Next Media Limited

IMPORTANT

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult your s38(1A) stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser. If you have sold or transferred all your shares in Next Media Limited, you should at once hand this circular, together with the enclosed form of proxy, to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee. A copy of this circular, together with the documents specified in the paragraph headed “Documents Delivered to the s38D Registrar of Companies” in Appendix XIII, has been registered by the Registrar of Companies in Hong Kong as required by section 38D of the Companies Ordinance (Chapter 32 of the Laws of Hong Kong). Neither the Registrar of Companies in Hong Kong nor the Securities and Futures Commission takes any responsibility for the contents of this circular. The Stock Exchange of Hong Kong Limited and Hong Kong Securities Clearing Company Limited take no responsibility for the contents of this circular, 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 circular. This circular is for the sole purpose of an extraordinary general meeting of Next Media Limited. While this circular refers to a possible placing and a possible subscription of shares, it is not an offer to sell or a solicitation of an offer to buy any securities.

NEXT MEDIA LIMITED 1

(Incorporated in Hong Kong with limited liability) 5 (1) VERY SUBSTANTIAL ACQUISITION TREATED AS AN APPLICATION FOR NEW LISTING AND CONNECTED TRANSACTIONS INVOLVING (A) ACQUISITION OF THE ENTIRE ISSUED SHARE CAPITAL OF DATABASE GATEWAY LIMITED FROM MR. LAI CHEE YING, JIMMY AND OTHER SELLERS AND (B) CAPITALISATION OF A SHAREHOLDER LOAN, (2) SHARE CONSOLIDATION, (3) INCREASE IN AUTHORISED SHARE CAPITAL AND (4) POSSIBLE CONNECTED TRANSACTION INVOLVING A POSSIBLE TOP-UP PLACING COMPRISING (A) A POSSIBLE PLACING OF NOT MORE THAN 200,000,000 CONSOLIDATED SHARES BY MR. LAI CHEE YING, JIMMY AND (B) A POSSIBLE SUBSCRIPTION OF NOT MORE THAN 200,000,000 CONSOLIDATED SHARES BY MR. LAI CHEE YING, JIMMY

Sponsor and Financial Adviser to Next Media Limited Bear Stearns Asia Limited

Independent Financial Adviser to the Independent Board Committee of Next Media Limited

A letter from Deloitte & Touche Corporate Finance Limited as the independent financial adviser to the Independent Board Committee is set out on pages 105 to 127 of this circular. A notice convening an extraordinary general meeting of Next Media Limited to be held at the Conference Room on the 1st Floor, 3 Chun Kwong Street, Tseung Kwan O Industrial Estate, Tseung Kwan O, New Territories, Hong Kong on Monday, 22nd October, 2001 at 10:00 a.m. is set out on pages 368 to 375 of this circular. Whether or not you are able to attend the meeting, please complete and return the enclosed form of proxy in accordance with the instructions printed thereon as soon as possible and in any event not less than 48 hours before the time appointed for the holding of the meeting. Completion and return of the form of proxy will not preclude you from attending and voting in person at the meeting should you so wish.

28th September, 2001 s37 PRELIMINARY

This circular contains information about the acquisition by the Company of the entire issued share capital of DGL from Mr. Lai Chee Ying, Jimmy and the other Sellers, a consolidation of the Company’s shares, an increase in the Company’s authorised share capital, the capitalisation of a shareholder loan owed by the Company to Mr. Lai and a possible placing of not more than 200,000,000 Consolidated Shares by Mr. Lai to independent investors and a possible subscription of not more than 200,000,000 new Consolidated Shares by Mr. Lai.

The Acquisition is a very substantial acquisition and a connected transaction for the Company under the Listing Rules and is conditional upon approval by the Independent Shareholders. The Company is treated as a new applicant for listing pursuant to the Listing Rules. The issue of the Capitalisation Shares to Mr. Lai in repayment of the shareholder loan owed by the Company to Mr. Lai is a connected transaction for the Company under the Listing Rules and is conditional upon approval by the Independent Shareholders. If the Subscription proceeds, it will be a connected transaction for the Company under the Listing Rules and is conditional upon approval by the shareholders of the Company other than Mr. Lai, Ms. Assapimonwait Pilunya and Mr. Marc Faber (who, together with Mr. Lai, have agreed to sell shares in DGL as trustees for three children of Mr. Lai) and their respective associates.

While this circular refers to a possible placing of Shares, it is not an offer to sell or a solicitation of an offer to buy any securities.

The Company has not authorised any person to provide you with information which is not contained in or is different from what is contained in this circular.

The Directors collectively and individually accept full responsibility for the accuracy of the information contained in this circular (other than information relating to the Acquired Group). The directors of DGL collectively and individually accept full responsibility for the accuracy of the information contained in this circular (other than information relating to the Group). Any information or representation not contained in this circular must not be relied on by anybody as having been authorised by the Company, the Directors, the directors of DGL or any other person involved in the Acquisition.

— i — CONTENTS

Page

Summary ...... 1 Definitions ...... 16 Expected Timetable ...... 22 Risk Factors ...... 24 Directors ...... 40 Parties Involved in the Acquisition ...... 41 Corporate Information ...... 43 Industry Overview ...... 44 Letter from the Board Introduction ...... 47 Share Consolidation ...... 49 Increase in Authorised Share Capital ...... 51 Approval of the Share Consolidation and the Increase in Authorised Share Capital ..... 51 The Acquisition Agreement ...... 52 Indemnities, Guarantees, Capitalisation of Shareholder Loans of the Acquired Group and Undertakings ...... 60 Information about the Group ...... 63 Information about the Acquired Group ...... 68 Litigation ...... 73 IntellectualProperty...... 78 Financial information on the Enlarged Group ...... 82 Pro Forma Statement of Adjusted Combined Net Tangible Assets of the Enlarged Group as at 31st July, 2001 ...... 83 Liquidity, Financial Resources and Working Capital ...... 85 Reasons for and Benefits of the Acquisition ...... 85 Future Plans and Prospects ...... 87 Liquidity and Capital Expenditures ...... 90 Directors and Senior Management of the Company ...... 91 Directors and Senior Management of the Acquired Group ...... 94 The Possible Placing and Subscription ...... 95 Further Acquisitions or Disposals of Assets by the Group ...... 98 Shareholding Structure ...... 98 General ...... 100 EGM ...... 101 Recommendation ...... 102 Additional information ...... 103

— ii — CONTENTS

Page

Letter from the Independent Board Committee ...... 104

Letter from Deloitte & Touche Corporate Finance Limited ...... 105

Appendix I — Business of the Group ...... 128

Appendix II — Business of the Acquired Group ...... 165

Appendix III — Financial Information of the Group ...... 217

Appendix IV — Accountants’ Report on the Acquired Group ...... 250

Appendix V — Financial Information on the Enlarged Group ...... 281

Appendix VI — Property Valuation of the Group ...... 294

Appendix VII — Property Valuation of the Acquired Group ...... 300

Appendix VIII — Plant and Machinery Valuation of the Group ...... 304

Appendix IX — Plant and Machinery Valuation of the Acquired Group ...... 308

Appendix X — Masthead and Publishing Rights Valuation of the Group ...... 312

Appendix XI — Masthead and Publishing Rights Valuation of the Acquired Group . . 317

Appendix XII — Summary of Articles of Association of the Company ...... 322

Appendix XIII — Statutory and General Information ...... 328

Notice of the EGM ...... 368

— iii — SUMMARY

This section aims to give you an overview of the information contained in this circular. It does not contain all the information that may be important to you. You should read the whole document before you make any decision about the Acquisition, the capitalisation of the shareholder loan owed by the Company to Mr. Lai, the Share Consolidation, the increase in the Company’s authorised share capital or the possible Placing and the possible Subscription described in this circular.

HISTORY OF THE GROUP

The Company was incorporated in Hong Kong on 12th June, 1981. Its shares have been listed on the Stock Exchange since 1981.

In October, 1999, the Company acquired Easy Finder and Next Interactive from NMIHL, a member of the Acquired Group, for a total consideration of HK$335,100,000, which was satisfied by the issue of 1,675,500,000 Existing Shares at their par value of HK$0.20 each. That acquisition was a very substantial acquisition treated as a new listing application of the Company and was completed in October 1999. The Company acquired through that acquisition Easy Finder, a Chinese language weekly magazine published by EFL, and nine domain names of Next Interactive, including the domain names of the websites for the online versions of Next Magazine, Sudden Weekly and Easy Finder. The 1,675,500,000 Existing Shares issued as consideration represented 536% of the issued share capital of the Company prior to completion of its acquisition of Easy Finder and Next Interactive and 64% of the enlarged issued share capital of the Company immediately after completion of that acquisition, a share offer to its employees and a placing. As a result of that acquisition, the controlling shareholder of the Company changed from I-China Holdings Limited (which was then known as Seapower International Holdings Limited) to Mr. Lai (through NMIHL). The Company changed its name from Paramount Publishing Group Limited to Next Media Limited in February, 2000.

Before the Company’s acquisition of Easy Finder and Next Interactive, it was a provider of commercial printing and reprographic services for books and magazines and a magazine publisher.

In July, 2000, the Company streamlined its workforce employed in the websites of Next Interactive in order to improve the efficiency and the competitiveness of its Internet business. Of the 266 people who were then employed in those websites, 62 were offered voluntary resignation terms or the opportunity to be transferred elsewhere within the Group. The costs of the streamlining were approximately HK$1.3 million. The number of employees of the websites of Next Interactive was reduced from 266 to 204.

On 31st July, 2000, the Company acquired ADOL, which operated various websites, from ADL, a member of the Acquired Group, for a consideration of HK$500,000,000, which was satisfied by the issue of 362,318,840 Existing Shares at HK$1.38 per Existing Share. The Company acquired through that acquisition 24 domain names of ADOL, including the domain name of the website for the online version of Apple Daily. The 362,318,840 Existing Shares issued as consideration represented approximately 13% of the issued share capital of the Company prior to completion of its acquisition of ADOL and approximately 11% of its issued share capital after completion of that acquisition. These 362,318,840 Existing Shares were subject to a six-month lock-up period after the date of their issue.

On 31st October, 2000, the Company announced that eight of the websites of Next Interactive and three of the websites of ADOL, which were not frequently visited and had generated minimal revenue, would be closed. (The websites which were closed consisted of three websites of ADOL, which were closed in October, 2000, and five websites of Next Interactive, which were closed in November, 2000.) 90 employees of the websites of Next Interactive and ADOL were laid off at the

— 1 — SUMMARY same time. The number of employees of the websites of the Group was reduced from 176 to 86. Related severance payment costs amounted to approximately HK$3.9 million. In March, 2001, one of the Group’s websites, aonext.com, which contained information on personal insurance plans offered by an insurance company and was not frequently visited, was closed. No employees were laid off as a result of the closure of this website.

Taiwan Next Magazine, the Group’s magazine in Taiwan, was launched on 31st May, 2001. Taiwan Next Magazine is a Chinese language weekly magazine and is published by the Taiwan branch of Next Media Publishing Limited, a wholly-owned subsidiary of the Company incorporated in Hong Kong. As at 19th September, 2001, the Group had 314 employees in Taiwan. The Group intends to spend a total amount of approximately HK$150 million for approximately two years from December, 2000 on the business of Taiwan Next Magazine. The Group incurred cash outflow of approximately HK$18.7 million (approximately HK$6.5 million of which are of a capital nature (being purchases of fixed assets and utility and rental deposits)) in relation to its expansion into Taiwan during the four months ended 31st March, 2001. During the four months ended 31st July, 2001, the Group incurred cash outflow of approximately HK$63.3 million (approximately HK$4.7 million of which are of a capital nature (being purchases of fixed assets and utility and rental deposits)) in relation to its expansion into Taiwan. As at 31st July, 2001, the Group had made a capital commitment of approximately HK$2.3 million (for computer, production and telecommunication equipment and leasehold improvements) in relation to its expansion into Taiwan.

THE ACQUISITION AGREEMENT

The Company entered into the Acquisition Agreement with Mr. Lai and the other Sellers on 13th September, 2001 to acquire the entire issued share capital of DGL for a consideration of HK$2,620,000,000. The Company will satisfy the consideration as to HK$590,000,000 by the allotment and issue to Mr. Lai and the other Sellers of 429,090,909 Consolidated Shares at HK$1.375 per Consolidated Share and as to HK$2,030,000,000 by the allotment and issue of 1,160,000,000 Preference Shares to Mr. Lai at a price equal to their par value of HK$1.75 each. The Preference Shares may be converted into Conversion Shares at the initial Conversion Price of HK$1.75 per Consolidated Share (subject to adjustment) at any time during the Conversion Period, which is five years from the date of issue of the Preference Shares.

Pursuant to the Acquisition Agreement, 736,201,531 new shares in DGL, credited as fully paid, will be issued to the Company at their par value of HK$1.00 each at Completion at the direction of Mr. Lai and his associate, Dico, in repayment of the shareholder loans (in the aggregate amount of HK$736,201,531) owed by the Acquired Group to Mr. Lai and Dico. Immediately after Completion, DGL will become a wholly-owned subsidiary of the Company.

Pursuant to the Acquisition Agreement, the Capitalisation Shares, credited as fully paid, will be issued to Mr. Lai in repayment of the shareholder loan (comprising a principal amount of HK$200,000,000 and accrued interest of HK$15,780,820 up to and including 31st March, 2001) owed by the Company to him. The Capitalisation Shares, which amount to 156,931,505 Consolidated Shares, will be issued to Mr. Lai at a price equal to the Issue Price of the Consideration Shares, being HK$1.375 per Consolidated Share, at Completion. Interest ceased to accrue on the shareholder loan on 1st April, 2001.

— 2 — SUMMARY

THE ACQUIRED GROUP

The current principal businesses of the Acquired Group are the publishing of Apple Daily, Next Magazine, Sudden Weekly and Eat & Travel Weekly and newspaper printing.

Apple Daily is one of the leading Chinese language daily newspapers in Hong Kong. It was first published in June, 1995. According to the Certificate of Circulation issued by HKABC for the six months ended 31st December, 2000, Apple Daily had an average daily circulation of 383,418 copies (as audited by HKABC) for the same period. The ACNielsen RARD Report for the three months ended 31st July, 2001 showed that Apple Daily had an average readership of approximately 1.54 million persons and ranked second in terms of readership among all newspapers in Hong Kong for the same period.

According to the Certificate of Circulation issued by HKABC for the six months ended 31st December, 2000, the three Chinese language weekly magazines of the Acquired Group had an average aggregate weekly circulation of 343,266 copies (as audited by HKABC) for the same period. The ACNielsen RARD Report for the three months ended 31st July, 2001 showed that those three magazines had an average aggregate readership of approximately 0.95 million persons for the same period. The ACNielsen RARD Report for the three months ended 31st July, 2001 showed that two of those magazines, Next Magazine and Sudden Weekly, ranked first and third in terms of readership among all weekly magazines in Hong Kong for the same period. The ACNielsen RARD Report for the three months ended 31st July, 2001 showed that Eat & Travel Weekly ranked tenth in terms of readership among all weekly magazines in Hong Kong for the same period.

average circulation per issue average readership in Hong Kong for the six months ended for the three months ended 31st December, 2000(1)(3) 31st July, 2001(2)

Apple Daily ...... 383,418 1,543,000 Next Magazine ...... 145,584 494,000 Sudden Weekly ...... 142,180 319,000 Eat & Travel Weekly ...... 55,502 134,000

Notes:

(1) Source: Certificates of Circulation issued by HKABC

(2) Source: ACNielsen RARD Report for the three months ended 31st July, 2001

(3) Apple Daily is circulated only in Hong Kong and Macau. The circulation of Next Magazine, Sudden Weekly and Eat & Travel Weekly includes circulation in and outside Hong Kong. Tak Kee, the sole distributor of the Acquired Group’s publications, is permitted to distribute or sell the magazines outside Hong Kong.

Substantially all of the Acquired Group’s magazines are printed by the Group. The Group’s printing business for the Acquired Group accounted for approximately 16.4% and 38.7% of the Group’s total turnover from printing and approximately 11.2% and 20.6% of the Group’s total turnover for the two years ended 31st March, 2000 and 2001, respectively.

— 3 — SUMMARY

The Acquired Group operates its newspaper printing business through DGL’s wholly-owned subsidiary, ADPL. ADPL prints 100 per cent. of Apple Daily’s circulation and prints other daily and weekly publications, being an international newspaper and certain Hong Kong horse racing journals and district newspapers.

In October, 1999, NMIHL, a member of the Acquired Group, sold Easy Finder and Next Interactive to the Company for a total consideration of HK$335,100,000. In July 2000, ADL, a member of the Acquired Group, sold ADOL to the Company for a consideration of HK$500,000,000. Further details of these disposals are contained in the paragraph headed “History of the Group” in this section and in Appendices I and II to this circular.

The Acquired Group made gains of HK$321.5 million and HK$481.8 million on its disposals of Easy Finder and Next Interactive in October, 1999 and of ADOL in July, 2000, respectively. The Acquired Group incurred severance payment costs of approximately HK$0.43 million in relation to the lay off of 36 employees of the websites of ADOL in July, 2000 prior to the completion of its sale to the Company.

The table below shows DGL’s combined results for each of the three years ended 31st March, 1999, 2000 and 2001:

Year ended 31st March,

1999 2000 2001

HK$’000 HK$’000 HK$’000

Turnover ...... 1,881,725 1,903,593 1,928,836

Profitbeforetaxation...... 92,513 515,533 508,879 Taxation...... (16,008) (30,056) (24,104)

Profit attributable to shareholders ...... 76,505 485,477 484,775

The above combined results include results of Easy Finder, Next Interactive and ADOL (which have been disposed of during the relevant periods) and the gains on their disposals. The results attributable to these businesses are set out in Note (14) of Section 2 of the Accountants’ Report on the Acquired Group on page 264 in Appendix IV to this circular. Please refer to Notes (3) and (14) of Section 2 of the Accountants’ Report on the Acquired Group on pages 259 and 264 in Appendix IV to this circular for the results of the major business segments of the Acquired Group for each of the three years ended 31st March, 1999, 2000 and 2001.

LISTING RULES REQUIREMENTS

Since the total consideration of HK$2,620,000,000 for the entire issued share capital of DGL exceeds 100 per cent. of the net tangible asset value of the Group as at 31st March, 2001, the Acquisition is a very substantial acquisition for the Company under the Listing Rules. As such, it is subject to approval by the Independent Shareholders pursuant to Rule 14.07(1) of the Listing Rules. The Company is treated as a new applicant for listing pursuant to the Listing Rules and the Acquisition is subject to approval of the Company’s new listing application by the Listing Committee of the Stock Exchange. 14(1)

— 4 — SUMMARY

As Mr. Lai is the chairman, an executive Director and the controlling shareholder of the Company and the other Sellers include Directors, an associate of a Director, a person who was a Director within the twelve months preceding the date of the Acquisition Agreement, an associate of that person and trustees who hold shares in DGL on trust for children of a Director, the Acquisition is also a connected transaction for the Company under the Listing Rules and is conditional upon approval by the Independent Shareholders pursuant to Rule 14.26 of the Listing Rules. The issue of the Capitalisation Shares in repayment of the shareholder loan owed by the Company to Mr. Lai is a connected transaction for the Company under Rule 14.26 of the Listing Rules and is conditional upon approval by the Independent Shareholders.

A new listing application in respect of the Acquisition has been made to the Listing Committee of the Stock Exchange.

Application has also been made to the Stock Exchange for listing of and permission to deal in the Consolidated Shares arising from the Share Consolidation, the Consideration Shares, the Capitalisation Shares and the Conversion Shares (which may fall to be issued upon exercise of the conversion rights attached to the Preference Shares).

SHARE CONSOLIDATION

It will be proposed at the EGM that every five Existing Shares of HK$0.20 each will be consolidated into one Consolidated Share of HK$1.00. Every five issued Existing Shares registered in the name of each shareholder on the register of members of the Company on the opening of business on Tuesday, 23rd October, 2001 will constitute one issued Consolidated Share. Any fractional entitlements to issued Consolidated Shares which shareholders of the Company would otherwise have will be aggregated and sold for the benefit of the Company.

The Share Consolidation is conditional upon approval by the Independent Shareholders.

The issued Consolidated Shares will rank pari passu in all respects with each other and will have the rights and privileges and be subject to the restrictions contained in the Company’s articles of association.

The Existing Shares are traded in board lots of 2,000 Existing Shares. The Consolidated Shares will also be traded in board lots of 2,000 Consolidated Shares.

Details of the transitional trading arrangements for the Existing Shares and the Consolidated Shares, the procedure for the exchange of share certificates and the trading facilities for odd lots are set out in the paragraph headed “Share Consolidation” in the letter from the Board on pages 49 to 51 of this circular.

INCREASE IN AUTHORISED SHARE CAPITAL

At the EGM, an increase in the authorised share capital of the Company from HK$900,000,000 to HK$4,600,000,000 by the creation of 1,670,000,000 Consolidated Shares of HK$1.00 each and 1,160,000,000 Preference Shares of HK$1.75 each will be proposed.

The increase in the authorised share capital of the Company is subject to Independent Shareholders’ approval.

— 5 — SUMMARY

APPROVAL OF THE SHARE CONSOLIDATION AND THE INCREASE IN AUTHORISED SHARE CAPITAL

Only one ordinary resolution will be proposed at the EGM to approve the Acquisition, the increase in the authorised share capital of the Company and the Share Consolidation. (Please see ordinary resolution numbered 1 set out in the notice of the EGM on pages 368 and 369 of this circular.) Since Mr. Lai, Mr. Chow On Kiu, Andrew, Mr. Yeung Wai Hong, Mr. Ting Ka Yu, Stephen, Mr. Kok Hon Kay, Peter, Mr. Ho Kwok Fai, Morris, Ms. Assapimonwait Pilunya and Mr. Marc Faber (who, together with Mr. Lai, have agreed to sell shares in DGL as trustees for three children of Mr. Lai, all aged over 18) and all of the other Sellers and their respective associates will abstain from voting at the EGM on the Acquisition, they will not be voting at the EGM on the increase in the authorised share capital of the Company and the Share Consolidation.

CONDITIONS OF THE ACQUISITION

Completion of the Acquisition is conditional upon:

(a) the passing of an ordinary resolution of the Independent Shareholders which:

(i) consolidates every five Existing Shares of HK$0.20 each into one Consolidated Share of HK$1.00;

(ii) increases the authorised share capital of the Company from HK$900,000,000 to HK$4,600,000,000 by the creation of 1,670,000,000 Consolidated Shares and 1,160,000,000 Preference Shares;

(iii) authorises the Company’s acquisition of the entire issued share capital of DGL;

(iv) authorises the issue and allotment of the Consideration Shares to Mr. Lai and the other Sellers in satisfaction of part of the consideration under the Acquisition Agreement;

(v) authorises the issue and allotment of the Capitalisation Shares to Mr. Lai in repayment of the shareholder loan owed by the Company to Mr. Lai;

(vi) authorises the issue and allotment of the Preference Shares to Mr. Lai in satisfaction of part of the consideration under the Acquisition Agreement; and

(vii) authorises the issue and allotment of the Conversion Shares (which may fall to be issued upon exercise of the conversion rights attached to the Preference Shares);

(b) the passing of a special resolution of the Independent Shareholders which amends the articles of association of the Company so as to deal with the Preference Shares;

(d) the Stock Exchange granting listing of and permission to deal in the Consolidated Shares which will be in issue as at the date of the EGM, the Consideration Shares, the Capitalisation Shares, the Conversion Shares (which may fall to be issued upon exercise of the conversion rights attached to the Preference Shares) and any Consolidated Shares which may be issued under the Company’s share option schemes.

— 6 — SUMMARY

INDEMNITIES AND GUARANTEES

Pursuant to the Acquisition Agreement, the Sellers, the Company and DGL have agreed to enter into the Tax Deed at Completion. Under the Tax Deed, the Sellers must pay to the Company in cash an amount equal to any unprovided tax liability of the Acquired Group which arises as a result of any event occurring or deemed to occur on or before the date of Completion (as amended by a letter agreement dated 25th September, 2001 between the Sellers and the Company). The liability of Mr. Lai under the Tax Deed is not limited. The liability of each of the other Sellers under the Tax Deed is limited to the amount of the consideration received by that Seller under the Acquisition Agreement.

Pursuant to the Acquisition Agreement, Mr. Lai has agreed to enter into the Deed of Indemnity at Completion. Under the Deed of Indemnity, Mr. Lai must indemnify the Company and the Acquired Group (to the extent that the Acquired Group is not fully indemnified by third parties, including insurance companies) against all payments, claims, suits, damages and settlement payments and any associated costs and expenses (including legal costs and expenses and payments made by the Acquired Group to the Group under any indemnities) after Completion arising out of or connected with (1) any third party claims (including but not limited to defamation claims, claims for infringement of intellectual property rights and other proceedings and claims arising from the content of Apple Daily, Next Magazine, Sudden Weekly and Eat & Travel Weekly) made against the Acquired Group on and before the date of Completion, (2) defamation claims, claims for infringement of intellectual property rights and other proceedings and claims which may in the future arise from the content of Apple Daily, Next Magazine, Sudden Weekly and Eat & Travel Weekly published on and at any time before the date of Completion and (3) the arbitration relating to a dispute with UDL Contracting Limited as contractor for the construction of the printing facility of ADPL in Tseung Kwan O in respect of amounts payable under the contract for the construction of the printing facility. The liability of Mr. Lai under the Deed of Indemnity is not limited.

Pursuant to the Acquisition Agreement, Mr. Lai has agreed to procure a bank guarantee (which will be available immediately after Completion) in favour of the Company and the Acquired Group in respect of the obligations of Mr. Lai under the Deed of Indemnity for HK$60,000,000. The bank guarantee will be for a term of three years from the date of Completion. Mr. Lai has undertaken to use his best endeavours to renew the bank guarantee for further periods of three years each after the expiry of the initial term until none of the claims, proceedings and arbitration covered by the Deed of Indemnity is outstanding.

The directors of DGL and the Directors believe that the Deed of Indemnity together with the bank guarantee should provide sufficient protection to the Company and the Acquired Group against the claims, proceedings and arbitrations to which they relate.

— 7 — SUMMARY term of the lease of the Acquired Group’s property in Tseung Kwan O. The Property Indemnity will cover all damages, costs, expenses, third party claims and losses which arise or are incurred on or before 27th June, 2047, irrespective of when payments are made by the Company or the Acquired Group, including those payments which are made after 27th June, 2047.

Pursuant to the Acquisition Agreement, Mr. Lai is obliged to procure that the guarantees provided by Mr. Lai and Dico in respect of the banking facilities of the Acquired Group shall be released on or before Completion. Further details of the release of these guarantees are set out in the paragraph headed “Long-Term Liabilities” on pages 214 and 215 of Appendix II to this circular.

UNDERTAKINGS

Mr. Lai’s undertakings

Mr. Lai has undertaken to the Company and the Stock Exchange that:

(a) he shall not, and shall procure that none of his associates and companies controlled by him shall, dispose of (including, without limitation, by the creation of any option, charge or other encumbrance or rights over or in respect of) any Consolidated Shares (including, without limitation, the Consideration Shares, the Capitalisation Shares and the Conversion Shares) or Preference Shares or any interests in them owned by him or in which he is, directly or indirectly, interested immediately after the completion of the Acquisition (or any other shares or securities of or interests in the Company arising or deriving from them) or dispose of (including, without limitation, by the creation of any option, charge or other encumbrance or rights over or in respect of) any shares in any company controlled by him which is the beneficial owner of any of such Consolidated Shares or Preference Shares for a period of six months from the date of Completion except that this restriction shall not apply to any Consolidated Shares or Preference Shares which he or any of his associates or any of the companies controlled by him may acquire following the completion of the Acquisition or any disposal of the Placing Shares pursuant to the exercise of the Over-allotment Option;

(b) he shall not, and shall procure that none of his associates and companies controlled by him shall, dispose of any Consolidated Shares or Preference Shares or any interests in them referred to in paragraph (a) for a period of six months from the date of expiry of the six-month period referred to in paragraph (a) above if immediately following such disposal he would cease to be a controlling shareholder (being a shareholder having 35 per cent. or more of the voting power at general meetings of the Company or being in a position to control the composition of a majority of the Board, as defined in the Listing Rules) of the Company except that this restriction shall not apply to any Consolidated Shares or Preference Shares which he or any of his associates or any of the companies controlled by him may acquire following the completion of the Acquisition; and

(c) in the event that he pledges or charges any direct or indirect interest in any Consolidated Shares or Preference Shares or any interests in them referred to in paragraph (a) above or in any shares in any company controlled by him which is the beneficial owner of such Consolidated Shares or Preference Shares within a period of 12 months commencing from the date of completion of the Acquisition, he must inform the Company immediately after such pledge or charge is granted, disclosing to the Company the details of such pledge or

— 8 — SUMMARY

charge including the number and class of securities being pledged or charged and the purpose for which the pledge or charge is made, and in the event that he becomes aware that the pledgee or chargee has disposed of or intends to dispose of such interest, of such disposal or such intention to dispose and the number of securities affected.

Under Rule 10.07 of the Listing Rules, the Company must immediately inform the Stock Exchange as soon as it has been informed by Mr. Lai of any pledge or charge referred to in paragraph (c) above and disclose such matters by way of a press notice which is published in a newspaper as soon as possible.

Mr. Lai has undertaken to the Company that he and his associates shall:

(a) not exercise any conversion rights attached to the Preference Shares where the percentage shareholding of the public (as defined in the Listing Rules) in the Company immediately following the conversion pursuant to such exercise will be less than 25 per cent.; and

(b) only assign or transfer the Preference Shares to the public (as defined in the Listing Rules).

Other Sellers’ Undertaking

Each of the Sellers, other than Mr. Lai, has undertaken to the Company that he shall not dispose of his Consideration Shares for a period of six months from the date of their issue.

REASONS FOR AND BENEFITS OF THE ACQUISITION AND THE CAPITALISATION OF SHAREHOLDER LOANS

The Group is principally engaged in the publication of two magazines, Easy Finder in Hong Kong and Taiwan Next Magazine in Taiwan, and magazine printing. The Directors consider that the Acquisition (i) represents a unique opportunity to acquire a leading print media group in Hong Kong, (ii) will broaden the earnings base of the Group and (iii) will add financial strength to the Group.

The Company intends that the capitalisation of the shareholder loan owed by the Company to Mr. Lai will reduce the Group’s financial reliance on the controlling shareholder of the Company and reduce the Group’s financial gearing.

FUTURE PLANS AND PROSPECTS

— 9 — SUMMARY

The strategic objective of the Company following the Acquisition is to become a large Chinese language print media company capable of competing against other leading Chinese language media companies in Hong Kong and Taiwan. To achieve this objective, following the Acquisition, the Company intends to:

● consolidate its operations;

● strengthen its position in the Chinese language print media market of Hong Kong; and

● expand into Taiwan.

The Company may also acquire existing publishing businesses and related Internet businesses in Taiwan or enter into joint ventures (with independent third parties or connected persons of the Company) of such businesses if a suitable opportunity arises. The Company has not identified any business in Taiwan for such acquisition as at the Latest Practicable Date. Announcements in respect of the Group’s expansion into Taiwan will be made as and when required under the Listing Rules.

THE POSSIBLE PLACING AND SUBSCRIPTION

The Company intends to raise funds by way of a top-up placing arrangement with Mr. Lai (comprising the Placing and the Subscription) in which not more than 200,000,000 Consolidated Shares (comprising not more than 174,000,000 Consolidated Shares initially available in the Placing and not more than 26,000,000 additional Consolidated Shares under the Over-allotment Option) will be placed with independent professional and institutional investors at the Placing Price. The final number of Consolidated Shares issued by the Company in the top-up placing will be determined by the Company. The number of additional Placing Shares under the Over-allotment Option will represent not more than 15% of the number of Consolidated Shares initially determined to be placed with independent professional and institutional investors. In the event that the aggregate number of Consolidated Shares to be issued by the Company (including the number of Consolidated Shares under the Over-allotment Option) under the top-up placing arrangement falls short of 200,000,000, Mr. Lai may also place existing Consolidated Shares held by him in the Company up to the amount of such shortfall at the same Placing Price. Under this placing exercise, there will be no provision or other arrangement for Mr. Lai to subscribe for any Shares.

The Placing Price will be at a discount of not more than 20 per cent. to the average closing price of the Consolidated Shares for the 10 trading days up to and including the date on which the Placing Price is determined.

The Placing and the Subscription may or may not proceed. Assuming that 200,000,000 Consolidated Shares are placed by Mr. Lai and 200,000,000 Consolidated Shares are issued by the Company to Mr. Lai in the top-up placing arrangement, his percentage shareholding in the Company’s issued share capital as enlarged by the issue of the Consideration Shares, the Capitalisation Shares and, after such issue, 200,000,000 Subscription Shares will decrease from 59.37 per cent. to 51.09 per cent. (assuming no conversion of any of the Preference Shares) or increase from 59.37 per cent. to 72.96 per cent. (assuming conversion of the 1,160,000,000 Preference Shares at the initial Conversion Price of HK$1.75 per Consolidated Share at or around the time of completion of the Placing and the Subscription).

Mr. Lai will remain the controlling shareholder (as defined in the Listing Rules) of the Company after completion of the Placing and the Subscription.

— 10 — SUMMARY

The maximum number of the Placing Shares (being 200,000,000 Consolidated Shares) represents:

(i) approximately 31 per cent. of the existing share capital of the Company;

(ii) approximately 16 per cent. of the issued share capital as enlarged by the issue of the Consideration Shares and the Capitalisation Shares;

(iii) approximately 14 per cent. of the issued share capital of the Company as enlarged by the issue of the Consideration Shares, the Capitalisation Shares and 200,000,000 Subscription Shares; and

(iv) approximately 8 per cent. of the issued share capital of the Company as enlarged by the issue of the Consideration Shares, the Capitalisation Shares and 200,000,000 Subscription Shares and assuming conversion of 1,160,000,000 Preference Shares at the initial Conversion Price of HK$1.75 per Consolidated Share.

The maximum number of the Subscription Shares (being 200,000,000 Consolidated Shares) represents:

(i) approximately 31 per cent. of the existing issued share capital of the Company;

(ii) approximately 16 per cent. of the issued share capital as enlarged by the issue of the Consideration Shares and the Capitalisation Shares;

(iii) approximately 14 per cent. of the issued share capital of the Company as enlarged by the issue of the Consideration Shares, the Capitalisation Shares and 200,000,000 Subscription Shares; and

In connection with the Placing, Mr. Lai intends to grant to the Underwriters the Over-allotment Option, which is exercisable by the Underwriters at any time within 30 days from the date on which the Placing Price is determined. Pursuant to the Over-allotment Option, Mr. Lai may be required to sell at the Placing Price an aggregate of not more than 15 per cent. of the number of the Placing Shares initially available in the Placing, to cover over-allocations, if any, in the Placing. If the Over-allotment Option is exercised, Mr. Lai will subscribe for a number of Subscription Shares equal to the additional number of Placing Shares sold by Mr. Lai pursuant to the exercise of the Over-allotment Option.

For the purpose of covering any over-allocations to professional and institutional investors in the Placing, the Underwriters and Mr. Lai may enter into stock borrowing arrangements pursuant to which the Underwriters may borrow from Mr. Lai not more than the final maximum number of Consolidated Shares which Mr. Lai may be required to sell pursuant to the exercise of the Over-allotment Option. Such arrangement will result in non-compliance with Rule 10.07(1) of the Listing Rules which restricts the disposal of shares by controlling shareholders (as defined in the Listing Rules) following a new listing.

— 11 — SUMMARY

An application has been made to the Stock Exchange for a waiver from strict compliance with Rule 10.07(1) of the Listing Rules, which restricts the disposal of shares by controlling shareholders (as defined in the Listing Rules) following a new listing, in order to facilitate settlement of over-allocations in connection with the Placing pursuant to the exercise of the Over-allotment Option. Such application was made on the basis that (1) any stock borrowing arrangement between the Underwriters and Mr. Lai will only be effected by the Underwriters for settlement of over-allocations in the Placing; (2) the maximum number of Consolidated Shares borrowed from Mr. Lai will be limited to the maximum number of Consolidated Shares which may be sold by Mr. Lai upon exercise of the Over-allotment Option; (3) a number of Consolidated Shares equal to the number of Consolidated Shares borrowed under such stock borrowing arrangement will be returned to Mr. Lai no later than five business days following the earlier of (i) the last day on which the Over-allotment Option may be exercised and (ii) the day on which the Over-allotment Option is exercised in full; (4) neither the Group nor Mr. Lai will receive any payment or benefit as consideration for Mr. Lai’s entering into the stock borrowing arrangements; and (5) any stock borrowing arrangement will be effected in compliance with all applicable laws and regulatory requirements.

The top-up placing (comprising the Placing and the Subscription) may or may not proceed. Shareholders of the Company and other investors are advised to exercise extreme caution in dealing in the shares of the Company. If the top-up placing proceeds, the Placing will be fully underwritten by the Underwriters and the Placing Price and other terms of the Placing and the Subscription (including the number of the Placing Shares and the Subscription Shares initially available under the Placing and the Subscription, respectively, and the number of additional Placing Shares and additional Subscription Shares available pursuant to the exercise of the Over-allotment Option) are expected to be determined during the course of the day on which the EGM is held to consider, among other things, the Company’s issue of Consolidated Shares to Mr. Lai under the top-up placing, possibly after the stock market closes on that day.

When the Placing Price and other terms of the Placing and the Subscription (including the number of the Placing Shares and the Subscription Shares initially available under the Placing and the Subscription, respectively, and the number of additional Placing Shares and additional Subscription Shares available pursuant to the exercise of the Over-allotment Option), all of which are subject to market conditions, are determined on the day on which the EGM is held to consider, among other things, the Company’s issue of Consolidated Shares to Mr. Lai under the top-up placing, possibly after the stock market closes on that day, the placing and the subscription agreements in respect of the Placing and the Subscription will be signed. If the Placing and the Subscription proceed, the Placing must be recorded on the trading system of the Stock Exchange on or before the date of completion of the Acquisition. The Placing will be fully underwritten by the Underwriters when the placing agreement is signed.

Assuming that 200,000,000 Subscription Shares are issued under the Subscription and 200,000,000 Placing Shares are sold by Mr. Lai under the Placing, in each case at a 20% discount to the closing price of HK$0.226 per Existing Share (or HK$1.13 per Consolidated Share) as at the Latest Practicable Date, the gross proceeds of the Subscription available to the Company will amount to approximately HK$180 million. The Directors currently intend to use HK$70 million of the net proceeds of the Subscription for Taiwan Next Magazine and the remainder as general working capital of the Group. If the Subscription proceeds and the net proceeds of the Subscription amount to HK$70 million or less, the Directors currently intend to use all of the net proceeds for Taiwan Next Magazine.

— 12 — SUMMARY

The commission and expenses associated with the Placing and the Subscription will be shared by the Company and Mr. Lai in the ratio of the final number of Subscription Shares to the difference between the final number of the Subscription Shares and the final number of the Placing Shares (including those Placing Shares and Subscription Shares available pursuant to the exercise of the Over-allotment Option). Mr. Lai will use the whole or part of the proceeds of the Placing to subscribe for the Subscription Shares immediately after completion of the Placing and will not receive interest on such proceeds.

Application has been made to the Listing Committee of the Stock Exchange for the listing of, and permission to deal in, the Subscription Shares which will be issued if the Company decides to proceed with the Subscription. The issue of the Subscription Shares is a connected transaction for the Company under Rule 14.26 of the Listing Rules and subject to approval by the shareholders of the Company other than Mr. Lai, Ms. Assapimonwait Pilunya and Marc Faber (who, together with Mr. Lai, have agreed to sell shares in DGL as trustees for three children of Mr. Lai) and their respective associates at the EGM. Mr. Lai, Ms. Assapimonwait Pilunya and Marc Faber and their respective associates will abstain from voting on ordinary resolution numbered 2 (set out in the notice of EGM on page 369 of this circular) which will be proposed at the EGM to approve the Subscription.

An announcement will be made when the Placing Price, the final number of the Placing Shares and the Subscription Shares, the final maximum number of Consolidated Shares which Mr. Lai may be required to sell pursuant to the exercise of the Over-allotment Option and other terms of the Placing and the Subscription have been determined and the placing and the subscription agreements in respect of the Placing and the Subscription are signed.

There is no assurance that the Placing and the Subscription will proceed.

If the Subscription does not proceed, the Company intends to fund its expansion into Taiwan partly through cash flow from operations of the Enlarged Group, partly through available banking facilities of the Enlarged Group and, if required, through further shareholder loans from its controlling shareholder, Mr. Lai. The Group expects to rely on Mr. Lai heavily for financial support to fund the business of Taiwan Next Magazine if the Acquisition and the Subscription are not completed.

DIRECTORS OF THE COMPANY AND DGL

The Company does not intend to change the composition of the board of directors of the Company or DGL upon completion of the Acquisition.

— 13 — SUMMARY

RISK FACTORS

In considering the Acquisition, you should take into account the following risk factors set out in the section headed “Risk Factors” on pages 24 to 39 in this circular. The risk factors are summarised as follows:

1. Risks relating to the Acquisition

● lack of a profit forecast for the Acquired Group and uncertainty of sustainability of its profit

● price wars in the Hong Kong print media industry

● lack of access of the Acquired Group to the China market

● adverse economic developments in Hong Kong or elsewhere

● competition in the Hong Kong publishing industry, in which the Acquired Group’s business is concentrated

● dependence of Apple Daily on advertising revenues from a limited number of industries

● volatility in paper prices

● heavy reliance of the Acquired Group on a limited number of suppliers

● significant reliance of the Acquired Group on the performance of Apple Daily and Next Magazine

● significant reliance of the Acquired Group on advertising income

● uncertainty of successful integration of the Acquired Group’s operations into the Group’s

● litigation against the Acquired Group

● possibility that the Acquired Group may not be able to protect its intellectual property rights

● limited relevance of historical financial information of the Acquired Group

● inability of some of the Acquired Group’s customers to make payments on time or at all

● controversial nature of stories published in Apple Daily, Next Magazine and other publications of the Acquired Group

● heavy dependence of the Acquired Group on its key personnel

● heavy reliance of the Acquired Group on its newspaper and magazine distributor

— 14 — SUMMARY

2. Risks relating to business of the Group

● uncertainty of acceptance of the Internet as a medium for advertising

● lack of access of the Group to the China Internet market

● lack of access of the Group to the China publishing market

● adverse economic developments in Hong Kong or elsewhere

● technology changes in the printing industry

● historical losses of the Group and possible future losses of the Enlarged Group

● no assurance when dividends can be paid to shareholders

● inability of the Group to fund its working capital requirements through cash flow from its operations and possible future capital shortages

● uncertainty as to whether the Group’s Internet business will succeed

● significant expenditures on the expansion into Taiwan

● substantial financial leverage of the Group

● uncertainty as to whether the expansion into Taiwan will succeed

● possibility that the Group may not be able to protect its intellectual property rights

● inability of some of the Group’s customers to make payments on time or at all

● impact of the adoption of certain new Hong Kong Statements of Standard Accounting Practice on the Group’s financial results

— 15 — DEFINITIONS

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

“ACNielsen RARD Report” a report on readership of newspapers and magazines in Hong Kong prepared by ACNielsen Media International Limited, an independent market research organisation, entitled “ACNielsen Hong Kong: Media Index — RARD Report” (“RARD” stands for “Rolling Average Readership Data”.)

“Acquired Group” DGL and its subsidiaries

“Acquisition” the acquisition of the entire issued share capital of DGL

“Acquisition Agreement” the agreement entered into between the Company and Mr. Lai and the other Sellers on 13th September, 2001 for the Acquisition and the capitalisation of the shareholder loan owed by the Company to Mr. Lai

“ADIHL” Apple Daily International Holdings Limited, a wholly-owned subsidiary of DGL incorporated in the British Virgin Islands with limited liability

“ADL” Apple Daily Limited, a wholly-owned subsidiary of DGL incorporated in Hong Kong with limited liability

“ADOL” Apple Daily Online Limited, a wholly-owned subsidiary of the Company incorporated in Hong Kong with limited liability (which was acquired by the Company from ADL in July, 2000)

“ADPL” Apple Daily Printing Limited, a wholly-owned subsidiary of DGL incorporated in Hong Kong with limited liability

“Apple Daily” Apple Daily, a newspaper published by ADL in Hong Kong

“Articles” articles of association of the Company

“associates” has the meaning ascribed to it under the Listing Rules

“Board” the board of directors of the Company

“Capitalisation Shares” 156,931,505 new Consolidated Shares to be allotted and issued to Mr. Lai at the Issue Price of HK$1.375 per Consolidated Share on capitalisation of the shareholder loan owed by the Company to Mr. Lai as at Completion, comprising a principal amount of HK$200,000,000 and accrued interest of HK$15,780,820 up to and including 31st March, 2001 (interest ceased to accrue on the shareholder loan after 31st March, 2001)

— 16 — DEFINITIONS

“CCASS” the Central Clearing and Settlement System established and operated by Hongkong Clearing

“Companies Ordinance” the Companies Ordinance (Chapter 32 of the Laws of Hong Kong)

“Company”, “we” or “us” Next Media Limited, a company incorporated in Hong Kong 5 on 12th June, 1981 with limited liability, the shares of which are listed on the Stock Exchange

“Completion” completion of the Acquisition

“Consideration Shares” 429,090,909 Consolidated Shares to be allotted and issued to Mr. Lai and the other Sellers at the Issue Price of HK$1.375 per Consolidated Share in satisfaction of HK$590,000,000 of the consideration for the Acquisition

“Consolidated Shares” shares of HK$1.00 each in the capital of the Company, each of which represents five Existing Shares as a result of the proposed consolidation of share capital of the Company (which is subject to approval by the Independent Shareholders)

“Conversion Period” the period of five years from the date of issue of the Preference Shares

“Conversion Price” the price at which the Preference Shares may be converted into Conversion Shares, being HK$1.75 per Consolidated Share, subject to adjustment

“Conversion Shares” Consolidated Shares to be issued upon the exercise of the conversion rights attached to the Preference Shares

“Deed of Indemnity” the deed of indemnity in respect of (1) any third party claims (including but not limited to defamation claims, claims for infringement of intellectual property rights and other proceedings and claims arising from the content of Apple Daily, Next Magazine, Sudden Weekly and Eat & Travel Weekly) made against the Acquired Group on and before the date of Completion, (2) defamation proceedings, claims for infringement of intellectual property rights and other proceedings and claims which may arise from the content of Apple Daily, Next Magazine, Sudden Weekly and Eat & Travel Weekly published on and at any time before the date of Completion and (3) the arbitration relating to the contract for the construction of the Acquired Group’s printing facility at Tseung Kwan O to be given by Mr. Lai in favour of the Company and the Acquired Group at Completion

— 17 — DEFINITIONS

“Deloitte & Touche” Deloitte & Touche Corporate Finance Limited, the independent financial adviser to the Independent Board Committee and an investment adviser under the Securities Ordinance (Chapter 333 of the Laws of Hong Kong)

“DGL” Database Gateway Limited, a company incorporated in the British Virgin Islands with limited liability and owned as to 89.32 per cent. by Mr. Lai and as to 10.68 per cent. by the other Sellers

“Dico” Dico Consultants Limited, a company incorporated in Hong Kong with limited liability and wholly owned by Mr. Lai

“Directors” directors of the Company

“Easy Finder” Easy Finder, a weekly magazine published by EFL in Hong Kong

“Eat & Travel Weekly” Eat & Travel Weekly, a weekly magazine published by ETWCL in Hong Kong

“EBITDA” earnings before interest, taxation, depreciation and amortisation

“EFL” Easy Finder Limited, a wholly-owned subsidiary of the Company incorporated in Hong Kong with limited liability (which was acquired by the Company from NMIHL in October 1999)

“EGM” the extraordinary general meeting of the Company to be convened on Monday, 22nd October, 2001

“Enlarged Group” the Group and the Acquired Group

“Estate Duty Ordinance” the Estate Duty Ordinance (Chapter 111 of the Laws of Hong Kong)

“ETWCL” Eat and Travel Weekly Company Limited, a wholly-owned subsidiary of DGL incorporated in Hong Kong with limited liability

“Existing Shares” shares of HK$0.20 each in the capital of the Company, every five of which will be consolidated into one Consolidated Share (subject to approval by the Independent Shareholders)

“Group” the Company and its subsidiaries

“HKABC” Hong Kong Audit Bureau of Circulations Limited, a non- profit organisation which audits circulation data of publications of its members, being magazines and newspapers

— 18 — DEFINITIONS

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

“Hongkong Clearing” Hong Kong Securities Clearing Company Limited

“HK$” Hong Kong dollars

“Independent Board Committee” an independent committee of Directors comprising Mr. Yeh V-nee and Mr. Fok Kwong Hang, Terry appointed by the Board to consider the terms of the Acquisition, the allotment and issue of the Consideration Shares, the allotment and issue of the Capitalisation Shares in repayment of the shareholder loans owed by the Group to Mr. Lai, the allotment and issue of the Preference Shares, the allotment and issue of the Conversion Shares which may fall to be issued upon conversion of the Preference Shares, the Share Consolidation, the increase in authorised share capital and the proposed Subscription and to advise the Independent Shareholders in connection with the foregoing

“Independent Shareholders” the shareholders of the Company, other than Mr. Lai, Mr. Chow On Kiu, Andrew, Mr. Yeung Wai Hong, Mr. Ting Ka Yu, Stephen, Mr. Kok Hon Kay, Peter, Mr. Ho Kwok Fai, Morris, Ms Assapimonwait Pilunya and Mr. Marc Faber (as co- trustees of Mr. Lai), those of the other Sellers who are shareholders of the Company and their respective associates

“Issue Price” the issue price of HK$1.375 per Consolidated Share of the Consideration Shares

“Latest Practicable Date” 21st September, 2001, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained in it

“Listing Rules” the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited

“MPF Schemes Ordinance” the Mandatory Provident Fund Schemes Ordinance (Chapter 485 of the Laws of Hong Kong)

“Mr. Lai” Mr. Lai Chee Ying, Jimmy, the chairman, an executive Director and the controlling shareholder of the Company, who owned approximately 54 per cent. of the issued share capital of the Company as at the Latest Practicable Date

“Next Interactive” Next Media Interactive Limited, a wholly-owned subsidiary of the Company incorporated in the British Virgin Islands with limited liability

“Next Magazine” Next Magazine, a weekly magazine published by NMPL in Hong Kong

— 19 — DEFINITIONS

“NMIHL” Next Media International Holdings Limited, a wholly-owned subsidiary of DGL, incorporated in the British Virgin Islands with limited liability

“NMPL” Next Magazine Publishing Limited, a wholly-owned subsidiary of DGL incorporated in Hong Kong with limited liability

“NT$” New Taiwanese Dollars

“Over-allotment Option” the option to be granted by Mr. Lai to the Underwriters pursuant to which Mr. Lai may be required to sell at the Placing Price up to an aggregate of 26,000,000 additional Consolidated Shares to cover over-allocations in the Placing

“Placing” the possible sale of Placing Shares by Mr. Lai to independent professional and institutional investors at the Placing Price by way of placing described in the paragraph headed “The Possible Placing and Subscription” in the letter from the Board set out on pages 95 to 98 of this circular

“Placing Price” the price at which the Placing Shares are to be offered for sale in the Placing

“Placing Shares” Consolidated Shares to be offered for sale in the Placing, being not more than 200,000,000 Consolidated Shares (comprising not more than 174,000,000 Consolidated Shares initially available in the Placing and not more than 26,000,000 Consolidated Shares to be sold by Mr. Lai pursuant to exercise of the Over-allotment Option)

“Preference Shares” non-voting convertible preference shares of HK$1.75 each in the capital of the Company convertible into new Consolidated Shares

“Property Indemnity” a deed of indemnity relating to the Acquired Group’s property in Tseung Kwan O which is to be executed by Mr. Lai in favour of the Company and the Acquired Group at Completion

“SDI Ordinance” the Securities (Disclosure of Interests) Ordinance (Chapter 396 of the Laws of Hong Kong)

“Sellers” Mr. Lai and the other persons named as sellers in the sub-paragraph headed “Parties” of the paragraph headed “The Acquisition Agreement” of the Letter from the Board in this circular

“Share Consolidation” the consolidation of every five Existing Shares of HK$0.20 each into one Consolidated Share of HK$1.00 subject to the approval by the Independent Shareholders

— 20 — DEFINITIONS

“Shares” Existing Shares or, after the Share Consolidation, Consolidated Shares, as the context requires

“Stock Exchange” The Stock Exchange of Hong Kong Limited

“Subscription” the possible subscription of Subscription Shares by Mr. Lai at the Placing Price described in the paragraph headed “The Possible Placing and Subscription” in the letter from the Board set out on pages 95 to 98 of this circular

“Subscription Shares” new Consolidated Shares to be issued in the Subscription, being not more than 200,000,000 Consolidated Shares (comprising not more than 174,000,000 Consolidated Shares initially available in the Subscription and not more than 26,000,000 Consolidated Shares to be subscribed by Mr. Lai to the extent that the Over-allotment Option is exercised)

“Sudden Weekly” Sudden Weekly, a weekly magazine published by SWL in Hong Kong

“SWL” Sudden Weekly Limited, a wholly-owned subsidiary of DGL incorporated in Hong Kong with limited liability

“Taiwan Next Magazine” Next Magazine, a weekly magazine published by Next Media Publishing Limited, a wholly-owned subsidiary of the Company incorporated in Hong Kong, in Taiwan

“Tak Kee” Tak Kee Newspaper and Magazine (Distribution) Company Limited, the sole distributor of Easy Finder, Apple Daily, Next Magazine, Sudden Weekly and Eat & Travel Weekly and an independent third party

“Tax Deed” the deed of tax covenant to be entered into between the Sellers, the Company and DGL at Completion

“Trade Marks Ordinance” the Trade Marks Ordinance (Chapter 559 of the Laws of Hong Kong)

“Underwriters” the persons to be appointed as underwriters of the Placing

“US$” United States Dollars

— 21 — EXPECTED TIMETABLE

2001

Latest time for lodging forms of proxy for the EGM ...... 10:00a.m.onSaturday,20thOctober

EGM (1) ...... 10:00a.m.onMonday, 22nd October

Determination (possibly after the stock market closes) of the Placing Price and the final number of the Placing Shares and the Subscription Shares, the final maximum number of Consolidated Shares which Mr. Lai may be required to sell pursuant to the exercise of the Over-allotment Option and signing (after that determination) of the placing and the subscription agreements for the Placing and the Subscription (if they proceed)(2) ...... Monday, 22nd October

Expected effective date for increase in authorisedsharecapital...... Monday, 22nd October

Expected date for share consolidation becoming effective ...... 4:00p.m.onMonday, 22nd October

Temporary counter for trading in Consolidated Shares, in board lots of 400 Consolidated Shares in the form of existing certificate(s) in grey for Existing Shares opens and original counter closes ...... 10:00a.m.onTuesday, 23rd October

First day for free exchange of existing certificate(s) in grey for Existing Shares for new certificate(s) in blue for Consolidated Shares ...... Tuesday,23rdOctober

Publication of announcement of the terms of the Placing and the Subscription (if they proceed) ...... Tuesday,23rdOctober

Recording of the Placing on the trading system of the Stock Exchange (if the Placing proceeds) ...... atoraround 10:00 a.m. on Tuesday, 23rd October

Date of settlement of the Placing and completion of Subscription (if they proceed)(3) ...... onorbeforeFriday,26thOctober

Expected date of completion of the Acquisition(4) ...... Friday,26thOctober

Original counter for trading in Consolidated Shares in board lots of 2,000 Consolidated Shares in the form of new certificate(s) in blue for Consolidated Share re-opens ...... 10:00a.m.onWednesday, 7th November

— 22 — EXPECTED TIMETABLE

2001

Parallel trading commences ...... 10:00a.m.onWednesday, 7th November

Matching of sales and purchases of odd lots of Consolidated Shares commences ...... 10:00a.m.onWednesday, 7th November

Temporary counter for trading in Consolidated Shares in board lots of 400 Consolidated Shares in the form of existing certificate(s) in grey closes ...... 4:00p.m.onWednesday, 28th November

Parallel trading ends ...... 4:00p.m.onWednesday, 28th November

Matching of sales and purchases of odd lots of Consolidated Shares ends ...... 4:00p.m.onWednesday, 28th November

Last day for free exchange of certificate(s) in grey for Existing Shares for new certificate(s) in blue for Consolidated Shares ...... Tuesday,4thDecember

Notes:

(1) Shareholders on the register of members of the Company on the date of the EGM will be entitled to vote at the EGM. There will be no books closure to determine who will be entitled to vote at the EGM.

(2) The Placing will be fully underwritten by the Underwriters when the placing agreement is signed.

(3) There is no assurance that the Placing and the Subscription will proceed. Settlement of the Placing Shares will be through CCASS in the form of Consolidated Shares.

(4) At Completion, new shares in DGL, credited as fully paid, will be issued to the Company in repayment of the shareholder loans owed by the Acquired Group to Mr. Lai and his associate, Dico, and Capitalisation Shares will be issued to Mr. Lai in repayment of the shareholder loan owed by the Company to Mr. Lai. The Tax Deed, the Deed of Indemnity and the Property Indemnity will be executed at completion of the Acquisition. Pursuant to the Acquisition Agreement, Mr. Lai has agreed to procure a bank guarantee (which will be available immediately after Completion) in favour of the Company and the Acquired Group in respect of the obligations of Mr. Lai under the Deed of Indemnity for HK$60,000,000. The bank guarantee will be for a term of three years from the date of Completion. Mr. Lai has undertaken to use his best endeavours to renew the bank guarantee for further periods of three years each after the expiry of the initial term until none of the claims, proceedings and arbitrations covered by the Deed of Indemnity is outstanding. Mr. Lai is obliged to procure that the guarantees provided by Mr. Lai and Dico in respect of the banking facilities of the Acquired Group will be released on or before Completion.

— 23 — RISK FACTORS 34(1)(a)

In addition to the other information contained in this circular, you should take into account the 34(1)(b) following risks in considering the Acquisition. If any of these risks occurs, our business, financial condition or operating results could be adversely affected.

RISKS RELATING TO THE ACQUISITION

No profit forecast of the Acquired Group has been prepared and its profits may not be sustainable.

No profit forecast of the Acquired Group has been prepared for the purposes of the Acquisition. Downturns in Hong Kong’s economy will have an adverse effect on the financial results of the Acquired Group. Its profits may not be sustainable in the future.

Price wars in the Hong Kong print media industry could harm the Acquired Group’s financial performance.

Competition in the newspaper and magazine market in Hong Kong is strong, and significant price wars take place periodically. DGL needs to respond to price wars in order to protect and maintain its market position. In March 1999, Apple Daily reduced its cover price from HK$5 to HK$3 in response to competition, subsequently raising the price back to HK$5 in June 1999 and raising it again to HK$6 in October 2000. The price reduction in March, 1999 resulted in lower turnover from circulation of Apple Daily between March and June, 1999. Its circulation turnover decreased (by approximately 38.5%) from approximately HK$94.4 million for the three months ended 31st March, 1999 to approximately HK$58.1 million for the three months ended 30th June, 1999. The cover price of Apple Daily was increased in October, 2000 to its current cover price of HK$6. The circulation of Apple Daily decreased by 7.2% but its circulation turnover increased by 10.7% between September, 2000 and November, 2000. To respond to price competition in the market, Apple Daily incurred additional promotional expenses. Promotional expenses of Apple Daily amounted to HK$5.0 million, HK$16.4 million and HK$7.5 million for the three years ended 31st March, 1999, 2000 and 2001, respectively. Additional expenses may be required for the promotion of Apple Daily in future. There is no assurance that there will not be further significant price wars. Such price wars may have a material adverse effect on the financial performance of the Acquired Group in the future.

The financial performance of the Acquired Group may be limited in the future by its lack of access to the China market.

Chinese language publishers outside the People’s Republic of China currently have limited access to the market in mainland China as a result of restrictions imposed by the Chinese government. Recent developments such as China’s pending acceptance into the World Trade Organisation may mean that such restrictions will be reduced in the future. However, the relationship of the Acquired Group with our controlling shareholder, Mr. Lai, may mean that the Acquired Group will face difficulties expanding its operations in the People’s Republic of China that its competitors will not face. Taking into account the experience of the Acquired Group, the Directors and the directors of DGL do not consider that the Acquired Group’s lack of access to China’s market will adversely affect the Acquired Group’s business in Hong Kong. However, if the Acquired Group encounters such difficulties in the future, its ability to compete effectively in the Chinese language media market may be limited. This may have a material adverse effect on the Acquired Group’s business and results of operations.

— 24 — RISK FACTORS

Adverse economic developments in Hong Kong or elsewhere could have a material adverse impact on the business and operating results of the Acquired Group.

Substantially all of the Acquired Group’s revenues are derived from its business activities in Hong Kong, which are directly affected by the performance of Hong Kong’s economy. Hong Kong’s economy is in turn affected, directly and indirectly, by the performance of the economies of other countries. As a result, adverse economic developments in Hong Kong or elsewhere (including as a result of the recent tragic events in the United States of America) could result in reduced demand for the Acquired Group’s printing services, fewer purchasers of its newspaper and magazines and/or reduced spending on advertising, any or all of which could have a material adverse effect on its financial condition and results of operations.

Any failure of the Acquired Group to compete effectively in the Hong Kong publishing industry would harm its business and financial performance.

The business of the Acquired Group is concentrated in one newspaper, namely Apple Daily, and three magazines, namely Next Magazine, Sudden Weekly and Eat & Travel Weekly, located in Hong Kong. Revenues in the publishing industry primarily consist of advertising and circulation revenues. Competition for newspaper and magazine advertising expenditures in Hong Kong is based largely upon advertiser results, readership, advertising rates, demographics and circulation levels, while competition for circulation and readership is based largely upon the content and price of the publication and the effectiveness of its distribution. The publishing industry in Hong Kong is competitive. The Directors believe that a number of competitors of the Acquired Group may have greater financial resources than the Acquired Group. If the Acquired Group fails to compete effectively, its business and results of operations will be adversely affected.

The financial results of Apple Daily are particularly dependent upon advertising turnover from a limited number of industries.

The advertising turnover of Apple Daily accounted for 46.0%, 49.7% and 49.6% of the total turnover of the Acquired Group for the three years ended 31st March, 1999, 2000 and 2001, respectively. The five largest categories of advertisers in Apple Daily changed from period to period and collectively accounted for 47.0%, 46.9% and 47.3% of Apple Daily’s total advertising turnover for the three years ended 31st March, 1999, 2000 and 2001, respectively. For the year ended 31st March, 2001, the five largest categories of advertisers in Apple Daily were banking and finance, real estate, telecommunications, computer and internet and automobiles. The five largest categories of advertisers in Apple Daily collectively accounted for 21.6%, 23.3% and 23.4% of the total turnover of the Acquired Group for the three years ended 31st March, 1999, 2000 and 2001, respectively. A significant decline in the advertising spending by companies in these industries could have a material adverse effect on the results of operations of the Acquired Group in the future.

Increases in newsprint and paper prices could adversely affect the business of the Acquired Group.

Newsprint and paper costs are a substantial component of the manufacturing expenses of the newspaper and magazines published by the Acquired Group. The Acquired Group’s total expenditures for paper (being newsprint used for Apple Daily and paper used for Next Magazine, Sudden Weekly and Eat & Travel Weekly) were approximately HK$459.1 million, HK$420.4 million and HK$509.9

— 25 — RISK FACTORS million, or approximately 25.4%, 24.1% and 30.2% of its total operating expenses in the years ended 31st March, 1999, 2000 and 2001, respectively. Prices of newsprint and paper have historically been volatile. The Acquired Group has in the past purchased and currently purchases newsprint and paper from a number of suppliers based in North America, Europe and Asia. The average price of the newsprint used by Apple Daily rose by approximately 33.2% in the year ended 31st March, 2001. The average price of the paper used by Next Magazine, Sudden Weekly and Eat & Travel Weekly rose by approximately 12.0% in the year ended 31st March, 2001. The financial performance of the Acquired Group may be adversely affected by sustained paper price increases.

The business of the Acquired Group may be harmed by the loss of the supplies of its suppliers.

The top five newsprint suppliers (all being independent third parties) of Apple Daily accounted for approximately 82.4%, 81.5% and 97.4% of Apple Daily’s total newsprint consumption for the three years ended 31st March, 1999, 2000 and 2001, respectively. The largest supplier accounted for approximately 27.9%, 23.8% and 31.1% of Apple Daily’s total newsprint consumption for the three years ended 31st March, 1999, 2000 and 2001, respectively.

Approximately 31%, 35% and 8% of the paper used for the magazines of the Acquired Group was provided by their printers (being the Group and an independent third party) for the three years ended 31st March, 1999, 2000 and 2001, respectively. The remainder of approximately 69%, 65% and 92% of NMIHL’s paper consumption was supplied by two, two and three suppliers (all being independent third parties) for the three years ended 31st March, 1999, 2000 and 2001, respectively.

For the year ended 31st March, 1999, ADPL purchased substantially all its ink from two suppliers in the United Kingdom. For the two years ended 31st March, 2000 and 2001, ADPL purchased substantially all its ink from three suppliers in the United Kingdom and Australia. All of ADPL’sink suppliers are independent third parties. The largest ink supplier accounted for approximately 69.2%, 63.5% and 51.4% of ADPL’s total ink consumption for the three years ended 31st March, 1999, 2000 and 2001, respectively.

The Acquired Group does not have any long-term supply contracts with its suppliers. The business of the Acquired Group would be materially harmed by the loss or suspension of supplies from its suppliers.

A significant decline in the performance of Apple Daily or Next Magazine would harm the financial results of the Acquired Group.

Apple Daily and Next Magazine have historically represented a significant portion of the Acquired Group’s turnover and net profit, and we expect that such publications will continue to influence the financial performance of the Acquired Group strongly in the future.

— 26 — RISK FACTORS

The following table shows the turnover and the gross profits of the Acquired Group for the three years ended 31st March, 1999, 2000 and 2001:

Year ended 31st March, 1999 2000 2001 Amounts Amounts Amounts (HK$ in (HK$ in (HK$ in thousands) % thousands) % thousands) %

Sources of turnover Apple Daily ...... 1,309,550 69.6 1,323,166 69.5 1,413,695 73.3 Next Magazine ...... 273,825 14.6 297,975 15.7 301,978 15.7 Sudden Weekly ...... 109,548 5.8 120,843 6.3 126,260 6.5 Eat & Travel Weekly ...... 30,473 1.6 56,271 3.0 53,892 2.8 Easy Finder ...... 151,824 8.0 88,850 4.7 —— Others ...... 271,252 14.5 290,438 15.2 354,995 18.4 Sub-total ...... 2,146,472 114.1 2,177,543 114.4 2,250,820 116.7 Elimination of intra-group turnover* ...... (264,747) (14.1) (273,950) (14.4) (321,984) (16.7)

Total ...... 1,881,725 100 1,903,593 100 1,928,836 100

Sources of gross profits Apple Daily ...... 488,848 47.5 537,126 48.9 591,112 51.5 Next Magazine ...... 161,777 15.7 186,404 17.0 190,116 16.6 Sudden Weekly ...... 58,271 5.7 74,743 6.8 71,384 6.2 Easy Finder ...... 95,381 9.3 53,907 4.9 — 0.0 Eat & Travel Weekly ...... 17,707 1.7 36,274 3.3 34,197 3.0 Others ...... 206,364 20.1 210,672 19.1 261,134 22.7

Total ...... 1,028,348 100 1,099,126 100 1,147,943 100

* These represent the elimination adjustments for intra-group transactions among different business segments within the Acquired Group.

A significant decline in the performance of Apple Daily or Next Magazine could have a material adverse effect on the results of operations of the Acquired Group.

A decline in turnover from advertising could harm the financial results of the Acquired Group.

Advertising turnover is the major source of turnover for the Acquired Group, representing approximately 64.5%, 67.8% and 65.9% of its total turnover for the three years ended 31st March, 1999, 2000 and 2001, respectively. Advertising turnover is the product of the Acquired Group’s advertising volume and the advertising rates charged to its customers. Advertising income for the Acquired Group may be adversely affected by, among other things, downturns in the Hong Kong economy generally or in the businesses of particular advertisers, declines in the respective market positions of any of the publications of the Acquired Group and unfavourable structural changes in the advertising market, such as changes in pricing or other terms offered by other publications.

AD Marketing Limited, a connected person of the Group (by virtue of it being wholly owned by Mr. Lai) and the largest advertiser in Apple Daily for the two years ended 31st March, 2000 and 2001, closed in December, 2000. The Acquired Group’s turnover from advertising sales to AD Marketing Limited were approximately HK$70.8 million and HK$27.1 million for the two years ended 31st

— 27 — RISK FACTORS

March, 2000 and 2001, respectively, representing approximately 5.5% and 2.1% of the Acquired Group’s total advertising turnover and approximately 3.7% and 1.4% of the Acquired Group’s total turnover for the same periods, respectively. AD Marketing Limited closed in December, 2000. This had an adverse effect on the advertising turnover of the Acquired Group and its operations and financial performance.

Any of these situations may adversely affect the advertising turnover of the Acquired Group and/or the advertising rates charged by the Acquired Group to its customers and the operations and the financial performance of the Acquired Group.

We may not be able to successfully integrate the Acquired Group into our operations, and therefore may not realise the intended benefits of the Acquisition.

The success of the Acquisition will depend in part on our ability to integrate the operations, in particular, the printing operations, the publishing operations and the marketing teams, of the Acquired Group into our existing business. There can be no assurance that we will be able to integrate these businesses successfully or that we will not encounter delays or incur unanticipated costs in such integration. If we are not successful in integrating the Acquired Group’s operations into ours, if there are delays in the integration, if the integrated operations fail to achieve market acceptance or if unanticipated costs are incurred in the integration, the full potential of the Enlarged Group may not be realised and our business could be adversely affected.

Pending and future litigation could materially adversely affect the operations and financial performance of the Acquired Group.

The editorial style of and the investigative reporting in the publications of the Acquired Group expose the Acquired Group to the risk of litigation from parties whose activities are described in its publications and who may perceive references to them as damaging to their reputation.

Since the Acquired Group began publishing Next Magazine in March, 1990 and Apple Daily in June, 1995, it has regularly been subject to claims that materials published in its publications were false, misleading and/or defamatory. The Acquired Group indemnifies the Group against damages in legal proceedings against the Group as printer of the Acquired Group’s publications. The licence agreements between the Group and the Acquired Group for the online versions of Apple Daily, Next Magazine, Sudden Weekly and Eat & Travel Weekly on the Group’s websites provide for indemnities by the Acquired Group in favour of the Group against any third party claim arising from the content of these publications on the websites of the Group. As these indemnities will, following the Acquisition, be between members of the Enlarged Group, the Company will no longer be protected by them.

The Acquired Group’s general provisions for legal costs and other payments in relation to its legal proceedings were approximately HK$16.2 million, HK$28.8 million and HK$29.8 million as at 31st March, 1999, 2000 and 2001, respectively. Amounts of approximately HK$23.7 million, HK$33.9 million and HK$11.7 million for legal costs of the Acquired Group and plaintiffs and damages paid by the Acquired Group in connection with claims, legal proceedings and an arbitration were charged to the profit and loss account of the Acquired Group and represented approximately 16.3%, 12.6% and 8.8% of the profits before tax of the Acquired Group from its continuing operations and before such charges for the three years ended 31st March, 1999, 2000 and 2001, respectively. These amounts comprised amounts paid by the Acquired Group and changes in its general provisions for legal costs and other payments in relation to legal proceedings and claims.

— 28 — RISK FACTORS

88, 74, 106 and 51 defamation claims were made, and 18, 17, ten and eight defamation proceedings were commenced, against the Acquired Group in relation to its publications for the three years ended 31st March, 1999, 2000 and 2001 and the period from 1st April, 2001 to the Latest Practicable Date, respectively. There were 32 outstanding defamation proceedings against the Acquired Group in relation to its publications as at the Latest Practicable Date which the directors of DGL and the Directors, having taken into account the advice of the solicitors acting for the Acquired Group in these 32 proceedings, consider to be of material importance.

The Acquired Group is involved in an arbitration which was commenced in September, 1998. This relates to a dispute with UDL Contracting Limited as contractor for the construction of the printing facility of ADPL in Tseung Kwan O in respect of amounts payable under the construction contract for the printing facility. The Acquired Group made a claim for approximately HK$60 million and UDL Contracting Limited made a claim for approximately HK$190 million. The arbitration was temporarily stayed by the High Court of Hong Kong in December, 1999 but that stay is no longer in operation. The parties have agreed to an adjournment of the arbitration proceedings for an indefinite period and each party is entitled to apply to resume proceedings on giving 28 days’ written notice to the other party.

The aggregate amount of the damages in the 30 material defamation proceedings referred to above (being the 32 defamation proceedings which were outstanding as at the Latest Practicable Date referred to above, excluding one defamation proceeding in respect of which an insurance company has assumed full control of the defence and one defamation proceeding in respect of which the Acquired Group has already paid damages) and the award in the arbitration referred to above, as estimated in each case by the solicitors acting for the Acquired Group, is HK$19.7 million should these proceedings and this arbitration be adversely determined. This estimate does not include the legal costs of the Acquired Group or those of the plaintiffs in these proceedings or those of UDL Contracting Limited in the arbitration or the legal costs or damages payable by the Acquired Group in other legal proceedings and claims against the Acquired Group or its employees. Such amounts may be substantial. General provisions for legal costs and other payments of the Acquired Group and plaintiffs and damages payable by the Acquired Group for legal proceedings and claims as at 31st March, 2001 amounted to HK$29.8 million.

Further details of the litigation of the Acquired Group are set out in the paragraphs headed “Litigation” in Appendices II (Business of the Acquired Group) (on pages 194 to 202) and XIII (Statutory and General Information) (on pages 338 to 342) to this circular.

Expenses of litigation, possible losses from lawsuits and delays in proceedings in respect of outstanding and possible future claims could materially harm the operations and the financial performance of the Acquired Group in the future. The damages and legal costs may be so substantial that the publication involved may have to be closed.

The Acquired Group may not be able to protect its intellectual property rights, which could cause it to be less competitive.

The Acquired Group considers the trade marks of Apple Daily, Next Magazine, Sudden Weekly and Eat & Travel Weekly to be valuable assets. The masthead valuation of the publications of the Acquired Group amounted to HK$2,550.0 million as at 30th June, 2001.

— 29 — RISK FACTORS

Applications for the registration in Hong Kong of the trade mark “ NEXT MAGAZINE” in Classes 16 (which includes newspapers and periodicals) and 42 (which includes retailing and wholesaling services) are pending. Applications for the registration of the trade mark “ APPLE DAILY” in Classes 16 and 41 are also pending in Hong Kong. The earliest of these applications for the registration of the trade marks “ NEXT MAGAZINE” and “ APPLE DAILY” was made in 1993. These trade marks are used as logos on publications of the Acquired Group.

Applications for the registration in Hong Kong of the marks “ ” (the Chinese name of Sudden Weekly) and “ ” (the Chinese name of Eat & Travel Weekly) in those two Classes were filed in October, 2000. The solicitors acting for the Acquired Group in these applications are of the view that it is not possible to predict the outcome of these applications.

Until the applications for the registration in Taiwan of the mark “ NEXT MAGAZINE” are approved, the Acquired Group and the Group, which uses the trade mark as the logo on Taiwan Next Magazine (the Group’s magazine in Taiwan) as a licensee, have limited ability to protect any rights they may have in that trade mark. Consequently, the competitive position of the Group in Taiwan might be adversely affected. The lawyers acting for the Acquired Group in its pending applications for the registration of that trade mark have advised the Acquired Group that it and the Group may encounter allegations of trade mark infringement in relation to the Group’s use of that trade mark in Taiwan.

There is no assurance that the above trade mark applications (in and outside Hong Kong) will be successful. Until these applications are approved, the Acquired Group has limited ability to protect any rights it may have in those trade marks. Consequently, its competitive position might be adversely affected. The solicitors acting for the Acquired Group in its pending applications for the registration in Hong Kong of its trade marks have advised the Acquired Group that the Acquired Group may encounter allegations of passing off and trade mark infringement in relation to its use of those trade marks. They have also advised the Acquired Group that, if the Acquired Group is sued for and found

— 30 — RISK FACTORS liable for passing off or trade mark infringement, the relevant court may grant an interim injunction to prohibit the Acquired Group from using the infringing trade mark, order the delivery up of goods bearing the infringing mark and order the Acquired Group to pay damages to the rightful owner. If any such injunction is granted, any such order is made or any such damages are awarded, this may have an adverse effect on the business of the Acquired Group and its financial position.

Further details of the Acquired Group’s applications for the registration of its trade marks are set out in the paragraphs headed “Intellectual Property” in Appendices II (Business of the Acquired Group) (on pages 186 to 189) and XIII (Statutory and General Information) (on pages 351 to 356) to this circular.

Historical financial information of the Acquired Group may be of limited relevance due to the inclusion of the results of certain businesses which have been disposed of, and this may impair your ability to assess its prospects.

Since the results of Easy Finder, Next Interactive and ADOL (which were disposed of by the Acquired Group during the period of three years ended 31st March, 2001) are included in the financial information of the Acquired Group up to their respective dates of disposal and the gains on their disposal are also included in the financial information of Acquired Group, some of the historical financial information of the Acquired Group presented in this circular is of limited relevance in understanding what the Acquired Group’s results of operations, financial position or cash flows would have been for the historical periods presented had all such disposals taken place before those periods. The historical financial information of the Acquired Group may also be of limited value in allowing you to assess its future financial prospects.

The inability of some of the Acquired Group’s customers to make payments on time or at all may adversely affect the Acquired Group’s financial condition and results of operations.

The Acquired Group makes a general provision for bad debts equal to 0.5% of the monthly advertising turnover for each of Next Magazine, Sudden Weekly and Apple Daily. Since the majority of Eat & Travel Weekly’s customers are restaurants, and as the directors of DGL believe that restaurants carry a greater risk of non-payment, the Acquired Group makes a general provision equal to 1.0% of the monthly advertising turnover for Eat & Travel Weekly. The Acquired Group also makes specific provisions for its publications when it considers that the debts are unlikely to be repaid in the light of the relevant circumstances.

Provisions for bad debts charged to the profit and loss account of the Acquired Group were approximately HK$7.6 million (comprising general provisions of approximately HK$2.1 million and specific provisions of approximately HK$5.5 million), approximately HK$5.7 million (all being general provisions) and approximately HK$1.4 million (comprising general provisions of approximately HK$3.4 million and writeback of specific provisions of approximately HK$2.0 million) for the three years ended 31st March, 1999, 2000 and 2001, respectively.

The inability of some of the Acquired Group’s customers to make payments on time or at all may adversely affect the Acquired Group’s financial condition and results of operations.

The business of the Acquired Group may be harmed by stories published in Apple Daily, Next Magazine or its other publications.

Both Apple Daily and Next Magazine are mass market periodicals that emphasise articles concentrating on prominent events that appeal to Hong Kong readers. From time to time, articles that

— 31 — RISK FACTORS appear concern matters involving prominent businessmen or controversial political and social topics. At times, such articles have resulted in reduced advertising in the publications of the Acquired Group, as a result of advertisers reacting to the topics or points of view expressed in such articles. The Acquired Group maintains a strict separation between the business and editorial sides of its publications, and therefore no assurance can be given that articles published in the future will not result in a loss of advertising revenues. Such articles may have a material adverse effect on the financial performance of the Acquired Group in the future.

The performance of the Acquired Group could be adversely affected if it loses the services of key personnel.

We believe that the success of the Acquired Group is largely dependent on the abilities and experience of Mr. Lai and the senior editorial and management team of the Acquired Group. The loss of the services of Mr. Lai or one or more of these senior executives could adversely affect the ability of the Acquired Group to manage effectively its overall operations or successfully execute current or future business strategies. The Acquired Group does not have long-term employment contracts with any of its senior editorial staff and executives (including Mr. Lai and its other directors) and thus any of them could leave at any time. Failure to attract and retain qualified editorial, management and other employees could adversely affect the business of the Acquired Group.

Our business and the business of the Acquired Group may be harmed by the loss of the services of our newspaper and magazine distributor.

Both we and the Acquired Group use a single independent third party, Tak Kee, to distribute our newspaper and magazines in Hong Kong. Each of the distribution agreements between the Acquired Group and Tak Kee for Apple Daily, Next Magazine, Sudden Weekly and Eat & Travel Weekly and our current distribution agreement with Tak Kee for Easy Finder is for a term of 33 months from 1st July, 2000 to 31st March, 2003. Each of them is automatically renewable for a further period of three years at the end of the term unless written notice of termination is given by either party at least 60 days prior to the expiry of the term. In the past the Acquired Group has experienced some difficulty in utilising the services of other distributors on acceptable terms. DGL believes that that was due to those distributors’ pre-existing relationships with one or more of the Acquired Group’s competitors or their reluctance to change their distribution methods to meet the requirements of the Acquired Group. Our business and the business of the Acquired Group would be materially harmed by the loss or suspension of our distribution agreements with Tak Kee.

RISKS RELATING TO THE BUSINESS OF THE GROUP

If the Internet is not widely accepted as a medium for advertising, our business will suffer.

The major sources of income of the Group’s Internet business are advertising and subscription. The Group’s turnover from its Internet business amounted to approximately HK$1.2 million and HK$6.7 million for the two years ended 31st March, 2000 and 2001, respectively.

We expect to derive most of our future Internet revenue from Internet advertising, subscription and content licensing. The Internet advertising market is new and rapidly evolving. We cannot determine the effectiveness of the Internet as an advertising medium or its long-term market acceptance as compared with traditional media. If the Internet is not accepted as a medium for advertising, our business will suffer.

— 32 — RISK FACTORS

Our lack of access to the China market may limit our ability to compete for Internet advertising.

Most of our websites cannot be accessed by viewers in the People’s Republic of China and we expect this to continue for the forseeable future because of our relationship with our controlling shareholder, Mr Lai. This substantially limits the potential audience of our websites. Therefore the Directors believe that our websites are less attractive to certain advertisers seeking to reach a wide audience of Chinese consumers than other websites which can be accessed by viewers in the People’s Republic of China. Our ability to compete for Internet advertising revenues may accordingly be adversely affected.

The financial performance of the Group may be limited in the future by its lack of access to the China publishing market.

Chinese language publishers outside the People’s Republic of China currently have limited access to the market in mainland China as a result of restrictions imposed by the Chinese government. Recent developments such as China’s pending acceptance into the World Trade Organisation may mean that such restrictions will be reduced in the future. However, the relationship of the Group with its controlling shareholder, Mr. Lai, may mean that the Group will face difficulties expanding its operations in the People’s Republic of China that its competitors will not face. Taking into account the experience of the Group, the Directors do not consider that the Group’s lack of access to China’s market will adversely affect the Group’s business in Hong Kong. However, if the Group encounters such difficulties in the future, its ability to compete effectively in the Chinese language media market may be limited. This may have a material adverse effect on the Group’s business and results of operations.

Adverse economic developments in Hong Kong or elsewhere could have a material adverse impact on the business and operating results of the Group

Substantially all of the Group’s revenues are derived from its business activities in Hong Kong, which are directly affected by the performance of Hong Kong’s economy. Hong Kong’s economy is in turn affected, directly and indirectly, by performance of the economies of other countries. As a result, adverse economic developments in Hong Kong or elsewhere (including a result of the recent tragic events in the United States of America) could result in reduced demand for the Group’s printing services, fewer purchasers of its magazine and/or reduced spending on advertising, any or all of which could have a material adverse effect on its financial conduction and results of operations.

Technology changes in the printing industry may require us to make further capital 28(5) expenditures to be competitive.

Production technology in the printing industry has evolved and continues to evolve. We do not consider ourselves a technology leader and do not attempt to be a leader in this area. The printing industry has experienced significant changes due to technological changes. Because of advances in computer and related communication technologies, certain products that were once printed by commercial printers are now generated on computers through word processing or desktop publishing software. In addition, some information is now disseminated in digital or electronic formats instead of being disseminated in a paper format. This trend could continue in the future. If we lack the financial resources to keep up with technological changes, our printing business will become less competitive.

— 33 — RISK FACTORS

We have a history of losses and future losses may have a material adverse effect on our financial performance.

We reported net losses of approximately HK$78.5 million and HK$145.8 million for the two years ended 31st March, 2000 and 2001, respectively. We expect our losses to increase significantly due to our recent expansion into Taiwan. We also expect our Internet business to continue to incur losses. Due to our recent operating losses, there is no assurance that we will be able to fund our working capital requirements in the future through cash flow from our operations or from third party financing resources. In addition, future losses may limit our ability to operate our current business or to expand our operations in the future.

We may not be able to pay dividends to our shareholders.

We reported net losses of approximately HK$78.5 million and HK$145.8 million for the two years ended 31st March, 2000 and 2001, respectively. We had accumulated losses of approximately HK$367.2 million as at 31st March, 2001. In addition, we expect our losses to increase significantly due to our recent expansion of our publishing operations into Taiwan. We also expect our Internet business to continue to incur losses. There is no assurance when dividends can be paid to our shareholders.

We have been unable to fund our working capital requirements through cash flow from our operations and future capital shortages may have a material adverse effect on our financial performance.

In each of the two years ended 31st March, 2000 and 2001, we were unable to fund our working capital needs through cash flow from operations as a result of our loss of printing contracts and our development of the Internet business. The Directors believe that the loss of printing contracts was due to our history of financial difficulties. The Directors believe that the working capital shortage was due to our expenses on the development of Internet business and our increased expenses on personnel for the Internet business after our acquisition of Internet businesses from NMIHL in October 1999 and from ADL in July, 2000. As a result, we had borrowed an aggregate of approximately HK$360.2 million from various financial institutions (as to approximately HK$144.4 million) and Mr. Lai (as to approximately HK$215.8 million) as at 31st July, 2001 to meet our working capital needs. Our gearing ratio (calculated by dividing the amount of our long term liabilities (including the current portions) by the amount of our total assets (including our intangible assets)) was approximately 49.5% as at 31st July, 2001. Our gearing ratio (excluding our intangible assets) was approximately 72.7% as at 31st July, 2001.

Our bank indebtedness documentation contains a number of restrictive covenants, including a requirement that our consolidated loss (as defined in our facility agreement with Bank of America (Asia) Limited) for the year ended 31st March, 2000 would not exceed a specified amount. The facility agreement related to a HK$150 million term loan, import and overdraft facility. The amount outstanding on this facility was HK$98.5 million as at 31st July, 2001. That requirement was breached due to write-offs (being approximately HK$29.4 million) the Group took on fixed assets of Paramount Printing Company Limited following its acquisition of Easy Finder and Next Interactive in October, 1999. In July, 2000, the Group sought and received a waiver from the lender (Bank of America (Asia) Limited) of that breach.

— 34 — RISK FACTORS

Principally because of the poor results of our Internet businesses, we also breached the covenant in the same facility agreement that our consolidated profit (as defined in the facility agreement) for the year ended 31st March, 2001 would not be less than a specified amount. We sought in March, 2001 and received in May, 2001 a waiver from Bank of America (Asia) Limited of this breach.

It is likely that we will breach financial covenants relating to financial performance in future years if the Acquisition is not completed. There is no assurance that we will be able to obtain waivers of those future breaches, if any. Any failure to receive waivers may result in us being required to repay the outstanding loans. This is because, if covenants in our bank indebtedness documentation are not met, the relevant lender are entitled to declare our indebtedness immediately due and payable. If we were unable to repay our indebtedness, the relevant lender could enforce the guarantee given by the Acquired Group and commence legal proceedings against our guarantor (that is, the Acquired Group) and us for repayment. This would harm our business and financial position.

Due to our operating losses, there is no assurance that we will be able to fund our working capital requirements in the future through cash flow from our operations or from third party financing resources.

Our Internet business may not succeed.

We have limited experience in our Internet business and incurred operating losses of approximately HK$24.8 million for the period from 20th October, 1999 (the date of completion of the Company’s acquisition of Next Interactive from NMIHL) to 31st March, 2000. We incurred operating losses of approximately HK$168.1 million from the Internet business of Next Interactive and ADOL (which we acquired in October, 1999 and July, 2000, respectively) for the year ended 31st March, 2001. In July, 2000, we offered 62 of the 266 people who were then employed in the websites of Next Interactive voluntary resignation terms or the opportunity to be transferred elsewhere within the Group. The costs of this streamlining were approximately HK$1.3 million. In October, 2000, we closed eight of the websites of Next Interactive and three of the websites of ADOL and laid off 90 employees of our Internet business. Severance payment costs amounted to approximately HK$3.9 million. In March, 2001, one of our websites, aonext.com, which contained information on personal insurance plans offered by an insurance company and was not frequently visited, was closed.

Our Internet business is unprofitable. We do not know whether it will ever be profitable and, as a result, our business, financial condition and prospects may be materially adversely affected.

The markets for our Internet business are relatively new and rapidly evolving, and are characterised by a number of entrants that have introduced or plan to introduce competing services. As a result, demand for and market acceptance of new services offered by Internet businesses are subject to a high level of uncertainty, risk and competition. If we fail to address these pressures appropriately, our business, financial condition and prospects will be materially adversely affected.

Our expansion into Taiwan will involve significant expenditures. 28(5), 28(8) We launched Taiwan Next Magazine, a Chinese language weekly magazine, in Taiwan on 31st May, 2001. We may also acquire existing publishing businesses and related Internet businesses in Taiwan or enter into joint ventures relating to such businesses if a suitable opportunity arises. We intend to spend approximately HK$150 million for approximately two years from December, 2000 by way of working capital for and capital expenditure on Taiwan Next Magazine. The Group incurred cash outflow of approximately HK$18.7 million (approximately HK$6.5 million of which are of a capital

— 35 — RISK FACTORS nature (being purchases of fixed assets and utility and rental deposits)) in relation to its expansion into Taiwan during the four months ended 31st March, 2001. During the four months ended 31st July, 2001, the Group incurred cash outflow of approximately HK$63.3 million (approximately HK$4.7 million of which are of a capital nature (being purchases of fixed assets and utility and rental deposits)) in relation to its expansion into Taiwan. As at 31st July, 2001, the Group had made a capital commitment of approximately HK$2.3 million (for computer, production and telecommunication equipment and leasehold improvements) in relation to its expansion into Taiwan.

If the Subscription proceeds, our expansion into Taiwan will be financed by proceeds of the Subscription. If the Subscription does not proceed, the expansion will be financed partly through cash flow from operations of the Enlarged Group, partly through available banking facilities of the Enlarged Group and, if required, through further shareholder loans from our controlling shareholder, Mr. Lai. If the Subscription does not proceed and to the extent that the Group is not able to finance its expansion into Taiwan through cash flow from operations of the Enlarged Group or through available banking facilities of the Enlarged Group, Mr. Lai intends to finance the Group’s expansion into Taiwan with further shareholder loans in an aggregate amount of not more than HK$150 million on normal commercial terms or on terms which are more favourable to us than normal commercial terms up to and including 31st December, 2002. The Group has not yet agreed the terms of such loans with Mr. Lai. Our banking facilities of approximately HK$43.0 million (being overdraft, temporary overdraft and trade facilities in the amounts of approximately HK$5 million, HK$25.8 million and HK$12.2 million, respectively) were unutilised as at 31st July, 2001. We had cash on hand of approximately HK$21.8 million on that date. (On the same date the Acquired Group had cash on hand of approximately HK$374.7 million and no unutilised facilities.) Any further loans from Mr. Lai will increase our financial reliance on him. We expect to rely on him heavily for financial support if the Acquisition and the Subscription are not completed.

The HK$150 million estimated expenditure on Taiwan Next Magazine represents approximately 104% and 51% of the total bank borrowings of the Group and the Enlarged Group respectively as at 31st July, 2001.

Our substantial financial leverage could cause our business to suffer. 32

As at 31st July, 2001, we had incurred approximately HK$360.2 million in indebtedness from bank financing and shareholder loans to finance our business operations. The debt is substantial and may adversely influence our ongoing operations, including by requiring us to dedicate a portion of our cash flow from operations to payments to service our indebtedness, limiting our flexibility to plan for or react to changes in our business and limiting our ability to borrow additional funds. As a result, our business could be adversely affected.

Our expansion into Taiwan may not be successful.

We have no experience in developing, marketing or distributing publications outside Hong Kong. There are also certain risks inherent in operating a publishing business outside Hong Kong, such as

— 36 — RISK FACTORS competition, possible cultural incompatibility, establishing relationships in the industry and managing multinational operations and currency fluctuations. In particular, our editorial style may not be widely accepted among readers and advertisers in Taiwan and we may be subject to a higher risk of litigation. In addition, Taiwan imposes certain restrictions on the conversion of foreign currency to local currency and vice versa and, as a result, our Taiwanese branch office will need to seek regulatory approval with respect to foreign currency remittances into or out of Taiwan in excess of US$50,000,000 (which is equivalent to approximately HK$390 million) per calendar year. There can be no assurance that one or more of such factors will not have a material adverse effect on our future operations and, consequently, on our results of operations. Controversial articles in Taiwan Next Magazine may result in a reduction in its advertising turnover and adversely affect its financial results. Failure in our expansion into Taiwan will adversely affect our financial condition.

We may not be able to protect the Group’s intellectual property rights, which could cause us to be less competitive.

We consider our trade marks to be valuable assets. The masthead valuation of Easy Finder amounted to HK$210 million as at 30th June, 2001.

The trade mark “EASYFINDER ” (which has been used as the logo on Easy Finder since January, 1999) and two other trade marks in relation to Easy Finder in Class 16, which includes newspapers and periodicals, two marks which the Group has used in its printing business since 1994 and 2000, respectively, and marks which it has used in its Internet business since January and June, 2000 are pending registration. Applications for the registration of these trade marks were made in January and June, 2001. There is no assurance that these trade mark applications will be successful.

Unless these applications are approved, the Group has limited ability to protect any rights it may have in these trade marks. Consequently, our competitive position might be adversely affected. The solicitors acting for the Group in its pending applications for the registration of its trade marks in Hong Kong have advised the Group that the Group may encounter allegations of passing off and trade mark infringement in relation to its use of those trade marks. They have also advised the Group that if the Group is sued for and found liable for passing off or trade mark infringement, the relevant court may grant an interim injunction to prohibit the Group from using the infringing mark, order the delivery up of the goods bearing the infringing mark and order the Group to pay damages to the right owner. If such an injunction is granted, any such order is made or any such damages are awarded, this may have an adverse effect on the business of the Group and its financial position.

The Acquired Group applied for the registration of the trade mark “ NEXT MAGAZINE” in Classes 16 and 41 (which includes the publishing of news) in Taiwan in March, 2001. These applications are pending. The lawyers acting for the Acquired Group in these applications have advised that the applications are likely to be objected to or opposed since independent third parties have applied for the registration of marks which are similar to the mark “ NEXT MAGAZINE” in Classes 16, 38 (which includes transmission of information by electronic means) and 41.

— 37 — RISK FACTORS lawyers acting for the Acquired Group in its pending applications for the registration of that trade mark have advised the Acquired Group that it and the Group may encounter allegations of trade mark infringement in relation to the Group’s use of that trade mark in Taiwan. This may have an adverse effect on the business of the Group and its financial position.

The inability of some of our customers to make payments on time or at all may adversely affect our financial condition and results of operations.

We make a general provision for bad debts equal to 0.5% of the monthly sales for Easy Finder and our Internet business. We also make specific provisions for Easy Finder and our other businesses when we consider that the debts are unlikely to be repaid in the light of the relevant circumstances. Since April, 2000, we have made general provisions for bad debts at 3% of monthly sales to independent third parties for our printing business.

Provisions for bad debts which were charged to the profit and loss account of the Group were approximately HK$6.2 million (comprising general provisions of approximately HK$1.3 million and specific provisions of approximately HK$4.9 million) and approximately HK$3.7 million (comprising general provisions of approximately HK$2.9 million and specific provisions of approximately HK$0.8 million) for the two years ended 31st March, 2000 and 2001, respectively.

The inability of some of our customers to make payments on time or at all may adversely affect our financial condition and results of operations.

Our financial results will be adversely affected by the adoption of certain new Hong Kong Statements of Standard Accounting Practice (“SSAPs”).

In January 2001, the Hong Kong Society of Accountants issued five new accounting standards and one revised accounting standard. These new SSAPs will become effective for any accounting periods beginning on or after 1st January, 2001. Accordingly we will be required to adopt these new SSAPs in preparing our financial statements for the year ending 31st March, 2002. We have not adopted these standards in preparing our financial statements for the year ended 31st March, 2001.

According to our existing accounting policy, goodwill on acquisition is taken directly to reserves in the consolidated financial statements. As at 31st March, 2001, the Group’s goodwill reserves amounted to approximately HK$725.6 million. No provision is made against any subsequent impairment in the value of goodwill taken to reserves. However, the new SSAPs will require the carrying amount of goodwill (including goodwill that has previously been taken directly to reserves and not restated) to be reviewed if there is an indication of impairment and any impairment to be dealt with in the consolidated profit and loss account.

There was an indication that the goodwill amounting to approximately HK$482.2 million arising and taken to reserves during the year ended 31st March, 2001 had suffered impairment. Such impairment loss has not been recognised in our consolidated profit and loss account for the year ended 31st March, 2001 under our current accounting policy. Had the new SSAPs been adopted for the current year ended 31st March, 2001, our consolidated profit and loss account would have had to include an impairment loss of approximately HK$482.2 million and the comparatives of our results for the year ended 31st March, 2000 would have had to be restated by making a prior year adjustment to include an impairment loss of approximately HK$96.0 million for goodwill for that year.

— 38 — RISK FACTORS

According to our existing accounting policy, our intangible assets representing the masthead of our magazine are stated at valuation without amortisation. As at 31st March, 2001, the value of the masthead and publishing right of Easy Finder was HK$210 million. Upon the adoption of the new SSAPs, these mastheads will have to be amortised over their estimated useful lives. Assuming that these mastheads were amortised using the straight-line method over a period of 20 years from the date of acquisition, the amortisation charge to our consolidated profit and loss account for the two years ended 31st March, 2000 and 2001 would have been HK$4.7 million and HK$10.5 million, respectively, and the carrying value of the mastheads stated in the consolidated balance sheet as at 31st March, 2000 and 2001 would have been HK$205.3 million and HK$194.8 million, respectively.

Taking account of the above, had we adopted the provisions of the new SSAPs for the year ended 31st March, 2001, the reported loss for the year of approximately HK$145.8 million would have been a loss for the year of approximately HK$638.5 million and the loss for the year ended 31st March, 2000 of approximately HK$78.5 million would have had to be restated to a loss for the year of approximately HK$179.2 million.

The above accumulated impairment in goodwill reserves (of HK$578.2 million) and the accumulated amortisation of our masthead (of HK$15.2 million) will be reflected as prior year adjustments in the Group’s financial statements for the year ending 31st March, 2002.

Under these new SSAPs, the mastheads of the Enlarged Group arising from the Acquisition will be recognised at the amount of approximately HK$1,531.5 million and will, together with the existing masthead of HK$210 million, be subject to amortisation over a period of not exceeding 20 years. On the assumption of a 20-year amortisation period the annual amortisation charge for these mastheads will be approximately HK$87.1 million. As a result, our financial results will be adversely affected.

— 39 — DIRECTORS 41

EXECUTIVE DIRECTORS

Name Address Nationality

Lai Chee Ying, Jimmy 8 Chun Ying Street British Tseung Kwan O Industrial Estate West Tseung Kwan O Hong Kong

Chow On Kiu, Andrew 8 Chun Ying Street British Tseung Kwan O Industrial Estate West Tseung Kwan O Hong Kong

Yeung Wai Hong 8 Chun Ying Street United States Tseung Kwan O Industrial Estate West of America Tseung Kwan O Hong Kong

Ting Ka Yu, Stephen 8 Chun Ying Street Australian Tseung Kwan O Industrial Estate West Tseung Kwan O Hong Kong

Kok Hon Kay, Peter 8 Chun Ying Street Chinese Tseung Kwan O Industrial Estate West Tseung Kwan O Hong Kong

Pieter Lodewijk Schats 8 Chun Ying Street Irish Tseung Kwan O Industrial Estate West Tseung Kwan O Hong Kong

INDEPENDENT NON-EXECUTIVE DIRECTORS

V-nee Yeh Hsin Chong Centre British 107-109 Wai Yip Street Kwun Tong Kowloon Hong Kong

Fok Kwong Hang, Terry 8/F, Alexandra House British 16-20 Chater Road Central Hong Kong

— 40 — PARTIES INVOLVED IN THE ACQUISITION

Financial Adviser and Sponsor Bear Stearns Asia Limited 3 to the Company 26/F, Citibank Tower 3 Garden Road Central Hong Kong

Legal Adviser to the Company Slaughter and May 3 27th Floor Two Exchange Square Hong Kong

Auditors of the Company PricewaterhouseCoopers 4 and Reporting Accountants Certified Public Accountants and Auditors of DGL 22/F., Prince’s Building Central Hong Kong

Independent Financial Adviser to Deloitte & Touche Corporate Finance Limited the Independent Board Committee 21/F Wing On Centre 111 Connaught Road Central Hong Kong

Property Valuer of the Company Chesterton Petty Limited and DGL Property Valuer 16/F CITIC Tower 1 Tim Mei Avenue Central Hong Kong

Plant and Machinery Valuer of Chesterton Petty Limited the Company and DGL Plant and Machinery Valuer 16/F CITIC Tower 1 Tim Mei Avenue Central Hong Kong

Masthead and Publishing Right Valuer Ernst & Young Corporate Finance Pty Limited of the Company and DGL Masthead and Publishing Right Valuer The Ernst & Young Building 321 Kent Street Sydney New South Wales 2000 Australia

— 41 — PARTIES INVOLVED IN THE ACQUISITION

Consulting Engineers of the Company David S.K. Au & Associates Limited Consulting Engineers China United Centre 26th Floor 28 Marble Road North Point Hong Kong

Consulting Engineers of DGL AFC Consultants Limited Consulting Engineers Room 1601, Silvercord Tower 1 30 Canton Road Tsim Sha Tsui Kowloon Hong Kong

— 42 — CORPORATE INFORMATION

Registered Office 8 Chun Ying Street 43 Tseung Kwan O Industrial Estate West Tseung Kwan O Hong Kong

Authorised Representatives Mr. Chow On Kiu, Andrew 3 Mr. Ting Ka Yu, Stephen

Company Secretary Ms. Lee Yuen Mei, Janis ACIS, ACS 42

Principal Bankers of the Company The Hongkong and Shanghai Banking 3 Corporation Limited 1 Queen’s Road Central Hong Kong

Bank of America (Asia) Limited 9 Queen’s Road Central Hong Kong

DBS Kwong On Bank Limited 15th Floor Man Yee Building 68 Des Voeux Road Central Hong Kong

Principal Bankers of DGL The Hongkong and Shanghai Banking Corporation Limited 1 Queen’s Road Central Hong Kong

Bank of America (Asia) Limited 9 Queen’s Road Central Hong Kong

DBS Kwong On Bank Limited 15th Floor Man Yee Building 68 Des Voeux Road Central Hong Kong

Share Registrar Central Registration Hong Kong Limited 3 17th Floor Hopewell Centre 183 Queen’s Road East Hong Kong

— 43 — INDUSTRY OVERVIEW

The information provided in this section is derived from various private and/or government publications. This information has not been independently verified by the Directors, the Company, Bear Stearns Asia Limited or their respective advisers.

The Hong Kong Newspaper and Magazine Industry

Overview

Hong Kong is a competitive publishing market. In a city with a 6.7 million population, there were 57 newspapers and 721 periodicals registered with the Television and Entertainment Licensing Authority as at 30th April, 2001. Publications providing news, information and commentaries published at intervals not exceeding six months are required to be registered with the Television and Entertainment Licensing Authority under the Registration of Local Newspapers Ordinance.

The five newspapers with the largest readership in Hong Kong for the three months ended 31st July, 2001 were as follows: Percentage of total Newspaper population Readership aged 9+

Oriental Daily News ...... 2,023,000 33% Apple Daily ...... 1,543,000 25% TheSun ...... 609,000 10% South China Morning Post ...... 304,000 5% MingPao ...... 288,000 5%

Source: ACNielsen RARD Report for the three months ended 31st July, 2001

The five weekly magazines with the largest readership in Hong Kong for the three months ended 31st July, 2001 were as follows: Percentage Weekly of total Magazine population Readership aged 9+

Next Magazine ...... 494,000 8% Easy Finder ...... 342,000 6% Sudden Weekly ...... 319,000 5% East Week ...... 257,000 4% Express Weekly ...... 213,000 4%

Source: ACNielsen RARD Report for the three months ended 31st July, 2001

— 44 — INDUSTRY OVERVIEW

The main sources of revenue for newspapers and magazines are advertising income and circulation income. In general, the economy of Hong Kong was adversely affected by the Asian financial crisis. Advertising expenditures grew little between 1997 and 1998. Advertising expenditures increased by approximately 14% and 16% in 1999 and 2000, respectively. The following table sets out advertising expenditure in Hong Kong for the periods indicated.

Advertising expenditure

1995 1996 1997 1998 1999 2000

(HK$ millions, in current prices)

Television ...... 7,430 8,437 9,563 10,212 10,691 11,638 Newspapers ...... 4,376 5,048 6,717 6,819 8,607 10,238 Magazines ...... 1,796 2,022 2,420 2,160 2,755 3,679 Radio ...... 978 917 1,089 1,024 915 995 Outdoor ...... 484 516 525 514 662 964 Cinema ...... 47 48 86 77 23 12

Total ...... 15,111 16,987 20,400 20,807 23,653 27,526

Source: 1995-2000 AC Nielsen

Note: Includes agency commission, before discounts, excludes production costs, excludes classified

Government regulation

The publication and distribution of newspapers, magazines and books in Hong Kong are regulated by registration and licensing requirements under the Registration of Local Newspapers Ordinance. Distribution for sale of a newspaper is permitted only by a licensed newspaper distributor; no licence is required, however, for retail sales to the public.

Press freedom in Hong Kong is at present protected by the Hong Kong Basic Law which extends the application of certain provisions of the International Covenant on Civil and Political Rights to Hong Kong. Legal constraints on the contents of a publication include emergency powers reserved to the Hong Kong Government, protection of official secrets and a system of classification and censorship relating to obscenity and indecency. Newspapers, magazines and books in Hong Kong are also regulated by the Control of Obscene and Indecent Articles Ordinance under which a tribunal is empowered to review and consider any material and make appropriate judgment as to whether such material is obscene or indecent. The day-to-day operations of any news media organisation, particularly its reporting activities, may also be directly affected by the common law in areas such as defamation, confidentiality and contempt of court.

Consultation paper on civil liability for invasion of privacy

In August, 1999, the Hong Kong Law Reform Commission’s sub-committee on privacy published a consultation paper on civil liability for invasion of privacy. The paper recommends that two new torts be created to protect the private life of individuals from unwarranted interference, namely, “invasion of privacy by intrusion upon the solitude or seclusion of another”, and “invasion of privacy

— 45 — INDUSTRY OVERVIEW based on public disclosure of private facts”. For an invasion of privacy to be actionable, the intrusion or public disclosure must be seriously offensive and objectionable to a reasonable person. To safeguard the interests of free speech and press freedom, the sub-committee acknowledges that invasion of privacy may be warranted if it is in the public interest.

The consultation paper recommends that a court in an action for invasion of privacy should be able to award damages, grant an injunction, order the defendant to account for any profits he has made by reasons of the invasion, or order the defendant to publish an apology. Since the recommendations of the consultation paper have not yet been implemented, the impact on the newspaper and magazine industry is uncertain.

The Taiwan Newspaper and Magazine Industry

Overview

Currently Taiwan has three major daily newspaper groups: the Liberty Times, the United Daily News, and the China Times.

The five daily newspapers with the largest readership in Taiwan for the six months ended 31st December, 2000 were as follows:

Percentage over total population Title Readership aged 12-60

(000) (%)

LibertyTimes ...... 3,401 22 United Daily News ...... 2,795 18 ChinaTimes ...... 2,660 17 Min Sheng Daily ...... 587 4 The Great News Daily ...... 330 2

Source: 2000 AC Nielsen Taiwan Media Index (July to December, 2000)

The five magazines with the largest readership in Taiwan for the six months ended 31st December, 2000 were as follows: Percentage over total population Readership aged 12-60

(000) (%)

China Times Weekly ...... 1,328 8 TVBS Weekly ...... 700 4 Scoop ...... 548 4 Business Weekly ...... 527 3 FleeMarket...... 187 1

Source: 2000 AC Nielsen Taiwan Media Index (July to December, 2000)

— 46 — LETTER FROM THE BOARD

NEXT MEDIA LIMITED

(Incorporated in Hong Kong with limited liability)

Executive Directors: Registered office:

Lai Chee Ying, Jimmy (Chairman) 8 Chun Ying Street Chow On Kiu, Andrew Tseung Kwan O Industrial Estate West Yeung Wai Hong Tseung Kwan O Ting Ka Yu, Stephen New Territories Kok Hon Kay, Peter Hong Kong Pieter Lodewijk Schats 28th September, 2001 Independent non-executive Directors:

Yeh V-nee Fok Kwong Hang, Terry

To the Shareholders

Dear Sir or Madam, (1) VERY SUBSTANTIAL ACQUISITION TREATED AS AN APPLICATION FOR NEW LISTING AND CONNECTED TRANSACTIONS INVOLVING (A) ACQUISITION OF THE ENTIRE ISSUED SHARE CAPITAL OF DATABASE GATEWAY LIMITED FROM MR. LAI CHEE YING, JIMMY AND OTHER SELLERS AND (B) CAPITALISATION OF A SHAREHOLDER LOAN, (2) SHARE CONSOLIDATION, (3) INCREASE IN AUTHORISED SHARE CAPITAL AND (4) POSSIBLE CONNECTED TRANSACTION INVOLVING A POSSIBLE TOP-UP PLACING COMPRISING (A) A POSSIBLE PLACING OF NOT MORE THAN 200,000,000 CONSOLIDATED SHARES BY MR. LAI CHEE YING, JIMMY AND (B) A POSSIBLE SUBSCRIPTION OF NOT MORE THAN 200,000,000 CONSOLIDATED SHARES BY MR. LAI CHEE YING, JIMMY

INTRODUCTION

It was announced on 13th September, 2001 that the Company had entered into the Acquisition 5 Agreement with Mr. Lai and the other Sellers on 13th September, 2001 to acquire the entire issued share capital of DGL for a consideration of HK$2,620,000,000. The Company will satisfy the consideration as to HK$590,000,000 by the allotment and issue to Mr. Lai and the other Sellers of the Consideration Shares, which amount to 429,090,909 Consolidated Shares of HK$1.00 each, at the Issue Price of HK$1.375 per Consolidated Share and as to HK$2,030,000,000 by the issue of 1,160,000,000 Preference Shares to Mr. Lai at their par value of HK$1.75 each. Pursuant to the

— 47 — LETTER FROM THE BOARD

Acquisition Agreement, new shares in DGL, credited as fully paid, will be issued, at the direction of Mr. Lai and Dico, to the Company at Completion in repayment of the shareholder loans owed by the Acquired Group to Mr. Lai and Dico, an associate of Mr. Lai. Immediately after Completion, DGL will become a wholly-owned subsidiary of the Company.

The Preference Shares may be converted into Conversion Shares at the initial Conversion Price of HK$1.75 per Consolidated Share (subject to adjustment) at any time during the Conversion Period, which is five years from the date of issue of the Preference Shares. The terms of the Preference Shares are set out in special resolution numbered 3 in the notice of the EGM on pages 369 to 374 of this circular which will be proposed at the EGM to amend the articles of association of the Company. The principal terms of the Preference Shares are summarised in the paragraph headed “Preference Shares” on pages 56 and 57 of this circular.

Pursuant to the Acquisition Agreement, at Completion, the Company will issue to Mr. Lai the Capitalisation Shares, which will amount to 156,931,505 new Consolidated Shares, at the price equal to the Issue Price of the Consideration Shares (HK$1.375 per Consolidated Share) in repayment of the shareholder loan of HK$215,780,820 (comprising a principal amount of HK$200 million and accrued interest of HK$15,780,820 up to and including 31st March, 2001) owed by the Company to Mr. Lai.

It was also announced on 13th September, 2001 that the Company proposed to consolidate every five Existing Shares of HK$0.20 each into one Consolidated Share of HK$1.00 and to increase its authorised share capital from HK$900,000,000 to HK$4,600,000,000 by the creation of 1,670,000,000 Consolidated Shares and 1,160,000,000 Preference Shares.

It was also announced on 13th September, 2001 that Mr. Lai intended to sell not more than 200,000,000 Consolidated Shares to independent professional and institutional investors under the Placing and subscribe for not more than 200,000,000 new Consolidated Shares under the Subscription at a price equal to the Placing Price. The Placing Price is subject to market conditions and will be determined on the day of the EGM, possibly after the stock market closes on that day. Completion of the Subscription will be conditional upon completion of the Placing. There is no assurance that the Placing and the Subscription will proceed.

Since the consideration for the Acquisition exceeds 100 per cent. of the net tangible asset value of the Group as at 31st March, 2001, the Acquisition is a very substantial acquisition for the Company under the Listing Rules. As such, it is subject to approval by the Independent Shareholders pursuant 14(1) to Rule 14.07(1) of the Listing Rules. The Company is treated as a new applicant for listing pursuant to the Listing Rules and the Acquisition is conditional upon, inter alia, approval by the Listing Committee of the Stock Exchange. A new listing application in respect of the Acquisition has been made to the Listing Committee of the Stock Exchange.

As Mr. Lai is the chairman, an executive Director and the controlling shareholder of the Company and the other Sellers include Directors, an associate of a Director, a person who was a Director within the 12 months preceding the date of the Acquisition Agreement, an associate of that person, Ms. Assapimonwait Pilunya and Mr. Marc Faber (who, together with Mr. Lai, have agreed to sell shares in DGL as trustees for three children of Mr. Lai, all aged over 18), the Acquisition is also a connected transaction for the Company under the Listing Rules and is conditional upon approval by the Independent Shareholders pursuant to Rule 14.26(2) of the Listing Rules. The issue of the Capitalisation Shares to Mr. Lai in repayment of the shareholder loan owed by the Company to Mr. Lai is a connected transaction for the Company under the Listing Rules and is conditional upon approval by the Independent Shareholders pursuant to Rule 14.26 of the Listing Rules. If the

— 48 — LETTER FROM THE BOARD

Subscription proceeds, it will be a connected transaction for the Company under the Listing Rules and is conditional upon approval by the shareholders of the Company other than Mr. Lai, Ms. Assapimonwait Pilunya and Mr. Marc Faber (who, together with Mr. Lai, have agreed to sell shares in DGL as trustees for three children of Mr. Lai) and their respective associates.

Application has been made to the Stock Exchange for the approval of the Company’s new listing application and listing of and permission to deal in the Consolidated Shares (arising from the Share Consolidation) which will be in issue as at the date of the EGM, the Consideration Shares, the Conversion Shares, the Capitalisation Shares and the Subscription Shares.

The principal purpose of this circular is to provide you with further information on the Acquisition and the issue of the Capitalisation Shares to Mr. Lai in repayment of the shareholder loan owed by the Company to Mr. Lai and to give you notice of the EGM. This circular also contains information on the Share Consolidation, the increase in authorised share capital, and the possible Placing and the possible Subscription of Consolidated Shares. The recommendation of the Independent Board Committee to the Independent Shareholders on the Acquisition, the issue of the Capitalisation Shares to Mr. Lai in repayment of the shareholder loan owed by the Company to Mr. Lai, the Share Consolidation, the increase in authorised share capital and the possible Subscription is set out on page 104 of this circular. The letter from Deloitte & Touche as the independent financial adviser to the Independent Board Committee is set out on pages 105 to 127 of this circular.

SHARE CONSOLIDATION

It will be proposed at the EGM that every five Existing Shares of HK$0.20 each will be consolidated into one Consolidated Share of HK$1.00. Every five issued Existing Shares registered in the name of each shareholder on the register of members of the Company at the opening of business on Tuesday, 23rd October, 2001 will constitute one issued Consolidated Share. Any fractional entitlements to issued Consolidated Shares which shareholders of the Company would otherwise have will be aggregated and sold for the benefit of the Company.

The Share Consolidation is conditional upon Independent Shareholders’ approval being obtained 14(1)(2) at the EGM.

Application has been made to the Listing Committee of the Stock Exchange for the listing of, and permission to deal in, the Consolidated Shares (arising from the Share Consolidation) which will be in issue as at date of the EGM. Subject to the granting of listing of, and permission to deal in, the Consolidated Shares on the Stock Exchange, the Consolidated Shares 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 Consolidated Shares on the Stock Exchange or such other date as determined by Hongkong Clearing. Settlement of transactions between participants of the Stock Exchange on any trading day is required to take place in CCASS on the second trading day thereafter. All activities under CCASS are subject to the General Rules of CCASS and the CCASS Operational Procedures in effect from time to time.

— 49 — LETTER FROM THE BOARD

Trading Arrangements

The Existing Shares are traded in board lots of 2,000 Existing Shares. The Consolidated Shares will also be traded in board lots of 2,000 Consolidated Shares. The value of each board lot of the Consolidated Shares will therefore be increased and this may result in the reduction of the overall transaction costs for dealing in Consolidated Shares arising from the Share Consolidation.

Subject to the granting of listing of and permission to deal in the Consolidated Shares by the Stock Exchange and the approval of the Independent Shareholders at the EGM, dealings in the Consolidated Shares are expected to commence on Tuesday, 23rd October, 2001 and it is proposed that arrangements for dealings in the Consolidated Shares will be as follows:

— from 10:00 a.m. on Tuesday, 23rd October, 2001 the existing counter for trading in the Existing Shares in board lots of 2,000 Existing Shares will be closed. A temporary counter for trading in the Consolidated Shares in board lots of 400 Consolidated Shares will be established and every five Existing Shares will be deemed to represent one Consolidated Share. Only existing certificates in grey for Existing Shares may be traded at this counter;

— with effect from 10:00 a.m. on Wednesday, 7th November, 2001, the existing counter will be re-opened for trading in Consolidated Shares in board lots of 2,000 Consolidated Shares. Only new certificates in blue for Consolidated Shares may be traded at this counter;

— during the period from Wednesday, 7th November, 2001 to Wednesday, 28th November, 2001, both dates inclusive, there will be parallel trading at the above counters; and

— the temporary counter for trading with the certificates in grey for the Existing Shares in board lots of 400 Consolidated Shares will be removed after the close of trading on Wednesday, 28th November, 2001, and thereafter trading will be in board lots of 2,000 Consolidated Shares with the new certificates in blue only and existing certificates in grey for Existing Shares will cease to be good for delivery.

The existing certificates in grey will continue to be good evidence of legal title to the Consolidated Shares on the basis of five Existing Shares for one Consolidated Share, fractional entitlements to Consolidated Shares being ignored.

Subject to the Share Consolidation becoming effective, shareholders of the Company may submit their existing share certificates in grey for Existing Shares in exchange for new share certificates in blue for Consolidated Shares, on the basis of five (5) Existing Shares for one Consolidated Share free of charge at the share registrar, Central Registration Hong Kong Limited of 17/F Hopewell Centre, 183 Queen’s Road East, Hong Kong during business hours from Tuesday, 23rd October, 2001 to Tuesday, 4th December, 2001. Thereafter, certificates for Existing Shares will be accepted for exchange only on payment of a fee of HK$2.50 (or such higher amounts as may from time to time be allowed by the Stock Exchange) per certificate cancelled or issued, whichever is higher. Unless other instructions are given, new share certificates will be issued in board lots of 2,000 Consolidated Shares.

It is expected that new certificates for Consolidated Shares will be available for collection on and after the tenth business day from the date of submission of certificates for Existing Shares to the share registrar, Central Registration Hong Kong Limited of 17/F Hopewell Centre, 183 Queen’s Road East, Hong Kong for exchange.

— 50 — LETTER FROM THE BOARD

Trading Facilities for Odd Lots

The Existing Shares are at present traded in board lots of 2,000 Existing Shares and the Consolidated Shares will be traded in board lots of 2,000 Consolidated Shares. The Consolidated Shares in board lots of 400 Consolidated Shares, in the form of existing share certificates, will become odd lots when parallel trading starts on Wednesday, 7th November, 2001 at the original counter.

In order to alleviate the difficulties arising from the existence of odd lots of Consolidated Shares, the Company has made arrangements, during the period commencing on Wednesday, 7th November, 2001 and ending on Wednesday, 28th November, 2001, both dates inclusive, for a broker to stand in the market to match the sales and purchases of odd lots of Consolidated Shares at the relevant market price per Consolidated Share. Vickers Ballas Hong Kong Limited (to be renamed as DBS Vickers (Hong Kong) Limited on or about 3rd October, 2001) has been appointed as broker and has opened a securities trading account for this purpose. Holders of odd lots of Consolidated Shares who wish to use this facility either to dispose of or to top up their odd lots may contact Mr. Frank Liu at Vickers Ballas Hong Kong Limited (to be renamed as DBS Vickers (Hong Kong) Limited on or about 3rd October, 2001) at 19th Floor, Far East Finance Centre, 16 Harcourt Road, Admiralty, Hong Kong through their brokers during the period commencing on Wednesday, 7th November, 2001 and ending on Wednesday, 28th November, 2001. Holders of odd lots of Consolidated Shares should note that the matching of the sale and purchase of odd lots of Consolidated Shares is not guaranteed.

The issued share capital of the Company as at the Latest Practicable Date was HK$647,638,762 divided into 3,238,193,810 Existing Shares of HK$0.20 each which will be consolidated into 647,638,762 Consolidated Shares of HK$1.00 each after the Share Consolidation. Its issued share capital immediately after the issue of the Consideration Shares, the Preference Shares and the Capitalisation Shares at Completion and the Share Consolidation will be HK$3,263,661,176 divided into 1,233,661,176 Consolidated Shares of HK$1.00 each and 1,160,000,000 Preference Shares of HK$1.75 each.

INCREASE IN AUTHORISED SHARE CAPITAL

It will be proposed at the EGM to increase the authorised share capital of the Company from HK$900,000,000 to HK$4,600,000,000 by the creation of 1,670,000,000 Consolidated Shares of HK$1.00 each and 1,160,000,000 Preference Shares of HK$1.75 each.

The proposed increase in the authorised share capital of the Company is subject to approval by the Independent Shareholders at the EGM.

The increase primarily facilitates the proposed issues of the Consideration Shares, the Preference Shares, the Conversion Shares, the Capitalisation Shares and the Subscription Shares. Except for the above and for issues of Shares which are required to be made under the Company’s share option schemes adopted on 20th September, 1993 and 29th December, 2000, respectively, the Directors currently have no intention to issue any part of the Company’s authorised but unissued share capital.

APPROVAL OF THE SHARE CONSOLIDATION AND THE INCREASE IN AUTHORISED SHARE CAPITAL

— 51 — LETTER FROM THE BOARD

Since Mr. Lai, Mr. Chow On Kiu, Andrew, Mr. Yeung Wai Hong, Mr. Ting Ka Yu, Stephen, Mr. Kok Hon Kay, Peter, Mr. Ho Kwok Fai, Morris, Ms. Assapimonwait Pilunya and Mr. Marc Faber (who, together with Mr. Lai, have agreed to sell shares in DGL as trustees for three children of Mr. Lai, all aged over 18) and all of the other Sellers and their respective associates will abstain from voting at the EGM on the Acquisition, they will not be voting at the EGM on the increase in the authorised share capital of the Company and the Share Consolidation.

THE ACQUISITION AGREEMENT

Date

13th September, 2001 R14.30(1)(a)

Parties

Sellers : (1) Mr. Lai R14.30(1)(a)

(2) Mr. Lai, Ms. Assapimonwait Pilunya and Mr. Marc Faber as trustees for three children of Mr. Lai, all aged over 18

(3) Flagstone Assets Limited (an associate of Mr. Yeung Wai Hong, an executive Director)

(4) New Shape Limited

(5) Mr. Ip Yut Kin

(6) Anman Investments Limited

(7) Adcon Management Limited (an associate of Mr. Ho Kwok Fai, Morris, a former executive Director)

(8) Jumbo Chase Investments Limited

(9) Mr. Lee Chi Ho

(10) Ms. Chan Pui King, Patricia

(11) Mr. Cheung Kam Fai

(12) Mr. Chow Tat Kuen, Royston

(13) Ms. Fung Pui Lan, Samantha

(14) Mr. Ho Ping Chung, Paul

(15) Mr. Ho Wai Keung, Dicky

(16) Mr. Kong Chi Shing, Tony

(17) Ms. Lee Fo Yee, Ivy

— 52 — LETTER FROM THE BOARD

(18) Mr. Low Kam Por, Ken

(19) Mr. Ng Shun Chung

(20) Ms. So Kar Ling

(21) Mr. Yan Man Kim

(22) Mr. Lam Chun Keung

(23) Mr. Loo Cheung Ling

(24) Mr. Wong Ho Keung

(25) Ms. Chan Wai Yee

(26) Mr. Kuo Yiu Kwan

(27) Mr. Cheng Ping Wah

(28) Mr. Ng Shiu Wing

(29) Mr. Li Pang Kay

(30) Ms. Wong Suk Mei

(31) Mr. Ho Kwok Fai, Morris (a former executive Director who resigned as a Director in November, 2000)

(32) Mr. Ting Ka Yu, Stephen (an executive Director)

(33) Mr. Chow On Kiu, Andrew (an executive Director)

(34) Mr. Kok Hon Kay, Peter (an executive Director)

(35) Golden Wheel Limited

(36) Mr. Hung Chi Keung

(37) Ms. Lee Yuen Mei, Janis

Purchaser : the Company

Mr. Lai is the chairman, an executive Director and the controlling shareholder of the Company R14.30(1)(d) R14.30(1)(e) and owned approximately 54 per cent. of the issued share capital of the Company as at the Latest Practicable Date. Mr. Chow On Kiu, Andrew, Mr. Ting Ka Yu, Stephen and Mr. Kok Hon Kay, Peter are Directors. Flagstone Assets Limited is an associate of Mr. Yeung Wai Hong, who is a Director, because it is 100 per cent. beneficially owned by Mr. Yeung Wai Hong and his family. Mr. Ho Kwok Fai, Morris, who resigned as a Director in November, 2000, was a Director within the 12 months preceding the date of the Acquisition Agreement. Adcon Management Limited is an associate of Mr. Ho Kwok Fai, Morris because it is 100 per cent. owned by him and his spouse. Mr. Lai and his two

— 53 — LETTER FROM THE BOARD co-trustees, Ms. Assapimonwait Pilunya and Mr. Marc Faber, have also agreed to sell their interests in DGL as trustees for Mr. Lai’s three children, all aged over 18. Each of these Sellers is a connected person of the Company. Save as disclosed above, all of the other Sellers and the respective ultimate beneficial owners of the shares in DGL held by these other Sellers are independent of and are not connected persons (that is, directors, the chief executive or substantial shareholders of the Company or any of its subsidiaries or their respective associates) of the Company. Most of these other Sellers are or were employees of the Acquired Group.

Assets to be acquired

The Company has agreed to acquire the entire issued share capital of DGL (as enlarged by the R.14.30(1)(b) issue of 736,201,531 new shares of HK$1.00 each in DGL at Completion in repayment of the shareholder loans (in the aggregate amount of HK$736,201,531) owed by the Acquired Group to Mr. Lai and Dico).

The interests of the Sellers in DGL are as follows: Approximate percentage Sellers who are connected persons of the Company shareholding in DGL

Mr.Lai...... 89.32% Mr. Lai, Ms. Assapimonwait Pilunya and Mr. Marc Faber as trustees for three children of Mr. Lai, all aged over 18 ...... 2.03% Flagstone Assets Limited (an associate of Mr. Yeung Wai Hong, an executive Director) ...... 0.77% Adcon Management Limited (an associate of Mr. Ho Kwok Fai, Morris, a former executive Director) ..... 0.43% Mr. Ho Kwok Fai, Morris (a former executive Director who resigned as a Director in November, 2000) ..... 1.28% Mr. Ting Ka Yu, Stephen (an executive Director) ...... 0.15% Mr. Chow On Kiu, Andrew (an executive Director) .... 1.14% Mr. Kok Hon Kay, Peter (an executive Director) ...... 0.78%

Sub-total...... 95.9%

Sellers who are not connected persons of the Company ..... 4.1%

Total...... 100%

Pursuant to the Acquisition Agreement, 736,201,531 new shares in DGL, credited as fully paid, will be issued to the Company at Completion at the direction of Mr. Lai and his associate, Dico, in repayment of the shareholder loans (in the aggregate amount of HK$736,201,531) owed by the Acquired Group to Mr. Lai and Dico. Immediately after Completion, DGL will become a wholly-owned subsidiary of the Company.

Consideration

The consideration payable by the Company to the Sellers on Completion for the entire issued R14.30(1)(c) share capital of DGL (as enlarged by the issue of 736,201,531 new shares of HK$1.00 each in DGL at Completion in repayment of the shareholder loans (in the aggregate amount of HK$736,201,531)

— 54 — LETTER FROM THE BOARD owed by the Acquired Group to Mr. Lai and Dico) is HK$2,620,000,000. The consideration has been agreed after arm’s length negotiation and represents a price earnings multiple of 9.15 times of approximately HK$286,190,000, being the aggregate of the profit after tax of each member of the Acquired Group for the year ended 31st March, 2001 of approximately HK$484,775,000 adjusted by excluding the following:

(a) the non-recurring gain of HK$481,821,651 from the sale of the entire issued share capital of ADOL by ADL (a member of the Acquired Group) to the Company in July, 2000;

(b) a special bonus of HK$253,715,323 given by the Acquired Group to its employees in July and August, 2000;

(d) the audited loss of approximately HK$4.6 million of Skytools Digital Studio Company Limited (a member of the Acquired Group which was principally engaged in digital comic design and ceased to operate in October, 2000) for the year ended 31st March, 2001; and

(e) the audited loss of approximately HK$9.9 million of Excel Innoconcept Limited (a member of the Acquired Group which was principally engaged in magazine publishing and ceased to operate in December, 2000) for the year ended 31st March, 2001.

The Acquisition Agreement was negotiated and entered into on an arm’s length basis and is based on normal commercial terms.

The consideration will be satisfied as to HK$590,000,000 by the allotment and issue to Mr. Lai and the other Sellers of 429,090,909 Consolidated Shares, credited as fully paid, at the Issue Price of HK$1.375 per Consolidated Share. 225,612,158 of the Consideration Shares will be issued to Mr. Lai and the remaining 203,478,751 Consideration Shares will be issued to the other Sellers in proportion to the number of shares in DGL sold by them. The Issue Price represents:

(i) a premium of approximately 14 per cent. to the adjusted average closing price of the Existing Shares on the Stock Exchange for the ten trading days up to and including 7th September, 2001, being the trading day on which Existing Shares were traded on the Stock Exchange immediately preceding the date of the Acquisition Agreement (being HK$1.209 per Consolidated Share);

(ii) a discount of approximately 7 per cent. to the adjusted closing price of the Existing Shares on 7th September, 2001, being the trading day on which Existing Shares were traded on the Stock Exchange immediately preceding the date of the Acquisition Agreement (being HK$1.475 per Consolidated Share);

(iii) a premium of approximately 22 per cent. to the adjusted closing price of the Existing Shares as at the Latest Practicable Date (being HK$1.13 per Consolidated Share);

(iv) a premium of approximately 8 per cent. to the adjusted average closing price of the Existing Shares for the ten trading days on which Existing Shares were traded on the Stock Exchange up to and including the Latest Practicable Date (being HK$1.268 per Consolidated Share);

— 55 — LETTER FROM THE BOARD

(v) a premium of approximately 2,672 per cent. to the net tangible asset value of the Group per Consolidated Share as at 31st March, 2001 (being HK$0.0496); and

(vi) a premium of approximately 268 per cent. to the net asset value of the Group per Consolidated Share as at 31st March, 2001 (being HK$0.3738).

The remaining HK$2,030,000,000 of the consideration will be satisfied by the issue of 1,160,000,000 Preference Shares by the Company to Mr. Lai at their par value of HK$1.75 each.

Preference Shares

The holders of the Preference Shares shall be entitled during a period of five years from their date of issue to be paid out of the profits of the Company available for dividend and resolved to be distributed in respect of any financial year for which the Company’s accounts are made up a fixed non-cumulative preferential dividend at the rate of 2 per cent. per annum in priority to any payment to the holders of any other class of shares. The preferential dividend in respect of any financial year of the Company shall be payable on the amount paid up thereon (a) on the day falling 30 days after the audited accounts of the Company for that financial year have been laid before its shareholders in a general meeting and (b) out of the profits available for dividend as shown by those audited accounts. Dividends will cease to accrue on each Preference Share with effect from the last day of the financial year preceding that in which it is converted. A holder of a Preference Share shall not be entitled to any further or other right of participation in the profits of the Company.

The Preference Shares are not redeemable except that they may be converted into Consolidation Shares by way of redemption (in accordance with paragraphs (B)(iii) and (B)(iv) of special resolution numbered 3 set out in the notice of EGM on pages 371 and 372 of this circular).

The Preference Shares do not carry any right to attend or vote at any general meeting of the Company.

The Preference Shares may be converted by their holder(s) into Conversion Shares at the initial Conversion Price of HK$1.75 per Consolidated Share (subject to adjustment, further details of which are set out in paragraph (B)(vii) of special resolution numbered 3 in the notice of EGM on page 373 of this circular) at any time during the Conversion Period of five years from the date of issue of the Preference Shares. The initial Conversion Price of HK$1.75 per Consolidated Share represents:

(i) a premium of approximately 45 per cent. to the adjusted average closing price of the Existing Shares on the Stock Exchange for the ten trading days up to and including 7th September, 2001, being the trading day on which Existing Shares were traded on the Stock Exchange immediately preceding the date of the Acquisition Agreement (being HK$1.209 per Consolidated Share);

(ii) a premium of approximately 19 per cent. to the adjusted closing price of the Existing Shares on 7th September, 2001, being the trading day on which Existing Shares were traded on the Stock Exchange immediately preceding the date of the Acquisition Agreement (being HK$1.475 per Consolidated Share);

(iii) a premium of approximately 55 per cent. to the adjusted closing price of the Existing Shares on the Latest Practicable Date (being HK$1.13 per Consolidated Share);

— 56 — LETTER FROM THE BOARD

(iv) a premium of approximately 38 per cent. to the adjusted average closing price of the Existing Shares for the ten trading days on which Existing Shares were traded on the Stock Exchange up to and including the Latest Practicable Date (being HK$1.268 per Consolidated Share);

(v) a premium of approximately 3,428 per cent. to the net tangible asset value of the Group per Consolidated Share as at 31st March, 2001 (being HK$0.0496);

(vi) a premium of approximately 368 per cent. to the net asset value of the Group per Consolidated Share as at 31st March, 2001 (being HK$0.3738); and

(vii) a premium of approximately 27 per cent. to the Issue Price.

Any Conversion Shares of HK$1.00 each issued as a result of the exercise of the conversion rights attached to the Preference Shares shall rank pari passu in all respects with the then existing Shares.

The transfer of the Preference Shares is not subject to any restrictions, but Mr. Lai has given an undertaking in respect of the transfer of his Preference Shares, details of which are set out in the paragraph headed “Indemnities, Guarantees, Capitalisation of Shareholder Loans of the Acquired Group and Undertakings”.

On a return of capital (whether by reason of the winding-up of the Company or otherwise), the holders of the Preference Shares shall be entitled to receive the same amounts as they would have received if they had, immediately before such return of capital, exercised rights of conversion in respect of all their Preference Shares, but assuming for this purpose that such rights continued to be exercisable after the Conversion Period.

The Preference Shares will not be listed on any stock exchange.

The terms of the Preference Shares are set out in special resolution numbered 3 in the notice of EGM on pages 369 to 374 of this circular which will be proposed at the EGM to amend the articles of association of the Company.

Consideration Shares and Conversion Shares

The Consideration Shares, which amount to 429,090,909 Consolidated Shares in aggregate, represent:

(i) approximately 66 per cent. of the existing issued share capital of the Company (being HK$647,638,762 divided into 3,238,193,810 Existing Shares of HK$0.20 each or, after the Share Consolidation, 647,638,762 Consolidated Shares of HK$1.00 each);

(ii) approximately 35 per cent. of the issued share capital of the Company as enlarged by the issue of the Consideration Shares and the Capitalisation Shares;

(iii) approximately 18 per cent. of the issued share capital of the Company as enlarged by the issue of the Consideration Shares and the Capitalisation Shares and assuming conversion of 1,160,000,000 Preference Shares at the initial Conversion Price of HK$1.75 per Consolidated Share;

— 57 — LETTER FROM THE BOARD

(iv) approximately 30 per cent. of the issued share capital of the Company as enlarged by the issue of the Consideration Shares, the Capitalisation Shares and 200,000,000 Subscription Shares; and

(v) approximately 17 per cent. of the issued share capital of the Company as enlarged by the issue of the Consideration Shares, the Capitalisation Shares and 200,000,000 Subscription Shares and assuming conversion of 1,160,000,000 Preference Shares at the initial Conversion Price of HK$1.75 per Consolidated Share.

Conversion of 1,160,000,000 Preference Shares at the initial Conversion Price of HK$1.75 per Consolidated Share will result in the issue of 1,160,000,000 Consolidated Shares, representing:

(i) approximately 179 per cent. of the existing issued share capital of the Company (being HK$647,638,762 divided into 3,238,193,810 Existing Shares of HK$0.20 each or, after the Share Consolidation, 647,638,762 Consolidated Shares of HK$1.00 each);

(ii) approximately 94 per cent. of the issued share capital of the Company as enlarged by the issue of the Consideration Shares and the Capitalisation Shares;

(iii) approximately 48 per cent. of the issued share capital of the Company as enlarged by the issue of the Consideration Shares and the Capitalisation Shares and assuming conversion of 1,160,000,000 Preference Shares at the initial Conversion Price of HK$1.75 per Consolidated Share;

(iv) approximately 81 per cent. of the issued share capital of the Company as enlarged by the issue of the Consideration Shares, the Capitalisation Shares and 200,000,000 Subscription Shares; and

(v) approximately 45 per cent. of the issued share capital of the Company as enlarged by the issue of the Consideration Shares, the Capitalisation Shares and 200,000,000 Subscription Shares and assuming conversion of 1,160,000,000 Preference Shares at the initial Conversion Price of HK$1.75 per Consolidated Share.

Application has been made to the Listing Committee of the Stock Exchange for the listing of, and permission to deal in, the Consideration Shares and the Conversion Shares.

Capitalisation of the Shareholder Loan

Pursuant to the Acquisition Agreement, Mr. Lai has agreed that, at Completion, the Capitalisation Shares, which amount to 156,931,505 new Consolidated Shares, will be issued to Mr. Lai at a price equal to the Issue Price of the Consideration Shares, being HK$1.375 per Consolidated Share, in repayment of the shareholder loan (in the principal amount of HK$200 million together with accrued interest of HK$15,780,820 from 17th April, 2000, the date on which the shareholder loan was drawn down, up to and including 31st March, 2001) owed by the Company to Mr. Lai. Interest ceased to accrue on the shareholder loan on 1st April, 2001. There will be no outstanding amounts owed by the Group to Mr. Lai or any of his associates immediately after completion of the Acquisition.

— 58 — LETTER FROM THE BOARD

(assuming no other changes) after capitalisation of its shareholder loan but before completion of the Acquisition. The gearing ratio of the Enlarged Group (calculated by dividing the amount of the long term liabilities of the Enlarged Group (including the current portions) by the amount of the total assets of the Enlarged Group (including its intangible assets)) is expected to be approximately 7.7% (assuming no other changes) immediately after completion of the Acquisition. The gearing ratio of the Group (excluding its intangible assets) was approximately 72.7% as at 31st July, 2001 and is expected to be 24.6% (assuming no other changes) after capitalisation of its shareholder loan but before completion of the Acquisition. The gearing ratio of the Enlarged Group (excluding its intangible assets) is expected to be 17.6% (assuming no other changes) immediately after completion of the Acquisition.

The capitalisation of the shareholder loan of the Company is a connected transaction for the Company under Rule 14.26 of the Listing Rules and is subject to Independent Shareholders’ approval. An ordinary resolution will be proposed at the EGM to approve, among other things, the capitalisation of the shareholder loan of the Company. Please refer to ordinary resolution numbered 1 set out in the notice of the EGM on pages 368 and 369 of this circular.

Application has been made to the Listing Committee of the Stock Exchange for the listing of, and permission to deal in, the Capitalisation Shares.

Further details of the shareholder loans of the Group are set out in the paragraph headed “Long-term Liabilities” on pages 162 and 163 of Appendix I (Business of the Group) of this circular.

Conditions

Completion of the Acquisition is conditional upon:

(a) the passing of an ordinary resolution of the Independent Shareholders which:

(i) consolidates every five Existing Shares of HK$0.20 each into one Consolidated Share of HK$1.00;

(ii) increases the authorised share capital of the Company from HK$900,000,000 to HK$4,600,000,000 by the creation of 1,670,000,000 Consolidated Shares and 1,160,000,000 Preference Shares;

(iii) authorises the Company’s acquisition of the entire issued share capital of DGL;

(iv) authorises the issue and allotment of the Consideration Shares to Mr. Lai and the other Sellers in satisfaction of part of the consideration under the Acquisition Agreement;

(v) authorises the issue and allotment of the Capitalisation Shares to Mr. Lai in repayment of the shareholder loan owed by the Company to Mr. Lai;

— 59 — LETTER FROM THE BOARD

(vi) authorises the issue and allotment of the Preference Shares to Mr. Lai in satisfaction of part of the consideration under Acquisition Agreement; and

(vii) authorises the issue and allotment of the Conversion Shares (which may fall to be issued upon exercise of the conversion rights attached to the Preference Shares);

(b) the passing of a special resolution of the Independent Shareholders which amends the articles of association of the Company so as to deal with the Preference Shares;

INDEMNITIES, GUARANTEES, CAPITALISATION OF SHAREHOLDER LOANS OF THE ACQUIRED GROUP AND UNDERTAKINGS

Tax Deed

Pursuant to the Acquisition Agreement, the Sellers, the Company and DGL have agreed to enter into the Tax Deed at Completion. Under the Tax Deed, the Sellers must pay to the Company in cash an amount equal to any unprovided tax liability of the Acquired Group which arises as a result of any event occurring or deemed to occur on or before the date of Completion (as amended by a letter agreement dated 25th September, 2001 between the Sellers and the Company). The obligations of the Sellers under the Tax Deed are joint and several. The liability of Mr. Lai under the Tax Deed is not limited. The liability of each of the other Sellers under the Tax Deed is limited to the amount of the consideration received by that Seller under the Acquisition Agreement.

Further details of the Tax Deed are set out in the paragraph headed “Tax Deed and Estate Duty” on pages 363 and 364 of Appendix XIII (Statutory and General Information) to this circular.

Deed of Indemnity

Pursuant to the Acquisition Agreement, Mr. Lai has agreed to enter into the Deed of Indemnity at Completion. Under the Deed of Indemnity, Mr. Lai must indemnify the Company and the Acquired Group (to the extent that the Acquired Group is not fully indemnified by third parties, including insurance companies) against all payments, claims, suits, damages, settlement payments and any associated costs and expenses (including legal costs and expenses and payments made by the Acquired Group to the Group under any indemnities) after Completion arising out of or connected with (1) any third party claims (including but not limited to defamation claims, claims for infringement of intellectual property rights and other proceedings and claims arising from the content of Apple Daily, Next Magazine, Sudden Weekly and Eat & Travel Weekly) made against the Acquired Group on and before the date of Completion, (2) defamation claims, claims for infringement of intellectual property rights and other proceedings and claims which may in the future arise from the content of Apple Daily, Next Magazine, Sudden

— 60 — LETTER FROM THE BOARD

Weekly and Eat & Travel Weekly published on and at any time before the date of Completion and (3) the arbitration relating to a dispute with UDL Contracting Limited as contractor for the construction of the printing facility of ADPL in Tseung Kwan O in respect of amounts payable under the contract for the construction of the printing facility. The liability of Mr. Lai under the Deed of Indemnity is not limited.

Further details of the legal proceedings and the arbitration of the Acquired Group are set out in the paragraphs headed “Litigation” in this letter and Appendices II (Business of the Acquired Group) and XIII (Statutory and General Information) to this circular.

Property Indemnity

Pursuant to the Acquisition Agreement, Mr. Lai has agreed to enter into the Property Indemnity at Completion. Under the Property Indemnity, Mr. Lai must indemnify the Company and the Acquired Group (to the extent that the Acquired Group is not fully indemnified by third parties) against all damages, costs, expenses, third party claims and other losses as a result of the settlement of the land on which the Acquired Group’s building is built in Tseung Kwan O. The liability of Mr. Lai under the Property Indemnity will be limited to HK$355 million, being the valuation of the Acquired Group’s property in Tseung Kwan O as at 30th June, 2001 for the purposes of the Acquisition. The Property Indemnity is effective from the date of Completion to 27th June, 2047, being the expiry date of the term of the lease of the Acquired Group’s property in Tseung Kwan O. The Property Indemnity will cover all damages, costs, expenses, third party claims and losses which arise or are incurred on or before 27th June, 2047, irrespective of when payments are made by the Company or the Acquired Group, including those payments which are made after 27th June, 2047.

Further details of the settlement phenomenon in Tseung Kwan O are set out in the paragraph headed “Property” of Appendix II (Business of the Acquired Group) to this circular.

Release of guarantees

Further details of the release of these guarantees are set out in the paragraph headed “Long-Term Liabilities” on pages 214 and 215 of Appendix II (Business of the Acquired Group) to this circular.

— 61 — LETTER FROM THE BOARD

Capitalisation of the shareholder loans of the Acquired Group

Pursuant to the Acquisition Agreement, 736,201,531 new shares in DGL will be issued to the Company at the direction of Mr. Lai and his associate, Dico, at their par value of HK$1.00 each at Completion in repayment of the shareholder loans (in the aggregate amount of HK$736,201,531) owed by the Acquired Group to Mr. Lai and Dico.

Further details of these shareholder loans are set out in the paragraph headed “Long-Term Liabilities” on pages 214 and 215 of Appendix II (Business of the Acquired Group) to this circular.

Mr. Lai’s undertakings

Mr. Lai has undertaken to the Company and the Stock Exchange that:

— 62 — LETTER FROM THE BOARD

12 months commencing from the date of completion of the Acquisition, he must inform the Company immediately after such pledge or charge is granted, disclosing to the Company the details of such pledge or charge including the number and class of securities being pledged or charged and the purpose for which the pledge or charge is made, and in the event that he becomes aware that the pledgee or chargee has disposed of or intends to dispose of such interest, of such disposal or such intention to dispose and the number of securities affected.

Mr. Lai has undertaken to the Company that he and his associates shall:

(b) only assign or transfer the Preference Shares to the public (as defined in the Listing Rules).

Other Sellers’ undertaking

Each of the Sellers, other than Mr. Lai, has undertaken to the Company that he shall not dispose of his Consideration Shares for a period of six months from the date of their issue.

INFORMATION ABOUT THE GROUP

The Company was incorporated in Hong Kong on 12th June, 1981 and its shares have been listed on the Stock Exchange since 1981.

On 31st July, 2000, the Group acquired ADOL, which operated various websites, including the website for the online version of Apple Daily, from ADL, a member of the Acquired Group, for a consideration of HK$500,000,000, which was satisfied by the issue of 362,318,840 Existing Shares at HK$1.38 per Existing Share.

— 63 — LETTER FROM THE BOARD

Prior to the acquisition of Easy Finder and Next Interactive, the Group was engaged in the printing, reprographic and publishing businesses.

The Group currently operates through two principal divisions: printing and magazine publishing. It also has an Internet business.

The Group’s printing business prints its own magazine (Easy Finder), the three magazines of the Acquired Group (Next Magazine, Sudden Weekly and Eat & Travel Weekly), books, calendars and other publications in its printing plant in Tseung Kwan O.

The Group publishes Easy Finder, a Chinese language weekly magazine targeted at young adults. The Certificate of Circulation issued by HKABC for the six months ended 31st December, 2000 showed that Easy Finder had an average weekly circulation (as audited by HKABC) of 105,950 copies for the same period. The ACNielsen RARD Report for the three months ended 31st July, 2001 showed that Easy Finder had an average readership of 342,000 persons and ranked second in terms of readership among all weekly magazines circulated in Hong Kong for the same period.

The Group also publishes Taiwan Next Magazine, a Chinese language weekly magazine, in Taiwan. Taiwan Next Magazine was first published on 31st May, 2001. The Group and the Acquired Group entered into a licence agreement on 28th May, 2001, pursuant to which a perpetual royalty-free licence is granted to the Group for its use of the trade mark “ NEXT MAGAZINE” as the logo on Taiwan Next Magazine in Taiwan for a consideration of NT$1. The Acquired Group applied for the registration in Taiwan of the trade mark “ NEXT MAGAZINE” in Classes 16 (which includes newspapers and periodicals) and 41 (which includes the publishing of news) in March, 2001. These applications are pending. The solicitors acting for the Acquired Group in these applications have advised that the applications are likely to be objected or opposed since independent third parties have applied for the registration of marks which are similar to the mark “ NEXT MAGAZINE” in Classes 16, 38 (which includes transmission of information by electronic means) and 41.

Until the applications for the registration in Taiwan of the mark “ NEXT MAGAZINE” are approved, the Acquired Group and the Group, which uses the trade mark as the logo on Taiwan Next Magazine as a licensee in Taiwan, have limited ability to protect any rights they may have in that trade mark. Consequently, the competitive position of the Group in Taiwan might be adversely affected. The solicitors acting for the Acquired Group in its pending applications for the registration of that trade mark have advised the Acquired Group that it and the Group may encounter allegations of trade mark infringement in relation to the Group’s use of that trade mark in Taiwan.

The net tangible asset value of the Group was approximately HK$25.2 million and HK$32.1 million as at 31st March, 2000 and 2001, respectively. The net asset value of the Group was approximately HK$235.2 million and HK$242.1 million as at 31st March, 2000 and 2001, respectively.

— 64 — LETTER FROM THE BOARD

The following table shows the turnover and operating profit/(loss) analysis by principal activities of the Group for the two years ended 31st March, 2000 and 2001:

Year ended Year ended 31st March, 2000 31st March, 2001

HK$ % HK$ %

Turnover

Printing and reprographic services . . 148,552,063 68.4 186,203,747 53.1 Magazine publishing and advertising and book publishing* ...... 67,421,563 31.0 157,542,102 45.0 Internet content provision and advertising* ...... 1,197,599 0.6 6,689,708 1.9

Total...... 217,171,225 100 350,435,557 100

As a As a percentage percentage of turnover of of turnover of the respective the respective HK$ business HK$ business

Operating profit/(loss)

Printing and reprographic services . . (37,075,929) -25% 19,028,106 10% Magazine publishing and advertising and book publishing* ...... 19,816,638 29% 44,577,762 28% Internet content provision and advertising* ...... (24,779,075) -2,069% (168,127,724) -2,513%

Total...... (42,038,366) -19% (104,521,856) -30%

EBITDA for the year ...... (19,130,345) (79,107,511)

Loss before taxation for the year .... (76,674,341) (139,014,411)

Loss after taxation but before minority interests for the year .... (78,510,541) (145,772,817)

Loss for the year ...... 78,470,324 145,798,288

* The Group’s Internet business and magazine publishing business of Easy Finder were acquired from the Acquired Group in October, 1999.

— 65 — LETTER FROM THE BOARD

Detailed profit and loss account of the Group for the two years ended 31st March, 2000 and 2001 are set out in pages 217 to 246 of this circular. The net asset value of the Group as at 31st March, 2000 and 2001, were HK$235,249,196 and HK$242,092,306, respectively.

Shareholder and Bank Loans of the Group

Shareholder loan

On 22nd March, 2000, the Company and Mr. Lai entered into a shareholder loan agreement whereby Mr. Lai agreed to grant a shareholder loan of HK$200 million to the Company for the development and expansion of its Internet business. The full principal amount of HK$200 million was drawn down on 17th April, 2000. As at 31st July, 2001, the Group had a shareholder loan from Mr. Lai of HK$215,780,820 (in the principal amount of HK$200 million together with accrued interest of HK$15,780,820 from 17th April, 2000 up to and including 31st March, 2001). The shareholder loan is unsecured and repayable on demand and bears interest at 100 basis points below the best lending rate quoted by The Hongkong and Shanghai Banking Corporation Limited. Mr. Lai has undertaken not to demand repayment of this loan prior to 18th July, 2002. Mr. Lai has not demanded repayment of any of this loan.

The capitalisation of the shareholder loan is a connected transaction for the Company under the Listing Rules and is subject to Independent Shareholders’ approval.

Bank loans

The Group’s total available facilities from financial institutions as at 31st July, 2001 aggregated HK$187.4 million. As at 31st July, 2001, the Group had utilised HK$144.4 million in aggregate of these facilities. The remaining HK$43.0 million were not utilised. These unutilised facilities were overdraft, temporary overdraft and trade facilities in the amounts of HK$5 million, HK$25.8 million and HK$12.2 million, respectively. The temporary overdraft facility will expire on 30th November, 2001.

The Group’s bank indebtedness documentation contains a number of restrictive covenants. The facility agreement between the Group and Bank of America (Asia) Limited required that the Group’s consolidated loss (as defined in that facility agreement) for the year ended 31st March, 2000 would not exceed an amount specified in that facility agreement. That facility agreement related to a HK$150 million term loan, import and overdraft facility. The amount outstanding on this facility was approximately HK$98.5 million as at 31st July, 2001. That requirement was breached due to write-offs (being approximately HK$29.4 million) the Group took on fixed assets of Paramount Printing Company Limited following its acquisition of Easy Finder and Next Interactive in October, 1999. In July, 2000, the Group sought and received a waiver from the lender (Bank of America (Asia) Limited) of that breach.

— 66 — LETTER FROM THE BOARD

Principally because of the poor results of the Group’s Internet businesses, the Group also breached the covenant in the same facility agreement that its consolidated profit (as defined in the facility agreement) for the year ended 31st March, 2001 would not be less than a specified amount. The Group sought in March, 2001 and received in May, 2001 a waiver from Bank of America (Asia) Limited of this breach.

It is likely that the Group will breach financial covenants relating to future financial performance if the Acquisition is not completed. (Taking into account the profits of the Acquired Group, the Group does not expect to breach these financial covenants after completion of the Acquisition.) There is no assurance that the Group will be able to obtain waivers of the foregoing breaches. Any failure to receive waivers may result in the Group being required to repay the outstanding loans. This is because, if covenants in the Group’s bank indebtedness documentation are not met, the relevant lender is entitled to declare its indebtedness immediately due and payable. If the Group were unable to repay its indebtedness, the relevant lender could enforce the guarantee given by the Acquired Group and commence legal proceedings against the Group’s guarantor (that is the Acquired Group) and the Group for repayment. This would harm the Group’s business.

As at 31st July, 2001, the amount outstanding on the facility from Bank of America (Asia) Limited referred to above was approximately HK$98.5 million, which was secured by a charge over the Group’s premises with an aggregate net book value of approximately HK$190.3 million as at 31st July, 2001 and a guarantee given by Next Media (Holdings) Limited, a member of the Acquired Group, in respect of an amount of approximately HK$98.5 million as at 31st July, 2001. The outstanding amount of this facility is to be repaid in eight further instalments with the last installment falling due in June 2003. (Those further instalments are equal except the last one with a larger amount.)

As at 31st July, 2001, the Group had available banking facilities from other financial institutions in the amount of HK$88.9 million. These facilities were secured by charges over the Group’s machinery with an aggregate net book value of HK$78.6 million as at 31st July, 2001 and a floating charge over accounts receivable of the Group in the amount of approximately HK$31.0 million as at 31st July, 2001. As at 31st July, 2001, the Group had utilised approximately HK$45.9 million in aggregate of these facilities. The remainder of approximately HK$43.0 million (being overdraft, temporary overdraft and trade facilities in the amounts of approximately HK$5 million, HK$25.8 million and HK$12.2 million, respectively) were not utilised.

The gearing ratio of the Group (calculated by dividing the amount of the long term liabilities of the Group (including the current portions) by the amount of its total assets (including its intangible assets)) was approximately 49.5% as at 31st July, 2001 and is expected to be approximately 16.7% (assuming no other changes) after capitalisation of the shareholder loan due to Mr. Lai but before completion of the Acquisition. The gearing ratio of the Enlarged Group (calculated by dividing the amount of the long term liabilities of the Enlarged Group (including the current portions) by the amount of the total assets of the Enlarged Group (including its intangible assets)) is expected to be approximately 7.7% (assuming no other changes) immediately after completion of the Acquisition. The gearing ratio of the Group (excluding its intangible assets) was approximately 72.7% as at 31st July, 2001 and is expected to be approximately 24.6% (assuming no other changes) after capitalisation of its shareholder loan but before completion of the Acquisition. The gearing ratio of the Enlarged Group (excluding its intangible assets) is expected to be approximately 17.6% (assuming no other changes) immediately after completion of the Acquisition.

— 67 — LETTER FROM THE BOARD

Further details of the shareholder loans and the bank loans of the Group as well as other long-term liabilities of the Group are set out in the paragraph headed “Long-term Liabilities” in Appendix I (Business of the Group) on pages 162 and 163 of this circular.

Further information about the Group

Further information on the Group is set out in Appendix I (Business of the Group), Appendix III (Financial information of the Group), Appendix VI (Property Valuation of the Group), Appendix VIII (Plant and Machinery Valuation of the Group), Appendix X (Masthead and Publishing Rights Valuation of the Group), Appendix XII (Summary of Articles of Association) and Appendix XIII (Statutory and General Information) (which includes the history of the Group’s share capital and information on the litigation and the intellectual property rights of the Group) to this circular.

INFORMATION ABOUT THE ACQUIRED GROUP

Business

The Acquired Group is principally engaged in newspaper and magazine publishing and newspaper printing in Hong Kong. ADL publishes Apple Daily, a daily Chinese language newspaper. NMPL, SWL and ETWCL are the publishers of three weekly Chinese language magazines, Next Magazine, Sudden Weekly and Eat & Travel Weekly, respectively. ADPL is engaged in newspaper printing.

— 68 — LETTER FROM THE BOARD

The following table shows the Acquired Group’s audited turnover and profits for the three years ended 31st March, 1999, 2000 and 2001.

Breakdown of Acquired Group’s turnover and results

Year ended 31st March, 1999 2000 2001 HK$(’000) % HK$(’000) % HK$(’000) %

Turnover of continuing operations Apple Daily ...... 1,306,218 69.4 1,319,861 69.3 1,413,695 73.3 Next Magazine ...... 273,825 14.6 297,975 15.7 301,978 15.7 Sudden Weekly ...... 109,548 5.8 120,843 6.3 126,260 6.5 Eat & Travel Weekly ...... 30,473 1.6 56,271 3.0 53,892 2.8 Newspaper printing ...... —— 8,301 0.4 23,583 1.2 Sales of books ...... 4,891 0.3 5,493 0.3 3,876 0.2

1,724,955 91.7 1,808,744 95.0 1,923,284 99.7 Turnover of Discontinued operations Magazine publication* ...... 151,824 8.0 88,850 4.7 3,549 0.2 Internet operations** ...... 4,946 0.3 5,999 0.3 2,003 0.1

156,770 8.3 94,849 5.0 5,552 0.3

Turnover*** ...... 1,881,725 100 1,903,593 100 1,928,836 100

Operating profit ...... 197,968 621,998 621,068

EBITDA ...... 269,867 703,033 718,615

Profit before taxation ...... 92,513 515,533 508,879

Profit after taxation for the year**** .... 76,505 485,477 484,775

Profit before taxation excluding the non-recurring items***** ...... 92,513 194,023 280,772

Profit after taxation excluding the non-recurring items***** ...... 76,505 163,967 256,668

Dividends ...... 25,000 398,285 79,800

* The discontinued magazine publication businesses comprised Easy Finder (which was sold to the Group in October, 1999), the business of Excel Innoconcept Limited (which was principally engaged in the publishing of the magazine, Smart Shoppers Weekly) and the business of Skytools Digital Studio Company Limited (which was principally engaged in digital comic design). (The business of Excel Innoconcept Limited commenced in April, 2000 and ceased to operate in December, 2000. Skytools Digital Studio Company Limited ceased to operate in October, 2000.)

** The discontinued internet operations comprised the websites of Next Interactive and the websites of ADOL which were sold to the Group in October, 1999 and July, 2000, respectively.

— 69 — LETTER FROM THE BOARD

*** These figures relate to sales to third parties only.

**** The non-recurring items were included in the results for the two years ended 31st March, 2000 and 2001, respectively.

***** The non-recurring items comprised the gain on the disposal of the magazine publication business of Easy Finder and the websites of Next Interactive of approximately HK$322 million in the year ended 31st March, 2000 and the net gain on disposal of the websites of ADOL of approximately HK$228 million (after deducting the special bonuses to employees of approximately HK$254 million) in the year ended 31st March, 2001.

The above combined results include results of the businesses of Easy Finder, Next Interactive and ADOL which have been disposed of during the relevant periods. The results attributable to these discontinued businesses are set out in Note (14) of Section 2 of the Accountants’ Report on the Acquired Group in Appendix IV to this circular. Please also refer to Notes (3) and (14) of Section 2 of the Accountants’ Report on the Acquired Group in Appendix IV to this circular for the results of the major business segments of the Acquired Group for each of the three years ended 31st March, 1999, 2000 and 2001.

The Acquired Group had audited net liabilities of approximately HK$118.2 million as at 31st March, 2000 and audited net tangible assets of approximately HK$286.8 million as at 31st March, 2001.

Apple Daily

ADL was incorporated on 30th June, 1994 in Hong Kong and is the publisher of Apple Daily. Apple Daily was first published on 20th June, 1995. It is one of the leading Chinese language newspapers in Hong Kong and is circulated both in Hong Kong and Macau. According to the Certificate of Circulation issued by HKABC for the six months ended 31st December, 2000, Apple Daily had an average daily circulation (in Hong Kong and Macau) of 383,418 copies (as audited by HKABC) for the same period. The average daily circulation of Apple Daily in Hong Kong was 379,311 for the same period. The ACNielsen RARD Report for the three months ended 31st July, 2001 showed that Apple Daily had an average readership of approximately 1.54 million persons and ranked second in terms of readership among all newspapers in Hong Kong for the same period.

Substantially all of Apple Daily’s turnover is derived from circulation and advertising sales. Advertising accounted for approximately 66.3%, 71.7% and 67.7% of Apple Daily’s turnover for the three years ended 31st March, 1999, 2000 and 2001, respectively. Circulation accounted for approximately 33.7%, 28.3% and 32.3% of Apple Daily’s turnover for the three years ended 31st March, 1999, 2000 and 2001, respectively.

Magazines

The Acquired Group publishes three Chinese language weekly magazines in Hong Kong, namely Next Magazine (first published on 15th March, 1990), Sudden Weekly (first published on 6th August, 1995) and Eat & Travel Weekly (first published on 18th July, 1997), with an average aggregate weekly circulation of 343,266 copies (as audited by HKABC) for the six months ended 31st December, 2000 (according to the Certificates of Circulation issued by HKABC for the same period) and an average aggregate readership of approximately 947,000 persons for the three months ended 31st July, 2001 (according to the ACNielsen RARD Report for the same period). For the six months ended 31st December, 2000, circulation in Hong Kong represented 98.5 per cent. of the average weekly circulation of the three magazines, with the remainder from sales overseas. Two of its magazines, Next

— 70 — LETTER FROM THE BOARD

Magazine and Sudden Weekly, ranked first and third in terms of readership among all weekly magazines in Hong Kong for the three months ended 31st July, 2001 according to the ACNielsen RARD Report for the same period. Eat & Travel Weekly ranked tenth in terms of readership among all weekly magazines in Hong Kong for the same period.

average weekly circulation readership in Hong Kong for the six months ended for the three months ended 31st December, 2000(1)(3) 31st July, 2001(2)

Next Magazine ...... 145,584 494,000 Sudden Weekly ...... 142,180 319,000 Eat & Travel Weekly ...... 55,502 134,000

Total...... 343,266 947,000

Notes:

(1) Source: Certificates of Circulation issued by HKABC

(2) Source: ACNielsen RARD Report for the three months ended 31st July, 2001

(3) The circulation includes circulation in and outside Hong Kong. Tak Kee, the sole distributor of the Acquired Group’s magazines, may distribute or sell the magazines in and outside Hong Kong.

Substantially all of the turnover of these three magazines is derived from advertising and circulation. Advertising accounted for approximately 60.1%, 61.0% and 64.2% of the total turnover of Next Magazine, Sudden Weekly and Eat & Travel Weekly for the three years ended 31st March, 1999, 2000 and 2001, respectively. Circulation accounted for approximately 39.9%, 39.0% and 35.8% of their total turnover for the three years ended 31st March, 1999, 2000 and 2001, respectively.

Newspaper printing

The principal business of ADPL is newspaper printing, which commenced on 31st October, 1997. For the year ended 31st March, 1999, 100% of ADPL’s revenue was generated from the printing of Apple Daily. For the year ended 31st March, 2000, approximately 97% of its revenue was generated from the printing of Apple Daily and approximately 3% of its revenue was generated from third party printing. For the year ended 31st March, 2001, approximately 93% of its revenue was generated from the printing of Apple Daily and approximately 7% of its revenue was generated from third party printing. ADPL prints an international newspaper and certain horse racing journals and district newspapers.

An independent third party printed Apple Daily on normal commercial terms before 31st October, 1997.

— 71 — LETTER FROM THE BOARD

Shareholder and Bank Loans of the Acquired Group

Shareholder loans

As at 31st July, 2001, loans made by Mr. Lai to the Acquired Group amounted to approximately HK$752.3 million. As at 31st July, 2001, loans made by Dico, a company wholly owned by Mr. Lai, to the Acquired Group amounted to approximately HK$102.1 million. The loans are unsecured and not repayable within 5 years. Those shareholder loans from Mr. Lai bear interest at the United States Dollar one month time deposit market rate as quoted by the banks, 5.25% per annum or 4.5% per annum. The loans from Dico bear interest at 5.25% per annum.

On 27th August, 2001, HK$118.2 million of the shareholder loans were repaid, of which HK$60.3 million were repaid to Mr. Lai and HK$57.9 million were repaid to Dico. The repayment was financed by new banking facilities from DBS Kwong On Bank Limited. The Acquired Group does not intend to repay any further amounts of the shareholder loans before Completion.

Pursuant to the Acquisition Agreement, 736,201,531 new shares in DGL, credited as fully paid, will be issued to the Company at their par value of HK$1.00 each at Completion in repayment of the shareholder loans (in the aggregate amount of HK$736,201,531) owed by the Acquired Group to Mr. Lai and his associate, Dico. There will not be any outstanding amounts due from the Acquired Group to Mr. Lai or Dico immediately after Completion.

The Acquired Group pays interest in cash on its shareholder loans on a monthly basis and will pay all outstanding interest in cash immediately before the capitalisation of its shareholder loans as described above. The Acquired Group paid interest of approximately HK$15 million on the shareholder loans for the four months ended 31st July, 2001.

Bank loans

The Acquired Group’s total available facilities from financial institutions, being term and machinery loans, as at 31st July, 2001 aggregated HK$147.1 million. These facilities were secured by the following:

(a) guarantees from Mr. Lai in respect of a total amount of HK$147.1 million as at 31st July, 2001;

(b) the Acquired Group’s printing machinery with an aggregate net book value of approximately HK$192.1 million as at 31st July, 2001; and

As at 31st July, 2001, these facilities had been fully utilised.

In August, 2001, the Acquired Group obtained new banking facilities from DBS Kwong On Bank Limited for a total amount of HK$195 million. These facilities have been fully drawn down. An amount of HK$76.8 million was used to fully repay and cancel an existing loan from Standard Chartered Bank which carried a higher interest rate than the new banking facilities. The balance of the new facilities in the amount of approximately HK$118.2 million was used to repay shareholders’ loans

— 72 — LETTER FROM THE BOARD as referred to above. These facilities are a long term loan of HK$100 million, a short term revolving loan of HK$15 million and a long term machinery loan of HK$80 million. These facilities are secured by a mortgage over the Acquired Group’s property, charges over the Acquired Group’s machinery and deposits and a guarantee by Mr. Lai.

In September, 2001, the Acquired Group fully repaid and cancelled a machinery loan of HK$38.6 million from East Asia Heller Limited.

Guarantees given by Mr. Lai and Dico to Standard Chartered Bank and East Asia Heller Limited in respect of these repaid loans have been released.

The Acquired Group has received the written consent of DBS Kwong On Bank Limited to the release of the guarantee from Mr. Lai in respect of the Acquired Group’s bank borrowings from it. The release is conditional upon, among other things, completion of the Acquisition and corporate guarantees being given by the Enlarged Group.

The gearing ratio of the Acquired Group (calculated by dividing the amount of the long term liabilities of the Acquired Group (including the current portions) by the amount of its total assets) as at 31st July, 2001 was approximately 61.3% and is expected to be approximately 16.2% (assuming no other changes) immediately after capitalisation of the shareholder loans owed by the Acquired Group to Mr. Lai and his associate, Dico, but before completion of the Acquisition. The gearing ratio of the Enlarged Group (calculated by dividing the amount of the long term liabilities of the Enlarged Group (including the current portions) by the amount of the total assets of the Enlarged Group (including its intangible assets)) is expected to be approximately 7.7% (assuming no other changes) after completion of the Acquisition. The gearing ratio of the Enlarged Group (excluding its intangible assets) is expected to be approximately 17.6% (assuming no other changes) immediately after completion of the Acquisition.

Further details of the shareholder and the bank loans of the Acquired Group and other long-term liabilities of the Acquired Group are set out in the paragraph headed “Long-term Liabilities” in Appendix II (Business of the Acquired Group) on pages 214 and 215 of this circular.

Further information about the Acquired Group

Further information about the Acquired Group is set out in Appendix II (Business of the Acquired Group), Appendix IV (Accountants’ Report on the Acquired Group), Appendix VII (Property Valuation of the Acquired Group), Appendix IX (Plant and Machinery Valuation of the Acquired Group), Appendix XI (Masthead and Publishing Rights Valuation of the Acquired Group), and Appendix XIII (Statutory and General Information) (which includes information on the litigation and the intellectual property rights of the Acquired Group) to this circular.

LITIGATION

Litigation of the Group

The Group is involved in a number of claims and proceedings which have arisen in the ordinary course of its business.

The Acquired Group indemnifies the Group against damages in legal proceedings against the Group as printer of the Acquired Group’s publications. The licence agreements between the Group and

— 73 — LETTER FROM THE BOARD the Acquired Group for the online versions of Apple Daily, Next Magazine, Sudden Weekly and Eat & Travel Weekly provide for indemnities by the Acquired Group in favour of the Group against third party claims arising from the content of these publications on the websites of the Group. Further details of the indemnities in these licence agreements are set out in the paragraph headed “Internet Business” in Appendix I to this circular.

There were 11 legal proceedings (being ten defamation proceedings and an action for copyright infringement) outstanding against the Group in Hong Kong as at the Latest Practicable Date. Although the final outcome of these proceedings is uncertain, having taken into account the advice of the Group’s internal legal adviser, the Directors are of the opinion that the ultimate liability of the Group under these proceedings will not have a material impact on the financial position of the Group. This is because:

(i) three of these legal proceedings (all being defamation proceedings) are inactive (that is, no steps have been taken in these proceedings for at least two years) and, having taken into account the advice of the Group’s internal legal adviser, the Directors do not consider these legal proceedings to be of material importance;

(ii) the damages in respect of a further four of them (all being defamation proceedings) (which the Directors, having taken into account the advice of the solicitors acting for the Group in these proceedings, consider to be of material importance) are the subject of indemnities given by the Acquired Group to the Group as printer of the relevant publications of the Acquired Group; and

(iii) the damages in respect of the remaining four of them (being three defamation proceedings and an action for copyright infringement) have been estimated by the solicitors acting for the Group in those legal proceedings to be approximately HK$800,000. This estimate does not include the legal costs of the Group or the plaintiffs. Such amounts may be substantial.

In addition, there were three legal proceedings (being a defamation proceeding, an action for offences against privacy and an action for offences against privacy and defamation) outstanding against the Group in Taiwan as at the Latest Practicable Date. Although the final outcome of these proceedings is uncertain, having taken into account the advice of the Taiwanese lawyers acting for the Group in these proceedings, the Directors are of the opinion that these legal proceedings are not of material importance and that the ultimate liability of the Group under these proceedings will not have a material impact on the financial position of the Group.

As at the Latest Practicable Date, having taken into account the advice of the Group’s internal legal adviser, the Directors were of the opinion that save for the eight legal proceedings in Hong Kong referred to in paragraphs (ii) and (iii) above, there were no claims of material importance against any member of the Group and, save for the 11 legal proceedings in Hong Kong and the three legal proceedings in Taiwan referred to above, there were no legal proceedings or arbitrations against any member of the Group and no legal proceedings or arbitrations were known to the Directors to be pending or threatened against any member of the Group.

The Group decides the amount of general provisions for legal costs and other payments of the Group in relation to legal proceedings and claims for the whole of each financial year at the beginning of that financial year by reference to the number of outstanding legal proceedings and claims. Provisions are then made on a monthly basis.

— 74 — LETTER FROM THE BOARD

It is the Group’s policy that no specific provisions are made in respect of the legal costs of the plaintiffs or damages in legal proceedings. No such specific provisions have been made because it is not possible to estimate the relevant costs and damages with sufficient particularity for a specific provision to be made.

Further details of the litigation of the Group are set out in the paragraphs headed “Litigation” of Appendices I (Business of the Group) (on pages 149 to 153) and XIII (Statutory and General Information) (on pages 336 and 337) to this circular.

Litigation of the Acquired Group

The Acquired Group is involved in a number of claims and proceedings which have arisen in the ordinary course of its business.

The Acquired Group indemnifies the Group against damages in legal proceedings against the Group as printer of the Acquired Group’s publications. The licence agreements between the Group and the Acquired Group for the online versions of Apple Daily, Next Magazine, Sudden Weekly and Eat & Travel Weekly provide for indemnities by the Acquired Group in favour of the Group against any third party claim arising from the content of these publications on the websites of the Group. Further details of the indemnities in these licence agreements are set out in the paragraph headed “Internet Business” in Appendix I to this circular.

The Acquired Group has potentially sensitive articles in its newspaper and magazines reviewed by its lawyers before their publication, provides editorial guidelines to its editorial staff and organises seminars for its employees in relation to defamation with a view to avoiding defamation proceedings against it. The Acquired Group also follows guidelines of the Society of Professional Journalists.

The Acquired Group’s internal legal adviser advises the Acquired Group in relation to claims made against it. When legal proceedings are commenced against the Acquired Group and cannot be settled out of court, external solicitors are instructed to act for the Acquired Group in the proceedings.

As at the Latest Practicable Date, there were 32 outstanding material defamation proceedings against the Acquired Group. The insurance company has assumed full control of the defence of one of these 32 proceedings. The Acquired Group has paid before 31st March, 2001 the amount of the damages and legal costs which should be borne by the Acquired Group under the relevant insurance policy. In a defamation proceeding in relation to Next Magazine (which is one of the 32 described above), the Acquired Group was ordered to pay damages and the legal costs of the plaintiff. The Acquired Group paid damages before 31st March, 2001. The legal costs of the plaintiff are being taxed (taxation being a process by which costs are determined by the court). Having taken into account the advice of the solicitors acting for the Acquired Group in these 32 defamation proceedings, the directors of DGL and the Directors consider them to be of material importance.

— 75 — LETTER FROM THE BOARD

As at the Latest Practicable Date, there were no outstanding material defamation proceedings against the Acquired Group in relation to Eat & Travel Weekly.

As at the Latest Practicable Date, there were 32 outstanding defamation proceedings against the Acquired Group which the directors of DGL and the Directors, having taken into account the advice of the solicitors acting for the Acquired Group in those proceedings and having considered the likely financial outcome in the light of that advice, do not consider to be of material importance. A writ (which is additional to the 32 defamation proceedings described above) was issued against the Acquired Group on 9th February, 2001 for damages for alleged defamatory statements in Next Magazine. As at the Latest Practicable Date, this writ has not been served on the Acquired Group (service of the writ being the delivery of the writ to the party to whom it is addressed). Having taken into account the advice of the solicitors acting for the Acquired Group in relation to the defamation claim described in that writ, the directors of DGL and the Directors do not consider that defamation claim to be of material importance.

As at the Latest Practicable Date, there were three other outstanding proceedings (being an action for damages for personal injuries (in respect of which the Acquired Group is insured), an action for infringement of copyright (in respect of which the Acquired Group is not insured) and a traffic case (in respect of which the Acquired Group is insured)) against the Acquired Group which the directors of DGL and the Directors, having taken into account the advice of the Acquired Group’s internal legal adviser and having considered the likely financial outcome in the light of that advice, do not consider to be of material importance. (No steps have been taken in the action for infringement of copyright for seven years.)

The aggregate amount of the damages in the 30 defamation proceedings referred to above (being the 32 material defamation proceedings which were outstanding as at the Latest Practicable Date referred to above, but excluding the defamation proceeding in respect of which the Acquired Group has already paid damages and the defamation proceeding in respect of which an insurance company has assumed full control of the defence) and the award in the arbitration referred to above as estimated in each case by the solicitors acting for the Acquired Group is HK$19.7 million should these proceedings and this arbitration be adversely determined. This estimate includes the potential liabilities of the Acquired Group under the indemnities which it has given to the Group as printer of its publications in respect of four of these defamation proceedings. This estimate does not include the legal costs of the Acquired Group or those of the plaintiffs in these defamation proceedings or those of UDL Contracting Limited in the arbitration. Such amounts may be substantial.

— 76 — LETTER FROM THE BOARD they do not consider these other claims and proceedings to be of material importance and, based on the experience of the Acquired Group, they do not expect those damages and legal costs to be material. The Acquired Group’s internal legal adviser advises the Acquired Group in relation to claims made against it. When legal proceedings are commenced against the Acquired Group and cannot be settled out of court, external solicitors are instructed to act for the Acquired Group in the proceedings.

As at the Latest Practicable Date, having taken into account the advice of the Acquired Group’s internal legal adviser, the directors of DGL and the Directors were of the opinion that, save for the 32 outstanding material defamation proceedings and the arbitration referred to above, there were no claims of material importance and that, save for the 32 outstanding material defamation proceedings and the arbitration referred to above which are considered to be of material importance and the 32 outstanding defamation proceedings, the writ which has been issued against but has not yet been served on the Acquired Group and the three other outstanding proceedings referred to above which are not considered to be of material importance, there were no legal proceedings or arbitrations against any member of the Acquired Group and no legal proceedings or arbitrations were known to the directors of DGL to be pending or threatened against any member of the Acquired Group.

The Acquired Group decides the amount of general provisions for legal costs and other payments of the Acquired Group in relation to legal proceedings and claims for the whole of each financial year at the beginning of that financial year by reference to the number of outstanding legal proceedings and claims which are then outstanding. Provisions are then made on a monthly basis. The Acquired Group reviews the amounts of provisions at the end of each financial year and from time to time during the year. It may adjust the amount of provisions when substantial amounts of legal costs are incurred and the amount of provisions made is insufficient.

It is the Acquired Group’s policy that no specific provisions are made in respect of the legal costs or damages in legal proceedings and claims. No such specific provisions have been made because it is not possible to estimate the relevant costs and damages with sufficient particularity for a specific provision to be made.

— 77 — LETTER FROM THE BOARD

Pursuant to the Acquisition Agreement, Mr. Lai has agreed to procure a bank guarantee (which will be available immediately after Completion) in favour of the Company and the Acquired Group in respect of the obligations of Mr. Lai under the Deed of Indemnity for HK$60,000,000. The bank guarantee will be for a term of three years from the date of Completion. Mr. Lai has undertaken to use his best endeavours to renew the bank guarantee for further periods of three years each after the expiry of the initial term until none of the claims, legal proceedings and arbitrations covered by the Deed of Indemnity is outstanding.

Although the final outcome of the 32 material defamation proceedings referred to above, the arbitration referred to above and the other legal proceedings and claims which were outstanding as at the Latest Practicable Date is uncertain, the directors of DGL and the Directors are of the opinion that the ultimate liability, if any, of the Acquired Group under these defamation proceedings and this arbitration and the other outstanding legal proceedings and claims will not have a material impact on the financial position of the Enlarged Group. In arriving at such opinion, they have taken account of the fact that these proceedings and claims will be covered by the Deed of Indemnity.

INTELLECTUAL PROPERTY 28(4)

Applications for registration of trade marks in Hong Kong are made to the trade marks registrar. If the criteria set out in the Trade Marks Ordinance are met, the trade marks registrar in Hong Kong usually grants leave to advertise in the Hong Kong Government Gazette the mark in respect of which registration is applied for within about ten months of the application. The public may then oppose at any time during a period of two months from the date of the advertisement of the trade mark if there is a lawful ground for such opposition. If no opposition is received, the mark can normally be registered within a further period of two months. If the trade marks registrar has no objection and the public has no opposition to the application, the whole registration process takes about 14 months.

Intellectual Property of the Group

The Group considers the trade marks of Easy Finder to be valuable assets.

The Group has registered the trade marks “ EASYFINDER” and “ JOB FINDER” in Hong Kong in Class 16 (which includes newspapers and periodicals).

The trade mark “EASYFINDER ” (which has been used as the logo on Easy Finder since January, 1999) and two other trade marks in relation to Easy Finder in Class 16, two marks which the Group has used in its printing business since 1994 and 2000, respectively, and marks which it has used in its Internet business since January and June, 2000 are pending registration. Applications for the registration of these trade marks were made in January and June, 2001. There is no assurance that these trade mark applications will be successful.

— 78 — LETTER FROM THE BOARD

The solicitors acting for the Group in its pending applications for the registration of its trade marks in Hong Kong have advised the Group that unless these applications are approved, the Group has limited ability to protect any rights it may have in these trade marks. They have also advised the Group that the Group may encounter allegations of passing off and trade mark infringement in relation to its use of those trade marks. They have also advised the Group that if the Group is sued for and found liable for passing off or trade mark infringement, the court may grant an interim injunction to prohibit the Group from using the infringing mark, order the delivery up of the goods bearing the infringing mark and order the Group to pay damages to the right owner.

The solicitors acting for the Group in its pending applications for the registration of its trade marks have further advised that while the outcome of the pending applications is uncertain, the Group’s rights in these marks will not be affected by the absence of their registration since these trade marks have been in use and the Group has not encountered any allegations of passing off and/or trade mark infringement in relation to the use of these trade marks. They have also advised that it is unlikely that an injunction will be granted if the infringing mark has been in use for a number of years.

The Group and the Acquired Group entered into a licence agreement on 28th May, 2001, pursuant to which a perpetual royalty-free licence is granted to the Group for its use of the trade mark “ Next Magazine” as the logo on Taiwan Next Magazine, the Group’s magazine in Taiwan, for a consideration of NT$1. The Group considers the established title of Next Magazine in the Chinese community in and outside Hong Kong to be an advantage in its expansion into Taiwan. This is because it considers that it is easier for a magazine with an established title to attract readers and advertisers than a magazine with a new title. Since the Acquired Group has granted a perpetual royalty-free licence for the use of the trade mark “ Next Magazine” for a nominal consideration, the Group uses that trade mark and has not established a new title in Taiwan. While this means that the Group will rely on the Acquired Group in this connection, the licence will become an intra-group arrangement upon completion of the Acquisition.

Until the applications for the registration in Taiwan of the mark “ NEXT MAGAZINE” are approved, the Acquired Group and the Group, which uses the trade mark as the logo on Taiwan Next Magazine as a licensee in Taiwan, have limited ability to protect any rights they may have in that trade mark. Consequently, the competitive position of the Group in Taiwan might be adversely affected. The lawyers acting for the Acquired Group in its pending applications for the registration of that trade mark have advised the Acquired Group that it and the Group may encounter allegations of trade mark infringement in relation to the Group’s use of that trade mark in Taiwan.

Further details of the trade marks of the Group are set out in Appendices I (Business of the Group) and XIII (Statutory and General Information) to this circular.

— 79 — LETTER FROM THE BOARD

Intellectual Property of the Acquired Group

The Acquired Group considers the trade marks of Apple Daily and its magazines to be valuable assets.

The Acquired Group has registered the trade mark “ NEXT MAGAZINE” in Hong Kong in Classes 35, which includes advertising, and 41, which includes the publishing of news. Applications for the registration of the same mark in other Classes (being Classes 16, which includes newspapers and periodicals, and 42, which includes retailing and wholesaling services) in Hong Kong are pending. Applications for the registration of the trade mark “ APPLE DAILY” in Classes 16 and 41 are also pending in Hong Kong. The earliest of these applications for the registration of the trade marks “ NEXT MAGAZINE” and “ APPLE DAILY” was made in 1993. These trade marks are used as logos on publications of the Acquired Group.

The trade marks registrar in Hong Kong objected in March, 1998 and June, 1995 to the applications made by Next Media I.P. Limited, which is a member of the Acquired Group, for the registration of the mark “ NEXT MAGAZINE” in Classes 16 and 42, respectively, on the basis that there are citations of prior registrations and that the mark itself is indistinctive. On 30th March, 2000, the solicitors acting for the Acquired Group in these applications submitted to the trade marks registrar in Hong Kong evidence of use of the mark in response to the objections raised by the trade marks registrar. On 7th September, 2000, the trade marks registrar objected on the basis that the mark has not been used by the applicant, Next Media I.P. Limited. On 17th November, 2000, the solicitors acting for the Acquired Group in these applications submitted to the trade marks registrar that the mark is used by NMPL, another member of the Acquired Group, pursuant to a licence granted by Next Media I.P. Limited. The solicitors acting for the Acquired Group in these applications will submit to the trade marks registrar a statutory declaration of a director of NMPL to confirm both NMPL and Next Media I.P. Limited, the applicant, are wholly-owned subsidiaries of Next Media (Holdings) Limited, another member of the Acquired Group, that the mark was originally owned by NMPL and was subsequently assigned to Next Media I.P. Limited (which was called Next Media Limited at the time of the assignment) and that the mark has been used by NMPL through a licence granted by Next Media I.P. Limited. The solicitors acting for the Acquired Group in these applications have advised Next Media I.P. Limited to submit to the trade marks registrar a statutory declaration to confirm its relationship with NMPL and Next Media (Holdings) Limited, another member of the Acquired Group and the immediate holding company of both Next Media I.P. Limited and NMPL. The solicitors acting for the Acquired Group in these applications are of the view that it is not possible to predict the outcome of this submission.

In February, 1999, the trade marks registrar in Hong Kong objected to the applications for the registration of “ APPLE DAILY” in Classes 16 and 41 on the basis that the marks “APPLE” and “ ” had already been registered by an independent third party in those two Classes. The Acquired Group intends to proceed with these applications on the basis that it is an honest concurrent user of that mark, meaning that both that mark and the registered marks of the independent third party have co-existed in the market for a number of years. The solicitors acting for the Acquired Group in these applications submitted to the trade marks registrar in Hong Kong on 21st May, 2001 a statutory declaration to that effect. Those solicitors are of the view that it is not possible to predict the outcome of this submission.

— 80 — LETTER FROM THE BOARD

The solicitors acting for the Acquired Group in its pending applications for the registration of its trade marks have advised that even though submissions have been made to the trade marks registrar to overcome the objections raised, the outcome of these applications is uncertain. The trade marks registrar may, upon review of the submissions made, either accept these marks for registration or maintain the objections against these applications.

Applications for the registration in Hong Kong of the marks “ ” (the Chinese name of Sudden Weekly) and “ ” (the Chinese name of Eat & Travel Weekly) in Class 16 were filed in October, 2000. The solicitors acting for the Acquired Group in these applications are of the view that it is not possible to predict the outcome of these applications.

Applications for the registration in Taiwan of the mark “ NEXT MAGAZINE” in Classes 16 and 41 were made in March, 2001 and are pending. The lawyers acting for the Acquired Group in these applications have advised that the applications are likely to be objected or opposed since independent third parties have applied for the registration of marks which are similar to the mark “ NEXT MAGAZINE” in Classes 16, 38 (which includes transmission of information by electronic means) and 41. While these two applications in Taiwan were made by the Acquired Group, the Group has a perpetual royalty-free licence to use the trade mark “ NEXT MAGAZINE” as the logo on Taiwan Next Magazine, the Group’s magazine in Taiwan, pursuant to the licence agreement dated 28th May, 2001. The licence is granted to the Group for a consideration of NT$1.

In March and May, 1994, the trade marks registrar in Singapore objected to the Acquired Group’s two applications made in 1992 for the registration of the coloured version and the black and white version, respectively, of the trade mark “ NEXT MAGAZINE” in Class 16, which includes newspapers and periodicals, on the bases that it is inherently non-distinctive and laudatory and that an independent third party has already registered the mark “Next”. One of these applications (in respect of the coloured version of the trade mark) has been accepted by the trade marks registrar in Singapore for advertisement. The Acquired Group’s trade mark agent in this application has advised the Acquired Group that it normally takes four months for a trade mark to be advertised in the Singapore Trade Marks Journal. The public may then object at any time during a period of two months if there is a lawful ground for such objection. If no objection is received, the mark can normally be registered. The trade marks registrar in Singapore has not formally responded to the submissions made by the Acquired Group’s trade mark agent in December, 2000 in relation to the other application (in respect of the black and white version of the trade mark). The solicitors acting for the Acquired Group in this application are of the view that it is not possible to predict the outcome of these submissions. The directors of DGL and the Directors do not consider that the status of the registration applications in Singapore is of material importance since the Acquired Group does not carry on business in Singapore and has no current intention to do so.

In November, 1993, the trade marks registrar in Malaysia objected to the application (which was made in 1992) for the registration of the trade mark “ NEXT MAGAZINE” since an independent third party has already registered the mark “Next”. Submissions were made in May, 1994 to the trade marks registrar in Malaysia arguing against this objection. The trade marks registrar in Malaysia has not yet responded to those submissions. The solicitors acting for the Acquired Group in this application are of the view that it is not possible to predict the outcome of those submissions. The directors of DGL and the Directors do not consider that the status of the registration application in Malaysia is of material importance since the Acquired Group does not carry on business in Malaysia and has no current intention to do so.

— 81 — LETTER FROM THE BOARD

Save as disclosed above, no major problems have been encountered in the Acquired Group’s applications for registration of these trade marks as at the Latest Practicable Date.

There is no assurance that the above trade mark applications (in or outside Hong Kong) will be successful.

The solicitors acting for the Acquired Group in its pending applications for the registration in Hong Kong of its trade marks have advised the Acquired Group that until these applications are approved, the Acquired Group has limited ability to protect any rights it may have in those trade marks. They have also advised the Acquired Group that the Acquired Group may encounter allegations of passing off and trade mark infringement in relation to its use of those trade marks. They have also advised the Acquired Group that if the Acquired Group is sued for and found liable for passing off or trade mark infringement, the court may grant an injunction to prohibit the Acquired Group from using the infringing trade mark, order the delivery up of goods bearing the infringing mark and order the Acquired Group to pay damages to the rightful owner.

The solicitors acting for the Acquired Group in its pending applications for the registration in Hong Kong of its trade marks have further advised that while the outcome of the pending applications is uncertain, the Acquired Group’s rights in these marks will not be affected by the absence of their registration since these trade marks have been in use and the Acquired Group has not encountered any allegations of passing off and/or trade mark infringement in relation to the use of these trade marks. They have also advised that it is unlikely that an interim injunction will be granted if the infringing mark has been in use for a number of years.

The content of the Acquired Group’s publications is protected under copyright laws.

Further details of the trade marks of the Acquired Group are set out in Appendices II (Business of the Acquired Group) and XIII (Statutory and General Information) to this circular.

FINANCIAL INFORMATION ON THE ENLARGED GROUP

The following table shows the unaudited pro forma turnover and profits/(losses) of the Enlarged Group for the three years ended 31st March, 1999, 2000 and 2001 extracted from or calculated based on the unaudited pro forma combined profit and loss account of the Enlarged Group for the three years ended 31st March, 1999, 2000 and 2001 as set out in section 3 of Appendix V (Financial Information on the Enlarged Group) to this circular. Details of the bases and assumptions of these pro forma combined profit and loss accounts are set out in section 3 of Appendix V to this circular.

Year ended 31st March,

1999 2000 2001

HK$’000 HK$’000 HK$’000

Turnover ...... 2,088,952 2,096,224 2,207,182 Operating profit ...... 47,963 254,687 287,557 EBITDA...... 141,721 358,630 410,518 (Loss)/profit before taxation ...... (102,695) 117,349 141,757 (Loss)/profit after taxation ...... (120,236) 85,457 110,895 (Loss)/profit for the year ...... (120,155) 85,497 110,870

— 82 — LETTER FROM THE BOARD

PRO FORMA STATEMENT OF ADJUSTED COMBINED NET TANGIBLE ASSETS OF THE ENLARGED GROUP AS AT 31ST JULY, 2001

The following is a statement of the pro forma adjusted combined net tangible assets of the Enlarged Group immediately following the completion of the Acquisition and the capitalisation of loans from Mr. Lai and Dico, which is based on the audited consolidated net assets of the Group and the audited combined net assets of the Acquired Group as at 31st March, 2001 adjusted to reflect the effect of the Acquisition, the capitalisation of loans from Mr. Lai and Dico and certain unaudited adjustments since 31st March, 2001 based on the management accounts of the Group and the Acquired Group.

Note HK$’000

Audited consolidated net assets of the Group as at 31st March, 2001 ...... 242,092 Intangible assets as at 31st March, 2001 ...... 1 (210,000) Unaudited consolidated net loss of the Group for the four months ended 31st July, 2001 ...... 2 (51,134) Unaudited deficit on revaluation of properties of the Group as at 31st July, 2001 ...... 3 (471) Unaudited pro forma adjusted consolidated net tangible liabilities of the Group as at 31st July, 2001 before the completion of the Acquisition ...... (19,513)

Audited combined net assets of the Acquired Group as at 31st March, 2001 ...... 286,789 Unaudited combined net profits of the Acquired Group for the four months ended 31st July, 2001 ...... 4 104,416 Unaudited deficit on revaluation of properties of the Acquired Group as at 31st July, 2001 ...... 3 (13,610) Unaudited surplus on revaluation of plant and machinery of the Acquired Group as at 31st July, 2001 ...... 5 79,093 Unaudited pro forma adjusted combined net tangible assets of the Acquired Group as at 31st July, 2001 ...... 456,688 Capitalisation of the loan granted by Mr. Lai to the Group ...... 6 215,781 Capitalisation of loans granted by Mr. Lai and Dico to the Acquired Group ...... 7 736,202

Estimated expenses relating to the Acquisition...... (28,000)

Pro forma unaudited adjusted combined net tangible assets of the Enlarged Group as at 31st July, 2001 immediately following the completion of the Acquisition and capitalisation of loans from Mr. Lai and Dico ...... 1,361,158 Pro forma unaudited adjusted consolidated net tangible liabilities of the Group per Consolidated Share as at 31st July, 2001 before the completion of the Acquisition and capitalisation of loans granted by Mr. Lai and Dico but after the Share Consolidation ...... 9 (HK$3.0) cents Pro forma unaudited adjusted combined net tangible asset per Consolidated Share of the Enlarged Group as at 31st July, 2001 immediately following the completion of the Acquisition and capitalisation of loans granted by Mr. Lai and Dico but before the possible Placing and Subscription ...... 10 HK$56.9 cents

— 83 — LETTER FROM THE BOARD

Notes:

1. The intangible assets represent the mastheads of Easy Finder.

2. The unaudited consolidated net loss of the Group for the four months ended 31st July, 2001 is based on the unaudited consolidated management accounts of the Group for the same period which has not accounted for the unaudited deficit on revaluation of properties of the Group as at 31st July, 2001 as set out in note 3 below.

3. The unaudited deficit on revaluation of properties of the Group and the Acquired Group as at 31st July, 2001 are calculated based on the valuation of these properties as at 30th June, 2001 on a depreciated replacement cost basis for printing factories and on open market basis for other properties performed by Chesterton Petty Limited, an independent valuer, as disclosed in the valuation reports set out in Appendices VI and VII respectively to this circular, less the aggregate net book value of these properties as at 31st July, 2001. The deficit on revaluation of the properties of the Group will be incorporated in the financial statements of the Group for the year ended 31st March, 2002 according to its accounting policy as set out in Appendix III. The deficit on revaluation of the properties of the Acquired Group will be reflected in the net assets of the Acquired Group and incorporated in the financial statements of the Enlarged Group for the year ending 31st March, 2002 when acquisition accounting is applied to account for the Acquisition.

4. The unaudited combined net profits of the Acquired Group for the four months ended 31st July, 2001 is based on the unaudited management accounts of the companies comprising the Acquired Group for the same period.

5. The unaudited surplus on revaluation of plant and machinery of the Acquired Group as at 31st July, 2001 is calculated based on the valuation of these plant and machinery as at 30th June, 2001 on a market value for existing use basis performed by Chesterton Petty Limited, an independent valuer, as disclosed in the valuation report set out in Appendix IX to this circular, less the aggregate net book value of these plant and machinery as at 31st July, 2001. This surplus will be reflected in the net assets of the Acquired Group and incorporated in the financial statements of the Enlarged Group for the year ending 31st March, 2002 when acquisition accounting is applied to account for the Acquisition. The depreciation charge on the plant and machinery of the Acquired Group will increase by approximately HK$11.6 million per annum as a result of the incorporation of this surplus.

6. As set out in the Letter from the Board, all the shareholders loans owed by the Company to Mr. Lai will be repaid by the issue to Mr. Lai of 156,931,505 Capitalisation Shares upon completion of the Acquisition.

7. According to the Acquisition Agreement, approximately HK$736.2 million owed by the Acquired Group to Mr. Lai and Dico, a company wholly owned by Mr. Lai, will be capitalised prior to the completion of the Acquisition.

8. Chesterton Petty Limited, as disclosed in the valuation report set out in Appendix VIII to this circular, has performed a revaluation on the plant and machinery of the Group as at 30th June, 2001 on a market value for existing use basis. Based on the net book value of these plant and machinery as at 31st July, 2001, the Group has a surplus on revaluation of approximately HK$43,431,000. According to the Group’s accounting policy which has been set out in Appendix III, this surplus on revaluation of plant and machinery will not be incorporated into the Group’s annual accounts for the year ending 31st March, 2002. Accordingly, this surplus has not been accounted for in the above calculation.

9. This is calculated based on the pro forma unaudited adjusted consolidated net tangible liabilities of approximately HK$19,513,000 of the Group as at 31st July, 2001 and 647,638,762 Consolidated Shares before the completion of the Acquisition, representing the number of shares in issue as at the Latest Practicable Date after taking into consideration the effect of the Share Consolidation.

10. This is calculated based on the pro forma unaudited adjusted combined net tangible assets of the Enlarged Group of approximately HK$1,361,158,000 as at 31st July, 2001 and 2,393,661,176 shares, being the sum of 647,638,762 Consolidated Shares as per note 9 above, the 429,090,909 Consideration Shares, the 156,931,505 Consolidated Shares to be issued for the capitalisation of loans from Mr. Lai to the Group (see note 6 above) and the 1,160,000,000 Conversion Shares. The Preference Shares are assumed to be converted into Conversion Shares in the above calculation since the Preference Shares will be converted into Conversion Shares either within a period of 5 years from the date of the issue of the Preference Shares or in the event of the winding-up of the Company.

— 84 — LETTER FROM THE BOARD

LIQUIDITY, FINANCIAL RESOURCES AND WORKING CAPITAL

As at 31st July, 2001, the banking facilities and cash of the Enlarged Group were as follows:

Acquired Enlarged Group Group Group(1)

(HK$ million) (HK$ million) (HK$ million)

Term and machinery loans ...... 102.1 147.1 249.2 Trade overdraft and leasing facilities ...... 85.3 — 85.3

Total...... 187.4 147.1(2) 334.5

Utilised banking facilities ...... 144.4 147.1 291.5 Unutilised banking facilities...... 43.0(3) — 43.0 Cash ...... 21.8 374.7 396.5

Notes:

(1) The information of the Enlarged Group in the table above should be read in conjunction with section 4 of Appendix V (Financial Information on the Enlarged Group) to this circular.

(2) In August, 2001, the Acquired Group obtained a new banking facility from DBS Kwong On Bank Limited for HK$195 million. This facility was used to fully repay and cancel a loan from Standard Chartered Bank of HK$76.8 million and HK$60.3 million and HK$57.9 million of the shareholder loans owed to Mr. Lai and Dico, respectively. In September, 2001, the Acquired Group fully repaid a machinery loan from East Asia Heller Limited of HK$38.6 million.

(3) The unutilised banking facilities available to the Group as at 31st July, 2001 were overdraft, temporary overdraft and trade facilities in the amounts of HK$5 million, HK$25.8 million and HK$12.2 million, respectively. The temporary overdraft facility will expire on 30th November, 2001.

REASONS FOR AND BENEFITS OF THE ACQUISITION

The Group is principally engaged in the publication of two magazines, Easy Finder in Hong Kong and Taiwan Next Magazine in Taiwan, and the printing of Easy Finder and the three magazines of the Acquired Group (Next Magazine, Sudden Weekly and Eat & Travel Weekly).

— 85 — LETTER FROM THE BOARD

The Directors are aware that the prospectus of the Company dated 30th September, 1999 in relation to the Company’s acquisition of Easy Finder and Next Interactive stated that:

(i) NMIHL, a member of the Acquired Group, intended that the Group would focus on developing the websites acquired from NMIHL in October, 1999 into one of the largest Internet content providers in Hong Kong in the long run in terms of daily pageview per day;

(ii) NMIHL did not intend to inject further assets into the Group, because any such further injection of NMIHL’s assets was not considered by NMIHL to be of strategic importance to the Group’s long term plan; and

(iii) Mr. Lai had no intention of injecting any of his businesses, other than those of Easy Finder and Next Interactive, into the Company.

The Company did not acquire any of Apple Daily, Next Magazine, Sudden Weekly and Eat & Travel Weekly at the time of its acquisition of Easy Finder and Next Interactive because its intention at that time was to focus on the development of its Internet business.

As stated in the announcement dated 11th July, 2000, it has always been the Company’s objective to improve its overall performance and to enhance its shareholders’ value. With this objective in mind, given the adverse change in the prospects of the Internet market and the improvement in the performance of the Group’s publishing and printing businesses during the period after September, 1999, the Directors consider that the intention statement referred to in the Company’s prospectus dated 30th September, 1999 is no longer appropriate and may not be in the interests of the Company and its shareholders under current circumstances.

The Directors intend to focus on the print media business of the Enlarged Group after completion of the Acquisition. The Company intends that the core businesses of the Enlarged Group will remain publishing and printing. It intends to continue its current Internet business but does not intend to expand it or that it should be part of the Group’s core business.

Having taken the above factors into account, the Directors consider that, notwithstanding the intention statement in the Company’s prospectus dated 30th September, 1999, the Acquisition (i) represents a unique opportunity to acquire a leading print media group in Hong Kong, (ii) will broaden the earnings base of the Group and (iii) will add financial strength to the Group.

The Company has no current intention to acquire further assets from Mr. Lai. Neither the Company nor Mr. Lai intends to inject any further business or asset of Mr. Lai into the Company. Mr. Lai is not engaged in any print media business other than those of the Group and the Acquired Group.

— 86 — LETTER FROM THE BOARD

FUTURE PLANS AND PROSPECTS

With the completion of the Acquisition and the recent expansion into the Taiwan market, the strategic objective of the Company is to become a large Chinese language print media group capable of competing against other leading Chinese language media companies in Hong Kong and Taiwan. To achieve this objective, following the Acquisition, the Company intends to do the following:

Consolidate its operations

Following the Acquisition, the Company intends to combine the operations of the Group and the Acquired Group and to reorganise its various subsidiaries so as to create functional operating units in the areas of newspaper publishing (Apple Daily), magazine publishing (Next Magazine, Sudden Weekly, Easy Finder and Eat & Travel Weekly), printing (magazine, newspaper and other commercial printing operations) and Internet business (the various websites of the Group, including those of ADOL). The Directors believe that this will allow the Enlarged Group to reduce overall operating expenses and create opportunities for expansion and operate more efficiently as a combined enterprise. Although there is no current intention to make staff layoffs as a result of the Acquisition, there is no assurance that future staff layoffs will not happen should circumstances so demand.

Strengthen its market position in the Chinese language print media market of Hong Kong

The Acquired Group enjoys a leading position in the Chinese language print media market of Hong Kong and the Directors believe the Company can improve that position following the Acquisition by taking advantage of the strengths of the Enlarged Group. In particular, the Company plans to continue its focus on content creation. The Directors believe that strong content creation is the key to success in the print media business. The Acquired Group is a leading creator of original Chinese language content and the Enlarged Group will continue the Acquired Group’s focus on content creation as the principal method of attracting and keeping readers.

Expand into Taiwan 28(8)

The Company recently expanded its publishing business geographically by launching Taiwan Next Magazine in Taiwan. Taiwan Next Magazine is a weekly general interest, news and lifestyle magazine in Taiwan containing information on social, political and business matters and current affairs as well as information on lifestyle and entertainment. Taiwan Next Magazine was first published on 31st May, 2001. The Group may also acquire existing publishing businesses and related Internet businesses in Taiwan or enter into joint ventures (with independent third parties or connected persons of the Company) relating to such businesses if a suitable opportunity arises and provided that the Group has sufficient financial resources for such acquisitions or joint ventures. However, as at the Latest Practicable Date, the Company had ceased all its negotiations in Taiwan which it had previously announced and had not identified any targets for acquisitions or joint ventures.

The Ministry of Economic Affairs in Taiwan approved the establishment of the Group’s branch in Taiwan. The branch licence was issued by The Ministry of Economic Affairs on 11th December, 2000. The business licence for the Group’s Taiwan branch was issued by the Taipei municipal government on 11th January, 2001. This business licence allows the Group’s Taiwan branch to engage, amongst other things, the newspaper business, the magazine business, the book publishing business

— 87 — LETTER FROM THE BOARD and international trade. The Group does not have any current intention to distribute its publications itself in Taiwan. According to the Taiwanese lawyers who advise the Group in relation to the establishment of its branch in Taiwan, no licence is specifically required for publishing business in Taiwan other than the branch licence and the business licence.

As at 19th September, 2001, the Group had 314 employees in Taiwan. The activities of these employees are as follows:

Activity Number of employees

Editorial...... 150 Art and design ...... 21 Photography ...... 56 Production ...... 12 Marketingandsales ...... 35 Back office ...... 40

Total number of employees ...... 314

As part of the preparation for the Group’s expansion into Taiwan, the Group and the Acquired Group entered into a licence agreement on 28th May, 2001. Under this agreement, a perpetual royalty-free licence was granted to the Group for its use of the trade mark “ Next Magazine” as the masthead for Taiwan Next Magazine in Taiwan for a consideration of NT$1. This was intended to enable the Group to benefit in Taiwan from the established Next Magazine name without material cost.

The Group has entered into agreements with independent third parties for the printing and the distribution of Taiwan Next Magazine in Taiwan. Further details of the terms of these agreements are set out in the paragraph headed “Magazine Publishing Operations” in Appendix I (Business of the Group) to this circular.

Mr. Lai has always been closely involved in the formulation of the corporate strategy of the Group and the Acquired Group. While he has moved to Taiwan to oversee the Group’s expansion there, he continues to be closely involved in such formulation. He intends to continue to be involved in the Group’s and the Acquired Group’s Hong Kong businesses after the Acquisition. The Directors and the directors of DGL believe that the relocation of Mr. Lai to Taiwan will not have a material impact on the operation of the business of the Group or the Acquired Group because Mr. Lai intends to come back to Hong Kong to oversee the operations of the Group and the Acquired Group on a regular basis and the management of the Group and the Acquired Group continues to report to Mr. Lai in Taiwan on a regular basis. Some of the Directors travel to Taiwan to manage the Group’s business there as and when required.

The recent expansion into Taiwan carries with it certain risks as outlined in the section headed “Risk Factors” of this circular. The Group has no experience in developing, marketing or distributing publications outside Hong Kong. There are also certain risks inherent in operating a publishing business outside Hong Kong, such as competition, possible cultural incompatibility, difficulties in establishing relationships in the industry, difficulties in managing overseas operations and currency fluctuations. In particular, the editorial style of the Group may not be widely accepted among readers and advertisers in Taiwan and the Group may be subject to a higher risk of litigation. In addition, there

— 88 — LETTER FROM THE BOARD are certain restrictions on the conversion of foreign currency to local currency and vice versa under Taiwanese law and the branch of the Group in Taiwan will need to seek regulatory approval in respect of remittances into or out of Taiwan on foreign currency in excess of US$50,000,000 (which is equivalent to approximately HK$390 million) per calendar year. Nevertheless, the Group believes that the Acquired Group’s track record of establishing and building profitable print publications in Hong Kong will assist its expansion into Taiwan.

The Group incurred cash outflow of approximately HK$18.7 million (approximately HK$6.5 million of which are of a capital nature (being purchases of fixed assets and utility and rental deposits)) in relation to its expansion into Taiwan during the four months ended 31st March, 2001. During the four months ended 31st July, 2001, the Group incurred cash outflow of approximately HK$63.3 million (approximately HK$4.7 million of which are of a capital nature (being purchases of fixed assets and utility and rental deposits)) in relation to its expansion into Taiwan. Unaudited turnover of Taiwan Next Magazine was approximately HK$25.7 million for the four months ended 31st July, 2001. Its unaudited net loss was approximately HK$50.2 million for the four months ended 31st July, 2001. As at 31st July, 2001, the Group had made a capital commitment of approximately HK$2.3 million (for computer, production and telecommunication equipment and leasehold improvements) in relation to its expansion into Taiwan.

The Directors expect that the Company may make losses during the preliminary stage of its expansion into Taiwan. The losses may be significant. The Group intends to spend a total amount of approximately HK$150 million for approximately two years from December, 2000 by way of working capital of and capital expenditure on Taiwan Next Magazine. If the Subscription proceeds, the Group’s expansion into Taiwan will be financed by proceeds of the Subscription. If the Subscription does not proceed, the Company intends to fund its expansion into Taiwan partly through cash flow from operations of the Enlarged Group, partly through available banking facilities of the Enlarged Group and, if required, through further shareholder loans from its controlling shareholder, Mr. Lai. If the Subscription does not proceed and to the extent that the Group is not able to finance its expansion into Taiwan through cash flow from operations of the Enlarged Group or through available banking facilities of the Enlarged Group, Mr. Lai intends to finance the Group’s Taiwan expansion with further shareholder loans in an aggregate amount of not more than HK$150 million on normal commercial terms or on terms which are more favourable to the Group than normal commercial terms up to and including 31st December, 2002. The Group has not yet agreed the terms of such loans with Mr. Lai. The Group’s banking facilities of HK$43.0 million (being overdraft, temporary overdraft and trade facilities in the amounts of HK$5 million, HK$25.8 million and HK$12.2 million, respectively) were unutilised as at 31st July, 2001. The Group had cash on hand of approximately HK$21.8 million on that date. (On the same date, the Acquired Group had cash on hand of approximately HK$374.7 million and no unutilised facilities.) Any further loans from Mr. Lai will increase the Group’s financial reliance on him. The Group expects to rely on Mr. Lai heavily for financial support to fund the business of Taiwan Next Magazine if the Acquisition and the Subscription are not completed.

— 89 — LETTER FROM THE BOARD

LIQUIDITY AND CAPITAL EXPENDITURES

Liquidity and Capital Expenditures of the Group

The Group’s principal capital expenditure and liquidity requirements include the funding of App1A 32(5)(b) operating losses and working capital in the development and operations of its business in Taiwan. The Group finances its operations partly through cash flow from operations and partly through debt financing from bank facilities and shareholder loan. For the year ended 31st March, 2000, the Group also received net proceeds of HK$113.2 million from the issue of 630 million new Existing Shares in October, 1999.

The Group’s primary capital expenditure and liquidity requirements in the future will be for the expansion of its publishing business into Taiwan and the ongoing operation of its businesses. Due to the Group’s recent operating losses, there is no assurance that it will be able to fund its working capital requirements in the future through cash flow from its operations or from third party financing resources. However, taking into consideration its present internal financial resources and available banking facilities and assuming that Mr. Lai makes further shareholder loans of up to HK$150 million to fund the business of Taiwan Next Magazine, the Directors believe that the Group will have sufficient resources to meet its working capital and capital expenditure requirements for at least the next 12 months even if the Subscription does not proceed and the Acquisition (including the capitalisation of the shareholder loan owed by the Company to Mr. Lai) is not completed.

If the Group’s capital expenditure requirements vary significantly from those currently planned, it may require additional financing sooner than anticipated. The Group intends to reduce its expenditures on current operations to minimise its requirements for additional financial resources if the resources are not available on acceptable commercial terms when needed. The Directors have not identified any specific operations or businesses expenditure on which would be reduced.

Liquidity and Capital Expenditures of the Acquired Group

Historically, the Acquired Group’s principal capital expenditure and liquidity requirements have 32(5)(b) been for capital expenditures for property, plant and equipment used in its publishing and printing operations, personnel expenses, and working capital associated with inventory and accounts receivable. The Acquired Group has financed its operations primarily with equity, shareholder loans and bank loans.

The Acquired Group’s primary capital expenditure and liquidity requirements in the future will 36 be to fund the ongoing operations of its business. The Acquired Group intends to spend HK$5 million on the establishment of the digital library which is intended to be financed by internal resources of the Acquired Group. The Acquired Group does not anticipate making any other major investment in property, plant and equipment in relation to its existing business for at least the next two years. In the absence of additional funds from other sources, the Acquired Group intends to finance its working capital and capital expenditure requirements from its cash on hand and funds from operations. The directors of DGL believe that its available cash resources together with operating profits will be sufficient to meet its working capital and capital expenditure requirements for at least the next 12 months after the date of this circular.

— 90 — LETTER FROM THE BOARD

DIRECTORS AND SENIOR MANAGEMENT OF THE COMPANY 41

The Company does not intend to change the composition of the Board and the senior management of the Company upon completion of the Acquisition.

Executive Directors

Mr. Lai Chee Ying, Jimmy (Chairman)

Mr. Lai, aged 52, was appointed as a Director and Chairman of the Company in October 1999 and December 1999 respectively after completion of the Company’s acquisition of certain Internet and magazine publishing businesses from NMIHL. Mr. Lai has been a director of DGL since December, 2000. He is responsible for formulating the corporate strategies of both the Group and the Acquired Group. Prior to the founding of his publishing business in 1990, he had approximately 30 years’ experience in the garment industry. He founded and developed Giordano, a substantial garment manufacturing business and retail chain. Mr. Lai entered the media industry when Next Magazine was launched in March, 1990. This was followed by the launch of Easy Finder in 1991, Apple Daily in June, 1995, Sudden Weekly in August, 1995 and Eat & Travel Weekly (which was then known as Eat and Tell Weekly) in July, 1997. His newspaper printing business was started in October 1997 through the establishment of ADPL.

Mr. Chow On Kiu, Andrew

Mr. Chow, aged 51, was appointed and joined the Company as a Director in October, 1999. He has been a director of DGL since December, 2000. He joined the Acquired Group as vice-chairman of ADL in May, 1999. He is responsible for formulating the corporate strategies of both the Group and the Acquired Group. He graduated with a Bachelor of Social Science degree from the University of Hong Kong. He has extensive experience in banking, finance, trading and investment. He is also a pioneer in property investment in the People’s Republic of China. He was a director of Sun Hung Kai Securities Ltd. from 1979 to 1985 and the Managing Director of Tian An China Investment Limited from 1987 to 1992.

Mr. Yeung Wai Hong

Mr. Yeung, aged 51, was appointed and joined the Company as a Director in October, 1999. He has been a director of DGL since January, 2001. He joined the Acquired Group as Associate Publisher of Next Magazine in 1990 and has been the Publisher since 1991. He oversees the editorial content of the publications of the Group and the Acquired Group and focuses primarily on Next Magazine.He graduated from Central Missouri State University in the United States with a Bachelor of Science degree. Prior to working in the publishing industry in 1990, he held senior management positions in various financial institutions in Hong Kong.

Mr. Ting Ka Yu, Stephen

Mr. Ting, aged 42, was appointed and joined the Company as a Director in October, 1999. He joined ADL, a member of the Acquired Group, in December, 1997 as the Chief Financial Officer. He is responsible for the finance of the Group and the Acquired Group. He graduated from Macquarie

— 91 — LETTER FROM THE BOARD

University, Sydney, Australia, with a Bachelor of Economics degree. He is a member of the Institute of Chartered Accountants in Australia. After working for over six years in a leading public accountancy firm both in Hong Kong and Australia, he held senior financial and management positions in various companies including listed groups.

Mr. Kok Hon Kay, Peter

Mr. Kok, aged 58, was appointed and joined the Company as a Director in October, 1999 and is the Chief Operating Officer of the Company. He has been a director of DGL since December, 2000. Mr. Kok held senior financial positions in several multinational companies for over 20 years. His experience in the printing industry started through his involvement in the business of ADPL. He joined ADL in 1995 as the Chief Operating Officer. Mr. Kok is now responsible for overseeing all production and printing operations of the Company.

Mr. Pieter Lodewijk Schats

Mr. Schats, aged 41, was appointed as a Director in November, 2000. He joined the Company in July, 2000 as the Deputy Chief Executive Officer responsible for overseeing the Group’s finance and administration activities. In January, 2001, he was appointed as the Chief Executive Officer responsible for all commercial activities of the Group’s operations. Prior to joining the Company, he was the Managing Director of United Biscuits Asia Pacific Limited. Mr. Schats also held senior positions in two multinational companies, Inchape Group and Elders IXL (now known as Foster’s Brewing Group Limited). Mr. Schats graduated from the University of Natal, South Africa with a Bachelor of Commerce degree and is a Chartered Accountant by profession.

Independent Non-executive Directors

Mr. V-nee Yeh

Mr. Yeh, aged 42 and a U.S. attorney-at-law, was appointed as a Director in January, 2000. He graduated from the School of Law at Columbia University and was admitted as a member of the California Bar Association in 1984. He is a co-founder of Value Partners Limited and VP Private Equity Limited. Mr. Yeh is a member of the Listing Committee of the Stock Exchange as well as a member of the Takeovers & Mergers Panel of the Securities and Futures Commission and the Listing Committee of the China Securities Regulatory Commission. He is also the Deputy Chairman of Hsin Chong Construction Group Limited.

Mr. Fok Kwong Hang, Terry

Mr. Fok, aged 46, was appointed as a Director in June, 2000. He graduated from the University of Wisconsin in the United States with both a Bachelor and a Master of Business Administration degree and a Master of Science degree. Mr. Fok has 17 years’ experience in the securities industry. He is currently the Managing Director of Kim Eng Holdings (Hong Kong) Limited.

Senior Management

Mr. Chow Tat Kuen, Royston

Mr. Chow, aged 43, has been the Senior Controller of the Group since October, 1999 and is responsible for the Group’s treasury and accounting. He graduated with a Bachelor degree and a

— 92 — LETTER FROM THE BOARD

Master degree, both in Commerce, from the University of New South Wales, Australia. He is a member of CPA Australia and the Hong Kong Society of Accountants. Prior to joining Next Media (Holdings) Limited, a member of the Acquired Group, as financial controller in May, 1993, Mr. Chow held senior management accounting positions in various financial institutions both in Hong Kong and Australia.

Ms. Lee Yuen Mei, Janis

Ms. Lee, aged 36, was appointed Company Secretary of the Company in October, 1999. She graduated from The Hong Kong Polytechnic University with a Professional Diploma in Company Secretaryship & Administration. She is an associate member of the Institute of Chartered Secretaries and Administrators and The Hong Kong Institute of Company Secretaries. Prior to joining Next Media (Holdings) Limited as Corporate Affairs Manager in 1995, Ms. Lee had company secretarial experience with listed and non-listed companies in Hong Kong.

Mr. Loo Cheung Ling, Alvis

Mr. Loo, aged 48, has been the Production Director of the Printing Division of the Group since October 1999. He is responsible for the Group’s printing operations. Prior to joining ADL as Production Director in 1994, Mr. Loo had over 20 years’ experience in production and printing operations in the advertising and publishing industries. He has worked for South China Morning Post, Fortune (Far East) Ltd., Emphasis (H.K.) Ltd., and The Arts House Design and Printing Group in Canada.

Mr. Li Sing Keung, Danny

Mr. Li, aged 33, was the Editor-in-Chief of Easy Finder between June, 2000 and December, 2000 and has been the Publisher since January, 2001. He graduated from the City University of Hong Kong (which was then known as the City Polytechnic of Hong Kong) with a Bachelor of Arts degree in Business Studies. He was the information technology administration officer of a trading company for which he had worked for two years before he joined EFL in 1994.

Ms. Li Yuet Wah, Daisy

Ms. Li, aged 40, has been the Chief Editor of Next Interactive since September, 2000. She graduated from the Shue Yan College with a Diploma in Journalism in 1984. Prior to joining ADL in 1997, where her main responsibility was the business development of ADOL, Ms. Li worked at Ming Pao, a Chinese language newspaper in Hong Kong, for 13 years. She was the chairperson of the Hong Kong Journalists Association for three consecutive terms from 1991 to 1994. She has been a member of the Advisory Group on Press Freedom to the United Nations Educational, Scientific and Cultural Organisation since 1997.

Audit Committee

The Audit Committee of the Company was established on 19th March, 1999. The Audit Committee comprises two members, all of whom are independent non-executive Directors, namely Mr. V-nee Yeh and Mr. Fok Kwong Hang, Terry. The composition of the Audit Committee is in compliance with the Code of Best Practice set out in Appendix 14 to the Listing Rules, which requires the committee to be appointed from amongst the non-executive directors and that a majority of the

— 93 — LETTER FROM THE BOARD non-executive directors are independent. The Audit Committee is responsible for making recommendations to the Board regarding the selection of independent auditors, reviewing the results and scope of audits and other services provided by the independent auditors of the Company and reviewing and evaluating the Company’s internal audit and control functions.

DIRECTORS AND SENIOR MANAGEMENT OF THE ACQUIRED GROUP 41

The Company does not intend to change the composition of the board of directors of DGL and the senior management of the Acquired Group upon completion of the Acquisition.

Directors of DGL

The directors of DGL are Mr. Lai, Mr. Chow On Kiu, Andrew, Mr. Yeung Wai Hong and Mr. Kok Hon Kay, Peter who are also Directors.

Senior Management of the Acquired Group

Mr. Tung Chiao

Mr. Tung, aged 59, is the Publisher of Apply Daily. He graduated from the Taiwan Provincial Cheng Kung University with a Bachelor of Arts degree. He joined Apple Daily as Associate Publisher in January, 1998 and was promoted to the position of Publisher in May, 1999. He has extensive experience in the media industry and had been the Editor-in-Chief of Ming Pao for seven years. Prior to joining Apple Daily, he was the Chinese Language Advisor of the Open Learning Institute of Hong Kong.

Mr. Ho Kwok Fai, Morris

Mr. Ho, aged 42, has been the Chief Executive Officer of ADL since December, 2000. He was appointed as a Director in October, 1999 and resigned from the office of Director in November, 2000. He graduated with a Bachelor of Arts degree from the University of Windsor, Canada. He has extensive experience in the publishing industry. Prior to joining NMPL as Marketing and Sales Director in 1990, he held management positions in a number of advertising firms, including associate media director with a leading international advertising firm in Hong Kong.

Mr. Ip Yut Kin

Mr. Ip, aged 50, joined ADL as the Deputy Editor-in-Chief of Apple Daily in 1995 and has been the Editor-in-Chief since 1996. He graduated from the National Chengchi University, Taiwan with a Bachelor of Social Science degree in Journalism. Mr. Ip has over 20 years’ experience in various newspapers in Hong Kong.

Mr. Cheung Kim Hung

Mr. Cheung, aged 39, has been the Editor-in-Chief of Next Magazine since 1994. He joined Next Magazine as Editor in 1991. Prior to joining the Acquired Group, he was the Senior News Editor of a Hong Kong newspaper. He has over 18 years’ experience in journalism in Hong Kong. Mr. Cheung graduated from the Chinese University of Hong Kong with a Bachelor degree in Journalism and Communications.

— 94 — LETTER FROM THE BOARD

Mr. Chiu Wai Kin, Ken

Mr. Chiu, aged 41, has been the Editor-in-Chief of Sudden Weekly since July, 1999. He graduated from Ji Nan University in the People’s Republic of China with a Bachelor degree in Chinese Language and Literature. Mr. Chiu has over 13 years’ experience in various magazines in Hong Kong.

Ms. Yuen Choi Yuk, Windy

Ms. Yuen, aged 28, has been the Editor-in-Chief of Eat & Travel Weekly since July 2001. She graduated from Lingnan University with a Bachelor degree in Asian Pacific Studies. She previously worked for Easy Finder for over five years. She was the Deputy Editor-in-Chief of Easy Finder before she joined Eat & Travel Weekly.

THE POSSIBLE PLACING AND SUBSCRIPTION

Mr. Lai will remain the controlling shareholder (as defined in the Listing Rules) of the Company after completion of the Placing and the Subscription.

— 95 — LETTER FROM THE BOARD