held once in every year and within not more than fifteen months after the last preceding annual general meeting.
h. Accounts and audit
The Board shall cause true accounts to be kept of the sums of money received and expended by the Company, and the matters in respect of which such receipts and expenditure take place, and of the property, assets, credits and liabilities of the Company and of all other matters required by the Companies Act affecting the Company or necessary to give a true and fair view of the state of the Company's affairs and to show and explain its transactions.
The books of account are to be kept at the head office or at such other place as the Board thinks fit and shall always be open to the inspection of the Directors provided that such records as are required by the Companies Act shall also be kept at the registered office. No member %not being a Director) or other person has any right to inspect any account or book or document of the Company except as conferred by the Companies Act or ordered by a court of competent jurisdiction or authorised by the Board or by the Company in general meeting.
The Board shall from time to time cause to be prepared and laid before the Company at its annual general meeting such profit and loss accounts, balance sheets, group accounts %if any) and reports as are required by the Companies Act. Every balance sheet of the Company shall be signed on behalf of the Board by two Directors and a copy of every balance sheet %including every document required by law to be comprised therein or attached or annexed
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thereto) and profit and loss account which is to be laid before the Company at its annual general meeting, together with a copy of the Directors' report and a copy of the auditors' report, shall not less than twenty-one days before the date of the meeting, be sent to every member of, and every holder of debentures of, the Company and every other person entitled to receive notices of general meetings of the Company under the Companies Act or of the Bye-laws. If all or any of the shares or debentures of the Company are for the time being %with the consent of the Company) listed or dealt in on any stock exchange, there shall be forwarded to the appropriate officer of such stock exchange such number of copies of such documents as may for the time being required under its regulations or practice.
Auditors shall be appointed and their duties regulated in accordance with the Companies Act. Subject as otherwise provided by such provisions the remuneration of the auditors shall be fixed by or on the authority of the Company at each annual general meeting, but in respect of any particular year, the Company in general meeting may delegate the fixing of such remuneration to the Board.
i. Notices of meetings and business to be conducted thereat
An annual general meeting and any special general meeting at which it is proposed to pass a special resolution must be called by twenty-one days' notice in writing at least and any other special general meeting shall be called by at least fourteen days' notice in writing %in each case exclusive of the day on which the notice is served or deemed to be served and of the day for which it is given). The notice shall specify the place, the day and the hour of meeting and, in the case of special business, the general nature of that business.
j. Transfer of shares
All transfers of shares must be effected by transfer in writing in the usual or common form or in any other form acceptable to the Board and may be under hand or by means of mechanically imprinted signatures or such other manner as the Board may from time to time approve. An instrument of transfer must be executed by or on behalf of the transferor and by or on behalf of the transferee and the transferor shall be deemed to remain the holder of the share until the name of the transferee is entered in the register of members in respect thereof.
The Board may, in its absolute discretion, at any time and from time to time transfer any share upon the principal register to any branch register or any share on any branch register to the principal register or any other branch register.
Unless the Board otherwise agrees, no shares on the principal register shall be transferred to any branch register nor shall shares on any branch register be transferred to the principal register or any other register. All transfers and other documents of title must be lodged for registration and registered, in the case of shares on a branch register, at the relevant registration office and, in the case of shares on the principal register, at the transfer office in Bermuda.
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The Board may in its absolute discretion and without assigning any reason therefore, refuse to register any transfer of any shares %not being fully paid shares) to a person of whom it does not approve and it may refuse to register the transfer of any shares %not being fully paid shares) on which the Company has a lien. The Board may also refuse to register a transfer of shares %whether fully paid or not) in favour of more than four persons jointly. If the Board refuses to register a transfer, it will within two months after the date on which the transfer was lodged with the Company send to the transferor and transferee notice of the refusal.
The Board may decline to recognise any instrument of transfer unless such sum, if any, as the Board shall from time to time determine is paid to the Company in respect thereof has been paid, the shares are free of any lien in favour of the Company, the instrument of transfer is properly stamped, is in respect of only one class of share and is lodged at the relevant registration or transfer office accompanied by the relevant share certificate%s) and such other evidence as the Board may reasonably require to show the right of the transferor to make the transfer %and if the instrument of transfer is executed by some other person on his behalf, the authority of that person so to do). Where applicable, the permission of the Bermuda Monetary Authority with respect thereto shall be obtained.
The registration of transfers may, on giving notice by advertisement in an appointed newspaper in Bermuda and in one or more newspapers circulating in Hong Kong, be suspended at such times and for such periods as the Board may from time to time determine and either generally or in respect of any class of shares. The register of members shall not be closed for more than thirty days in any year.
k. Power for the Company to purchase its own shares
The Bye-laws give the Board the power to determine the terms and conditions subject to which this power is to be exercised.
l. Power of any subsidiary of the Company to own shares in the Company
There are no provisions in the Bye-laws relating to ownership of the Company by a subsidiary.
m. Dividends and other methods of distribution
The Company in general meeting may declare dividends in any currency but no dividends shall exceed the amount recommended by the Board.
Unless and to the extent that the rights attached to any shares or the terms of issue thereof otherwise provide, all dividends will be apportioned and paid pro rata according to the amounts paid or credited as paid up on the shares during any portion or portions of the period in respect of which the dividend is paid. No amount paid upon a share in advance of calls will for this purpose be treated as paid up on the shares. The Board may retain any dividends or other moneys payable on or in respect of a share upon which the Company has
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a lien, and may apply the same in or towards satisfaction of the debts, liabilities or engagements in respect of which the lien exists. The Board may deduct from any dividend or bonus payable to any member all sums of money %if any) presently payable by him to the Company on account of calls, instalments or otherwise.
Whenever the Board or the Company in general meeting has resolved that a dividend be paid or declared on the share capital of the Company, the Board may further resolve either %a) that such dividend be satisfied wholly or in part in the form of an allotment of shares credited as fully paid up, provided that the members entitled thereto will be entitled to elect to receive such dividend %or part thereof) in cash in lieu of such allotment, or %b) that the members entitled to such dividend will be entitled to elect to receive an allotment of shares credited as fully paid up in lieu of the whole or such part of the dividend as the Board may think fit. The Company may also upon the recommendation of the Board by a special resolution resolve in respect of any one particular dividend of the Company that it may be satisfied wholly in the form of an allotment of shares credited as fully paid up without offering any right to members to elect to receive such dividend in cash in lieu of such allotment.
Whenever the Board or the Company in general meeting has resolved that a dividend be paid or declared the Board may further resolve that such dividend be satisfied wholly or in part by the distribution of specific assets of any kind.
All dividends or bonuses unclaimed for one year after having been declared may be invested or otherwise made use of by the Board for the benefit of the Company until claimed and the Company shall not be constituted a trustee in respect thereof. All dividends or bonuses unclaimed for six years after having been declared may be forfeited by the Board and shall revert to the Company.
n. Proxies
Any member of the Company entitled to attend and vote at a meeting of the Company or a meeting of the holders of any class of shares in the Company is entitled to appoint another person as his proxy to attend and vote instead of him. On a vote on a show of hands, only a member present in person or by a duly authorised corporate representative may vote. On a poll votes may be given either personally or by a duly authorised corporate representative or by proxy. A member holding two or more shares may appoint more than one proxy to attend on the same occasion. A proxy need not be a member of the Company.
Where that member is a recognised clearing house within the meaning of the Securities and Futures %Clearing Houses) Ordinance %Chapter 420 of the Laws of Hong Kong), it may appoint such person or persons as it thinks fit to act as its proxy or proxies or as its corporate representative or representatives, to the extent permitted by the Companies Act, at any members' general meeting or any meeting of any class of members provided that if more than one proxy or corporate representative is so appointed, the appointment shall specify the number and class of shares in respect of which each such proxy or corporate representative
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is to be appointed. The person so appointed will be entitled to exercise the same powers on behalf of the clearing house %or its nominee) which he represents as that clearing house %or its nominee) could exercise as if it were an individual member of the Company including the right to vote individually on a show of hands. The number of persons a clearing house may appoint to act as its corporate representative or representatives shall not exceed the number of shares held by the clearing house %or its nominee), being shares in respect of which there is an entitlement to attend and vote at the relevant meeting.
In addition, a proxy or proxies representing either an individual member or a member which is a corporation, shall be entitled to exercise the same powers on behalf of the member which he or they represent as such member could exercise, but, notwithstanding the generality of the foregoing shall not have the right to vote individually on a show of hands.
o. Calls on shares and forfeiture of shares
The Board may from time to time make such calls as it may think fit upon the members in respect of any monies unpaid on the shares held by them respectively %whether on account of the nominal value of the shares or by way of premium) and not by the conditions of allotment thereof made payable at fixed times. A call may be made payable either in one sum or by instalments. If the sum payable in respect of any call or instalment is not paid on or before the day appointed for payment thereof, the person or persons from whom the sum is due shall pay interest on the same at such rate not exceeding 20 per cent per annum as the Board shall fix from the day appointed for the payment thereof to the time of actual payment, but the Board may waive payment of such interest wholly or in part. The Board may, if it thinks fit, receive from any member willing to advance the same, either in money or money's worth, all or any part of the money uncalled and unpaid or instalments payable upon any shares held by him, and upon all or any of the monies so advanced the Company may pay interest at such rate %if any) not exceeding 20 per cent per annum as the Board may decide.
If a member fails to pay any call or instalment of a call on the day appointed for payment thereof, the Board may, at any time thereafter during such time as any part of the call or instalment remains unpaid, serve a notice on him requiring payment of so much of the call or instalment as is unpaid, together with any interest which may have accrued and which may still accrue up to the date of actual payment. The notice will name a further day %not earlier than the expiration of fourteen days from the date of the notice) on or before which the payment required by the notice is to be made, and it will also name the place where payment is to be made, such place being either the registered office of the Company, or some other place at which calls of the Company are usually made payable. The notice shall also state that, in the event of non-payment at or before the time appointed, the shares in respect of which the call was made will be liable to be forfeited.
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If the requirements of any such notice are not complied with, any share in respect of which the notice has been given may at any time thereafter, before the payment required by the notice has been made, be forfeited by a resolution of the Board to that effect. Such forfeiture will include all dividends and bonuses declared in respect of the forfeited share and not actually paid before the forfeiture.
A person whose shares have been forfeited shall cease to be a member in respect of the forfeited shares but shall, notwithstanding, remain liable to pay to the Company all moneys which, at the date of forfeiture, were payable by him to the Company in respect of the shares together with %if the Board shall in its discretion so require) interest thereon from the date of forfeiture until payment at such rate not exceeding 20 per cent per annum as the Board may prescribe.
p. Inspection of register of members
There are no provisions in the Bye-laws relating to inspection of the register of members.
q. Quorum for meetings and separate class meetings
For all purposes the quorum for a general meeting shall be two members present in person or by a duly authorised corporate representative or by proxy and entitled to vote. In respect of a separate class meeting convened to sanction the modification of class rights, the necessary quorum shall not be less than two persons holding or representing by proxy or by a duly authorised corporate representative one-third in nominal value of the issued shares of that class.
r. Rights of the minorities in relation to fraud or oppression
There are no provisions in the Bye-laws relating to rights of minority members in relation to fraud or oppression. However, Bermuda company law provides for protection of minorities, as summarised in paragraph 4%o) of this Appendix.
s. Procedures on liquidation
A resolution that the Company be wound up by the court or be wound up voluntarily must be a special resolution.
If the Company shall be wound up, the surplus assets remaining after payment to all creditors are to be divided among the members in proportion to the capital paid up on the shares held by them respectively, and if such surplus assets shall be insufficient to repay the whole of the paid up capital, they are to be distributed so that, as nearly as may be, the losses shall be borne by the members in proportion to the capital paid up on the shares held by them respectively, all subject to the rights of any shares issued on special terms and conditions.
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If the Company shall be wound up %whether the liquidation is voluntary or by the court) the liquidator may, with the sanction of a special resolution, divide among the members in specie or kind the whole or any part of the assets of the Company and whether the assets consist of property of one kind or consists of properties of different kinds and the liquidator may, for such purposes, set such value as he deems fair upon any one or more class or classes of property to be divided as aforesaid and may determine how such division is to be carried out as between the members or different classes of members and the members within each class. Under the Companies Act the liquidator may, with the like sanction, vest any one or more class or classes of property and may determine how such division shall be carried out as between the members or different classes of members. Under the Companies Act, the liquidator may, with like sanction, vest any part of the assets in trustees upon such trusts for the benefit of members as the liquidator, with the like sanction shall think fit, but so that no member shall be compelled to accept any shares or other assets upon which there is a liability.
t. Stock
The Company may by ordinary resolution convert any fully paid up shares into stock, and may from time to time by like resolution reconvert any stock into fully paid up shares of any denominations. The holders of stock may transfer the same or any part thereof in the same manner, and subject to the same regulations as and subject to which the shares from which the stock arose might prior to conversion have been transferred or as near thereto as circumstances admit, but the Board may from time to time, if it thinks fit, fix the minimum amount of stock transferable and restrict or forbid the transfer of fractions of that minimum, but so that such minimum shall not exceed the nominal amount of the shares from which the stock arose. No warrants to bearer shall be issued in respect of any stock. The holders of stock shall, according to the amount of the stock held by them, have the same rights, privileges and advantages as regards dividends, participation in assets on a winding-up, voting at meetings and other matters, as if they held the shares from which the stock arose, but no such privilege of the Company shall be conferred by an amount of stock which would not, if existing in shares, have conferred such privilege or advantage. All such of the provisions of the Bye-laws as are applicable to paid up shares shall apply to stock, and the words ``share'' and ``member'' therein shall include ``stock'' and ``stockholder''.
u. Other provisions
The Bye-laws provide that, subject to the Companies Act, if any of the rights attached to any warrants issued by the Company shall remain exercisable and the Company does any act which would result in the subscription price under such warrants being reduced below the par value of a share, a subscription right reserve shall be established and applied in paying up the difference between the subscription price and the par value of a share on any exercise of the warrants.
Note: The Companies Act prevents a company from giving financial assistance in the subscription of its shares %subject to certain exceptions). A subscription right reserve may only be created and used for the above purpose if an exception applies.
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3. VARIATION OF MEMORANDUM OF ASSOCIATION AND BYE-LAWS
The Memorandum of Association of the Company may be altered by the Company in general meeting and if the Company intends to adopt any objects enabling it to carry on any ``restricted business activity'' for the purposes of the Companies Act, the prior consent of the Minister of Finance of Bermuda will also be required. The Bye-laws may be amended by the Board subject to the approval of the Company in general meeting. The Bye-laws state that a special resolution shall be required to alter provisions of the Memorandum of Association, to approve any amendment of the Bye-laws or to change the name of the Company. For these purposes a resolution is a special resolution if it has been passed by a majority of not less than three-fourths of the votes cast of such members of the Company as, being entitled so to do, vote in person or, by a duly authorised corporate representative or, where permitted, by proxy at a general meeting of which not less than 21 days' notice specifying the intention to propose the resolution as a special resolution has been duly given. The requirement of 21 days' notice may be waived %a) in the case of a special general meeting, by a majority number of the members having the right to attend and vote at the relevant meeting, being a majority holding not less than 95 per cent in nominal value of the shares giving that right; and %b) in the case of an annual general meeting, if it is so agreed by all members entitled to attend and vote thereat.
4. BERMUDIAN PROVISIONS
The summary does not purport to contain all applicable qualifications and exemptions and does not purport to be a complete review of all matters of Bermuda company law or a comparison of provisions that may differ from the laws of other jurisdictions, with which interested parties maybemorefamiliar.
The company law of Bermuda is historically derived, for the most part, from the laws of England and is essentially embodied in the provisions of the Companies Act, most of which are drawn from the Companies Act 1948 of the United Kingdom, with certain reliance placed upon the laws of Ontario, Canada and, to some extent, upon the Companies Ordinance of Hong Kong. Other provisions are original Bermuda provisions endeavouring to cater to the specific circumstances of international business in Bermuda; these relate specifically to concepts not recognised in other jurisdictions %e.g. exempted as opposed to local companies) and contain particular emphasis on the restrictions imposed upon exempted companies with regard to what they may do in Bermuda as opposed to outside Bermuda from a place of business in Bermuda. The common law of England and Wales constitutes persuasive precedent and authority in the Bermuda courts.
a. Incorporation
The Company was incorporated by registration pursuant to the provisions of the Companies Act, on the 8th May, 2000.
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b. Constituent Documents
The business activities of the Company will be governed by the provisions of its Memorandum of Association which sets out, in detail, its specific business objects, and the powers that may be exercised in support of its principal business objects. Bermuda law distinguishes between objects and powers, the latter of which are regarded as supplemental to the principal business objects of the Company.
The Companies Act provides that the objects set out in the different paragraphs of the objects clause in the Memorandum of Association shall not be limited or restricted in any way by reference to or inference from the terms of any other paragraph in the Memorandum of Association and such objects may be carried out in as full and ample a manner and construed in such a manner as if each paragraph defined the objects of a separate and independent company and each is construed as a primary object.
The Memorandum of Association may be altered under the provisions of the Companies Act and which alteration must also conform to Bermuda policy. It is required that the consent of the members of the Company in general meeting be given, following due notice of the intention of the meeting, before a Memorandum of Association may be altered. It is required that following the passage of a resolution of the members in general meeting approving the alteration, certain filings be made with the Registrar of Companies. Prior to taking formal steps in relation to the alteration of the Memorandum of Association, it will be necessary to obtain the Minister's consent to alter the Memorandum of Association if they include special objects enabling the Company to carry on any ``restricted business activity'' within the definition of section 4A of the Companies Act.
The Bye-laws will govern the Company's administration and the relationship between its members and the Board of Directors. The Bye-laws are required, by Section 13 of the Companies Act, to make provision for a certain limited number of matters. It furthermore provides that certain additional matters may be included in the Bye-laws for the better regulation of the Company.
The members of the Company are entitled to receive copies of the Memorandum of Association and its Bye-laws upon request, which obligation is established by the provisions of the Companies Act. The Companies Act provides that all persons who agree to become members of the Company shall upon entry on the register of members, which shall include the branch register, be deemed to be members of the Company.
c. Taxation
In Bermuda there are no taxes on profits, income or dividends, nor is there any capital gains tax, estate duty or death duty. Profits can be accumulated and it is not obligatory for a company to pay dividends. The Company is required to pay an annual government fee %the ``Government Fee''), which is determined on a sliding scale by reference to a company's authorised share capital and share premium account, with the minimum fee being BD$1,780
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and the maximum fee being BD$27,825. %the Bermuda dollar is treated at par with the U.S. dollar). The Government Fee is payable at the end of January in every year and is based on the authorised share capital and share premium account as they stood at the 31st August in the preceding year.
The Bermuda government has enacted legislation under which the Minister of Finance is authorised to give an assurance to an exempted company or a partnership that, in the event of there being enacted in Bermuda any legislation imposing tax computed on profits or income or computed on any capital asset, gain or appreciation, then the imposition of any such tax shall not be applicable to such entities or any of their operations. In addition, there may be included an assurance that any such tax or any tax in the nature of estate duty or inheritance tax, shall not be applicable to the shares, debentures or other obligations of such entities. This assurance has been obtained by the Company for a period ending 28th March, 2016.
d. Stamp Duty
The law relating to stamp duties has been fundamentally changed as a result of the enactment of certain legislation that came into force on the 1st April, 1990. Stamp duty is no longer chargeable in respect of the incorporation, registration or licensing of an exempted company, nor, subject to certain minor exceptions, on their transactions. Accordingly, no stamp duty will be payable on the increase in or the issue or transfer of the share capital of the Company.
e. Prospectus issues and public offers
The Companies Act regulates the issue of shares by way of public offer. It requires that, before an offer of shares may be made to the public %defined in the case of an exempted company as, inter alia, an offer calculated to result directly or indirectly in the shares becoming available to more than thirty-five persons), the Company shall have first published, in writing, a prospectus signed by or on behalf of all the Directors and shall have filed a copy with the Registrar of Companies in Bermuda. It also requires that a certificate, signed by an attorney in Bermuda, be filed with the prospectus, certifying: %i) that the prospectus contains certain particulars required by the Companies Act and is accompanied by a written statement from the auditor of the Company wherein the auditor confirms his consent to the inclusion of his report in the prospectus to be issued by the Company; or %ii) that an appointed stock exchange or a competent regulatory authority has received or
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otherwise accepted the prospectus as a basis for offering shares to the public. The following are some of the stock exchanges or regulatory authorities approved by the Minister of Finance and designated as:
Appointed Stock Exchanges
American Luxembourg Australian Montreal Bermuda NASDAQ Boston New York Canadian Dealing Network New Zealand Canadian Venture Exchange Oslo Frankfurt Paris Hong Kong Shanghai Irish Singapore Johannesburg Switzerland Kuala Lumpur Tokyo London Toronto London %Alternative Investment Market)
Competent Regulatory Authorities
Bermuda Monetary Authority Hong Kong Securities and Futures Commission Ontario Securities Commission U.S. Securities and Exchange Commission The Commissariat aux Bourses %Luxembourg) The Swiss Exchange
Accordingly, where an appointed stock exchange has received or otherwise accepted a prospectus as a basis for offering shares to the public, the Company need not comply with the requirements of the Companies Act as to the detailed content of the prospectus save that every prospectus shall contain particulars with regard to the minimum subscription which must be raised by the issue of shares in order to provide the sums, or, if any part thereof is to be defrayed in any other manner, the balance of the sums required to be provided, in respect of each of the following matters:
%i) the purchase price of any assets purchased or to be purchased which is to be defrayed in whole or in part out of the proceeds of the issue;
%ii) any preliminary expenses payable by the Company, and any commission so payable to any person in consideration of his agreeing to subscribe for, or if he is procuring or agreeing to procure subscriptions for, any shares in the Company;
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%iii) the repayment of any monies borrowed by the Company in respect of any of the foregoing matters;
%iv) working capital; and
%v) the amount to be provided in respect of the matters aforesaid otherwise than out of the proceeds of the issue and the sources out of which those amounts are to be provided.
Furthermore where any company continuously over a period offers shares to the public, it is required to file a new prospectus with the Registrar of Companies in Bermuda every calendar year from the date of the last issue or such other period as may be granted by the Registrar and it shall publish supplementary particulars and file a copy thereof with the Registrar if the prospectus issued by such a company ceases in a material respect to be accurate.
The Companies Act provides for both criminal offences in relation to the making of an untrue statement in a prospectus and civil liability for misstatements in a prospectus.
f. Exchange Control
Although incorporated in Bermuda, the Company has been classified as non-resident in Bermuda for exchange control purposes by the Bermuda Monetary Authority %``BMA''). Accordingly, the Company may convert currency %other than Bermudian currency) held for its account to any other currency without restriction.
Persons, firms or companies regarded as residents of Bermuda for exchange control purposes require specific consent under the Exchange Control Act 1972 of Bermuda, and regulations thereunder, to purchase or sell shares or warrants of the Company which are regarded as foreign currency securities by the BMA. Under the terms of the consent given to the Company by the BMA, the issue of shares and warrants pursuant to this document and any transactions in issued shares and warrants between persons, firms or companies regarded as non-resident in Bermuda for exchange control purposes may be effected without further permission from that Authority. Before the Company can issue any further shares or warrants, the Company must first obtain the prior written consent of the BMA.
In granting such permission, the BMA accepts no responsibility for the financial soundness of any proposals or for the correctness of any statements made or opinions expressed in this document with regard to them.
g. Share Capital
The Companies Act provides for the giving of financial assistance by a company for the acquisition of its own or its holding company's shares in specific circumstances.
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The Companies Act provides that where a company issues shares at a premium whether for cash or otherwise, a sum equal to the aggregate amount or value of the premium on those shares shall be transferred to an account, to be called ``the share premium account'' and the provisions of the Companies Act relating to a reduction of share capital of a company shall, except as provided in Section 40 of the Companies Act, apply as if the share premium account were paid up share capital of the company. An exception is made to this rule in the case of an exchange of shares where the excess value of the shares acquired over the nominal value of the shares being issued may be credited to a contributed surplus account of the issuing company. Contributed surplus is a North American concept recognised under the generally accepted accounting principles of the Canadian Institute of Chartered Accountants which accounting principles are applied in Bermuda.
The Companies Act permits a company to issue preference shares and under certain circumstances to convert those preference shares into redeemable preference shares.
h. Alteration of Share Capital
A company may if authorised by a general meeting of the members of the company and by its bye-laws, alter the conditions of its memorandum of association to increase its share capital, divide its shares into several classes and attach thereto respectively any preferential, deferred, qualified or special rights, privileges or conditions, consolidate and divide all or any of its share capital into shares of a larger amount than its existing shares, subdivide its shares or any of them into shares of a smaller amount than is fixed by the memorandum of association, make provision for the issue and allotment of shares which do not carry any voting rights, cancel shares which have not been taken or agreed to be taken by any person, diminish the amount of its share capital by the amount of the shares so cancelled and change the currency denomination of its share capital. With the exception of an increase of capital, cancellation of shares and redenomination of currency of capital, there are no filing requirements for any of the above-mentioned alterations. Furthermore a company may, if authorised by a general meeting of the members, reduce its share capital. There are certain requirements, including a requirement to publish the intended reduction in the Official Gazette, prior to the reduction and provision is made in the Companies Act for an affidavit to be sworn by at least two directors declaring that on the date of the reduction the company is solvent or that all creditors of the company on that date have expressed in writing their concurrence in the reduction.
The Companies Act includes certain protections for holders of special classes of shares requiring their consent to be obtained before their rights may be varied.
The Companies Act requires that as soon as practicable after the allotment of any of its shares a company must complete and have ready for delivery share certificates in relation to those shares allotted unless the conditions of issue of the shares otherwise provide. A certificate under the common seal of the company shall be prima facie evidence of the title of the member to the shares. The Companies Act prohibits bearer shares.
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i. Purchase by the Company of its own shares
The Companies Act permits the Company, if authorised to do so by its Memorandum of Association or by its Bye-laws, to purchase its own shares. It should be noted that the Company is authorised by its Bye-laws, subject to certain approvals, to purchase its own shares. Such purchases may only be effected out of the capital paid up on the purchased shares, profits otherwise available for dividend %see ``Dividends'' below) or out of the proceeds of a new issue of shares made for the purpose. Any premium payable on a repurchase over the par value of the shares to be repurchased must be provided for out of the profits otherwise available for dividends, out of the company's share premium account, or out of contributed surplus. A purchase by the Company of its own shares may be authorised by its Board of Directors or otherwise by or in accordance with the provisions of its Bye- laws. Further, the consideration payable to a member whose shares are repurchased may be satisfied by cash and/or the transfer of any part of the undertaking or property of the Company or a combination of the foregoing.
The Companies Act also requires that an affidavit be sworn by at least two Directors declaring that on the date of the repurchase and taking into account the purchase the Company is solvent or that all the creditors of the Company on that date have expressed in writing their concurrence to the purchase except that in a case where a company is listed on an appointed stock exchange, the affidavit required may, at the option of the Company be sworn within thirty days after the end of each calendar quarter giving details of the purchases made during each quarter and the affidavit shall confirm that after taking account such purchases, the Company is solvent at all material times during the quarter. The shares purchased pursuant to the Companies Act shall be treated as cancelled and the amount of the Company's issued capital shall be diminished by the nominal amount of those shares accordingly. It shall not be taken as reducing the amount of the Company's authorised share capital.
The Company is not prevented from purchasing and may purchase its own warrants. There is no requirement of Bermuda law that the Memorandum of Association or the Bye- laws contain a specific enabling provision authorising any such purchase and the Directors may rely upon the general power to buy and sell and deal in personal property of all kinds.
A company has power to hold and purchase shares of its holding company. A distinction must be drawn between the purchase of shares in the holding company by the holding company itself and the purchase by a subsidiary. A holding company can only purchase its own shares in accordance with the provisions referred to above. When a subsidiary acquires shares in its holding company, the shares, once purchased, may be voted by the subsidiary for its own benefit.
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j. Transfer of Securities
Title to securities of companies whose securities are traded or listed on an appointed stock exchange may, only with effect from the coming into operation of regulations made by the Minister, be evidenced and transferred without a written instrument either in accordance with regulations made by the Minister or by a person appointed by the Minister ie. through the mechanism required or permitted by an appointed stock exchange.
k. Dividends and Distributions
The Companies Act provides that a company shall not declare or pay a dividend or make a distribution out of contributed surplus, if there are reasonable grounds for believing that %a) the company is, or would after the payment be, unable to pay its liabilities as they became due; or %b) the realisable value of the company's assets would thereby be less than the aggregate of its liabilities and its issued share capital and share premium accounts.
Contributed surplus for these purposes is defined as including proceeds arising from donated shares, credits resulting from the redemption or conversion of shares at less than the amount set up as nominal capital, the excess value of shares acquired over those issued in a share exchange should the Board elect to treat it as such and donations of cash and other assets to the company.
l. Charges on the Assets of the Company
The Companies Act established a register of charges at the office of the Registrar of Companies permitting any charges on the assets of a company to be registered. Registration is not mandatory but does govern priority in Bermuda, giving a registered charge priority over any subsequently registered charge and over all unregistered charges save those in effect prior to the coming into effect of the Companies Act in July of 1983. The register of charges is available for inspection by members of the public. The Companies Act also makes provision for the registration of a series of debentures.
m. Management and Administration
The management and administration of a Bermuda company is essentially governed by Part VI of the Companies Act and provides that the management and administration of a Bermuda company shall be vested in the hands of not less than two directors duly elected by the members.
The Companies Act requires that a Bermuda company maintains either:
%a) a secretary and a resident representative; or
%b) a secretary and a director; or
%c) two directors,
all of whom must be individuals ordinarily resident in Bermuda.
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Exempted companies, the shares of which are listed on an appointed stock exchange, may appoint a resident representative in Bermuda in place of the other Bermuda resident officers, who or which may be either an individual or a corporate entity, whose statutory rights, duties and obligations are established by the Companies Act.
The Companies Act contains no specific restrictions on the power of the Directors to resolve to dispose of assets of a company although it specifically requires that every officer %which includes a director and managing director and secretary) of a company, in exercising his powers and discharging his duties, shall act honestly and in good faith with a view to the best interests of the company and exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. Furthermore it requires that every officer should comply with the Companies Act, regulations passed pursuant to the Companies Act and the Bye-laws.
n. Loans to Directors
The Companies Act prohibits the making of loans by the Company to any of its Directors or to their families or companies in which they hold a 20 per cent interest, without the consent of members of the Company holding in the aggregate not less than nine-tenths of the total voting rights of all members having the right to vote at any meeting of the members of the Company. These prohibitions do not apply to anything done to provide a Director with funds to meet expenditure incurred or to be incurred by him for the purposes of the Company, provided that the Company gives its prior approval at a general meeting or, if not, the loan is made on condition that it shall be repaid within six months of the next annual general meeting if the loan is not approved at such meeting. If the approval of the Company is not given for a loan, the Directors who authorised it will be jointly and severally liable for any loss arising.
o. The Investigation of the Affairs of a Company and the Protection of Minorities
The Companies Act makes specific provision with regard to the foregoing and provides that the Minister of Finance may, at any time of his own volition, appoint one or more inspectors to investigate the affairs of an exempted company and to report thereon in such manner as he may direct. The Companies Act requires that such an investigation be made in private unless the company requests that it be held in public. Furthermore any member of a company who complains that the affairs of the company are being conducted or have been conducted in a manner oppressive or prejudicial to the interests of some part of the members, including himself, or where a report has been made to the Minister of Finance under the foregoing, the Registrar on behalf of the Minister, may make an application to the court by petition for an order that the company's affairs are being conducted or have been conducted in a manner oppressive or prejudicial to the interests of some part of the members and that to wind up the company would unfairly prejudice that part of the members but otherwise the facts would justify the making of a winding up order on the ground that it would be just and equitable that the company should be wound up. If the court is of this opinion, then it may, with a view to bringing to an end the matters complained of, make such
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order as it thinks fit whether for regulating the conduct of the company's affairs in future or for the purchase of shares of any members of the company by other members of the company or by the company and in the case of a purchase by the company, for the reduction accordingly of the company's capital, or otherwise.
Class actions and derivative actions are generally not available to members under the laws of Bermuda; however, the Bermuda courts ordinarily would expect to follow English case law precedent which would permit a member to commence an action in the name of the company to remedy a wrong done to the company where the act complained of is alleged to be beyond the corporate power of the company or is illegal or would result in the violation of a company's memorandum of association and bye-laws. Furthermore consideration would be given by the court to acts that are alleged to constitute a fraud against the minority members or, for instance, where an act requires the approval of a greater percentage of the company's members than that which actually approved it.
In addition to the above, members may be able to bring claims against a company; such claims must, however, be based on the general laws of contract or tort applicable in Bermuda.
A statutory right of action is conferred on subscribers to shares of a company against persons %including directors and officers) responsible for the issue of a prospectus in respect of damage suffered by reason of an untrue statement therein %see above) but this confers no right of action against the company itself. In addition, the company itself %as opposed to its members) may take action against the officers %including directors) for breach of their statutory and fiduciary duty to act honestly and in good faith with a view to the best interests of the company %as mentioned above). Furthermore, a subscriber is not debarred from obtaining damages or other compensation from the Company by reason only of his holding or having held shares in the Company or any right to apply or subscribe for shares or to be included in the Company's register of members in respect of shares.
p. Inspection of Corporate Records
Members of the general public have the right to inspect the public documents of the Company available at the office of the Registrar of Companies in Bermuda which will include the Company's Certificate of Incorporation, its Memorandum of Association %including its objects and powers) and any alteration to the Memorandum of Association and documents relating to an increase or reduction of authorised capital. The members have the additional right to inspect the Bye-laws, minutes of general %i.e. members') meetings and audited financial statements of the Company, which must be presented to the Annual General Meeting of members. The Company is required to maintain its share register in Bermuda but may establish a branch register outside Bermuda. The register of members of the Company and any branch register are also open to inspection by members without charge, and to general members of the public for a fee. The Companies Act stipulates that where a member of the Company or other person requests a copy of the register of members or branch register of members, this must be provided within 14 days of the request. The
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Company is required to keep at its registered office a register of its Directors and Officers which is open for inspection by members of the public without charge. Bermuda law does not, however, provide a general right for members to inspect or obtain copies of any other corporate records.
q. Restrictions on the Activities of Exempted Companies
Unless specifically authorised by its memorandum of association, an exempted company shall not be permitted to:
%i) acquire or hold land in Bermuda except land required for its business held by way of a lease or tenancy agreement for a term not exceeding fifty years;
%ii) to take any mortgage of land in Bermuda %subject to certain exceptions); and
%iii) to acquire any bonds or debentures secured on any land in Bermuda except bonds or debentures issued by the Government or a public authority in Bermuda.
Exempted companies are specifically permitted to carry on business with persons outside Bermuda or to do business in Bermuda with an exempted company in furtherance only of the business of the exempted company carried on exterior to Bermuda. It may buy, sell or otherwise deal in shares, bonds, debenture stock obligations, mortgages or other securities issued or created by an exempted undertaking or a local company or any partnership which is not an exempted undertaking. It may transact banking business with a bank licensed in Bermuda. It may effect or conclude contracts in Bermuda and exercise in Bermuda all other powers so far as may be necessary for carrying on its business with persons outside Bermuda. It may act as manager or agent for or consultant or advisor to the business of another exempted company, provided that the company has an object in its memorandum of association to enable it to carry on such type of business.
The Company has been incorporated as an ``exempted company''. Accordingly the Company is authorised to carry on business outside Bermuda from a place of business in Bermuda but may not, without a specific licence granted by the Minister of Finance, conduct business within Bermuda. The Company is, therefore, permitted to establish a place of business in Bermuda in order to conduct business outside Bermuda or with other exempted companies in Bermuda. However, it may not engage in trading or other business activities %e.g. the provision of services) in Bermuda. In addition there are restrictions imposed upon the percentage of Bermudian ownership that will be permitted. Furthermore, as an exempted company, the Company has been designated as ``non resident'' for exchange control purposes and is authorised to deal in any currency of its choosing, other than Bermuda dollars.
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The Company will, under the provisions of the Companies Act, be required to file in January of every year a declaration in writing stating what is the principal business of the Company and to pay the Government Fee.
r. Accounting and Auditing Requirements under the Companies Act
The Companies Act requires that a company shall cause to be kept proper records of account with respect to:
%i) all sums of money received and expended by the Company and the matters in respect of which the receipt and expenditure take place;
%ii) all sales and purchases of goods by the Company; and
%iii) the assets and liabilities of the Company.
It furthermore requires that the records of account shall be kept at the registered office of the Company or at such other place as the Directors think fit and shall at all times be open to inspection by the Directors or by a resident representative. The Companies Act also requires that, these records of account also be maintained at the office of the resident representative where the Company is listed on an appointed stock exchange and the Company has appointed a resident representative. There is a proviso in the Companies Act to the effect that if the records of account are kept at some place outside Bermuda, there shall be kept at an office of the Company in Bermuda such records as will enable the Directors or the resident representative to ascertain with reasonable accuracy the financial position of the Company at the end of each three month period %or each six month period, where the Company is listed on an appointed stock exchange). Power is vested in the courts of Bermuda to order the Company to make available the records of account to any of the Directors of the Company should the Company for some reason refuse to do so. Furthermore, the Companies Act imposes a fine in the event of failure to comply with the aforementioned requirements which fine is limited to the sum of BD$500.00 %approximately equivalent in value to US$500.00), for the time being.
s. Auditing Requirements
The Companies Act requires that the board of every company shall, at least once in every year, lay before the company in general meeting:
%i) financial statements for the period, which shall include:
%aa) a statement of the results of operations for such period;
%bb) a statement of retained earnings or deficits;
%cc) a balance sheet at the end of such period;
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%dd) a statement of changes in the financial position for the period;
%ee) notes to the financial statements;
%ff) such further information as required by the Companies Act and the company's memorandum of association and its bye-laws;
%ii) the report of the auditor in respect of the financial statements described above based upon the results of the audit made in accordance with generally accepted accounting principles; and
%iii) the notes referred to in paragraph %ee) above shall include a description of the generally accepted accounting principles used in the preparation of the financial statements and where the accounting principles used are those of a country or jurisdiction other than Bermuda the notes shall disclose this fact and shall name the country or jurisdiction.
Financial Statements to be laid before the members in general meeting shall be signed on the balance sheet by two of the directors of the company.
If for some reason it becomes impossible, for reasons beyond the reasonable control of the directors, to lay the financial statements before the members, it shall be lawful for the meetingtoadjournthemeetingforaperiodofuptoninetydaysorsuchlongerperiodasthe members may agree.
All members of a company are entitled to receive a copy of the financial statements prepared in accordance with the aforementioned requirements, at least seven days before the general meeting of the company at which the financial statements would be tabled. There are certain exceptions in the case of members not entitled to receive notices of general meetings, joint holders of shares or where the address for a person is not known to the company.
The Companies Act also makes provision vesting power in the members in general meeting to waive the laying of the financial statements and auditors' report and to waive the appointment of an auditor. In order to do so it is required that all members and directors of the company agree either in writing or at a general meeting, that in respect of a particular interval no financial statement or auditors' report thereon need be laid before a general meeting.
The Companies Act contains specific requirements in Section 89 in relation to the appointment and disqualification of an auditor.
By way of general reference, the provisions of Sections 83, 84, 87, 88, 89 and 90 govern the preparation and maintenance of accounting records and audited financial statements.
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t. Continuation and Discontinuation of Companies
%i) A company incorporated outside Bermuda may be continued in Bermuda as an exempted company to which the provisions of the Companies Act and any other relevant laws of Bermuda may apply. The consent of the Minister of Finance will be required if the Company's Memorandum of Continuance includes special objects enabling it to carry on any ``restricted business activity'' within the definition of section 4A of the Companies Act; and
%ii) An exempted company may be continued in a country or jurisdiction outside Bermuda as if it had been incorporated under the laws of that other jurisdiction and be discontinued under the Companies Act, provided that, inter alia, it is an appointed jurisdiction pursuant to the Companies Act, or has been approved by the Minister, upon application by the Company for the purpose of the discontinuance of the Company out of Bermuda.
u. Winding-Up and Liquidation Provisions of Bermuda Legislation
%i) Introduction:
The winding-up of Bermuda companies is governed by the provisions of the Companies Act and by the Companies %Winding-Up) Rules 1982 %the ``Rules'') and may be divided into the following two types:
%aa) Voluntary winding-up which commences with the members' resolution or upon the happening of a specified event %fixed or limited life company) and which itself can be sub-divided into a members' voluntary winding-up and a creditors' voluntary winding-up; and
%bb) Compulsory winding-up, by petition presented to the courts of Bermuda followed by winding-up order.
%ii) Voluntary Winding-Up:
%aa) Members' Voluntary Winding-up Ð A members' voluntary winding-up is only possible if a company is solvent. A Statutory Declaration of Solvency to the effect that a company is able to meet its debts within 12 months from the date of the commencement of its winding-up is sworn by a majority of the company's directors and filed with the Registrar of Companies.
A general meeting of members is then convened which resolves that the company be wound-up voluntarily and that a liquidator %responsible for collecting in the assets of the company, determining its liabilities and distributing its assets amongst its creditors and the surplus to the shareholders) be appointed.
Ð 196 Ð APPENDIX III SUMMARY OF THE CONSTITUTION OF THE COMPANY AND BERMUDA COMPANY LAW
Once the affairs of the company are fully wound-up the liquidator prepares a full account of the liquidation which he then presents to the company's members at a special general meeting called for that purpose. This special general meeting must be advertised in an appointed newspaper in Bermuda at least one month before it is held and within one week after it is held the liquidator notifies the Registrar of Companies that the company has been dissolved.
%bb) Creditors' Voluntary Winding-up Ð A creditors' voluntary winding-up may occur where a company is insolvent and a Declaration of Solvency cannot be sworn.
A board meeting is convened which resolves to recommend to the members of the company that the company be placed into a creditors' voluntary winding-up. This recommendation is then considered and, if thought fit, approved at a special general meeting of the company's members and, subsequently, at a meeting of the company's creditors.
Notice of the creditors' meeting must appear in an appointed newspaper on at least two occasions and the Directors must provide this meeting with a list of the company's creditors and a full report of the position of the company's affairs.
At their respective meetings, the creditors and members are entitled to nominate a person or persons to serve as liquidator%s) and whose responsibilities include collecting in the assets of the company, ascertaining its liabilities and distributing its assets ratably amongst its creditors in accordance with their proofs of debt. In addition to the liquidator, the creditors are entitled to appoint a Committee of Inspection which, under Bermuda law, is a representative body of creditors who assist the liquidator during the liquidation.
As soon as the affairs of the company are fully wound-up, the liquidator prepares his final account explaining the liquidation of the company and the distribution of its assets which he then presents to the company's members in a special general meeting and to the company's creditors in a meeting. Within one week after the last of these meetings, the liquidator sends a copy of the account to the Registrar of Companies in Bermuda who proceeds to register it in the appropriate public records and the company is deemed dissolved three months after the registration of this account.
Ð 197 Ð APPENDIX III SUMMARY OF THE CONSTITUTION OF THE COMPANY AND BERMUDA COMPANY LAW
%iii) Compulsory Winding-Up:
The courts of Bermuda may wind-up a Bermuda company on a petition presented by persons specified in the Companies Act and which include the company itself and any creditor or creditors of the company %including contingent or prospective creditors) and any member or members of the company.
Any such petition must state the grounds upon which the Bermuda court has been asked to wind-up the company and may include either one of the following:
%aa) that the company has by resolution resolved that it be wound-up by the Bermuda court;
%bb) that the company is unable to pay its debts;
%cc) that the Bermuda court is of the opinion that it is just and equitable that the company be wound-up.
The winding-up petition seeks a winding-up order and may include a request for the appointment of a provisional liquidator.
Prior to the Winding-up Order being granted and the appointment of the provisional liquidator, %who under Bermuda law, may or may not be the Official Receiver Ð a government appointed officer) an interim provisional liquidator may be appointed to administer the affairs of the company with a view to its winding-up until he is relieved of these duties by the appointment of the provisional liquidator. %Often, the interim provisional liquidator is appointed the provisional liquidator).
As soon as the Winding-up Order has been made, the provisional liquidator summons separate meetings of the company's creditors and members in order to determine whether or not he should serve as the permanent liquidator or be replaced by some other person who will serve as the permanent liquidator and also to determine whether or not a Committee of Inspection should be appointed and, if appointed, the members of that Committee. The provisional liquidator notifies the Court of the decisions made at these meetings and the Court makes the appropriate orders.
A permanent liquidator's powers are prescribed by the Companies Act and include the power to bring or defend actions or other legal proceedings in the name and on behalf of the company and the power to carry on the business so far as may be necessary for the beneficial winding-up of the company. His primary role and duties are the same as a liquidator in a creditors' voluntary winding-up i.e. to distribute the company's assets ratably amongst its creditors whose debts have been admitted.
As soon as the affairs have been completely wound-up, the liquidator applies to the courts of Bermuda for an order that the company be dissolved and the company is deemed dissolved from the date of this order being made.
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v. General
Appleby Spurling & Kempe, the Company's legal advisers on Bermuda law, have sent to the Company a letter of advice summarising aspects of Bermuda company law. This letter, together with a copy of the Companies Act, is available for inspection as referred to in the paragraph headed ``Documents available for inspection'' in Appendix VI. Any person wishing to have a detailed summary of Bermuda company law or advice on the differences between it and the laws of any jurisdiction with which he is more familiar is recommended to seek independent legal advice.
Ð 199 Ð APPENDIX IV SUMMARY OF THE TERMS OF THE WARRANTS
The Warrants will be issued subject to and with the benefit of an instrument by way of deed poll the ``Instrument'') executed by the Company and they will be issued in registered form and will form one class with and rank pari passu in all respects with each other.
Following completion of the Share Offer and the full exercise of the Over-allotment Option, there would be in issue Warrants to subscribe up to HK$128,800,000 in aggregate in cash for a total of 322,000,000 Shares on the basis of the initial subscription price of HK$0.40 per Share subject to adjustment).The Warrants will be issued by way of bonus issue to the successful subscribers and placees under the Share Offer including Shares that may be issued upon the exercise of the Over-allotment Option) immediately following the allotment and issue of Shares under the Share Offer and the exercise of the Over-allotment Option where relevant) in the proportion of one Warrant for every Offer Share.
The principal terms and conditions of the Warrants will be set out in the Warrant certificates and will include provisions to the effect set out below.Holders of Warrants will be entitled to the benefit of, be bound by, and be deemed to have notice of all such terms and conditions and of the provisions of the Instrument, copies of which will be available upon request to the Registrars for the time being of the Company or from the principal place of business for the time being of the CompanyinHongKong.
1. SUBSCRIPTION RIGHTS
a) The registered holder for the time being of a Warrant will have the right ``Subscription Rights'') to subscribe in cash for the whole or part, in integral multiples of HK$0.40, of the amount in respect of which the Warrant is issued for fully paid Shares at a price subject to the adjustments referred to below) of $0.40 per Share the ``Subscription Price'') i.e. The Warrants will be traded in board lots of 50,000 each and each such board lot represents subscription rights of the amount of HK$20,000).The Subscription Rights attaching to the Warrants may be exercised on or after the date of issue of the Warrants but not later than 27th July, 2002.The date on which such rights or any part thereof are exercised is referred to in these particulars as a ``subscription date'' which means the close of business on any business day falling during the subscription period on which any of the Subscription Rights represented by such Warrant are duly exercised by delivery of the relative Warrant certificate to the registrars with the subscription form duly completed together with a remittance for the exercise moneys or the relevant portion thereof unless otherwise provided in the Instrument.Any Subscription Rights which have not been exercised on or before the expiry date will lapse and the relevant Warrants will cease to be valid for any purpose.References in these particulars to ``Shares'' are to the existing Shares of the Company and all other if any) Shares from time to time and for the time being ranking pari passu therewith.
b) Each Warrant certificate will contain a subscription form.In order to exercise his Subscription Rights, a holder of Warrants must complete and sign the subscription form which will be irrevocable) and deliver the Warrant certificate and, if the subscription form used is not the form endorsed on the Warrant certificate, the separate subscription form) to the branch registrars in Hong Kong for the time being of the
Ð 200 Ð APPENDIX IV SUMMARY OF THE TERMS OF THE WARRANTS
Company, together with a remittance for the relevant subscription monies for the Shares in respect of which the Subscription Rights are being exercised.In each case compliance must also be made with any exchange control, fiscal or other laws or regulations for the time being applicable.
c) No fraction of a Share will be allotted but any balance representing fractions of the subscription monies paid on the exercise of the Subscription Rights will be refunded to the person or persons whose names) stands) in the register of holders of Warrants as the holders) of the relevant Warrants, provided always that if the Subscription Rights comprised in two or more Warrant certificates are exercised at the same time by the same holder of Warrants then, for the purpose of determining whether any and if so what) fraction of a Share arises, the Subscription Rights represented by such Warrant certificates will be aggregated.
d) The Company undertakes in the Instrument that Shares falling to be issued upon the exercise of the Subscription Rights will be issued and allotted not later than 28 days after the relevant subscription date and will rank pari passu with the fully paid Shares in issue on the relevant subscription date unless adjustment has been made as provided in condition 3 of the Warrant certificates and accordingly will entitle the holders to participate in all dividends or other distributions declared, paid or made after the relevant subscription date and other than any dividend or other distribution previously declared recommended or resolved to be paid or made if the record date therefor is on or before the relevant subscription date and notice of the amount and record date for which has been given to the Stock Exchange as defined in the Instrument) prior to the relevant subscription date.
e) As soon as practicable after the relevant allotment of Shares and not later than 28 days after the relevant subscription date) there will be issued free of charge to the holders) of Warrants:
i) a certificate or certificates) for the relevant Shares in the names) of such holders) of Warrants;
ii) if applicable) a balancing Warrant certificate in registered form in the names) of such holders) of Warrants in respect of any Subscription Rights remaining unexercised;
iii) if applicable) a cheque representing any fractional entitlement to Shares not allotted as mentioned in sub-paragraph c) above; and
iv) if applicable) the relevant Deficiency Certificate as defined in Clause 6A)4)a)ii) of the Instrument).
The certificates) for Shares arising on the exercise of Subscription Rights, the balancing Warrant certificate if any) and the cheque if any) and the said Deficiency Certificate if any) will be sent by post at the risk of such holders) of Warrants to the address of such holders of Warrants or in the case of a joint holding) to that one of them whose name stands first in the
Ð 201 Ð APPENDIX IV SUMMARY OF THE TERMS OF THE WARRANTS register of holders of Warrants.If the Company agrees, such certificates and cheques may by prior arrangement be retained by the branch registrars for the time being of the Company in Hong Kong to await collection by the relevant holders) of Warrants.
2. ADJUSTMENTS OF SUBSCRIPTION PRICE
The Instrument contains detailed provisions relating to the adjustment of the Subscription Price.The following is a summary of and is subject to, the adjustment provisions of the Instrument:
a) The Subscription Price will except as mentioned in sub-paragraphs b) and c) below) be adjusted as provided in the Instrument in each of the following cases but shall however not be adjusted below the nominal value of Shares until the Subscription Right Reserve is maintained pursuant to clause 6 of the Instrument):
i) an alteration of the nominal amount of the Shares by reason of any consolidation or subdivision;
ii) an issue other than in lieu of a cash dividend) by the Company of Shares credited as fully paid by way of capitalisation of profits or reserves including any share premium account or capital redemption reserve fund);
iii) a capital distribution as defined in the Instrument) being made by the Company, whether on a reduction of capital or otherwise, to holders of Shares in their capacity as such;
iv) a grant by the Company to the holders of Shares in their capacity as such) of rights to acquire for cash assets of the Company or any of its Subsidiaries as defined in the Instrument);
v) an offer of new Shares for subscription by way of rights, or grant of options or warrants to subscribe for new Shares, at a price which is less than 90 per cent.of the market price calculated as provided in the Instrument) being made by the Company to holders of Shares in their capacity as such);
vi) an issue wholly for cash being made by the Company or any other company of securities convertible into or exchangeable for or carrying rights of subscription for new Shares, if in any case the total Effective Consideration as defined in the Instrument) per Share is less than 90 per cent of the market price calculated as provided in the Instrument), or the terms of any such issue being altered so that the said total Effective Consideration is less than 90 per cent of the market price;
vii) an issue of Shares being made wholly for cash other than pursuant to a Share Option Scheme, as defined in the Instrument) at a price less than 90 per cent of the market price calculated as provided in the Instrument); and
Ð 202 Ð APPENDIX IV SUMMARY OF THE TERMS OF THE WARRANTS
viii) the purchase by the Company of Shares or securities convertible into Shares or any rights to acquire Shares in circumstances where Directors consider that it may be appropriate to make an adjustment to the Subscription Price.
b) Except as mentioned in sub-paragraph c) below, no such adjustment as is referred to in sub-paragraph a) above will be made in respect of:
i) an issue of fully-paid Shares upon the exercise of any conversion rights attached to securities convertible into Shares or upon the exercise of any rights including the Subscription Rights) to acquire Shares;
ii) an issue by the Company of Shares or by the Company or any Subsidiary of securities convertible into or carrying rights to acquire Shares, in any such case in consideration or in part consideration for the acquisition of any other securities, assets or business;
iii) an issue of fully-paid Shares by way of capitalisation of all or part of the Subscription Right Reserve as defined in the Instrument) to be established in certain circumstances pursuant to the terms and conditions contained in the Instrument or any similar reserve which has been or may be established pursuant to the terms of any other securities convertible into or rights to acquire Shares);
iv) an issue of Shares in lieu of a cash dividend where an amount not less than the nominal amount of the Shares so issued is capitalised and the market value calculated as provided in the Instrument) of such Shares is not more than 110 per cent of the amount of dividend which holders of Shares could elect to or would otherwise receive in cash;
v) an issue by the Company of Shares or by the Company or any Subsidiary of securities convertible into or exchangeable for or carrying rights of subscription for Shares pursuant to a Share Option Scheme as defined in the Instrument); or
vi) a subsequent issue of warrants subject to and with the benefit of the Instrument.
c) Notwithstanding the provisions referred to in sub-paragraphs a) and b) above, in any circumstances where the Directors consider that an adjustment to the Subscription Price provided for under the said provisions should not be made or should be calculated on a different basis or that an adjustment to the Subscription Price should be made notwithstanding that no such adjustment is required under the said provisions, the Company may appoint an approved merchant bank as defined in the Instrument) to consider whether for any reason whatever the adjustment to be made or the absence of adjustment) would not or might not fairly and appropriately reflect the relative interests of the persons affected thereby and, if such an approved merchant bank considers this to be the case, the adjustment will be modified or nullified or an adjustment made instead of no adjustment in such manner including, without limitation, making an adjustment calculated on a different basis) as is certified by such approved merchant bank to be in its opinion appropriate.
Ð 203 Ð APPENDIX IV SUMMARY OF THE TERMS OF THE WARRANTS
d) Any adjustment to the Subscription Price will be made to the nearest one cent so that any amount of half a cent or more will be rounded up.No adjustment will be made to the Subscription Price in any case in which the amount by which the same would be reduced would be less than one cent and any adjustment which would otherwise then be required will not be carried forward.No adjustment may be made except on a consolidation of Shares or on a repurchase of Shares) which would increase the Subscription Price.
e) Every adjustment to the Subscription Price will be certified by the auditors of the Company or an approved merchant bank and notice of each adjustment giving the relevant particulars) will be given to the holders of Warrants.Any such certificates of the auditors and/or approved merchant bank will be available at the principal place of business for the time being of the Company in Hong Kong or such other place as may be notified to the holders of Warrants from time to time, where copies may be obtained.
3. REGISTERED WARRANTS
The Warrants will be issued in registered form.The Company will be entitled to treat the registered holder of any Warrant as the absolute owner thereof and accordingly will not, except as ordered by a court of competent jurisdiction or required by law, be bound to recognise any equitable or other claim to or interest in such Warrant on the part of any other person, whether or not it has express or other notice thereof.
4. WINDING-UP OF THE COMPANY
If an effective resolution is passed for the voluntary winding-up of the Company, then:
a) if such winding-up is for the purpose of reconstruction or amalgamation pursuant to a scheme of arrangement to which the holders of Warrants or some person designated by them for such purpose by Special Resolution, will be a party or in conjunction with which a proposal is made to the holders of Warrants and is approved by Special Resolution, the terms of such scheme of arrangement or as the case may be) proposal will be binding on all the holders of Warrants; and
b) in any other case every holder of Warrants will be entitled at any time within six weeks after the passing of such resolution for the voluntary winding-up of the Company by irrevocable surrender of his Warrants certificates) to the Company with the subscription formss) duly completed, together with payment of the subscription monies or the relative portion thereof, to elect to be treated as if he had immediately prior to the commencement of such winding-up exercised the Subscription Rights represented by such Warrant certificate to the extent specified in the subscription forms) and had on such date been the holder of the Shares to which he would have become entitled pursuant to such exercise and the Company and the liquidator of the Company will give effect to such election accordingly.The Company shall give notice
Ð 204 Ð APPENDIX IV SUMMARY OF THE TERMS OF THE WARRANTS
to the holders of Warrants of the passing of any such resolution within seven days after the passing thereof and such notice will contain a reminder to holders of Warrants with respect to their rights referred to in this paragraph b).
Subject to the foregoing, if the Company is wound up, all Subscription Rights which have not been exercised at the commencement of the winding up will lapse and each Warrant certificate will cease to be valid for any purpose.
5. TRANSFER, TRANSMISSION AND REGISTER
The Subscription Rights will be transferable, in whole amounts or multiples of HK$0.40 of Subscription Rights, by instrument of transfer in any usual or common form or in any other form which may be approved by the directors of the Company.The Company will maintain a register of holders of Warrants accordingly.Transfers of Warrants must be executed by both the transferor and the transferee.Where the transferor or the transferee is HKSCC Nominees Limited or its successor) or such other companies as may be approved by the Board of Directors for this purpose), the transfers may be executed by hand or by machine imprinted signature on its behalf. The provisions of the Company's Bye-laws relating to the registration, transfer and transmission of Shares shall, mutatis mutandis, apply to the registration, transfer and transmission of the Warrants except where there are express provisions to the contrary in the conditions endorsed on the Warrant Certificates).
Persons should note that additional costs and expenses may be incurred in connection with any expedited re-registration of the Warrants prior to the transfer or exercise of the Warrants, in particular, during the period commencing 10 business days prior to and including the last day for subscription being 27th July, 2002.
Since the Warrants will be admitted to the Central Clearing and Settlement System established and operated by Hong Kong Securities Clearing Company Limited subject to the General Rules of the Central Clearing and Settlement System and its Operational Procedures in force from time to time), the Company may determine the last trading day of the Warrants to be a date at least three 3) business days before 27th July, 2002.
6. CLOSURE OF REGISTER OF WARRANTHOLDERS
The registration of transfers may be suspended and the Register may be closed for such period as the Directors may from time to time direct, provided that the same may not be closed for a period, or for periods together, of more than sixty 60) days in any one year.There are also provisions relating to transfer of the Warrants during such period.
7. PURCHASE AND CANCELLATION
The Company or any of the Subsidiaries as defined in the Instrument) may at any time purchase Warrants:
a) in the open market or by tender available to all holders of Warrants alike) at any price; or
Ð 205 Ð APPENDIX IV SUMMARY OF THE TERMS OF THE WARRANTS
b) by private treaty at a price, exclusive of expenses, not exceeding 110 per cent of the average closing price on the Stock Exchange per warrant for one or more board lots of Warrants for the ten business days immediately prior to the date of purchase of the Warrants on the Stock Exchange, but not otherwise.All Warrants purchased as aforesaid will be cancelled forthwith and may not be re-issued or re-sold.
8. MEETINGS OF HOLDERS OF WARRANTS AND MODIFICATION OF RIGHTS
a) The Instrument contains provisions for convening meetings of holders of Warrants to consider any matter affecting the interest of holders of Warrants, including the modification by Special Resolution as defined in the Instrument) of the provisions of the Instrument and/or of the terms and conditions endorsed on the Warrant certificates. A Special Resolution duly passed at any such meeting will be binding on the holders of Warrants, whether present or not.
b) All or any of the rights for the time being attached to the Warrants including any of the provisions of the Instrument) may from time to time whether or not the Company is being wound up) be altered or abrogated including but without prejudice to that generality by waiving compliance with, or by waiving or authorising any past or proposed breach of, any of the provisions of the conditions of the Warrant and/or the Instrument) with the sanction of a Special Resolution and may be effected only by deed poll executed by the Company and expressed to be supplemental to the Instrument.
9. QUORUM
A quorum of a meeting of holders of the Warrants will be two or more persons representing in aggregate the holding of not less than 5 per cent of the Warrants outstanding, present in person or by proxy.
10. REPLACEMENT OF WARRANT CERTIFICATES
If a Warrant certificate is mutilated, defaced, lost or destroyed, it may, at the discretion of the Company, be replaced at the principal office of the branch registrars in Hong Kong for the time being of the Company on payment of such costs as may be incurred in connection therewith and on such terms as to evidence, indemnity and/or security as the Company may require and on payment of such fee not exceeding $2.50 or such other amount as may from time to time be permitted under the rules prescribed by the Stock Exchange) as the company may determine. Mutilated or defaced Warrant certificates must be surrendered before replacements will be issued.
In case of loss of Warrant certificates, Section 71A, Subsections 2), 3), 4), 6), 7) and 8) of the Companies Ordinance shall apply as if ``Shares'' referred to therein included the Warrants.
11. PROTECTION OF SUBSCRIPTION RIGHTS
The Instrument contains certain undertakings by and restrictions on the Company designed to protect the Subscription Rights.
Ð 206 Ð APPENDIX IV SUMMARY OF THE TERMS OF THE WARRANTS
12. CALL
If at any time Warrants which have not been exercised carry rights to subscribe less than or equal to 20 per cent of the amount of Exercise moneys attached to the aggregate of all the Warrants issued under the Instrument, the Company may, on giving not less than 3 months' notice, require holders of Warrants either to exercise their Subscription Rights or to allow them to lapse.On expiry of such notice, all unexercised Warrants will be automatically cancelled without compensation.
13. FURTHER ISSUES
The Company is at liberty to issue further subscription warrants.
14. UNDERTAKINGS BY THE COMPANY
The Company undertakes in the Instrument that:
a) so long as the Shares remain listed on the Stock Exchange, it will use its best endeavours to ensure that all Shares allotted on exercise of Subscription Rights will be admitted to listing on the Stock Exchange;
b) it will send to holders of Warrants, at the same time as the same are sent to the holders of Shares, its audited accounts and all other notices, reports and communications despatched by it to the holders of the Shares generally;
c) it will pay all Hong Kong and Bermuda stamp and capital duties, registration fees or similar charges payable in respect of the execution of the Instrument, the creation and initial issue of the Warrants in registered form, the exercise of the Subscription Rights and the issue of Shares upon exercise of the Subscription Rights; and
d) It will keep available for issue sufficient Ordinary Capital to satisfy in full all rights for the time being outstanding of subscription for and conversion into Shares.
15. NOTICES
The Instrument contains provisions relating to notices to be given to holders of Warrants.
16. OVERSEAS WARRANTHOLDERS
The Instrument contains discretions to the Directors in the case of any holder of Warrants who has an address in any territory other than Hong Kong) where, in the opinion of the Directors, the issue of Shares upon exercise of the Subscription Right attaching to the Warrants of such holder of Warrants may be unlawful or impracticable.
17. GOVERNING LAW
The Instrument and the Warrants are governed by and will be construed in accordance with the laws of Hong Kong.
Ð 207 Ð APPENDIX V STATUTORY AND GENERAL INFORMATION
FURTHER INFORMATION ABOUT THE COMPANY AND ITS SUBSIDIARIES
Incorporation
The Company was incorporated in Bermuda under the Companies Act as an exempted company with limited liability on 8th May, 2000. The Company has established a place of business in HongKongat 24th Floor, 1063 King'sRoad, Quarry Bay, HongKongand was registeredas an overseas company in HongKongunder Part XI of the Companies Ordinance on 3rd July, 2000. Ip Saimond was appointed as the agent of the Company for the acceptance of service of process in HongKong.As the Company is incorporated in Bermuda, its operations are subject to the Companies Act and to its constitution which comprises a memorandum of association and bye-laws. A summary of various parts of the constitution and relevant aspects of the Companies Act is set out in Appendix III.
Changes in share capital of the Company
3a) At the date of incorporation of the Company, its initial authorised share capital was $100,000.00 divided into 10,000,000 shares of $0.01 each, all of which were issued and allotted nil paid to Ip Saimond on 9th May, 2000.
3b) on 24th May, 2000, the 10,000,000 shares of $0.01 each registered in the name of Ip Saimond were sub-divided into 1,000,000,000 Shares.
3c) On 24th May, 2000, the Company increased its authorised share capital from $100,000.00 to $500,000.00 by the creation of an additional 4,000,000,000 Shares.
3d) On 12th July, 2000, as consideration for the acquisition of the entire issued share capital of CCC by the Company from the CCC shareholders:
3i) the Company allotted and issued an aggregate of 710,996,000 Shares, credited as fully paid at par, and procured the transfer by Ip Saimond of 841,594,000 Shares, credited as fully paid at par, to the CCC shareholders 3other than Ip Saimond) as follows:
No. of CCC shares transferred by No. of Shares allotted each CCC and issued/transferred to Name of CCC Shareholder shareholder each CCC shareholder
ACAEDL Limited note 1) 24,700 326,052,000 Cyber Channel Limited note 2) 6,300 83,166,000 Drummond Finance Limited note 3) 31,050 409,878,000 Batan Cyberbase Inc. note 4) 1,300 17,166,000 MKT Holdings 3Cayman Islands) LLC note 5) 11,500 151,806,000 Emerald Rise Limited note 4) 8,000 105,606,000 Ip Saimond 12,000 note 6)
Ð 208 Ð APPENDIX V STATUTORY AND GENERAL INFORMATION
No. of CCC shares transferred by No. of Shares allotted each CCC and issued/transferred to Name of CCC Shareholder shareholder each CCC shareholder
CheongHenry YingChew 1,500 19,806,000 YeungKwok Mung 3,200 42,246,000 Poon Wan Fung2,200 29,046,000 NgAndrew Shu Bun 1,600 21,126,000 Kan Frederick Shiu Cheong560 7,398,000 CheungLouis Chi Yan 350 4,626,000 Siau Hong350 4,626,000 Goh Yet Hun 700 9,246,000 HuangErwin Steve 1,750 23,106,000 Mo Yuan-Wu 420 5,550,000 Hui Yin Fat 280 3,702,000 ChengAlbert Jinghan 100 note 7) 1,326,000 Au Tak Yee 6,000 79,206,000 Kwan Man Chun 80 1,062,000 Chan Wai Hung40 534,000 Lai Chak Fun 40 534,000 LeungKam Cheung 40 534,000 LeungTak Man 40 534,000 WongChe Kuen 40 534,000 Lo Irene Kam Sheung1,000 13,206,000 Lo Francis Kam Foon 180 2,382,000 Lo Kam Ling420 5,550,000 Lo Kam Yee 660 8,718,000 Chiu Rita Kit Ling1,300 17,166,000 Ni I-Hsun 840 11,094,000 ChengAnna Yuen Ha 25 336,000 Ho Yee Kam 25 336,000 Ho Leon Wai Lun 25 336,000 Ho Ricardo Wai Hung25 336,000 Huey KW Michael 400 5,286,000 Huey CY Larry 400 5,286,000 Huey KY Billy 400 5,286,000 Huey Kit Yu 160 2,118,000 Integrated Asset Management 3Asia) Ltd. note 4) 2,400 31,686,000 Taifair Asset Management & Holdings Ltd. note 4) 2,400 31,686,000 H.C.B.C. Enterprises Ltd. note 4) 4,800 63,366,000
Total 129,600 1,552,590,000
Ð 209 Ð APPENDIX V STATUTORY AND GENERAL INFORMATION
Notes:
31) ACAEDL Limited is wholly-owned by ChungPo Yangwho is the brother of ChungWai Yang,a non- executive Director. ChungWai Yangis also a director of ACAEDL Limited.
32) Cyber Channel Limited is wholly-owned by ChungWai Yang.
33) Drummond Finance Limited is the wholly-owned subsidiary of Umbel Inc., which is a company owned by CIBC Trust Company 3Bahamas) Limited as trustee of the Albert ChengFamily Trust. ChengAlbert Jinghan and his children are discretionary beneficiaries of such trust. Cheng Albert Jinghan is a director of Drummond Finance Limited.
34) Each of Batan Cyberbase Inc., Emerald Rise Limited, Integrated Asset Management 3Asia) Ltd., Taifair Asset Management & Holdings Ltd. and H.C.B.C. Enterprises Ltd is an independent third party who is not connected with the directors, chief executive, substantial shareholders or management shareholders of the Company or its subsidiaries or their respective associates 3as defined in the GEM ListingRules).
35) MKT Holdings 3Cayman Islands) LLC is wholly-owned by Tsang Moses Kwok Tai.
36) Upon transferringthe 841,594,000 Shares in accordance with the terms of the acquisition, the number of Shares held by Dr. Ip Saimond is 158,406,000.
37) The total acquisition cost paid by ChengAlbert Jinghanin respect of the 100 CCC shares is US$10.00 which were acquired by him on 8th November, 1996 and 23rd September, 1997.
3ii) the Company credited as fully paid at par the 1,000,000,000 Shares which had been allotted and issued nil paid to Ip Saimond.
3e) On 12th July, 2000, the Company issued and allotted an aggregate of 98,634,000 Shares to 12 Internet content providers/consultants of the Group 3as referred to under items 3ss) to 3eee) of the paragraph headed ``Summary of material contracts'' in this Appendix) at par.
3f) On 12th July, 2000, the Company issued and allotted an aggregate of 351,396,000 Shares pursuant to the CCC Options Conversion Agreement and the Topspin Options Conversion Agreement in relation to the exercisable options:
CCC Share Option Scheme
No. of Shares Optionholders issued and allotted Consideration HK$
Directors Ip Saimond 85,050,000 8,505.00 YeungKwok Mung 25,992,000 2,599.20 TsangMoses Kwok Tai 13,290,000 1,329.00 Poon Kai Tik 5,910,000 591.00 HuangErwin Steve 2,220,000 222.00
Senior Management Poon Wan Fung11,814,000 1,181.40 NgAndrew Shu Bun 1,554,000 155.40
Others Drummond Finance Limited Note) 192,612,000 19,261.20
Ð 210 Ð APPENDIX V STATUTORY AND GENERAL INFORMATION
Note: Drummond Finance Limited is the wholly-owned subsidiary of Umbel Inc., which is a company owned by CIBC Trust Company 3Bahamas) Limited as trustee of the Albert ChengFamily Trust. ChengAlbert Jinghanand his children are discretionary beneficiaries of such trust and ChengAlbert Jinghanis therefore deemed to be interested in these Shares. ChengAlbert Jinghanis a director of Drummond Finance Limited.
Topspin Share Option Scheme
A total of 12,954,000 Shares were issued and allotted to 69 employees of Topspin at par as to 9,900,000 Shares, at approximately HK$0.0667 per share as to 90,000 Shares, at HK$0.08 per share as to 30,000 Shares, at approximately HK$0.0833 per share as to 162,000 Shares, at approximately HK$0.0857 per share as to 168,000 Shares, at approximately HK$0.0882 per share as to 204,000 Shares, at approximately HK$0.0893 per share as to 756,000 Shares, at HK$0.09 per share as to 150,000 Shares, at approximately HK$0.0901 per share as to 666,000 Shares and at approximately HK$0.0906 per share as to 828,000 Shares.
For further details, please see the section headed ``Share Options'' below.
Assumingthat the Share Offer becomes unconditional and the issue of the new Shares mentioned herein are made, but takingno account of any Shares that may be issued upon the exercise of the Over-allotment Option, the authorised share capital of the Company will be $500,000 divided into 5,000,000,000 Shares and the issued capital of the Company will be $244,102.60 divided into 2,441,026,000 Shares, fully paid or credited as fully paid, and 2,558,974,000 Shares will remain unissued. There will be in issue Warrants to subscribe up to HK$112,000,000 3or HK$128,800,000 takinginto account full exercise of the Over-allotment Option) in aggregate in cash for a total of 280,000,000 new Shares 3or 322,000,000 new Shares takinginto account full exercise of the Over-allotment Option) at an initial subscription price of HK$0.40 per Share, subject to adjustment. Other than pursuant to the exercise of the subscription rights attaching to the Warrants or the exercise of any options under the Pre-IPO Share Option Scheme or any options which may be granted under the Share Option Scheme or pursuant to the exercise of the Over-allotment Option, there is no present intention to issue any part of the authorised but unissued capital of the Company and, without the prior approval of the members in general meeting, no issue of Shares will be made which would effectively alter the control of the Company.
Save as aforesaid, there has been no alteration in the share capital of the Company since the date of its incorporation.
Resolutions in writing of the sole shareholder of the Company passed on 12th July, 2000
On 12th July, 2000, resolutions of the sole shareholder of the Company were passed that, inter alia:
3a) the Directors were authorised to allot and issue an aggregate of 710,996,000 Shares credited as fully paid at par and procure the transfer by Ip Saimond of 841,594,000 Shares, credited as fully paid at par, to the CCC shareholders 3other than Ip Saimond) or such persons as they may direct and to credit as fully paid at par the 1,000,000,000
Ð 211 Ð APPENDIX V STATUTORY AND GENERAL INFORMATION
Shares which had been allotted and issued nil paid to Ip Saimond as set out in sub- paragraph 3d) of the paragraph headed ``Changes in share capital of the Company'' in this Appendix as consideration for the acquisition of the entire issued share capital of CCC by the Company;
3b) the Directors were authorised to allot and issue an aggregate of 98,634,000 Shares at par to the 12 Internet content providers/consultants 3or as they may direct) as set out in sub-paragraph 3e) of the paragraph headed ``Changes in share capital of the Company'' in this Appendix;
3c) the Directors were authorised to allot and issue an aggregate of 351,396,000 Shares pursuant to the CCC Options Conversion Agreement and the Topspin Options Conversion Agreement as set out in sub-paragraph 3f) of the paragraph headed ``Changes in share capital of the Company'' in this Appendix;
3d) conditional on 3i) the GEM ListingCommittee grantinglistingof, and permission to deal in, the Shares in issue and the Shares to be issued as mentioned herein 3including any Shares which may be made available pursuant to the exercise of the Over- allotment Option); and 3ii) the obligations of the Underwriters under the Underwriting Agreementbecomingunconditional and not beingterminated in accordance with the terms of the UnderwritingAgreement,the Share Offer and the Over-allotment Option were approved and the Directors were authorised to allot and issue the Public Offer Shares, the PlacingShares and the Shares which may be required to be issued if the Over-allotment Option is exercised;
3e) conditional on 3i) the GEM ListingCommittee grantinglistingof, and permission to deal in, the Shares in issue and the Shares to be issued as mentioned herein 3including any Shares which may be made available pursuant to the exercise of the Over- allotment Option); 3ii) the GEM Listing Committee granting approval of the granting of any options under the Pre-IPO Share Option Scheme and the granting of the listing of, and permission to deal in, any Shares which may fall to be issued pursuant to the exercise of any such option under the Pre-IPO Share Option Scheme; and 3iii) the obligations of the Underwriters under the Underwriting Agreement becoming unconditional and not beingterminated in accordance with the terms of the UnderwritingAgreement, the rules of the Pre-IPO Share Option Scheme were approved and adopted and the Directors were authorised, at their absolute discretion, to grant options to subscribe for Shares thereunder and to allot, issue and deal with Shares pursuant to the exercise of subscription rights under any options which may be granted under the Pre-IPO Share Option Scheme and to take all such steps as they consider necessary or desirable to implement the Pre-IPO Share Option Scheme;
3f) conditional on 3i) the GEM ListingCommittee grantinglistingof, and permission to deal in, the Shares in issue and the Shares to be issued as mentioned herein 3including any Shares which may be made available pursuant to the exercise of the Over- allotment Option); 3ii) the GEM Listing Committee granting approval of the granting of any options under the Share Option Scheme and the granting of the listing of, and
Ð 212 Ð APPENDIX V STATUTORY AND GENERAL INFORMATION
permission to deal in, any Shares which may fall to be issued pursuant to the exercise of any such option under the Share Option Scheme; and 3iii) the obligations of the Underwriters under the UnderwritingAgreementbecomingunconditional and not beingterminated in accordance with the terms of the UnderwritingAgreement, the rules of the Share Option Scheme were approved and adopted and the Directors were authorised, at their absolute discretion, to grant options to subscribe for Shares thereunder and to allot, issue and deal with Shares pursuant to the exercise of subscription rights under any options which may be granted under the Share Option Scheme and to take all such steps as they consider necessary or desirable to implement the Share Option Scheme;
3g) the instrument constituting the Warrants and the creation of the Warrants were approved and the Directors were authorised to issue the Warrants by way of bonus issue to the successful subscribers and placees under the Share Offer 3includingShares that may be issued upon the exercise of the Over-allotment Option 3where relevant)) immediately followingthe allotment and issue of Shares under the Share Offer and the exercise of the Over-allotment Option 3where relevant) in the proportion of one Warrant for every Offer Share and to allot, issue and deal with any Shares which might fall to be allotted and issued upon the exercise of the subscription rights attaching to the Warrants and to take all such steps as they consider necessary or desirable to implement the instrument constitutingthe Warrants;
3h) a general unconditional mandate was given to the Directors to allot, issue and deal with Shares, or securities convertible into such Shares or to make or grant offers, agreements and options including warrants which may require the exercise of such powers, otherwise than by way of rights or an issue of shares upon the exercise of any subscription rights attached to any warrants of the Company or pursuant to a rights issue or pursuant to the exercise of any options which may be granted under the Pre- IPO Share Option Scheme or the Share Option Scheme or any other option scheme or similar arrangement for the time being adopted for the grant or issue to officers and/or employees of the Company and/or any of its subsidiaries of shares or rights to acquire Shares or any scrip dividend schemes or similar arrangements providing for the allotment and issue of Shares in lieu of the whole or part of a dividend on Shares in accordance with the bye-laws of the Company or a specific authority granted by the shareholders of the Company in general meeting, with a total nominal amount not exceeding 20 per cent of the aggregate of 3i) the total nominal value of the share capital of the Company in issue immediately followingcompletion of the Share Offer; and 3ii) the total nominal value of the share capital of the Company which may be issued pursuant to the Over-allotment Option, such mandate to remain in effect until whichever is the earliest of:
3i) the conclusion of the next annual general meeting of the Company;
3ii) the expiration of the period within which the next annual general meeting of the Company is required by the bye-laws of the Company or any applicable laws to be held; or
Ð 213 Ð APPENDIX V STATUTORY AND GENERAL INFORMATION
3iii) the passingof an ordinary resolution of the shareholders of the Company in general meeting revoking, varying or renewing such mandate;
3i) a general unconditional mandate was given to the Directors authorising them to exercise all powers of the Company to repurchase on the GEM or on any other stock exchange on which the securities of the Company may be listed and which is recognised by the Securities and Futures Commission in Hong Kong and the Stock Exchange for this purpose such number of Shares as will represent up to 10 per cent of the aggregate of 3i) the total nominal value of the share capital of the Company in issue immediately followingcompletion of the Share Offer; and 3ii) the total nominal value of the share capital of the Company which may be issued pursuant to the Over- allotment Option and 10 per cent of the amount of the Warrants to be issued as mentioned herein, such mandate to remain in effect until whichever is the earliest of:
3i) the conclusion of the next annual general meeting of the Company;
3ii) the expiration of the period within which the next annual general meeting of the Company is required by the bye-laws of the Company or any applicable laws to be held; or
3iii) the passingof an ordinary resolution of the shareholders of the Company in general meeting revoking, varying or renewing such mandate;
3j) the general unconditional mandate mentioned in paragraph 3h) above was extended by the addition to the aggregate nominal value of the share capital of the Company which may be allotted or agreed conditionally or unconditionally to be allotted by the Directors pursuant to such general mandate of an amount representing the aggregate nominal value of the share capital of the Company repurchased by the Company pursuant to the mandate referred to in paragraph 3i) above provided that such extended amount shall not exceed 10 per cent of the aggregate of 3i) the total nominal value of the share capital of the Company in issue immediately followingcompletion of the Share Offer; and 3ii) the total nominal value of the share capital of the Company which may be issued pursuant to the Over-allotment Option; and
3k) the Company approved and adopted its existingbye-laws.
Corporate reorganisation
The companies comprisingthe Group underwent a reorganisation to rationalise the Group's structure in preparation for the listingof the Shares on GEM. iFocus Group Limited became the intermediate holdingcompany and the Company became the ultimate holdingcompany of the Group. The Reorganisation involved 3i) the acquisition of an interest in certain subsidiaries by CCC as set out in sub-paragraphs 3f) to 3hh) of the paragraph headed ``Summary of material contacts'' in this Appendix; 3ii) the acquisition of interests in certain web-sites by certain members of the Group pursuant to the assignments set out in sub-paragraphs 3jj) to 3qq) of the paragraph headed ``Summary of material contracts'' in this Appendix, 3iii) the disposition of 7,000 shares of US$1.00 each in Elm Tree Group Limited at HK$10.00 per share to Guangzhou Communications Advisory 3China) Company Limited; and 3iv) the acquisition of the entire issued
Ð 214 Ð APPENDIX V STATUTORY AND GENERAL INFORMATION share capital of CCC on 12th July, 2000 in consideration for (a) the issue and allotment of an aggregate of 710,996,000 Shares credited as fully paid at par and the procurement of the transfer by Ip Saimond of 841,594,000 Shares, credited as fully paid at par, to the shareholders of CCC (other than Ip Saimond); and (b) the Company crediting as fully paid at par the 1,000,000,000 Shares which had been allotted and issued nil-paid to Ip Saimond as set out in sub-paragraph (d) of the paragraph headed ``Changes in share capital of the Company'' in this Appendix.
Changes in the share capital of the subsidiaries
The subsidiaries of the Company are referred to in the accountants report, the text of which is set out in Appendix I to this prospectus.
In addition to those mentioned in the paragraph headed ``Corporate Reorganisation'' in this Appendix, the following alterations in the share capital of subsidiaries of the Company have taken place within the two years immediately preceding the date of this prospectus:
(a) iFocus Group Limited
(i) on 10th May, 2000, iFocus Group Limited issued and allotted 1 share of US$1.00 each at par to the Company.
(b) Cyber Communications Corporation Ltd.
(i) on 24th January, 2000, the 10 shares of US$1.00 each in CCC registered in the name of Cheng Albert Jinghan were sub-divided into 100 shares of US$0.10 each and each of the 49,990 shares of US$1.00 each in the unissued authorized share capital of CCC was sub-divided into 10 shares of US$0.10 each;
(ii) on 1st February, 2000, CCC issued and allotted an aggregate of 19,900 shares of US$0.10 each at par as follows:
No. of shares Name subscribed
Drummond Finance Limited (note 1) 6,650 MKT Holdings (Cayman Islands) LLC (note 2) 1,500 Ip Saimond 5,000 Yeung Kwok Mung 2,000 Poon Wan Fung 1,000 Ng Shu Bun Andrew 1,000 Huang Erwin Steve 750 Au Tak Yee 2,000
Total 19,900
Ð 215 Ð APPENDIX V STATUTORY AND GENERAL INFORMATION
Notes:
31) Drummond Finance Limited is the wholly-owned subsidiary of Umbel Inc. which is a company owned by CIBC Trust Company 3Bahamas) Limited as trustee of the Albert ChengFamily Trust, ChengAlbert Jinghanand his children are discretionary beneficiaries of such trust. ChengAlbert Jinghan is a director of Drummond Finance Limited.
32) MKT Holdings 3Cayman Islands) LLC is wholly owned by Tsang Moses Kwok Tai.
33) Ip Saimond and YeungKwok Mungare executive Directors of the Company and HuangErwin Steve is a non-executive Director of the Company. Poon Wan Fungand NgShu Bun Andrew are respectively the chief technology officer and the chief financial officer of the Group. Au Tak Yee is an employee of the Group who is the wife of Poon Kai Tik, a non-executive Director of the Company.
3iii) on 18th February, 2000, CCC issued and allotted an aggregate of 100,000 shares of US$0.10 each at HK$500.00 per share as follows:
No. of shares Name subscribed
ACAEDL Limited note 1) 24,700 Drummond Finance Limited note 2) 24,400 MKT Holdings 3Cayman Islands) LLC note 3) 10,000 Emerald Rise Limited note 4) 8,000 Ip Saimond 7,000 Cyber Channel Limited note 5) 6,300 Au Tak Yee 4,000 CheongYingChew Henry 1,500 Batan Cyberbase Inc. note 4) 1,300 Chiu Kit LingRita 1,300 YeungKwok Mung 1,200 Poon Wan Fung1,200 HuangErwin Steve 1,000 Lo Irene Kam Sheung1,000 Ni I-Hsun 840 Goh Yet Hun 700 Lo Kam Yee 660 NgShu Bun Andrew 600 Kan Shiu CheongFrederick 560 Lo Kam Ling420 Mo Yuan-Wu 420 Huey Kw Michael 400 Huey Cy Larry 400 Huey Ky Billy 400 CheungChi Yan Louis 350 Siau Hong350 Hui Yin Fat 280 Lo Kam Foon Francis 180
Ð 216 Ð APPENDIX V STATUTORY AND GENERAL INFORMATION
No. of shares Name subscribed
Huey Kit Yu 160 Kwan Man Chun 80 Chan Wai Hung 40 Lai Chak Fun 40 Leung Kam Cheung 40 Leung Tak Man 40 Wong Chi Kuen 40 Cheng Yuen Ha Anna 25 Ho Yee Kam 25 Ho Wai Lun Leon 25 Ho Wai Hung Ricardo 25
Total 100,000
Notes:
(1) ACAEDL Limited is wholly-owned by Chung Po Yang who is the brother of Chung Wai Yang, a non-executive Director. Chung Wai Yang is also a director of ACAEDL Limited.
(2) Drummond Finance Limited is the wholly-owned subsidiary of Umbel Inc., which is a company owned by CIBC Trust Company (Bahamas) Limited as trustee of the Albert Cheng Family Trust. Cheng Albert Jinghan and his children are discretionary beneficiaries of such trust. Cheng Albert Jinghan is a director of Drummond Finance Limited.
(3) MKT Holdings (Cayman Islands) LLC is wholly-owned by Tsang Moses Kwok Tai.
(4) Each of Emerald Rise Limited and Batan Cyberbase Inc. is an independent third party who is not connected with the directors, chief executive, substantial shareholders or management shareholders of the Company or its subsidiaries or their respective associates (as defined in the GEM Listing Rules).
(5) Cyber Channel Limited is wholly-owned by Chung Wai Yang.
(iv) on 17th May, 2000, CCC issued and allotted an aggregate of 9,600 shares of US$0.10 each at HK$4,166.66 per share as follows:
No. of shares Name subscribed
Integrated Asset Management (Asia) Ltd. 2,400 Taifair Asset Management & Holdings Ltd. 2,400 H.C.B.C. Enterprises Ltd. 4,800
Total 9,600
Ð 217 Ð APPENDIX V STATUTORY AND GENERAL INFORMATION
Note: Each of Integrated Asset Management 3Asia) Ltd., Taifair Asset Management and Holdings Ltd. and H.C.B.C. Enterprise Ltd. is an independent third party who is not connected with the directors, chief executive, substantial shareholders or management shareholders of the Company or its subsidiaries or their respective associate 3as defined in the GEM ListingRules).
3c) Dymo Group Limited
3i) on 14th April, 2000, Dymo Group Limited issued and allotted 7,000 shares of US$1.00 each at $300.00 per share to CCC, 1,000 shares of US$1.00 each at $300.00 per share and 1,000 shares of US$1.00 each at $10.00 per share to Guangzhou Communications Advisory 3China) Company Limited.
3ii) on 16th May, 2000, Guangzhou Communications Advisory 3China) Company Limited transferred the 2,000 shares of US$1.00 each to CCC at $300.00 per share as to 1,000 shares and at $10.00 per share as to 1,000 shares.
3d) Cyber Services Limited formerly known as International Netlink Limited)
on 17th April, 2000, 1 subscriber share of $1.00 each was transferred to each of Cheng Albert Jinghan 3on trust for CCC) and CCC at par.
3e) Cybercom Marketing Limited formerly known as Plug In Technology Limited)
3i) on 31st March, 2000, each of the 50,000 shares of US$1.00 each in the authorized share capital of Cybercom MarketingLimited was sub-divided into 10 shares of US$0.10 each;
3ii) on 14th April, 2000, Cybercom MarketingLimited issued and allotted 80,000 shares of US$0.10 each at HK$1.00 per share to CCC.
3f) Topspin Associates Limited
3i) on 1st September, 1999, Topspin issued and allotted 1 share of US$1.00 each at par to CCC;
3ii) on 21st March, 2000, Topspin issued and allotted 49,999 shares of US$1.00 each at par to CCC.
3g) Communication Logistics Limited
on 3rd May, 2000, Communication Logistics Limited issued and allotted 1 share of US$1.00 each at par to CCC.
3h) Worldwide Net Limited
on 8th May, 2000, 1 subscriber share of $1.00 each was transferred to each of Cheng Albert Jinghan 3on trust for CCC) and CCC at par.
Ð 218 Ð APPENDIX V STATUTORY AND GENERAL INFORMATION
3i) Easy Cyber Limited
on 8th May, 2000, 1 subscriber share of $1.00 each was transferred to each of Cheng Albert Jinghan 3on trust for CCC) and CCC at par.
3j) i.Trading Limited
on 8th May, 2000, 1 subscriber share of $1.00 each was transferred to each of Cheng Albert Jinghan 3on trust for CCC) and CCC at par.
3k) Netlink Limited
on 8th May, 2000, 1 subscriber share of $1.00 each was transferred to each of Cheng Albert Jinghan 3on trust for CCC) and CCC at par.
3l) Standard e-Commerce Limited
on 8th May, 2000, 1 subscriber share of $1.00 each was transferred to each of Cheng Albert Jinghan 3on trust for CCC) and CCC at par.
3m) Cyber Station Limited
on 8th May, 2000, 1 subscriber share of $1.00 each was transferred to each of Cheng Albert Jinghan 3on trust for CCC) and CCC at par.
3n) e.Cyber Creation Limited
on 8th May, 2000, 1 subscriber share of $1.00 each was transferred to each of Cheng Albert Jinghan 3on trust for CCC) and CCC at par.
3o) Century e-Commerce Limited
on 8th May, 2000, 1 subscriber share of $1.00 each was transferred to each of Cheng Albert Jinghan 3on trust for CCC) and CCC at par.
3p) Cyber Asia Holdings Limited
on 8th May, 2000, 1 subscriber share of $1.00 each was transferred to each of Cheng Albert Jinghan 3on trust for CCC) and CCC at par.
3q) Pacific Coast Limited
on 8th May, 2000, 1 subscriber share of $1.00 each was transferred to each of Cheng Albert Jinghan 3on trust for CCC) and CCC at par.
3r) Home Page Technology Limited
on 3rd May, 2000, Home Page Technology Limited issued and allotted 1 share of US$1.00 each at par to CCC.
Ð 219 Ð APPENDIX V STATUTORY AND GENERAL INFORMATION
3s) 36.com Canada) Limited
on 8th May, 2000, 36.com 3Canada) Limited issued and allotted 1 common share to CCC at HK$1.00.
3t) I-Digital Technology Limited
on 8th May, 2000, I-Digital Technology Limited issued and allotted 1 share of US$1.00 each at par to CCC.
3u) Quantitative Technology Limited
on 8th May, 2000, Quantitative Technology Limited issued and allotted 1 share of US$1.00 each at par to CCC.
Save as mentioned herein, there has been no alternation in the share capital of any of the subsidiaries of the Company within the two years immediately precedingthe date of this prospectus.
Repurchase by the Company of its own securities
This section includes the information required by the Stock Exchange to be included in this prospectus concerningthe repurchase by the Company of its own securities.
3a) The GEM Listing Rules
The GEM ListingRules permit companies whose primary listingsare on GEM to repurchase its securities on GEM subject to certain restrictions, the most important of which are summarised below:
3i) Shareholders' approval
All repurchases of securities on GEM by a company with its primary listingon GEM must be approved in advance by an ordinary resolution of the shareholders, either by way of general mandate or by specific approval in relation to a particular transaction.
Note: Pursuant to a resolution of the sole shareholder of the Company passed on 12th July, 2000, conditional upon listing, a general unconditional mandate 3the ``Buyback Mandate'') was given to the Directors authorisingthe Directors to exercise all powers of the Company to repurchase on GEM or any other stock exchange recognised by the Securities and Futures Commission in Hong Kongand the Stock Exchangefor this purpose, such number of Shares as will represent up to ten per cent of 3i) the total nominal value of the share capital of the Company in issue immediately followingcompletion of the Share Offer; and 3ii) the total nominal value of the share capital of the Company which may be issued pursuant to the Over-allotment Option and ten per cent of the amount of the Warrants to be issued as mentioned herein, such mandate to remain in effect until whichever is the earliest of 3a) the conclusion of the next annual general meeting of the Company; 3b) the expiration of the period within which the next annual general meeting of the Company is required by the bye-laws of the Company or any applicable laws to be held; or 3c) the passingof an ordinary resolution of the shareholders of the Company in general meeting revoking, varying or renewingsuch mandate.
Ð 220 Ð APPENDIX V STATUTORY AND GENERAL INFORMATION
3ii) Source of funds
Any repurchases must be financed out of funds legally available for the purpose in accordance with the memorandum of association and bye-laws of the Company and the applicable laws of Bermuda.
3iii) Trading restrictions
The total number of securities which a company is authorised to repurchase on GEM or on any other stock exchange recognised by the Securities and Futures Commission in HongKongand the Stock Exchangeare shares representingup to a maximum of 10 per cent of the aggregate nominal value of the existing issued share capital in the company and/or warrants to subscribe for shares in the company representingup to 10 per cent of the amount of warrants then outstandingat the date of the passingof the resolution grantingthe repurchase mandate. A company may not issue or announce an issue of new securities of the type that have been repurchased for a period of 30 days immediately followinga repurchase of securities whether on GEM or otherwise 3except pursuant to the exercise of warrants, share options or similar instruments requiringthe Company to issue securities which are outstandingprior to such repurchase) without the approval of the Stock Exchange. The GEM Listing Rules also prohibit a company from repurchasingits securities on GEM if the repurchase would result in the number of listed securities which are in the hands of the public fallingbelow the relevant prescribed minimum percentagefor that company as required by the Stock Exchange from time to time.
A company may only repurchase securities on GEM if 3i) the purchase price is not higher than the latest 3or current) independent bid price or the last independent sale 3contract) price quoted or reported on the system 3as defined in the Rules of the Stock Exchange), whichever is higher; and 3ii) the Company has not made the opening bid nor any bid in the last 30 minutes before the close of normal tradinghours as stipulated in the Rules of the Stock Exchange.
3iv) Status of repurchased securities
The listingof all repurchased securities 3whether on GEM or otherwise) is automatically cancelled and the certificates for those securities must be cancelled and destroyed. Under Bermuda law, all repurchased shares shall be treated as cancelled and the amount of the company's issued share capital shall be reduced by the aggregate nominal value of the repurchased shares accordingly although the authorised share capital of the company will not be reduced. Pursuant to the terms of the Instrument 3as defined in Appendix IV), all warrants purchased shall be cancelled forthwith and may not be re-issued or resold.
Ð 221 Ð APPENDIX V STATUTORY AND GENERAL INFORMATION
3v) Suspension of repurchase
Any securities repurchase programme is required to be suspended after a price- sensitive development has occurred or has been the subject of directors' decision until the price sensitive information has been publicly announced. In particular, duringthe period of one month immediately precedingeither the preliminary announcement of a company's annual results or the publication of a company's half yearly report or a quarterly report, a company may not repurchase securities on GEM, unless the circumstances are exceptional. In addition, the Stock Exchange may prohibit repurchases of securities on GEM if a company has breached the GEM ListingRules.
3vi) Reporting Requirements
Repurchases of securities on GEM or otherwise must be reported to the Stock Exchangenot later than 9: 30 a.m. 3HongKongtime) on the followingbusiness day. In addition, a company's annual report and accounts are required to include a monthly breakdown of securities repurchases made duringthe financial year under review, showingthe number of securities repurchased each month 3whether on GEM or otherwise), the purchase price per share or the highest and lowest price paid by the company and the aggregate prices paid. The directors' report is also required to contain reference to the purchases made duringthe year and the directors' reasons for making such repurchases. The company shall procure that any broker appointed by it to effect the purchase of securities shall provide the company in a timely fashion the necessary information in relation to the repurchases made on behalf of the company to enable the company to report to the Stock Exchange.
3vii) Connected parties
A company is prohibited from knowingly repurchasing securities on the Stock Exchange from a connected person, as defined in the GEM Listing Rules. A connected person shall not knowingly sell his securities to the company. As at the Latest Practicable Date, and to the best of the knowledge of the Directors having made all reasonable enquiries, none of the Directors or their associates 3as defined in the GEM ListingRules) has a present intention to sell the Shares to the Company.
3b) Exercise of the buyback mandate
Exercise in full of the buyback mandate, on the basis of 2,441,026,000 Shares and Warrants carrying rights to subscribe up to HK$112,000,000 in aggregate in cash for 280,000,000 Shares at an initial subscription price of HK$0.40 per share 3subject to adjustment) in issue immediately followingthe listingof the Shares and the Warrants mentioned herein, and takingno account of any Shares and Warrants that may be issued upon the exercise of the Over-allotment Option could accordingly result in up to 244,102,600 Shares and Warrants carryingrightsto subscribe up to HK$11,200,000 in aggregate for 28,000,000 Shares at an initial subscription price of HK$0.40 per Share 3subject to adjustment) beingrepurchased by the Company duringthe period up to 3i) the
Ð 222 Ð APPENDIX V STATUTORY AND GENERAL INFORMATION
conclusion of the next annual general meeting of the Company; 3ii) the expiration of the period within which the next annual general meeting of the Company is required by the bye- laws of the Company or any applicable laws of Bermuda to be held; or 3iii) the revocation, variation or renewal of the repurchase mandate by an ordinary resolution of the shareholders in general meeting of the Company, whichever occurs first.
3c) Reasons for repurchases
Repurchases of securities will only be made if the Directors believe that such repurchases will benefit the Company and its shareholders. Such repurchases may, dependingon market conditions and fundingarrangementsat the time, lead to an enhancement of the net asset value per Share of the Company and/or its earnings per Share.
3d) Funding of repurchases
In repurchasingsecurities, the Company may only apply funds legallyavailable for such purpose in accordance with its memorandum of association and bye-laws, the GEM ListingRules and the applicable laws of Bermuda. The Company may not purchase securities on GEM for a consideration other than cash or for settlement otherwise than in accordance with the tradingrules of the Stock Exchangefrom time to time.
3e) General
There might be a material adverse impact on the working capital or gearing position of the Company 3as compared with the position disclosed in this prospectus) in the event that the buyback mandate is exercised in full. However, the Directors do not propose to exercise the buyback mandate to such an extent as would, in the circumstances, have a material adverse effect on the workingcapital requirements of the Company or the gearinglevels which in the opinion of the Directors are from time to time appropriate for the Company.
The Directors have undertaken to the Stock Exchange that, so far as the same may be applicable, they will exercise the buyback mandate in accordance with the memorandum of association and bye-laws of the Company, the GEM ListingRules and the applicable laws of Bermuda.
No connected person 3as defined in the GEM ListingRules) has notified the Company that he has a present intention to sell the Shares or the Warrants to the Company, nor has undertaken not to do so, in the event that the buyback mandate is exercised.
If as a result of a repurchase of Shares, a shareholder's proportionate interest in the votingrightsof the Company increases, such increase will be treated as an acquisition for the purpose of the HongKongCode on Takeovers and Mergers3the ``Code''). As a result, a shareholder, or a group of shareholders acting in concert 3as defined in the Code), depending on the level of increase in the shareholder's interests, could obtain or consolidate control of the Company and become3s) obliged to make a mandatory offer in accordance with Rule 26 of the Code.
Ð 223 Ð APPENDIX V STATUTORY AND GENERAL INFORMATION
FURTHER INFORMATION ABOUT THE BUSINESS
Summary of material contracts
The followingcontracts 3not beingcontracts in the ordinary course of business) have been entered into by the Company or its subsidiaries within the two years precedingthe date of this prospectus and are or may be material:
3a) a shareholders' agreement dated 18th February, 2000 made between 3i) the parties as referred to under sub-paragraphs b3iii) of the paragraph headed ``Changes in the share capital of the subsidiaries'' in this Appendix and ChengAlbert Jinghan;3ii) Cheng Albert Jinghan and Ip Saimond; and 3iii) CCC, which regulates the respective rights of the parties as a shareholder in CCC;
3b) a supplemental agreement dated 15th March, 2000 made between 3i) CCC 3on its own behalf and as agent for the parties as referred to under sub-paragraph b3iii) of the paragraph headed ``Changes in the share capital of the subsidiaries'' in this Appendix and ChengAlbert Jinghan);3ii) ChengAlbert Jinghanand Ip Saimond; and 3iii) Integrated Asset Management 3Asia) Limited 3``IAM'') and Taifair Asset Management and Holdings Limited 3``Taifair'') which confirms IAM and Taifair's agreement to be bound by the terms of a shareholders' agreement dated 18th February, 2000;
3c) a supplemental agreement dated 16th March, 2000 made between 3i) CCC 3on its own behalf and as agent for the parties as referred to under sub-paragraph b3iii) of the paragraph headed ``Changes in the share capital of the subsidiaries'' in this Appendix and Cheng Albert Jinghan, Integrated Asset Management 3Asia) Limited and Taifair Asset Management and Holdings Limited); 3ii) Cheng Albert Jinghan and Ip Saimond; and 3iii) H.C.B.C. Enterprises Ltd. 3``HCBC'') which confirms HCBC's agreement to be bound by the terms of a shareholders' agreement dated 18th February, 2000 3as supplemented by the agreement set out in 3b) above);
3d) a deed of undertaking given by CCC in favour of Integrated Asset Management 3Asia) Limited 3``IAM'') dated 15th March, 2000 pursuant to which, subject to certain exceptions, CCC undertook to compensate IAM upon the terms set out in the undertakingif CCC on or after 7th March, 2000 shall allot and issue any new shares to any Financial Investor3s) 3as defined therein) at a subscription price less than HK$4,166.66 per share;
3e) a deed of undertaking given by CCC in favour of Taifair Asset Management and Holdings Limited 3``Taifair'') dated 15th March, 2000 pursuant to which, subject to certain exceptions, CCC undertook to compensate Taifair upon the terms set out in the undertakingif CCC on or after 7th March, 2000 shall allot and issue any new shares to any Financial Investor3s) 3as defined therein) at a subscription price less than HK$4,166.66 per share;
Ð 224 Ð APPENDIX V STATUTORY AND GENERAL INFORMATION
3f) a memorandum dated 1st July, 2000 signed by CCC confirming the conclusion of an oral contract between Guangzhou Communications Advisory 3China) Company Limited 3``GCAC'') and CCC on or about 16th May, 2000 in relation to the acquisition by CCC from GCAC of 2,000 shares of US$1.00 each in Dymo Group Limited at HK$300.00 per share as to 1,000 shares and at HK$10.00 per share as to 1,000 shares;
3g) a memorandum dated 1st July, 2000 signed by CCC confirming the conclusion of an oral contract between Corporate Subscriber Two Limited 3``CS2'') and CCC on or about 3rd April, 2000 in relation to the acquisition by CCC from CS2 of 1 share of HK$1.00 each in Cyber Services Limited 3formerly known as International Netlink Limited) at par;
3h) a memorandum dated 1st July, 2000 signed by CCC confirming the conclusion of an oral contract between ChengAlbert Jinghanand CCC on or about 3rd April, 2000 in relation to the acquisition by ChengAlbert Jinghanfrom Corporate Subscriber One Limited of 1 share of HK$1.00 each in Cyber Services Limited 3formerly known as International Netlink Limited) at par and the holdingof such share on trust for CCC;
3i) a memorandum dated 1st July, 2000 signed by CCC confirming the conclusion of an oral contract between Cybercom MarketingLimited 3formerly known as PlugIn Technology Limited) 3``CML'') and CCC on or about 14th April, 2000 in relation to the subscription by CCC for 80,000 shares of US$0.10 each in CML at HK$1.00 per share;
3j) a memorandum dated 1st July, 2000 signed by CCC confirming the conclusion of an oral contract between Communication Logistics Limited 3``CLL'') and CCC on or about 3rd May, 2000 in relation to the subscription by CCC for 1 share of US$1.00 each in CLL at par;
3k) a memorandum dated 1st July, 2000 signed by CCC confirming the conclusion of an oral contract between Onglory Company Limited 3``Onglory'') and CCC on or about 26th April, 2000 in relation to the acquisition by CCC from Onglory of 1 share of HK$1.00 each in Worldwide Net Limited at par;
3l) a memorandum dated 1st July, 2000 signed by CCC confirming the conclusion of an oral contract between ChengAlbert Jinghanand CCC on or about 26th April, 2000 in relation to the acquisition by ChengAlbert Jinghanfrom Realty DragonLimited of 1 share of HK$1.00 each in Worldwide Net Limited at par and the holdingof such share on trust for CCC;
3m) a memorandum dated 1st July, 2000 signed by CCC confirming the conclusion of an oral contract between Victon Agents Limited 3``Victon'') and CCC on or about 26th April, 2000 in relation to the acquisition by CCC from Victon of 1 share of HK$1.00 each in Easy Cyber Limited at par;
Ð 225 Ð APPENDIX V STATUTORY AND GENERAL INFORMATION
3n) a memorandum dated 1st July, 2000 signed by CCC confirming the conclusion of an oral contract between ChengAlbert Jinghanand CCC on or about 26th April, 2000 in relation to the acquisition by ChengAlbert Jinghanfrom Victon Services Limited of 1 share of HK$1.00 each in Easy Cyber Limited at par and the holdingof such share on trust for CCC;
3o) a memorandum dated 1st July, 2000 signed by CCC confirming the conclusion of an oral contract between Onglory Company Limited 3``Onglory'') and CCC on or about 26th April, 2000 in relation to the acquisition by CCC from Onglory of 1 share of HK$1.00 each in i.TradingLimited at par;
3p) a memorandum dated 1st July, 2000 signed by CCC confirming the conclusion of an oral contract between ChengAlbert Jinghanand CCC on or about 26th April, 2000 in relation to the acquisition by ChengAlbert Jinghanfrom Realty DragonLimited of 1 share of HK$1.00 each in i.TradingLimited at par and the holdingof such share on trust for CCC;
3q) a memorandum dated 1st July, 2000 signed by CCC confirming the conclusion of an oral contract between Corporate Subscriber Two Limited 3``CS2'') and CCC on or about 26th April, 2000 in relation to the acquisition by CCC from CS2 of 1 share of HK$1.00 each in Netlink Limited at par;
3r) a memorandum dated 1st July, 2000 signed by CCC confirming the conclusion of an oral contract between ChengAlbert Jinghanand CCC on or about 26th April, 2000 in relation to the acquisition by ChengAlbert Jinghanfrom Corporate Subscriber One Limited of 1 share of HK$1.00 each in Netlink Limited at par and the holdingof such share on trust for CCC;
3s) a memorandum dated 1st July, 2000 signed by CCC confirming the conclusion of an oral contract between Honorway Management Limited 3``HML'') and CCC on or about 26th April, 2000 in relation to the acquisition by CCC from HML of 1 share of HK$1.00 each in Standard e-Commerce Limited at par;
3t) a memorandum dated 1st July, 2000 signed by CCC confirming the conclusion of an oral contract between ChengAlbert Jinghanand CCC on or about 26th April, 2000 in relation to the acquisition by ChengAlbert Jinghanfrom Honorway Secretaries Limited of 1 share of HK$1.00 each in Standard e-Commerce Limited at par and the holdingof such share on trust for CCC;
3u) a memorandum dated 1st July, 2000 signed by CCC confirming the conclusion of an oral contract between Honorway Management Limited 3``HML'') and CCC on or about 26th April, 2000 in relation to the acquisition by CCC from HML of 1 share of HK$1.00 each in Cyber Station Limited at par;
Ð 226 Ð APPENDIX V STATUTORY AND GENERAL INFORMATION
3v) a memorandum dated 1st July, 2000 signed by CCC confirming the conclusion of an oral contract between ChengAlbert Jinghanand CCC on or about 26th April, 2000 in relation to the acquisition by ChengAlbert Jinghanfrom Honorway Secretaries Limited of 1 share of HK$1.00 each in Cyber Station Limited at par and the holdingof such share on trust for CCC;
3w) a memorandum dated 1st July, 2000 signed by CCC confirming the conclusion of an oral contract between Victon Agents Limited 3``Victon'') and CCC on or about 26th April, 2000 in relation to the acquisition by CCC from Victon of 1 share of HK$1.00 each in e.Cyber Creation Limited at par;
3x) a memorandum dated 1st July, 2000 signed by CCC confirming the conclusion of an oral contract between ChengAlbert Jinghanand CCC on or about 26th April, 2000 in relation to the acquisition by ChengAlbert Jinghanfrom Victon Services Limited of 1 share of HK$1.00 each in e.Cyber Creation Limited at par and the holdingof such share on trust for CCC;
3y) a memorandum dated 1st July, 2000 signed by CCC confirming the conclusion of an oral contract between Honorway Management Limited 3``HML'') and CCC on or about 26th April, 2000 in relation to the acquisition by CCC from HML of 1 share of HK$1.00 each in Century e-Commerce Limited at par;
3z) a memorandum dated 1st July, 2000 signed by CCC confirming the conclusion of an oral contract between ChengAlbert Jinghanand CCC on or about 26th April, 2000 in relation to the acquisition by ChengAlbert Jinghanfrom Honorway Secretaries Limited of 1 share of HK$1.00 each in Century e-Commerce Limited at par and the holdingof such share on trust for CCC;
3aa) a memorandum dated 1st July, 2000 signed by CCC confirming the conclusion of an oral contract between Victon Agents Limited 3``Victon'') and CCC on or about 26th April, 2000 in relation to the acquisition by CCC from Victon of 1 share of HK$1.00 each in Cyber Asia Holdings Limited at par;
3bb) a memorandum dated 1st July, 2000 signed by CCC confirming the conclusion of an oral contract between ChengAlbert Jinghanand CCC on or about 26th April, 2000 in relation to the acquisition by ChengAlbert Jinghanfrom Victon Services Limited of 1 share of HK$1.00 each in Cyber Asia Holdings Limited at par and the holding of such share on trust for CCC;
3cc) a memorandum dated 1st July, 2000 signed by CCC confirming the conclusion of an oral contract between WilbergLimited and CCC on or about 28th April, 2000 in relation to the acquisition by CCC from WilbergLimited of 1 share of HK$1.00 each in Pacific Coast Limited at par;
3dd) a memorandum dated 1st July, 2000 signed by CCC confirming the conclusion of an oral contract between ChengAlbert Jinghanand CCC on or about 28th April, 2000 in relation to the acquisition by Cheng Albert Jinghan from World-Wide Registration Limited of 1 share of HK$1.00 each in Pacific Coast Limited at par and the holdingof such share on trust for CCC;
Ð 227 Ð APPENDIX V STATUTORY AND GENERAL INFORMATION
3ee) a memorandum dated 1st July, 2000 signed by CCC confirming the conclusion of an oral contract between Home Page Technology Limited and CCC on or about 3rd May, 2000 in relation to the subscription by CCC for 1 share of US$1.00 each in Home Page Technology Limited at par;
3ff) a memorandum dated 1st July, 2000 signed by CCC confirming the conclusion of an oral contract between 36.com 3Canada) Limited and CCC on or about 8th May, 2000 in relation to the subscription by CCC for 1 common share in 36.com 3Canada) Limited at HK$1.00;
3gg) a memorandum dated 1st July, 2000 signed by CCC confirming the conclusion of an oral contract between I-Digital Technology Limited and CCC on or about 8th May, 2000 in relation to the subscription by CCC for 1 share of US$1.00 each in I-Digital Technology Limited at par;
3hh) a memorandum dated 1st July, 2000 signed by CCC confirming the conclusion of an oral contract between Quantitative Technology Limited and CCC on or about 8th May, 2000 in relation to the subscription by CCC for 1 share of US$1.00 each in Quantitative Technology Limited at par;
3ii) a memorandum dated 1st July, 2000 signed by CCC confirming the conclusion of an oral contract between Guangzhou Communications Advisory 3China) Company Limited 3``GCAC'') and CCC on or about 12th May, 2000 in relation to the disposition by CCC to GCAC of 7,000 shares of US$1.00 each in Elm Tree Group Limited at $10.00 per share;
3jj) as assignment dated 8th May, 2000 entered into between 3i) Leung Bing Yiu and CCC as assignors and 3ii) Century e-Commerce Limited as assignee relating to the transfer of the assignors' interests in certain web-site to the assignee in consideration for $20.00;
3kk) as assignment dated 10th May, 2000 entered into between 3i) Keystone Technology Limited and CCC as assignors and 3ii) Century e-Commerce Limited as assignee relating to the transfer of the assignors' interests in certain web-site to the assignee in consideration for $5,000 paid to Keystone Technology Limited;
3ll) an assignment dated 8th May, 2000 entered into between 3i) Lau Lawrence Tsun Wai and CCC as assignors and 3ii) e Cyber Creation Limited as assignee relating to the transfer of the assignors' interests in certain web-site to the assignee in consideration for $20.00;
3mm) an assignment dated 8th May, 2000 entered into between 3i) Wu Carlos and CCC as assignors and 3ii) Netlink Limited as assignee relating to the transfer of the assignors' co-branded web-site to the assignee in consideration for $20.00;
3nn) an assignment dated 10th May, 2000 entered into between 3i) TSCI Research 3H.K.) Limited and CCC as assignors and 3ii) Century e-Commerce Limited as assignee relating to the transfer of the assignors' interests in certain web-site to the assignee in consideration for $20.00;
Ð 228 Ð APPENDIX V STATUTORY AND GENERAL INFORMATION
3oo) two assignments both dated 10th May, 2000 entered into between 3i) Feel Company Limited and CCC as assignors and 3ii) Worldwide Net Limited as assignee relating to the transfer of the assignors' interests in the web-sites known as `` '' and `` '' to the assignee in consideration for $40.00;
3pp) an assignment dated 8th May, 2000 entered into between 3i) Ip Hon Leung and CCC as assignors and 3ii) Standard e-Commerce Limited as assignee relating to the transfer of the assignors' co-branded web-site to the assignee in consideration for $20.00;
3qq) an assignment dated 9th May, 2000 entered into between 3i) Winsys International Limited and CCC as assignors and 3ii) Netlink Limited as assignee relating to the transfer of the assignors' co-branded web-site to the assignee in consideration for $20.00;
3rr) an option and licence agreement dated 22nd May, 2000 entered into between 3i) Quantitative TechnologyLimited; and 3ii) LeungFungYee relatingto the grantingof an option to subscribe for shares of Quantitative Technology Limited as described in the section headed ``Quantitative Technology Option'' in this Appendix by Quantitative TechnologyLimited to LeungFungYee and the grantingof an exclusive licence by LeungFungYee to Quantitative TechnologyLimited to use certain Internet content produced by LeungFungYee;
3ss) a subscription agreement dated 10th May, 2000 entered into between the Company and LeungBingYiu relatingto the subscription of 4,322,000 Shares at par;
3tt) a subscription agreement dated 10th May, 2000 entered into between the Company and Tam Siu Hingrelatingto the subscription of 2,161,000 Shares at par;
3uu) a subscription agreement dated 10th May, 2000 entered into between the Company and Lau Tsun Wai relatingto the subscription of 1,086,983 Shares at par;
3vv) a subscription agreement dated 10th May, 2000 entered into between the Company and Wu Carlos relatingto the subscription of 641,817 Shares at par;
3ww)a subscription agreement dated 10th May, 2000 entered into between the Company and TSCI Research 3H.K.) Limited relatingto the subscription of 2,681,801 Shares at par;
3xx) a subscription agreement dated 10th May, 2000 entered into between the Company and Feel Company Limited relatingto the subscription of 864,400 Shares at par;
3yy) a subscription agreement dated 10th May, 2000 entered into between the Company and Feel Company Limited relatingto the subscription of 2,683,962 Shares at par;
3zz) a subscription agreement dated 10th May, 2000 entered into between the Company and Central Digital Technology Limited relating to the subscription of 1,903,841 Shares at par;
3aaa) a subscription agreement dated 10th May, 2000 entered into between the Company and Winsys International Limited relatingto the subscription of 5,337,925 Shares at par;
Ð 229 Ð APPENDIX V STATUTORY AND GENERAL INFORMATION
3bbb) a subscription agreement dated 10th May, 2000 entered into between the Company and LeungFungYee relatingto the subscription of 64,833,976 Shares at par;
3ccc) a subscription agreement dated 10th May, 2000 entered into between the Company and Chan Yan Chongrelatingto the subscription of 864,400 Shares at par;
3ddd) a subscription agreement dated 15th May, 2000 entered into between the Company and Guangzhou Communications Advisory 3China) Company Limited relating to the subscription of 8,644,000 Shares at par;
3eee) a subscription agreement dated 15th May, 2000 entered into between the Company and New Language PR Consultancy Company Limited relating to the subscription of 2,607,895 Shares at par;
3fff) the CCC Options Conversion Agreement;
3ggg) the Topspin Options Conversion Agreement;
3hhh) a licence agreement dated 1st July, 2000 entered into between CCC and Cheng Albert JinghaninrelationtothegrantingofalicencebyChengAlbertJinghantotheGroupto use his brand for a period of 3 years in consideration for HK$10.00;
3iii) an agreement dated 12th July, 2000 entered into between 3i) the Company as purchaser; 3ii) ChengAlbert Jinghan,Drummond Finance Limited, Ip Saimond and YeungKwok Mungas warrantors; and 3iii) the shareholders of CCC as vendors relatingto the sale and purchase of the entire issued share capital of CCC in consideration for 31) the issue and allotment of an aggregate of 710,996,000 Shares credited as fully paid at par and the Company procuringthe transfer by Ip Saimond of 841,594,000 Shares credited as fully paid at par to the vendors 3other than Ip Saimond); and 32) the Company crediting as fully paid at par the 1,000,000,000 Shares which had been allotted and issued nil paid to Ip Saimond as set out in sub-paragraph 3d) of the paragraph headed ``Changes in share capital of the Company'' in this Appendix;
3jjj) a deed of indemnity dated 17th July, 2000 executed by ChengAlbert Jinghan, Drummond Finance Limited, Ip Saimond, YeungKwok Mung,and the Company containingindemnities, in respect of, amongother matters, estate duty and taxation referred to in the section headed ``Other Information Ð Estate duty, tax and other indemnities'' in this Appendix;
3kkk) the UnderwritingAgreement; and
3lll) a sponsor's agreement dated 17th July, 2000 entered into between the Company and the Sponsor whereby the Company appoints the Sponsor to act as its sponsor for the purpose of the GEM ListingRules.
Ð 230 Ð APPENDIX V STATUTORY AND GENERAL INFORMATION
Intellectual property
As at the Latest Practicable Date, the Group has applied for registration of the following trade marks and service marks:
Trade/Service Place of Application Mark Application Class Number Application Date
Hong Kong
36.com HongKong 38 2000 01124 19th January, 2000 Application Pending
36.com HongKong 41 2000 01125 19th January, 2000 Application Pending
36.com HongKong 42 2000 01126 19th January, 2000 Application Pending
HongKong 38 2000 10096 10th May, 2000 Application Pending
HongKong 41 2000 10097 10th May, 2000 Application Pending
HongKong 42 2000 10098 10th May, 2000 Application Pending
PRC 38 20000 22751 1st March, 2000
United States
36.com United States 41 Number 16th May, 2000 Pending Application Pending
36.com United States 42 Number 16th May, 2000 Pending Application Pending
United States 41 Number 16th May, 2000 Pending Application Pending
United States 42 Number 16th May, 2000 Pending Application Pending
Ð 231 Ð APPENDIX V STATUTORY AND GENERAL INFORMATION
Trade/Service Place of Application Mark Application Class Number Application Date
Canada
36.com Canada * Number 10th May, 2000 Pending Application Pending
Canada * Number 10th May, 2000 Pending
* There are no Trade Mark Classification System in Canada.
As at the Latest Practicable Date, the Group has, in addition to the domain name ``36.com'', registered 22 other domain names.
FURTHER INFORMATION ABOUT DIRECTORS, MANAGEMENT AND STAFF
Directors
Disclosure of interests
3a) The beneficial interests of the Directors in the Shares or share capital of the Company or any associated corporation 3within the meaningof the SDI Ordinance) of the Company which will have to be notified to the Company and the Stock Exchange pursuant to section 28 of the SDI Ordinance 3includinginterests which they are taken or deemed to have taken under section 31 of, or Part 1 of the Schedule to the SDI Ordinance) once the Shares are listed on the GEM, or will be required, pursuant to section 29 of the SDI Ordinance, to be entered in the register referred to therein, once the Shares are listed on the GEM, or will be required pursuant to Rules 5.40 to 5.59 of the GEM ListingRules relatingto securities transactions by Directors to be notified to the Company and the Stock Exchange once the Shares are
Ð 232 Ð APPENDIX V STATUTORY AND GENERAL INFORMATION
listed will be as follows (assuming their interests will remain unchanged after the Latest Practicable Date and taking no account of any Shares that may be issued upon the exercise of the Over-allotment Option):
(i) Shares in the Company
Personal Family Corporate Other Name Interest Interest Interest Interest Total
Cheng Albert Jinghan 1,326,000 13,206,000 602,490,000 617,022,000 (note 1) (note 2) Ip Saimond 243,456,000 Ð Ð 243,456,000 Yeung Kwok Mung 68,238,000 Ð Ð 68,238,000 Tsang Moses Kwok Tai 13,290,000 Ð 151,806,000 165,096,000 (note 3) Poon Kai Tik 5,910,000 79,206,000 Ð 85,116,000 (note 4) Huang Erwin Steve 25,326,000 Ð Ð 25,326,000 Chung Wai Yang Ð Ð 83,166,000 83,166,000 (note 5)
Notes:
(1) These Shares are held by Cheng Albert Jinghan's wife, Lo Irene Kam Sheung and therefore he is deemed to be interested in these Shares (by virtue of the SDI Ordinance).
(2) These Shares are held by Drummond Finance Limited. Drummond Finance Limited is the wholly-owned subsidiary of Umbel Inc., which is a company owned by CIBC Trust Company (Bahamas) Limited as trustee of the Albert Cheng Family Trust. Cheng Albert Jinghan and his children are discretionary beneficiaries of such trust and Cheng Albert Jinghan is therefore deemed to be interested in these Shares. Cheng Albert Jinghan is a director of Drummond Finance Limited.
(3) These Shares are held by MKT Holdings (Cayman Islands) LLC, which is wholly-owned by Tsang Moses Kwok Tai and Tsang Moses Kwok Tai is therefore deemed to be interested in these Shares (by virtue of the SDI Ordinance).
(4) These Shares are held by Poon Kai Tik's wife, Au Tak Yee, and therefore he is deemed to be interested in these Shares (by virtue of the SDI Ordinance).
(5) These Shares are held by Cyber Channel Limited, which is wholly owned by Chung Wai Yang and therefore he is deemed to be interested in these Shares (by virtue of the SDI Ordinance).
(b) Certain Directors have been granted options in respect of Shares in the Company pursuant to the Pre-IPO Share Option Scheme as set out in the section headed ``Share Options'' below.
Particulars of service contracts
Each of the executive Directors has entered into a service contract with the Company in relation to their respective appointments as directors of the Company. Particulars of these contracts, except as indicated, are in all material respects identical and are set out below:
(a) each service contract is for an initial term of three years commencing on 1st July 2000 and may be terminated by either party at any time by giving to the other by not less than six months prior written notice;
Ð 233 Ð APPENDIX V STATUTORY AND GENERAL INFORMATION
3b) the annual salary for each of the executive Directors duringtheir terms of appointment are set out below which shall be subject to review by the Board annually in its discretion:
Name of Director Annual salary
ChengAlbert Jinghan $1,800,000 Ip Saimond $1,680,000 YeungKwok Mung $1,200,000
each of Ip Saimond and YeungKwok Mungis also entitled to receive certain other benefits, such as reimbursement of the full maintenance cost of the private car of Ip Saimond and YeungKwok Mungand the housingrental cost of YeungKwok Mungup to $20,000 per month together with reasonable furnishing costs.
3c) each such Director will abstain and not be counted in the quorum in respect of any resolution regarding the amount of increase of his annual salary; and
3d) ChengAlbert Jinghanwas also appointed the chief i-content architect under the service contract pursuant to which he would devote sufficient time, attention, skill and expertise necessary for the discharge of his duties and notwithstanding the non- competition undertakingas contained in each executive Director's service contract, the followingactivities of ChengAlbert Jinghan/hisAssociates 3as defined therein) are permitted:
3i) involvingin broadband audio and video streamingon the Internet;
3ii) provision of radio broadcasts as audio content to websites; and
3iii) publication of articles contributed to printed media on websites operated by such media.
Save as disclosed in this prospectus, no Director has entered into any service contract with any member of the Group 3excludingcontracts expiringor determinable by the employer within one year without payment of compensation other than statutory compensation).
Directors'remuneration
3a) The Company's policies concerningremuneration of executive Directors are that:
3i) the amount of remuneration is determined on the basis of the relevant Director's experience, responsibility, workload and the time devoted to the Group;
3ii) non-cash benefits may be provided to the Directors under their remuneration package; and
3iii) the executive Directors may be granted, at the discretion of the compensation committee of the Company, management bonus and share options of the Company 3upon the terms of the relevant share option scheme), as part of their remuneration package.
Ð 234 Ð APPENDIX V STATUTORY AND GENERAL INFORMATION
3b) No cash was paid nor payment in kind was made to the Directors as remuneration for the year ended 31st March, 2000. Further information in respect of the Directors' remuneration is set out in Appendix I to this prospectus.
3c) It is expected that an aggregate sum of approximately HK$4.8 million will be paid in cash and in kind to the Directors as remuneration by the Group in respect of the year ending31st March, 2001 pursuant to the present arrangement.
3d) No bonus was paid to the Directors for each of the two years ended 31st March, 2000.
3e) None of the Directors or any past directors of any member of the Group has been paid any sum of money for each of the two years ended 31st March, 2000 3i) as an inducement to join or upon joiningthe Company or 3ii) for loss of office as a director of any member of the Group or of any other office in connection with the management of the affairs of any member of the Group.
3f) There has been no arrangement under which a Director has waived or agreed to waive any emoluments for each of the two years ended 31st March, 2000.
3g) Each of the non-executive Directors has entered into a non-executive director's contract with the Company with an initial term of one year commencingon 1st July, 2000 and will continue thereafter for successive periods of one year provided that the Company may terminate the agreement at the end of each one year period by giving to the director at least one month's notice in writingthereof. Save as disclosed in this prospectus and with the exception of the independent non-executive Directors who are members of the audit committee who will be paid a fee of HK$120,000 each per year and such additional fees or remuneration in respect of any special services agreed to be rendered by them, none of the non-executive Directors is expected to receive any other remuneration for holdingtheir office as a non-executive director.
Others
The five individuals with the highest emoluments in the Group for the year ended 31st March, 2000 did not include any directors of the Company. Particulars of emoluments paid to such individuals are set out in note d to the section headed ``Results'' in the accountant' report set out in Appendix I to this prospectus.
Personal guarantees
Save a guarantee and indemnity given by Cheng Albert Jinghan in favour of each of Newcourt Credit HongKongLimited and GE Capital 3HongKong)Limited in respect of the leasingof certain equipment to CCC or otherwise as disclosed in this prospectus, within the two years precedingthe date of this prospectus, none of the Directors has provided any personal guarantee as security for any debts and liabilities incurred by any member of the Group. The Company will seek to obtain a release of such guarantees upon the listing of its Shares on the GEM.
Ð 235 Ð APPENDIX V STATUTORY AND GENERAL INFORMATION
Agency fees or commissions received
Save as disclosed in this prospectus, no commissions, discounts brokerages or other special terms were granted within the two years preceding the date of this prospectus in connection with the issue or sale of any capital of any member of the Group.
Substantial shareholders
So far as it is known to the Directors, immediately after completion of the Share Offer 3takingno account of any Shares which may be issued upon the exercise of the Over-allotment Option), the only persons 3other than a Director or a chief executive of the Company) directly or indirectly entitled to exercise or control the exercise of 10 per cent or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of the Company or any of it subsidiaries will be:
Approximate percentage Name Number of shares of holding
CIBC Trust Company 3Bahamas) Limited 3as trustee of the Albert ChengFamily Trust) 602,490,000 24.68%
Umbel Inc. note 1) 602,490,000 24.68%
Drummond Finance Limited note 1) 602,490,000 24.68%
Lo Irene Kam Sheung note 2) 617,022,000 25.28%
ACAEDL Limited note 3) 326,052,000 13.36%
ChungPo Yang note 3) 326,052,000 13.36%
Notes:
31) Drummond Finance Limited is the wholly-owned subsidiary of Umbel Inc., which is a company owned by CIBC Trust Company 3Bahamas) Limited as trustee of the Albert ChengFamily Trust 3``CIBC''). ChengAlbert Jinghan and his children are discretionary beneficiaries of such trust and ChengAlbert Jinghanis therefore deemed to be interested in these Shares. Therefore, shareholdings stated against CIBC, Umbel Inc. and Drummond Finance Limited are entirely duplicated. ChengAlbert Jinghanis a director of Drummond Finance Limited.
32) Lo Irene Kam Sheungis the wife of ChengAlbert Jinghanand therefore she is deemed to be interested in 603,816,000 Shares in which ChengAlbert Jinghanis interested.
33) ACAEDL Limited is wholly owned by ChungPo Yangand ChungPo Yangis therefore deemed to be interested in these Shares 3by virtue of the SDI Ordinance). Therefore, shareholdings stated against ACAEDL Limited are entirely duplicated in the shareholdings stated against Chung Po Yang. Chung Po Yang is the brother of Chung Wai Yangwho is a non-executive Director. ChungWai Yangis also a director of ACAEDL Limited.
Ð 236 Ð APPENDIX V STATUTORY AND GENERAL INFORMATION
Related party transactions
Duringthe two years precedingthe date of this prospectus, the Group entered into the related party transactions as described in note i to the section headed ``Results'' of the Accountants Report set out in Appendix I to this prospectus.
Disclaimers
Save as disclosed in this prospectus:
3a) none of the Directors or chief executive has any interest in the securities of the Company or any associated corporation which, once the Shares are listed, will have to be notified to the Company and the Stock Exchange pursuant to section 28 of the SDI Ordinance 3includinginterests which they are taken or deemed to have taken under section 31 or, or Part 1 of the Schedule to, the SDI Ordinance) or which, once the Shares are listed, will be required pursuant to section 29 of the SDI Ordinance, to be enteredintheregisterreferredtothereinorrequiredtobenotifiedtotheCompanyand the Stock Exchange pursuant to Rules 5.40 and 5.59 of the GEM Listing Rules relating to securities transactions by Directors;
3b) so far as it is known to the Directors, there is no person who is directly or indirectly interested in ten per cent or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of the Company or any of its subsidiaries;
3c) there are no existingor proposed service contracts 3excludingcontracts expiringor terminable by the employer within one year without payment of compensation 3other than statutory compensation) between the Company or any of its subsidiaries and any of the Directors;
3d) none of the Directors nor any persons referred to in the section headed ``Consents of experts'' in this Appendix is interested in the promotion of the Company, or in any assets which have been within the two years immediately precedingthe date of this prospectus acquired or disposed of by or leased to the Company or any of its subsidiaries, or are proposed to be so acquired, disposed of or leased to any member of the Group;
3e) none of the Directors nor any persons referred to in the section headed ``Consents of experts'' in this Appendix is materially interested in any contract or arrangement subsistingat the date of this prospectus which is significantin relation to the business of the Group;
3f) none of the persons referred to in the section headed ``Consents of experts'' of this Appendix has any shareholdingin any member of the Group or the right3whether legally enforceable or not) to subscribe for or nominate persons to subscribe for securities in any member of the Group;
Ð 237 Ð APPENDIX V STATUTORY AND GENERAL INFORMATION
3g) no cash, securities or other benefit has been paid, allotted or given within the two years precedingthe date of this prospectus to any promoter of the Company nor is any such cash, securities or benefit intended to be paid, allotted or given on the basis of the Share Offer or related transaction as mentioned in this prospectus; and
3h) so far as it is known to the Directors, none of the Directors, their respective associates 3as defined in the GEM ListingRules) or shareholders of the Company who are interested in five per cent or more of the issued share capital of the Company have any interests in the five largest customers of the Group.
SHARE OPTIONS
1. Share Option Scheme
The followingis a summary of the principal terms of the Share Option Scheme conditionally approved pursuant to written resolutions of the Company passed on 12th July, 2000:
3a) Who may join
The Directors may, at their discretion, at any time and from time to time within the period of ten years after the Share Option Scheme becomes effective make offers to any full- time employee of any member of the Group 3includingthe executive Directors) to take up options to subscribe for Shares at a price calculated in accordance with sub-paragraph 3d) below.
3b) Grant of options to connected persons, substantial shareholders or any of their associates
Any grant of options to a connected person 3as defined in the GEM Listing Rules) must be approved by all the independent non-executive directors of the Company.
Where the connected person is also a substantial shareholder of the Company 3as defined in the GEM ListingRules) or any of their respective associates 3as defined in the GEM Listing Rules) and the proposed grant of options, when aggregated with the options already granted to that connected person in the past 12 months period, would entitle him to subscribe for more than 0.1 per cent of the total issued shares of the Company for the time beingand the value of which is in excess of HK$5 million, then the proposed grant must be subject to the approval of shareholders in general meeting. Apart from the connected person involved, all other connected persons of the Company must abstain from votingat such general meeting 3except where any connected person intends to vote against the proposed grant). A shareholders' circular must be prepared by the Company explaining the proposed grant, disclosing the number and terms of the options to be granted and containing a recommendation from the independent non-executive directors on whether or not to vote in favour of the proposed grant.
Ð 238 Ð APPENDIX V STATUTORY AND GENERAL INFORMATION
3c) Offer of options
Any grant of options must not be made after a price sensitive development has occured or a price sensitive matter has been the subject of a decision, until such price sensitive information has been announced pursuant to the requirements of the GEM ListingRules. In particular, duringthe period of one month immediately precedingthe preliminary announcement of annual results or the publication of interim results, no option should be granted until such information has been announced pursuant to the requirements of the GEM ListingRules.
3d) Price of Shares
The subscription price for Shares under the Share Option Scheme will be a price determined and notified by the Directors to each grantee and will not be less than the higher of 3i) the closingprice of the Shares as stated in the Stock Exchange'sdaily quotations sheet on the date of grant of the offer, which must be a business day; 3ii) the average closing price of the Shares as stated in the Stock Exchange's daily quotations sheets for the five trading days immediately precedingthe date of grant of the offer; 3iii) the nominal value of a Share. Upon acceptance of the option, the grantee shall pay HK$1.00 to the Company by way of consideration for the grant.
3e) Maximum number of Shares
The maximum number of Shares in respect of which options may be granted under the Share Option Scheme 3includingShares in respect of options granted, whether exercised or still outstanding, Shares which could have been issued under options which have been lapsed pursuant to any term providingfor lapse by reference to the exercise price of any such options and options cancelled otherwise than pursuant to Rule 23.03 314) of the GEM Listing Rules) when aggregated with any Shares subject to any other schemes involving the issue or grant of options over Shares or other securities by the Company to, or for the benefit of directors, executives and/or employees, may not exceed in nominal value 30 per cent of the issued share capital of the Company from time to time 3excludingfor this purpose 3i) any Shares issued pursuant to the exercise of options granted pursuant to the Share Option Scheme; and 3ii) any pro rata entitlements to further securities in respect of those securities mentioned in 3i)). Subject to this:
31) the total number of Shares available for issue under options which may be granted under the Share Option Scheme and any other scheme 3in addition to the options conditionally granted under the Pre-IPO Share Option Scheme in respect of 316,823,077 Shares), must not in aggregate, exceed 10 per cent. of the issued share capital of the Company as at the date of listingof the Shares on GEM 3such 10 per cent beingequivalent to 244,102,600 Shares based on 2,441,026,000 Shares expected then to be in issue) unless further shareholders' approval has been obtained pursuant to paragraph 32) or 33) below;
Ð 239 Ð APPENDIX V STATUTORY AND GENERAL INFORMATION
32) the Company may seek approval by shareholders in general meeting to renew such 10 per cent limit. However, the total number of Shares available for issue under options which may be granted under the Share Option Scheme and other such schemes of the Company in these circumstances must not exceed 10 per cent of the issued share capital of the Company at the date of the approval to renew the limit which may be renewed by shareholders in general meeting from time to time;
33) the Company may seek separate shareholders' approval in general meeting to grant options beyond the 10 per cent limit provided that 3a) the total number of Shares subject to the Scheme and other such schemes of the Company 3including the Pre-IPO Share Option Scheme) does not in aggregate exceed 30 per cent of the total issued share capital of the Company at the date of approval and 3b) the options in excess of the 10 per cent limit are granted only to participants specified by the Company before such approval is sought.
No option may be granted to any one person which, if exercised in full, would result in the total number of Shares already issued and issuable to him/her under the Share Option Scheme exceeding 25 per cent of the aggregate number of Shares for the time being issued and issuable under the Share Option Scheme.
3f) Time of exercise of option
An option may be exercised in accordance with the terms of the Share Option Scheme at any time duringa period determined by the Directors at their discretion save that such period shall not be less than three years and not more than ten years from the date upon which the option is offered and accepted subject to the provisions of early termination thereof.
3g) Rights are personal to grantee
An option may not be transferred, charged, mortgaged, encumbered or assigned and is personal to the grantee and shall not be disposed of or be the subject of the creation of any third party right.
3h) Rights on ceasing employment
If the grantee of an option ceases to be an employee of the Group for any reason other than death or the termination of his or her employment on one or more of the grounds specified in 3j) below, he may exercise the options outstandingat the date of cessation in accordance with the terms of the Share Option Scheme within the period of three months followingthe date of such cessation, which date shall be the last actual workingday with the Group whether salary is paid in lieu of notice or not.
Ð 240 Ð APPENDIX V STATUTORY AND GENERAL INFORMATION
3i) Rights on death
If the grantee of an option ceases to be an employee of the Group by reason of death and none of the events which would be a ground for termination of his or her employment specified in 3j) below arises, his/her legal personal representative3s) may exercise all his options 3to the extent not already exercised) within a period of twelve months from the date of death failingwhich they will lapse.
3j) Rights on dismissal
If the grantee of an option ceases to be an employee of the Group by reason of the termination of his or her employment on any one or more of the grounds that he or she has been guilty of misconduct, or has committed an act of bankruptcy or has become insolvent or has made any arrangement or composition with his or her creditors generally, or has been convicted of any criminal offence involvinghis or her integrityor honesty or 3if so determined by the Directors) on any other ground on which an employer would be entitled to terminate his or her employment at common law or pursuant to any applicable laws or under the grantee's service contract with the Group, his option will lapse automatically on the date of termination of employment 3to the extent not already exercised).
3k) Effect of alterations to capital
In the event of any alteration in the capital structure of the Company whether by way of capitalisation of profits or reserves, rights issue or other similar offer of securities to holders of Shares, consolidation, subdivision or reduction or similar reorganisation of the share capital of the Company 3other than an issue of Shares in the capital of the Company as consideration in a transaction) the number of Shares subject to the option so far as unexercised; and/or the exercise price; and/or the method of exercise of the option; and/or the maximum number of Shares referred to in 3e) above may be adjusted in such manner as the Directors 3havingreceived a statement in writingfrom the auditors of the Company that in their opinion the adjustments proposed are fair and reasonable) may deem appropriate, provided always that no such adjustments shall be made so that a Share would be issued at less than its nominal value or which would give a grantee a different proportion of the issued share capital of the Company to which the grantee was entitled before such adjustments.
3l) Rights on a general offer
If a general offer 3whether by takeover offer or scheme of arrangement or otherwise in like manner) is made to all the holders of Shares and such offer becomes or is declared unconditional, the grantee 3or his or her legal personal representatives) shall be entitled to exercise the option in full 3to the extent not already exercised) at any time within fourteen 314) days after the date on which the offer becomes or is declared unconditional. Subject to the above, an option shall lapse automatically 3to the extent not already exercised) on the expiration of the aforesaid period.
Ð 241 Ð APPENDIX V STATUTORY AND GENERAL INFORMATION
3m) Rights on winding up
In the event a notice is given by the Company to its members to convene a general meeting for the purposes of considering, and if thought fit, approving a resolution to voluntarily wind-up the Company, the Company shall on the same date as or soon after it despatches such notice to each member of the Company give notice thereof to all grantees and thereupon, each grantee 3or his or her legal personal representatives) shall be entitled to exercise all or any of his options at any time not later than two 32) business days prior to the proposed general meeting of the Company by giving notice in writing to the Company, accompanied by a remittance for the full amount of the aggregate subscription price for the Shares in respect of which the notice is given whereupon the Company shall as soon as possible and, in any event, no later than the business day immediately prior the date of the proposed general meeting referred to above, allot the relevant Shares to the grantee credited as fully paid. Subject to the above, an option shall lapse automatically 3to the extent not already exercised) on the date of the commencement of the winding-up of the Company.
3n) Ranking of shares
The Shares to be allotted upon the exercise of an option will rank equally in all respects with the fully paid Shares in issue on the date of allotment and will be subject to all the provisions of the bye-laws of the Company for the time beingin force provided that the Shares to be issued upon such exercise will not rank for a dividend previously declared or proposed to be paid to the holders of Shares on the register on a date prior to such date of allotment.
Unless the context otherwise requires, references to Shares in this section headed ``Share Option Scheme'' include shares in the Company of any other nominal amount as shall result from a sub-division, consolidation, re-classification or re-construction of such shares from time to time.
3o) Period of option scheme
Subject to the provisions of early termination, the Share Option Scheme shall be valid and effective for a period of ten years after the Share Option Scheme becomes effective.
The rules of the Share Option Scheme may be altered from time to time by the Directors as they deem desirable except that certain specified provisions of the Share Option Scheme shall not be altered to the advantage of grantees or prospective grantees except with the prior sanction of a resolution by the Shareholders of the Company, who are not grantees, in general meeting provided that no such alteration shall operate to affect adversely the terms of any options granted but not exercised or agreed to be granted prior to such alteration takingeffect except with the consent or sanction in writingof such number of grantees as shall together hold options in respect of not less than three-fourths in nominal value of all Shares then subject to options granted under the Share Option Scheme and
Ð 242 Ð APPENDIX V STATUTORY AND GENERAL INFORMATION
provided further that any alterations to the provisions of the Share Option Scheme which are of a material nature must be approved by the Stock Exchange except where the alterations take effect automatically under the existingprovisions of the Share Option Scheme.
Present status of the scheme
As at the date of this prospectus, no option has been granted or agreed to be granted under the Share Option Scheme.
The Share Option Scheme is conditional on 3a) the GEM ListingCommittee grantinglisting of, and permission to deal in, the Shares in issue and the Shares to be issued as mentioned herein 3includingany Shares which may be made available pursuant to the exercise of the Over- allotment Option); 3ii) the GEM Listing Committee granting approval of the granting of any options under the Share Option Scheme and the grantingofthe listingof, and permission to deal in, any Shares which may fall to be issued pursuant to the exercise of any such option under the Share Option Scheme; and 3iii) the obligations of the Underwriters under the Underwriting Agreement becoming unconditional and not being terminated in accordance with the terms of the Underwriting Agreement. Application has been made to the Stock Exchange for the approval of the Share Option Scheme and, the subsequent listingof and permission to deal in the Shares which may fall to be issued pursuant to the exercise of options under the Share Option Scheme.
2. Pre-IPO Share Option Scheme
The principal terms of the Pre-IPO Share Option Scheme, conditionally approved by a written resolution of the sole shareholder of the Company on 12th July, 2000 3which is subject to the conditions set out in sub-paragraph 3e) of the paragraph headed ``Resolutions in writing of the sole shareholder of the Company passed on 12th July, 2000'' above) are similar to the terms of the Share Option Scheme except that:
3a) options under the scheme are only granted pursuant to the CCC Options Conversion Agreement and Topspin Options Conversion Agreement;
3b) subject to adjustment in the event of alterations to capital as referred to in sub- paragraph 13k) above, the subscription prices for Shares are:
3i) $0.0909 per Share as to options in respect of 52,319,861 Shares granted pursuant to the Topspin Options Conversion Agreement;
3ii) $0.0379 per Share as to options in respect of 264,503,216 Shares granted pursuant to the CCC Options Conversion Agreement;
3c) subject to adjustment in the event of alterations to capital as referred to in sub- paragraph 13k) above, the total number of Shares subject to the scheme is 316,823,077;
3d) the definition of ``Employee'' includes not only full-time employees 3including executive directors) of any member of the Group but also non-executive directors of the Company; and
Ð 243 Ð APPENDIX V STATUTORY AND GENERAL INFORMATION
3e) the number of Shares subject to any option3s) may not represent a board lot for the time beingfor the purpose of tradingon the Stock Exchangeor an integralmultiple thereof.
Present status of the scheme
As at the date of this prospectus, options to subscribe for an aggregate of 316,823,077 Shares have conditionally been granted by the Company under the Pre-IPO Share Option Scheme to the optionholders of the CCC Option Scheme and the Topspin Option Scheme pursuant to the CCC Options Conversion Agreement and the Topspin Options Conversion Agreement, pursuant to which such optionholders agreed to convert their exercisable options under the aforesaid agreements into an aggregate of 351,396,000 Shares as set out in sub- paragraph 3f) of the paragraph headed `` Changes in share capital of the Company'' in this Appendix and the non-exercisable options under the aforesaid agreements conditionally into options under the Pre-IPO Share Option Scheme to subscribe for an aggregate of 316,823,077 Shares. Details of the outstandingoptions conditionally grantedunder the Pre-IPO Share Option Scheme are as follows:
No. of Shares Exercise subject to price Grantees the options 9per Share) Expiration Date
Directors
Ip Saimond 72,602,255 0.0379 31st December, 2005 Flat D, 7/F, Hoi Tien Mansion, Horizon Garden, Taikoo Shing, HongKong
YeungKwok Mung 72,602,255 0.0379 31st December, 2005 B1, 7/F, Flora Garden, 50 Cloudview Road, North Point, HongKong
TsangMoses Kwok Tai 44,551,384 0.0379 31st December, 2005 House C7, Hillgrove, 18 Cape Drive, ChungHom Kok, HongKong
Ð 244 Ð APPENDIX V STATUTORY AND GENERAL INFORMATION
No. of Shares Exercise subject to price Grantees the options 9per Share) Expiration Date
Poon Kai Tik 19,800,615 0.0379 31st December, 2005 Flat 4A, 54 MacDonnell Road, Central, HongKong
HuangErwin Steve 7,425,231 0.0379 31st December, 2005 Flat 1B, G/F, DD 165 Lot 1591 TsengTau Tsuen, Sai Kung, N.T. HongKong
Employees
NgAndrew Shu Bun 7,920,246 0.0379 31st December, 2005 1±5 Boyce Road, Butler Towers, 19/F, Block F, Jardines Lookout, HongKong
Poon Wan Fung 39,601,230 0.0379 31st December, 2005 33G, Block 2, Illumination Terrace, 7 Tai HangRoad, HongKong
Chan Wai Hung 1,980,063 0.0909 31st July, 2004 Room 624, Yue Tai House, Yun Wan Estate, Chai Wan, HongKong
Ip Kwok Ming 1,485,047 0.0909 31st July, 2004 Flat D, 14/F, Lei KingWan, Kwun Fai Mansion, Sai Wan Ho, HongKong
Ð 245 Ð APPENDIX V STATUTORY AND GENERAL INFORMATION
No. of Shares Exercise subject to price Grantees the options 9per Share) Expiration Date
KongKangChung 1,980,063 0.0909 31st July, 2004 Room 3, 10/F, 7 Lee TungStreet, Wanchai, HongKong
Kwan Man Chun 3,960,126 0.0909 31st July, 2004 Flat G, 9/F, Block 3, Belvedere Garden, Phase 3, Tsuen Wan, N.T., HongKong
Lai Chak Fun 7,920,252 0.0909 31st July, 2004 27/F, Flat B, ShingLoongCourt, 13 Dragon Terrace, Causeway Bay, HongKong
Lam Stephen Tai Wai 4,950,157 0.0909 31st July, 2004 Flat F, 20/F, Block 3, Majestic Park, 11 Farm Road, Kowloon HongKong
LeungTakMan 3,049,297 0.0909 31st July, 2004 15A Sun Tsuen Street 1/F, Tai Hong HongKong
NgHa Long 1,980,063 0.0909 31st July, 2004 Room 3715, KwongHin House, KwongTin Estate, Lam Tin, Kowloon, HongKong
Ð 246 Ð APPENDIX V STATUTORY AND GENERAL INFORMATION
No. of Shares Exercise subject to price Grantees the options 9per Share) Expiration Date
WongKevin Che Kuen 2,475,079 0.0909 31st July, 2004 1063 Parkway Court, 4ParkRoad, HongKong
Yuen Kin Chung 3,960,126 0.0909 31st July, 2004 Flat G, 33/F, Block 11, Discovery Park, Tsuen Wan, N.T., HongKong
Note: Each of the above options will become exercisable as to 8.33 per cent of the number of shares subject to it after each Reference Date immediately after completion of the Share Offer. ``Reference Date'' means each of 31st March, 30th June, 30th September and 31st December. The first Reference Date is 30th September, 2000.
Grantees No. of Shares Exercise Expiration Date subject to price the options 9per Share)
Ko Shuk Ping 2,640,082 0.0909 31st July, 2004 Flat 4A, 54 MacDonnell Road, Central, HongKong
Lau Hanson 1,320,041 0.0909 31st July, 2004 7680 River Road, Richmond BC V6X 1X6, Canada
Note: Each of the above options will become exercisable as to 6.25 per cent of the number of shares subject to it after each Reference Date immediately after completion of the Share Offer. ``Reference Date'' means each of 31st March, 30th June, 30th September and 31st December. The first Reference Date is 30th September, 2000.
A total of 62 other employees were conditionally granted options in respect of 14,619,465 Shares under the Pre-IPO Share Option Scheme at the exercise price of HK$0.0909 per Share.
Ð 247 Ð APPENDIX V STATUTORY AND GENERAL INFORMATION
A full list of all optionholders, being2 executive Directors, 3 non-executive Directors and 76 other employees of the Group containingthe details in respect of each option required under paragraph 10 of Part I of the Third Schedule to the Companies Ordinance is available for inspection in accordance with the paragraph headed ``Documents Available for Inspection'' in Appendix VI to this prospectus.
Subject as aforesaid, no further options will be granted pursuant to the Pre-IPO Share Option Scheme.
Exercise in full of all options granted under the Pre-IPO Share Option Scheme would result in the issue of 316,823,077 new Shares by the Company, representingabout 11.49 per cent of the number of Shares in issue 3as enlarged thereby) immediately after completion of the Share Offer 3includingShares fallingto be issued upon exercise of options under the Pre- IPO Share Option Scheme but takingno account of any Shares which may be issued under the Over-allotment Option or upon any exercise of options which may be granted under the Share Option Scheme or upon any exercise of subscription rights attaching to the Warrants, or of any Shares which may be issued or repurchased by the Company pursuant to the mandates referred to in Appendix V to this prospectus).
3. CCC Option Scheme
The purpose of the CCC Option Scheme was to recognise the contribution of certain directors and employees of and contributor to the Group to the growth of the Group and/or to attract and retain quality staff and to promote staff loyalty. The CCC Option Scheme was adopted on 23rd December, 1999 and options to subscribe for an aggregate of 48,688 CCC shares were granted at the exercise price of $500 per CCC share.
Ð 248 Ð APPENDIX V STATUTORY AND GENERAL INFORMATION
Pursuant to the CCC Options Conversion Agreement, 25 per cent of all options became exercisable (except for: (i) the options granted to Drummond Finance Limited, Ip Saimond, Yeung Kwok Mung and Ng Andrew Shu Bun) and, the exercisable and non-exercisable options of each such holder were respectively converted into Shares and conditionally converted into options under the Pre-IPO Share Option Scheme as follows:
No. of CCC shares No. of Shares No. of Shares subject to the options issued and subject to the Grantee exercisable non-exercisable allotted options (note 1)
Directors Ip Saimond 7,200 5,500.00 85,050,000 72,602,255 Yeung Kwok Mung 2,200 5,500.00 25,992,000 72,602,255 Tsang Moses Kwok Tai 1,125 3,375.00 13,290,000 44,551,384 Poon Kai Tik 500 1,500.00 5,910,000 19,800,615 Huang Erwin Steve 187.5 562.50 2,220,000 7,425,231
Senior Management Poon Wan Fung 1,000 3,000.00 11,814,000 39,601,230 Ng Andrew Shu Bun (note 3) 131.25 600.00 1,554,000 7,920,246
Others Drummond Finance Limited (note 2) 16,306 Ð 192,612,000 Ð
Notes:
(1) The subscription price for these Shares is HK$0.0001 per Share.
(2) Drummond Finance Limited is the wholly-owned subsidiary of Umbel Inc., which is a company owned by CIBC Trust Company (Bahamas) Limited as trustee of the Albert Cheng Family Trust. Cheng Albert Jinghan, and his children are discretionary beneficiaries of such trust and Cheng Albert Jinghan is therefore deemed to be interested in these Shares. Cheng Albert Jinghan is a director of Drummond Finance Limited.
(3) By agreement between CCC and Ng Andrew Shu Bun, part of an option in respect of 0.75 CCC share was cancelled.
4. Topspin Option Scheme
The purpose of the Topspin Option Scheme was to recognise the contribution of certain employees of the Group to the growth of the Group and/or to attract and retain quality staff and to promote staff loyalty. The Topspin Option Scheme was adopted on 23rd December, 1999 and options to subscribe for an aggregate of 5,174 Topspin shares were granted to 74 employees at the exercise price of $1,200 per Topspin share.
Ð 249 Ð APPENDIX V STATUTORY AND GENERAL INFORMATION
Pursuant to the Topspin Options Conversion Agreement, 25 per cent of all options became exercisable 3except for the options held by 6 recently joined employees in respect of 347 Topspin shares) and, the exercisable and non-exercisable options were respectively converted into 12,954,000 Shares and conditionally converted into options to subscribe for an aggregate of 52,319,861 Shares under the Pre-IPO Share Option Scheme.
QUANTITATIVE TECHNOLOGY OPTION
Pursuant to an option and licence agreement 3item 3rr) of the paragraph headed ``Summary of material contracts'' in this Appendix) dated 22nd May, 2000 between Quantitative Technology Limited 3``Grantor'') and LeungAnita FungYee 3``Grantee''), the Grantor conditionally granted an option to the Grantee to subscribe for shares of the Grantor equal to 30 per cent of the equity capital of the Grantor in issue 3as enlarged by such option shares) at the subscription price equal to the averageclosingprice of the Shares for the 60 tradingdays immediately after the day of exercise of the option as stated in the Stock Exchange's daily quotations sheets multiplied by 64,833,976 3subject to adjustment in the event of stock split, bonus issue or other organisational restructuringof the Company). The option is exercisable duringthe period commencingon the day falling 6 months after the first day the Shares are listed on a recognised stock exchange 3``IPO Date'') and endingon the day falling18 months after the IPO Date. The option and licence agreement is conditional on the listing of the Shares on a recognised stock exchange on or before 31st December, 2000, which condition may be waived by the Grantor.
LOCK IN
9a) Initial Management Shareholders and Significant Shareholders
Each of the Initial Management Shareholders has undertaken to the Company and the Stock Exchange that 3save as provided in Rule 13.17 of the GEM Listing Rules) for the period of six months commencingon the listingdate, he/it will not dispose of 3or enter into any agreementto dispose of) or permit the registered holder to dispose of 3or enter into any agreement to dispose of) any direct or indirect interest in the Relevant Securities 3includingShares fallingto be issued upon the exercise of option under the Pre-IPO Share Option Scheme) and that 3save as provided in Rule 13.17 of the GEM ListingRules) for the period of six months commencingon the date falling six months after the listing date, he/it will ensure that the aggregate number of Relevant Securities held or controlled by the Initial Management Shareholders will represent at least 35 per cent of the voting rights exercisable at general meetings of the Company and he/it will not dispose of 3or enter into any agreement to dispose of) or permit the registered holder to dispose of 3or enter into any agreement to dispose of) any direct or indirect interest in the Relevant Securities if such disposal would result in the Initial Management Shareholders ceasing to have in aggregate, control over 35 per cent of the voting rights at general meetings of the Company.
Each of the Significant Shareholders has undertaken to the Company and the Stock Exchange that 3save as provided in Rule 13.19 of the GEM Listing Rules) for the period of six months commencingon the listingdate, he/it will not dispose of 3or enter into any agreementto dispose of) or permit the registered holder to dispose of 3or enter into any agreement to dispose of) any direct or indirect interest in the Relevant Securities.
Ð 250 Ð APPENDIX V STATUTORY AND GENERAL INFORMATION
In addition to the aforesaid, each of ChengAlbert Jinghan,Ip Saimond, YeungKwok Mung, TsangMoses Kwok Tai, Poon Kai Tik, ChungWai Yang,HuangErwin Steve and ACAEDL Limited has under the Underwriting Agreement given certain undertakings to the Company and Worldsec 3on behalf of the Underwriters) regarding non-disposal of Shares. Each of the Initial Management Shareholders 3other than the Directors) has also given certain undertakings to the Company and Worldsec 3on behalf of the Underwriters) regarding non-disposal of Shares. Please refer to the paragraph entitled ``Undertakings'' in the section headed ``Underwriting'' for further details.
9b) Internet Content Providers
The Internet content providers/consultants 3as referred to in sub-paragraph 3e) of the paragraph headed ``Changes in share capital of the Company'' in this Appendix) have undertaken to the Company that, they will not dispose of 3or enter into any agreement to dispose of) all or part of the direct or indirect interests in the Shares acquired pursuant to the subscription agreements 3as referred to under items 3ss) to 3eee) of the paragraph headed ``Summary of material contracts'' in this Appendix) for differingperiods as set out in the relative subscription agreementwithout the prior consent of the Company, but such periods are all for a period of not less than six months from the listingdate.
9c) Other Shareholders
Pursuant to the acquisition as set out in sub-paragraph 3d) of the paragraph headed ``Changes in share capital of the Company'' in this Appendix, the CCC shareholders 3the ``Shareholders'') collectively became interested in 1,710,996,000 Shares 3the ``Conversion Shares''). Each of the Shareholders 3other than the Initial Management Shareholders and the Significant Shareholders) has undertaken to the Company and the Sponsor that 3save as provided in Rule 13.17 32) and 33) of the GEM ListingRules) for a period of six months after the listingdate 3``Lock-in Period''), he/ it will not dispose of 3or enter into any agreement to dispose of) or permit the registered holder to dispose of 3or enter into any agreement to dispose of) any direct or indirect interest in his/its relative Conversion Shares except that:
3a) one Shareholder may within the Lock-in Period dispose of up to 21,610,260 Conversion Shares;
3b) two other Shareholders may each within the Lock-in Period dispose of up to 50 per cent of its Conversion Shares; and
3c) in relation to each of Ni I-Hsun, Lo Kam Yee, Lo Kam Ling, Billy Ky Huey, Larry Cy Huey, Michael Kw Huey, Lo Kam Foon Francis, Kit Yu Huey, ChengYuen Ha Anna, Ho Wai HungRicardo, Ho Wai Lun Leon and Ho Yee Kam, all beingrelatives of ChengAlbert Jinghan, collectively interested in 47,064,000 Conversion Shares, their
Ð 251 Ð APPENDIX V STATUTORY AND GENERAL INFORMATION
respective undertakings were also made in favour of the Stock Exchange. Nothing in the undertakings given by such persons prevents the disposal of any interest in Relevant Securities in the followingcircumstances:
3i) at any time after the first anniversary of the listingdate pursuant to a generaloffer for such securities made by an independent third party in accordance with the HongKongCode on Takeovers and Mergers3provided such offer becomes or is declared unconditional in all respects) and subject to such disposal receivingthe prior approval of shareholders of the issuer in general meeting, for which purposes no initial management shareholder nor any associate of an initial management shareholder shall be entitled to vote thereat;
3ii) pursuant to a pledge or charge to an authorised institution under the Banking Ordinance, as security for a bona fide commercial loan;
3iii) pursuant to a power of sale under the pledge or charge 3granted pursuant to sub- paragraph 32));
3iv) on the death of the initial management shareholder; or
3v) in any other exceptional circumstances to which the Stock Exchange has given its prior approval.
OTHER INFORMATION
Estate duty, tax and other indemnities
ChengAlbert Jinghan,Drummond Finance Limited, Ip Saimond and YeungKwok Mung 3together the ``Indemnifiers'') have, pursuant to a deed of indemnity 3item 3jjj) of the paragraph headed ``Summary of material contracts'' in this Appendix) given to the Company joint and several indemnities in connection with, amongothers 3a) any liability for HongKongestate duty which might be payable by any member of the Group by reason of any transfer of property 3within the meaningof section 35 of the Estate Duty Ordinance 3Chapter 111 of the Laws of HongKong) to any member of the Group on or before the date the Share Offer becomes unconditional; and 3b) any taxation which might be payable by any member of the Group in respect of any income, profits or gains earned, accrued or received or alleged to have been earned, accrued or received on or before the date on which the Share Offer becomes unconditional other than any taxation chargeable in respect of profits or gains made in the ordinary course of business of members of the Group.
The Indemnifiers will however, not be liable under the deed of indemnity for taxation where 3a) provision has been made for such taxation in the audited combined accounts of the Group for the financial year ended 31st March, 2000 3the ``Accounts''); 3b) the taxation arises or is incurred as a result of a retrospective change in law or a retrospective increase in tax rates coming into force after the date of the deed of indemnity; 3c) the taxation or liability would not have arisen but for any act, transaction, omission or delay by any member of the Group voluntarily effected 3other than pursuant to a legally binding commitment created on or before the date of the deed of
Ð 252 Ð APPENDIX V STATUTORY AND GENERAL INFORMATION indemnity) without the prior written consent or agreement of Indemnifiers, otherwise than in the ordinary course of business after the date of the deed of indemnity; and 3d) provision or reserve made for such taxation in the Accounts is established to be an over-provision or an excessive reserve.
The Directors have been advised that no material liability for estate duty under the laws of Bermuda, or the British Virgin Islands is likely to fall on the Group, the jurisdictions in which one or more of the companies comprisingof the Group are incorporated.
Litigation
Neither the Company nor any of its subsidiaries is engaged in any litigation or arbitration of material importance and no litigation or claim of material importance is known to the Directors to be pendingor threatened againstthe Company or any of it is subsidiaries.
Sponsor
The Sponsor have made an application on behalf of the Company to the GEM Listing Committee of the Stock Exchange for listing of and permission to deal in the Shares in issue and to be issued as mentioned herein and any Shares fallingto be issued pursuant to the exercise of options granted under the Pre-IPO Share Option Scheme and the Share Option Scheme and of subscription rights attaching to the Warrants.
Preliminary expenses
The preliminary expenses of the Company are estimated to be approximately HK$50,000 and are payable by the Company.
Promoter
The Company has no promoter for the purposes of the ListingRules.
Qualifications of experts
The qualifications of the experts who have given opinions or whose names are referred to in this prospectus are as follows:
Name Qualifications
Worldsec Corporate Finance Limited Registered investment adviser Greater China Appraisal Limited Property valuers Ernst & YoungCertified public accountants Appleby Spurling& Kempe Bermuda Barristers & Attorneys
Ð 253 Ð APPENDIX V STATUTORY AND GENERAL INFORMATION
Consents of experts
Each of Worldsec Corporate Finance Limited, Greater China Appraisal Limited, Ernst & Youngand Appleby Spurling& Kempe has givenand has not withdrawn its respective written consent to the issue of this prospectus with the inclusion of its report and/or letter and/or valuation certificates and/or opinion and summaries of opinion 3as the case may be) and/or the references to its name in the form and context in which they are respectively included.
Binding effect
This prospectus shall have the effect, if an application is made in pursuance hereof, of renderingall persons concerned bound by all the provisions 3other than the penal provisions) of sections 44A and 44B of the Companies Ordinance so far as applicable.
Miscellaneous
3a) Saved as disclosed in this prospectus, within the two years precedingthe date of this prospectus:
3i) no share or loan capital of the Company or any of its subsidiaries has been issued or agreed to be issued or is proposed to be issued fully or partly paid either for cash or a consideration other than cash;
3ii) no share or loan capital of the Company or any of its subsidiaries is under option or is agreed conditionally or unconditionally to be put under option;
3iii) no commissions, discounts, brokerages or other special terms have been granted in connection with the issue or sale of any share or loan capital of the Company or any of its subsidiaries.
3b) There are no founder, management or deferred shares in the capital of the Company.
3c) None of Worldsec Corporate Finance Limited, Greater China Appraisal Limited, Ernst & Youngand Appleby Spurling& Kempe:
3i) is interested beneficially or non-beneficially in any shares in any member of the Group; or
3ii) has any right or option 3whether legally enforceable or not) to subscribe for or nominate persons to subscribe for any shares in any member of the Group.
Zina Darrell-Hollinshid, the Bermuda resident Secretary and Graham Simmons, the Resident Representative, are employees of Appleby Spurling& Kempe, the Company's Bermuda legal advisers which will receive fees in the normal course of events. AS&K Services Ltd., as Assistant Secretary and Resident Representative designate is a corporate services company owned by the firm of Appleby Spurling& Kempe and will receive fees for the provision of corporate administrative services.
Ð 254 Ð APPENDIX V STATUTORY AND GENERAL INFORMATION
3d) No company within the Group is presently listed on any stock exchange or traded on any tradingsystem.
3e) All necessary arrangements have been made to enable the Shares and the Warrants to be admitted into CCASS for clearingand settlement.
Ð 255 Ð APPENDIX VI DOCUMENTS DELIVERED AND AVAILABLE FOR INSPECTION
DOCUMENT DELIVERED TO THE REGISTRAR OF COMPANIES
The documents attached to the copy of this prospectus registered by the Registrar of Companies in Hong Kong were copies of the white, yellow and blue application forms, the statement of adjustments, the written consents referred to in the section Ð headed ``Other Information Ð Consents of experts'' in Appendix V, and copies of the material contracts referred to in the section headed ``Further Information About The Business Ð Summary of material contracts'' in AppendixV to this prospectus.
DOCUMENTS AVAILABLE FOR INSPECTION
Copies of the following documents will be available for inspection at the offices of Charltons at 56th Floor, Bank of China Tower, 1 Garden Road, Hong Kong during normal business hours up to and including 3rd August, 2000:
2a) the memorandum and bye-laws of the Company;
2b) the audited accounts of CCC for each of the two years ended 31st March, 2000;
2c) the Accountants' Report prepared by Ernst & Young, the text of which is set out in AppendixI, and the related statement of adjustments;
2d) the letter and valuation certificate relating to the property interests of the Group prepared by Greater China Appraisal Limited, the text of which is set out in Appendix II;
2e) the instrument constituting the Warrants, a summary of the principal terms of which is set out in AppendixIV to this prospectus;
2f) the rules of the Share Option Scheme and the Pre-IPO Share Option Scheme;
2g) the Companies Act;
2h) the letter prepared by Appleby Spurling & Kempe referred to in AppendixIII summarising certain aspects of Bermuda law;
2i) the service contracts referred to in the section headed ``Further information about directors, management and staff Ð Directors'' in AppendixV to this prospectus;
2j) the material contracts referred to in the section headed ``Summary of material contracts'' under the section headed ``Further information about the business Ð Summary of material contracts'' in AppendixV;
Ð 256 Ð APPENDIX VI DOCUMENTS DELIVERED AND AVAILABLE FOR INSPECTION
2k) the written consents referred to in the section headed ``Other Information Ð Consents of experts'' in Appendix V; and
2l) a full list of all optionholders, being 2 executive Directors, 3 non-executive Directors and 76 other employees of the Group, containing the details in respect of each option required under paragraph 10 of Part I of the Third Schedule to the Companies Ordinance 2referred to in the paragraphs headed ``Pre-IPO Share Option Scheme'' in AppendixV).
Ð 257 Ð