E 8010Pro-20000523.Pdf

IMPORTANT

If you are in any doubt about this prospectus, you should consult your stockbroker, bank manager, solicitor, professional accountant or other professional adviser.

STAREASTnet.com Corporation (Incorporated in the Cayman Islands with limited liability) *

LISTING ON THE GROWTH ENTERPRISE MARKET OF THE STOCK EXCHANGE OF HONG KONG LIMITED

PLACING AND PUBLIC OFFER

Number of Offer Shares: 170,000,000 (subject to Over-allotment Option) Comprising: Number of Placing Shares: 153,000,000 (subject to reallocation) Number of Public Offer Shares: 17,000,000 (subject to reallocation) Offer Price: HK$1.18 per Share Nominal Value: HK$0.10 each Stock Code: 8010

Global Coordinator and Bookrunner

BNP PRIME PEREGRINE

Joint Sponsors and Lead Managers

BNP PRIME PEREGRINE

Co-Lead Managers CLSA Emerging Markets CU Securities Limited

Co-Managers Celestial Capital Limited Nomura International (Hong Kong) Limited NSC Securities (Asia) Limited

The Stock Exchange of Hong Kong Limited and Hong Kong Securities Clearing Company Limited take no responsibility for the contents of this prospectus, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this prospectus. A copy of this prospectus, having attached thereto the documents specified in the paragraph headed “Documents delivered to the Registrar of Companies” in Appendix IV, has been registered with the Registrar of Companies in Hong Kong as required by section 342C of the Companies Ordinance (Chapter 32 of the Laws of Hong Kong). A copy of this prospectus has also been lodged with the Registrar of Companies and Businesses in Singapore as an information memorandum for the purposes of Section 106D of the Companies Act, Chapter 50 of Singapore. The Securities and Futures Commission of Hong Kong, the Registrar of Companies in Hong Kong and the Registrar of Companies and Businesses in Singapore take no responsibility as to the contents of this prospectus or any of the other documents referred to above.

23rd May, 2000 * For identification purpose only CHARACTERISTICS OF GEM

GEM has been established as a market designed to accommodate companies to which a high investment risk may be attached. In particular, companies may list on GEM with neither a track record of profitability nor any obligation to forecast future profitability. Furthermore, there may be risks arising out of the emerging nature of companies listed on GEM and the business sectors or countries in which the companies operate. Prospective investors should be aware of the potential risks of investing in such companies and should make the decision to invest only after due and careful consideration. The greater risk profile and other characteristics of GEM mean that it is a market more suited to professional and other sophisticated investors.

Given the emerging nature of companies listed on GEM, there is a risk that securities traded on GEM may be more susceptible to high market volatility than securities traded on the Main Board and no assurance is given that there will be a liquid market in the securities traded on GEM.

The principal means of information dissemination on GEM is publication on the GEM Website. Listed companies are not generally required to issue paid announcements in gazetted newspapers. Accordingly, prospective investors should note that they need to have access to the GEM Website in order to obtain up-to-date information on GEM-listed issuers.

– i – EXPECTED TIMETABLE

2000

Application lists open (Note 1) ...... 11:45 a.m. on Friday, 26th May

Latest time for lodging WHITE and YELLOW application forms ...... 12:00 noon on Friday, 26th May

Application lists close...... 12:00 noon on Friday, 26th May

Announcement of the level of indication of interest in the Placing, results of applications under the Public Offer and basis of allotment of the Public Offer Shares to be published on the GEM Website and in the South China Morning Post (in English) and the Hong Kong Economic Times (in Chinese) on or before ...... Tuesday, 30th May

Despatch of share certificates and refund cheques in respect of wholly or partially unsuccessful applications on or before (Note 2) ...... Tuesday, 30th May

Dealings in Shares on GEM to commence on ...... Thursday, 1st June

Notes:

(1) If there is a “black” rainstorm warning or a tropical cyclone warning signal number 8 or above in force in Hong Kong at any time between 9:00 a.m. and 12:00 noon on Friday, 26th May, 2000, the application lists will not open on that day. Further information is set out in the paragraph headed “Effect of bad weather on the opening of the application lists” in the section headed “How to apply for the Public Offer Shares”.

(2) Applicants for 1,000,000 Public Offer Shares or more who have indicated in their application forms that they wish to collect refund cheques and (where relevant) share certificates personally from the Company’s share registrar may collect refund cheques and (where relevant) share certificates personally from the Company’s branch share registrar in Hong Kong, Central Registration Hong Kong Limited, Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong from 1:00 p.m. to 4:00 p.m. on Tuesday, 30th May, 2000. Applicants being individuals who opt for personal collection must not authorise any other person to make their collection on their behalf. An applicant being a corporation who opts for personal collection must attend by its authorised representative bearing a letter of authorisation from its corporation stamped with the corporation chop. Both individuals and authorised representatives (if applicable) must produce at the time of collection evidence of identity acceptable to Central Registration Hong Kong Limited. Uncollected share certificates and refund cheques will be despatched by ordinary post at the applicants’ own risk to the addresses specified in the relevant application forms. Further information is set out in the section headed “How to apply for the Public Offer Shares”.

(3) All times refer to Hong Kong local time, except as otherwise stated. Details of the Share Offer, including its conditions are set out in the section headed “Structure of the Share Offer”.

– ii – CONTENTS

You should rely only on the information contained in this prospectus and the application forms to make your investment decision.

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

Any information or representation not made in this prospectus must not be relied on by you as having been authorised by the Company, the Sponsors, the Lead Managers, the Underwriters, any of their respective directors or any other person or party involved in the Share Offer.

Page

Summary ...... 1 Definitions ...... 10 Glossary ...... 17 Risk Factors ...... 20 Waivers in respect of the GEM Listing Rules and Companies Ordinance ...... 40 Information about this Prospectus and the Share Offer...... 47 Directors and Parties Involved in the Share Offer ...... 51 Corporate Information ...... 56 Industry Overview ...... 57 Business Corporate Overview ...... 72 The Star East Opportunity ...... 74 The Star East Solution ...... 75 The Group’s Strategy ...... 76 The Group’s Products and Services ...... 78 Marketing and Brand Awareness ...... 92 Member Service and Support ...... 92 Strategic Alliances ...... 92 Competition...... 95 Licences and Intellectual Property ...... 96 Facilities and Technology Infrastructure ...... 97 Year 2000 Compliance...... 98 Active Business Pursuits ...... 99 Competing Business Interests of Principal Shareholders and Directors ...... 103 Connected Transactions ...... 104 Statement of Business Objectives Overall Business Objectives ...... 109 Reasons for the Share Offer and Use of Proceeds ...... 116 Directors, Senior Management and Staff ...... 118 Substantial and Initial Management Shareholders ...... 122 Share Capital ...... 126 Financial Information...... 128 Sponsors’ Interest ...... 140 Underwriting ...... 141 Structure of the Share Offer ...... 144 How to apply for the Public Offer Shares ...... 148 – iii – CONTENTS

Page

Appendix I – Accountants’ report ...... 157 Appendix II – Summary of the constitution of the Company and Cayman Islands company law ...... 173 Appendix III – Statutory and general information ...... 195 Appendix IV – Documents delivered to the Registrar of Companies and available for inspection...... 249

– iv – SUMMARY

This summary aims to give you an overview of the information contained in this prospectus. As this is a summary, it does not contain all the information that may be important to you. You should read the prospectus in its entirety before you decide to invest in the Offer Shares.

There are risks associated with any investment. Some of the particular risks in investing in the Shares are set out in the section headed “Risk factors”. You should read that section carefully before you decide to invest in the Offer Shares.

BUSINESS

The Group is one of the first Chinese-language internet media companies to provide multimedia entertainment and life-style information to the Chinese community world-wide. The Group produces and distributes original interactive programming through its network of vertically-integrated entertainment portals. Over 150 Asian celebrities have signed agreements with the Group under which the Group’s main portal, www.stareastnet.com, or its regional portals established or to be established in Singapore, Taiwan, Korea, Japan, the PRC, North America and other Southeast Asian countries, will host official websites for these contracted celebrities who will work with the Group to provide internet entertainment content for their official websites. Apart from certain exceptions in the cases of Chan Kong Sang, Jackie and Lai Ming, Leon, the contracted celebrities have agreed to a non-competition clause under which the celebrities are excluded from participating in activities of a nature similar to or otherwise constituting any competition with those under these agreements. The Group intends to leverage off of the popularity and talents of its celebrities to develop its brand through the production of interactive multimedia internet content. The Group’s goal is to become the preeminent vertically-integrated internet content provider for entertainment and life-style information for Chinese-language users world-wide. The Group believes its relationships with its existing and future contracted celebrities and the combination of its broadband- enabled entertainment and life-style content, community features and e-commerce products and services will help the Group to achieve this goal.

COMPETITIVE STRENGTHS

The Directors believe that the Group’s principal strengths include:

• the Group’s ability to create and develop compelling multimedia content;

• the Group’s attractive content which features popular Asian celebrities, life-style information and community features;

• the Group’s ability to leverage off of the status of its celebrity shareholders and contracted celebrities to build brand awareness; and

• the Group’s delivery of compelling multimedia content through broadband distribution channels.

– 1 – SUMMARY

CORPORATE REORGANISATION

The Company’s reorganisation process is detailed in Appendix III to this prospectus under the paragraph headed “Further Information about the Company”. As a result of the reorganisation, the existing shareholders’ interests in the Company are summarised as follows:

No. of shares Immediate Total immediately shareholding Total cost investment Shareholder Date of entry after listing* after listing per share amount HK$ HK$ Genius Ideas 9/3/1999 Note 1 2/9/1999 225,760,000 22.58% 0.03 6,304,716 Star East (BVI) 9/3/1999 Note 1 2/9/1999 201,690,000 20.17% 0.00 419 Gold Miracles 9/3/1999 Note 1 2/9/1999 87,150,000 8.71% 0.04 3,857,155 Hikari Note 2 149,400,000 14.94% 0.98 146,965,000 PCCW Note 3 166,000,000 16.60% 0.98 163,611,110

830,000,000 83.00%

Note 1: Total investment amount included initial investment of US$50, US$30 and US$20 by Genius Ideas, StarEast (BVI) and Gold Miracles respectively on 18th February, 1999. Note 2: Date of entry Total entry cost US$ in HK$ Subscription of new shares 2/9/1999 9,500,000 73,482,500 ** Purchase of shares from Gold Miracles Limited 8/11/1999 6,650,000 51,437,750 ** Purchase of shares from Genius Ideas Limited 8/11/1999 2,850,000 22,044,750 **

146,965,000

Note 3: Date of entry Total entry cost US$ in HK$ Subscription of new shares 8/11/1999 10,556,000 81,805,551** Purchase of shares from Gold Miracles Limited 8/11/1999 24,541,666 Purchase of shares from Genius Ideas Limited 8/11/1999 57,263,893

163,611,110

* Assuming the Over-allotment Option is not exercised. ** The sums are converted at the prevailing exchange rates at the time of the relevant transactions.

INITIAL MANAGEMENT SHAREHOLDERS

The following sets out a list of Initial Management Shareholders whose Shares will be subject to a moratorium period:

Number of Shares Percentage of subject to Shares subject the moratorium to the moratorium Name period period Moratorium period (Note 1)

Genius Ideas 225,760,000 22.58% • commencing from 1st June, 2000 to 30th November, 2000 (Note 2) 95,200,000 9.52% • commencing from 1st December, 2000 to 31st May, 2001 (Note 3)

Hanny (Hanny undertakes not to dispose of its indirect interests in Genius Ideas and the Company.) – 2 – SUMMARY

Number of Shares Percentage of subject to Shares subject the moratorium to the moratorium Name period period Moratorium period (Note 1)

Gold Miracles 87,150,000 8.71% • commencing from 1st June, 2000 to 30th November, 2000 (Note 2) 36,750,000 3.68% • commencing from 1st December, 2000 to 31st May, 2001 (Note 3)

Tam Wing Lun, Alan (Tam Wing Lun, Alan and Chan Pak Cheung, Natalis undertake not to dispose of their respective Chan Pak Cheung, Natalis interests in Gold Miracles and the Company)

SEIT Management 332,000,000 33.20% • commencing from 1st June, 2000 to 30th November, 2000 (Note 2) 140,000,000 14.00% • commencing from 1st December, 2000 to 31st May, 2001 (Note 3)

Star East (BVI) (Splendid Stars and Star East (BVI) undertake not to dispose of their Splendid Stars respective indirect interests in SEIT Management and the Company)

PCCW (PCCW undertakes not to dispose of its indirect interests in Splendid Stars, SEIT Management and the Company)

Star East (BVI) 35,690,000 3.57% • commencing from 1st June, 2000 to 30th November, 2000 (Note 2) 15,050,000 1.50% • commencing from 1st December, 2000 to 31st May, 2001 (Note 3)

Star East Holdings (Star East Holdings undertakes not to dispose of its interests in Star East (BVI) and the Company)

Hikari 149,400,000 14.94% • commencing from 1st June, 2000 to 30th November, 2000 (Note 2) 63,000,000 6.30% • commencing from 1st December, 2000 to 31st May, 2001 (Note 3)

– 3 – SUMMARY

Note 1: On the assumption that the Over-allotment Option is not exercised.

Note 2: Each of the Initial Management Shareholders has undertaken with the Company, the Underwriters and the Stock Exchange that it/he will not dispose of any of its/his respective direct or indirect interest in the Company during the first six months following the listing.

Note 3: Each of the Initial Management Shareholders has undertaken with the Company, the Underwriters and the Stock Exchange that it/he will not dispose of any of its/his direct or indirect interest in the Company in the second six- month period after listing such that they would in aggregate hold less than 35% of the issued share capital of the Company.

BUSINESS OBJECTIVES

The Group’s overall business objective is to be the leading Asian entertainment portal. The Group intends to develop its business along three main areas:

• Multimedia content

To provide users with unique and compelling multimedia entertainment content, primarily in the Asia-Pacific region. The Group intends to leverage off of the popularity of its contracted celebrities to maximize revenue opportunities.

• Entertainment marketing

To offer both online and offline marketing services. The Group intends to utilise its contracted celebrities to develop and produce unique marketing campaigns for advertisers.

• E-commerce

To capitalise on e-commerce opportunities, such as online shopping malls for celebrity souvenirs, memorabilia and merchandise sales, auctions and event ticketing. The Group also intends to offer a wide range of entertainment related and non-entertainment related products for sale.

USE OF PROCEEDS OF THE SHARE OFFER

The net proceeds of the Share Offer, after deduction of underwriting fees and estimated expenses payable by the Company in relation to the Share Offer, are estimated to be approximately HK$170 million before the exercise of the Over-allotment Option. The Company currently intends to use the net proceeds of the Share Offer as follows:

• Approximately HK$31 million and HK$44 million will be used for entertainment-related content development for the period from the Latest Practicable Date to 30th September, 2000 and for the six months ending 31st March, 2001, respectively;

• Approximately HK$35 million and HK$7 million will be used for capital expenditure for technology (including software for content enrichment and advertisement management and hardware for system enhancement, upgrades and expansion) for the period from the Latest Practicable Date to 30th September, 2000 and for the six months ending 31st March, 2001, respectively;

– 4 – SUMMARY

• Approximately HK$18 million and HK$15 million will be used for promotion and online and offline marketing activities (including advertising in traditional print, radio and television media) for the period from the Latest Practicable Date to 30th September, 2000 and for the six months ending 31st March, 2001 respectively;

• Approximately HK$5 million will be used for strategic investments in companies which are in the same line of business or which complement the Group’s business for the period from the Latest Practicable Date to 31st March, 2001;

• Approximately HK$3 million will be used for the period from the Latest Practicable Date to 30th September, 2000 and a further HK$2 million will be used for the six months ending 31st March, 2001 for developing the Group’s e-commerce business, such as auctions, merchandise sales and event ticketing; and

• The remaining balance of HK$10 million will be used for general working capital.

Should the Over-allotment Option be exercised in full, the Company will receive additional net proceeds of approximately HK$30 million which, together with the net proceeds from the Share Offer and after deducting related expenses, will amount to approximately HK$200 million. The Directors intend to use such additional net proceeds for general working capital.

To the extent that the net proceeds of the Share Offer are not immediately applied for the above purposes, it is the present intention of the Directors that such net proceeds will be placed on short-term interest-bearing deposits with financial institutions in Hong Kong.

In the event that any part of the business plans of the Group does not materialise or proceed as planned, the Directors will carefully evaluate the situation and may reallocate the intended funding to other business plans and/or to new projects of the Group and/or to hold such funding as short term deposits so long as the Directors consider it to be in the best interest of the Company and its shareholders taken as a whole. The Company will make an announcement accordingly if this happens.

– 5 – SUMMARY

TRADING RECORD

The following is a summary of the combined results of the Group for the period from 18th February, 1999 to 31st March, 1999 (“First Relevant Period”) and the eleven-month period ended 29th February, 2000 (“Second Relevant Period”) (collectively, the “Relevant Periods”) which have been extracted from the accountants’ report set out in Appendix I.

First Relevant Second Relevant Period Period HK$’000 HK$’000

Turnover – Advertising (Note a) – 3,444 – Ticket sales (Note a) – 3,296 Cost of sales – (15,485)

Gross loss – (8,745) Other income – 1,216 Advertising and promotion expenses – (18,903) Administration expenses (197) (29,280)

Operating loss (197) (55,712) Finance costs 0 (150)

Loss attributable to shareholders (197) (55,862)

Loss per share, in cents (Note b) (0.024) (6.730)

Notes:

(a) Turnover represents the revenues derived from the sale of banner advertisements and sponsorships on the Group’s websites and sales of goods. Advertising revenues, which amount to approximately HK$3,444,000, were recognised over the period in which the advertisements were displayed, provided that no significant obligations remained and collection of the receivable was reasonably assured. Sales of goods, which amount to approximately HK$3,296,000, were recognised when goods were delivered and title had passed.

(b) The calculation of loss per Share is based on the combined loss attributable to shareholders for the Relevant Periods and 830,000,000 Shares deemed to be in issue throughout the Relevant Periods on the assumption that the Reorganisation had been effective on 18th February, 1999.

OTHER INFORMATION

from strict compliance with such GEM Listing Rules from the Stock Exchange and for a waiver from strict compliance with such paragraph 31 from the Securities and Futures Commission. The Securities and Futures Commission and the Stock Exchange have granted waivers in relation to strict compliance with paragraph 31 of the Third Schedule to the Companies Ordinance and Rules 7.03(1) and 11.10 of the GEM Listing Rules such that the accountants’ report covers only the period from 18th February, 1999 to 31st March, 1999 and the eleven-month period ended 29th February, 2000. The Directors confirm that they have performed sufficient due diligence on the Group to ensure that, save as disclosed herein, up to the date of issue of this prospectus, there has been no material adverse change in the financial position of the Group since 1st March, 2000, and there is no event which would materially affect the information shown in the accountants’ report set out in Appendix I.

OFFER STATISTICS

Offer Price HK$1.18

Market capitalisation (Note 1) HK$1,180,000,000

Adjusted net tangible asset value per Share (Note 2) HK24.19 cents

Notes:

(1) The calculation of market capitalisation of the Shares is based on the Offer Price and 1,000,000,000 Shares in issue immediately after the completion of the Share Offer, but takes no account of any Shares which may be issued upon the exercise of the Over-allotment Option or upon the exercise of options which may be granted under the Share Option Schemes or which may be allotted and issued or repurchased by the Company pursuant to the general mandates for the allotment and issue or repurchase of Shares described in the paragraph headed “Shareholder’s resolutions of the Company passed on 15th May, 2000” in Appendix III.

(2) The adjusted net tangible asset value per Share has been arrived at after making the adjustments referred to in the paragraph headed “Adjusted net tangible assets” under the section headed “Financial information” and on the basis of an aggregate of 1,000,000,000 Shares in issue and to be issued as mentioned herein but takes no account of any Shares which may be issued upon the exercise of the Over-allotment Option or upon the exercise of options which may be granted under the Share Option Schemes or which may be allotted and issued or repurchased by the Company pursuant to the general mandates for the allotment and issue or repurchase of Shares described in the paragraph headed “Shareholder’s resolutions of the Company passed on 15th May, 2000” in Appendix III.

RISK FACTORS

The Directors consider that there are certain risks involved in investing in the Company. They can be categorised into:

Risks relating to the Group’s business

• The Group has a limited operating history

• The Group has a history of losses and it anticipates future losses

• The Group needs to develop new sources of financing

• The Company is controlled by a small group of shareholders

– 7 – SUMMARY

• The Group’s future operating results are subject to significant fluctuations

• Dependence on the Group’s shareholders

• The Group depends on its agreements with celebrities to attract users and advertisers and develop its brand

• The Group may not be able to utilise or integrate strategic alliances, joint ventures and acquisitions

• The Group relies on the acceptance of advertising on the internet

• The Group’s advertiser base is limited in number and scope

• The Group depends on its advertising and sales department and its external advertising sales representative to increase and maintain its advertising revenues

• The Group’s advertisement pricing model may not be successful

• The Group may not be able to generate revenue by charging fees for video-on-demand services

• Privacy concerns may prevent the Group from selling demographically targeted advertising

• The Group’s entertainment and life-style content may not be able to attract and retain users

• Cost overruns, changes in market preferences and personnel shortages may affect the Group’s ability to produce compelling content

• The Group may not be able to develop its brand and attract users to its network

• The Group may not be able to effectively manage its expanding operations

• The Group relies on software and hardware systems that are susceptible to failure and are manufactured by third parties that are susceptible to market pressures

• The Group’s computer network is vulnerable to hacking, viruses and other disruptions

• The internet may not be widely accepted by consumers as a medium for the delivery of entertainment-related content

• The Group depends on technology licensed from third parties

• The Group may not always be able to protect its domain names in the future

• The Group may not be able to rely on intellectual property protection of certain licensed trademarks the applications of which are being processed

– 8 – SUMMARY

• The Group may be involved in future litigation with respect to technology rights and intellectual property infringement claims

• The Group may be subject to claims based on information retrieved from and products sold on its network

• The Group’s business and growth will suffer if it is unable to hire and retain key personnel that are in high demand

• The intended use of proceeds from the Share Offer may not be utilised as planned

Risks relating to the Asia-Pacific internet industry

• The Asia-Pacific internet industry is a developing market and has not been proven as an effective commercial medium

• The Asia-Pacific internet market is intensely competitive

• The Group’s entry into the PRC internet market depends on the establishment of an adequate telecommunications infrastructure

Political, economic and regulatory risks

• The economic climate in the Asia Pacific region is volatile

• Regulation of the information industry in the PRC may adversely affect the Group’s business

• Regulation of the internet market in the PRC may restrict the Group’s ability to expand its business into the domestic PRC internet market

• A change in currency exchange rates could increase the Group’s costs relative to its revenues

Risks relating to an investment in the Shares

• The price of its Shares is likely to be highly volatile and could drop unexpectedly

• Dilution resulting from the exercise of options issued under the Pre-IPO Share Option Scheme

• An active trading market for the Shares may not develop or be sustained

• Forward-looking statements contained in this prospectus may not be accurate

– 9 – DEFINITIONS

In this prospectus, unless the context otherwise requires, the following expressions have the following meanings:

“Articles” the Articles of Association of the Company

“BNP Prime Peregrine” BNP Prime Peregrine Capital or BNP Prime Peregrine Securities, as the context so requires

“BNP Prime Peregrine BNP Prime Peregrine Capital Limited, acting as one of the joint Capital” Sponsors of the Share Offer, an investment adviser registered under the Securities Ordinance

“BNP Prime Peregrine BNP Prime Peregrine Securities Limited, acting as the Global Securities” Coordinator, bookrunner and one of the joint Lead Managers of the Share Offer, a securities dealer registered under the Securities Ordinance

“Bob” Bob & Partners Co., Ltd., a wholly-owned subsidiary of Star East Holdings, which is principally engaged in the business of feature film, television and drama series production

“Board” the board of Directors

“Capitalisation Issue” the issue of 530,000,000 Shares to be made upon the capitalisation of part of the share premium account of the Company referred to in the paragraph headed “Shareholder’s resolutions of the Company passed on 15th May, 2000” in Appendix III

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

“CBN” Cyber Business Network (Singapore) Pte Ltd, a subsidiary 60 percent owned by Hanny, which is principally engaged in the businesses of application services provision and the development and distribution of computer information services in Singapore

“Companies Law” the Companies Law (2000 Revision) (Chapter 22 of the Cayman Islands) (as amended)

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

“Company” STAREASTnet.com Corporation, a company incorporated in the Cayman Islands with limited liability on 31st January, 2000 under the Companies Law

– 10 – DEFINITIONS

“CyberWorks Ventures” CyberWorks Ventures Limited, a company incorporated in Bermuda and a wholly-owned subsidiary of PCCW, which principally carries on the business of investment in technology companies

“Digital Island, Inc.” Digital Island, Inc., a provider of bandwidth services and content hosting in North America and an independent third party of the Group

“Digital United” or “Seednet” Digital United Inc., an ISP operating in Taiwan trading under the name “Seednet” and an independent third party of the Group

“Directed Sale Shares senior staff members (excluding the Directors) and contracted Purchasers” celebrities of the Group (not being connected persons (as defined in the GEM Listing Rules) of the Company) who are given a preferential right, as to allocation only, to subscribe for an aggregate of 8,500,000 Shares in the Placing

“Director(s)” the director(s) of the Company

“Employee Share the Employee Share Option Scheme conditionally approved by the Option Scheme” shareholders of the Company for the granting of options to subscribe for Shares to full-time employees of the Group, details of which are set out in the paragraph headed “Employee Share Option Scheme” in Appendix III

“GEM” the Growth Enterprise Market operated by the Stock Exchange

“GEM Listing Committee” the listing sub-committee of the Council of the Stock Exchange with responsibility for GEM

“GEM Listing Rules” the Rules Governing the Listing of Securities on the Growth Enterprise Market of the Stock Exchange

“GEM Website” http://www.hkgem.com, being the internet website operated by the Stock Exchange for the purposes of GEM

“Genius Ideas” Genius Ideas Limited, a company incorporated in the British Virgin Islands and a wholly-owned subsidiary of Hanny, which principally carries on the business of investment holding with interests in internet and internet-related companies

“Global Coordinator” BNP Prime Peregrine Securities

“Gold Miracles” Gold Miracles Limited, a company incorporated in the British Virgin Islands and owned by Tam Wing Lun, Alan and Chan Pak Cheung, Natalis (both executive Directors) and Tsang Chi Wai, Eric (not a connected person (as defined in the GEM Listing Rules) of the Company) in equal shares. It principally carries on the business of investment holding

– 11 – DEFINITIONS

“Group” the Company and its subsidiaries

“Hanny” Hanny Holdings Limited, a company incorporated in Bermuda with limited liability whose shares are listed on the Main Board. It is principally engaged in the businesses of manufacture, distribution and marketing of data storage media and the distribution and marketing of computer peripherals and accessories, and strategic investments in information technology and internet related businesses

“Hanny Magnetics” Hanny Magnetics (B.V.I.) Limited, an investment holding company incorporated in the British Virgin Islands and a wholly-owned subsidiary of Hanny

“Hikari” Hikari Tsushin, Inc., a company incorporated in Japan whose shares are listed on the first section of the Tokyo Stock Exchange. It principally carries on the business of telecommunications and has investments in various internet and internet-related companies worldwide

“Hong Kong” the Hong Kong Special Administrative Region of the PRC

“Hongkong Clearing” Hong Kong Securities Clearing Company Limited

“Hong Kong GAAP” generally accepted accounting principles in Hong Kong

“IDC” International Data Corporation, a company specialised in the provision of information technology industry analysis and market data

“Initial Management the Management Shareholders of an issuer immediately prior Shareholders” to the date of the issuer’s initial listing document. In the case of the Company, the Initial Management Shareholders are Hanny, Genius Ideas, SEIT Management, PCCW, Splendid Stars, Star East Holdings, Star East (BVI), Hikari, Gold Miracles, Tam Wing Lun, Alan and Chan Pak Cheung, Natalis

“ITC” ITC Corporation Limited, a company incorporated in Bermuda with limited liability whose shares are listed on the Main Board. It is principally engaged in the business of investment holding with interests in a number of listed companies in Hong Kong and Canada. As at the Latest Practicable Date, ITC has an approximate 21.7% shareholding interest in Hanny and an approximate 17.9% shareholding interest in Star East Holdings

“Korea Thrunet” Korea Thrunet Co., Ltd., an ISP operating in Korea and an independent third party of the Group

“Latest Practicable Date” 15th May, 2000, being the latest practicable date for the purpose of ascertaining certain information contained in this prospectus

– 12 – DEFINITIONS

“Lead Managers” BNP Prime Peregrine Securities and Tai Fook Securities

“Listing Date” the date trading in the Shares commences on GEM

“Main Board” the stock market operated by the Stock Exchange, which excludes GEM and the options market

“Main Board Listing Rules” the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited applicable to the Main Board from time to time

“Management Shareholder” means any person who is (or group of persons who together are) entitled to exercise or control the exercise of 5% or more of the voting power at general meetings of an issuer and who is (or are) able, as a practical matter, to direct or influence the management of the issuer

“Offer Price” HK$1.18 per Offer Share (exclusive of brokerage and Stock Exchange transaction levy) at which the Shares are to be subscribed and issued pursuant to the Share Offer

“Offer Shares” the Public Offer Shares and the Placing Shares, including any additional Shares issued pursuant to the exercise of the Over-allotment Option

“OFTA” the Office of the Telecommunications Authority

“Over-allotment Option” the option granted by the Company to the Underwriters (exercisable by the Global Coordinator on behalf of the Underwriters) under the Underwriting Agreement pursuant to which the Company may be required to issue and allot up to an aggregate of 25,500,000 additional Shares, representing 15% of the Shares initially available under the Share Offer, at the Offer Price to cover over-allocations in the Placing and/or over-subscriptions in the Public Offer

“PCC” Pacific Convergence Corporation, Ltd., a company incorporated in Hong Kong and a subsidiary 60 percent owned by PCCW, which is principally engaged in the business of cable TV channels, internet portal and broadband internet access services

“PCCW” Pacific Century CyberWorks Limited, a company incorporated in Hong Kong with limited liability whose shares are listed on the Main Board. It is principally engaged in investments in internet companies and the development of the Cyber-Port project in Hong Kong

– 13 – DEFINITIONS

“Placing” the conditional placing of the Placing Shares (i) with professional, institutional and other investors and (ii) with Directed Sale Shares Purchasers as described in the section headed “Structure of the Share Offer”

“Placing Shares” the 153,000,000 new Shares initially being offered under the Placing as described in the section headed “Structure of the Share Offer”

“Placing Underwriters” BNP Prime Peregrine Securities, Tai Fook Securities, Credit Lyonnais Securities (Asia) Limited, CU Securities Limited, Nomura International (Hong Kong) Limited, Celestial Capital Limited and NSC Securities (Asia) Limited

“PRC’’ or “China” the People’s Republic of China, which, for the purposes of this prospectus, excludes Hong Kong, Macau and Taiwan

“Pre-IPO Share the share option plan approved and adopted by the Company Option Scheme” on 15th May, 2000, the principal terms of which are summarised in the paragraph headed “Pre-IPO Share Option Scheme” in Appendix III

“Public Offer” the offer of the Public Offer Shares at the Offer Price for subscription by the public in Hong Kong, on and subject to the terms and conditions stated herein and in the related application forms

“Public Offer Shares” the 17,000,000 new Shares (subject to reallocation as described in the section headed “Structure of the Share Offer”) initially being offered by the Company for subscription under the Public Offer

“Public Offer Underwriters” BNP Prime Peregrine Securities, Tai Fook Securities, Credit Lyonnais Securities (Asia) Limited, CU Securities Limited, Nomura International (Hong Kong) Limited, Celestial Capital Limited and NSC Securities (Asia) Limited

“Regulation S” Regulation S under the Securities Act

“Reorganisation” the corporate reorganisation of the Group in preparation for the Share Offer, details of which are set out in the paragraph headed “Corporate Reorganisation” in Appendix III

“Rule 144A” Rule 144A under the Securities Act

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

“Securities Act’’ U.S. Securities Act of 1933, as amended

– 14 – DEFINITIONS

“Securities Ordinance” the Securities Ordinance (Chapter 333 of the Laws of Hong Kong)

“SEIT Management” Star East Information Technology Management Co. Limited, a joint venture company owned indirectly by Star East Holdings and PCCW in equal shares for holding their investment in the Group

“Share(s)” share(s) of HK$0.10 each in the capital of the Company

“Share Offer” the Public Offer and the Placing

“Share Option Schemes” the Pre-IPO Share Option Scheme and the Employee Share Option Scheme

“Splendid Stars” Splendid Stars Group Limited, a company incorporated in the British Virgin Islands and a wholly-owned subsidiary of PCCW, which is principally engaged in the business of investment holding

“Sponsors” BNP Prime Peregrine Capital and Tai Fook Capital

“Star East Group” Star East Group Limited, a company incorporated in the British Virgin Islands and owned indirectly as to 45% by ITC and as to 55% by more than 50 shareholders, including 8.37%, 8.28%, 8.28%, and 7.28% owned by Tam Wing Lun, Alan and Chan Pak Cheung, Natalis, Tsang Chi Wai, Eric, Chan Kong Sang, Jackie respectively and the balance is owned by independent third parties

“Star East (BVI)” Star East (B.V.I.) Limited, a company incorporated in the British Virgin Islands and a wholly-owned subsidiary of Star East Holdings, which is principally engaged in the business of investment holding

“Star East Holdings” Star East Holdings Limited, a company incorporated in Bermuda with limited liability whose shares are listed on the Main Board, which is principally engaged in entertainment-related business

“STAREASTnet (BVI)” STAREASTnet (BVI) Limited (formerly known as Star East Information Technology Corp.), a company incorporated in the British Virgin Islands with limited liability on 18th February, 1999. It is a wholly-owned subsidiary and the operating arm of the Group

“Stock Exchange” The Stock Exchange of Hong Kong Limited

“subsidiary” a subsidiary company as defined in section 2 of the Companies Ordinance

“Tai Fook” Tai Fook Capital or Tai Fook Securities, as the context so requires

“Tai Fook Capital” Tai Fook Capital Limited, acting as one of the joint Sponsors of the Share Offer, an investment adviser registered under the Securities Ordinance (Chapter 333 of the Laws of Hong Kong)

– 15 – DEFINITIONS

“Tai Fook Securities” Tai Fook Securities Company Limited, acting as one of the joint Lead Managers of the Share Offer, a dealer registered under the Securities Ordinance (Chapter 333 of the Laws of Hong Kong)

“Takeovers Code” the Hong Kong Code on Takeovers and Mergers, as amended from time to time

“Underwriters” the Placing Underwriters and the Public Offer Underwriters

“Underwriting Agreement” the conditional underwriting and placing agreement relating to the Share Offer entered into on 22nd May, 2000 between, among others, the Company and the Underwriters, as described in the section headed “Underwriting”

“United States” or “U.S.” the United States of America

“WTO” World Trade Organization

“HK$” or “Hong Kong Hong Kong dollars and cents, respectively dollars” and “cents”

“US$” or “U.S. dollars” United States dollars, the lawful currency of the United States

“%” or “percent” percentage

Unless otherwise specified in this prospectus, Hong Kong dollar amounts have been translated, for the purpose of illustration only, using the following rate:

US$1 = HK$7.79

No representation is made that any amounts in US$ or HK$ could have been or could be converted at the above rate or at any other rates or at all.

– 16 – GLOSSARY

“ADSL” Asymmetrical Digital Subscriber Line, a high speed communications line, used primarily for digital video

“B2B” business-to-business transactions over the internet

“B2C” business-to-consumer transactions over the internet

“C2C” consumer-to-consumer transactions over the internet

“CD” compact disc

“channel” website features which provide users with an efficient and easy way to explore and utilise the wealth of content on the internet through a series of guides and directories

“chat” or “chatting” a form of interactive on-line communication that enables typed conversation to occur in real-time and to talk (or type) real time to other network users from any and all parts of the world

“chat room” a specific URL to facilitate chatting among multiple users

“clicktrail” information derived from an individual’s behaviour, pathway, a choice expressed while visiting a website. It contains the links that a user has followed and is logged on the server, and is normally used for troubleshooting and system maintenance

“community” an interacting population of various kinds of individuals in a common location

“content” information contained on a website

“digital” a term used to describe any system based on discontinuous data or events. All data that a computer processes must be encoded digitally, as a series of zeroes and ones

“domain” a part of the internet name that specifies certain details about the host such as its location and whether it is part of a commercial, governmental, or educational entity, for example, “.com”, “.net” and “.org”

“domain name” the internet name of a website which is registered with Network Solutions Inc., for example, “.com”

“download” to copy files from one computer to another via a network or using a modem

“e-business” electronic business, a means of transacting business via the internet

– 17 – GLOSSARY

“e-commerce” electronic commerce, a means of purchasing and selling of goods and services via the internet

“e-mail” electronic mail, a means of delivering messages via the internet

“encryption” the process of scrambling a message so that a key, held only by authorised recipients, is needed to unscramble and read the message

“e-ticketing” electronic ticketing, a means of purchasing and selling tickets via the internet

“ICP” internet content provider, a company that provides content to internet users

“ICQ” a term believed to be derived from “I seek you”. It is a program which allows online chat and exchange of other types of information

“interface” part of a computer programme that connects the computer with a human operator (user)

“internet” a global network of interconnected, separately administered public and private computer networks

“ISP” internet service provider, a company that provides businesses and individuals with access to the internet

“Java” programming mini-applications for web-browsers and other programs

“mirror site” a duplicate of a website. Mirror sites are set up when a website becomes very popular so that more users can access the websites and downloads can be faster

“multi-media” the use of computer to combine text, graphics, sound and video

“Network Solutions Inc.” the registry for administering the top level domain names, for example “.com”, “.net” and “.org”

“on-line” being connected to other interconnected computers on the internet

“pageviews” statistics used to measure website activity. One page view is recorded each time a single page on a website (which may count for several hits) is viewed

“penetration rate” number of subscribers or users divided by the subject population

“PNETS” Public Non-Exclusive Telecommunications Services, which are regulated and licensed by the Telecommunications Authority for services such as ISPs, virtual private network services and international calling card services

– 18 – GLOSSARY

“pervasive computing” a form of computing characterised by the use of various connecting devices to the internet, such as WAP phones, and convenient interaction with content and information anywhere

“portal” a principal entry point and gateway for accessing the internet that provides useful web-related services and links

“search engine” a computer (or network of computers) that is programmed to find specific words

“server” a computer on a network that manages network resources. For example, with a website, a server will store and distribute data used to interface with visitors to the website and distribute data to other servers with which it is networked

“traffic” the volume of web users visiting a website

“URL” Uniform Resource Locator, the standard addressing system for the world wide web

“video on demand” an umbrella term for a wide set of technologies and companies whose common goal is to enable individuals and companies to select videos from a central server for viewing on a television or computer screen

“visit” a statistic used to measure website activity. A visit is generally recorded only once each time a user accesses a website, although, if a user is inactive for a period of time while accessing a website (i.e. the user is not recording additional hits and pageviews) an additional visit could be recorded when the user becomes active again

“VRML” Virtual Reality Modelling Language, a program adding three- dimensional interactive models to websites

“WAP” Wireless Application Protocol, a specification for a set of communication protocols to standardise the way that wireless devices, such as cellular telephones and radio transceivers, can be used for internet access, including browsing the web, sending and receiving e-mail and chatting in newsgroup discussion

“web page” a single file that can be displayed on the web

“website” world wide website, a collection of web pages located in one computer and linked together

“World Wide Web” or “Web” a worldwide network of computer servers that uses a special communications protocol to link different servers throughout the internet and which permits the communication of text, graphics, video, sound and other data over the internet

– 19 – RISK FACTORS

Prospective investors in the Offer Shares should consider carefully all the information set out in this prospectus and, in particular, should evaluate the following risks in connection with any investment in the Company, certain of which may not be typically associated with investing in equity securities of companies in Hong Kong or other economically advanced jurisdictions.

RISKS RELATING TO THE GROUP’S BUSINESS

The Group has a limited operating history

The Group has only a limited operating history for investors to evaluate its business. The Group’s wholly-owned subsidiary, STAREASTnet (BVI), was incorporated in February 1999 and officially launched the Group’s main internet portal (www.stareastnet.com) in September 1999. As a result of the Group’s limited operating history, its business strategy is unproven, and it cannot be certain that it will be successful or that it will be able to successfully compete and achieve market acceptance or otherwise satisfactorily address the risk factors disclosed in this prospectus. Investors must consider the risks, expenses and uncertainties that an early stage company like the Group faces.

There are risks as to whether the Group will be able to:

• increase awareness of its internet brand and continue to build user loyalty;

• expand the content and services on its network of vertically-integrated portals;

• attract a larger audience to its network; and

• maintain its current, and develop new, strategic relationships.

If the Group is unsuccessful in addressing these risks, it may not be able to increase its base of viewers and advertisers and its revenues.

The Group has a history of losses and it anticipates future losses

The Group has incurred net losses since the incorporation of STAREASTnet (BVI), a wholly- owned subsidiary and the operating arm of the Group, in February 1999. For the eleven months ended 29th February, 2000, it incurred net losses of approximately HK$55.9 million. For the month ended 31st March, 2000 the Group incurred losses of approximately HK$24 million based on its unaudited management accounts. The Group anticipates that it will continue to incur operating losses in the foreseeable future due to a high level of planned capital expenditures and operating expenses including:

• cost of sales associated with content production and product and services development;

• increased performance fees payable to its contracted celebrities;

• increased sales and marketing costs;

• additional personnel recruitment; and

• its general growth objectives. – 20 – RISK FACTORS

It is possible that the Group’s operating losses may increase in the future and it may not be able to achieve or sustain profitability.

The Group needs to develop new sources of financing

The Group may not be able to implement its business strategy and growth unless it develops sources of financing independent of its principal shareholders. The Group has in the past mainly operated as an associated company of its principal shareholders and has only recently been established as a stand- alone group. The Group has relied on its principal shareholders for the funding of its expenses. The Group’s principal shareholders have provided capital in the amount of approximately HK$165 million (approximately US$21.2 million) since the incorporation of STAREASTnet (BVI) in February 1999. During April and May 2000, the shareholders of STAREASTnet (BVI) (except for Hikari) advanced shareholders loans to the Company on a pro rata basis totalling HK$61.5 million. See section headed “Connected Transactions” for further details.

The Group does not expect to be able to rely on financing by these parties in the future. Because the Group intends to grow its business, thereby anticipating substantial future capital requirements and future losses, the Group does not expect that income from its operations will be sufficient to meet its financing needs. The Group expects to finance its growth through a combination of funds from operating cash flow, new issues of ordinary shares and, if available, bank loans or credit facilities. However, the Group cannot assure investors that if and when it requires future capital, it will be available on acceptable terms or at all. Obtaining additional financing will be subject to a number of factors, including:

• market conditions and investor sentiment; and

• the Group’s operating performance.

Future issues of new ordinary shares may result in significant dilution of the voting rights and economic interests of the Company’s shareholders.

The Company is controlled by a small group of shareholders

The Company’s principal shareholders collectively will have significant influence in determining the outcome of any corporate transaction or other matters submitted to the shareholders for approval, including mergers, consolidations and the sale of all or substantially all of the Group’s assets, and also the power to prevent or cause a change in control, although certain transactions may require minority shareholders’approval. Currently, Star East Holdings, Hanny, Hikari, PCCW and Gold Miracles, collectively own, directly or indirectly, 100% of the Company’s issued share capital. Immediately after the Share Offer, Star East Holdings, Hanny, Hikari, PCCW and Gold Miracles will collectively own, directly or indirectly, approximately 83% of the Company’s issued share capital.

Furthermore, each of Hikari, PCCW and Hanny invests in other internet companies and seeks to capitalise on the development of the internet in the Asia-Pacific region. Although the Directors believe that none of these investments constitute significant conflicts of interest with the Group’s network of vertically integrated celebrity-focused entertainment at portals, any such shareholders or other shareholders may invest, or increase their investment, in the Group’s competitors in the future, which may give rise to conflicts of interest.

– 21 – RISK FACTORS

The Group’s future operating results are subject to significant fluctuations

The Group’s operating results may fluctuate significantly in the future as a result of a variety of factors, many of which will be outside the Group’s control. Therefore, the Group’s operating results for any particular period may not be indicative of future performance. These variable factors include:

• the early stage of the Group’s development;

• changes in the components of the Group’s revenue;

• the timing of the launch of the Group’s new products and services in new markets;

• the seasonality of advertising sales in the Group’s industry;

• changes in the Group’s business strategy; and

• competitive factors, including new services introduced by the Group or its competitors.

Dependence on the Group’s shareholders

The Group is dependent upon some of its principal shareholders, in particular Star East Holdings, Hanny and their subsidiaries, for the supply of various services which are important to its operations, such as the licensing of the “Star East” series of trademarks and the provision of television and internet network and technical services. The Group has entered into various agreements with such shareholders with respect to these services, which constitute connected transactions for the purposes of the GEM Listing Rules, as set out in the section headed “Connected Transactions” of this prospectus. Furthermore, the Group is dependent on its shareholders for their network of business relationships and transfer of experienced personnel. Accordingly, the Group’s future relationship with its principal shareholders and their continual performance of their obligations under their respective contracts with the Group will be important to the Group’s business operations. The services provided by the principal shareholders may not be readily obtainable from any other third party. For instance, the Group will be dependent on PCCW for the provision of broadband access. Any failure on their part to fulfil their contractual obligations or any failure of the Group to obtain timely and necessary services and facilities may have a material adverse effect on the Group’s business operations and prospects.

The Group depends on its agreements with celebrities to attract users and advertisers and develop its brand

The success of the Group’s business and the attractiveness of its network of vertically-integrated portals to users and advertisers greatly depends on the continued existence of agreements with popular Chinese celebrities, who provide content to the Group and participate in its provision of products and services.

The majority of the agreements that the Group has entered into with its contracted celebrities provide that all the content of the celebrity’s website and the mode of participation of the celebrity in the activities contemplated by the agreement are subject to the consent of the celebrity. Some individually drafted agreements further contain limitations on the type of activities the Group may do in relation to

– 22 – RISK FACTORS

the celebrity’s website (see the section headed “Business – Celebrity Contracts – Chan Kong Sang, Jackie and Lai Ming, Leon) and give the celebrity the rights to decide whether to participate in the internet-related activities organised by the Group. Since there is no absolute obligation on the celebrity to participate in the activities contemplated by these agreements, the Group depends on its ability to produce products and services in which its contracted celebrities consider to be worth participating. The celebrities whom the Group targets may not find its portal network attractive and may decline to participate in its products and services.

In addition, the celebrities with whom the Group has contracted may generally terminate their agreements with the Group on short notice (ranging from 10 to 60 days) after the expiry of the initial term (ranging from 1 year to 5 years) at their absolute discretion. Also, the Group’s business plan depends on obtaining similar agreements with additional celebrities, particularly newly emerging celebrities in Hong Kong and other regional markets, some of whom have ongoing relationships with the Group’s competitors. The Group’s efforts to retain or attract new celebrities may not be successful.

Finally, a decrease in the popularity of the Group’s contracted celebrities would generally diminish the attractiveness of its portal network to users and advertisers and impede the development of its brand.

The Group may not be able to utilise or integrate strategic alliances, joint ventures and acquisitions

An important part of the Group’s business strategy is to utilise strategic alliances, business partnerships and acquisitions, particularly in the areas of providing entertainment content and broadband distribution, and obtaining advertising revenues, to enhance its products and services and to expand its geographical reach in its target markets. The Directors do not know if the Group will be able to successfully enter into such relationships because, among other things, the Group may not be able to successfully finance these transactions. Failure to execute such future transactions may impair the Group’s growth.

Any future strategic alliances, joint ventures or acquisitions will involve a number of risks that may result in the Group not achieving the intended benefits of these transactions. These risks include:

• the Group’s inability to capitalise on the perceived synergies of the relationships;

• the difficulty in integrating any such arrangements with the Group’s current products and services;

• lack of familiarity with local markets and business practices;

• the expense and time incurred and strain on the Group’s resources in integrating new acquisitions or forming alliances;

• difficulties of incorporating acquired technologies successfully into its portal network;

• difficulties of assimilating the operations of acquired businesses; and

• the assumption of unknown liabilities and potential litigation.

The Group’s inability to successfully address any of these risks could materially harm its business.

– 23 – RISK FACTORS

The Group relies on the acceptance of advertising on the internet

The Group’s business growth largely depends on the anticipated expansion of internet advertising in the Asia-Pacific region and accompanying growth in revenues from these sources. For the eleven months ended 29th February, 2000, approximately 51% of the Group’s revenues were derived from advertising, including sponsorships. If the internet is not accepted as a medium for advertising, its advertising revenue will not be able to grow.

Internet advertising is a relatively new and rapidly evolving business and the Group’s ability to generate and maintain significant advertising revenue will depend, among other things, on:

• advertisers’ acceptance of the internet as an effective and sustainable advertising medium;

• the development of a significant amount of local language content on the internet targeting the Asia-Pacific market;

• the evolution of widely-accepted standards to measure the effectiveness of internet advertising and support the internet as an effective advertising medium;

• the development of a large base of users of the Group’s portal network possessing demographic characteristics attractive to advertisers;

• the Group’s ability to contract with a diverse group of advertisers; and

• the effectiveness of the Group’s advertising delivery, tracking and reporting systems.

Many of the Group’s current or potential advertisers have not devoted a significant portion of their advertising budgets to internet advertising and may choose not to direct a portion of their budgets to the internet and, specifically, to the Group’s network. Advertisers that have invested substantial resources in other methods of conducting business may be reluctant to adopt a new strategy that may limit or compete with their existing efforts. In addition, companies may not choose to advertise on the Group’s portal network if they do not perceive the Group’s websites to be attractive.

The Group’s advertisers will measure satisfaction by the percentage of times users click on an advertisement and the Group’s timely and accurate reporting of advertising data. If any of these areas are unsatisfactory to the Group’s advertisers, they may choose not to advertise on or may withdraw from the Group’s portal network, which, in turn, could hinder the growth, or reduce the future advertising revenues, of the Group. In addition, the development of software that blocks internet advertisements before they appear on a user’s screen may hinder the growth of internet advertising. The expansion of advertisement blocking on the internet may decrease the Group’s revenues because when an advertisement is blocked, it is not downloaded from the Group’s advertisement server, which means that such advertisements are not tracked as a delivered advertisement. Furthermore, advertisers may be averse to advertising on the internet in general because of advertisement-blocking software.

– 24 – RISK FACTORS

The Group’s advertiser base is limited in number and scope

The Group depends on a small group of advertisers for a significant portion of its total advertising revenues. For the eleven months ended 29th February, 2000, its five largest advertisers accounted for approximately 62% of its total advertising revenues. The Group anticipates that it will continue to rely on a relatively small number of significant advertisers for the majority of its total revenues for the foreseeable future. The loss of one or more of its significant advertisers would cause a significant decrease in its revenues. In addition, the Group expects that its advertising clients will be limited in scope and most likely be related to life-style products, such as consumer electronics and fast-moving consumer goods.

The Group depends on its advertising and sales department and its external advertising sales representative to increase and maintain its advertising revenues

The Group depends on its advertising sales department and on its contract with 24/7 Media Asia Limited to maintain and increase its advertising sales. The Group’s business, financial condition and results of operations will be materially and adversely affected if its advertising and sales department is not effective or if 24/7 Media Asia Limited is not able to develop effective sales strategies for the Group. As of 31st March, 2000, the Group’s sales and marketing department consisted of 23 employees. The Group entered into an agreement in February, 2000 appointing 24/7 Media Asia Limited as its external advertising sales representative. It may take a relatively long period of time before they are able to develop an effective sales strategy for the Group.

The Group depends on proprietary and licensed advertisement serving technology from 24/7 Media Asia Limited to collect demographic and other data on its network of vertically-integrated portals and to target advertisements to users based on demographic data and user profiles. If 24/7 Media Asia Limited chooses not to continue to provide such technology, or necessary upgrades become unavailable or fail to serve the Group’s advertisements properly, it will not be able to make timely and accurate reports of such data to its advertisers, which may have a material adverse effect on the ability of the Group to attract and retain advertisers. If such technology becomes no longer available, advertisers may choose not to advertise on the Group’s portal network.

The Group’s advertisement pricing model may not be successful

Different pricing models are used to sell advertising on the internet and it is difficult to predict which pricing model, if any, will emerge as the industry standard. This makes it difficult to project the Group’s future advertising rates and revenues. The pricing models it adopts may not prove to be the most effective and profitable. The Group’s current advertising pricing model is based on duration, fixed advertising fees or fees per thousand impressions, commonly referred to as “cost per thousand”. To the extent that minimum guaranteed impression levels are not met, the Group would defer recognition of the corresponding revenues until guaranteed impression levels are achieved. To the extent that minimum impression levels are not achieved, the Group may be required to provide additional impressions after the contract term, which would reduce its advertising inventory. As advertising fees based on impressions begin to comprise an increasing portion of the Group’s revenues, ability to measure the demographics of its user base and the delivery of advertisements on its portal network will increase in importance. Furthermore, the Group’s advertising revenues could be materially and adversely affected if it is unable to adapt to new forms of internet advertising or it does not adopt the most effective form. Any such reduction in the Group’s advertising inventory or advertising revenues would likely have a material adverse effect on its business, financial condition and results of operations.

– 25 – RISK FACTORS

The Group may not be able to generate revenue by charging fees for video-on-demand services

The Group plans to introduce video-on-demand services which will be free of charge initially. Such programmes, if provided for a fee, may constitute “broadcasting” under the Television Ordinance (Chapter 52 of the Laws of Hong Kong) and, if so, would require an appropriate broadcasting licence. The Group does not hold such licence and the broadcasting authority has indicated that it will unlikely issue another invitation for applications for broadcasting licences before August 2000. Please refer to the section headed “Industry overview – Telecommunications Regulations – Hong Kong” of this prospectus for a more detailed discussion of the relevant regulations. Accordingly, until it has obtained all necessary licences or approvals from the Hong Kong authorities, the Group will not be able to charge any fees for the video-on-demand services, which will limit its earning ability.

Privacy concerns may prevent the Group from selling demographically targeted advertising

As part of its future advertisement delivery system, the Group intends to integrate information, such as a user’s online response rate to advertisements, name, address, age or e-mail address, with third- party databases to generate a comprehensive demographic profile of the internet user. The transfer of such information, which provides a profile that relates to an individual, would be in contravention of the Personal Data (Privacy) Ordinance (Chapter 486 of the Laws of Hong Kong) unless the relevant individual expressly consents to such use. In addition, the Group plans to acquire demographic profiles of internet users from third-parties only where internet users have consented to the transfer of their demographic information. However, any future inability to obtain demographic profiles from internet users that do not consent to such use may have a material adverse effect on the Group’s business.

Due to privacy concerns, some internet commentators, advocates and governmental bodies have proposed the elimination of, or limitation on, the use of “cookies”, or software which allows the collection of information on a user’s internet usage, without the consent or knowledge of the user. Any limitation on the Group’s ability to use cookies or collect other user data could impair its future targeting capabilities and materially and adversely affect its business, financial condition and results of operations. To the extent the Group collects data derived from user activity on its network and from other sources, it cannot be certain that copyright or other protection will be available for such data or that others will not claim rights to such data, and the Group’s use of such data may be subject to legal challenge by third parties.

The Group’s entertainment and life-style content may not be able to attract and retain users

The Group’s business depends on its ability to continue to provide entertainment and life-style content on its network of vertically-integrated portals to:

• attract new users and develop a large base of loyal users to the Group’s portal network;

• compete effectively with current and future competitors, particularly traditional media companies with greater access to entertainment related content;

• increase the Group’s advertising revenues; and

• attract celebrities to enter into relationships with the Group to produce content for use on its portal network.

– 26 – RISK FACTORS

To attract new and repeat users, advertisers and celebrities to the Group’s portal network, the Group must continue to enhance and improve its content. In addition, the Group must:

• develop new and innovative content that differentiates its network from its competitors’ websites;

• continually improve the responsiveness, functionality and features of its network;

• continually upgrade and improve the technology it uses on its network; and

• develop other products and services that are attractive to users and advertisers.

The Group may not succeed in developing in a timely manner or introducing new features, functions, technology products and services that users and advertisers find attractive. This would likely reduce the portal network’s visitor traffic, advertising revenues, the willingness of third parties to produce content for the Group and its appeal to celebrities.

In the future, the Group may depend on entering into relationships with traditional media production companies and other third-parties to:

• provide content for use on the Group’s portal network;

• expand the scope and quality of the Group’s products for users; and

• expand the scope and quality of the Group’s production facilities and services for celebrities.

There is no assurance that the Group will be successful in entering into such relationships or expanding the scope of its content, products, facilities and services. In addition, any such relationships which the Group enters into may be short-term, non-exclusive and subject to termination on short notice. Some of the content provided to the Group for use on its portal network may also be available from other sources or may also be provided to its competitors.

Cost overruns, changes in market preferences and personnel shortages may affect the Group’s ability to produce compelling content

Currently, all of the content on the Group’s portal network is produced by its in-house content production department and through the participation of its contracted celebrities, although it has recently entered into an exclusive licensing arrangement with a media production house, Bob, to provide it with film and drama series content. The content production business has certain risks, including:

• Cost overruns. The cost to produce content can vary considerably, depending on the quality of the content. Delays in production of high-quality content can increase production costs considerably;

• Timeliness of content. During the time it takes time to produce content, audience preferences can change dramatically; and

– 27 – RISK FACTORS

• Limited pool of talent. The pool of experienced and talented individuals required to produce content is limited. It is uncertain as to whether or not experienced and talented individuals can be recruited and retained.

The Group’s failure to address these risks and the costs associated with such failure could impede the growth of its business and revenues.

The Group may not be able to develop its brand and attract users to its network

Maintaining its brand is critical to the Group’s ability to expand its user base and increase its share of the target markets and its revenues. The Group believes that the importance of brand recognition will increase as the number of internet sites of its competitors grows. In order to attract and retain users and advertisers, the Group intends to increase substantially its expenditure on creating and maintaining brand loyalty.

The Group’s success in promoting and enhancing its brand will also depend on its success in providing high quality content, features and functionality, and on the continued popularity of its contracted celebrities. If the Group fails to promote its brand successfully or if users of its portal network or its advertisers do not perceive its services to be of high quality, the value of its brand could be diminished. The Group currently has a licence for an initial 5 year term to use various trademarks associated with the name “Star East” on the internet granted by Star East Concept Limited, a wholly-owned subsidiary of one of its shareholders, Star East Holdings. Events affecting the business or reputation of Star East Holdings could diminish the value of the Group’s brand, thus hindering its ability to expand its user base and increase its share of its target markets and revenues.

The Group may not be able to effectively manage its expanding operations

The Group has recently experienced and expects to further experience a period of rapid growth. This has placed and could place a significant strain on its managerial, technical, operational and financial resources. To accommodate this growth, it must implement new or upgraded technical, operating and financial systems, procedures and controls throughout many different locations. The Group may not succeed with these efforts. The Group’s failure to effectively manage its expansion could cause its expenses to grow and its revenues to decline or grow more slowly than expected, and could otherwise have a material adverse effect on its business, financial condition and results of operations.

The Group relies on software and hardware systems that are susceptible to failure and are manufactured by third-parties that are susceptible to market pressures

Third Party Suppliers

The Group depends on a number of third-party suppliers of software and hardware components. The failure of the Group’s suppliers to adjust to meet increasing demand may prevent them from supplying the Group with components and products as and when the Group requires them. The Group’s inability to maintain its relationships with such suppliers or to develop alternative sources for such software and hardware could delay, and increase the cost of, expanding the Group’s network infrastructure.

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System failures

Any system failure or inadequacy that causes interruptions in the availability of the Group’s services, or increases the response time of its services, as a result of increased traffic or otherwise, could reduce user satisfaction, future traffic and its attractiveness to its advertisers and users. As the Group’s network of vertically-integrated portals grows and traffic on its network increases, it cannot assure investors that it will be able to scale its systems proportionately. In addition, the Group’s users depend on internet service providers, online service providers and other website operators for access to its network. Each of them has experienced significant outages in the past, and could experience outages, delays and other difficulties due to system failures unrelated to its systems. These types of occurrences could cause users to perceive the Group’s network as not functioning properly and therefore cause them to use other methods to obtain their entertainment and life-style information.

Increases in traffic

In the past, the Group’s network has experienced significant increases in traffic at the launch of new official celebrity websites and when there were noteworthy entertainment news stories involving its contracted celebrities. In addition, the number of the Group’s users has continued to increase over time and it is seeking to further increase its user base. Therefore, the Group’s network must accommodate a high volume of traffic and deliver frequently updated information. The Group’s network has experienced in the past and may in the future experience slower response times or other problems for a variety of reasons.

Limited backup systems

The Group has limited backup systems and redundancy and it has experienced system failures and electrical outages from time to time in the past, which disrupted its operations. For individual sites, the Group does not presently have a disaster recovery plan in the event of damage from fire, floods, typhoons, earthquakes, power loss, telecommunications failures, break-ins and similar events.

If any of the foregoing occurs, the Group may experience a complete system shut-down. To improve performance and to prevent disruption of its services, the Group may have to make substantial investments to deploy additional servers or one or more copies of its websites to mirror its online resources. Although the Group carries property insurance with low coverage limits, its coverage may not be adequate to compensate it for all losses that may occur. To the extent that the Group does not address the capacity restraints and redundancy described above, such constraints could severely impact its business and result in substantial costs.

The Group maintains its central production servers at the Hong Kong data center of PSINet (formerly LinkAGE Online Limited). A failure by PSINet to protect its systems against damage from fire, floods, typhoons, earthquakes, power loss, telecommunications failure, break-ins and similar events, could cause interruptions, delays and cessations to the Group’s service, or otherwise disrupt its business.

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The Group’s computer network is vulnerable to hacking, viruses and other disruptions

Inappropriate use of the Group’s internet services could jeopardise the security of confidential information stored in its computer system, which may result in losses to the Group. Inappropriate use of the internet includes attempting to gain unauthorised access to information or systems, commonly known as “cracking” or “hacking” and e-mail “spamming” or sending excessive amounts of “junk” e-mail. Alleviating problems caused by computer viruses or other inappropriate uses or security breaches may require interruptions, delays or cessation in the Group’s services. The Group does not carry “errors and omissions” or other insurance covering losses or liabilities caused by computer viruses or security breaches. In addition, the Group may incur significant costs to protect against the threat of such breaches or alleviate problems caused by them.

The internet may not be widely accepted by consumers as a medium for the delivery of entertainment- related content

The market for entertainment content on the internet is new, unproven and rapidly evolving. It is uncertain whether demand for the Group’s products and services will develop, be sustained or generate sufficient revenue to attract and retain users and celebrities and allow the Group to operate its business successfully. This might occur for a number of reasons, including:

• lack of access and ease of use;

• concerns of artistes over the creation of a viable on-line infrastructure for the distribution of their products;

• the failure of consumers to adopt digital downloading as a means of viewing entertainment; and

• inconsistent quality of service and lack of availability of cost effective service at high enough access speeds.

The Group’s business plan is dependent on the anticipated expansion of broadband technology to provide high-speed internet access in its target markets. If broadband technology does not expand as anticipated, whether because of developmental and technological limitations or cost factors, the broadband- enabled content accessible to the Group’s portal network, such as music videos and audio clips, which content the Directors believe is particularly attractive to internet users with access to high-speed service, will not be as attractive to users, thus making the Group’s network less attractive to advertisers.

The Group’s business depends on the anticipated convergence of the internet and traditional media and expansion of the delivery of music, film and television content to consumers over the internet. If the internet fails to become widely accepted by consumers as a medium for the delivery of entertainment content, the Group may not be able to attract and retain advertisers and celebrities, and as a result, its business would be severely harmed.

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The Group depends on technology licensed from third parties

The Group currently owns and also licenses technology from third parties. As the Group continues to introduce new services that require new technology, it may need to license additional third party technology. The Group cannot assure investors that these technology licences will be available to it on commercially reasonable terms, if at all. In addition, it is possible that in the course of using new technology, the Group may inadvertently breach the technology rights of others and face liabilities for such breach. The Group’s inability to obtain any of these technology licences or inadvertent breach of others’ technology rights could delay or compromise the introduction of its new products and services and could materially and adversely affect its business, financial condition and results of operations.

The Group may not always be able to protect its domain names in the future

As set out in Appendix III, the Group currently has over 40 domain name registrations in English and over 90 in Chinese, including “stareastnet.com” and “stareastnet.com.hk”. The domain name “stareast.com” is owned by another company unrelated to the Group. Other unrelated companies also own the domain name registrations for “stareastnet.com.cn” and “stareast.com.cn” in the PRC and “stareastnet.com.tw” and “stareast.com.tw” in Taiwan. The Group has obtained alternative domain name registrations in these countries. The domain name registration for “stareastnet.com.sg” in Singapore has been transferred to the Group. The Group is also in the process of applying for further domain names in Singapore, Japan and Canada.

The Group may not always be able to acquire or maintain relevant domain names in the countries in which it operates now or will operate in the future. Domain name registrations in some of the countries in which the Group may expand may be owned by third parties. The Group may be unable to prevent third parties from acquiring additional domain name registrations that are similar to, infringe or otherwise decrease the value of its trade marks or other proprietary rights. In particular, companies with similar domain names which offer similar content on their websites may diminish the value of the Group’s brand. Customers may be unable to find the Group’s websites and be diverted to sites of other companies, which may compete with its sites. This could have a material and adverse effect on the Group’s business, financial condition and results of operation.

The Group may not be able to rely upon intellectual property protection of certain licensed trademarks the applications of which are being processed

The right to use the trademarks set out in the section headed “Intellectual Property” in Appendix III to this prospectus has been licensed by Star East Concept Limited to the Group (see section headed “Connected Transactions” for details of this arrangement). Star East Concept Limited is in the process of applying for the registration of these trademarks in various jurisdictions under a range of categories. Some of these trademark applications are still being processed. At this stage, the Company does not know whether such service and trademark applications will be approved or whether any conditions will be attached to such approvals. To the extent that Star East Concept Limited is unable to register those trademarks in the relevant jurisdictions, such trademarks are not protected and may be subject to challenge or dispute. The Group may be forced to adopt alternative trademarks for those jurisdictions or, at worst, to re-brand itself entirely, which would be likely to be expensive and which could have a material adverse effect on the Group’s business, financial condition and results of operation.

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The Group may be involved in future litigation with respect to technology rights and intellectual property infringement claims

The Group enters into confidentiality agreements with its employees and consultants and controls access to and distribution of its confidential and proprietary information and technology. Despite these precautions, it may be possible for a third party to copy or otherwise obtain and use such information or technology without authorisation, or to develop similar technology independently. In addition, there are countries where effective copyright, trademark and trade secret or similar protection may be unavailable or limited, and the global nature of the internet makes it virtually impossible to control the ultimate destination of the Group’s products. Policing unauthorised use of the Group’s proprietary information and technology is difficult and there can be no assurance that the steps taken by the Group will prevent misappropriation or infringement of its rights. In addition, litigation may be necessary in the future to enforce the Group’s intellectual property rights, to protect its trade secrets and confidential information or to determine the validity and scope of the proprietary rights of others. This could result in substantial costs and diversion of the Group’s resources and could have a material adverse effect on its business, financial condition and results of operations.

Many companies are actively developing chat, homepage, search and related Web technologies. The Group expects these developers to continue to take steps to protect these technologies, including seeking patent protection. There may be patents issued or pending that are held by others and that cover significant parts of the Group’s business methods, services or any technology used by the Group. For example, the Group is aware that a number of patents have been issued in the areas of e-commerce, Web-based information indexing and retrieval and online direct marketing. Disputes over rights to these technologies are likely to arise in the future.

The Group cannot be certain that its products do not or will not infringe valid and subsisting patents, copyrights or other intellectual property rights of third parties. Furthermore, it is possible that disputes may arise with its contracted celebrities as to how his or her official website content, the copyright of which is jointly owned by the Group and the celebrity, will be used after the termination or expiry of the celebrity’s contract with the Group. The Group may be subject to legal proceedings and claims from time to time relating to the infringement of intellectual property rights of others in the ordinary course of its business. The Group may incur substantial expenses in defending these third party infringement claims, regardless of their merit. Successful infringement claims against the Group may result in substantial monetary liability or may materially and adversely disrupt the conduct of the Group’s business.

The Group may be subject to claims based on information retrieved from and products sold on its network

The laws in the Group’s target markets, including Singapore, Taiwan, North America, Japan, Korea, the PRC and other Southeast Asian countries, relating to the liability of companies which provide online services for activities of their websites’ visitors are currently unsettled. Claims have been made against online service providers and networks in the past for defamation, negligence, copyright or trademark infringement, obscenity, personal injury or other claims based on the nature and content of information that was posted online by their visitors. The Group could be subject to similar claims and incur significant costs in their defense. In addition, the Group could be exposed to liability for the selection of listings that may be accessible through its network or through content and materials that its visitors may post in

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classifieds, message boards, chat rooms or other interactive services. It is also possible that if any information provided through the Group’s services contains errors, third parties could make claims against it for losses incurred in reliance on the information.

The Group offers Web-based e-mail services, which expose it to potential liabilities or claims resulting from:

• unsolicited e-mail;

• lost or misdirected messages;

• illegal or fraudulent use of e-mail; or

• interruptions or delays in e-mail service.

The Group intends to enter into arrangements to offer third party products and services on its network in connection with its e-commerce business under which it may be entitled to receive a share of revenues generated from these transactions. These arrangements may subject the Group to additional claims including product liability or personal injury from the products and services, even if the Group does not itself provide the products or services. These claims may require the Group to incur significant expenses in their defense or satisfaction. While the Group’s agreements with these parties may provide that it will be indemnified against such liabilities, such indemnification may not be adequate.

Investigating and defending these claims is expensive, even if they do not result in liability. The Group’s insurance may not cover potential claims of this type, or may not be adequate to indemnify it from all liability that may be imposed. Any imposition of liability that is not covered by insurance or is in excess of insurance coverage could have a material adverse effect on the Group’s business, financial condition and results of operations or could result in the imposition of criminal penalties. In addition, the increased attention focused on liability issues as a result of these lawsuits and legislative proposals could impact the overall growth of internet use.

The Group’s business and growth will suffer if it is unable to hire and retain key personnel that are in high demand

The Group depends on the services of its senior management and key technical personnel. In particular, the Group’s success depends on the continued efforts of its Chief Executive Officer and Chief Content Officer. The loss of the services of these or other executive officers or any of its key management, sales or technical personnel could have a material adverse effect on its business. In addition, the Group’s success is largely dependent on its ability to hire highly qualified managerial, sales and technical personnel. These individuals are in high demand in the Group’s target markets and it may not be able to attract and maintain the staff it needs.

The intended use of proceeds from the Share Offer may not be utilised as planned

The business plan of the Group as described in the section headed “Statement of Business Objectives” is based on assumptions about future events which by their nature are uncertain and there is no assurance that the plans of the Group will materialise as intended. In the event that any part of the business plans of the Group does not materialise or proceed as planned, the proceeds of the Share Offer may not be utilised

– 33 – RISK FACTORS as described above in the section headed “Statement of Business Objectives – Reasons for the Share Offer and Use of Proceeds” and the Directors may need to reallocate the relevant part of the net proceeds of the Share Offer to other business plans or new internet related projects of the Group or hold such funds in bank accounts so long as the Directors consider it to be in the best interests of the Group. Should the intended use of proceeds be changed, an announcement explaining the changes will be made accordingly.

RISKS RELATING TO THE ASIA-PACIFIC INTERNET INDUSTRY

The Asia-Pacific internet industry is a developing market and has not been proven as an effective commercial medium

The market for internet services in the Asia-Pacific region has only recently begun to develop. Since the internet is a relatively new and rapidly evolving medium for advertising, entertainment and other commercial services, the Group’s future operating results from internet advertising will depend substantially upon the increased use of the internet for information, publication, distribution and commerce and the emergence of the internet as an effective advertising medium in the Asia-Pacific region. Many of the Group’s customers will have limited experience with the internet as an advertising medium or sales and distribution channel, will not have devoted a significant portion of their advertising expenditures or other available funds to internet advertising or website development and may not find the internet to be effective for promoting their products and services relative to traditional print and broadcast media.

Critical issues concerning the commercial use of the internet in the Asia-Pacific region such as security, reliability, cost, absence of reliable distribution networks, ease of deployment, administration, taxation and quality of service may affect the adoption of the internet to solve customer needs. For example, the cost of access may prevent many potential users in the Asia-Pacific region from using the internet. Moreover, the use of credit cards in sales transactions is not a common practice in parts of the Asia-Pacific region. Until the use of credit cards, or another alternative viable means of electronic payment becomes more prevalent, the development of e-commerce through the Group’s network will be seriously impeded. In addition, even when credit cards or another means of electronic payment becomes prevalent throughout the Asia-Pacific region, consumers will have to be confident that adequate security measures protect electronic sale transactions conducted over the internet and prevent fraud.

The Asia-Pacific internet market is intensely competitive

The Asia-Pacific internet market is intensely competitive and the Group’s competitors may better position themselves to compete in this market as it develops. Many of the Group’s competitors and potential competitors have substantially greater financial, technical and marketing resources, larger subscriber bases, longer operating histories, greater name recognition and more established relationships with advertisers and content and application providers. These competitors may be able to undertake more extensive marketing campaigns for their brands and services, adopt more aggressive advertising pricing policies, enter into alliances with content providers and broadband distributors, use superior technology platforms to deliver their products and services; and make more attractive offers to potential employees, distribution partners, e-commerce companies, advertisers and third party content providers. The Group’s competitors may develop products, services or content that achieves greater market acceptance and new competitors may emerge and acquire significant market share, making them more attractive to advertisers.

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The Group expects competition in its industry to continue and increase. Increased competition could result in:

• pressure to reduce the Group’s prices for the sale of advertisements on its network, resulting in lower profit margins;

• inability to develop the Group’s brand; and

• reduced traffic and pageviews on the Group’s portal network and market share.

Any one of these could materially and adversely affect the Group’s revenues. The Group cannot assure investors that it will be able to compete successfully against current or future competitors or that competitive pressures faced by it will not materially and adversely affect its business, operating results or financial condition. Further, as a strategic response to changes in the competitive environment, the Group may make certain pricing, service or marketing decisions or enter into acquisitions or new ventures that could have a material adverse effect on its business, operating results or financial condition. For a more detailed discussion of the competition in the Group’s industry, see the section headed “Business- Competition”.

The Group’s entry into the PRC internet market depends on the establishment of an adequate telecommunications infrastructure

The Group cannot assure you that the internet infrastructure in the PRC will support the demands associated with continued growth. Unlike the Group’s other target markets where the telecommunications infrastructure is comparable to U.S. standards and where private companies compete as internet service providers, the telecommunications infrastructure and market in the PRC are not well developed and are tightly controlled by the Government. Internet access in the PRC is accomplished primarily by means of the backbone of separate national interconnecting networks that connect with the international gateway to the internet. This gateway, which is controlled by the Ministry of Information Industry, PRC, is currently the only channel through which the domestic PRC internet network can connect to the Web. The Group expects that if the PRC becomes a member of the WTO, a rapid increase in the amount of investment in basic telecommunications infrastructure and the number of internet service providers serving the market will follow, thereby easing capacity constraints. However, such projects will not become operational immediately. As a result, the Group will depend on reliable PRC internet infrastructure as it enters into the PRC internet market to develop a base of users in the PRC. The Group may not be able to access alternative networks and services, on a timely basis or at all, in the event of any disruption or failure of the gateway controlled by the Ministry of Information Industry, PRC.

POLITICAL, ECONOMIC AND REGULATORY RISKS

The economic climate in the Asia Pacific region is volatile

Beginning in mid-1997, when the Thai baht first depreciated substantially, many countries and companies in Asia experienced significant economic downturns and related difficulties. As a result of the decline in the value of many of the region’s currencies, many Asian governments and companies had difficulties servicing foreign currency-denominated debt and many corporate borrowers defaulted on their payments. As the economic crisis spread across the region, governments raised interest rates to

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defend their weakening currencies, which adversely affected domestic growth rates. In addition, liquidity was substantially reduced as foreign investors curtailed investments in the region and domestic banks restricted additional lending activity. The currency fluctuations, as well as higher interest rates and other factors, materially and adversely affected the economies of many countries in Asia and estimated real gross domestic product growth for many countries comprising the Group’s target markets decreased. While many believe that many of the Asian economies affected by such events are in the process of recovery, sudden and adverse economic developments in countries throughout Asia could materially and adversely affect the Group’s business, financial condition and results of operations.

The economic crisis and its effect on the Asian economies described above has had and may continue to have an adverse impact on the Group’s business in a number of respects, including but not limited to the following:

• spending levels by both Asian and international companies for advertising in the Asian markets may be substantially reduced;

• payments on the Group’s accounts receivable may be deferred and may become more difficult to collect or uncollectable; and

• the Group’s ability to access lines of credit or other financing may be restricted.

Regulation of the information industry in the PRC may adversely affect the Group’s business

PRC laws, regulations and legal requirements with regard to the internet are relatively new and generally untested, and their interpretation and enforcement by PRC authorities may involve significant uncertainty. In addition, the PRC legal system is a civil law system in which decided legal cases have little precedential value. As a result, in many cases it is difficult to determine the type of content that may result in liability. The Group cannot predict the effect of further developments in the PRC legal system, particularly with regard to the internet, including the promulgation of new laws, changes to existing laws or the interpretation or enforcement thereof, or the preemption of local regulations by national laws.

Periodically, the Ministry of Public Security has stopped the distribution of information over the internet which it believed to be socially destabilising. The PRC Government has also expressed its intention to closely control possible new areas of business presented by the internet, such as internet telephony. If the PRC Government were to take any action to limit or eliminate the distribution of information through the Group’s portal network or to limit or regulate any current or future applications available to users on the Group’s portal network, such action would likely restrict the Group’s ability to expand its business in the PRC and could affect the growth of its revenues.

The PRC Government also regulates access to the internet by imposing strict licensing requirements and requiring internet service providers in the PRC to use the state-owned international inbound and outbound internet backbones. Internet users in the PRC are not able to have access to the internet without depending on such State-controlled backbones. The Group intends to develop its business in the PRC market as set out in the section headed “Statement of Business Objectives” and will explore different forms of operation (including cooperating with local companies) to the extent permitted by PRC laws. Currently, the Group does not directly engage in the internet content providing business and, therefore, is

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not required to obtain any licence for such cooperation. The Group cannot assure you that it will be able to obtain any necessary licence required in the future for expanding its business into the PRC domestic internet market or that future changes in PRC Government policies affecting the provision of information services, including the provision of online services and internet access, will not impose additional regulatory requirements on the Group or on service providers, intensify competition in the PRC information industry, or that PRC laws will not change and render illegal any activities carried on by the Group in the PRC or otherwise have a material adverse effect on its business, financial condition and results of operations.

Regulation of the internet market in the PRC may restrict the Group’s ability to expand its business into the domestic PRC internet market

In addition to designing its websites based outside of the PRC to appeal to users in the PRC, the Group intends to expand its business into the PRC market by operating portals locally in the PRC in the future. However, the strictly regulated internet industry in the PRC may prevent the Group from such expansion.

A series of regulations adopted since 1993 prohibit direct or indirect foreign investment in, operation of, or participation in the operation of, telecommunications services, including computer information and internet access services. Under these regulations, neither foreign companies nor their subsidiaries or joint ventures in the PRC, also known as foreign investment enterprises, may engage in the provision of value- added or other telecommunications services including internet services.

The anticipated entry of the PRC into the WTO following the signing of market access agreements between the United States and the PRC is expected to be accompanied by the adoption of regulations making clear of the right of non-PRC investors to invest in telecommunications and services sectors such as the internet market and e-commerce operations. The WTO agreements will not become effective until the PRC’s accession to the WTO, and they are adopted as domestic law in the PRC. Until such time, existing laws and regulations will continue to apply. Moreover, the laws and regulations adopted to implement the WTO agreements may contain restrictions on ownership structures or permissible activities. For a more detailed description of the regulation of the PRC internet industry, see the section in this prospectus headed “Industry Overview – Telecommunications Regulations – The PRC”.

Until the PRC laws and regulations permit the participation of foreign capital in the domestic internet market, the Group will only be partially and indirectly involved in the PRC internet market by way of granting licences and providing technical support and services to local ICPs based on licensing and servicing agreements. There is a risk that any such local ICPs may breach their agreements with the Group and cease cooperating with it, in which event the Group’s expansion in the PRC and the development of content which appeals to users in the PRC would be materially and adversely affected.

In the future when PRC laws and regulations permit foreign investment in the domestic internet service market, the Group may acquire controlling stakes in local ICPs in the PRC. In addition, the Group may establish PRC subsidiaries and portions of the Group’s revenues would be generated by its business in the PRC.

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A change in currency exchange rates could increase the Group’s costs relative to its revenues

A substantial portion of the Group’s revenues, expenses and liabilities are denominated in HK Dollars. The majority of the Group’s transactions for the purchase of computer equipment are denominated in US Dollars. The Group also generates expenses and liabilities in New Taiwan dollars, Singapore dollars and Canadian dollars. In the future, the Group may also conduct business in additional foreign countries and generate revenues, expenses and liabilities in other foreign currencies. As a result, the Group is subject to the effects of exchange rate fluctuations with respect to any of these currencies. A significant fluctuation in the HK Dollar to US Dollar exchange rate, devaluation in the Renminbi, or similar events, are likely to have a material adverse effect on the Group’s business, financial condition and results of operations. The Group does not enter into agreements or purchase instruments to hedge its exchange rate risks. To date, the Hong Kong Government has continued to support a linkage of the value of the HK Dollar to the US Dollar at approximately HK$7.80 to US$1.00, and the PRC Government has not devalued the Renminbi since 1st January, 1994.

RISKS RELATING TO AN INVESTMENT IN THE SHARES

The prices of its Shares are likely to be highly volatile and could drop unexpectedly

Following the Share Offer, the trading price of Shares could be subject to significant volatility and may fluctuate substantially in response to, among other factors:

– investor perceptions of the Group and investments relating to the Asia-Pacific region;

– developments in the internet industry;

– variations in its operating results;

– announcements of its new product or service offerings;

– technological innovations;

– changes in pricing made by the Group, its competitors or providers of alternative services;

– the depth and liquidity of the market for the Shares; and

– general economic and other factors.

In addition, the stock market has from time to time experienced significant price and volume fluctuations that have affected the market prices for the securities of technology companies, particularly internet companies. As a result, investors in the Shares may experience a decrease in the value of the Shares regardless of its operating performance or prospects.

Dilution resulting from the exercise of options issued under the Pre-IPO Share Option Scheme

As of the date of this prospectus, options to subscribe for an aggregate of 100,000,000 Shares at an exercise price equal to the Offer Price have conditionally been granted by the Company under

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the Pre-IPO Share Option Scheme. In the event that grantees under the Pre-IPO Share Option Scheme exercise their options to subscribe for Shares, investors will incur immediate dilution in their shareholdings.

An active trading market for the Shares may not develop or be sustained

Prior to the Share Offer, there has been no public market for any class of the capital stock of the Company, including the ordinary shares. The initial public offering prices for the Shares will be determined by negotiation between the Company and its underwriters. These prices may not be indicative of the prices at which the Shares will trade following the completion of the Share Offer. For a discussion of the factors that will be considered in determining the initial public offering prices, see the section headed “Underwriting”.

In addition, the Company cannot guarantee that active trading markets for the Shares will develop, or, if they do develop, will be sustained following the completion of the Share Offer, or that the market prices of the Shares will not decline below the initial offering price.

Forward-looking statements contained in this prospectus may not be accurate

Included in this prospectus are various forward-looking statements which can be identified by the use of forward looking terminology such as “may”, “will”, “expect”, “anticipate”, “estimate”, “continue”, “believe” or similar words. The Company has made forward-looking statements with respect to, among other things:

• its goals and strategies;

• the importance and expected growth of internet technology;

• the pace of change in internet marketplace;

• the demand for internet services; and

• advertising revenues.

These statements are forward-looking and reflect its current expectations. They are subject to a number of risks and uncertainties, including but not limited to, changes in the economic and political environments in the Asia-Pacific region, changes in technology and changes in the internet marketplace. In light of the many risks and uncertainties surrounding the Group, the Asia-Pacific region and the internet marketplace, prospective subscribers of the Shares should keep in mind that the Group cannot guarantee that the forward-looking statements described in this prospectus will realise.

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CONNECTED TRANSACTIONS

Members of the Group are parties to certain transactions that will, upon the listing of the Company on GEM, constitute continuing connected transactions for the purposes of the GEM Listing Rules. These transactions (details of which are set out in the section headed “Connected Transactions” of this prospectus) include:

1. the licensing of trademarks to the Group by Star East Concept Limited, which is a wholly- owned subsidiary of Star East Holdings, a connected person of the Company (as defined in the GEM Listing Rules);

2. air-time contract with PCC;

3. the provision of films titles by Bob to the Group for distribution;

4. the provision of technical services by CBN to the Group;

5. the provision of marketing and advertising services to Star East Holdings by the Group;

6. the provision of sponsorship by the Group to Bob; and

7. celebrity contracts with Mr. Tam Wing Lun, Alan and Mr. Chan Pak Cheung, Natalis (both executive Directors) and Mr. Chan Kong Sang, Jackie (a non-executive Director).

In the opinion of the Directors (including the independent non-executive Directors), BNP Prime Peregrine and Tai Fook, the above transactions are entered into under normal commercial terms and in the ordinary and usual course of business, and are fair and reasonable and in the interests of the shareholders of the Company as a whole.

The connected transactions described above (the “Non-Exempt Continuing Connected Transactions”) constitute non-exempt continuing transactions under Rule 20.26 of the GEM Listing Rules and are therefore subject to the reporting requirement set out in Rule 20.34, the announcement requirement set out in Rule 20.35 and the shareholders’ approval requirement set out in Rule 20.36 of the GEM Listing Rules. It is considered that strict compliance with the requirements for these Non-Exempt Continuing Connected Transactions would be impractical. As such, the Company has applied to the Stock Exchange for a waiver from the requirements for the Non-Exempt Continuing Connected Transactions for the period up to 31st March, 2003. The Stock Exchange has indicated that it will grant waivers from the need to comply with the requirements in respect of the Non-Exempt Continuing Connected Transactions on the following conditions:

(a) the Non-Exempt Continuing Connected Transactions are entered into, and the terms of the respective agreements governing such transactions are:

(i) in the ordinary and usual course of business of the Group;

(ii) on normal commercial terms or on terms that are fair and reasonable so far as the Company’s shareholders are concerned; and

(iii) in accordance with the terms of the agreements governing such transactions or on terms that are no less favourable than terms available to (or from) independent third parties;

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(b) details of the Non-Exempt Continuing Connected Transactions shall be disclosed in the Company’s next and each successive annual report in accordance with Rule 20.34 of the GEM Listing Rules;

(c) the independent non-executive Directors of the Company shall review annually the Non- Exempt Continuing Connected Transactions and confirm in the Company’s annual report and accounts that such transactions are conducted in accordance with Rule 20.27 of the GEM Listing Rules;

(d) the Company shall engage its auditors to provide the Company’s board of Directors with a letter in respect of each relevant financial year during which the Non-Exempt Continuing Connected Transactions are conducted, stating that such transactions:

(i) have received the approval of the Company’s board of Directors;

(ii) are in accordance with the pricing policies of the Group if the transactions involve the provision of goods or services by the Group;

(iii) have been entered into in accordance with the terms of the relevant agreements governing such transactions;

(iv) have not exceeded the caps agreed with the Stock Exchange in respect of the Non- Exempt Continuing Connected Transactions (the “Caps”); and

(e) the Company shall promptly notify the Stock Exchange if it knows or has reason to believe that the independent non-executive Directors and/or the auditors will not be able to confirm the matters set out in Rules 20.27 and/or 20.28 of the GEM Listing Rules respectively and the Company may have to re-comply with Rules 20.63(3) and (4) of the GEM Listing Rules and any other conditions the Stock Exchange considers appropriate; and

(f) the Company and each of the counterparties shall undertake to provide the Company’s auditors with full access to its relevant records for the purpose of the auditors’ review of the Non- Exempt Continuing Connected Transactions.

In the event that any of the Caps are exceeded or if the Group enters into any new transactions or agreements with any connected persons (within the meaning of the GEM Listing Rules) in the future, the Company will comply with the provisions of Chapter 20 of the GEM Listing Rules dealing with connected transactions unless it applies for, and obtains, a separate waiver from the Stock Exchange. In addition, if any of the Non-Exempt Continuing Connected Transactions shall continue after the expiry of the current waiver on 31st March, 2003, the Group will comply with the provisions of Chapter 20 of the GEM Listing Rules in relation to such Non-Exempt Continuing Connected Transactions, unless the Group obtains another waiver from the Stock Exchange in relation thereto.

TRACK RECORD PERIOD

Pursuant to Rule 11.12 of the GEM Listing Rules, an issuer must demonstrate that throughout the period of 24 months immediately preceding the date of the listing document, it has, either by itself or through one or more of its subsidiaries, actively pursued one focused line of business under substantially the same management and ownership as exist at the time of the application for listing. However, the Group’s main operating subsidiary, STAREASTnet (BVI), was only incorporated in February 1999. As a result of an application made on behalf of the Company, the Stock Exchange has granted a waiver from strict compliance with the above requirement, allowing the Company to set out a shorter period of active business pursuits from February 1999 to the Latest Practicable Date in this prospectus.

– 41 – WAIVERS IN RESPECT OF THE GEM LISTING RULES AND COMPANIES ORDINANCE

LOCK-UP

Under Rule 13.16 of the GEM Listing Rules, a new applicant shall procure, inter alia, that every Initial Management Shareholder undertakes to the new issuer and the Stock Exchange not, for a period of two years from the listing date, save as provided in Rule 13.17 of the GEM Listing Rules, to dispose of (or enter into any agreement to dispose of) or permit the registered holder to dispose of (or to enter into any agreement to dispose of) any direct or indirect interest in the relevant securities.

Moratorium period

Under the GEM Listing Rules, Hanny, PCCW, Splendid Stars, Tam Wing Lun, Alan, Chan Pak Cheung, Natalis, Genius Ideas, Gold Miracles, SEIT Management, Star East Holdings, Star East (BVI) and Hikari are considered to be the Initial Management Shareholders and would ordinarily be subject to a moratorium period of two years. As a result of an application made on behalf of the Company, the Stock Exchange has granted a waiver to the effect that the moratorium period applicable to the Initial Management Shareholders has been reduced to six months in respect of an aggregate of 830,000,000 Shares (representing 83% of the enlarged issued share capital of the Company after listing). Thereafter, the Initial Management Shareholders shall be subject to a further six-month moratorium period in respect of an aggregate of 350,000,000 Shares (representing 35% of the enlarged issued share capital of the Company after listing).

The following sets out a list of Initial Management Shareholders whose Shares will be subject to lock-up:

Moratorium Period Number of Shares Number of Shares subject to the subject to the Percentage of 1st Moratorium Period 2nd Moratorium Period Shares subject Initial commencing from Percentage of Shares commencing from to the Management 1st June, 2000 to subject to the 1st December, 2000 2nd Moratorium Shareholders 30th November, 2000 1st Moratorium Period to 31st May, 2001 Period (Note 2) (Note 1) (Note 3)

Genius Ideas 225,760,000 22.58% 95,200,000 9.52%

Hanny (Hanny undertakes not to dispose of its indirect beneficial interests in Genius Ideas and the Company)

Gold Miracles 87,150,000 8.71% 36,750,000 3.68%

Tam Wing Lun, Alan (Tam Wing Lun, Alan and Chan Pak Cheung, Natalis undertake not to dispose of their respective interests in Chan Pak Cheung, Natalis Gold Miracles and the Company)

SEIT Management 332,000,000 33.20% 140,000,000 14.00%

Splendid Stars and (Splendid Stars and Star East (BVI) undertake not to dispose of their respective interests in SEIT Management Star East (BVI) and the Company)

PCCW (PCCW undertakes not to dispose of its indirect beneficial interests in Splendid Stars and the Company)

Star East (BVI) 35,690,000 3.57% 15,050,000 1.50%

– 42 – WAIVERS IN RESPECT OF THE GEM LISTING RULES AND COMPANIES ORDINANCE

Star East Holdings (Star East Holdings undertakes not to dispose of its interests in Star East (BVI) and the Company)

Hikari 149,400,000 14.94% 63,000,000 6.30%

Note 1: On the assumption that the Over-allotment Option is not exercised.

Note 2: Each of the Initial Management Shareholders has undertaken with the Company, the Sponsors and the Stock Exchange that it/he will not dispose of any of its/his respective direct or indirect interest in the Company during the first six months following the listing.

Note 3: Each of the Initial Management Shareholders has undertaken with the Company, the Sponsors and the Stock Exchange that it/he will not dispose of any of its/his direct or indirect interest in the Company in the second six- month period after listing such that they would in aggregate hold less than 35% of the issued share capital of the Company.

Placing and top-up transactions

In order to facilitate the Group in raising funds by way of a placing and top-up transaction after 6 months of listing, the Company has applied for a waiver from strict compliance with Rule 13.16(2) of the GEM Listing Rules to allow its Initial Management Shareholders to first dispose any of their Shares subject to the moratorium period prior to the subsequent top-up by way of a subscription for new Shares. The Initial Management Shareholders have undertaken that they will apply the whole of the sale proceeds received from such a placing to subscribe for new Shares in order to maintain the Initial Management Shareholders’ interest in the same number of Shares they had held in the Company prior to such placing and such newly subscribed Shares will also be subject to the lock-up provision of Rule 13.16(2) of the GEM Listing Rules unless they are subsequently disposed of pursuant to another placing and top-up transaction.

Stock borrowing

In order to facilitate settlement of over-allocations in connection with the Placing and the distribution of Shares under the Placing, BNP Prime Peregrine Securities may borrow Shares from Star East (BVI) under a stock borrowing arrangement pending exercise of the Over-allotment Option and/or acquisition of Shares in the secondary market. As the Shares held by Star East (BVI) are subject to the moratorium period as described above, an application has been made to the Stock Exchange for a waiver from strict compliance with Rule 13.16 of the GEM Listing Rules (as explained above) for the purpose of implementing the stock borrowing arrangement. A waiver has been granted by the Stock Exchange on condition that:

(i) the stock borrowing arrangement with Star East (BVI) may only be effected by BNP Prime Peregrine Securities for settlement of over-allocations in connection with the Placing;

(ii) the maximum number of Shares to be borrowed from Star East (BVI) must not exceed the maximum number of Shares which may be issued upon full exercise of the Over-allotment Option;

– 43 – WAIVERS IN RESPECT OF THE GEM LISTING RULES AND COMPANIES ORDINANCE

(iii) the same number of Shares borrowed shall be returned to Star East (BVI) not later than three business days following the earlier of (a) the last day on which the Over-allotment Option may be exercised or (b) the day on which the Over-allotment Option is exercised in full; and

(iv) the returned Shares will be placed in escrow as soon as practicable with an escrow agent acceptable to the Stock Exchange.

This stock borrowing arrangement will be effected in compliance with all applicable laws and regulatory requirements. No benefits nor payments will be made to Star East (BVI) in relation to such stock borrowing arrangement.

SHARE OPTION SCHEMES

The Share Option Schemes were adopted by a resolution in writing passed by Shareholders of the Company on 15th May, 2000. Rule 23.03(2) of the GEM Listing Rules requires that the total number of Shares subject to the Employee Share Option Scheme and any other schemes must not, in aggregate exceed 10% of the issued share capital of the Company from time to time (the “Scheme Limit”). The Company has applied for a waiver from strict compliance with Rule 23.03(2) of the GEM Listing Rules so that the Scheme Limit can be increased to 30% of the issued share capital of the Company from time to time. Such waiver has been granted by the Stock Exchange subject to the following conditions:

(1) The total number of Shares which may be acquired pursuant to the exercise of options under the Employee Share Option Scheme and any other schemes (including the Pre-IPO Share Option Scheme), must not, in aggregate, exceed 30% of the issued share capital of the Company from time to time.

(2) Subject to (1) above, the Company may seek approval by shareholders in general meeting to grant options under the Employee Shares Option Scheme and any other schemes (including the Pre-IPO Share Option Scheme) representing up to an aggregate of 10% of the issued share capital of the Company at the time of approval (“General Mandate Limit”), which may be renewed by shareholders in general meeting from time to time.

(3) Subject to (1) above, the Company may seek a separate shareholders’ approval in general meeting to grant options beyond the General Mandate Limit to participants specified by the Company before such approval is sought.

(4) If options are granted to a connected person (as such term is defined in the GEM Listing Rules), the granting of such option will be subject to all independent non-executive Directors’ approval and where options are proposed to be granted to a connected person who is also a substantial shareholder (as such term is defined in the GEM Listing Rules) or any of its associates, and the proposed grant of options, when aggregated with the options already granted to that connected person in the past 12 months period, would entitle him to receive more than 0.1% of the total issued Shares for the time being and the value of which is in excess of HK$5,000,000, the granting of such option will be subject to independent Shareholders’ approval.

– 44 – WAIVERS IN RESPECT OF THE GEM LISTING RULES AND COMPANIES ORDINANCE

(5) Additional disclosures will be made in the annual and interim reports of the Company:

(i) details of options granted to the following persons: each director and all the other participants; and

(ii) a summary of the major terms of each share option scheme approved by Shareholders.

As at the Latest Practicable Date, the number of options granted (and remaining exercisable) under the Pre-IPO Share Option Scheme represents 10% of the issued share capital of the Company immediately after the Share Offer (excluding Shares to be issued under the Over-allotment Option or resulting from the exercise of any options granted under the Pre-IPO Share Option Scheme), details of which are set out in Appendix III to this prospectus. Pursuant to a shareholder’s resolution passed on 15th May, 2000, the Company may issue additional options under the Employee Share Option Scheme within the General Mandate Limit which could result in the Company having outstanding options which, when added to the existing 10%, represent a total of 20% of the Company’s enlarged issued share capital (excluding Shares resulting from the exercise of options). Any further grant of options would be dependent on shareholders approving either a renewal of the General Mandate Limit or a grant of options to specified participants.

COMPANIES ORDINANCE WAIVERS

For the purpose of the listing of the Shares on GEM, the Company has sought a number of waivers from the Hong Kong Securities and Futures Commission in relation to certain requirements under the Companies Ordinance. Details of these waivers are described below.

Pre-IPO Share Option Scheme

Under paragraph 10(d) of Part I of the Third Schedule to the Companies Ordinance, this prospectus is required to include details of the number, description and amount of any Shares which any person has, or is entitled to be given, an option to subscribe for, together with certain particulars of each option, namely the period during which it is exercisable, the price to be paid for the Shares subscribed for under it, the consideration (if any) given or to be given for it and the name and address of the person to whom it was given. As at the date of this prospectus, the Company has granted options to 136 persons to subscribe for a total of 100,000,000 Shares (being 10% of the enlarged issued share capital of the Company, assuming that the Over-allotment Option is not exercised) on the terms set out in Appendix III under the paragraph headed “Outstanding options under the Pre-IPO Share Option Scheme” in the section headed “Pre-IPO Share Option Scheme”.

The Company has applied for a waiver from the Hong Kong Securities and Futures Commission from full compliance with the disclosure requirements of paragraph 10(d) of Part I of the Third Schedule to the Companies Ordinance in relation to the Pre-IPO Option Scheme grantees who have been granted options in respect of less than 1,000,000 Shares on the ground that full compliance with these requirements would be unduly burdensome for the Company, and the Hong Kong Securities and Futures Commission has granted such a waiver to the Company pursuant to Section 342A of the Companies Ordinance on the conditions that;

(a) Full details of all the options granted by the Company under the Pre-IPO Share Option Scheme to the Executive Directors, the Non-Executive Directors, the Independent Non-

– 45 – WAIVERS IN RESPECT OF THE GEM LISTING RULES AND COMPANIES ORDINANCE

Executive Directors and the senior management staff of the Group (which include contracted artistes and strategic investment advisors who have been granted options entitling them to acquire 1,000,000 Shares or more) will be disclosed in the prospectus, such details to include all the particulars required under paragraph 10 of Third Schedule to the Companies Ordinance; and

(b) A list of all the grantees who have been granted options under the Pre-IPO Option Scheme (including the persons referred to in paragraph 1 above) containing all the particulars as required under Paragraph 10 of the Third Schedule to the Companies Ordinance will be made available for public inspection in accordance with the paragraph entitled “Documents Available for Inspection” in Appendix IV to the prospectus.

Please refer to the paragraphs entitled “Pre-IPO Share Option Scheme” and “Outstanding Options under the Pre-IPO Share Option Scheme” in Appendix III to this prospectus for further details of the options referred to above.

Financial period reported on

According to paragraph 31 of the Third Schedule to the Companies Ordinance and Rules 7.03(1) and 11.10 of the GEM Listing Rules, the Company is required to include its financial results for each of the two years ended 31st March, 2000 in the accountants’ report. As the financial year of the Group ends on 31st March and this prospectus includes the combined results of the Group covering the period from 18th February, 1999 to 31st March, 1999 and the eleven-month period ended 29th February, 2000, the Directors consider full compliance with Rule 7.03(1) and 11.10 of the GEM Listing Rules and paragraph 31 of the Third Schedule of the Companies Ordinance respectively, in respect of the financial year immediately proceeding the date of this prospectus ended 31st March, 2000, to be unduly burdensome. The Company has thereby applied for a waiver from strict compliance with such GEM Listing Rules from the Stock Exchange and for a waiver from strict compliance with such paragraph 31 from the Securities and Futures Commission. The Securities and Futures Commission and the Stock Exchange have granted waivers in relation to strict compliance with paragraph 31 of the Third Schedule to the Companies Ordinance and Rules 7.03(1) and 11.10 of the GEM Listing Rules, respectively such that the accountants’ report covers only the period from 18th February, 1999 to 31st March, 1999 and the eleven-month period ended 29th February, 2000. The Directors confirm that they have performed sufficient due diligence on the Group to ensure that up to the date of issue of this prospectus, there has been no material adverse change in the financial position of the Group since 1st March, 2000, and there is no event which would materially affect the information shown in the accountants’ report set out in Appendix I.

– 46 – INFORMATION ABOUT THIS PROSPECTUS AND THE SHARE OFFER

DIRECTORS’ RESPONSIBILITY FOR THE CONTENTS OF THIS PROSPECTUS

This prospectus, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Companies Ordinance and the GEM Listing Rules for the purposes of giving information with regard to the Group. The Directors, having made all reasonable enquiries, confirm that, to the best of their knowledge and belief:

1. the information contained in this prospectus is accurate and complete in all material respects and not misleading;

2. there are no other matters the omission of which would make any statement in this prospectus misleading; and

3. all opinions expressed in this prospectus have been arrived at after due and careful consideration and are founded on bases and assumptions that are fair and reasonable.

FULLY UNDERWRITTEN

This prospectus is published in connection with the Share Offer which is sponsored by BNP Prime Peregrine Capital and Tai Fook Capital. The Offer Shares are fully underwritten by the Underwriters pursuant to the Underwriting Agreement. For further information relating to the underwriting arrangements, please see the section headed “Underwriting” in this prospectus.

RESTRICTIONS ON SALE OF SHARES

No action has been taken in any jurisdiction other than Hong Kong to permit an offering of the Offer Shares or the distribution of this prospectus to the public in any jurisdiction other than Hong Kong. Accordingly, this prospectus may not be used for the purpose of, and does not constitute, an offer or invitation in any jurisdiction or in any circumstances in which such an offer or invitation is not authorised or to any person to whom it is unlawful to make such an offer or invitation. The distribution of this prospectus and the offering of the Offer Shares in certain jurisdictions may be restricted by law.

The Offer Shares are offered solely on the basis of the information contained and the representations made in this prospectus. No person is authorised in connection with the Share Offer to give any information or to make any representation not contained in this prospectus and the related application forms. Any information or representation not contained in this prospectus and the related application forms must not be relied upon as having been authorised by the Company, the Global Coordinator, the Underwriters, any of their respective directors or any other person involved in the Share Offer.

United States

The Offer Shares have not been and will not be registered under the Securities Act, and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except in certain transactions exempt from the registration requirements of the Securities Act. Terms used in this paragraph have the meanings given to them by Regulation S.

– 47 – INFORMATION ABOUT THIS PROSPECTUS AND THE SHARE OFFER

Each of the Underwriters has agreed that, except as permitted by the Underwriting Agreement, it will not offer or sell the Offer Shares (i) as part of its distribution at any time or (ii) otherwise until 40 days after the latest of the commencement of the Placing, the commencement of the Public Offer, and the closing date for any exercise of Over-allotment Option (the “Distribution Compliance Period”), within the United States or to, or for the account or benefit of, U.S. persons, and it will have sent to each dealer to which it sells the Offer Shares during the Distribution Compliance Period a confirmation or other notice setting forth the restrictions on offers and sales of the Offer Shares within the United States or to, or for the account or benefit of, U.S. persons.

The Offer Shares are being offered and sold outside the United States to non-U.S. persons in reliance on Regulation S. The Underwriting Agreement provides that the Global Coordinator, and such Underwriters as the Global Coordinator may designate, may, through their U.S. broker-dealer affiliates, arrange for the offer and the sale of the Offer Shares within the United States only to Qualified Institutional Buyers (within the meaning of Rule 144A) in reliance on an exemption from the registration requirements of the Securities Act.

In addition, until 40 days after the commencement of the Share Offer, an offer or sale of the Shares within the United States by any dealer, whether or not such dealer is participating in the Share Offer, may violate the registration requirements of the Securities Act if such offer or sale is made other than in accordance with Rule 144A or another exemption from the registration requirements of the Securities Act.

Singapore

This prospectus has not been registered and will not be registered as a prospectus with the Registrar of Companies and Businesses in Singapore and the Offer Shares will be offered in Singapore pursuant to exemptions invoked under Sections 106C and 106D of the Companies Act, Chapter 50 of Singapore (the “Singapore Companies Act”). Accordingly, this prospectus and any other document or materials relating to the Offer Shares may not be issued, circulated or distributed in Singapore nor may any of the Offer Shares be offered for subscription or sold, directly or indirectly, nor may an invitation or offer to subscribe for or purchase any Offer Shares be made, directly or indirectly, to the public or any member of the public in Singapore other than (a) to an institutional investor or other person specified in Section 106C of the Singapore Companies Act; (b) to a sophisticated investor, and in accordance with the conditions, specified in Section 106D of the Singapore Companies Act; or (c) otherwise pursuant to, and in accordance with the conditions of, any other provisions of the Singapore Companies Act. The Registrar of Companies and Businesses in Singapore takes no responsibility as to the contents of this prospectus.

Japan

The Offer Shares have not been and will not be registered under the Securities and Exchange Law of Japan and are not being offered or sold and may not be offered or sold, directly or indirectly, in Japan or to, or for the account of, any resident of Japan, except (i) pursuant to an exemption from the registration requirements of the Securities and Exchange Law of Japan and (ii) in compliance with any other applicable requirements of Japanese law.

– 48 – INFORMATION ABOUT THIS PROSPECTUS AND THE SHARE OFFER

Cayman Islands

No offer of Shares may be made to the public in the Cayman Islands.

Each person acquiring the Offer Shares will be required to, or be deemed by his acquisition of Offer Shares to, confirm that he is aware of the restrictions on offers of the Offer Shares described in this prospectus.

APPLICATION FOR LISTING ON GEM

Application has been made to the GEM Listing Committee for the listing of, and permission to deal in, the Shares in issue, the Shares to be issued pursuant to the Share Offer and any Shares which may be issued pursuant to the exercise of the Over-allotment Option, and Shares which may fall to be issued upon exercise of options granted under the Share Option Schemes. No part of the share or loan capital of the Company is listed or dealt in on any other stock exchange and at present no such listing or permission to deal is being proposed to be sought.

HONG KONG BRANCH REGISTER AND STAMP DUTY

Dealings in Shares registered on the Company’s Hong Kong branch register of members will be subject to Hong Kong stamp duty.

PROFESSIONAL TAX ADVICE RECOMMENDED

If you are unsure about the taxation implications of the subscription, purchase, holding or disposal of, dealing in, or the exercise of any rights in relation to the Offer Shares, you should consult an expert.

The Company, the Directors, the Underwriters and any other person involved in the Share Offer do not accept responsibility for any tax effects on or liabilities resulting from the subscription for, or purchase, holding or disposal of, or dealing in or the exercise of any rights in relation to, the Offer Shares.

PROCEDURES FOR APPLICATION FOR PUBLIC OFFER SHARES

The procedures for applying for the Public Offer Shares are set out in the section headed “How to apply for Public Offer Shares” and in the relevant application forms.

STRUCTURE OF THE SHARE OFFER

Details of the structure of the Share Offer are set out in the section headed “Structure of the Share Offer”.

– 49 – INFORMATION ABOUT THIS PROSPECTUS AND THE SHARE OFFER

SHARES WILL BE ELIGIBLE FOR CCASS

Subject to the granting of listing of, and permission to deal in, the Shares on GEM as well as compliance with the stock admission requirements of Hongkong Clearing, the Shares will be accepted as eligible securities by Hongkong Clearing for deposit, clearance and settlement in CCASS with effect from the date of commencement of dealings in the Shares on GEM or on any other date Hongkong Clearing chooses. Investors should seek the advice of their stockbroker or other professional adviser for details of those settlement arrangements as such arrangements will affect their rights and interests. Settlement of transactions between participants of the Stock Exchange is required to take place in CCASS on the second business day after any trading day.

All activities under CCASS are subject to the General Rules of CCASS and CCASS Operational Procedures in effect from time to time.

All necessary arrangements have been made for the Shares to be admitted into CCASS.

– 50 – DIRECTORS AND PARTIES INVOLVED IN THE SHARE OFFER

DIRECTORS

Executive Directors

Name Address Nationality

Tam Wing Lun, Alan Flat 1B Chinese 32 Kennedy Road (Hong Kong) Hong Kong

Wong Kun To Flat B, 13th Floor Canadian Block 1 Wing On Tower 7 Boyce Road Jardine’s Lookout Hong Kong

Chan Pak Cheung, Natalis Flat D3, 6th Floor Chinese Faber Garden (Hong Kong) 6 Marconi Road Kowloon Hong Kong

Non-executive Directors

Peter Anthony Allen Ground Floor British Flat 28 Hanae Villa 28-30 Stubbs Road Hong Kong

Chung Cho Yee, Mico House 8B British Chateau de Peak 8 Mount Kellett Road The Peak Hong Kong

Chan Kong Sang, Jackie Ground Floor Chinese 145 Waterloo Road (Hong Kong) Kowloon Tong Kowloon Hong Kong

Masahide Saito 4-20-2 Ebisu Japanese Shibuya-ku Tokyo Japan

– 51 – DIRECTORS AND PARTIES INVOLVED IN THE SHARE OFFER

Name Address Nationality

Masanori Suzuki 3-10-19 Japanese Minami-Azabu Minato-ku Tokyo Japan

Independent non-executive Directors

Bradford Allen 17 Forest Hills American Monarch Beach CA 92629 United States of America

Dominic Lai Apartment 10, 3rd Floor Chinese Vivian Court (Hong Kong) 18-22 Mount Kellett Road The Peak Hong Kong

Cheung Ting Kau, Vincent 51D Mount Kellett Road British The Peak Hong Kong

– 52 – DIRECTORS AND PARTIES INVOLVED IN THE SHARE OFFER

PARTIES INVOLVED

Global Coordinator BNP Prime Peregrine Securities 23rd Floor New World Tower 16-18 Queen’s Road Central Hong Kong

Joint Sponsors and Lead Managers BNP Prime Peregrine 23rd Floor New World Tower 16-18 Queen’s Road Central Hong Kong

Tai Fook 25th Floor New World Tower 16-18 Queen’s Road Central Hong Kong

Placing Underwriters and BNP Prime Peregrine Securities Public Offer Underwriters 23rd Floor New World Tower 16-18 Queen’s Road Central Hong Kong

Tai Fook Securities 25th Floor New World Tower 16-18 Queen’s Road Central Hong Kong

CLSA Limited 38th Floor, Lippo Centre Tower 2 89 Queensway Hong Kong

CU Securities Limited 11th Floor, HK Diamond Exchange Limited 8-10 Duddell Street Hong Kong

Nomura International (Hong Kong) Limited 20th Floor, Asia Pacific Finance Tower Citibank Plaza 3 Garden Road Hong Kong

– 53 – DIRECTORS AND PARTIES INVOLVED IN THE SHARE OFFER

Celestial Capital Limited 22nd Floor, 2601-03, The Centre 89 Queen’s Road Hong Kong

NSC Securities (Asia) Limited 1218 Central Building 1 Pedder Street Hong Kong

Legal Advisers to the Company as to Hong Kong and US law Clifford Chance 29th Floor Jardine House 1 Connaught Place Hong Kong

as to Hong Kong law Iu, Lai & Li 9th and 15th Floors The Bank of East Asia Building Central Hong Kong

as to Cayman Islands law Maples and Calder Asia Suite 1002, One Exchange Square 8 Connaught Place Hong Kong

Legal Advisers to the Underwriters as to Hong Kong and US law Linklaters 10th Floor Alexandra House 16-20 Chater Road Hong Kong

Auditors and Reporting Accountants Deloitte Touche Tohmatsu Certified Public Accountants 26th Floor, Wing On Centre 111 Connaught Road Central Hong Kong

– 54 – DIRECTORS AND PARTIES INVOLVED IN THE SHARE OFFER

Property valuer American Appraisal Hongkong Limited Suite 2901 29th Floor Central Plaza 18 Harbour Road Wanchai Hong Kong

Receiving banker The Hongkong and Shanghai Banking Corporation Limited 1 Queen’s Road Central Hong Kong

– 55 – CORPORATE INFORMATION

Registered office Ugland House P.O. Box 309 George Town Grand Cayman Cayman Islands British West Indies

Head office Units 2509-11 and principal place of business Paul Y. Centre 51 Hung To Road Kwun Tong, Kowloon Hong Kong

Website www.stareastnet.com

Company secretary Ms. Wong Lai Kin, Elsa Solicitor, Hong Kong

Qualified accountant Mr. Wong Yiu Hung FCCA, AHKSA

Compliance officer Mr. Wong Kun To

Audit committee Mr. Bradford Allen Mr. Dominic Lai Mr. Cheung Ting Kau, Vincent

Compensation committee Mr. Bradford Allen Mr. Dominic Lai Mr. Cheung Ting Kau, Vincent Mr. Chung Cho Yee, Mico

Authorised representatives Mr. Wong Kun To Ms. Wong Lai Kin, Elsa

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

Principal share registrar Bank of Butterfield International (Cayman) Limited and transfer office P.O. Box 705 Butterfield House, Fort Street George Town Grand Cayman Cayman Islands British West Indies

Hong Kong branch share registrar Central Registration Hong Kong Limited and transfer office Rooms 1712-1716 17th Floor, Hopewell Centre 183 Queen’s Road East Hong Kong

– 56 – INDUSTRY OVERVIEW

The information provided in this section is derived from various sources and/or government publications. This information has not been prepared or independently verified by the Company, the Sponsors, the Underwriters or their respective legal or financial advisers.

DEVELOPMENT OF THE INTERNET

The internet is a global network of interconnected, separately administered public and private computer networks that enables commercial organisations, educational institutions, government agencies and individuals to communicate, access and share information, provide entertainment and conduct business remotely. Use of the internet has grown rapidly in Asia and elsewhere since the early 1990s. During the past few years, the number of internet users, advertisers and content developers and businesses conducted online has grown dramatically. With readily-available, low-cost internet access, consumers and businesses are making increased use of Web browsers, e-mail, corporate intranets, telecommuting, online advertising and electronic commerce. IDC estimates that the number of internet users worldwide is projected to grow from approximately 155.6 million at the end of 1998 to approximately 525.7 million by the end of 2003.

Internet usage continues to be stimulated by a number of factors, including the emergence of the World Wide Web, the increasing sophistication of internet browsers and Web-enabled software, the availability of low-cost, flat-rate pricing for internet access and online services, and the wealth of increasingly-useful information published on the internet. Technological advances relating to the internet, such as broadband cable networks, continue to develop rapidly, resulting in more robust and lower cost infrastructure, improved security and increased value-added services and content. Growth in client/server computing, multimedia personal computers and online computing services and the proliferation of networking technologies have resulted in a large and growing group of people who are accustomed to using networked computers for a variety of purposes, including e-mail, electronic financial transactions and entertainment.

WORLD WIDE WEB

The Web is a network of servers and a network medium rich in information, content, activities and services. A few examples of what is available on the Web include online magazines, specialised news feeds, interactive games and educational and entertainment applications, that are increasingly incorporating multimedia information such as video and near-CD-quality audio clips. The rapid development of the Web has introduced fundamental changes in the way information can be produced, distributed and consumed, lowering the cost of publishing information and extending its potential reach. Companies from many industries are publishing products and company information or advertising materials and collecting customer feedback and demographic information interactively. The structure of Web documents allows an organisation to publish significant quantities of information while simultaneously allowing each user to view selected information that is of particular interest in a cost effective and timely fashion.

ASIA-PACIFIC INTERNET GROWTH OPPORTUNITIES

The Directors believe the Asia-Pacific region presents a promising market for internet growth. According to IDC’s November 1999 publication, “The Internet Market in Asia Pacific (excluding Japan), 1997-2004”, the number of internet users in the Asia-Pacific region (excluding Japan) is expected to increase from 21.8 million at the end of 1999 to 95.2 million by the end of 2004. In the more developed

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U.S. internet market, the number of internet users is projected to increase from 87.3 million in 1999 to 181.1 million in 2003.

In its November 1999 publication, IDC has projected high growth in both internet usage and personal computer installations, important indicators for internet accessibility, in each of the primary markets in which the Group currently operates or intends to establish operations.

The existing proliferation of websites and development of internet technologies has allowed online advertisers and merchants to target specific demographic and geographic groups and to capture valuable data about their buying patterns and consumer preferences, thereby enhancing the effectiveness of online advertisements and encouraging the growth of e-commerce. Based on data from IDC, worldwide e- commerce revenues, including personal, business and supply chain management expenditures, are estimated to grow from US$48.4 billion in 1998 to US$1.3 trillion in 2003. As internet advertising and e-commerce markets mature, the Directors believe online advertisers and retailers will increasingly spend their marketing dollars on more focused websites to reach specific demographic groups.

IDC has estimated the total online advertising expenditures in Asia (excluding Japan) to increase from US$67 million in 1999 to US$1.395 billion in 2003. Based on IDC data, e-commerce revenue in Asia is expected to grow from US$2.2 billion in 1999 to US$51.3 billion in 2003. The Directors believe that internet users in Asia will increasingly rely on the Web for access to content, communications and commerce, and will provide advertisers and merchants with a demographically attractive and easily targeted audience.

The Directors believe that the economic downturn and volatility in the Asia Pacific region has not significantly slowed the rate of internet penetration in many Asia Pacific markets. The Directors believe that consumers and corporate customers have discovered that internet applications, such as e-mail and website advertising, represent lower-cost substitutes for comparable non-internet products and services. In addition, the Directors believe that the economic downturn and volatility in certain Asia Pacific financial markets has increased the demand for reliable, around-the-clock news and information on local, regional and global events.

Hong Kong

According to IDC, the number of internet users in Hong Kong is expected to reach 2.6 million by the end of 2004 from 0.7 million at the end of 1998. Given the relatively small population of nearly 7 million who mainly reside in urban areas, Hong Kong has achieved an internet penetration rate of 22.2% as of September 1999, one of the highest penetration rates in Asia. According to the IDC, Hong Kong is very technologically advanced, having been one of the first cities in the world to have a fully digitised telecommunications network. Hong Kong is currently expanding its broadband internet access capability to meet expected increases in demand. E-commerce revenues in Hong Kong are also expected to grow significantly. IDC forecasts that e-commerce revenue will increase from US$60.8 million at the end of 1998 to US$5.3 billion by the end of 2004. IDC forecasts online advertising expenditure to reach US$62 million in 2004, increasing from US$4 million in 1999.

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Taiwan

The Taiwan internet market is also expected to achieve significant growth in the next five years. According to IDC, the number of internet users in Taiwan is expected to increase from 1.0 million at the end of 1998 to 4.9 million users by the end of 2004, representing a six-year compounded annual growth rate of 30%. With a current population of approximately 22 million, Taiwan has achieved an internet penetration rate of 9% as of September 1999, according to IDC. The internet has received relatively widespread attention and usage in Taiwan. Taiwan’s internet market is helped by the number of technology manufacturing companies based in the country, as companies account for 35% of the total internet usage according to IDC. In the future, however, internet user growth is expected to be mainly driven by individual user growth. IDC forecasts e-commerce revenue to increase from US$45.2 million at the end of 1998 to US$8.7 billion by the end of 2004. IDC forecasts online advertising expenditures to increase from US$5.8 million in 1999 to US$120 million by 2003.

Singapore

As one of the most technologically advanced countries in Asia, Singapore has one of the highest internet penetration rates in Asia. With a current population of approximately 3.2 million, Singapore has achieved an internet penetration rate of 22.2% as of the beginning of September 1999, according to IDC. In addition, IDC also forecasts that internet users in Singapore are expected to increase from 0.6 million at the end of 1998 to 2.2 million by the end of 2004, representing a six-year compounded annual growth rate of 25%. Singapore has a highly developed communications infrastructure with a fully digitised telecommunications network that creates a strong base for continued internet growth. According to the IDC, e-commerce revenues are expected to increase from US$35.2 million at the end of 1998 to US$4.7 billion by the end of 2004. IDC predicts that online advertising expenditures to reach US$53 million in 2003 from US$2.5 million in 1999. The Directors expect that the continued encouragement from the government to promote internet usage in business, home and education will accelerate further development of the internet sector in Singapore, and position Singapore as a key Asian internet market. Based on the increasing number of government incentives to encourage business, residential and educational internet usage, IDC anticipates continued growth in both Singapore-focused content and total spending over the internet.

Malaysia

According to IDC, the number of internet users in Malaysia is expected to increase to 3.9 million by the end of 2004, from 0.6 million at the end of 1998, representing a six-year compounded annual growth rate of 37%. As of September 1999, the internet penetration rate was 5.6% which is still relatively low compared to neighboring markets such as Singapore and Hong Kong. However, IDC believes that there will be continued encouragement from the Malaysian government for both businesses and consumers to become internet enabled, which will lead to growth in user and penetration rates. IDC forecasts online advertising expenditures to reach US$15 million in 2004 from US$0.4 million in 1999. According to IDC, e-commerce revenues are to reach US$3.5 billion in 2004, from US$18.0 million in 1998. Technology and the internet continue to attract government attention and support through initiatives such as the “Multimedia Super Corridor” project and the MSC Venture Corp. Sdn. Bhd. start-up venture fund established in June 1999 with the mandate to distribute US$31.6 million to local start-ups.

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PRC

According to IDC, the number of internet users is expected to increase to 33.1 million at the end of 2004 from approximately 2.4 million at the end of 1998, representing a six-year compounded annual growth rate of 55%. With a current population of approximately 1.2 billion, the PRC has achieved an internet penetration rate of 0.3% as of September 1999, according to IDC. This penetration rate is relatively low compared to other countries in the region. Although the PRC is still a technologically developing country, internet growth in the next five years is expected to be significant. Growth will be supported by the expected reduction in access costs and the proliferation of personal computers. The potential for internet access through television-based internet access devices, using telephone lines, cable or satellite technology, may further accelerate internet growth. IDC has estimated that online advertising expenditures will grow from US$7.7 million in 1999 to US$384 million by 2004. IDC forecasts e- commerce revenues to reach US$11.7 billion by 2004 from US$8.1 million in 1998. As the internet becomes more pervasive in the PRC, the opportunities for online advertising and e-commerce are also expected to expand.

Korea

IDC estimates the number of internet users will increase from 1.7 million as of the end of 1998 to 10.2 million by the end of 2004, representing a compounded annual growth rate of 35.0%. According to IDC, as of the beginning of September 1999, the internet penetration rate was 7.1%. IDC estimates online advertising expenditures in Korea will grow from US$19 million in 1999 to US$354 million in 2004. IDC forecasts e-commerce revenue to increase from US$56.5 million in 1998 to US$18.0 billion in 2004. The Directors believe the opportunity for local content development is significant in Korea. An IDC survey indicated that 74.0% of Korean internet users would prefer accessing local language website content, as opposed to English. Additionally, IDC believes Korea’s role as host of the Soccer World Cup in 2002 will provide opportunities for the Korean internet market to realize the full potential of the online medium. This includes memorabilia sales, travel and accommodation accessibility and event ticket purchases over the Web.

Japan

According to IDC estimates, the number of internet users in Japan is expected to increase from 11.4 million at the end of 1998 to 60.2 million by the end of 2003. According to IDC, as of the beginning of September 1999, the internet penetration rate was 14.5%, which is lower than both Singapore and Hong Kong, despite Japan’s advanced technological environment. The Directors believe this may be due, in part, to the high per minute access charges that the majority of users have to pay to get online. The Ministry of Post and Telecommunications, however, is considering moving Japan to a flat rate internet pricing model and is also promoting the deployment of broadband access technologies such as ADSL and cable modems across Japan. IDC forecasts e-commerce revenue to grow from US$4.7 billion in 1998 to US$253.2 billion in 2003. According to a survey conducted by the Ministry of International Trade and Industry, business-to-consumer e-commerce is more popular than business-to-business e-commerce, with the business-to-consumer market forecast to increase 50-fold over the next five years.

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DEVELOPMENT OF THE INTERNET THROUGH BROADBAND INTERNET ACCESS

The Directors believe that the internet has the potential to become a platform through which consumers and businesses easily access rich multimedia information and entertainment, creating new sources of revenue for advertisers, content providers and businesses. The growth of internet advertising and commerce depends, in part, on the ability of advertisers and online merchants to deliver a compelling multimedia message to attract viewers and potential customers. However, multimedia content and other data-intensive applications require high bandwidth.

The Directors believe that the potential of the internet as a medium for communication, education, entertainment and commerce remains unfulfilled due to problems with its performance and reliability. The internet’s performance limitations stem from its basic architecture, which is not optimized for distribution of data-intensive multimedia content. A limitation associated with any element in the system, whether it is the “last-mile” connection to the user, the infrastructure of the internet service provider, the software programming of the internet content provider, the internet backbone or the content provider’s Web server, can result in performance bottlenecks that slow data transmission speed to that of the weakest link. For example, the internet frequently becomes overloaded when transmitting the same data streams from popular Website servers to millions of individual users. In addition, dial-up users frequently encounter busy signals upon attempting to connect to their ISP or to the websites of internet content providers and are unable to readily access quality multimedia content due to the slow speed of their analog modems. Because the internet is an interconnection of independently operated networks, there is no single point of accountability or management to respond to performance problems or to ensure optimised internet traffic routing, security or consistency of service. Therefore, the Directors believe that no single ISP can offer an end-to-end solution to internet bottlenecks and that performance limitations of the internet frustrate and discourage users from fully utilising it as an information tool, an educational resource, a source of entertainment, or a way to purchase goods and services.

Several new technologies attempt to address the performance limitations of the internet, including broadband internet access. Broadband internet access may be provided through cable-based technologies, satellite systems, or digital subscriber line services based on existing telephony infrastructure. Broadband internet service features include “always-on” internet access at speeds 100 times faster than traditional dial-up internet access, with multimedia content ranging from on-demand music videos, audio clips, and multimedia bulletin board and chatting services in “real-time”. The Directors believe the move from traditional dial-up modem internet access to online access through broadband access will significantly expand the possible applications, particularly in the entertainment area, on the internet and attract additional users.

In addition, the Chinese language imposes certain performance limitations which the Directors believe will be diminished with the acceptance of broadband access systems. Traditional/complex Chinese characters are used in Taiwan and Hong Kong, while simplified characters are used in the PRC and Singapore, internet users of one type must presently use support software programs in order to read content in the other. Providing Chinese-language text as graphics circumvents the need for Chinese- language support software programs. However, the download time for Chinese-language graphics using traditional dial-up internet access is too lengthy for most internet users. The Directors believe that the development and acceptance of broadband internet access will shorten such download time and increase the functionality of the internet, as well as increase its popularity among Chinese-language users.

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DEVELOPMENT OF THE INTERNET THROUGH PERVASIVE COMPUTING

The Directors believe that pervasive computing is the next stage in the development of computing, following the evolution from the client/server to the networked computing model. Pervasive computing is characterised by three key characteristics:

• the use of new and emerging generation of smart devices, such as Wireless Application Protocol, or WAP, telephones, Web television and personal digital assistants, or PDAs, to connect to the internet;

• technology management features that allow a variety of devices to connect to the internet using multiple communications channels, such as wireline, wireless and cable; and

• convenient and easy interaction with content and information anytime, anywhere.

The development of pervasive computing will provide internet content providers with a new medium for their products and services. For example, WAP is an open, standardised specification for a set of communication protocols that allows users of wireless devices, such as mobile phones, pagers and two- way radios, to easily access and interact with information and services on the internet, including e-mail, the Web, newsgroups and internet relay chat, or IRC. While internet access through wireless devices has been possible in the past, different manufacturers have used different technologies. WAP provides a standardised way of linking the internet to mobile phones, thereby linking two of the more prominent emerging technologies. In the future, the Directors expect that devices and service systems that use the WAP will be able to interoperate.

THE INTERNET AS A NEW ENTERTAINMENT MEDIUM

The Directors believe that the internet will become an increasingly important entertainment medium, advertising platform and e-commerce enabler as users become more familiar with the internet and broadband internet access develops.

Entertainment Content

The internet is achieving increasing popularity as an alternative to traditional entertainment outlets. New software-based authoring tools have lowered the cost of publishing content on the internet relative to conventional publishing methods and have enabled new forms of multimedia content. The cost of accumulating, storing and delivering content to a large audience is lower than that of conventional media, consisting only of the cost of maintaining and operating computer equipment. Content is readily accessible by any internet user and information is often available free of charge. Through the wide array of content offerings available from different websites, internet users are able to view photographs, video clips, listen to music, play interactive, real-time games with third parties and communicate with friends.

As broadband internet access becomes more available globally and in the Asia-Pacific region, the Directors believe that the increased performance capabilities of the internet will enable more entertainment content to be efficiently delivered over the internet and that traditional outlets for entertainment, such as television, film and radio, will converge with the internet. In short, broadband internet access may transform the products and services of traditional media into new forms of entertainment and information-

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gathering which will be delivered over the internet. The Directors believe that the widespread application of technologies that will permit entertainment to be delivered over the internet offers significant opportunities for companies with access to production facilities and production experience combined with an internet focus and understanding.

Advertising

Advertisers have identified the internet as an efficient and cost-effective alternative to traditional media for mass communication of their messages. The internet allows advertisers to target specific audiences and enables users to interact with advertising information presented in Web pages. This characteristic of the internet also permits advertisers to measure more precisely the number of impressions, or times that an advertisement appears in page views downloaded by users, through verification by an independent third party auditor. Advertisers can also measure the effectiveness of advertising in generating “click-throughs”, or user requests for additional information made by clicking on the advertiser’s banner linking the user to the advertiser’s website. The Directors believe increases in transmission bandwidth through broadband and higher speed traditional dial-up internet connections, and wider adoption of advanced content delivery technologies for the internet, such as Java, virtual reality modeling language, or VRML, and other multimedia enabling technologies, will increase the functionality of advertising, and will make the internet an even more attractive advertising medium. The Directors also believe technological developments may result in a greater ability to provide information and analysis about the effectiveness of internet advertising and the demographic profiles of users, as well as the ability of advertisers to frequently modify and tailor their messages. This should result in more targeted, higher impact advertising opportunities, and greater integration of Web-based advertising into the range of marketing channels available to advertisers.

Advertising expenditures for television, newspapers and magazines in 1998 was US$5.3 billion in the PRC, US$2.7 billion in Hong Kong and US$2.5 billion in Taiwan, representing increases over 1997 of 45% in the PRC, 2% in Hong Kong and 19% in Taiwan, despite economic difficulties experienced in these markets. Although online advertising currently represents only a small percentage of overall global advertising expenditures, the Directors expect the broader acceptance of the internet as an advertising medium will increase online advertising expenditures in the Asia-Pacific region. In addition, the Directors believe the targeted nature of online advertising will be an important benefit to businesses seeking to maximize the efficiency of their advertising expenditures.

E-commerce

The internet is dramatically affecting the methods by which consumers and businesses are evaluating and buying goods and services, and by which businesses are providing customer service. E-commerce can be separated into three main categories, B2B, B2C and consumer-to-consumer (C2C). B2B e-commerce facilitates the transactions between vendors and customers and minimises the risk of errors. For example, under B2B e-commerce, purchase order information is input by the customer and sent directly to the computerised system of the vendor. This reduces the amount of employee involvement in the ordering process and minimizes the risk arising from human errors. Furthermore, because the data is sent directly to the vendors’ computerized systems and requires less human involvement, the transaction process is quicker.

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The internet is an important tool to disseminate information. Both businesses and consumers have sought to capitalise on the internet as a platform for consumer services through the establishment of websites devoted to the dissemination of information relating to goods and services they have for offer. The internet provides merchants with an alternative distribution channel to conduct B2C sales offering their goods and services to consumers. The internet enables online merchants to reach a global audience and operate with minimal infrastructure, reduced overhead and greater economies of scale. Meanwhile, the internet provides consumers with more options, increased pricing power and greater convenience. As a result, the volume of business transacted on the internet is anticipated to grow significantly.

TELECOMMUNICATIONS REGULATIONS

In many Asian countries, providers of internet access and internet services are subject to regulation as providers of telecommunications services. In addition, since many Asian countries continue to regulate or censor the contents of various media, providers of internet access and internet content may face restrictions on their ability to make certain content available to their customers. In particular, the content on the Group’s existing or proposed regional portals in Hong Kong, Taiwan, Singapore, the PRC and North America will be subject to government regulation.

In addition, since the internet remains fairly new and rapidly developing, it is likely that laws and regulations will be adopted or changed in countries where the Group operates its portal network with respect to the internet, covering issues such as content, privacy, pricing, encryption standards, consumer protection, electronic commerce, taxation, copyright infringement and other intellectual property issues. The impact, if any, that any future regulatory changes or development may have on our business, financial condition and results of operation cannot be predicted. Changes in the regulatory environment relating to the internet access industry, including regulatory changes that directly or indirectly affect telecommunication costs or increase the likelihood or scope of competition, could materially and adversely affect the Group’s business, financial condition and results of operations.

Existing laws may be applied to the internet and new forms of electronic commerce. Uncertainty and new regulations could increase costs and prevent the Group from delivering its products and services over the internet. It could also slow down the growth of the internet significantly. This could delay growth in demand for the Group’s portal network and limit the growth of its revenues. New and existing laws may cover issues such as:

• content;

• sales and other taxes;

• user privacy;

• pricing controls;

• characteristics and quality of products and services;

• consumer protection and fair trade practice;

• cross-border commerce;

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• libel and defamation;

• copyright, trademark and patent infringement;

• national security and public order;

• pornography; and

• other claims based on the nature and content of internet materials.

Hong Kong

Telecommunications Ordinance

Under the Telecommunications Ordinance (Chapter 106 of the Laws of Hong Kong), companies that provide telecommunications services to the public in Hong Kong, such as internet access or e-mail, are required to obtain a Public Non-Exclusive Telecommunications Service Licence (“PNETS licence”) from the Chief Executive in Council of Hong Kong or OFTA. OFTA’s primary responsibility is to regulate the telecommunications industry in Hong Kong. OFTA implements and establishes policies and issues licences to companies providing telecommunications services to the public in Hong Kong. OFTA is also empowered to direct a licencee to demonstrate that its services comply with any technical requirements imposed by the relevant legislation or any other regulations which may be issued by OFTA.

Certain services provided in the Group’s Hong Kong website, such as the StarMail service, are required to be provided by a PNETS licence holder. Currently, the Group provides such services through LinkAGE Online Limited. It is also applying for a PNETS licence in order to have the option of operating the services in-house. A PNETS licence is usually valid for a period of twelve months and is renewable, on payment of the prescribed fee, at the discretion of OFTA. As set out in the Telecommunications Ordinance, a PNETS licence if granted may be cancelled at any time or be suspended for a period not exceeding twelve months in the event of any contravention of any condition to which it is subject, under the terms of the PNETS licence, and at any time by the Chief Executive in Council of Hong Kong in consideration of public interest.

Television Ordinance

Under the Television Ordinance (Chapter 52 of the Laws of Hong Kong) (“Television Ordinance”), a person cannot broadcast without an appropriate licence. “Broadcasting” is defined under the Television Ordinance to mean, among other things, the provision of a programme service that includes television programmes for transmission by terrestrial telecommunication on a point-to-point basis within Hong Kong, which is available to 2 or more residential premises or to the general public and is made available on payment of a subscription (whether periodical or otherwise) and is provided in response to specific request. “Television programme” is further defined under the Television Ordinance to mean “a programme which consists wholly or mainly of moving visual representational images (that is, images comprised within sequences of visual images capable of being seen as moving images)”.

Notwithstanding the above, the provision by a holder of a PNETS licence of any services under such licence which includes moving visual representational images (and which images do not form an essential feature) will not be regarded under the Television Ordinance as provision of programme services – 65 – INDUSTRY OVERVIEW

if such licence holder does not charge or receive, directly or indirectly, any fee or amount for the right to view those images. The Group believes it is in compliance with this exception.

The Group plans to, in the future, introduce film and television channels to its customers as a premium service and on a subscription basis. The imposition of a fee by the Group on its film and television channels will take the services out of the exception outlined above. As such, in order for the Group to be able to provide the film and television channels on a subscription basis without offending the Television Ordinance, the Group will need to obtain an appropriate broadcasting licence from the Broadcasting Authority.

The Information Technology and Broadcasting Bureau (the “ITBB”), the authority responsible for overseeing policies on, among other things, broadcasting and film services, stated in a guidance note (issued by ITBB in August 1999) in connection with inviting interested parties to apply for broadcasting licences, that it does not envisage that it will issue another invitation of application for broadcasting licences within 12 months after August 1999. This means that until ITBB issues an invitation of application of broadcasting licences, the Group will be unable to obtain an appropriate broadcasting licence for the provision of its film and television channels on a subscription basis.

On 16th February, 2000, a Broadcasting Bill (the “Broadcasting Bill”) passed its first reading in the Legislative Council. The Broadcasting Bill is intended to replace the Television Ordinance and, if enacted in its current form, will, among other things, exempt all “services provided on the service commonly known as internet” from obtaining a broadcasting licence. This exemption will be broad enough to cover the paid film and television programme services which the Group intends to provide.

It should be noted that the exemption contained in the Broadcasting Bill is inconsistent with the Hong Kong SAR Government’s Policy Decisions arising from the 1998 Review of Television Policy (the “1998 Television Policy”), published by the ITBB in December 1998. The 1998 Television Policy provides that any new multimedia service (including internet) originated in Hong Kong which offers TV-type programmes on a commercial basis and competes with television programme services operating in Hong Kong should require a television programme service licence. The Group cannot give any assurance that the exemption as contained in the Broadcasting Bill can be passed in law.

Personal Data (Privacy) Ordinance

The Personal Data (Privacy) Ordinance (Chapter 486 of the Laws of Hong Kong) (“Personal Data Ordinance”) applies to “data users” in Hong Kong. An internet advertising company will be a data user when collecting personal information from users such as the name, birth date or other personal data of the user. In addition, the Personal Data Ordinance may apply to a company depending on how “clicktrails” information is used.

In relation to “clicktrails” information, the Privacy Commissioner has indicated that customer site to site activity stored on the server’s log is personal data if it is possible to associate such clicktrails to an individual customer. Contravention of the Personal Data Ordinance occurs when a company collects such information on its users, analyses the information for a profile of the users’ interests or sells or transmits the profiles to third parties for direct marketing purposes without the users’ consent. The Privacy Commissioner has stated further that a company should not perform such analysis if the user has not provided the data for such use.

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It is contemplated that the Group’s future advertisement delivering system will enable direct marketers to target their advertisements. The system will be designed to integrate information, such as a user’s online response rate to advertisements, name, address, age or e-mail address, with third party databases to generate a comprehensive demographic profile of the internet user. The transfer of such information, which provides a profile that relates to an individual, would be in contravention of the Personal Data Ordinance unless the relevant individual expressly consents to such use. In order to address this concern, the Group has obtained consents of its users submitting their demographic profiles to it through the registration as members or the establishment of StarMail accounts. In addition, the Group plans to acquire demographic profiles of internet users from third parties only where internet users have consented to the transfer of their demographic information.

Control of Obscene and Indecent Articles Ordinance

Under the Control of Obscene and Indecent Articles Ordinance (Cap 390 of the Laws of Hong Kong), any person who publishes, possesses for the purpose of publication or imports for the purpose of the publication any obscene article, whether or not he knows that it is an obscene article, commits an offence and is liable for a fine of HK$1 million and imprisonment for three years. It is also an offence to publish any indecent article to a person who is a juvenile, whether it is known that it is an indecent article or that such person is a juvenile. Such an offence will give rise to a fine of HK$400,000 and to imprisonment for 12 months. A subsequent conviction will give rise to a fine of HK$800,000. The Group has implemented significant security measures with respect to the type of content placed on its portal network. These measures include the implementation of an automatic password-aging mechanism and a two-factor authentication scheme which regulates system access privileges for editors and producers who perform periodic content updates to the Group’s portal network.

Consumer Protection Regulations

Any services and goods provided by the Group through its websites to its users and consumers in Hong Kong will also be subject to various consumer protection regulations, including:

• the Control of Exemption Clauses Ordinance (Chapter 71 of the Laws of Hong Kong) which restricts a person’s ability to exclude its liability in certain circumstances

• the Supply of Goods Ordinance (Chapter 26 of the Laws of Hong Kong) which prescribes, among other things, implied conditions and warranties on goods supplied by a seller in the course of its business

• the Supply of Services (Implied Terms) Ordinance (Chapter 457 of the Laws of Hong Kong) which prescribes, among other things, implied terms on the services provided by a supplier in the course of its business

• the Unconscionable Contracts Ordinance (Chapter 458 of the Laws of Hong Kong) which empowers the court to set aside consumer contracts which are unconscionable

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Electronic Transactions Ordinance

The Electronic Transactions Ordinance (Chapter 553 of the Laws of Hong Kong) recognises (i) formation of contracts by electronic means, (ii) digital signatures, (iii) admissibility of electronic records in court proceedings as well as appoints the Hong Kong Post Office as the digital signature certification authority.

Taiwan

A company which provides internet access, or instant message exchange services through telecommunications facilities may be required to obtain a licence from the Directorate General of Telecommunications (“DGT”), Ministry of Transportation and Communications. The Group is subject to the regulation of the Telecommunication Law of Taiwan, in addition to other laws and regulations generally applicable to other entities such as laws and regulations with regard to fair trade and consumer protection.

According to the Telecommunication Law of Taiwan, if any content sent, transmitted or received via the internet through an operator’s system is found to be obscene, defamatory or in violation of public order or national security, the relevant operator would be liable for the content only if it knows or should have known the content is obscene, defamatory or in violation of public order or national security. In addition, the Group must provide services on a fair and equal basis and may not refuse to receive or transmit messages from or by its users unless it finds that the messages contain information which will manifestly jeopardise Taiwan’s national security or public safety. The Group will not be liable for failing to refuse messages which jeopardises national security or public interest. However, the Telecommunication Law of Taiwan does not impose an obligation on a company to censor and monitor the contents of the messages received or transmitted by it to determine if the messages would jeopardise the national security or public safety.

In addition, other laws and regulations also affect the operation of e-commerce. For instance, the Fair Trade Law and Consumer Protection Law imposes civil liability on the Group if it carries an advertisement which it knows or has reason to know is misleading or erroneous. In addition, according to the Consumer Protection Law, a consumer who purchases goods via the internet may, without giving any reason or paying any additional expenses, request a cash refund within seven days of receipt of the goods, if the consumer decides for any reason not to purchase the goods. The Group does not currently have any policies implemented relating to the refund of items which may be purchased on its portal network; but the compulsory requirements of the Consumer Protection Law remain applicable and can be claimed by customers seeking refunds. In addition, direct trade between people in Taiwan and people in PRC is prohibited except that people in Taiwan may, subject to obtaining the approval of the Taiwan Government, conduct certain business activities in the PRC. Therefore, e-commerce conducted by the Group may be limited to the extent customers in Taiwan do not obtain the required approval.

At present, there are no specific laws or regulations which restrict PRC internet subscribers from accessing information provided by the Group’s portal network. However, the DGT and other Taiwanese authorities are considering implementing relevant laws or regulations to monitor the access by users in the PRC to websites such as the Group’s portal in Taiwan.

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Singapore

ICPs in Singapore who provide information on the World Wide Web (including the Group, ISPs, Web publishers and Web server administrators) are regulated by the Singapore Broadcasting Authority (“SBA”) and ICPs are required to use their best efforts to ensure that their websites and programmes conform with the SBA’s Codes of Practice.

The Group’s Singapore regional portal has an enhanced internet Web caching system, which it believes effectively blocks websites that the SBA has designated as objectionable. In addition, the Group intends to seek from time to time the SBA’s approval of certain of its internet content to ensure compliance with the SBA’s guidelines.

The PRC

The telecommunications industry, including computer information and internet access services, is subject to a high degree of regulation by the PRC Government. Regulations issued or implemented by the State Council, the Ministry of Information Industry and other relevant government authorities, encompass virtually every aspect of telecommunications network operation, including entry into the telecommunications industry, scope of permissible business, interconnection and transmission line arrangements, tariff policy and foreign investment. Commerce & Finance Law Offices, the Group’s PRC counsel, have advised that no generally applicable regulations have yet been adopted to require ICPs to obtain an operating licence or permit from the Ministry of Information Industry in order to deliver internet content.

The PRC has enacted regulations governing internet access and the distribution of news and other information. The Propaganda Department of the Communist Party has been given the responsibility to censor news published in the PRC to ensure, supervise and control political correctness. The Ministry of Information Industry has published implementing regulations that subject online information providers to potential liability for content included on their portals and the actions of subscribers and others using their systems, including liability for violation of the PRC laws prohibiting the distribution of content deemed to be socially destabilising.

Under the Administrative Measures on Security Protection for International Connections to Computer Information Networks, any use of the PRC internet infrastructure which results in a breach of the public security or the provision of socially destabilising content is a violation of Chinese laws and regulations. A breach of the public security includes:

• breach of national security or disclosure of State secrets;

• infringement on State, social or collective interests or the legal rights and interests of citizens; or

• illegal or criminal activities.

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Socially destabilising content includes content that:

• incites defiance or violation of the PRC Constitution, laws, or administrative statutes;

• incites subversion of State power and the overturning of the socialist system;

• incites national division and harms national unification;

• incites hatred and discrimination among nationalities and destroys national unity;

• fabricates or distorts the truth, spreads rumours or disrupts social order;

• spreads feudal superstition, involves obscenities, pornography, gambling, violence, murder, horrific acts or instigates criminal acts;

• openly humiliates another party or slanders another party through a fabrication of the truth;

• damages the reputation of a State organ; or

• violates the Constitution, laws or administrative statutes.

If through the provision of portal services to users in the PRC, the Group commits any of the above, whether with or without intent, it would be subject to significant liability. Potential liability would include being blocked from the PRC internet infrastructure by local public security bureaus. Where breaches are severe, criminal proceedings may be instituted against the Group.

The Ministry of Public Security has the authority to cause any local ISP to block any websites maintained outside the PRC at its sole discretion. Websites that are blocked in the PRC include many major news-related websites such as www.cnn.com, www.latimes.com and www.nytimes.com.

The PRC has also enacted other regulations governing internet connections and the distribution of information via the internet. According to the Administrative Measures on China Public Multimedia Telecommunication, ICPs are required to report to the Ministry of Post and Telecommunication (the predecessor of Ministry of Information Industry) or provincial Post and Telecommunication Bureau for verification and to enter into an interconnection agreement and undertaking letter for information security with China Telecom or other node service providers.

Under the Administrative Measures on Security Protection for International Connection to Computer Information Networks, entities with their computer information networks interconnected with the internet are required to register a notice filing with the relevant authorities designated by local public security bureau.

According to news reports on the PRC’s agreement with the United States in November 1999 on the PRC’s entry into the WTO, the PRC will allow 49% foreign investment in all telecommunications services immediately upon its accession to the WTO and 50% two years subsequent to its accession. As PRC governmental officials have interpreted telecommunications services to include internet services, the China-U.S. WTO agreement should allow for 49% foreign investment in the internet industry upon

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accession and 50% two years subsequent. However it is uncertain whether the PRC government will promulgate new regulations in the near future that may clarify the gap between the alleged commitments of the PRC under the WTO agreement and the views expressed by certain PRC governmental officials.

One of the most recent regulations regarding internet business are the “Regulations for the Protection of State Secrets for Computer Information Systems on the Internet” which went into effect on 1st January, 2000. According to these regulations, it is mandatory for companies doing internet business in the PRC to file registrations with the State Secrecy Bureau offices for approval of their secrecy protection measures. Also, the recently promulgated Regulations for the Administration of Commercial Encryption require all products with encryption functions to be reported and approved by the state encryption administration departments. The local ICPs whose servers will transmit the Group’s locally produced Web pages onto the internet will be subject to all these regulations and any future regulations applicable to the internet business in the PRC. Any violation of such regulations by such local ICPs may result in the interruption or even the loss of the presence of the Group’s portions of its portal network and thereby harm its business in the PRC.

The State Administration for Industry and Commerce (“SAIC”) is the government agency responsible for regulating advertising activities in the PRC. There are currently no laws or regulations in the PRC specifically governing the online advertisement business. The SAIC has not yet expressly asserted, or issued statutory documents stating, that the internet is considered advertising media under its rules.

However, the Group cannot predict what stance SAIC may adopt in the future. If SAIC were to claim and to exercise its jurisdiction over online advertisement and if the Group establishes a subsidiary in the PRC to conduct internet content provision business, such subsidiary might be regarded by SAIC as an “advertisement publisher” as defined in the Advertising Law in the PRC, and would need to apply to local SAIC to amend its business licence so as to be authorised to conduct advertisement business in accordance with the Administrative Regulations on Advertising and the Detailed Implementing Rules thereof. Failure of the above application may result in such penalties including (i) being banned to engage in online advertising activities, (ii) confiscation of illegal earnings, (iii) fines, or (iv) revocation of the business licence. Nevertheless, the Group cannot guarantee that such application would be approved by SAIC.

The State Press and Publication Administration (“SPPA”) is the government agency responsible for regulating publishing activities in the PRC. There are currently no laws or regulations in the PRC specifically governing the online publication business. The SPPA has not yet expressly asserted, or issued statutory documents stating, that the internet is considered electronic publication media under its rules.

However, the Group cannot predict what stance SPPA may adopt in the future. If SPPA were to claim and to exercise its jurisdiction over publications on the internet, and if the Group establishes a subsidiary to conduct internet content providing business, such subsidiary might be regarded by SPPA as an “Electronic Publisher” as defined in the PRC Administrative Rules on Electronic Publications, and would need to apply to SPPA for approval so as to be authorised to conduct electronic publication business in accordance with the Administrative Rules on Electronic Publication and the Detailed Implementing Rules thereof. Failure of the above application may result in such penalties including (i) being banned to engage in online publishing activities, (ii) confiscation of illegal earnings, (iii) fines, or (iv) revocation of the business licence. Nevertheless, the Group could not guarantee that such application would be approved by SPPA.

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CORPORATE OVERVIEW

The Group’s Business

The Group is one of the first Chinese-language internet media companies to provide multimedia entertainment and life-style information to the Chinese community world-wide. The Group produces and distributes original interactive programming through its network of vertically-integrated entertainment portals. Over 150 Asian celebrities have signed agreements with the Group under which the Group’s main portal, www.stareastnet.com, or its regional portals established or to be established in Singapore, Taiwan, Korea, Japan, North America, the PRC and other Southeast Asian countries, will host official websites for these contracted celebrities who will work with the Group to provide internet entertainment content for their official websites. Apart from certain exceptions in the cases of Chan Kong Sang, Jackie and Lai Ming, Leon, the contracted celebrities have agreed to a non-competition clause under which they are excluded from participating in activities of a nature similar to or otherwise constituting any competition with those under these agreements. The Group intends to leverage off of the popularity and talents of its celebrities to develop its brand through the production of interactive multimedia internet content. The Group’s goal is to become the preeminent vertically-integrated ICP for entertainment and life-style information for Chinese-language users world-wide. The Group believes its relationships with its existing and future contracted celebrities and the combination of its broadband-enabled entertainment and life- style content, community features and e-commerce products and services will help the Group to achieve this goal.

History and Development

The Company was formed as a limited liability company in the Cayman Islands on 31st January, 2000. The Group’s wholly-owned subsidiary and operating arm, STAREASTnet (BVI), was incorporated on 18th February, 1999 in the British Virgin Islands. The three initial shareholders of STAREASTnet (BVI) were Genius Ideas, Star East Group and Gold Miracles, a company owned by three Hong Kong celebrities, namely Tam Wing Lun, Alan, Chan Pak Cheung, Natalis and Tsang Chi Wai, Eric (not connected to the Group). In September and November 1999, Hikari and PCCW, respectively, invested in STAREASTnet (BVI). As a result of such investment, STAREASTnet (BVI) became an associated company of SEIT Management, a joint venture company set up by Star East Holdings and PCCW for the purpose of investing in the Group. On 17th May, 2000, all of the ordinary shares in STAREASTnet (BVI) were exchanged for the Company’s ordinary shares, in amounts equal to the percentage held by each of the shareholders in STAREASTnet (BVI). For a detailed description of the Group’s changes in ownership structure, see the paragraph headed “Further Information about the Company” in Appendix III.

The Group began to design its flagship website, www.stareastnet.com, during mid-1999 which was successfully launched in September 1999 in Hong Kong. This was followed by the launch of a Singapore- specific website www.stareastnet.com in January 2000; a mirror site in North America in February 2000; and a Taiwan-specific website www.tw.stareastnet.com in March 2000. To establish the Group’s position as the premier internet entertainment provider to the Chinese community, the Group has actively approached celebrities since incorporation to develop and manage their official websites. The number of contracted Asian celebrities grew from about 82 in December 1999 to more than 150 in March 2000. The Group has created and maintains over 120 official websites for contracted celebrities. These include famous international celebrities such as Chan Kong Sang, Jackie and Hung Kam Po, Sammo and popular Asian celebrities such as Lai Ming, Leon, Chen Wai Man, Vivian alias Chen Wai Lam, Kelly and Tong Kwai Lai, Stanley. The Group’s first mega site, the official Leon Lai website, was launched on 29th April, 2000.

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From September 1999 to 31st March, 2000, the Group’s revenues were generated from advertising, sponsorship and e-commerce transactions. The Group entered into advertising and sponsorship arrangements with over 35 advertisers on its portal network from the launch of the stareastnet.com website until 31st March, 2000. The Group launched its e-commerce business in January 2000 by selling concert tickets online. Recently, the Group also launched the second stage of its e-commerce platform focusing on celebrity auctions, celebrity merchandise and the sale of DVDs, VCDs and CDs.

In September 1999, the Group entered into a memorandum of understanding with China Internet Corporation to co-brand and promote original content. Since then, the Group has entered into additional strategic alliances, memoranda of understanding and business arrangements to further the development of the Group’s business. These include:

– Memoranda of understanding with Hikari of Japan, Digital United of Taiwan and Korea Thrunet of Korea for the purpose of promoting the Group’s Asian celebrities in Japan, Taiwan and Korea, respectively, and distributing the Group’s content over their networks;

– An agreement with China Internet Corporation to co-brand content and to promote the Group’s entertainment content through the America Online Hong Kong Service network;

– An agreement with Pacific Internet Ltd. of Singapore for the purpose of co-promoting websites, events and activities in relation to their internet businesses;

– An agreement with 24/7 Media Asia Limited to provide advertising services through its internet network to the Group;

– An agreement with Federal Express Pacific, Inc. to provide logistics and distribution functions for the Group’s e-commerce business; and

– Letter of intent with Hutchison Telecommunications (Hong Kong) Ltd. and letter of intent with Peoples Telephone Company Limited to provide the Group’s content to these companies for distribution through WAP phones.

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The following chart illustrates the Group’s corporate structure as of the Latest Practicable Date:

STAREASTnet.com Corporation (Cayman Islands) investment holding

100%

STAREASTnet (BVI) Limited (B.V.I.) investment holding

Corporate Services Hong Kong Operations Overseas Operations

100% Lightening Investment Limited 100% Star East On-Line Limited 100% Hottest Choice Limited (B.V.I.) (H.K.) (B.V.I.) leasing of premises website development services investment holding

100% Harvest Star Limited 100% Star East Multimedia Limited StarEastnet Holdings Pte Ltd (H.K.) (H.K.) (Singapore) 100% holding of a domain name operation of websites investment holding

STAREASTnet.com Star East IT Production Stareastnet Multimedia Pte Ltd. 100% Management Limited 100% Limited 100% (Singapore) (H.K.) (H.K.) operation of websites corporate management services production of website contents

STAREASTnet.com Star East Website Limited Stareastnet Management Pte Ltd Services Limited 100% 100% 100% (H.K.) (Singapore) (H.K.) holding of a website and corporate management services secretarial services domain names

Star East IT Management Star East Information Technology 100% Limited 100% Star East Web Stars Limited Corporation (Taiwan) (H.K.) (B.V.I.) (Taiwan) management services investment holding operation of websites

STAREASTnet.com LEONSTAREASTnet.com 100% Starnet Technology Limited 100% Corporation Limited Limited 100% (B.V.I.) (H.K.) (H.K.) investment holding inactive website development

Star East Information STAREASTnet Limited 100% Technology Corporation 100% (H.K.) (Canada) inactive investment holding

Star East STAREASTnet.com Limited 100% 100% Multimedia Limited (H.K.) (Canada) inactive operation of websites

THE STAR EAST OPPORTUNITY

Despite the rapid growth of non-English speaking internet users world-wide, much of the content on the internet is provided in English and internet sites which are tailored specifically to the interests of, and accepted by, the world-wide Chinese community are limited in number. The Directors believe that world-wide Chinese-language internet users seek internet content in their language that provides them with:

• Chinese entertainment and celebrity news;

• life-style information attuned to cultural preferences; – 74 – BUSINESS

• a social interactive community experience across the Chinese community world-wide;

• sophisticated internet applications and tools; and

• the ability to conduct e-commerce transactions on-line easily and securely.

Some general destination sites, such as Yahoo!, have translated a small portion of their content into the Chinese language and have established relationships with content providers from local-language traditional media sources. The Directors believe that few of these sites attract a broad Chinese audience and do not provide advertisers with an attractive platform to reach the world-wide Chinese-language internet user base.

THE STAR EAST SOLUTION

The Group is one of the first Chinese-language internet media companies to provide multimedia entertainment and life-style information for the world-wide Chinese community. The Directors believe that through its network of vertically-integrated entertainment portals, the Group is able to help satisfy the demand for Chinese-language internet content services. The Group’s relationships with over 150 Asian celebrities will allow it to provide exciting life-style and entertainment content and develop brand awareness. Through its media production experience, the Directors believe the Group will be able to present its content in a rich, multimedia format optimised for the internet medium and future broadband capacities for audio and video features.

The Directors believe that the Group’s principal strengths include the following key features:

The Group’s content featuring popular Asian celebrities, life-style information and community features

Currently over 150 Asian celebrities have contracted with the Group to develop and manage official websites for them. Three of these celebrities, Tam Wing Lun, Alan and Chan Pak Cheung, Natalis (both executive Directors) and Tsang Chi Wai, Eric, are famous Hong Kong artistes who hold shares equally in one of the Group’s principal shareholders, Gold Miracles.

The Group seeks to create for each of its contracted celebrities an official website which consolidates information on the celebrity and features the celebrity through his or her participation in content creation and interactive community forums. The Group’s official websites are intended to be “mega” sites where users can find the most comprehensive collection of information and links to related websites across the World Wide Web for their favorite celebrities.

The Group also seeks to create communities of users around selected topics through personal homepages, personalised e-mail, topic-based chat services and other personalised products and services. The Directors believe these community features will develop greater affinity for the Group’s website among users and will lead to more frequent visits by users to its site. The Directors believe that the Group’s life-style information in such areas as fashion, travel, film, trends, health, food, games, astrology and music encourage users to become daily visitors. Due to the popularity of the Group’s contracted celebrities outside of their home markets, it intends to provide some of its entertainment and life-style content in languages other than Chinese, such as Japanese, Korean and English. The Group intends to recruit additional local celebrities in its regional markets, such as Japan, Korea and the PRC, as the Group launches its regional portals. – 75 – BUSINESS

The Group leverages off of the status of its celebrity shareholders and contracted celebrities to build brand awareness

The Group expects producers of entertainment content and distributors of content to further enter into strategic alliances or business combinations in the near future and that success in the increasingly competitive internet content market will require larger size and scope and greater brand recognition. Accordingly, building size and brand awareness and recognition is a critical part of the Group’s strategy. In this regard, the Group has implemented a targeted marketing programme including on-line and off-line advertising, public relations and event marketing which uses its celebrity shareholders and contracted celebrities as its major promotional and endorsement vehicle. The Group expects its celebrity shareholders to help increase the number of its contracted celebrities in its target markets. The Directors believe the relationship of a significant number of celebrities to the Group’s vertically-integrated services as shareholders and as contracted celebrities will lead other celebrities to seek to use its products and services for their internet presence. As a result, the Directors believe that Chinese-language internet users will look to the Group’s portal network as their preeminent source of entertainment and life-style information.

The Group’s delivery of compelling multimedia content through broadband distribution channnels

As broadband internet access becomes available in Chinese-language markets, the Directors believe that the Group’s media production experience will allow it to provide Chinese-language internet users with exciting content in a multi-media format featuring many of their favorite celebrities. With broadband, the Group will be able to provide higher quality content with better multi-media features, thus making the site more attractive, easier and faster to use. The Group provides its celebrities with access to production talent and facilities to assist them in creating multimedia content for delivery over its portal network. The Group entered into a distribution agreement with Bob under which the Group has the exclusive rights to distribute all of Bob’s existing and future production on the internet for a period of three years from 17th March, 2000 onwards. In addition, the Group is seeking to enter into strategic alliances with other entertainment content providers to broaden the range of services available to its contracted celebrities and products available on its portals. The Group expects that its vertically-integrated production-to-internet distribution operation will become increasingly important to its contracted celebrities and users as film, television, radio and the internet converge.

THE GROUP’S STRATEGY

The Group’s objective is to become the premier entertainment and life-style internet content provider for the world-wide Chinese community. In order to accomplish this, it intends to:

Utilise strategic alliances, business partnerships and acquisitions to enhance the Group’s products and services and expand geographical reach world-wide

The Group will continue to pursue strategic alliances complementary to its business. The Group intends to further identify complementary technology, applications, distribution, marketing and content partners to increase consumer awareness and loyalty and to build traffic to its network of vertically- integrated portals. The Group sees these alliances being made for two core purposes:

Content. The Group currently co-operates and seeks to further co-operate with well established media and telecommunications companies to co-brand, co-market and assist it to develop geographically- focused content in the Asia Pacific region. Alliances with such companies as China Internet Corporation,

– 76 – BUSINESS which is licensed to distribute the service provided by America Online Inc. to localised users in Hong Kong, Pacific Internet Ltd., Digital United, Korea Thrunet and Hikari in Hong Kong, Singapore, Taiwan, Korea and Japan, respectively, will enable the Group to broaden its user base, increase the Group’s brand awareness and attract more users to the Group’s portal network.

Distribution. The Group seeks to establish distribution channels for its products and services with broadband network carriers, major satellite and cable television networks and wireless application protocol telephone service providers in its target markets, such as PCC, Digital United Inc. and Korea Thrunet in Hong Kong, Taiwan and Korea respectively. These partners will assist the Group to more efficiently and effectively distribute its content to targeted audiences.

In addition to its existing regional operations in Singapore and Taiwan, the Group’s geographical expansion strategy includes establishing regional portals and developing marketing and sales operations in Korea, Japan, North America and other Southeast Asian countries. The Group also plans to establish operations in the “Chinanet” triangle of Beijing, Shanghai and Guangzhou. The exact structure of the Chinese operations will be subject to the relevant regulations as set forth by the PRC government. The Group has recruited celebrities in Singapore and Taiwan, intends to recruit celebrities in Japan, Korea and the PRC and plans to add local entertainment and life-style content to increase website traffic, user affinity and “stickiness” for its portal network. Over time, the Group expects that users outside of these markets will have access to its portal network through hosting arrangements of mirror sites, such as its current hosting arrangement with Digital Island, Inc. to expand its network in North America. The Group is considering entering into joint ventures with local partners in Japan and Korea to assist it in recruiting local celebrities and in developing content specifically targeted at users in these markets.

Capitalise on synergies between entertainment content and e-commerce

The Group’s goal is to capitalise on the entertainment-based and life-style themes of its content to permit its contracted celebrities and users to develop e-commerce opportunities. The Group expects to leverage off of the popularity of its contracted celebrities to develop e-commerce opportunities, such as Asian celebrity memorabilia auctions and sales of Asian celebrity merchandise. The Group has offered e- ticket sales at a Hong Kong venue and expects to further offer e-commerce products, such as e-ticket sales at other Asian venues and e-auctioning of celebrity items to enable merchants and its contracted celebrities to sell celebrity items, promote new items or liquidate excess inventory or discontinued products. In addition, the Group plans to establish an internet-based shopping mall on its network for sales of numerous goods and services, including Asian celebrity merchandise. The Group expects to earn sales commissions on these e-commerce products.

Enhance revenues by leveraging celebrity sponsorships, promotions and content

The Group’s strategy is to capture as much as possible of the online advertising expenditure for products and services complementary to its own. The Group’s contracted celebrities have agreed, subject to their prior approval on a case by case basis, to participate in its various promotional activities and to assist it in the promotion of their official websites. The Directors believe that the Group’s celebrities will be effective spokespersons for its advertising clients. Through the Group’s sales force, it expects to assist its advertisers to develop with its celebrities the content and advertising campaign to promote the advertisers’ image on the internet. The Directors expect the Group’s celebrities to enhance the appeal of its advertisers’ products and services by acting as sponsors or promoters of advertised products. In addition, the Directors believe that 24/7 Media Asia Limited, the Group’s external sales representative, will be able to develop an effective sales strategy for it to increase its advertising revenues.

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Adapt content to emerging technologies to become more accessible to users

The Group will also seek to enliven the lives of its users by providing them with access to its “mobile” content, thus enabling users with mobile internet access to obtain life-style information and community features presented by their favorite celebrities wherever they may be. The Directors believe there are attractive opportunities to provide subscription services for life-style and entertainment information via WAP technology. The Group’s contracted celebrities will pre-record messages, greetings, news and weather information and life-style tips (e.g. where to eat and what to watch) that users can access via WAP technology. Over time, the Group will focus on developing such applications as electronic games, ticketing, star polling, internet shopping and generating revenues from its users from premium subscriptions and WAP content. The Group intends to provide these services through co-marketing programs with network and WAP telephone service providers.

THE GROUP’S PRODUCTS AND SERVICES

The Group offers a broad range of entertainment-related information and programming through its network of entertainment portals. The Group’s portal network currently consists of its website, www.stareastnet.com, its principal branded destination and its flagship internet media property centered in Hong Kong, its regional portals in Singapore and Taiwan and its mirror site in North America. The Group expects to establish in the near future regional portals in Korea, Japan, the PRC and North America. www.stareastnet.com website

www.stareastnet.com provides an interactive multimedia internet channel for the global Chinese community to the world of Asian entertainment and life-style information. The Group’s text-based content is presented in Chinese using both traditional and simplified Chinese characters. The Group’s audio content is presented primarily in Cantonese and in Mandarin when available. In the future, the Group plans to offer its content in Korean and Japanese as well as to translate some of its content into English depending on the Group’s ability to contract celebrities in these countries and on the popularity of its contracted celebrities outside of their home markets.

Information and programming The www.stareastnet.com website offers:

• Official celebrity websites The Group has the right to host official websites of over 150 Asian celebrities and currently hosts over 120 official websites with proprietary content including related profiles, audio clips, video clips, message boards, daily schedules of public appearances and upcoming event information.

• Multimedia features The Group produces original video and audio content featuring its contracted artistes, such as talk shows with exclusive interviews, infotainment shows, news, music and other informative programming in addition to offering films, music videos and TV clips.

• Community features The Group offers free e-mail, message boards, “real-time” e-mail exchanges with celebrities, polls, web organiser/ calendar and a match making service.

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• Star Search The Group provides a search engine (“Star Search”) which links members to related fan clubs, fan home-pages and other entertainment and celebrity websites.

• Japanese feature The Group provides regular updates and reviews of popular Japanese television series, Japanese celebrities profiles and Japanese entertainment news in addition to links to popular Japanese web sites.

• Film reviews and news The Group provides film reviews and news, an entertainment industry directory, links to popular film web sites and links to purchase film tickets online.

• Music reviews and news The Group provides updates on the music reviews and news, music videos of the latest music releases and links to popular music related web sites.

• Fashion reviews The Group provides information and reviews on the most current trends, such as clothing, consumer products and services, in addition to offering links to corresponding web sites.

• Entertainment news The Group provides entertainment news, celebrity gossip and information with audio and video clips, colour photographs and exclusive features.

• Sports features The Group provides regularly updated news and scores from around the world for different sports, including football, basketball, golf, tennis and others in addition to providing links to popular sports web sites.

• City guides The Group provides links to information on Hong Kong and plans to provide links to information on other major Asian cities.

• Horoscopes The Group provides daily horoscopes, astrological readings and predictions.

• Weather The Group provides regularly updated weather forecasts presented by its contracted celebrities.

• Horse-racing updates The Group provides Hong Kong horse-racing news updates, results and features on jockeys and horses all of which it produces using information obtained from Perpetual Gold, a subsidiary of Star East Holdings, betting tips from its executive Director, Chan Pak Cheung, Natalis and horse- racing message boards.

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• Free downloads The Group offers users the ability to download free software such as wallpaper and screensaver programs featuring its contracted celebrities. The Group also provides posters and celebrity photos for downloading by its members.

Official celebrity websites – The Group’s Contracted Celebrities The Group has agreements with over 150 Asian celebrities to design and manage official websites for them. Official celebrity websites are integrated into the Group’s network as individual homepages. As of the Latest Practicable Date, we have created and maintained over 120 official websites for contracted celebrities and these include:

• Actors including Chan Kong Sang, Jackie, Hung Kam Po, alias Sammo Hung, Tsang Chi Wai, Eric, Miu Kiu Wai, Lui Leung Wai, Ray, Yuen Wing Yi, alias Anita Yuen, Ko Shou Liang, Christy Chung Thi Minh-thu, Ng Kwan Yue, Sandra, Leung Ka Fai, Cheung Wai Kin, Dicky, Dao Tai Yu, Loui Yu Yeung, Ng Kai Wah, Cheong Wei Yee, Tang Shui Man, Cheung Ka Fai, Nick, Fu Lek, alias Fong Chung Shun, Chin Ka Lok, Hung Tin Ming, Ho Po Sang;

• Singers including Tam Wing Lun, Alan, Mui Yim Fong, Lai Ming, Leon, Tam Pak Sin, alias Roman Tam, Chen Wai Man, Vivian, alias Chen Wai Lam, Kelly, Chau Wa Kin, Kwong Mei Wan, Lee Hacken, Leung Hon Man, Edmond, Ng Kwok King, So Chi Wai, Edmond, Choy Yat Kit, Remus, Ku Kui Kei, Cheung Julian, Lee Wai Man, Amanda, Linda Wong;

• Film directors, including Wong Yat Cheung, alias Wong Jing, Tong Kwai Lai, Stanley and Chan Ho Sun, Peter; and

• Talk show hosts, including Chan Pak Cheung, Natalis.

Provided below are highlights from the careers of some of the Group’s internationally well-known contracted celebrities:

Chan Kong Sang, Jackie (non-executive Director). International film star Jackie Chan began his film career as a stuntman and is now one of Hong Kong’s most famous actors. He has appeared in more than 40 films, including leading roles in box office hits such as “Rush Hour”, “Rumble in the Bronx”, “First Strike” and “Thunderbolt”. He has received numerous international awards, including “The Best Actor” award by Japan’s Roadshow Magazine for seven consecutive years from 1982 to 1989, and by the Hong Kong Artists’ Guild in 1989. He was also awarded the “Insignes de Chevalier des Arts et des Lettres” by the Cinematheque Francaise (1990) and “Best Actor” at the Golden Horse Awards in 1992 and 1993.

Hung Kam Po, alias Sammo Hung. Sammo Hung is one of Hong Kong’s leading action film stars and is renowned for his skills in the martial arts. He has appeared in more than 50 films, including “My Lucky Stars”, which set cinema box office records in Hong Kong and earned over HK$30 million in gross revenues, and “Twinkle, Twinkle, Little Stars”, which earned over HK$28 million in gross revenues. He has recently appeared in North American films and is presently playing a lead role in the U.S. television action series, “Martial Law”, which won the “Best New TV Series Award” in 1999. He was awarded the “Lifetime Achievement Award” at the Asia and North America International Film Festival in 1999.

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Tam Wing Lun, Alan (Chairman of the Company). Alan Tam is one of Hong Kong’s leading recording artistes in Asia and has recorded more than 60 albums, including the award-winning “The Late Coming Spring”, “Misty Love” and the “Root of Love”. For the three consecutive years from 1985 to 1988, he won the “Most Popular Male Singer” award at the TVB Jade Solid Gold Best Ten Awards Ceremony in Hong Kong. He has also performed in more than 150 solo concerts throughout Asia, Europe and North America, and has appeared in more than 25 films in Hong Kong.

Mui Yim Fong, alias Anita Mui. Mui Yim Fong is one of Hong Kong’s most popular female actresses and singers. For five years from 1985 to 1990, she captured the “Most Popular Female Singer” award at the TVB Jade Solid Gold Awards Ceremony in Hong Kong. She has recorded over 30 albums and performed in more than 100 concerts in Hong Kong and internationally. In addition to her musical success, she has appeared in many award-winning films and won a number of awards including the “Best Supporting Actress Award” at the Fourth Hong Kong Film Award, the “Best Actress Award” at the Eighth Hong Kong Film Festival and the “Best Actress Award” at the Asia Pacific Film Festival.

Tsang Chi Wai, Eric. Eric Tsang is one of Hong Kong’s well-known comedians. He has appeared in more than 130 films, including box office hits such as “Alan & Eric, Between Hello & Goodbye”, and “Comrades, Almost A Love Story”. He won the “Best Actor” award at the Eleventh Hong Kong Film Awards in 1992 and the “Best Supporting Actor” award at the Sixteenth Hong Kong Film Awards in 1997.

Lai Ming, Leon. Leon Lai is one of most popular singers in Hong Kong and throughout Asia. He has recorded more than 40 albums in Cantonese Chinese, Mandarin Chinese, Japanese and Korean. He has held more than 100 solo concerts in Hong Kong and abroad, including in Singapore, Malaysia, Canada and the PRC. He has won numerous awards in Hong Kong including “Most Popular Male Singer” at the TVB Jade Solid Gold Awards Ceremony in 1993 and 1995; “Male Vocal of the Year” at the Hit Radio Awards Ceremony in 1994 and 1995; “Champion of Top Male Singers” in 1996 and 1997; and “Most Favourite Male Singer” at the Commercial Radio Awards Ceremony in 1997 and 1998.

Wong Yat Cheung, alias Wong Jing. Wong Jing is a popular film director and producer in Hong Kong, well-known for producing box office hits. Some of his most popular films include “The God of Gamblers II”, “Hail the Judge”, and “The Lucky Guy”, which earned over HK$50 million, HK$30 million, and HK$25 million, respectively, in revenues. He has also produced numerous popular television series.

Tong Kwai Lai, alias Stanley Tong. Stanley Tong is a Hong Kong leading film director who has recently moved to the United States to develop his directing career. He has participated in the production of over 50 films and television drama series. He is the director and producer of a popular action television series produced by CBS Corporation of the United States, “Martial Law”, which was chosen as the “Best New TV Series” by TV Guide in 1999. “First Strike” and “Rumble in the Bronx”, directed by Stanley Tong, are the first and second best selling films in Hong Kong, respectively.

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Yuen Wing Yi, alias Anita Yuen. Anita Yuen began to pursue her film career after winning the Miss Hong Kong Beauty Pageant in 1990 and has performed in 45 films and numerous television series. In 1993, she was voted as the “Best New Performance Actress” at the Hong Kong Film Awards for her role in “The Days of Being Dumb”. In 1994, she won the “Best Actress” award at the Thirteenth Hong Kong Film Award and the Hong Kong Film Festival for her performance in “C’est La Vie, Mon Cheri”.

Chen Wai Man, Vivian, alias Chen Wai Lam, Kelly. Kelly Chen is a popular female singer in Hong Kong. She released her first album in 1995 and won a number of awards in 1999 including the “Female Singer Gold Award” at the Radio Television Hong Kong Awards Ceremony, the “Ultimate Female Singer Gold Award” at the Commercial Radio Awards Ceremony and the “Most Popular Female Singer” award at the TVB Jade Solid Gold Awards Ceremony. She has also appeared in numerous films and television drama series.

Chan Ho Sun, Peter. Peter Chan is one of the leading film directors and producers in Hong Kong. Since 1989, he has been producing films independently. He has directed and produced about 16 films including “Alan & Eric, Between Hello & Goodbye” and “He’s a Woman, She’s a Man”, which were voted as the “Best Film of the Year” by the Directors’ Guild of Hong Kong in 1991 and 1994, respectively. The Directors’ Guild of Hong Kong also voted him as the unprecedented “Best Director of the Year” in 1994. In 1996, he directed “Comrades – Almost a Love Story”, which helped him win awards at the Hong Kong Film Awards including “Best Director”. His last directing effort is “The Love Letter” in 1999, produced by Steven Spielberg’s Dreamworks SKG. He now divides his time between Hong Kong and Hollywood.

Chan Pak Cheung, Natalis (executive Director). Natalis Chan is a popular film star in Hong Kong who has appeared in more than 50 films. He is also well known for hosting a series of television game shows, beauty pageants, and sports competitions. In 1995, he hosted a variety of game shows on TVB, a local television network in Hong Kong, which captured more than 78% of Hong Kong’s television audience. A renowned sportscaster, he hosted TVB’s live broadcast of the soccer matches of the World Cup in 1990, 1994 and 1998, which were viewed by a large portion of the Hong Kong television audience.

The Group intends to recruit additional local celebrities in its regional markets, such as Singapore, Taiwan and the PRC, as it launches its regional portals. As of 31st March, 2000, approximately 12% and 28% of its contracted celebrities are from Singapore and Taiwan, respectively.

The Group’s celebrity content features

The Group’s contracted celebrities have been featured on its portal network using streaming audio interviews and short videos specially made for their official websites. Some of the celebrities provide photos and tips for users on such themes as fashion, dance, playing guitar or learning Japanese. Official celebrity websites include daily features, insights from the celebrities and fan club information. Through chat sessions, message boards and live virtual special events, users can interact with the celebrities and other fans. Through the feature “Star Track”, daily schedules of the celebrities are provided so that fans will have an opportunity to attend the public appearances of their favourite celebrities . For celebrities who have their own businesses, the Group plans to offer e-commerce opportunities to sell their products and services in return for commissions.

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Celebrity contracts-standard agreement

The Group’s standard agreement with its contracted celebrities (and, in some cases, their managers) generally provides it with the right to create an official celebrity website, as well as to receive content for the website and to use, subject to the celebrity’s permission, the celebrity’s name, logos and other materials to promote the celebrity’s official website. The celebrities and managers, if any, have each agreed thereunder to participate, or procure the celebrity’s participation, in the various production activities in respect of their website as organized by the Group or its designated production team. In addition, insofar as is reasonably practicable and subject to their availability, the contracted celebrities have agreed to participate in promotional activities organized by the Group to promote their official celebrity websites. All designs, content of activities and the terms of their participation in such activities under the contract are, however, subject to the prior approval of the celebrity at his or her absolute discretion.

Some of the terms of the Group’s standard agreements are varied on a case by case basis, such as, most significantly, the term and termination clauses. The Group’s agreements with contracted celebrities generally have initial terms ranging from one to five years from the date of execution and the celebrities are not entitled to unilaterally terminate the agreements during such initial term. In general, the Group’s agreements with the contracted celebrities provide that the contracts will be extended automatically at the end of their respective initial terms until either the Group or the contracted celebrity provides notice to each other. The notice periods for termination are agreed in the contracts and generally are for periods of either 10 or 30 days and, in the case of Singaporean celebrities, are generally for 60 or 90 days.

The following sets out an analysis of the initial terms of the celebity contracts:

Initial Term Number of celebrities as at the Latest Practicable Date

1 – 2 years 128 3 – 4 years 30 5 years or above 5

Total: 163

The Group has agreed under its standard agreement to share equally with each contracted celebrity the amount of gross revenue from his or her official celebrity website, including advertising and sponsorship revenues attributable to the contracted celebrity’s official website. Pursuant to the terms of the standard agreement, during the term of the agreement, the celebrity is not allowed to participate in any website activities which are similar to or in competition with the celebrity’s official website with the Group. Finally, the standard agreement provides that the celebrity and the Group will jointly own all information derived from the celebrity’s participation in the official website, including intellectual property rights and economic benefits derived under such intellectual property rights, none of which may be used without mutual agreement.

In addition to revenue potential, the Group believes that it offers its celebrities a publicity platform, the opportunity for them to interact with their fans and an avenue for them to be introduced to advertisers for sponsorship opportunities which may continue off-line. The connection of a celebrity to the Group’s pool of other well-known Chinese celebrities may increase his or her status and public recognition.

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Affiliation with the Group’s website may lead to other opportunities for the celebrity to appear in the films, television programming and documentaries produced by affiliates of Star East Holdings and Bob, with whom the Group has recently entered into an exclusive agreement for a term of three years which provides the Group with an exclusive right to distribute their films over the internet. The Group’s celebrities may use their official websites and special content features to manage their images and develop their careers.

Celebrity contracts – non-standard agreements

As at the Latest Practicable Date, seven of the Group’s contracted celebrities had entered into separate agreements with the Group which differ in certain ways from the standard agreement. Under these agreements, the one year contractual term takes effect from the date of the official launching of the celebrity’s website and will automatically be extended after one year until one party gives the other party one month’s termination notice. The celebrity is not however entitled to terminate the agreement during the first one year period. In addition, these agreements are accompanied by supplemental agreements, which provide for the celebrity to receive a commission representing 20% of the gross income generated by an advertisement on the celebrity’s official website solicited solely and directly due to the efforts of the celebrity before sharing the remainder of the gross income equally with the Group. In the event that an advertisement on the celebrity’s official website is solicited solely and directly due to the Group’s efforts, it will first be entitled to a commission representing 20% of the gross income generated by such advertisement before sharing the remainder of the gross income equally with the celebrity.

Celebrity contracts – Chan Kong Sang, Jackie and Lai Ming, Leon

In addition to the variations previously noted, two of the Group’s contracted celebrities, Chan Kong Sang, Jackie and Lai Ming, Leon (not a connected person of the Company) have entered into individually made agreements with the Group. These two agreements differ substantially from the agreements the Group has signed with its other contracted celebrities.

Under the Group’s agreement with Chan Kong Sang, Jackie and his manager, the Group is given the right to use, operate and manage the official website for Jackie and to use certain promotional materials. However, these rights specifically exclude the right to promote motion pictures of Jackie Chan, the right to host or operate auctions involving the name and/or likeness and/or products bearing the name and/or likeness of Jackie Chan and the right to promote any food or drinks or related products on his official website. Furthermore, these rights are subject to a parallel and equal right granted in favour of Global Food Culture Group Limited (of which Jackie Chan is the Chairman and a substantial shareholder) and/or Best Mix Limited (a subsidiary of Global Food Culture Group Limited) (both not connected persons of the Group as defined under the GEM Listing Rules) to use the name and the likeness of Jackie Chan on the internet. The Group’s agreement with Jackie Chan is for a term of one year. Extension of the term will depend on mutual negotiations and agreement. The agreement requires the Group to reimburse costs incurred by Jackie Chan’s manager in producing promotional materials for Jackie Chan’s official website.

Under the Group’s agreement with Lai Ming, Leon and his manager, Paciwood Music & Entertainment Limited (“Paciwood”), Paciwood will act as Leon Lai’s representative and is empowered to make many commercial decisions for him such as whether or not he should attend a particular promotional activity and whether or not a particular production unit assigned to design Leon Lai’s

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website is acceptable. The Group’s agreement with Leon Lai and Paciwood has a term of 24 months, ending on 31st January, 2002. After the first 12 months, the agreement can be terminated by either party serving one month’s notice to the other without cause. If the agreement has not been terminated prior to 31st January, 2002, the agreement will be automatically extended until terminated by any party with 14 days’ prior notice. Unlike the standard agreements, the Group’s agreement with Leon Lai and Paciwood requires it to pay for all of the expenses incurred by Leon Lai, Leon Lai’s staff and Paciwood in their participation in activities to promote Leon Lai’s official website on its portal network. In addition, Leon Lai may participate in internet-related activities of a similar nature which are organised by a third party if he decides in his discretion that such participation is conducive to his acting career.

Multimedia features Currently the majority of data transmitted over the internet is conducted via narrow band services, resulting in the majority of content distributed being in static format, mainly in the form of either text or picture graphics. The Directors believe providing proprietary multimedia content featuring its contracted celebrities will enable www.stareastnet.com to increase its entertainment value and be more competitive with other forms of media, such as television. At the same time, the Directors also believe that the exclusive content offered by the Group will provide it with a competitive advantage over its competitors. The video and audio programmes offered by the Group will attract and retain users, thus increasing user traffic and enhancing the Group’s website’s attractiveness to advertisers.

Video and audio features offered on the Group’s website is updated regularly to encourage frequent visits and offers the following features:

• Films The Group offers free viewings of film clips on its website, including special film footage.

• Music videos The Group offers free viewings of popular Chinese, Mandarin and English music videos, including recent releases.

• Video productions The Group offers exclusive video content, such as talk shows, exclusive interviews, infotainment, news and variety programming, all of which features its contracted celebrities.

• Unique productions Owing to its relationship with its contracted celebrities, the Group is able to gain access to artistes. Subsequently, the Group is able to provide to its users exclusive and unique features, such as behind the scenes footage on the set of films and music recordings featuring its contracted celebrities.

• Audio features The Group offers traditional audio programming over its portal network, such as music, news and other informative programming hosted by its contracted artistes.

Community Features The Directors believe that providing a place for the Chinese community world-wide to meet and share ideas about their favorite Chinese celebrities will help generate an affinity for the Group’s portal network, increase brand loyalty to motivate users to return frequently to and spend more time on its portal network. Through the Group’s community features, members will be able to

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gravitate towards others who share their interests, enabling them to create niche user groups which can be targeted with marketing campaigns and e-commerce opportunities. Additionally, the integration of the Group’s content with these community features will expose members to other areas of the portal network, increasing their awareness of the breadth of its internet programming.

In order to participate and to assist the Group in targeting advertising, users must complete a registration form and provide the Group with demographic information about themselves. As of 31st March, 2000, the Group had approximately 119,000 registered members.

The Group’s website offers the following community features:

• Free e-mail The Group offers members a free personalised Web-based e-mail account, known as “Star-mail”.

• Live chat The Group provides a “virtual” conversation in which members can interact in real-time online conversations with its contracted celebrities. The Group also creates topics of discussion designed to foster participation of members and celebrities.

• Message boards The Group offers members the ability to post messages for general viewing by other members to promote dialogue on relevant issues, topics or events of interests to its members. Some of the Group’s message boards allow members to post messages to their favourite celebrities.

• On-line games The Group offers a community dedicated to online games that can be played by an individual or by multiple users.

• Polls The Group conducts polls on various entertainment topics to provide its members with the opportunity to express their views and also to learn about the opinions of other www.stareastnet.com members.

• Star Cash The Group rewards its valued users for viewing www.stareastnet.com. Registered users can accumulate points, or “Star Cash”, based on the amount of time that they spend viewing www.stareastnet.com. Viewers that accumulate enough Star Cash can redeem them for rewards.

• Web organiser/calendar The Group offers registered users an organiser/calendar to let them know and keep track of the latest www.stareastnet.com promotion and events as well as the activities of their favourite celebrities.

• Match making service The Group offers a service whereby members can post their photos and short descriptions about themselves. Members can contact one another by message boards.

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As the Group gathers more information about the interests of its members, it intends to offer e- commerce targeted advertising in specialised discussion groups within the community and pursue relationships with the goal of entering into revenue sharing relationships based on transactions derived from members. The Group also intends to enhance its current offering of registered user only events and loyalty programmes, such as contests to win walk-on roles in films.

Star Search search engine. Due to the technological limitations of search engines in the Chinese- language, edited and niche search engines are extremely useful to Chinese-language internet users. The Chinese language often forms words using two characters. As a result, Chinese words require 16 bits of code, compared to 8 bits of code for words in English or Romance languages. Search engines using 16 bits, or dual-byte, are more limited in the data they can collect in the Chinese language. In addition, as Chinese characters are often presented as graphics, text-based search engines have difficulties creating comprehensive directories of search results. The Directors believe that the technical limitations of search engines result in a greater reliance by Chinese-language users on directory-creation and niche search engines to find relevant information quickly.

The Group’s niche search engine, Star Search, is updated daily to maintain a comprehensive database of links to Chinese-language entertainment and life-style information. The Group’s users can search by the names of its contracted celebrities and be linked to fan home-pages, fan clubs and other related sites.

Life-style and leisure features. A portion of the content offered on the Group’s portal network is updated regularly to keep users informed about the latest life-style trends and how best to spend one’s leisure time. Content focusing on Japanese television and culture and fashion reviews encourages users to return to the website by providing users with the opportunity to learn about and stay up-to-date with the latest trends and leisure activities.

Daily interest features. Many of the features of the programming on the Group’s portal network are designed to attract its users to visit the Group’s websites on a daily basis. Entertainment news, horoscopes, weather forecasts and films encourage users to check the website regularly. City guides, event-ticketing and horse-racing updates also attract users for frequent visits to the Group’s website.

Future features. The Group intends to offer the following additional features on www.stareastnet.com:

• Game shows The Group intends to produce interactive game shows for its users. Users will have the opportunity to win prizes and participate in live trivia contests and other contests hosted by some of the Group’s contracted celebrities who are popular game show hosts in Hong Kong.

• Premium subscriptions The Group is considering providing its users, for a nominal fee, with access to additional information and content about some of their favourite celebrities.

• WAP and mobile content The Group intends to develop content with the assistance of its contracted celebrities to provide pre-recorded messages, greetings, news and weather information and life- style information (i.e., where to eat, what to watch, etc.) on mobile devices.

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• Women channel The Group intends to develop a channel especially dedicated to modern women. Content featuring female celebrities will be created to address and provide information on issues concerning today’s females.

• Hobbies and interests The Group intends to produce content featuring celebrities to educate users on subjects that may interest them. The Group will work with its celebrities to develop features that inform and instruct users on different hobbies and interests, such as how to sing or play an instrument, how to best look after a pet, how to cook and others.

The Group will consider adding more content and features as it learns more about the viewing habits and preferences of its users.

Regional Portals and Mirror Sites. The Group has launched a regional portal in Singapore and Taiwan, and plans to launch regional portals in Korea, Japan, North America and Southeast Asian countries. The Group also plans to establish regional portals in the “Chinanet” triangle of Beijing, Shanghai and Guangzhou. The exact structure of the PRC operations will be subject to the rules and regulations as set forth by the PRC government. The Group has recruited local artistes and celebrities in Singapore and Taiwan and intends to recruit local celebrities in Korea and Japan for those regional portals to provide and develop local content. For example, the Group has recruited celebrities from Singapore and Taiwan such as Eric Mo Kai Yin and Jack Neo Chee Keong. The Group will tailor its life-style, fashion, and other features to cater to each region’s unique tastes and culture. In addition, the Group is considering to enter into joint ventures with local partners in Japan and Korea to recruit local celebrities and develop content specifically targeted to these markets.

The Group’s regional portals will be inter-linked so that users can experience the trends and programming outside of their area through its content on the rest of its portal network. The Group provides content in North America by duplicating, or mirroring, the content on its main portal. Mirroring provides quicker access for users than if they connect directly to its portals outside their home market. In addition, content from Hong Kong will be partially mirrored in other Asia-Pacific countries.

The Group intends to translate some of its Chinese entertainment and life-style information into Korean, Japanese and English and to eventually permit internet users in these countries to access its websites in their local language.

Content Production

The Group provides vertically integrated internet content production through its production department and facilities. The Group’s facilities include fully equipped internet and television production studios with scalable production infrastructure and fully digitised equipment. The Directors believe that vertically integrated production-to-internet distribution will become increasingly important to the Group’s celebrities and users as film, television, radio and the internet converge and that it is capable of providing a broad range of content to its celebrities and users. Accordingly, in addition to the agreements noted below, the Group seeks to enter into strategic alliances with other entertainment content providers.

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In March 2000, the Group entered into a distribution agreement with Bob, under which the Group has the exclusive right to distribute all of Bob’s existing and future film productions on the internet for a period of three years. Bob is principally engaged in the production and distribution of Chinese films and television dramas in Hong Kong, the PRC and Southeast Asia. Box office hits in Hong Kong previously produced by Bob include “The Stormriders” and “Your Place or Mine”. Bob produced 10 films in 1998 and seven films and 100 episodes of television and drama series in 1999 and 2000. The Group currently has licensed the rights to 28 film titles from Bob for internet distribution. Bob holds the right to produce the sequels to “A Man Called Hero”, “L-O-V-E Love”, “Your Place or Mine” and “The Tricky Master”.

Other Distribution Channels

The Group also distributes its content through its strategic alliances as described below in the paragraph headed “Strategic Alliances”.

E-Commerce Opportunities

The Directors believe that e-commerce is a natural extension of the Group’s portal network. Currently, e-commerce is not as developed in the Asia-Pacific region nearly to the extent it is in the United States and the Group has only begun to generate revenues from e-commerce in the first quarter of 2000. The Directors believe that this is in part due to the difficulty in securing online payment since credit cards are not commonly accepted, used or available in a large portion of the Asia-Pacific region. However, the Directors believe that as this market matures, credit card use and additional methods of making online payments will increase, and e-commerce will generate significant retail revenues. The relative absence of significant e-commerce in the Asia-Pacific region gives the Group the opportunity to position its brand as a market force for e-commerce in the Asia-Pacific region as it develops by providing services such as:

• Event ticketing. The Group sold concert tickets through its portal network for a series of concerts given by its executive Director, Tam Wing Lun, Alan in February 2000. The sale also involved an arrangement with CityLine Holdings Limited (an independent third party), an automated ticketing service provider for cinema tickets and special events in Hong Kong. The Group expects to continue to offer event ticketing through its portal network for concerts and other live entertainment on an event-by-event basis and to offer links to purchase cinema tickets.

• Star East Products. The Group intends to offer products such as celebrity collectibles and Star East brand items for sale on its network.

• Celebrity Merchandise. Some of the Group’s contracted celebrities have additional businesses or product lines. The Group plans to provide its members with the opportunity to purchase these products through links to the celebrities’ official websites in return for commissions on the transacted amounts.

• E-Auctions. The Group provides an auction community which offers its members the opportunity to bid for celebrity memorabilia and other products in return for commissions on the transacted amounts.

• Entertainment-related Products. The Group sells DVDs, VCDs, videotapes, CDs, cassettes and other entertainment-related products.

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• Online Shopping Mall. The Group intends to launch an online shopping mall on its www.stareastnet.com portal. The Group’s online shopping mall will host various internet retailers and serve as a one-stop center for online purchasers to fulfill their shopping needs. Online purchasers will be able to select from a range of online retailers who have paid the Group to host their sites on its online shopping mall. In addition, the Group plans to generate revenues by charging a commission for every sale transacted on its online shopping mall. If the implementation of its online shopping mall on www.stareastnet.com is successful, the Group intends to expand it to its regional portals.

Advertising and Sales

The Group is focused on providing its advertisers with a large, demographically desirable audience. Advertisements are displayed throughout the Group’s network when a user enters the service, reviews an entertainment feature or accesses e-mail or chat rooms. Advertising and ticket sales revenues represented approximately 51% and 49%, respectively, of the Group’s net revenues for eleven months ended 29th February, 2000.

Portal Network. The Group is able to generate revenues by hosting advertisements and sponsorships on its portal network. The Directors believe that the volume of traffic generated to the Group’s portal network by its products and services allows its portal network to be an attractive vehicle to host advertising for targeted audiences. The average daily pageviews of the Group’s portal network for the month of April 2000 were approximately 1.1 million.

Forms of Internet Advertising. Advertisements are prominently displayed on the Group’s advertising network and are available in the following forms:

• Banner advertisements Small, usually rectangular graphics that appear on most consumer websites. The messages are updated regularly and appear at the top of a Web page.

• Button advertisements Buttons are small, squarish advertisements that are usually at the bottom of a Web page and contain only a corporate name or brand. Clicking on the button takes the online viewer directly to the corporate website which allows advertisers to directly interact with the online viewer.

• Sponsorship or co-branded advertisements These attempt to integrate companies’ brands and products with the editorial content on the Group’s network. The Group can arrange to have sponsorships directed towards individual contracted celebrities and special events on its network. Most of the Group’s contracted celebrities have agreed to participate in sponsorship initiatives under the Group’s standard agreement with celebrities. For example, a recent sponsorship featured photos of five of the Group’s popular male celebrities using an electric shaver produced by one of the Group’s advertisers.

Banner Advertising Pricing and Products. The Group enters into agreements with advertisers pursuant to which it guarantees either a minimum duration that the advertisement will be displayed on its portal network or a minimum number of impressions for a fixed fee. Both of these pricing methods are commonly used in the Hong Kong market. The Group also may combine the pricing methods, for example, 100,000 page impressions during one month. The Group charges higher fees for advertising

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products on its pages with higher user traffic. The Group’s list prices, which range from HK$80 to HK$125 for each 1,000 page impressions, are for advertising in the following forms:

• Run of the network An advertiser purchases advertising space from the Group. The Group has the discretion to place the advertisement on any of the portals in the Group’s network.

• Group of websites The advertiser places advertisements under a group of websites and the Group has the discretion to place the advertisement in any location in a single portal. This is more expensive than run of the network.

• Specific Sites The advertiser places advertisements under specific websites. The Group currently has 13 categories of advertising, based on the index of the www.stareastnet.com site. The Group’s home page is the most expensive.

Actual advertisement rates depend upon a variety of factors, including and without limitation, the duration of the advertising contract and the number of impressions purchased and are often negotiated on a case-by-case basis. Advertisers may also choose to run advertising on specific official celebrity websites.

Advertisers. The Group maintains and focuses its sales and marketing efforts on the leading internet and traditional media advertisers and advertising agencies. The Directors believe advertisers are attracted to the Group’s portal network because of its contracted celebrities and its focus on life-style and entertainment content. The Group has the ability to package personalized advertising solutions for advertisers and advertising agencies interested in accessing its target markets. The Group’s sales force works closely with advertisers and its external sales representative, 24/7 Media Asia Limited, to enhance the effectiveness of its marketing campaigns by customising advertisement delivery on a specific celebrity website.

The Group had over 35 advertisers on its portal network during the period from the launch of its website until 31st March, 2000. Set forth below is a representative list of paid advertisers during the period beginning 28th September, 1999 and ending 31st March, 2000:

Representative Advertisers

IBM Epson Compaq Sony Philips Hong Kong Telecom Microsoft

In the eleven months ended 29th February, 2000, the largest advertiser accounted for 18% of total revenues. During the same period, the Group’s five largest advertisers accounted for approximately 41% of total revenues. One of such advertisers is a wholly-owned subsidiary of Star East Holdings, a connected person of the Company. Save as aforesaid, none of the Directors, their associates or shareholders (which to the knowledge of the Directors own more than 5% of the Company’s share capital) have any interest in the advertisers disclosed above.

Advertisement Serving Technology. The Group does not have its own advertisement serving technology, but is currently licensing such technology from its external sales representative, 24/7 Media Asia Limited. Advertisement serving technology enables the use of “cookies,” in addition to other

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mechanisms, to deliver targeted advertising, to help compile demographic information, and to limit the frequency with which an advertisement is shown to the user. Cookies are bits of information keyed to a specific server, file pathway or directory location that are stored on a user’s hard drive and passed to a website’s server through the user’s browser software. For further discussion of advertisement serving technology, see the section headed “Risk Factors-Privacy concerns may prevent the Group from selling demographically targeted advertising in the future”.

As part of the Group’s future advertisement delivery system, it will be integrating information such as user’s online response rate to advertisements, name, address, age or e-mail address with third party databases to generate a comprehensive demographic profile of the internet user.

Sales and Marketing. As of 31st March, 2000, the Group’s advertising sales and marketing department consisted of 23 people located in Hong Kong. In February 2000, the Group appointed 24/7 Media Asia Limited, as its external sales representative. The Directors believe this relationship will allow the Group to develop an international sales network more quickly and will provide opportunities for the transfer of skills to its own sales staff.

MARKETING AND BRAND AWARENESS

The Star East brand name has been developed by one of the Group’s principal shareholders, Star East Holdings and its subsidiaries. Star East Holdings is principally engaged in entertainment related businesses, including franchising of entertainment complexes offering live entertainment, dancing, karaoke, games and bistro-style dining and theme cafés under the “Star East” name. Star East Holdings intends to further develop the Star East name through product licensing and merchandise sales. The Group intends to increase awareness of its portal network and develop the Star East name through traditional advertising such as billboards and print advertisements, internet advertising and special events, such as a series of concerts in Hong Kong, Taiwan, Singapore and the PRC. The Directors believe the development of the Star East name through these efforts will increase traffic to the Group’s portal network, raise its profile among potential advertisers and enhance brand awareness for e-commerce opportunities.

MEMBER SERVICE AND SUPPORT

The Directors believe that member service and support are important to the Group’s ability to attract and retain members. The Group’s member support staff provide telephone support, respond to member requests via e-mail concerning technical aspects of its portal network and maintain a Frequently Asked Questions (FAQ) section on its portal network. The Group does not charge for these member and support services.

STRATEGIC ALLIANCES

The Directors believe that the Group’s strategic relationships with its principal shareholders and other strategic partners allow it to differentiate its portal network and products from others as providing the preeminent websites, products and services for Chinese-language entertainment content on the internet. The Group has recently entered into memoranda of understanding with PCC on 24th February, 2000, Digital United on 18th February, 2000, Pacific Internet Ltd. on 22nd February, 2000, Hikari and Korea Thrunet Co., Ltd. on 18th February, 2000, to more effectively and efficiently target broader audiences in its target markets.

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Each of the memoranda of understanding referred to in this section of the prospectus has been entered into with the general purpose of setting down, in broad and general terms, the basic understandings and intention of the parties relating to the nature and form of the cooperation the parties wish to develop. A memorandum of understanding merely manifests the intention of the parties and does not constitute a binding and enforceable commitment or obligation of any nature by any party. A binding and enforceable commitment or obligation will result only from the execution and delivery of a definitive agreement. Each memorandum of understanding, with the exception of the Group’s memoranda of understanding with China Internet Corporation (which is licensed to distribute the service provided by America Online Inc. to localised users in Hong Kong), will terminate upon the date of execution of a definitive agreement or upon the expiry of a period of 180 to 270 days from the date the particular memorandum is entered into, if no definitive agreement has been executed.

The Group has entered into letters of intent respectively with Hutchison Telecommunications (Hong Kong) Limited and Peoples Telephone Company Limited, both independent third parties, to make, sell and distribute WAP phones over the Group’s portal network and to provide access to the Group’s WAP content to the WAP customers of the two telecommunications companies.

The Group has also entered into a definitive agreement with Pacific Internet Limited and CBN, which sets out the terms of business collaboration between the parties, such as co-branded webpage, licensing of rights to database and logos and advertising and promotion activities.

The Group’s Celebrity Shareholders and Contracted Celebrities

The Group’s celebrity shareholders own Shares through Gold Miracles. Gold Miracles is an investment company owned by three Hong Kong celebrities whose main investment interests are related to the entertainment industry. In addition, the Group has agreements with over 150 Asian celebrities to host official websites for them. The Directors believe the Group’s relationships with its celebrity shareholders and contracted celebrities set it apart from its competitors and that the popularity of these celebrities helps the Group to attract and retain users to its website. See “The Group’s Products and Services – Official Websites”.

The Group’s Principal Shareholders

Star East Holdings

Star East Holdings is principally engaged in entertainment-related businesses, including franchising of entertainment complexes offering live entertainment, dancing, karaoke, games and bistro style dining and theme cafés under the “Star East” name; trading of merchandise; the provision of agency and talent management services for entertainers; and the provision of media agency services. It also carries out, through its associated companies, the business of mortgage financing, property investment and development. Star East Holdings is listed on the Main Board. Through the Group’s relationship with Star East Holdings, it will benefit from Star East Holdings’ efforts to increase awareness of the Star East brand. In addition, Star East Holdings intends to operate and franchise various cybercafés which may in the future serve as a distribution platform for e-commerce products offered on the Group’s portal network.

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PCCW

PCCW is a market leader in Asia for technology-related businesses. PCCW will be involved primarily in technology businesses related to the internet and the delivery of broadband internet services through a satellite to cable distribution system. By an advertising contract dated 24th August, 1999, the Group has agreed to purchase air-time on PCC’s internet and television network. In providing the air-time, PCC is required to comply with various laws in respect of television and internet advertising, satellite foot prints and the countries penetrated via internet access, broadcasting licences and other regulation or codes of practice governing television and internet advertising. In the event that PCC is unable to launch its television and internet advertising network on or before 24th February, 2002, the Group may terminate the contract by written notice and PCC is required to refund the unused provision of air-time credit to the Group. The Group has also entered into a memorandum of understanding with PCC to form a strategic alliance for the distribution of the Group’s content through PCC’s broadband platform. For more information on the transactions with PCC, please refer to the section headed “Connected transcations”.

Hikari

Hikari is a Japanese investment company and telecommunications provider. It has diverse internet investments throughout the Asia-Pacific region. The Directors believe the Group’s relationship with Hikari will assist its efforts to promote its products and services in Japan. The Group has entered into a memorandum of understanding with Hikari to form a strategic alliance for promoting its contracted celebrities in Japan and distributing content through Hikari’s broadband and narrowband platforms. Any such strategic alliance will take the form of a distribution arrangement or a joint venture.

Hanny

Hanny is principally engaged in the businesses of manufacture, distribution and marketing of data storage media and the distribution and marketing of computer peripherals and accessories, and strategic investment in information technology and internet related businesses, including CBN, which provides internet solutions services to the Group and operates its portal in Singapore. The Directors believe the Group will be able to leverage off Hanny’s relationships with other technology and internet-related companies to grow its business in the Asia-Pacific region.

The Directors believe that none of the above principal shareholders of the Company are interested in (whether directly or indirectly) or engages in any business that directly or indirectly competes with the Group’s business.

Other Partners

China Internet Corporation. In September 1999, the Group entered into a memorandum of understanding with China Internet Corporation to co-brand and promote their jointly-developed original content. On 3rd March, 2000, the Group and China Internet Corporation further consolidated the relationship by entering into a second memorandum of understanding. Under this second memorandum, which has a duration of 12 months from the date of the memorandum, China Internet Corporation will arrange with overseas AOL entities to assist the Group in its marketing and promotional activities in North America.

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Korea Thrunet The Group entered into a memorandum of understanding with Korea Thrunet in February 2000 to form a strategic alliance for promoting its contracted celebrities in Korea and distributing content through Korea Thrunet’s broadband and narrowband platforms. The duration of the memorandum (as extended subsequently) was for 270 days from the date of the memorandum. Any such strategic alliance would take the form of a distribution arrangement or a joint venture.

Pacific Internet Ltd. CBN, as designated agent of the Company, entered into a memorandum of understanding for an indefinite term in February 2000 with Pacific Internet Ltd., an ISP in Singapore listed on the NASDAQ National Market, whereby both parties will seek to agree to co-promote their websites, events and activities, including exchanging information from the Group’s regional site in Singapore, cross-membership and banner advertisement swapping.

Digital United. The Group entered into a memorandum of understanding in 18th February, 2000 for a term subsequently extended to 180 days with Digital United, an ISP in Taiwan, to form a strategic alliance for promoting its contracted celebrities in Taiwan and distributing content through Digital United’s broadband and narrowband platforms. Any such strategic alliance would take the form of a distribution arrangement, a joint venture or a membership arrangement to allow existing members of Digital United to become members of www.stareastnet.com.

COMPETITION

The market for internet content providers in the Asia-Pacific region is new and evolving rapidly. Competition for visitor traffic, advertisers, strategic partners for providing content, distribution partners and electronic commerce partners is intense. The Group expects competition to increase significantly in the future because start-up costs and barriers to entry are low. In addition, the Directors believe that increasing competition to provide entertainment content over the internet will depend on securing access to a wide variety of quality content and that, accordingly, larger companies may enjoy competitive advantages over smaller ones.

Like all internet-related companies, the Group competes for users and advertisers on the basis of brand recognition, ease-of-use, performance of technology, customer support and effectiveness of sales and marketing efforts. In addition, the Group competes with internet content providers on the basis of quality, variety, uniqueness, timeliness, and presentation of its content. The Directors believe that the Group compares favourably with its competitors with respect to each of these factors.

Although the Group does not intend to provide all the services that may be made available online, the Directors believe that the Group’s Chinese-language content services, online community products and e-commerce capabilities will be competitive with other Chinese-language websites because of these competitive advantages. The Directors believe that the Group’s intended e-commerce operations, which will be focused on celebrity-related products, will occupy a unique niche position in the marketplace and will not be in competition with any existing retailers.

There exist many companies which provide websites and online destinations targeted to the Chinese audiences world-wide. The Directors believe the Group’s most significant competitors are Chinese- language online services and websites targeted to entertainment audiences, such as www.chinastar.com, and www.163.net and potentially a website expected to be launched in the second half of 2000 jointly by

– 95 – BUSINESS

Yahoo Holdings (Hong Kong) and China Star Entertainment Limited. The Group faces competition from general online entertainment websites, such as www.tom.com and www.eonline.com.hk and from some general destination sites, such as Yahoo!, which has translated a small portion of its content into the Chinese language and established relationships with content providers from Chinese-language traditional media providers. In this market, competition occurs in acquiring both content providers and subscribers. The principal bases of competition in attracting content providers include quality of demographics, audience size, cost-effectiveness of the medium and ability to create differentiated experiences using aggregator tools.

Many Chinese-language traditional media providers, such as newspapers and television broadcasters, have established websites as auxiliary services to their products. Presently, the Directors believe the Group faces significant competition from traditional publishers and distributors of entertainment and entertainment-related content, including television, radio and print media, such as www.tvb.com.hk, www.i-cable.com and www.chinastar.com. In the future, the Directors believe traditional media providers will expand their existing internet presence to develop their own internet-specific content or supporting third-party internet content providers. In addition, traditional media providers in the Group’s target markets may form strategic partnerships or other business combinations with internet service providers to bundle their content into the service, such as occurred in the United States with Microsoft’s relationship with NBC to provide multimedia news and information programming over both cable television and MSNBC, and the recent merger announced between America Online and Time Warner.

LICENCES AND INTELLECTUAL PROPERTY

The Group currently holds the following material licences:

• URL licences from Network Solutions Inc. The Group has registered over 31 domain names, including “www.stareastnet.com”, “www.startaste.com”, “www.stareastgroup.com” and “www.stareastentertainment.com”. These domain name registrations have been obtained from Network Solutions for nominal consideration for an initial period of two years and are renewable on an annual basis thereafter at a nominal renewal fee.

• URL licences from Hong Kong Network Information Centre. The Group has registered a total of 9 English and 92 Chinese domain names, including “www.stareast.com.hk”, “www.stareastnet.com.hk” and “www.startaste.com.hk”. These domain name registrations have been obtained from HKNIC for nominal consideration of HK$200 and currently there is no annual fee required to maintain the registration.

• Software licences. The Group purchases life-time non-exclusive licences from IBM to operate its Web servers and database servers and non-exclusive licences from Microsoft for their office programs and to operate its NT servers.

• Trademark licence. The Group has entered into an agreement with Star East Concept Limited, a wholly-owned subsidiary of Star East Holdings, to hold a licence to utilise the Star East trademarks in the form of “StarEastNet” or its design variations in relation to internet, e-commerce and telecommunications services and to establish and develop the Star East brand name. The agreement is not subject to any territorial restriction. The licence is for an initial term of 5 years, and the Group has two successive options to renew for another term of 5 years under each option.

– 96 – BUSINESS

Information that the Group produces for the official celebrity websites pertaining to an individual celebrity, as well as the various rights to the Web domains, will be jointly owned by the Group and each particular celebrity. The Group is uncertain as to how joint ownership of copyrighted content would function at the termination or expiry of a celebrity’s contract with the Group but it is unlikely that such content will continue to be used and generate revenues. Some information on the official celebrity websites is provided by the celebrities. Copyrights for this information may be owned by the celebrity or other third parties. Such copyrights are not transferred to the Group when the content is added to its network. Risks associated with the above licences are set out in details in the section headed “Risk Factors”.

FACILITIES AND TECHNOLOGY INFRASTRUCTURE

Production Facilities. The Group leases production facilities on the 30th floor of the Paul Y. Centre, consisting of approximately 6,500 square feet occupied under a lease expiring 21st November, 2001. The Group also leases a production studio in Central, Hong Kong, which consists of approximately 1,000 square feet. These facilities are fully equipped for the production of internet content and traditional media productions such as documentaries, films and television program.

Servers. The Group makes its websites available through IBM RS/6000 servers with technical support from IBM China/Hong Kong Limited. The Group also uses hardware from Netfinity for its websites. The Group’s server runs on IBM AIX, Windows NT and Redhat Linux operating systems. For security and e-commerce transactions, the Group uses IBM Netcommerce software programs.

Regional Sites and Data Centres. The Group has an established regional sites in Singapore and Taiwan and a mirror site in North America. The mirror site in the North America is currently hosted by Digital Island, Inc. In addition, the Group has plans to operate regional sites in Beijing, Shanghai and Guangzhou, PRC, Korea, Japan and North America.

Network Architecture

The Group’s technology infrastructure is built and maintained for reliability, security, and flexibility and is administered by its technical staff. The design concept of www.stareastnet.com is built upon IBM’s Application Framework for e-business. The framework is based on an n-tier distributed environment where the content and application will handle multiple delivery channels such as personal computers, internet kiosks, WAP phone and personal digital assistants, commonly known as PDAs.

The Group maintains its central production servers at the Hong Kong data center of PSINet. The Group maintains regional network operating centres in Taiwan and Singapore. The Group intends to establish additional network operating centres in Taiwan, Japan, Korea and North America and in Beijing, Shanghai and Guangzhou based on the rules and regulations as set forth by the PRC government. The Group’s operations in Hong Kong depend on the ability of PSINet to protect its systems against damage from fire, hurricanes, power loss, telecommunications failure, break-ins, or other events. PSINet provides facilities management services, excluding human and technical monitoring of all production servers. The Group performs human and technical monitoring of all production servers 24 hours per day, seven days per week. PSINet also provides connectivity for the Group’s network servers through multiple high- speed connections. In Singapore, the Group’s servers are connected to one of the largest internet service providers in the country. The facility is protected by multiple uninterruptible power supplies.

– 97 – BUSINESS

For reliability, availability, and serviceability, the Group has implemented an environment in which software and hardware at one site can function independently from its other sites. As is the industry norm, key components of the Group’s server architecture are served by multiple redundant machines. As a result, if one or more of the Group’s servers fail, there are other servers at the site that can replace its functions. In the event that the site in one city or country fails, traffic from that site can be diverted to the Group’s sites located elsewhere with minimal disruption to its users.

The Group employs in-house and third party software to monitor access to its production and development servers. Reporting and tracking systems generate daily traffic, demographic, and advertising reports. The Group uses the normal industry practices, such as firewalls and passwords, to prevent hacking, viruses and other disruptions. The Group’s production data is copied to backup tapes daily and stored off-site at PSINet.

The Group’s network must accommodate a high volume of traffic and deliver frequently updated information. Components or features of the Group’s network have in the past suffered outages or experienced slower response time because of equipment or software downtime. These events did not have any material adverse effect on the Group’s business.

YEAR 2000 COMPLIANCE

The Group reviewed all its computer hardware and application software to ensure that they were year 2000 compliant. The Directors believe that they have taken all necessary steps to ensure the computer systems of the Group are year 2000 compliant but are aware that year 2000 issues, many of which are outside the Group’s control, may continue to pose a threat to its business well into year 2000. However, as at the Latest Practicable Date, the Group has not experienced any problems with computer hardware and application software that relate to year 2000 compliant issues.

– 98 – ACTIVE BUSINESS PURSUITS

PERIOD FROM 18TH FEBRUARY TO 31ST MARCH, 1999

Incorporation. STAREASTnet (BVI) was incorporated on 18th February, 1999 with Genius Ideas, Star East Group and Gold Miracles as its initial shareholders.

Formulation of business plan. Upon incorporation of STAREASTnet (BVI), Star East Holdings, Genius Ideas and Gold Miracle began to formulate the business plan of the Group to develop a premier Chinese-language internet media company and mapped out in detail the proposed website content.

Infrastructure. The Group actively sought development proposals, hardware support and web server services from various technology providers including Asia Online Ltd., iMerchants Limited and LinkAGE Online Limited, Cable & Wireless HKT Ltd. and IBM CHINA/HONG KONG Limited. In March 1999, the Group chose LinkAGE Online for website design and production and signed a contract with LinkAGE Online on 28th March 1999.

Recruiting celebrities. The Group began the process of recruiting celebrities from the end of February 1999 for content production of the Group’s website. On 29th March 1999, the Group entered into formal agreements with Tam Wing Lun, Alan, Tsang Chi Wai, Eric, Chan Pak Cheung, Natalis and Wong Yat Cheung, alias Wong Jing to host official websites for them.

YEAR ENDED 31ST MARCH, 2000

During this period, the Group began to launch its business plan in various stages and directions.

New funding. The Group received a series of new investments totalling over HK$165 million during the period from September to November 1999 out of this amount, (i) a total of approximately HK$10 million was injected by the initial shareholders including Genius Ideas, Star East (BVI) and Gold Miracles; (ii) an amount of approximately HK$73 million was injected by Hikari for the subscription of 10% of the enlarged issued share capital of STAREASTnet (BVI) upon completion of such subscription; and (iii) an amount of approximately HK$82 million was injected by Splendid Stars for the subscription of 10% of the further enlarged share capital of STAREASTnet (BVI) upon completion of such subscription. This diverse group of shareholders provided not only strong financial backing, but also extensive internet experience and expertise on which the Group was able to draw. The following sets out the details of the shareholders’ investments in the Group during the year:

No. of shares Immediate Total immediately shareholding Total cost investment Shareholder Date of entry after listing* after listing per share amount HK$ HK$

Genius Ideas 9/3/1999 Note 1 2/9/1999 225,760,000 22.58% 0.03 6,304,716 Star East (BVI) 9/3/1999 Note 1 2/9/1999 201,690,000 20.17% 0.00 419 Gold Miracles 9/3/1999 Note 1 2/9/1999 87,150,000 8.71% 0.04 3,857,155 Hikari Note 2 149,400,000 14.94% 0.98 146,965,000 PCCW Note 3 166,000,000 16.60% 0.98 163,611,110

830,000,000 83.00%

Note 1: Total investment amount included initial investment of US$50, US$30 and US$20 by Genius Ideas, Star East (BVI) and Gold Miracles respectively on 18th February, 1999.

– 99 – ACTIVE BUSINESS PURSUITS

Note 2: Date of entry Total entry cost US$ in HK$

Subscription of new shares 2/9/1999 9,500,000 73,482,500**

Purchase of shares from Gold Miracles Limited 8/11/1999 6,650,000 51,437,750**

Purchase of shares from Genius Ideas Limited 8/11/1999 2,850,000 22,044,750**

146,965,000

Note 3: Date of entry Total entry cost US$ in HK$

Subscription of new shares 8/11/1999 10,556,000 81,805,551**

Purchase of shares from Gold Miracles Limited 8/11/1999 24,541,666

Purchase of shares from Genius Ideas Limited 8/11/1999 57,263,893

163,611,110

* Assuming the Over-allotment Option is not exercised.

** The sums are converted at the prevailing exchange rates at the time of the relevant transactions.

Operation growth. The Group actively recruited technical and management personnel throughout this period. As of the end of March 2000, the Group had 163 full-time employees, including 23 in sales and marketing, 65 in design and editorial, 32 in corporate functions and 43 in technical operations and support.

Production facilities. Around May and August 1999, the Group leased production facilities and a production studio for a term of about 2 years which were used for the production of internet content and live internet telecast.

Infrastructure. Around June 1999, the Group started to maintain its central production servers at the Hong Kong data centre of PSINet Hong Kong Ltd. Around January 2000, it started to maintain regional network operating centres in Singapore and in February 2000, it maintained a mirror site in North America. The regional site in Taiwan was set up in March 2000.

Domain name. The Group registered its principal domain name, www.stareastnet.com, on 7 April 1999.

Launching of websites. The Group began to design its flagship website, www.stareastnet.com, during mid-1999. The website was launched in September 1999, followed by the following websites:

• a Singapore-specific website (with added local content) www.sg.stareastnet.com in January 2000;

• a mirror site in North America in February 2000; and

• a Taiwan-specific website (with added local content) www.tw.stareastnet.com in March 2000.

Average page views of the Group’s websites per day increased from approximately 350,000 during December 1999 to approximately 800,000 during March 2000, representing a rise of approximately 129%. Gross banner revenues for the fourth quarter of 1999 were approximately HK$0.9 million. The Group had approximately 119,000 registered users by the end of March 2000.

– 100 – ACTIVE BUSINESS PURSUITS

E-commerce development. The Group launched its e-commerce business for concert ticket sales which started to generate revenues from e-commerce during the first quarter of 2000. The Group was in the process of preparing to set up celebrity auction sales and celebrity merchandise sales.

Advertisers. The Group entered into short term (three months or less) advertising arrangements with over 35 advertisers on its portal network from the launch of the www.stareastnet.com website until 31st March, 2000. Representative advertisers included IBM, Compaq, Philips, Microsoft, Epson, Sony and Cable & Wireless HKT CSL Ltd.

Strategic alliances. To establish the Group’s position as the premier internet entertainment provider to the Chinese community, the Group actively approached celebrities throughout this period to offer to develop and manage their official websites. The Group began to contract with celebrities in May 1999 and the number of contracted Asian celebrities grew from about 82 in December 1999 to more than 150 in March 2000.

In September 1999, the Group entered into a memorandum of understanding with China Internet Corporation to develop co-branded content as a means to mutually promote and develop the Group’s and America Online Inc.’s business in Hong Kong.

In February 2000, the Group formed various strategic alliances for the purposes of developing content and distributing the Group’s content. These include:

• three memoranda of understanding with (a) Hikari; (b) Digital United; and (c) Korea Thrunet to form strategic alliances for the purposes of promoting the popularity of the Group’s Asian artistes in Japan, Taiwan and Korea, respectively, and utilising the overseas partners’ broadband and narrowband internet networks;

• a second memorandum of understanding with China Internet Corporation to co-brand content and to promote the Group’s entertainment content through the America Online Hong Kong Service network;

• a memorandum of understanding with Pacific Internet Ltd. of Singapore whereby both parties have agreed to co-promote websites, events and activities in relation to their internet businesses; and

• an agreement with 24/7 Media Asia Limited which agrees to provide advertising services through its internet network to the Group.

Marketing and promotion. The Group spent about HK$18.9 million on marketing and promotion including print, billboard, television and radio advertising, offline promotional campaigns and an official launch party, up to the end of February 2000. The Directors believe that this resulted in the successful launching of the website www.stareastnet.com.

During the first quarter of 2000, the Group officially launched its website in Singapore. The marketing and promotional activities in Singapore included print advertising, an official launch party, promotional campaigns at shopping malls and a car rally from Singapore to Malaysia. During the same period, marketing and promotional activities conducted in Taiwan included print advertising and a launch ceremony. Advertising and promotional activities were also conducted in North America, including print advertising and free giveaways of STAREASTnet brand items at shopping centres.

– 101 – ACTIVE BUSINESS PURSUITS

PERIOD FROM APRIL 2000 TO THE LATEST PRACTICABLE DATE

During this period the Group continued to develop its businesses.

Operational growth. The Group continued to recruit personnel in Hong Kong, Singapore and Taiwan to expand its team, prepare for future developments in these countries and to increase the scope and depth of the pool of talent available to the Group.

Website development. The Group launched the official Leon Lai website on 29th April, 2000. The website includes exclusive events such as a celebrity profile, a fan club, a calendar of special events featuring Leon Lai, videos featuring Leon Lai, a leisure and lifestyle section, e-comics and online games. Also during the period the Group redesigned its homepage. The average daily page-view during the period for the Group’s websites was approximately 1.1 million. The number of registered members of the Group grew to approximately 150,000.

E-commerce development. On 1st April, 2000, the Group entered into an agreement to acquire Real Pleasure Limited together with its wholly owned subsidiary, Movie Dragon Limited for a consideration of approximately HK$7,688,000, which owned an e-commerce platform that was incorporated as part of the Group’s e-commerce strategy. The acquisition is expected to be completed by the end of May 2000, conditional upon the conclusion of a due diligence exercise and audit to the Group’s reasonable satisfaction. Prior to the acquisition, Real Pleasure Limited was owned as to 80% indirectly by Genius Ideas and Star East Holdings and as to 20% by independent third parties. The Group launched the second stage of its e- commerce platform, the focus being on celebrity auctions, celebrity merchandise and the sale of digital video discs, video compact discs and compact discs. The Group contracted with Federal Express Pacific, Inc. to provide it with logistical support, including warehousing and delivery of goods.

Strategic alliances. Since the end of March 2000, the Group entered into a letter of intent with Hutchison Telecommunications (Hong Kong) Limited to market, sell and distribute WAP phones over the Group’s portal network and to provide access to the Group’s WAP content to Hutchison’s WAP customers. The Group expects to generate revenues from this agreement based on commissions earned on the sale of WAP phones and membership revenues from subscribers to its WAP content. A letter of intent was also entered into with Peoples Telephone Company Limited to provide it with the Group’s content for distribution through WAP phones. The Group expects to generate revenues from this agreement based on airtime fees charged for access to the Group’s WAP content.

Marketing. The Group provided sponsorship for the production and promotion of the movie, “Sausalito”, produced by Bob. The sponsorship included the product placement of StarEastNet logos in the movie, co-hosting the premiere for the movie and other offline and online marketing activities. Marketing activities were also conducted for the launching of the Leon Lai website which included television, radio and print advertisements, online and offline marketing promotions and an official launch ceremony telecast live over the Group’s portal network.

– 102 – COMPETING BUSINESS INTERESTS OF PRINCIPAL SHAREHOLDERS AND DIRECTORS

PRINCIPAL SHAREHOLDERS

As mentioned in the paragraph headed “Strategic Alliances” above, PCCW, Hikari and Hanny, three of the Company’s principal shareholders, have internet-related businesses or investments whereas Star East Holdings is primarily involved in the entertainment business.

In February 2000, subsidiaries of Star East Holdings entered into agreements to acquire an 8% interest in Planet Hollywood, Inc. and a 33.3% interest in Planet Hollywood (Asia) Pte Ltd., and for the establishment of PlanetHollywoodAsia.com Pte Ltd. in which Star East Holdings shall have a 20% effective interest. Planet Hollywood Inc. and its subsidiaries are engaged in the world-wide business of operating theme restaurants under the brand name “Planet Hollywood”. PlanetHollywoodAsia.com Pte Ltd. is being formed for the purpose of providing through the internet Western entertainment information for Asian viewers. The Planet Hollywood business model entails the promotion of western (mainly American) celebrities. Accordingly, the Directors believe that the business of PlanetHollywoodAsia.com Pte Ltd. will not constitute any competition for the Group, and, in fact, will be complementary to the Group’s own operations.

The Directors believe that notwithstanding the above interests, no significant competition has arisen, and do not expect any significant competition to arise between the Group and its principal shareholders for the following reasons: (1) the Group’s business model and strategies, which focus on the provision of entertainment information relying on alliances with a large number of contracted celebrities, are unique; (2) none of the above shareholders have a controlling interest in any websites focused on entertainment and life-style information and targeted at the Chinese community; and (3) save for PCCW, which has made passive investments in Chinese language portals without assuming any management control, none of the above shareholders has any interest in a Chinese language celebrity entertainment portal other than the Company.

Star East Holdings executed a Deed of First Right of Refusal in favour of the Company under which Star East Holdings will promptly direct, and use its best endeavour to procure its associates to promptly direct, and provide all necessary assistance to the Group in respect of any of the following business opportunities that are available to or have come to the knowledge of Star East Holdings or any of its associates (including in the form of investments in a third party or a joint venture):

(1) production, distribution, web-casting, licensing for the distribution of or other activities in relation to Chinese celebrities/artistes-related entertainment content on the internet in Chinese language; and

(2) Chinese celebrities/artistes-related e-commerce (including celebrities/artistes memorabilia auctions and sales of celebrity merchandise).

Star East Holdings undertakes not to participate in any such business opportunities unless and until the Company has expressly rejected such business opportunities.

The Directors believe that the Group’s relationship with its principal shareholders is a relationship of synergy and mutual benefits, rather than competition.

DIRECTORS

Whilst some of the Directors hold directorships in companies which have internet-related businesses, in the opinion of the Directors, none of the Directors engages in any business that competes directly with the Group’s business.

– 103 – CONNECTED TRANSACTIONS

Following the completion of the Share Offer, the Group will have certain ongoing continuing transactions pursuant to the following arrangements and/or agreements. The following ongoing connected transactions may require full disclosure and/or approval of the independent shareholders of the Company in general meeting except for the exempt connected transaction in (A) and (B) below which are exempted under the GEM Listing Rules. Accordingly, the Company has applied to the Stock Exchange for waivers in relation to the non-exempt connected transactions in (C) to (I) below. Details of the waiver application are set out below and a brief summary of which is set out in the section headed “Waiver in respect of the GEM Listing Rules and Companies Ordinance”.

Exempt Continuing Connected Transactions

A. Shareholder’s Loan

During April and May, 2000, pursuant to a shareholders agreement dated 19th November, 1999, the former shareholders of STAREASTnet (BVI) (except Hikari) advanced shareholder’s loans to STAREASTnet (BVI) on a pro rata basis in accordance with their respective shareholding percentages in STAREASTnet (BVI) totalling HK$61.5 million. These shareholder’s loans are advanced on an unsecured basis and carry interest at a rate of 2% over the best lending rate per annum in Hong Kong dollars quoted by the Hongkong and Shanghai Banking Corp. Ltd., which is accrued, and payable by STAREASTnet (BVI) on a quarterly basis. The shareholder’s loans are for a term of 3 years from 1st May, 2000, of which approximately HK$35 million was used for capital expenditure and HK$26.5 million used for working capital of the Group. The loans are repayable at the end of the three-year term. This transaction is exempt from reporting, announcement and shareholders’ approval requirements under Rule 20.52 of the GEM Listing Rules.

B. Content provision agreement

Star East Multimedia Limited, a wholly-owned subsidiary of the Company, entered into an agreement dated 17th March, 2000 with The Saint News Limited, a 51% indirectly owned subsidiary of Star East Holdings. Pursuant to the agreement, The Saint News Limited will provide content on horse racing to Star East Multimedia Limited on the internet. The term of the agreement is for a period of one year from 17th March, 2000 to 16th March, 2001. Star East Multimedia Limited and The Saint News Limited will share the revenue generated from the content in a ratio to be determined by both parties. As no revenue has been generated from the content since the date of the agreement, based on its internal projections, the Company expects that the consideration of this transaction will be less than HK$1,000,000. The Company will comply with the disclosure and approval requirements of the GEM Listing Rules if the transaction contemplated under the agreement becomes a non-exempt connected transaction.

Non-exempt Continuing Connected Transactions

C. Trademarks

Pursuant to a trademark licence agreement dated 17th May, 2000 made between Star East Concept Limited, a wholly-owned subsidiary of Star East Holdings, and Star East Website Limited, a wholly- owned subsidiary of the Company, Star East Concept Limited grants to the Group an exclusive right to use the trademark of “StarEastNet” and also the non-exclusive right to use the trademark of “Star East”

– 104 – CONNECTED TRANSACTIONS

in relation to the operation of entertainment websites, internet, telecommunications and e-commerce and other services as set out in the specifications of the trademark. The licence is not subject to any territorial restrictions.

The licence is for a period of five years and Star East Website Limited has two successive options to renew the licence for another term of five years under each option, subject to mutually agreed terms. The annual trademark licence fee is HK$800,000. Furthermore, Star East Website Limited agreed to reimburse Star East Concept Limited for 50% of the maintenance cost of the subject trademarks. For the period between 1st April, 1999 and 29th February, 2000, the Group did not make any payment because the agreement was only executed on 17th May, 2000.

On the basis of the terms of the trademark licence agreement, it is expected that the annual aggregate payment to Star East Concept Limited in any one year under this agreement shall not exceed HK$3 million, including an annual licence fee of HK$800,000 and HK$2.2 million for the cost of maintaining the registration of the licensed trademarks in the PRC (including Hong Kong and Taiwan), Japan, Thailand, Australia, New Zealand, Malaysia, Indonesia, Singapore, Canada, Korea, the Philippines and the U.S.A.. These amounts have accordingly been set as the annual caps for this connected transaction for the purpose of the waiver application for the whole period of the initial 3-year period.

D. Airtime Contract

On 24th August, 1999, STAREASTnet (BVI) entered into an agreement with PCC whereby STAREASTnet (BVI) agreed to order airtime on PCC’s television and the internet network to the value of approximately US$6,556,000 over a period of two years commencing from 24th August, 2001. Pursuant to the agreement, STAREASTnet (BVI) made a pre-payment of approximately US$6,556,000 which shall be applied to offset future utilisation of the air-time. On 9th March, 2000, both parties entered into a supplemental agreement whereby the consideration was amended to approximately US$5,394,000 (approximately HK$41,806,000) having regard to the re-scheduling of the launch date of PCC’s network, and the term of airtime usage was amended to a two-year period commencing from 30 months after 24th August, 1999 (i.e. 24th February, 2002). An amount of approximately US$1,162,000 (approximately HK$9,064,000) had been refunded to the Group. According to the terms of the revised agreement, the said sum of HK$41,806,000 worth of air-time prepayment would be fully utilised over the period from 24th February, 2002 to 23rd February, 2004. It is expected that the total amount arising under this connected transaction for the whole of the initial 3-year period of the waiver will not exceed approximately US$5,394,000 as this prepaid amount is the total value of the airtime contract with PCC. This amount has accordingly been set as the cap for this connected transaction for the purpose of the waiver for the whole of the initial 3-year period.

E. Content Provision

Bob, a wholly-owned subsidiary of Star East Holdings, entered into an agreement (the “Distribution Agreement”) with Star East Multimedia Limited on 17th March, 2000 under which Bob agreed to grant to the Group the exclusive right to distribute on the internet, websites or any other media of a similar nature throughout the world such film titles produced by or licensed to Bob from time to time (the “Bob Films”). The Distribution Agreement is for a period of 3 years commencing on the date of the Distribution Agreement. The Group did not make any payment to Bob under the Distribution Agreement during the relevant period.

– 105 – CONNECTED TRANSACTIONS

Under the Distribution Agreement, Star East Multimedia Limited is required to pay Bob 50% of its gross annual income attributable to advertising service fees and premium service fees which are related to the distribution of Bob Films. Star East Multimedia Limited guaranteed that the fees payable shall not be less than HK$9 million for the whole term, and shall be not less than HK$3 million in average for each financial year. Star East Multimedia Limited is required to make a non-refundable prepayment of HK$5 million pursuant to the Distribution Agreement, which shall be applied to offset the fees payable by Star East Multimedia Limited.

The annual payment by Star East Multimedia Limited to Bob under this agreement in any one year is not expected to exceed HK$10 million, which is based on an average annual guaranteed payment of HK$3 million and the projection by the Group of its gross annual income attributable to advertising service fees and premium service fees related to Bob Films. This amount has accordingly been set as the cap for this connected transaction for the purpose of the waiver.

F. Technical Services

CBN, a subsidiary of Hanny, carries on the business of providing internet-related technical consulting services. From time to time, the Group will obtain technical consulting services from CBN which include the production of websites, content development, web-page design, computer software development, and the installation of computer hardware for the Group. Stareastnet Multimedia Pte Ltd entered into an agreement on 19th May, 2000 for a term of three years with CBN under which CBN agrees to provide such services at an annual consideration of not more than HK$11 million to the Group on the same or substantially the same terms as those provided to independent third party. For the period between 1st January, 2000 and 29th February, 2000, the Group paid deposits to CBN amounting to HK$1,748,000 for technical services, including computer software development, installation and setting up of computer systems, provided by CBN and charged on an hourly basis for the launch of the Group’s platform in Singapore. It is expected that the annual payment by STAREASTnet (BVI) to CBN in any one year shall not exceed HK$11 million and this amount has accordingly been set as the cap for this connected transaction for the purpose of the waiver.

G. Subcontract of Advertising Services

Star East Holdings and its subsidiaries from time to time perform entertainment-related advertising and promotion services, in particular those involving artistes, in consideration for marketing funds. Depending on the marketing nature of work required, Star East Holdings may subcontract such advertising and promotion work to other companies. If the work involves internet-related advertising services, Star East Holdings may subcontract such work to the Group. Star East Multimedia Limited entered into an agreement on 19th May, 2000 for a term of three years with Star East Management Limited under which the Group would provide advertising services on its network to Star East Management Limited at an annual consideration of not more than HK$5 million based upon its usual terms and charges applicable to other independent third parties in market for similar services. For the month of December 1999, the Group received an aggregate sum of HK$225,000 for services provided to Star East Management Limited for one promotional package. On the basis of the Group’s projection of the future operations and the number of promotional packages which the Group expects to be contracted, it is estimated that the total value of advertising fees for such transactions in any one year will not exceed HK$5 million. This amount has accordingly been set as the cap for this connected transaction for the purpose of the waiver.

– 106 – CONNECTED TRANSACTIONS

H. Sponsorship to Bob

Bob, a wholly-owned subsidiary of Star East Holdings, carries on the business of film or television programme productions. Star East Multimedia Limited entered into an agreement on 19th May, 2000 for a term of three years with Bob under which the Group may from time to time, and at its sole discretion, provides sponsorship to Bob for such productions at an annual consideration of not more than HK$10 million. The amount of sponsorship varies according to the popularity of the film or television programmes. In return, Bob will arrange for the artistes performing in the relevant film or television programmes to participate in the chat room or other programmes of www.stareastnet.com. The Group intends to sponsor approximately ten film titles produced by Bob each year for the Group’s marketing purposes. The sponsorship amount for each such film title will range from HK$500,000 to HK$3,000,000 depending on, amongst other things, the casting, story-line and the anticipated popularity of such film title. It is estimated that the annual sponsorship payment by the Group to Bob in any one year will not exceed HK$10 million. This amount has accordingly been set as the cap for this connected transaction for the purpose of the waiver. The Group did not make any sponsorship payment to Bob during the cumulative period from 18th February, 1999 to 29th February, 2000.

I. Celebrity Contracts

1. Star East On-line Limited, a wholly-owned subsidiary of the Company, has entered into contracts with Mr. Tam Wing Lun, Alan and Mr. Chan Pak Cheung, Natalis, both executive Directors. Under the contracts, Star East On-line Limited shall set up official websites for Mr. Tam and Mr. Chan, and the latter agree to participate in the activities conducted for the official websites. Mr. Tam and Mr. Chan are entitled to remuneration equal to half share of the revenue derived from the official websites (including but not limited to fees chargeable to users and income from advertisements on, and sponsorship for the official websites). It is estimated that the annual payment by the Group to each of Mr. Tam and Mr. Chan in any one year will not exceed HK$10 million. The estimate is based on the expected number of page views, the expected number of products and merchandise to be offered for sale on each of their web-sites and the expected advertising revenue generated as a result of their celebrity status. This amount has accordingly been set as the cap for this connected transaction for the purpose of the waiver. The Group did not make any remuneration payment to Mr. Tam and Mr. Chan during the relevant period.

2. On 23rd February, 2000, Star East On-line Limited entered into an agreement with Mr. Chan Kong Sang, Jackie, a non-executive Director, and his manager. Pursuant to the agreement, Jackie Chan grants to Star East On-line Limited the rights to use, operate and manage Jackie Chan’s official website and to use certain promotional materials. Pursuant to a supplemental agreement dated 17th May, 2000 between Star East On-line Limited, Jackie Chan and his manager, the parties agreed that the gross income derived from the official website (including but not limited to fees chargeable to users and income from advertisements on and sponsorship for the official websites) shall be shared between them on equal basis except that for all e-commerce transactions related to Jackie Chan’s official website, the parties will determine the sharing of the gross income on a case-by-case basis, having regard to the source and nature of the e-commerce revenue, production costs involved and the extent of particiption of Jackie Chan in the activities generating the income, provided that Jackie Chan’s proportion shall not exceed 50% in any event.

– 107 – CONNECTED TRANSACTIONS

It is estimated that the annual payment by the Group to Jackie Chan in any one year will not exceed HK$15 million. The estimate is based on the expected number of page views, the expected amount of products and merchandise to be offered for sale on Jackie Chan’s web-sites and the expected advertising revenues generated as a result of the celebrity status of Jackie Chan. This amount has accordingly been set as the cap for this connected transaction for the purpose of the waiver.

The Non-exempt Continuing Connected Transactions described above constitute non-exempt continuing connected transactions under Rule 20.26 of the GEM Listing Rules and are therefore subject to the reporting requirements set out in Rule 20.34, the announcement requirement set out in Rule 20.35 and/or the shareholders’ approval requirement set out in Rule 20.36 of the GEM Listing Rules. An application has been made to the Stock Exchange for a waiver from strict compliance with Rule 20.35 and Rule 20.36 of the GEM Listing Rules and the Stock Exchange has granted the waiver on the conditions that the Company will comply with Rules 20.26(1), 20.26(2), 20.27 20.28 and Rule 20.30 of the GEM Listing Rules. Details of such waiver are set out in the paragraph “Connected transactions” under the section headed “Waiver in respect of the GEM Listing Rules and Companies Ordinance”.

– 108 – STATEMENT OF BUSINESS OBJECTIVES

OVERALL BUSINESS OBJECTIVES

Given the rapid development in cyber technology and the growth in the internet market, the Directors believe that the market potential in this industry is tremendous, especially for websites providing unique and popular content for the global Chinese community. The overall business objectives of the Group is to provide innovative, trend-setting, attractive and exclusive content, products and services to redefine leisure activities and personal enjoyment on a global scale by harnessing the unique international power, prestige and creativity of Asia’s entertainment elite.

Conceptual Business Model of the Group

• E-commerce Revenue • Mobile Content Generation • Premium Subscription • Broadband Entertainment • Entertainment Marketing Services • Free Downloads • Match Making • Star Mail • Web Calendar • Games Community Compelling • Chat • Message Board • Polls Content • Star Cash • Customised Home Pages • Cyber Fan Clubs

Infotainment • Cybercasts/Webcasts • Restaurant Reviews • Exclusive Features • Official Celebrity Websites • Entertainment News • Movie Reviews Distribution Network • Traditional • Broadband • Wireless Application Protocol

Information • Bandwidth Management • Business Management & Report Technology • Content Management • Database Management • Membership • Membership Management Competitive • Strategic Alliances • Business Partnership Advantage • Artistes and Celebrities • Content Development & Production • Entertainment Network

Global Chinese Community • Korea • Japan • North America • Hong Kong • Taiwan • China • Singapore

In light of the above corporate mission, the Group intends to achieve the following objectives up to the year ending 31st March, 2003. The Group undertook a detailed study when formulating its business objectives. A feasibility study was conducted to project the Group’s available financial and human resources over the next three years in light of the business environment. A technical committee was set up to study the future technical and technological advancements required and a content committee was also set up to map out the Group’s content development strategy. Furthermore, the Group has sought legal advice on major legal implications of its business objectives in various jurisdictions. The relevant telecommunications regulations and the legal risks associated with these objectives are set out in the sections headed “Risk Factors” and “Industry Overview” of this Prospectus. It must be emphasised that the business objective of launching a regional website inside the PRC is currently not feasible under the PRC law. The Group will only carry out such objective when it becomes legally permissible. Investors should note that the following objectives and their respective scheduled times for attainment are formulated on the bases and assumptions as set out under the paragraph headed “Bases and assumptions” below.

– 109 – STATEMENT OF BUSINESS OBJECTIVES

These bases and assumptions are inherently subject to many uncertainties and unpredictable factors, in particular, the risk factors set out in the section headed “Risk Factors”. In addition, many if not all of these assumptions are untested and accordingly, may turn out to be invalid. This may result in any or all of the following achievements not being achieved within the scheduled time or at all. The Group will also review the response to its developments and may adjust its business objectives as time goes on.

BUSINESS OBJECTIVES FOR THE PERIOD BETWEEN THE LATEST PRATICABLE DATE AND 30TH SEPTEMBER, 2000

The Directors expect the half year ended 30th September, 2000 to be a high-growth period for the Group compared with the last six months of the last financial year. This is due to the fact that the new websites and the e-commerce business which have just been launched will begin to generate more revenues. The Directors anticipate substantial growth in various areas, including page views per day and revenues from banner advertisements, sponsorship and e-commerce business. The Group has the following business objectives:

Content development

• Enhance existing content with new features, such as increasing the amount of multimedia content (i.e. videos, audio and comics), for celebrity websites and making content more interactive by enabling users to participate in designing artiste websites

• Launch new exclusive programmes hosted by celebrities, including food reviews, pet centre, movie reviews and channels dedicated to modern women, hobbies and special interest features

• Provide links to information on other major Asian cities (Singapore and Taipei), such as information on local tourist sites and a food and entertainment directory

• Develop and launch pervasive computing services including chatrooms, messaging, Superstars’ secretary services, news, weather and life-style information. This is expected to start generating revenue during this period through membership subscriptions and airtime charges for such services

• Contract with at least 5 additional artistes (in Hong Kong and overseas) to increase content depth and scope

• Launch at least one mega-site featuring one of the Group’s contracted celebrities

E-commerce development

• Launch an online shopping mall on the www.stareastnet.com portal, including the sale of entertainment-related goods, such as VCDs, CDs, DVDs and posters

• Launch celebrity auction sales and celebrity merchandise sales for the Group’s contracted celebrities to sell their products, services and memorabilia

Technological development

• Implement pervasive computing technology for content hosting and e-commerce

– 110 – STATEMENT OF BUSINESS OBJECTIVES

• Acquire/enhance e-commerce platforms for auctions, event ticketing and merchandise sales

• Implement advertisement serving, customer relations management and bank clearing and security technologies

Strategic development

• Seek to form strategic alliances with other entertainment content providers and production houses to broaden the range of services available to the Group’s contracted celebrities and products available on the Group’s network

• Develop alliances with companies that can help distribute the Group’s products and enable users to access www.stareastnet.com more readily

• Enter into strategic alliances based on existing memoranda of understanding with Hutchison Telecommunication (Hong Kong) Limited and Peoples Telephone Company Limited for the distribution of mobile content via WAP technology

Overseas expansion

• Launch a mainland PRC-focused website in Hong Kong or in the PRC (if so permitted by the PRC law) for the Group’s target viewers in the “Chinanet” triangle of Beijing, Shanghai and Guangzhou in the PRC

• Produce and/or source exclusive localised content and services and translating content from the Group’s Hong Kong, Singapore and Taiwan sites into English in order to adapt content for local viewers

• Increase the number of local celebrities contracted in Singapore and Taiwan and seek local joint venture partners to assist the Group in recruiting local celebrities

• Prepare for the development of a regional site in North America

• Set up and/or develop local offices in Singapore, Taiwan and North America for sales and marketing and content production

• Expect to start generating advertising and/or content sales revenues from regional and mirror websites

Marketing and promotion

• Implement a targeted marketing programme including on-line and off-line advertising, public relations and event marketing

• Develop the customer service division to provide support for e-commerce transactions

• Marketing activities, including print, television and radio advertising and launch parties, for the launching of new websites – 111 – STATEMENT OF BUSINESS OBJECTIVES

• Sell content produced by the Group to third parties to increase brand awareness which is expected to generate revenues for the Group.

BUSINESS OBJECTIVES FOR THE HALF-YEAR ENDED 31ST MARCH, 2001

The Directors expect that the Group’s businesses will continue to enjoy high growth during this period in terms of page views per day and revenues from banner advertising, sponsorship, e-commerce, WAP and broadband services.

Content development

• Launch and develop exclusive interactive multi-media broadband content focusing on entertainment, such as game shows, TV dramas/series, exclusive interviews and biographies

• Develop new WAP phones and personal digital assistant (PDA) features for e-commerce, including event ticketing

• Launch at least one new mega-site featuring one of the Group’s contracted celebrities

• Enhance WAP applications such as electronic games, polling, internet shopping and Superstars’ secretary services and mobile ICQ by offering more proprietary content of such services featuring the Group’s celebrities

• Offer pervasive computing content not relating to entertainment and lifestyles, such as financial information

• Produce and/or source exclusive localised content and services in Japan and Korea and translating content into Japanese and Korean

E-commerce development

• Further develop e-commerce opportunities, such as celebrity memorabilia auctions and sales of celebrity merchandise

• Attract additional vendors to place products on the online shopping mall that are not related to the entertainment industry, for example, clothing, cosmetic, accessories and electronic vendors

• Launch pay-per-view video and video on demand services in Hong Kong, Singapore and Taiwan

Technological development

• Acquire software and hardware technology relating to the 3rd generation mobile phone for enhancing pervasive computing features that include higher quality images and faster access to requested content

– 112 – STATEMENT OF BUSINESS OBJECTIVES

• Enhance the e-commerce platform and other technology platforms for content, applications and database management in the broadband environment

• Offer consulting services to companies in Asia seeking to set up and operate entertainment and lifestyle websites.

Overseas expansion

• Explore the setting up of regional websites in Japan and Korea and, if considered appropriate, launch such websites

BUSINESS OBJECTIVE FOR HALF-YEAR ENDED 30TH SEPTEMBER, 2001

Content development

• Target to recruit at least 5 additional artistes to enhance the scope and breadth of the Group’s websites

• Develop entertainment-related content specifically for the 3rd generation mobile phone, such as short video clips

• Translate content into different languages (including Malay, Thai and other Asian languages), if required

E-commerce development

• Establish B2B e-commerce for the entertainment industry by offering a platform for vendors to sell production merchandise and equipment

Technological development

• Further explore alternative distribution networks for high speed data transmission

• Continue to acquire or develop new Web technologies for content management and distribution in order to support the launching of new features and content, such as web-based television and entertainment-related content for the 3rd generation mobile phone

• Expand strategic alliances with mobile service providers to enhance the distribution network of mobile content

Overseas expansion

• Adapt existing content for overseas viewers interested in Chinese entertainment and life-style information by translating content of existing sites into non-Asian languages, if appropriate

• Identify other countries in Asia that are suitable to develop regional sites

– 113 – STATEMENT OF BUSINESS OBJECTIVES

• Expand overseas offices in Singapore and Taiwan, particularly for sales and marketing and content production, to produce and market the Group’s exclusive broadband multi-media content

BUSINESS OBJECTIVE FOR HALF-YEAR ENDED 31ST MARCH, 2002

Content development

• Target to recruit at least 5 additional artistes in each of the Group’s target market

• Continue to enrich the content with new interactive features for new trends in entertainment and life-style such as enabling users to offer input on how to design costumes for movies

• Offer non-entertainment-related content, such as health and psychology, specifically for the 3rd generation mobile phone

• Launch at least one new mega-site featuring one of the Group’s contracted celebrities

E-commerce development

• Enter into additional B2C e-commerce product hosting alliances with vendors that sell non- entertainment merchandise, such as fashion and fashion accessories

Technological development

• Explore new technology for next generation mobile phone and new broadband services to enable users to access the Group’s services more readily

• Continue to incorporate new Web applications, particularly applications that enable users to interact with one another more readily, to support the introduction of new content and new features

Overseas expansion

• Explore opportunities in countries outside of Asia for launching new regional sites

• Prepare for the launching of new sites in targeted countries

BUSINESS OBJECTIVE FOR YEAR ENDED 31ST MARCH, 2003

The Directors are of the view that it is not practicable to state the Group’s business plans in details on a half yearly basis beyond the year ending 31st March, 2002. However, the Directors have identified the following matters as representing the major focus of the Group’s business objectives for the year ending 31st March, 2003.

Content development

• Continue to enrich the content with new interactive features that enable users to interact with one another more readily – 114 – STATEMENT OF BUSINESS OBJECTIVES

• Further expand the number of contracted artistes to offer new attractive proprietary content

• Continue to produce and aggregate new content on the internet, focusing on areas not related to entertainment, for example health and psychology

• Continue to explore integration with other media including electronic books, in-flight entertainment and high-definition television

E-commerce development

• Continue to develop new attractions for celebrity auction sales and merchandise sales

• Recruit at least 10 vendors to host their products and services, such as the sale of production equipment and catering services, on the Group’s B2B e-commerce platform for the entertainment industry

• Continue to form B2C e-commerce alliances with non-entertainment vendors, such as for cosmetics, electronics and fashion accessories, to expand e-commerce offerings

• Explore new developments in e-commerce and integrate such developments into the Group’s strategy

Technological development

• Continue to incorporate new Web applications to support the introduction of new content and new features

• Further explore new content distribution channels, particularly for the purpose of high speed data delivery

• Acquire new technologies to deliver content to personal digital assistance and other wireless handheld devices

Overseas expansion

• Continue to develop new regional sites if appropriate target countries are identified

BASES AND ASSUMPTIONS

The business objectives of the Group are based on the following bases and assumptions:

1. There will be continuous development in the global internet market, especially in relation to the world-wide Chinese community;

2. There will continue to be a strong demand for entertainment and life-style information among the world-wide Chinese community;

– 115 – STATEMENT OF BUSINESS OBJECTIVES

3. The internet will be widely accepted as a medium for advertising and commerce and for entertainment;

4. The Group will continue to be able to obtain the relevant technology licensed from third parties;

5. The Group will continue to be able to use its current websites free of any interference from third parties and will be able to register additional websites which it plans to launch;

6. The Group will be able to hire and retain key personnel that are in high demand;

7. The broadband technology will develop and expand as anticipated;

8. The Group will be able to obtain all necessary approvals from relevant government authorities for all of its business plans;

9. The Group will not encounter any significant problem or disruption adversely affecting its operations or business plans in any way, including but not limited to:

• failure in the Group’s software and hardware systems for whatever reason;

• the Group’s computer network being affected by hacking, viruses and other disruptions; and

• the Group being involved in future litigation with respect to technology rights and intellectual property infringement claims which will disrupt the Group’s business operations.

10. The Group will be able to obtain the necessary licences, registrations and approvals for expansion into the PRC; and

11. The Group will be able to obtain the necessary licences to broadcast movies and television programmes over the internet for a fee in its target markets, particularly Hong Kong, Singapore, Taiwan, China and North America.

REASONS FOR THE SHARE OFFER AND USE OF PROCEEDS

The Directors believe that the Group will be able to capitalise on the substantial growth potential in the internet business and intends to continue to expand the existing operations of the Group. The capital from the net proceeds of the Share Offer will provide funding for the plans of the Group set out in this section.

The net proceeds of the Share Offer, after deduction of underwriting fees and estimated expenses payable by the Company in relation to the Share Offer, are estimated to be approximately HK$170

– 116 – STATEMENT OF BUSINESS OBJECTIVES

million before the exercise of the Over-allotment Option. The Company currently intends to use the net proceeds of the Share Offer as follows:

• The remaining balance of HK$10 million will be used for general working capital.

Should the Over-allotment Option be exercised in full, the Company will receive additional net proceeds of approximately HK$30 million which, together with the net proceeds from the Share Offer and after deducting related expenses, will amount to about HK$200 million. The Directors intend to use such additional proceeds for general working capital.

To the extent that the net proceeds of the Share Offer are not immediately applied for the above purposes, it is the present intention of the Directors that they will be placed on short-term interest- bearing deposits with financial institutions in Hong Kong.

In the event that any of the business objectives of the Group does not materialise or proceed as planned, the Directors will carefully evaluate the situation and may reallocate the intended funding to other business plans and/or to new projects of the Group and/or to hold it as short term deposits so long as the Directors consider it to be in the best interest of the Company and its shareholders taken as a whole. The Company will make an announcement accordingly if this happens.

– 117 – DIRECTORS, SENIOR MANAGEMENT AND STAFF

EXECUTIVE DIRECTORS

Mr. Tam Wing Lun, Alan, aged 49, is the Chairman of the Company. He is also the Chairman of Star East Holdings, which is a substantial shareholder and a connected person of the Company. Mr. Tam is one of Hong Kong’s leading recording artistes in Asia and has recorded more than 60 albums, including the award-winning “The Late Coming Spring”, “Misty Love”, and the “Root of Love”. For the three consecutive years from 1985 to 1988, he won the “Most Popular Male Singer” award at the TVB Solid Gold Best Ten Awards ceremony in Hong Kong. Mr. Tam has performed in more than 150 solo concerts throughout Asia, Europe, and North America and has also appeared in more than 25 movies in Hong Kong. He joined the Group in March 1999 and was appointed to the Board in February 2000.

Mr. Wong Kun To, aged 44, is the Chief Executive Officer and Compliance Officer of the Company. With extensive experience of business investment, Mr. Wong is responsible for overall investment strategy, corporate development and operations of the Group. Since joining the Group in January 1999, he has successfully developed the Group’s various entertainment businesses and the management team was strengthened in the areas of finance, corporate development and operation. Under his management, the Group has expanded progressively and diversified into the information technology business by establishing a leading global Chinese website for entertainment and life-style information. Trained as a qualified engineer, Mr. Wong is a member of the Institute of Engineers (U.K.) and the Hong Kong Institute of Engineers. He is an executive director of Star East Holdings, ITC Corporation Limited and a non- executive director of Tung Fong Hung Holdings Limited. Mr. Wong was appointed to the Board in February 2000.

Mr. Chan Pak Cheung, Natalis, aged 49, is a well-known actor and master of ceremonies, as well as being a horseracing and soccer commentator. Mr. Chan has over 20 years of experience in the entertainment and film industry in Hong Kong. Mr. Chan joined the Group in March 1999 and was appointed to the Board in February 2000. He is the vice chairman of Star East Holdings.

NON-EXECUTIVE DIRECTORS

Mr. Peter Anthony Allen, aged 45, is an Executive Director and Chief Financial Officer of PCCW, which is a substantial shareholder and a connected person of the Company. He is also the Chief Financial Officer of Pacific Century Regional Developments Limited. He was educated in England and has a bachelor of arts degree in Economics from Sussex University, England. He is a Fellow of the Institute of Chartered Accountants in England and Wales and a member of the Institute of Certified Public Accountants at Singapore. Mr. Allen joined KPMG Peat Marwick in London in 1976 and in 1980 joined Occidental Petroleum Corporation. In 1983, Mr. Allen joined Schlumberger Limited and worked in various countries holding key finance positions. In 1989, Mr. Allen moved to Singapore as Regional Financial Director of the Vestey Group. He later joined Bousteadco Singapore Limited as Group Operations Controller in 1992 and Morgan Grenfell Investment Management (Asia) Limited as a director and Chief Operating Officer in 1995. He joined the Pacific Century Group and moved to Hong Kong in 1997. He was appointed to the Board in February 2000.

Mr. Mico Chung Cho Yee, aged 39, is an Executive Director of PCCW responsible for CyberWorks Ventures. He is a qualified solicitor by profession. Mr. Chung graduated from the University College, University of London, England with a law degree in 1983. He was qualified as a solicitor in Hong Kong in 1986, after which he worked in the commercial department of a law firm in Hong Kong for two years.

– 118 – DIRECTORS, SENIOR MANAGEMENT AND STAFF

He joined the corporate finance department of Standard Chartered Asia Limited, the investment banking arm of Standard Chartered Bank, in 1988. He became a director and the general manager of Bond Corporation International Ltd. in 1990 and left to join China Strategic Holdings Limited as a director in January 1992. Mr. Chung joined the Pacific Century Group in March 1999 and was appointed to the Board in February 2000.

Mr. Chan Kong Sang, Jackie, alias Sing Lung, MBE, aged 46, has over 20 years’ experience in the Hong Kong film industry as a leading film director and actor. He has won a number of film awards both in Hong Kong and abroad and is a popular international movie star. In 1986, Mr. Chan was awarded one of the “Ten Most Outstanding Young Persons” by the Hong Kong Junior Chamber of Commerce for his contribution to society. He was further awarded one of the “Ten Most Outstanding Young Persons of the World” in Sydney in 1988. Mr Chan is the Chairman of the Global Food Culture Group Limited, a company the shares of which are listed on the Main Board. Mr. Chan was appointed to the Board in February 2000. He is also an executive director of Star East Holdings.

Mr. Masahide Saito, aged 29, joined Hikari Tsushin Inc. in 1990 and is the Managing Director and a board member of Hikari. Mr. Saito was appointed to the Board in February 2000. Mr. Saito is also the Chairman and Chief Executive Officer of Hikari Tsushin International Ltd., a company whose securities are listed on the Main Board.

Mr. Masanori Suzuki, aged 41, is a director and board member of Hikari. Prior to starting his career in Hikari in 1999, Mr. Suzuki spent 18 years in Japan Associate Finance Co. Ltd., Credit Suisse First Boston Securities Limited, Nomura Securities Co. Ltd. and Marubeni Corporation. Mr. Suzuki was appointed to the Board in February 2000. Mr. Suzuki is also an executive director of Hikari Tsushin International Ltd., a company whose securities are listed on the Main Board.

INDEPENDENT NON-EXECUTIVE DIRECTORS

Mr. Bradford Allen, aged 43, is the founder and Chief Executive Officer of eFEDERAL.com, a leading business-to-government e-commerce portal. In addition, Mr. Allen is the former founder and Chief Executive Officer of BuyGolf.com Inc., a leading on-line golf retailer which was recently acquired by Buy.com Inc., one of the largest on-line retailers in the world and listed on NASDAQ in February 2000. In addition to his internet experience, Mr. Allen has over 18 years experience in the private and investment banking business, most recently with Bears, Stearn & Co., Inc. in Hong Kong in 1998 as Managing Director. Mr. Allen graduated with a business degree from Villanova University in 1978. He was appointed to the Board in February 2000.

Mr. Dominic Lai, aged 53, was appointed as an independent non-executive Director of the Company in May 2000. Mr. Lai is a practising solicitor in Hong Kong and senior partner of the Hong Kong law firm, Iu, Lai & Li. He is also director of a number of publicly listed companies in Hong Kong, including ITC (as an independent non-executive director). lu, Lai and Li are advising the Company as to Hong Kong law on the Share Offer and will receive a fee in connection therewith.

Mr. Cheung Ting Kau, Vincent, aged 58, was appointed as an independent non-executive Director in May 2000. Mr. Cheung is a practising solicitor and the senior partner of the firm of solicitors, Vincent T.K. Cheung, Yap & Co. He obtained a bachelor of laws degree from University College, London and was admitted as a solicitor in the United Kingdom in 1970, in Hong Kong in 1972 and in Victoria,

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Australia in 1984. Mr. Cheung is an executive director of Global Food Culture Group Limited, a non- executive director of Gold Peak Industries (Holdings) Limited and Techtronic Industries Company Limited and an independent non-executive director of Paul Y. – ITC Construction Holdings Limited, companies whose securities are listed on the Main Board.

SENIOR MANAGEMENT

Mr. Chan Yan Kin, Philip, aged 55, Chief Operating Officer, joined the Group in February 2000. Mr. Chan is a well known actor, master of ceremonies and screenplay writer. He worked in the Hong Kong Police Force as a superintendent in the 1970s. Mr. Chan has over 30 years’ experience in the entertainment and media business in Hong Kong. He was the Chief Executive Officer of Metro Broadcast Limited, a radio broadcasting company in Hong Kong and the General Manager of Capital Artist Limited, a record and entertainment company in Hong Kong. He is also an executive director of Star East Holdings.

Ms. Siu Mei Wai, Irene Olivia, aged 26, is the Chief Strategy and Investment Officer of the Company and joined the Group in September 1999. She is responsible for the corporate and strategic planning as well as partnership and strategic alliance development of the Group. She also oversees the investment activities of the Group. She received a Bachelor of Science in Biology and a Bachelor of Science in Chemical Engineering from Massachusetts Institute of Technology. She also holds an MBA from Columbia University. Before joining the Group, she managed global corporate risk exposure at Smith Barney Inc., in New York and thereafter traded fixed income derivatives at Merrill Lynch & Co., Inc., in New York. She is a licensed broker/dealer in general securities, futures and commodities. She is also an executive director of Star East Holdings.

Mr. Wong Yiu Hung, aged 35, Chief Financial Officer, joined the Group in March 1999. He is a qualified accountant and a fellow of the Association of Chartered Certified Accountants and an associate of The Hong Kong Society of Accountants. He holds a bachelor of laws degree from the Beijing University. His experience includes 8 years in finance, accounting, administration and corporate development in listed companies, namely, Hopewell Holdings Limited, International Tak Cheung Holdings Limited, ITC Corporation Limited and Star East Holdings Limited, and 5 years in two international accounting firms, KPMG Peat Marwick and Coopers & Lybrand. Prior to his joining the Group, Mr. Wong was the Chief Financial Officer of Star East Holdings.

Mr. Wong Shui Wah, Winston, aged 44, Chief Technology Officer, joined the Group in Janaury 2000. He has over ten years of technology experience gained from International Business Machines Corporation and Hewlett Packard Company. Mr. Wong holds a bachelor of science degree in computer science from Northwestern University. He is also the first certified architect from the e-business industry in Greater China and Hong Kong to receive an award from the IBM Worldwide Professional Board for his achievement and leadership in developing the e-business market in Greater China. Prior to joining the Group, Mr. Wong was the chief IT architect in IBM e-business solutions team for Greater China, and his projects include New World Cyberbase, the Government of Hong Kong, China Commodity Exchange Centre, Bank of China and Cathay Pacific Airways.

Mr. Yu Ka Lim, Bruce, aged 53, Chief Marketing Officer, joined the Group in November 1999. Mr. Yu had obtained a bachelor of arts degree majoring in economics at the University of Hong Kong in 1968. He has over 20 years of marketing and sales experience in serving companies like McCann Erickson, Ogilvy & Mather, Star TV, Pacific Century Corporate Access, British American Tobacco and

– 120 – DIRECTORS, SENIOR MANAGEMENT AND STAFF

Hewlett Packard Hong Kong. Before joining the Group, he was the Country Marketing Director in Hewlett Packard and Deputy Controller in Sales and Marketing.

Ms. Yu Wing Shan, Sandy, aged 41, Chief Content Officer, joined the Group in August 1999. She has over 16 years of programming experience gained from senior positions at Television Broadcasts Limited and at Asia Television Limited. Ms. Yu’s recent production at ATV included the creation of “Hong Kong Today”, a daily programme discussing social issues with an average ratings share of over 30%, and “Stories from Afar”, a documentary on Chinese migrants abroad which recorded an average ratings share of 28% and was elected by audiences as one of the top ten programmes in the Next TV Awards in 1998.

Ms. Wong Lai Kin, Elsa, aged 34, Company Secretary and Legal Counsel, joined the Group in November 1999. She holds a bachelor’s and master’s degree in laws and was qualified as a solicitor of the Supreme Court of Hong Kong in 1991. Before joining the Group, Ms. Wong was the corporate counsel and company secretary of ITC and Paul Y. - ITC Construction Holdings Limited, companies whose securities are listed on the Main Board of the Stock Exchange.

AUDIT COMMITTEE

The Company has established an audit committee with written terms of reference based upon the guidelines published by the Hong Kong Society of Accountants. The primary duties of the audit committee are to review the Company’s annual report and accounts, half-year reports and quarterly reports and to provide advice and comments thereon to the board of Directors. The audit committee will also be responsible for reviewing and supervising the Company’s financial reporting and internal control procedures. The audit committee comprises three independent non-executive Directors, namely Mr. Bradford Allen, Mr. Dominic Lai and Mr. Cheung Ting Kau, Vincent.

STAFF

Overview of staff numbers

As at 30th April, 2000, the Group had 170 full-time employees, who according to their responsibilities are detailed as follows:

Design and editorial 63 Sales and marketing 31 Technical operations and support 42 Corporate and administrative functions 34

Total 170

– 121 – SUBSTANTIAL AND INITIAL MANAGEMENT SHAREHOLDERS

SUBSTANTIAL SHAREHOLDERS

So far as the Directors are aware, after the completion of the Share Offer (assuming no exercise of the Over-allotment Option), the only persons directly or indirectly holding interests in 10% or more of the Shares for the purposes of the SDI Ordinance will be as follows:

Approximate Name Number of Shares percentage of holding

Hanny(1) 225,760,000 22.58% Hanny Magnetics(2) 225,760,000 22.58% Genius Ideas 225,760,000 22.58% Star East Holdings(3) 367,690,000 36.77% Star East (BVI)(4) 367,690,000 36.77% SEIT Management 332,000,000 33.20% Li Tzar Kai, Richard(5) 332,000,000 33.20% Pacific Century Group Holdings Limited(6) 332,000,000 33.20% Pacific Century International Limited(7) 332,000,000 33.20% Pacific Century Group (Cayman Islands) Limited(8) 332,000,000 33.20% Anglang Investments Limited(9) 332,000,000 33.20% Pacific Century Regional Developments Limited(10) 332,000,000 33.20% PCCW(11) 332,000,000 33.20% Century Power Group Limited(12) 332,000,000 33.20% CyberVentures (Bermuda) Limited(13) 332,000,000 33.20% CyberWorks Ventures(14) 332,000,000 33.20% Splendid Stars(15) 332,000,000 33.20% Yasumitsu Shigeta(16) 149,400,000 14.94% Hikari Power, Limited(17) 149,400,000 14.94% Hikari 149,400,000 14.94%

Notes: (1) By reason of its 100% indirect interest in Genius Ideas through Hanny Magnetics. (2) By reason of its 100% direct interest in Genius Ideas. (3) By reason of its 100% direct interest in Star East (BVI). (4) Including direct interest and indirect interest through SEIT Management in which it has over one-third interest. (5) By reason of his over one-third interest in Pacific Century Group Holdings Limited. (6) By reason of its over one-third interest in Pacific Century International Limited. (7) By reason of its over one-third interest in Pacific Century Group (Cayman Islands) Limited. (8) By reason of its over one-third interest in Anglang Investments Limited and Pacific Century Regional Developments Limited. (9) By reason of its over one-third interest in Pacific Century Regional Developments Limited. (10) By reason of its over one-third interest in PCCW. (11) By reason of its over one-third interest in Century Power Group Limited. (12) By reason of its over one-third interest in CyberVentures (Bermuda) Limited. (13) By reason of its over one-third interest in CyberWorks Ventures. (14) By reason of its over one-third interest in Splendid Stars. (15) By reason of its 50% direct interest in SEIT Management. (16) By reason of his over one-third interest in Hikari Power, Limited. (17) By reason of its over one-third interest in Hikari.

– 122 – SUBSTANTIAL AND INITIAL MANAGEMENT SHAREHOLDERS

Set out below are the shareholding structures of the Company before and after the completion of the Share Offer, respectively (assuming no exercise of the Over-allotment Option).

Shareholding structure – Before completion of the Share Offer

Star East Gold Hanny* PCCW* Hikari** Holdings* Miracles 100% 100% 100% indirectly indirectly (note 2) (note 1)

Genuis Ideas Star East (BVI) Splendid Stars 50% 50%

SEIT Management 27.20% 4.30% 40.00% 10.50% 18.00%

STAREASTnet.com Corporation

* Listed on the Main Board ** Listed on the first section of the Tokyo Stock Exchange

Shareholding structure – Immediately following completion of the Share Offer

Star East Gold Hanny PCCW Hikari Public Holdings Miracles 100% 100% 100% indirectly indirectly (note 1) (note 2)

Genuis Ideas Star East (BVI) Splendid Stars 50% 50%

SEIT Management 22.58% 3.57% 33.20% 8.71% 14.94% 17.00%

STAREASTnet.com Corporation

(note 1): Genius Ideas is wholly-owned by Hanny Magnetics which in turn is wholly-owned by Hanny.

(note 2): PCCW wholly-owns Splendid Stars indirectly through three intermediary holding companies, namely Century Power Group Limited, CyberVentures (Bermuda) Limited and CyberWorks Ventures.

– 123 – SUBSTANTIAL AND INITIAL MANAGEMENT SHAREHOLDERS

INITIAL MANAGEMENT SHAREHOLDERS

Under the GEM Listing Rules, Genius Ideas, Hanny, PCCW, Splendid Stars, SEIT Management, Gold Miracles, Hikari, Star East (BVI), Star East Holdings, Tam Wing Lun Alan and Chan Pak Cheung Natalis are considered to be the Initial Management Shareholders. As such, they have undertaken to the Company, the Underwriters and the Stock Exchange, pursuant to the GEM Listing Rules and a waiver granted by the Stock Exchange as described below, amongst other things, not to dispose of their direct and indirect interests in the Company for the periods and otherwise on terms summarised in the paragraph headed “Undertakings” in the section headed “Underwriting”.

As a result of an application made on behalf of the Company, the Stock Exchange has granted a waiver to the effect that the moratorium period applicable to each of the Initial Management Shareholders has been reduced to six months in respect of the 830,000,000 Shares (representing 83%of the enlarged issued share capital of the Company after listing). Thereafter, the Initial Management Shareholders are subject to a further six-month moratorium period in respect of an aggregate of 350,000,000 Shares (representing 35% of the enlarged issued share capital of the Company after listing), in the aggregate, held by them. To comply with the requirements under the GEM Listing Rules, the Initial Management Shareholders will enter into an escrow agent agreement with an escrow agent acceptable to the Stock Exchange. Please refer to the section “Waivers in respect of the GEM Listing Rules and Companies Ordinance – Moratorium Period” for more information on the above.

ESCROW ARRANGEMENTS

Each of the Initial Management Shareholders has undertaken with the Company, the Underwriters and the Stock Exchange to comply with the requirements of Rules 13.16 and 13.20 of the GEM Listing Rules. Those rules require that from the Listing Date up to and including the date falling six months thereafter in respect of 830,000,000 Shares and a further six-month period thereafter in respect of 350,000,000 Shares:

(a) the Initial Management Shareholders place in escrow, with an escrow agent acceptable to the Stock Exchange, their relevant securities (as such term is defined in Rule 13.15(4) of the GEM Listing Rules) (the “Relevant Securities”) on terms acceptable to the Stock Exchange;

(b) the Initial Management Shareholders do not, save as provided in Rule 13.17 of the GEM Listing Rules or as referred to “Waiver on share disposal restriction” in the section headed “Waivers in respect of the GEM Listing Rules”, dispose of (or enter into any agreement to dispose of) or permit the registered holder to dispose of (or to enter into any agreement to dispose of) any of its direct or indirect interest in the Relevant Securities;

(c) in the event that the Initial Management Shareholders pledge or charge any direct or indirect interest in the Relevant Securities under Rule 13.17(2) of the GEM Listing Rules or pursuant to any right or waiver granted by the Stock Exchange pursuant to Rule 13.17(5) of the GEM Listing Rules, they must inform the Company immediately thereafter, disclosing certain prescribed details; and

– 124 – SUBSTANTIAL AND INITIAL MANAGEMENT SHAREHOLDERS

(d) having pledged or charged any of their interest in the Securities under sub-paragraph (c) above, the Initial Management Shareholders must inform the Company immediately in the event that they become aware that the pledgee or chargee has disposed of or intends to dispose of such interest and of the number of the Relevant Securities affected.

Furthermore, for the second period of six months from the Listing Date, the above rules on escrow arrangement will continue to apply in respect of such Shares held by the Initial Management Shareholders which represent not less than 35% of the voting power at general meetings of the Company.

– 125 – SHARE CAPITAL

HK$

Authorised share capital:

10,000,000,000 Shares 1,000,000,000

Issued shares:

300,000,000 Shares in issue as at the date of this prospectus 30,000,000

Shares to be issued:

170,000,000 Shares to be issued under the Share Offer 17,000,000 530,000,000 Shares to be issued pursuant to the Capitalisation Issue 53,000,000

Total:

1,000,000,000 Shares 100,000,000

Notes:

Minimum Public Float

Pursuant to Rule 11.23(1) of the GEM Listing Rules, at the time of listing and at all times thereafter, the Company must maintain the “minimum prescribed percentage” of its issued share capital in the hands of the public which, in the case of the Company, is not less than 17%.

Assumption

This table assumes that the Share Offer and the Capitalisation Issue becomes unconditional.

It takes no account of any Shares which may be issued under the general mandate to issue Shares (see below) or Shares which may be repurchased by the Company (see below) or Shares which may be issued upon exercise of options granted under the Share Option Schemes.

If the Over-allotment Option is exercised, the Company will have approximately 1,025,500,000 Shares in issue immediately after completion of the Share Offer.

Ranking

The Shares to be issued under the Share Offer will rank equally with all Shares now in issue or to be issued as mentioned in this prospectus and will qualify for all dividends or other distributions declared, made or paid after the date of this prospectus.

Share Option Schemes

The Company has put in place the Pre-IPO Share Option Scheme and has issued options thereunder to subscribe for a total of 100,000,000 Shares to a number of grantees, being directors, employees (including full-time, part-time and temporary) and contracted celebrities of the Group. A summary of the main terms of the Pre-IPO Share Option Scheme and particulars of the options granted are set out in the section headed Pre-IPO Share Option Scheme in Appendix III to this prospectus. No further options will be granted under the Pre-IPO Share Option Scheme after the listing of the Company. On full exercise of all share options granted thereunder, 100,000,000 Shares will be issued representing 10% of the issued Shares immediately after the Share Offer (but excluding the exercise of options granted under the Share Option Schemes and the issue of Shares upon any exercise of the Over-allotment Option).

The Company has conditionally adopted the Employee Share Option Scheme, a summary of the main terms of which is set out in the section headed “Employee Share Option Scheme” in Appendix III to this prospectus. Under the Employee Share Option Scheme, full-time employees (including executive Directors) of the Group may be granted options which entitle them to subscribe for Shares representing up to a maximum, when aggregated with any securities subject to any other share option scheme(s) of the Company including the “Pre-IPO” share options referred to above, of 30% of the issued capital of the Company from time to time (excluding Shares which may be issued upon the exercise of options granted under the Share Option Schemes, and any other share option scheme(s) of the Company). – 126 – SHARE CAPITAL

General mandate to issue Shares

Subject to the Share Offer becoming unconditional, the Directors have been granted a general unconditional mandate to allot or issue and deal with unissued Shares with an aggregate nominal value of not more than:

(a) 20% of the aggregate nominal value of the share capital of the Company in issue immediately following the completion of the Share Offer; and

(b) the aggregate nominal value of the share capital of the Company repurchased by the Company (if any).

This mandate does not cover the Shares to be allotted, issued or dealt with under, among other things, a rights issue.

The mandate will expire:

• at the conclusion of the next annual general meeting of the Company; or

• at the expiration of the period within which the next annual general meeting of the Company is required by any applicable law or the bye-laws of the Company to be held; or

• when varied or revoked by an ordinary resolution of shareholders of the Company in general meeting,

whichever is the earliest.

For further details of this general mandate, see the paragraph headed “Shareholder’s resolutions of the Company passed on 15th May, 2000” in Appendix III.

General mandate to repurchase Shares

Subject to the Share Offer becoming unconditional, the Directors have been granted a general unconditional mandate to exercise all the powers of the Company to repurchase Shares with a total nominal value of not more than 10% of the aggregate nominal value of the share capital of the Company in issue following the completion of the Share Offer and Capitalisation Issue.

This mandate only relates to repurchases made on the Stock Exchange, or on any other stock exchange on which the Shares are listed (and which is recognised by the Securities and Futures Commission and the Stock Exchange for this purpose), and which are in accordance with all applicable laws and the requirements of the GEM Listing Rules. A summary of the relevant GEM Listing Rules is set out in the paragraph headed “Repurchase by the Company of its own Shares” in Appendix III.

The mandate will expire:

• at the conclusion of the next annual general meeting of the Company;

• at the expiration of the period within which the next annual general meeting of the Company is required by any applicable law or the bye-laws of the Company to be held; or

• when varied or revoked by an ordinary resolution of shareholders of the Company in general meeting;

whichever is the earliest.

Shares to be issued pursuant to the Capitalisation Issue

Pursuant to the written resolutions of the sole shareholder of the Company passed on 15th May, 2000, an aggregate of 530,000,000 Shares will be allotted and issued to the following persons:

Number of Shares to be issued pursuant to the Capitalisation Issue as directed by the shareholders entitled to the Name/identity of the allottees Capitalisation Issue

Genius Ideas 144,160,000 Star East (BVI) 22,790,000 Gold Miracles 55,650,000 Hikari 95,400,000 SEIT Management 212,000,000

– 127 – FINANCIAL INFORMATION

INDEBTEDNESS

Borrowings

As at the close of business on 31st March, 2000, being the latest practicable date for the indebtedness statement prior to the printing of this prospectus, the Group had no borrowings.

As at 31st March, 2000, the Group had payables to related companies amounting to HK$17,764,000, which were unsecured, interest free and repayable on demand.

As at 31st March, 2000, the Group had outstanding hire purchase or finance lease obligations amounting to approximately HK$1,613,000.

Debt securities

As at 31st March, 2000, the Group had no debt securities.

Contingent liabilities

As at 31st March, 2000, the Group had no material contingent liabilities.

Mortgages and charges

As at 31st March, 2000, the Group had no mortgages or charges.

Disclaimer

Save as aforesaid and apart from intra-group liabilities, neither the Company nor any of its subsidiaries at the close of business on 31st March, 2000 had any outstanding loan capital issued or agreed to be issued, bank overdrafts, loans, debt securities or other similar indebtedness, liabilities under acceptance (other than normal trade bills) or acceptable credits, debentures, mortgages, charges, finance lease or hire purchase commitments, guarantees or other material contingent liabilities.

Subsequent to 31st March, 2000, all the shareholders of the Company (except Hikari) advanced an amount of HK$61,500,000 to the Group. Details of the shareholders’ loan are set out in the section headed “Connected Transactions” of this Prospectus.

Save as disclosed above, the Directors have confirmed that there has not been any material change in the indebtedness, commitments and contingent liabilities of the Group since 31st March, 2000.

LIQUIDITY, FINANCIAL RESOURCES AND CAPITAL STRUCTURE

Net current liabilities

As at 31st March, 2000, the Group had net current liabilities of approximately HK$22,151,000. The current assets comprised cash and bank balances of approximately HK$7,904,000, receivables from related parties of HK$5,386,000, accounts receivable of HK$3,142,000, deposits paid of HK$8,977,000 and prepaid expenses of HK$1,194,000. The current liabilities comprised accounts payable of approximately HK$28,738,000, other liabilities and accrued expenses of approximately HK$1,533,000, payables to related parties of HK$17,764,000, and current portion of finance lease obligations of HK$719,000.

– 128 – FINANCIAL INFORMATION

Capital commitments

As at 31st March, 2000, the Group had commitments of approximately HK$25 million relating to the acquisition of the computer equipment and other fixed assets which are expected to be expended in 2000.

Directors’ opinion of the net asset position

Taking into account the net proceeds of Share Offer and the advance from certain shareholders of the Company, the Directors believe that the Group has sufficient net current assets to meet its present capital expenditure.

Working capital

The Group has been financing its operations through equity fundings. Hence, the Group did not have any debt securities or loan capital as at the same date which would require cash outlay for settlement.

Taking into account the estimated net proceeds of the Share Offer and the advance from certain shareholders of the Company, the Directors are of the opinion that the Group has sufficient working capital for its present requirements.

The Group has incurred net losses to date and is expected to continue to incur substantial operating losses for the foreseeable future given the Group’s overall business objective. (Please refer to the section headed “Statement of business objectives”.) Consequently, the Group will over time need to seek additional funding either from the capital markets or other sources it considers appropriate.

Foreign exchange risk

Since most of the income and expenditure of the Group prior to 31st March, 2000 were in Hong Kong dollars, and most of the assets and liabilities as at 31st March, 2000 were denominated in Hong Kong dollar currency, the Directors do not consider that the Group is significantly exposed to any foreign currency exchange risk.

Rules 17.15 to 17.21 of the GEM Listing Rules

The Directors have confirmed that, as at the Latest Practicable Date, the Group was not aware of any circumstances which would give rise to a disclosure requirement under Rules 17.15 to 17.21 of the GEM Listing Rules.

– 129 – FINANCIAL INFORMATION

TRADING RECORD

The following is a summary of the combined results of the Group for the period from 18th February, 1999 to 31st March, 1999 (“First Relevant Period”) and eleven-month period ended 29th February, 2000 (“Second Relevant Period”) (collectively, the “Relevant Periods”) which have been extracted from the accountants’ report set out in Appendix I. Combined Combined 1st Relevant 2nd Relevant Period Period HK$’000 HK$’000

Turnover – Advertising (Note a) – 3,444 – Ticket sales (Note a) – 3,296 Cost of sales – (15,485)

Gross loss – (8,745) Other income – 1,216 Advertising and promotion expenses – (18,903) Administration expenses (197) (29,280)

Operating loss (197) (55,712) Finance costs – (150)

Loss attributable to shareholders (197) (55,862)

Loss per share, in cents (Note b) (0.024) (6.730)

Notes:

(a) Turnover represents the revenues derived from the sale of banner advertisements and sponsorships on the Group’s websites and sales of goods. Advertising revenues, which amount to approximately HK$3,444,000 are recognised over the period in which the advertisements are displayed, provided that no significant obligations remain and collection of the receivable is reasonably assured. Sales of goods which amount to approximately HK$3,296,000 are recognised when goods are delivered and title has passed.

Other Information

from strict compliance with such paragraph 31 from the Securities and Future Commission. The Securities and Futures Commission and the Stock Exchange have granted waivers in relation to the strict compliance with paragraph 31 of the Third Schedule to the Companies Ordinance and Rules 7.03(1) and 11.10 of the GEM Listing Rules, respectively, such that the accountants’ report covers only the period from 18th February, 1999 to 31st March, 1999 and the eleven-month period ended 29th February, 2000. The Directors confirm that they have performed sufficient due diligence on the Group to ensure that, save as disclosed herein, up to the date of issue of this prospectus, there has been no material adverse change in the financial position of the Group since 1st March, 2000, and there is no event which would materially affect the information shown in the accountants’ report set out in Appendix I.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is a discussion of the combined results of operations of the Group for the Relevant Periods based on the presentation set out in the accountants’ report in Appendix I of this prospectus.

Overview

The Group intends to become the premier internet-based entertainment and life-style media company that provides branded, interactive information and programming to the Chinese community world-wide.

The Company was incorporated as a holding company with limited liability under the laws of the Cayman Islands on 31st January, 2000. The Group conducts all of its operations through its wholly- owned subsidiary, STAREASTnet (BVI), and its subsidiaries. STAREASTnet (BVI) was incorporated with limited liability in the British Virgin Islands on 18th February, 1999 and its operating activities since its incorporation have related primarily to recruiting personnel and contracted celebrities, producing content, entering into agreements with technology providers, raising capital, purchasing and installing network computer hardware, software and related equipment, developing products and services, and engaging in marketing and promotional activities. STAREASTnet (BVI) launch its main portal, www.stareastnet.com in September 1999. See the section headed “Business-Corporate Overview” included elsewhere in this prospectus.

The Group has generated limited revenues to date. For the period from STAREASTnet (BVI)’s inception through 31st March, 1999, it did not generate any revenues, incurred minimal operating expenses and focused its operating activities on the development of the Group’s portal network. The Group has incurred significant net losses and negative cash flows since its inception and, as at 29th February, 2000, it had an accumulated deficit of HK$56.1 million. For the month ended 31st March, 2000, the Group incurred losses of approximately HK$24 million. These losses have been funded primarily through the issuance of the Group’s equity securities to its principal shareholders. In addition, the Group has benefited in its operating activities from its relationships with its principal shareholders, which provided the Group with horse-racing content and business development services at no charge through 29th February, 2000. The Group intends to continue to invest heavily in marketing, brand development and content production. As a result, the Group believes that it will continue to incur significant net losses and negative cash flows from operations on a quarterly and annual basis for the foreseeable future. Moreover, the Group believes that the rate at which these losses will be incurred will increase from current levels. The Group and its prospects must be considered in light of the risks, costs and difficulties frequently encountered by companies in their early stage of development, particularly companies in the new and rapidly evolving Asia-Pacific internet markets.

– 131 – FINANCIAL INFORMATION

For the eleven months ended 29th February, 2000, approximately 51% of the Group’s turnover was derived from advertisements and sponsorships on its portal network. Advertising revenues are derived principally from:

• advertising arrangements under which the Group receives revenues for banner advertisements displayed on the Group’s portal network on the basis of a fixed fee-per-thousand impressions, a fixed fee for a specified duration or a combination of both pricing methods; and

• sponsorship arrangements under which advertisers to pay a fixed fee for a promotional programme which may include off-line promotional activities and on-line features involving the Group’s contracted celebrities and advertising, including banner advertisements.

The Group’s advertising and sponsorship rates depend on:

• whether the impressions are for general audiences or targeted audiences;

• the involvement of the Group’s contracted celebrities;

• the duration of the advertising contract;

• the size and placement of the advertisement; and

• the number of generated impressions, if any.

The Group recognises advertising revenues ratably in the period in which the advertisement is displayed, provided that no significant obligations remain and the Group’s collection of the resulting receivable is reasonably assured. To the extent minimum guaranteed impression levels are not met, the Group defers recognition of the corresponding revenues until guaranteed levels are achieved. Payments received from advertisers prior to displaying their advertisements on the Group’s portal network are recorded as deferred revenues. Revenues from sponsorship arrangements are recognised ratably over the contract term, provided that the Group has no significant obligations remaining. Revenue related to the design, coordination and integration of content under sponsorship arrangements is recognised ratably over the contract term or using the percentage of completion method if the revenue for the services is fixed.

Certain of the Group’s advertising revenues are subject to revenue-sharing conditions. The Group has generally agreed with its contracted celebrities to pay them royalties equal to half of the gross revenues generated and received from their respective official celebrity website on the Group’s portal network. Some of the Group’s agreements with celebrities also provide for the celebrities to receive commissions in the amount of 20% of gross revenues generated solely by their efforts prior to the equal sharing of the remaining revenues with the Group, for example, attracting advertisers to the Group’s portal network. For the eleven months ended 29th February, 2000, the Group did not pay any royalties to its contracted celebrities as no advertising revenues were generated from the official websites. The Group expects to incur these royalties as costs of sales in future periods. In the future, the Group may enter into arrangements with other content providers, where, as is typical in the internet content industry, the Group may agree to pay a portion of the advertising revenue derived from the related content to the content provider. Subsequent to 29th February, 2000, the Group entered into an advertising services agreement

– 132 – FINANCIAL INFORMATION

with 24/7 Media Asia Limited for the provision of advertising services to the Group and shall continue in effect until either party terminates the agreement with three months notice. Advertising revenue earned by the Group with respect to advertisers introduced by 24/7 Media Asia Limited will be presented net of commissions paid to 24/7 Media Asia Limited.

In addition to advertising revenues in the eleven months ended 29th February, 2000, the Group recognised revenues from sales of goods in the amount of HK$3.3 million from ticket sales for a concert series given by the Chairman of the Company, Alan Tam from 4th to 11th February, 2000. The Group purchased a block of tickets for the concerts and sold them on-line and off-line. The Group’s sales of goods revenues in the period of approximately one month immediately preceding the concerts substantially exceeded its advertising revenues. In the future, the Group expects to derive revenues from additional ticketing transactions, premium subscriptions, pay-per-view content, online e-commerce transactions conducted through its portal network and subscription fees from WAP device users. The Group anticipates that, although it will recognise revenues from these other sources, and that revenues from these sources may exceed its advertising revenues for limited periods of time, such as those immediately preceding a concert for which the Group will sell tickets or during the on-line offer of particularly popular e- commerce items, the substantial majority of its turnover will continue to be derived for the foreseeable future from the sale of advertising and sponsorships on its portal network.

The Group’s current focus is on further developing its portal network, programming and its brand, growing its user base, attracting more contracted celebrities and expanding its operations through regional portals and mirror sites. The Group incurred significant costs and expenses launching its portal network and expects to continue incurring such costs and expenses for the foreseeable future in order to:

• promotion and marketing of its portal network;

• hire additional personnel;

• contract with additional celebrities;

• develop and produce innovative content and on-line services;

• expand its portal network and infrastructure;

• develop its sales and marketing efforts; and

• fund its working capital and general corporate requirements.

The Group’s cost of sales and operating expense levels are based in part on its expectations as to future turnover. As a result of its extremely limited operating history, as well as the recent emergence of the Asia-Pacific Internet market, the Group has neither internal nor industry-based historical financial data for any significant period of time upon which to base planned cost of sales and operating expenses. The Group may not be able to adjust spending in a timely manner to compensate for any unexpected revenue shortfall in its turnover. Any significant shortfall in relation to the Group’s turnover expectations would have an immediate adverse impact on its business, results of operations and financial condition. The Group has generally increased cost of sales and operating expenses in each successive quarter to support development and marketing efforts based, in part, on the Group’s expectations regarding future

– 133 – FINANCIAL INFORMATION

turnover levels. Quarterly turnover and results of operations will depend substantially upon the revenues received within the quarter, which are difficult to forecast accurately. If turnover levels in any quarter are below expectations, results of operations will be adversely affected. In particular, net income (loss) may be disproportionately affected by a reduction in revenues because a significant portion of the Group’s expenses are fixed. As a result, the Directors believe that quarter to quarter comparisons of its results of operations will not necessarily be meaningful and should not be relied upon as indications of future performance. The Directors believe that seasonality will be a factor in its business due to the seasonal variations experienced in the advertising industry.

Turnover

Turnover in the eleven months ended 29th February, 2000 was HK$6.7 million. The Group did not recognise any turnover during the period from STAREASTnet (BVI)’s inception to 31st March, 1999. Of the turnover received in the eleven months ended 29th February, 2000, 51% represented fees from approximately 30 advertising and corporate sponsors and 49% represented sales of goods from ticket sales for the Alan Tam concerts held in February, 2000. Payments from the largest five of such advertisers comprised over approximately 62% of the Group’s total advertising revenues received. Of the fees from advertisers, approximately 61% represented banner advertisements and approximately 39% represented sponsorships. The Group’s sponsorship revenues are derived from on-line promotions, including banner advertisements and product placements in the Group’s content features, and off-line promotional events. Although the Group intends to engage in additional ticketing transactions and future e-commerce related activities, sales of goods are not yet a regular component of the Group’s turnover on a monthly basis. As a result, the Group’s turnover will fluctuate based on the availability of sales of goods revenue during the period to which the Group’s financial statements relate. While no assurance can be given and while the Group expects the bulk of its revenues will be based on advertising and sponsorships for the foreseeable future, the Directors believe that over time it will recognise revenue from additional ticketing transactions and e-commerce activities, such as premium subscriptions for fan clubs, and the Group’s dependence on advertising revenues will be reduced.

In order to enhance the Group’s marketing efforts and to extend its marketing presence beyond the major markets in which its paid advertising is concentrated, the Group may enter into reciprocal advertising arrangements in the future with other media operators, such as radio stations. The Group may not receive any cash payments under these arrangements but may recognise the value of these arrangements as advertising revenues at normal commercial terms. The Group did not recognise any advertising revenues with respect to reciprocal arrangements since its inception through 29th February, 2000.

Cost of sales

Total cost of sales in the eleven months ended 29th February, 2000 was HK$15.5 million, or 230% of the Group’s turnover. The Group’s cost of sales related to its advertising revenue during the eleven months ended 29th February, 2000 were HK$11.5 million and consist primarily of content production costs, including, payroll and related expenses for its editorial and content production personnel and telecommunications and computer-related expenses for the delivery of its content. The Group’s cost of sales attributable to advertising revenue represented 332% of advertising revenue. During the eleven months ended 29th February, 2000, HK$6.5 million or 56% of the advertising cost of sales was attributable to performance fees for payroll and related expenses and HK$1.1 million or 10% of its advertising cost of sales was attributable to connectivity expenses. The Group expects that its production expenses will

– 134 – FINANCIAL INFORMATION

increase significantly as the Group expands its portal network. The Group believes that its connectivity expenses, which the Group expects to incur principally in connection with the expansion of its regional portal network, will increase at a slower rate than the other components of its cost of sales.

The Group’s cost of sales related to its sales of goods was HK$4.0 million incurred to obtain tickets for the Alan Tam concerts. The tickets were sold at cost with a total discount of HK$744,000 provided to major advertisers of the Group. The Group intends to offer concert tickets from time to time.

Overall, the Group expects its cost of sales to increase substantially and to outpace increases in its turnover in the near future. The Group also expects that its cost of sales will increase at a faster rate than its operating expenses in view of the importance of the growth of its content production to the success of its business.

Expenses from reciprocal arrangements with media operators will be recorded at the value of the advertising or promotion received when the Group’s advertising is broadcast or the Group’s promotion occurs, which will typically be in the same period as the corresponding advertisements are run on the Group’s portal network. These expenses will be included under cost of sales attributable to advertising revenue. The Group did not incur any such expenses since its inception through 29th February, 2000.

Operating expenses

Operating expenses were HK$48.2 million and HK$197,000 during the eleven months ended 29th February, 2000 and the period from the Group’s inception to 31st March, 1999, respectively. During both of these periods, operating expenses were primarily associated with administrative expenses and advertising and promotional activities in relation to brand development (largely through advertising in traditional media). Advertising and promotion expenses are comprised of sales and marketing expenses and salaries attributable to the sales and marketing department. Salaries and rental and related expenses attributable to content production are included by the Group in cost of sales. The remaining salary and rental and related expenses are included in administrative expenses. The Group expects operating expenses to increase substantially as it launches new products and services, seeks to grow its sales and marketing department and expands its operations through regional portals and mirror sites. Operating expenses consist of expenses paid to third parties and expenses paid to related parties. During the eleven months ended 29th February, 2000, the Group reimbursed HK$7.3 million to related parties for salaries of seconded employees. See Note 4(b) to the accountants’ report included in Appendix I of this prospectus.

Other income and expense

The Group had other income of HK$1.1 million for the eleven months ended 29th February, 2000, primarily reflecting interest income and net foreign exchange transaction gains, offset in part by interest expense. The Group’s interest income for the eleven months ended 29th February, 2000 was HK$986,000. The income was due to interest earned on an average fixed bank deposits and bank deposits balance of approximate HK$20 million for the period. The Group expects interest income to increase pending the use of the net proceeds from the Share Offer as described in the section headed “Statement of Business Objectives – Reasons for the Share Offer and Use of Proceeds” included elsewhere in this prospectus. The Group incurred interest expense of HK$150,000 during the eleven months ended 29th February, 2000 relating principally to the financing of computer hardware and a corporate vehicle. The Group’s net foreign exchange transaction gains in this period were HK$230,000.

– 135 – FINANCIAL INFORMATION

Net loss

In the Group’s current early stage of development, the Group is operating at a significant loss. Net loss during the eleven months ended 29th February, 2000 was HK$55.9 million. The Group’s net loss during the period from 18th February, 1999 to 31st March, 1999 was HK$197,000. The Group incurred net losses of approximately HK$24 million for the month ended 31st March, 2000.

Liquidity and capital resources

At 29th February, 2000, the Group had approximately HK$12.6 million in bank balances and cash and a deficit accumulated of approximately HK$56.1 million. For the cumulative period from 18th February, 1999 to 29th February, 2000, net cash used for operating activities was HK$98.5 million, attributable primarily to the Group’s net loss from operations of HK$55.9 million and a pre-paid airtime expense of HK$50.8 million to a related party. The pre-paid expense air-time expense was paid to PCCW (which payment the Group made before PCCW became the Group’s shareholder) to secure and pre- occupy a future Pan Asia promotion platform for the Group’s access to television and Internet airtime. Subsequent to 29th February, 2000, PCCW refunded HK$9.0 million of these pre-paid expenses to the Group on 20th March, 2000. See the section headed “Connected Transactions” and Note 4(b) to the accountants’ report included in Appendix I of this prospectus.

Net cash used in investing activities for the cumulative period from 18th February, 1999 to 29th February, 2000 was approximately HK$30.1 million relating primarily to the acquisition of network and computer equipment. On 1st April, 2000, the Group entered into an agreement to acquire entire interest in Real Pleasure Limited (“Real Pleasure”) with its subsidiary Movie Dragon Limited, for a consideration of approximately HK$7,688,000.00. Real Pleasure through its subsidiary owned an e-commerce platform that was incorporated as part of the Group’s e-commerce strategy. From time to time, as investment opportunities arise, the Group, directly or through subsidiaries, may acquire or invest in other businesses or joint ventures with third parties. The Group has no present commitments or agreements with respect to any such acquisition of, or investment in, other business or joint ventures with third parties except as otherwise disclosed in this prospectus.

The Group has primarily financed its operations through the private sale of equity securities. Net cash provided by financing activities was approximately HK$141.2 million in the cumulative period from 18th February, 1999 to 29th February, 2000. The Group expects that it will need substantial amounts of capital over the next few years to enhance and expand its portal network and its content production services and build its brand in order to compete effectively on the bases of the quality, uniqueness, timeliness and presentation of its internet content. The Group expects to use HK$42 million of the estimated net proceeds from the Share Offer as a capital expenditure for technology-related equipment. The Group expects to use up to HK$5 million of the estimated net proceeds of the Share Offer for strategic investments, such as joint ventures or acquisitions that are compatible with its overall business objectives and for general working capital. For a discussion of the Group’s additional use of proceeds from the Share Offer see the section headed “Statement of Business Objectives – Reasons for the Share Offer and Use of Proceeds” included elsewhere in this prospectus. Except as otherwise disclosed herein, the Group does not have any other commitments for capital expenditures.

– 136 – FINANCIAL INFORMATION

Future funding

The Directors believe that, based upon its present business plan, the net proceeds from the Share Offer and the advances from certain shareholders of the Group, together with the Group’s existing cash resources, will be sufficient to meet its currently anticipated working capital and capital expenditure requirements for at least the next 12 months. The Group may need to raise capital in the future if its cash flow from operations is not adequate to meet its liquidity requirements or if the Group pursues new projects. Depending on its capital requirements, market conditions and other factors, the Group may raise additional funds through debt or equity offerings or through the sale of assets. No assurance can be given that the Group will be able to raise such capital on favourable terms or at all. If the Group is unable to obtain such additional capital on commercially acceptable terms, the Group may be required to reduce the scope of its planned expansion, which could have a material adverse effect on its business, financial condition or results of operations and its competitive position. See the section headed “Risk Factors – Risks Relating to the Group’s Business – The Group needs to develop new sources of funding in order to operate as a public company” included elsewhere in this prospectus.

Currently the Group does not have external financing arrangements, including bank overdraft credit facilities. The Group does not intend to rely on any principal shareholder for its future funding needs. See the section headed “Connected Transactions” included elsewhere in this prospectus.

Market risk

The Group is exposed to foreign exchange risks primarily associated with underlying liabilities and expenses. In the future, as the Group expands its operations, the Group may be subject to interest rate risk fluctuations on interest income or interest expense. The Group has not entered and does not intend to enter into any types of derivatives transactions to hedge against foreign currency fluctuations or interest- rate changes, nor has the Group speculated, and it does not intend to speculate, in foreign currency.

Foreign Currency Risk. The functional currency for the Group’s operations is the HK Dollar. The Group has incurred and expects to continue to incur expenses and liabilities in foreign currencies in connection with the establishment and operation of the Group’s regional portals and mirror sites. These currencies include the Taiwan Dollar, the Singapore Dollar, the PRC Renminbi, the Canadian Dollar, Japanese Yen, Korean Won and the US Dollar. There have been no material operating trends or effects on the Group’s liquidity as a result of fluctuations in currency exchange rates.

Since mid-1997, many countries in the Asia-Pacific region have experienced significant economic downturns, including extensive depreciations in currency values against the US Dollar, contractions of gross domestic product, and significant declines from time to time in the market value of shares listed on stock exchanges. To date, however, the Hong Kong government has continued to support a linkage of the value of the HK Dollar to the US Dollar at approximately HK$7.80 to US$1.00, and the PRC has not devalued the Renminbi since 1st January, 1994.

Inflation

The annual inflation rate in Hong Kong was approximately 6.3% in 1996, 5.8% in 1997 and 2.8% in 1998. The Directors believe that inflation has not been a significant factor in its operations to date. There can be no assurance that future inflation will not have a material impact on the Group’s business, financial condition and results of operations.

– 137 – FINANCIAL INFORMATION

Largest customers and suppliers

The largest and the five largest customers account for approximately 18% and approximately 41% of the Group’s turnover, respectively, and the largest and the five largest suppliers account for 26% and 36% of the Group’s costs of sales for the eleven months ended 29th February, 1999, respectively. Star East Holdings, a substantial shareholder of the Company, is interested in the above transactions to the extent that it is the holding company of one of the five largest customers of the Group. Save as aforesaid, none of the Directors, their Associates or shareholders (which to the knowledge of the Directors own more than 5% of the Company’s share capital) have any interest in the customers or suppliers disclosed above.

Taxation

No provision for Hong Kong profits tax was made as the companies in the Group had no assessable profits in Hong Kong for the cumulative period from 18th February, 1999 to 29th February, 2000.

Other Information

The Group has not declared or paid any dividend since the date of the incorporation of STAREASTnet (BVI).

For the cumulative period from 18th February, 1999 to 29th February, 2000, no payment was made by the Group in respect of the remuneration of the Directors.

PROPERTY INTERESTS

The Group rents ten office units in Hong Kong and one office unit in the PRC for its operations. Particulars of the Group’s property interests are set out in the paragraph headed “Summary of Property Interests” in Appendix III.

Property valuation

American Appraisal, an independent valuer, valued the property interests of the Group as of 30th April, 2000 as no commercial value. The text of the letter and the valuation certificate of American Appraisal are available for inspection as set out in the paragraph headed “Documents available for inspection” of Appendix IV.

– 138 – FINANCIAL INFORMATION

DISTRIBUTABLE RESERVES

As at 29th February, 2000, there were no reserves available for distribution to the shareholders of the Company.

Adjusted net tangible assets

The following statement of adjusted net tangible assets of the Group is based on the net tangible assets of the Group as at 29th February, 2000 as set out in the accountants’ report, the text of which is set out in Appendix I, adjusted as shown below:

HK$’000

Net tangible assets of the Group as at 29th February, 2000 95,856 Unaudited loss for the one month ended 31st March, 2000 as per management accounts (23,953) Estimated net proceeds of the Share Offer (Note 1) 170,000

Adjusted net tangible assets 241,903

Adjusted net tangible asset value per Share, in cents (Note 2) 24.190

Note 1: The estimated net proceeds from the Share Offer are based on the Offer Price and takes no account of any Shares which may fall to be allotted and issued pursuant to the exercise of the Over-allotment Option. If the Over-allotment Option is exercised in full, the estimated net proceeds of the Share Offer will be about HK$200 million.

Note 2: The adjusted net tangible asset value per Share is arrived at after the adjustments referred to in this section and on the basis of a total of 1,000,000,000 Shares expected to be in issue immediately following completion of the Share Offer, but takes no account of any Shares which may fall to be allotted and issued pursuant to the exercise of the Over-allotment Option and the exercise of options that are granted or may be granted under the Pre-IPO Share Option Scheme and the Employee Share Option Scheme or which may be allotted and issued or purchased by the Company pursuant to the general mandates for the allotment and issued and purchase of Shares granted to the Directors as referred to in the paragraph headed “Shareholder’s resolutions of the Company passed on 15th May, 2000” in Appendix III to this prospectus.

No material adverse change

The Directors confirm that there has not been any material adverse change in the financial or trading positions or prospects of the Group since 29th February, 2000, the date to which the latest published audited combined financial statements of the Group were made up.

– 139 – SPONSORS’ INTERESTS

Neither BNP Prime Peregrine Capital nor its associates expect to have accrued any material benefit as a result of the successful outcome of the Share Offer, other than the following: (i) by way of underwriting commissions to be paid to its associate, BNP Prime Peregrine Securities, for acting as one of the Underwriters to the Share Offer; (ii) the respective advisory and documentation fees to be paid to BNP Prime Peregrine Capital as sponsor of the Share Offer; (iii) by a sponsorship agreement entered into between BNP Prime Peregrine Capital and the Company on 22nd May, 2000 pursuant to which BNP Prime Peregrine Capital has been appointed as sponsor of the Company for the remainder of the financial year of the Company ending 31st March, 2001 and for the period of 24 months commencing from 1st April, 2001 and the Company shall pay an agreed fee to BNP Prime Peregrine Capital for its provision of such services; and (iv) certain associates of BNP Prime Peregrine Capital, whose ordinary businesses involve the trading and dealing in securities, may involve in the trading of and dealing in the securities of the Company.

No director or employee of BNP Prime Peregrine Capital or BNP Prime Peregrine Securities has a directorship in the Company or any other company in the Group.

Neither Tai Fook Capital nor its associates expect to have accrued any material benefit as a result of the successful outcome of the Share Offer, other than the following: (i) by way of underwriting commissions to be paid to its associate, Tai Fook Securities, for acting as one of the Underwriters to the Share Offer and (ii) by a sponsorship agreement entered into between Tai Fook Capital and the Company on 22nd May, 2000 pursuant to which Tai Fook Capital has been appointed as sponsor of the Company for the remainder of the financial year of the Company ending 31st March, 2001 and for the period of 24 months commencing from 1st April, 2001 and the Company shall pay an agreed fee to Tai Fook Capital for its provision of such services; and (iii) certain associates of Tai Fook Capital, whose ordinary businesses involve the trading and dealing in securities, may involve in the trading of and dealing in the securities of the Company.

No director or employee of Tai Fook Capital or Tai Fook Securities has a directorship in the Company or any other company in the Group.

– 140 – UNDERWRITING

UNDERWRITERS

Placing Underwriters and Public Offer Underwriters

BNP Prime Peregrine Securities Limited Tai Fook Securities Company Limited CLSA Limited CU Securities Limited Nomura International (Hong Kong) Limited Celestial Capital Limited NSC Securities (Asia) Limited

UNDERWRITING ARRANGEMENTS AND EXPENSES

Underwriting Agreement

The Company is offering the Public Offer Shares for subscription by way of the Public Offer on and subject to the terms and conditions of this prospectus and the application forms relating thereto and the Placing Shares for subscription by way of the Placing. In addition, the Company has granted the Over-allotment Option to the Underwriters (exercisable by the Global Coordinator on behalf of the Underwriters) from time to time on or before 5:00 p.m. on 22nd June, 2000 to require the Company to issue up to an aggregate of 25,500,000 additional Shares, representing 15% of the Offer Shares to cover over-subscriptions in the Public Offer and/or over-allocations in the Placing, if any.

Subject to the GEM Listing Committee granting listing of, and permission to deal in, the Shares (subject only to allotment) not later than 22nd June, 2000, and to certain other conditions set out in the Underwriting Agreement being satisfied not later than 22nd June, 2000, (a) the Public Offer Underwriters have severally agreed to apply or procure applications, on the terms and conditions of this prospectus and the application forms relating thereto, for the Public Offer Shares now being offered and which are not taken up under the Public Offer; and (b) the Placing Underwriters have agreed to apply, or procure placees, to apply for the Placing Shares which have not been placed pursuant to the Placing.

Grounds for termination

The obligations of the Underwriters to subscribe or procure subscribers for the Offer Shares are subject to termination by notice in writing from the Global Coordinator (for itself and on behalf of the Underwriters) if certain events, including but not limited to the following shall occur at any time prior to 6:00 p.m. on the business day immediately preceding the Listing Date:

(1) any breach, reasonably considered by the Global Coordinator to be material, of any of the representations, warranties and undertakings or any other provision of the Underwriting Agreement (other than a breach committed by any of the Underwriters); or

(2) any matter has arisen or has been discovered which would, had it arisen immediately before the date of this prospectus, not having been disclosed in this prospectus, constitute an omission therefrom reasonably considered by the Global Coordinator to be material; or

– 141 – UNDERWRITING

(3) any statement reasonably considered by the Global Coordinator to be material contained in this prospectus has become or been discovered to be untrue, incorrect or misleading in any respect reasonably considered by the Global Coordinator to be material; or

(4) there shall have occurred any event, act or omission which gives or is likely to give rise to any material liability of the Company, the Directors or the warrantors pursuant to the indemnities given under the Underwriting Agreement; or

(5) there shall have been any adverse change in the business or the financial or trading position of any member of the Group which in the reasonable opinion of the Global Coordinator is material to the Group as a whole; or

(6) there shall have developed or occurred any litigation or claim of material importance to the Group as a whole of any third party being threatened or instigated against any member of the Group; or

(7) there shall have occurred, happened or come into effect any event or series of events, matters or circumstances concerning or relating to, or any change in:

(a) local, national or financial, political, economic, military, industrial, fiscal, regulatory or stock market conditions or sentiments in Hong Kong, the Cayman Islands, the United States, the PRC or any other relevant jurisdiction; or

(b) any new law or change in existing laws or any change in the interpretation or application thereof by any court or other competent authority in Hong Kong, the Cayman Islands, the United States, the PRC or any other relevant jurisdiction; or

(c) any event of force majeure affecting Hong Kong, the Cayman Islands, the United States, the PRC or any other relevant jurisdiction including, without limiting the generality thereof, any act of God, war, riot, public disorder, civil commotion, economic sanctions, fire, flood, explosion, epidemic, terrorism, strike or lock-out; or

(d) the conditions or sentiments of the Hong Kong or the United States equity securities or other financial markets; or

(e) the imposition of any moratorium, suspension or material restriction on trading in securities generally on the Stock Exchange due to exceptional financial circumstances or otherwise; or

(f) a prospective change in taxation or exchange control (or the implementation of any exchange control) in Hong Kong, the Cayman Islands, the United States, the PRC or any other jurisdiction relevant to the Group or affecting an investment in the Shares or the transfer or dividend payment in respect thereof; or

(g) any other change whether or not of the same kind as any of the foregoing;

– 142 – UNDERWRITING

which, in the reasonable opinion of the Global Coordinator:

(a) is or will be, or is likely to be, materially adverse to the business, financial or other condition or prospects of the Group taken as a whole; or

(b) makes it inadvisable or inexpedient to proceed with the Public Offer and/or the Placing.

Undertakings

The Initial Management Shareholders of the Company have given non-disposal undertakings, details of which are described in the section headed “Substantial and Initial Management Shareholders” in this prospectus.

The Company has undertaken with the Underwriters that it will not effect any purchase of the Company’s own shares, or agree to do so, which may reduce the holdings of Shares held by the public (as defined in Rule 11.23 of the GEM Listing Rules) below 17% without first having obtained the prior written consent of the Global Coordinator.

The Company has undertaken with the Underwriters that it will not, without the prior written consent of the Global Coordinator and unless in compliance with the GEM Listing Rules, issue or agree to issue or grant or agree to grant any options or warrants or other rights in or carrying the right to subscribe for Shares or other securities (including securities convertible into or exchangeable for Shares) of the Company or any interest therein or announce an intention to do so within six months from the Listing Date.

Commission and expenses

The Underwriters will receive a commission of 4.0% of the aggregate Offer Price of all the Offer Shares, out of which each Underwriter will pay its own sub-underwriting commission. BNP Prime Peregrine will in addition receive an advisory and documentation fee in relation to the Share Offer. Such fees and commission, together with the Stock Exchange listing fees, the Stock Exchange transaction levy, legal and other professional fees, printing and other expenses relating to the Share Offer which are currently estimated to be approximately HK$30 million in aggregate (assuming that the Over-allotment Option is not exercised), will be borne by the Company.

Underwriters’ interests in the Company

Save as contemplated pursuant to the Underwriting Agreement, none of the Underwriters has any shareholding in any member of the Group or has any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

– 143 – STRUCTURE OF THE SHARE OFFER

THE SHARE OFFER

The Share Offer comprises the Public Offer and the Placing. A total of 170,000,000 Shares (excluding any Shares to be issued pursuant to the Over-allotment Option) will be made available under the Share Offer. 17,000,000 Shares, representing 10% of the total number of Offer Shares initially available, will initially be offered for subscription under the Public Offer, with the remaining 153,000,000 Shares, representing 90% of the total number of Offer Shares, offered for subscription under the Placing.

Investors may apply for Shares under the Public Offer or indicate an interest for Shares under the Placing, but may not do both. The Public Offer is open to members of the public in Hong Kong. The Placing will involve selective marketing of Shares to institutional and other investors anticipated to have a sizeable demand for such Shares and other investors expected to have a sizable demand for the Shares pursuant to an international placement as well as placements to Directed Sale Shares Purchasers on an assured basis. Professional investors generally include brokers, dealers, companies (including fund managers) whose ordinary business involves dealing in shares and other securities and corporate entities which regularly invest in shares and other securities.

The Public Offer Shares are fully underwritten by the Public Offer Underwriters and the Placing Shares are fully underwritten by the Placing Underwriters in each case on a several basis, each being subject to the conditions set out in the paragraph headed “Underwriting arrangements and expenses” under the section headed “Underwriting”.

CONDITIONS OF THE SHARE OFFER

Acceptance of all applications for the Offer Shares is conditional on:

(1) the GEM Listing Committee granting listing of, and permission to deal in, the Shares in issue and the Shares to be issued as mentioned herein; and

(2) the obligations of the Underwriters under the Underwriting Agreement becoming unconditional (including, if relevant, following the waiver of any condition(s) by the Global Coordinator for and on behalf of the Underwriters) and the Underwriting Agreement not being terminated in accordance with its terms or otherwise.

If such conditions have not been fulfilled or waived on or before 22nd June, 2000, the Share Offer will lapse and the Stock Exchange will be notified immediately. Notice of the lapse of the Share Offer will be caused to be published by the Company in the South China Morning Post, Hong Kong Economic Times and the GEM website (www.hkgem.com) on the next day following such lapse. In such eventuality, all application monies will be returned, without interest, on the terms set out in the section headed “How to apply for the Public Offer Shares”. In the meantime, the application monies will be held in separate bank account(s) with the receiving bankers or other bank(s) in Hong Kong licensed under the Banking Ordinance (Chapter 155 of the Laws of Hong Kong).

– 144 – STRUCTURE OF THE SHARE OFFER

The Public Offer

The Company is initially offering 17,000,000 Shares for public subscription under the Public Offer, representing 10% of the Shares being offered in the Share Offer, subject to reallocation on the basis set out below. Subject to the reallocation of Offer Shares between the Placing and the Public Offer, the Public Offer Shares will represent 1.7 per cent. of the Company’s enlarged share capital immediately after completion of the Share Offer assuming that the Over-allotment Option is not exercised.

The Public Offer is underwritten by the Public Offer Underwriters. Applicants under the Public Offer are required to pay, on application, the Offer Price in addition to 1% brokerage and 0.011% Stock Exchange transaction levy thereon. Further details are set out below in the section headed “How to apply for the Public Offer Shares”.

Allocation of Public Offer Shares to investors under the Public Offer will be based solely on the level of valid applications received under the Public Offer. The basis of allocation may vary, depending on the number of Public Offer Shares validly applied for by each applicant, but will otherwise be made strictly on a pro rata basis. However, this may, where appropriate, involve balloting, which would mean that some applicants may be allotted more Public Offer Shares than others who have applied for the same number of Public Offer Shares and that applicants who are not successful in the ballot may not receive any Public Offer Shares.

If the Public Offer is not fully subscribed, the Global Coordinator has the authority to reallocate all or any unsubscribed Public Offer Shares originally included in the Public Offer to the Placing, in such proportions as it deems appropriate.

The Placing

The Company is initially offering 153,000,000 Shares, representing 90% of the Shares initially available under the Share Offer, for subscription under the Placing. Subject to the reallocation of Offer Shares between the Placing and the Public Offer in the event that the Public Offer is under-subscribed, the Placing Shares will represent 15.3% of the Company’s enlarged issued share capital immediately after completion of the Share Offer (assuming that the Over-allotment Option is not exercised).

(i) Placing to professional, institutional and other investors

144,500,000 Placing Shares (subject to reallocation) will be conditionally placed by the Placing Underwriters or through selling agents appointed by them to certain professional, institutional and other investors expected to have a sizeable demand for the Shares in Hong Kong, Singapore, Japan, the United States and elsewhere, subject to certain restrictions, at the Offer Price. Such professional, institutional and other investors generally include brokers, dealers, companies (including fund managers) whose ordinary business involves dealing in shares and other securities and corporate entities which regularly invest in shares and other securities. The Placing Shares will be offered in Hong Kong, Europe and other jurisdictions outside the United States in offshore transactions, as defined in Regulation S under the Securities Act, and in the United States to qualified institutional buyers, as defined in Rule 144A under the Securities Act. The Placing Shares are unlikely to be allocated to individual retail investors other than pursuant to the placing to the Directed Sale Shares Purchasers on the basis set out below.

– 145 – STRUCTURE OF THE SHARE OFFER

Allocation of Placing Shares to professional, institutional and other investors pursuant to the Placing is based on a number of factors including the level and timing of demand and whether or not it is expected that the relevant investor is likely to buy further Shares, or hold or sell its Shares, after the listing of the Shares on GEM. Such allocation is generally intended to result in a distribution of the Placing Shares on a basis which would lead to the establishment of a broad shareholder base to the benefit of the Company and its shareholders as a whole.

(ii) Placing to Directed Sale Shares Purchasers

Not more than 8,500,000 Shares, representing 5% of the Offer Shares will be placed to Directed Sale Shares Purchasers on the terms of placing letters. If the 8,500,000 Shares are not fully subscribed, the unsubscribed Shares will be reallocated to professional, institutional and other investors as set out in (i) above.

OVER-ALLOTMENT OPTION

In connection with the Share Offer, the Company has granted to the Underwriters the Over-allotment Option (exercisable by the Global Coordinator on behalf of the Underwriters) at any time on or before 5:00 p.m. on 22nd June, 2000. Pursuant to the Over-allotment Option, the Company may be required to issue and allot at the Offer Price up to an aggregate of 25,500,000 additional Shares, representing 15% of the Shares initially available under the Share Offer, to cover over-subscriptions in the Public Offer and/or over-allocations in the Placing, if any. In order to facilitate settlement of over-allocations in connection with the Share Offer pending exercise of the Over-allotment Option, a stock borrowing arrangement has also been entered into between the Global Coordinator and Star East (BVI).

Pursuant to this arrangement, Star East (BVI) has agreed that, if so requested by the Global Coordinator, Star East (BVI) will lend to the Global Coordinator up to 25,500,000 Shares on the following terms:

(i) the borrowed Shares will only be used to settle over-subscriptions in the Public Offer and/or over-allocations in the Placing, and

(ii) the same number of Shares must be returned to Star East (BVI), no later than three business days following the earlier of (a) the date on which the Over-allotment Option is exercised in full and (b) the last day on which the Over-allotment Option may be exercised and redeposited with the escrow agent as soon as practicable.

An application has been made to the Stock Exchange for a waiver from strict compliance with Rule 13.16 of the GEM Listing Rules which restricts the disposal of Shares by Star East (BVI) for the period of two years from the date of listing of the Shares on GEM, in order to allow Star East (BVI) to enter into this stock borrowing arrangement. Details of such waiver are set out in the section headed “Waivers from compliance with the GEM Listing Rules and Companies Ordinance”. The Global Coordinator may also cover such over-allocations by, among other means, purchasing Shares in the secondary market or by a combination of purchases in the secondary market and exercise of the Over-allotment Option either in part or in full. Any such secondary market purchases will be made in compliance with all applicable laws, rules and regulations.

– 146 – STRUCTURE OF THE SHARE OFFER

If the Over-allotment Option is exercised in full, the total Offer Shares issued will represent approximately 19.1% of the enlarged issued share capital of the Company immediately after completion of the Share Offer and the exercise of the Over-allotment Option. In the event that the Over-allotment Option is exercised, an announcement will be made on the GEM Website, and in the South China Morning Post in English and Hong Kong Economic Times in Chinese.

STABILISATION

In connection with the Share Offer, the Global Coordinator may, on behalf of the Underwriters, over-allocate and/or effect transactions which stabilise or maintain the market price of the Shares at levels other than those which might otherwise prevail. The number of Shares that may be over-allocated will be no greater than the number of Shares that may be issued under the Over-allotment Option. Such stabilisation transactions may be effected in all jurisdictions where it is permissible to do so, in each case, in compliance with all applicable laws and regulatory requirements. Such transactions, if commenced, may be discontinued at any time. Should stabilising transactions be effected in connection with the distribution of Shares, they will be done so at the absolute discretion of the Global Coordinator.

Stabilisation is a practice used by underwriters in some markets to facilitate the distribution of securities. To stabilise, the underwriters may bid for, or purchase, the newly issued securities in the secondary market, during a specified period of time, to retard and, if possible, prevent a decline in the initial public offer prices of the securities. The stabilisation price to cover over-allocations will not exceed the Offer Price.

Stabilisation is not a practice commonly associated with the distribution of securities in Hong Kong. In Hong Kong, such stabilisation activities are restricted to cases where underwriters genuinely purchase shares on the secondary market solely for the purpose of covering over-allocations in an offering. The relevant provisions of the Securities Ordinance prohibit market manipulation in the form of pegging or stabilising the price of securities in certain circumstances.

– 147 – HOW TO APPLY FOR THE PUBLIC OFFER SHARES

WHICH APPLICATION FORM TO USE

Use a WHITE application form if you want the Public Offer Shares to be issued in your own name.

Use a YELLOW application form if you want the Public Offer Shares to be issued in the name of HKSCC Nominees Limited and deposited directly into CCASS for credit to your investor participant stock account or the stock account of your designated CCASS participant.

Note: The Offer Shares are not available for subscription by the chief executive of the Company, the Directors, existing beneficial owners of Shares, or the associates (as defined in the GEM Listing Rules) or any of them.

WHERE TO COLLECT THE WHITE AND YELLOW APPLICATION FORMS

Copies of this prospectus, together with the WHITE application forms, may be obtained from:

Any participant of The Stock Exchange of Hong Kong Limited

BNP Prime Peregrine Securities Limited Tai Fook Securities Company Limited 23rd Floor, New World Tower 25th Floor, New World Tower 16-18 Queen’s Road Central 16-18 Queen’s Road Central Hong Kong Hong Kong

CLSA Limited CU Securities Limited 33rd Floor, Lippo Centre Tower 2 11th Floor, HK Diamond Exchange Building 89 Queensway 8-10 Duddell Street Hong Kong Central

Celestial Capital Limited Nomura International (Hong Kong) Limited 22nd Floor, The Center 20th Floor, Asia Pacific Finance Tower 99 Queen’s Road Central Citibank Plaza Hong Kong 3 Garden Road Hong Kong

NSC Securities (Asia) Limtied 1218 Central Building 1 Pedder Street, Central Hong Kong

or any of the following branches of The Hongkong and Shanghai Banking Corporation Limited:

Hong Kong Island: Hong Kong Office Level 3, 1 Queen’s Road Central

Central Branch 29 Queen’s Road Central

Cityplaza Branch Unit 065, Cityplaza 1, Taikoo Shing

Des Voeux Road Central Branch 141 Des Voeux Road Central

Des Voeux Road West Branch 40-50 Des Voeux Road West

Harcourt Road Branch G/F, Hutchison House, 10 Harcourt Road – 148 – HOW TO APPLY FOR THE PUBLIC OFFER SHARES

Hay Wah Building Branch G/F, Hay Wah Building, 71-85B Hennessy Road, Wanchai

Hopewell Centre Branch Shops 1-2, G/F, Hopewell Centre, 183 Queen’s Road East, Wanchai

North Point Branch 306-316 King’s Road North Point

Kowloon: Festival Walk Branch Shops LG1-37, Festival Walk, 80 Tat Chee Avenue, Kowloon Tong

Kwun Tong Branch 1 Yue Man Square Kwun Tong

Mongkok Branch 673 Nathan Road Mongkok

Tai Yau Street Branch 26-28, Tai Yau Street, San Po Kong

Telford Gardens Branch Unit P16, Blk G, Telford Plaza I, Kowloon Bay

Tsim Sha Tsui Branch 82-84 Nathan Road, Tsimshatsui

Union Park Centre Branch Shops 4-7, G/F, Union Park Centre, 771-775 Nathan Road

Waterloo Road Branch 71 Waterloo Road, Homantin

New Territories: City Landmark Branch Shops 117-131, 1/F City Landmark I 68 Chung On Street, Tsuen Wan

Shatin City One Branch Shops 138-140, 1/F, City One Plaza, Shatin

Yuen Long Branch G/F, HSBC Building Yuen Long, 150-160 Castle Peak Road, Yuen Long

– 149 – HOW TO APPLY FOR THE PUBLIC OFFER SHARES

You can collect a YELLOW application form and a prospectus from:

(1) the service counter of Hongkong Clearing at 2nd Floor, Vicwood Plaza, 199 Des Voeux Road Central, Hong Kong; or

(2) the Investor Service Centre of Hongkong Clearing at Room 1901, Chinachem Exchange Square, 1 Hoi Wan Street, Quarry Bay, Hong Kong; or

(3) your broker may have the application forms available.

HOW TO COMPLETE THE APPLICATION FORM

There are detailed instructions on each application form. You should read these instructions carefully. If you do not follow the instructions your application may be rejected and returned by ordinary post together with the accompanying cheque(s) or banker’s cashier order(s) to you (or the first-named applicant in the case of joint applicants) at your own risk at the address stated in the application form.

If your application is made through a duly authorised attorney, the Company and the Global Coordinator, as agent for the Company, may accept it at their discretion, and subject to any conditions they think fit, including evidence of the authority of your attorney.

In order for the YELLOW application forms to be valid:

(a) If the application is made through a designated CCASS participant (other than an investor participant):

(i) the designated CCASS participant or its authorised signatories must sign in the appropriate box; and

(ii) the designated CCASS participant must endorse the form with its company chop (bearing its company name) and insert its participant I.D. in the appropriate box.

(b) If the application is made by a CCASS individual investor participant:

(i) the application form must contain the investor participant’s name and Hong Kong identity card number; and

(ii) the investor participant should insert its participant I.D. and sign in the appropriate box in the application form.

(i) the application form must contain all joint investor participants’ names and the Hong Kong identity card number of at least one of the joint investor participants; and

(ii) the participant I.D. should be inserted and the authorised signatory(ies) of the investor participant’s stock account should sign in the appropriate box in the application form.

– 150 – HOW TO APPLY FOR THE PUBLIC OFFER SHARES

(d) If the application is made by a CCASS corporate investor participant:

(i) the application form must contain the investor participant’s company name and Hong Kong business registration number; and

(ii) the participant I.D. and company chop (bearing the applicant’s company name) endorsed by its authorised signatures should be inserted in the appropriate box in the application form.

(e) Signature(s), number of signatories and form of chop, where appropriate, should match with the records kept by Hongkong Clearing. Incorrect or incomplete details of the CCASS participant or the omission or inadequacy of authorised signatory(ies) (if applicable), CCASS participant I.D. or other similar matters may render the application invalid.

Nominees who wish to submit separate applications in their names on behalf of different owners are requested to designate on each application form in the box marked “For nominees” account numbers or other identification codes for each beneficial owner or, in the case of joint beneficial owners, for each such joint beneficial owner.

Each WHITE or YELLOW application form must be accompanied by either one separate cheque drawn on the applicant’s Hong Kong dollar bank account in Hong Kong and bearing the account name (either pre-printed by the bank or certified by an authorised signatory of such bank on the reverse of the cheque) which must correspond with the name of the applicant (or, in the case of joint applicants, the name of the first applicant) on the relevant application form, or one separate banker’s cashier order on the reverse of which the bank has certified by an authorised signatory the name of the applicant, which must correspond with the name of the applicant (or, in the case of joint applicants, the name of the first applicant) on the relevant application form. All such cheques or banker’s cashier orders must be made payable as set out in the application form and crossed “Account Payee Only”.

HOW MANY APPLICATIONS YOU MAY MAKE

There is only one situation where you may make more than one application for Public Offer Shares:

• If you are a nominee, you may lodge more than one application in your own name on behalf of different owners. In the box on the application form marked “For nominees” you must include:

– an account number; or

– some other identification code for each beneficial owner.

If you do not include this information, the application will be treated as being for your own benefit.

– 151 – HOW TO APPLY FOR THE PUBLIC OFFER SHARES

Otherwise, multiple applications are not allowed.

It will be a term and condition of all applications for Public Offer Shares that by completing and delivering an application form, you:

• (if the application is made for your own benefit) warrant that this is the only application which will be made for your benefit on a WHITE or YELLOW application form;

• (if you are an agent for another person) warrant that this is the only application which will be made for the benefit of that other person on a WHITE or YELLOW application form, and that you are duly authorised to sign this form as that other person’s agent.

All of your applications will be rejected as multiple applications if you, or you and joint applicants together:

• make more than one application on a WHITE or YELLOW application form; or

• apply on one YELLOW or WHITE (whether individually or jointly with others) application form for more than 100% of the Public Offer Shares being offered under the Public Offer.

All of your applications will also be rejected as multiple applications if more than one application is made for your benefit.

If an application is made by an unlisted company and

• the only business of that company is dealing in securities; and

• you exercise statutory control over that company, then the application will be treated as being for your benefit.

An unlisted company means a company with no equity securities listed on the Stock Exchange.

Statutory control means you:

• control the composition of the board of directors of that company; or

• control more than half of the voting power of that company; or

• hold more than half of the issued share capital of that company (not counting any part of it which carries no right to participate beyond a specified amount in a distribution of either profits or capital).

HOW MUCH ARE THE PUBLIC OFFER SHARES

The proposed board lot for trading in the Shares is 2,000 Shares. You must pay the price of HK$1.18 per Share together with brokerage of 1% and Stock Exchange transaction levy of 0.011% in full when you apply for the Offer Shares. This means that for every 2,000 Shares you will pay HK$2,383.86.

– 152 – HOW TO APPLY FOR THE PUBLIC OFFER SHARES

If your application is successful, brokerage is paid to Stock Exchange participants and the transaction levy is paid to the Stock Exchange.

TIME FOR APPLYING FOR THE PUBLIC OFFER SHARES

Completed WHITE or YELLOW application forms, with payment attached, must be lodged by 12:00 noon on 26th May, 2000, or, if the application lists are not open on that day, then by 12:00 noon on the next business day when the application lists are open.

Your completed application form, with payment attached, should be deposited in any of the special collection boxes provided at any of the branches of The Hongkong and Shanghai Banking Corporation Limited listed above at the following times:

Tuesday, 23rd May, 2000 – 9:00 a.m. to 4:00 p.m. Wednesday, 24th May, 2000 – 9:00 a.m. to 4:00 p.m. Thursday, 25th May, 2000 – 9:00 a.m. to 4:00 p.m. Friday, 26th May, 2000 – 9:00 a.m. to 12:00 noon

The application lists will be open from 11:45 a.m. to 12:00 noon on Friday, 26th May, 2000.

EFFECT OF BAD WEATHER ON THE OPENING OF THE APPLICATION LISTS

The application lists will not be open if there is:

• a tropical cyclone warning signal number 8 or above; or

• a “black” rainstorm warning signal in force in Hong Kong at any time between 9:00 a.m. and 12:00 noon on Friday, 26th May, 2000. Instead the application lists will be open between 11:45 a.m. and 12:00 noon on the next business day which does not have either of those warnings in force in Hong Kong at any time between 9:00 a.m. and 12:00 noon.

For the purposes of this section, business day means a day that is not a Saturday, Sunday or public holiday in Hong Kong.

CIRCUMSTANCES IN WHICH YOU WILL NOT BE ALLOTTED OFFER SHARES

Details of the circumstances which you will not be allotted Offer Shares are set out in the notes contained in the application forms, and you should read them carefully. You should note in particular the following two situations in which Offer Shares will not be allotted to you:

Your application is revoked

By completing an application form you agree that you cannot revoke your application before the end of the fifth day (excluding Saturdays, Sundays and public holidays in Hong Kong) after the time of the opening of the application lists, being 2nd June, 2000 except that you may revoke your application

– 153 – HOW TO APPLY FOR THE PUBLIC OFFER SHARES

earlier than that date if a person responsible for this prospectus under section 40 of the Companies Ordinance gives a public notice under that section which excludes or limits the responsibility of that person for this prospectus.

If your application has been accepted, it cannot be revoked.

Circumstances in which allotment of the Offer Shares is void

Your allotment of the Offer Shares, if made, will be void if the GEM Listing Committee does not grant permission to list the Shares either:

• within three weeks from the closing of the application lists; or

• within a longer period of up to six weeks if the GEM Listing Committee notifies the Company of that longer period within three weeks of the closing date of the application lists.

You should also note that you may apply for the Offer Shares under the Public Offer or indicate an interest for Offer Shares under the Placing, but may not do both.

PUBLICATION OF RESULTS

The Company expects to release the level of interest in the Placing, results of applications of the Public Offer and basis of allotment of the Public Offer Shares and the Hong Kong identity card/passport/ Hong Kong business registration numbers of successful applicants on or before Tuesday, 30th May, 2000 on the GEM Website and in the South China Morning Post (in English) and the Hong Kong Economic Times (in Chinese).

DESPATCH/COLLECTION OF SHARE CERTIFICATES/REFUND CHEQUES AND DEPOSIT OF SHARE CERTIFICATES INTO CCASS

If an application is rejected, not accepted or accepted in part only, or if the conditions of the Share Offer described under “Structure of the Share Offer – Conditions of the Share Offer” are not fulfilled in accordance with their terms or if any application is revoked or any allotment pursuant thereto has become void, the application monies, or the appropriate portion thereof, together with the related brokerage and Stock Exchange transaction levy, will be refunded, without interest. It is intended that special efforts will be made to avoid undue due delay in refunding application monies where appropriate.

The Company will not issue temporary documents of title. No receipt will be issued for application monies paid.

– 154 – HOW TO APPLY FOR THE PUBLIC OFFER SHARES

WHITE application form:

If you have applied for 1,000,000 Public Offer Shares or above and have indicated on your application form that you will collect your share certificate(s) and refund cheque (if any) in person, you may collect them in person from:

Central Registration Hong Kong Limited Shops 1712-1716 17th Floor, Hopewell Centre 183 Queen’s Road East Hong Kong between 1:00 p.m. and 4:00 p.m. on the date notified by the Company on the GEM Website and in the newspapers as the date of despatch of share certificates. This is expected to be on or before Tuesday, 30th May, 2000.

Applicants being individuals who opt for personal collection must not authorise any other person to make their collection on their behalf. Applicants being corporations who opt for personal collection must attend by their authorised representatives bearing letters of authorisation from their corporation stamped with the corporation chops. Both individuals and authorised representatives (if applicable) must produce at the time of collection evidence of identity acceptable to Central Registration Hong Kong Limited.

If you do not collect your share certificate(s) and/or refund cheque (if any), they will be sent to the address on your application form in the afternoon on the date of despatch, by ordinary post and at your own risk.

If you have applied for 1,000,000 Public Offer Shares or more and have not indicated on your application form that you will collect your share certificate(s) and refund cheque (if any) in person, or if you have applied for less than 1,000,000 Public Offer Shares, then your share certificate(s) and refund cheque (if any) will be sent to the address on your application form on the date of despatch, by ordinary post and at your own risk.

YELLOW application form:

Your share certificate(s) will be issued in the name of HKSCC Nominees Limited and deposited into CCASS for credit to your investor participant stock account or the stock account of your designated CCASS participant as instructed by you at the close of business on Tuesday, 30th May, 2000, or under contingent situation, on any other date as shall be determined by Hongkong Clearing or HKSCC Nominees Limited.

If you are applying through a designated CCASS participant (other than an investor participant):

• for the Public Offer Shares credited to the stock account of your designated CCASS participant (other than an investor participant), you can check the number of the Public Offer Shares allocated to you with that CCASS participant.

– 155 – HOW TO APPLY FOR THE PUBLIC OFFER SHARES

If you are applying as a CCASS investor participant:

• the Company expects to publish the results of CCASS investor participants’ applications together with the results of the Public Offer on the GEM Website and in the newspapers on or before Tuesday, 30th May, 2000. You should check against the announcement published by the Company and report any discrepancies to Hongkong Clearing before 5:00 p.m. on Tuesday, 30th May, 2000 or such other date as shall be determined by Hongkong Clearing or HKSCC Nominees Limited. On Wednesday, 31st May, 2000 (the next day following the credit of the Public Offer Shares to your stock account) you can check your new account balance via the CCASS Phone System (under the procedures contained in Hongkong Clearing’s “An Operating Guide for Investor Participants” in effect from time to time). Hongkong Clearing will also mail to you an activity statement showing the number of Public Offer Shares credited to your stock account.

For applicants applying on YELLOW application forms, refund cheque(s) (if any) are expected to be sent to or collected by applicants for (i) the surplus application monies for the Public Offer Shares unsuccessfully applied for, if the application is partially unsuccessful; or (ii) all the application monies, if the application is wholly unsuccessful on 30th May 2000. If you have applied for 1,000,000 Offer Shares or more and have indicated on your application form that you will collect your refund cheque (if any) in person, the procedures set out in the subsection headed “WHITE application form” above will apply.

SHARES WILL BE ELIGIBLE FOR CCASS

If the Stock Exchange grants the listing of and permission to deal in the Shares on GEM and the Company complies with the stock admission requirements of Hongkong Clearing, the 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 Shares on GEM or on any other date as determined by Hongkong Clearing. Investors should seek the advice of their stockbroker or other professional adviser for details of those settlement arrangements as such arrangements will affect their rights and interests.

CCASS participants should note, however, that in the event that the Share Offer is terminated in accordance with the section “Conditions of the Share Offer” at any time after the deposit of the allotted Offer Shares into CCASS, the Shares will cease to be eligible securities and should be removed from CCASS.

Settlement of transactions between participants of the Stock Exchange is required to take place in CCASS on the second business day after any trading day.

All necessary arrangements have been made for the Shares to be admitted into CCASS.

All activities under CCASS are subject to the General Rules of CCASS and CCASS Operational Procedures in effect from time to time.

COMMENCEMENT OF DEALINGS IN THE SHARES

Dealings in the Shares on GEM are expected to commence on Thursday, 1st June, 2000.

– 156 – APPENDIX I ACCOUNTANTS’ REPORT

Certified Public Accountants 26/F, Wing On Centre 111 Connaught Road Central Hong Kong

23rd May, 2000

The Directors STAREASTnet.com Corporation BNP Prime Peregrine Capital Limited Tai Fook Capital Limited

Dear Sirs,

We set out below our report on the financial information regarding STAREASTnet.com Corporation (the “Company”, formerly known as Star East Information Technology Corporation) and its subsidiaries (hereinafter collectively referred to as the “Group”) for the period from 18th February, 1999, (date of incorporation of STAREASTnet (BVI) Limited, the then holding company) to 31st March, 1999 and for the eleven-month period ended 29th February, 2000 (the “Relevant Periods”) for inclusion in the prospectus of the Company dated 23rd May, 2000 (the “Prospectus”).

The Company was incorporated and registered as an exempted company in the Cayman Islands under the Companies Law (1998 Revision) Chapter 22 of the Cayman Islands on 31st January, 2000. Through a group reorganisation, as more fully explained in the paragraph headed “Corporate reorganisation” in Appendix III of the Prospectus, the Company has since 18th May, 2000 become the holding company of the Group.

As at the date of this report, the particulars of the Company’s subsidiaries, all of which are wholly- owned and indirectly held by the Company except for STAREASTnet (BVI) Limited, which is directly held by the Company, are as follows:

Place and Issued and date of fully paid Name of company incorporation share capital Principal activities

Harvest Star Limited Hong Kong Ordinary shares Holding of a domain name 22nd September, 1999 HK$2

Hottest Choice Limited British Virgin Islands Shares Investment holding 6th August, 1999 US$100

LEONSTAREASTnet.com Hong Kong Ordinary shares Provision of website Limited (formerly 24th January, 2000 HK$2 development services known as Charm Union Limited)

– 157 – APPENDIX I ACCOUNTANTS’ REPORT

Place and Issued and date of fully paid Name of company incorporation share capital Principal activities

Lightening Investment British Virgin Islands Shares Leasing of premises Limited 12th January, 2000 US$100 in Hong Kong

Star East Information Canada 1 Common share Investment holding Technology 7th February, 2000 with no par value Corporation

Star East Information Taiwan Shares Operation of websites Technology 11th May, 2000 NTD1,000,000 Corporation (Taiwan)

Star East IT Hong Kong Ordinary shares Provision of Management Limited 18th January, 1999 HK$2 management services (formerly known as Glory Way Management Limited)

Star East IT Hong Kong Ordinary shares Production of website Production Limited 7th July, 1999 HK$2 contents (formerly known as Top First Technologies Limited)

Star East Multimedia Hong Kong Ordinary shares Provision of media agency Limited 24th February, 1999 HK$2 services and operation (formerly known as of websites Excellent Super Limited)

Star East Multimedia Canada 100 Common Provision of media Limited 3rd February, 2000 shares with agency services and no par value operation of websites

Star East On-Line Hong Kong Ordinary shares Provision of website Limited (formerly 22nd February, 1999 HK$2 development services for known as Profit artistes Fund Limited)

Star East Web British Virgin Islands Shares Investment holding Stars Limited 18th February, 1999 US$100 (formerly known as Good Graphics Limited)

– 158 – APPENDIX I ACCOUNTANTS’ REPORT

Place and Issued and date of fully paid Name of company incorporation share capital Principal activities

Star East Hong Kong Ordinary shares Holding of websites and Website Limited 19th April, 1999 HK$2 holding of domain names (formerly known as Continental Link Limited)

STAREASTnet (BVI) British Virgin Islands Shares Investment holding Limited 18th February, 1999 US$1,000 (formerly known as Star East Information Technology Corp.)

StarEastnet Holdings Singapore Shares Investment holding Pte Ltd 28th January, 2000 SGD2

STAREASTnet Limited Hong Kong Ordinary shares Inactive (formerly known as 8th February, 2000 HK$2 Jumbo Strong Limited)

Stareastnet Management Singapore Shares Provision of corporate Pte Ltd 10th February, 2000 SGD2 management services

Stareastnet Multimedia Singapore Shares Provision of media agency Pte Ltd 10th February, 2000 SGD2 services and operation of websites

STAREASTnet.com Hong Kong Ordinary shares Inactive Corporation Limited 11th February, 2000 HK$2 (formerly known as Earth Star Limited)

STAREASTnet.com Limited Hong Kong Ordinary shares Inactive (formerly known as 1st March, 2000 HK$2 Ever Great Limited)

STAREASTnet.com Hong Kong Ordinary shares Provision of corporate Management Limited 27th October, 1999 HK$2 management services (formerly known as Super Oriental Limited)

STAREASTnet.com Hong Kong Ordinary shares Provision of secretarial Services Limited 17th January, 2000 HK$2 services (formerly known as Cheer Global Limited)

Starnet Technology Limited British Virgin Islands Shares Investment holding 7th January, 2000 US$100

– 159 – APPENDIX I ACCOUNTANTS’ REPORT

We have acted as auditors of all the entities now comprising the Group during the Relevant Periods.

No audited financial statements have been prepared for the Company, STAREASTnet.com Limited and Star East Information Technology Corporation (Taiwan) as the Company did not have any transactions since date of incorporation, other than the reorganisation referred to in Appendix III of the Prospectus, and STAREASTnet.com Limited and Star East Information Technology Corporation (Taiwan) were incorporated after 29th February, 2000. We have, however, reviewed all relevant transactions of the Company since its date of incorporation.

Audited consolidated financial statements for each of the Relevant Periods have been prepared for STAREASTnet (BVI) Limited, the holding company of the entities comprising the Group prior to the group reorganisation. No audited financial statements have been prepared for those companies which were incorporated in a country where there are no statutory audit requirements. In addition, no audited financial statements have been prepared for LEONSTAREASTnet.com Limited, Harvest Star Limited, Star East Information Technology Corporation, Star East IT Management Limited, Star East IT Production Limited, Star East Multimedia Limited (incorporated in Hong Kong), Star East Multimedia Limited (incorporated in Canada), STAREASTnet Limited, Star East On-line Limited, Star East Website Limited, StarEastnet Holdings Pte Ltd, Stareastnet Management Pte Ltd, Stareastnet Multimedia Pte Ltd, STAREASTnet.com Corporation Limited, STAREASTnet.com Limited, STAREASTnet.com Management Limited and STAREASTnet.com Services Limited. We have, however, reviewed all significant transactions of these companies since their dates of incorporation.

For the purpose of the report, we have examined the audited financial statements or unaudited management accounts of all the companies now comprising the Group for the Relevant Periods in accordance with the Auditing Guideline “Prospectus and the Reporting Accountants” as recommended by the Hong Kong Society of Accountants.

The summaries of the combined results of the Group for the period from 18th February, 1999, (date of incorporation of STAREASTnet (BVI) Limited, the then holding company) to 31st March, 1999 and for the eleven-month period ended 29th February, 2000 and of the combined net tangible assets of the Group as at 29th February, 2000 (the “Summaries”) have been prepared from the audited financial statements or unaudited management accounts of the companies now comprising the Group, on the basis set out in section 1 below. The directors of the respective companies of the Group are responsible for preparing these financial statements which give a true and fair view. In preparing these financial statements, it is fundamental that appropriate accounting policies are selected and applied consistently.

The directors are responsible for the preparation of the Summaries. It is our responsibility to form an independent opinion on the Summaries.

In our opinion, on the basis of presentation set out in section 1 below, the Summaries together with the notes thereon give, for the purpose of this report, a true and fair view of the combined results of the Group for the period from 18th February, 1999 to 31st March, 1999 and for the eleven-month period ended 29th February, 2000 and of the combined net tangible assets of the Group as at 29th February, 2000.

1. BASIS OF PRESENTATION OF FINANCIAL INFORMATION

The summary of the combined results for each of the periods referred to in this report has been prepared as if the current group structure had been in existence throughout the Relevant Periods. The summary of the combined net tangible assets of the Group as at 29th February, 2000 has been prepared to

– 160 – APPENDIX I ACCOUNTANTS’ REPORT present the assets and liabilities of the companies now comprising the Group as if the current group structure had been in existence as at that date.

All significant intra-group transactions and balances have been eliminated on combination.

2. PRINCIPAL ACCOUNTING POLICIES

The financial information set out in this report have been prepared in accordance with Statements of Standard Accounting Practice issued by the Hong Kong Society of Accountants. The principal accounting policies adopted are set out below.

Revenue recognition

The Group generates its revenues from advertising service fees and sales of goods.

Advertising revenues are derived from the sale of banner advertisements and sponsorships on the Group’s website. Advertising revenues are recognised over the period in which the advertisements are displayed, provided that no significant obligations remain and collection of the receivable is reasonably assured. The Group’s obligations typically include guarantees of a minimum number of “impressions” (times that an advertisement is viewed by users of the Group’s website over a specified period of time). To the extent that minimum guaranteed impressions are not met, the Group does not recognise the corresponding revenues until the guaranteed impressions are achieved.

Revenues from sponsorship arrangements are recognised ratably over the contract term, provided that the Group has no significant obligations remaining. Revenue related to the design, coordination and integration of content under sponsorship arrangements is recognised ratably over the contract term or using the percentage of completion method if the revenue for the service is fixed.

Sales of goods are recognised when goods are delivered and title has passed and collectibility for such sales are reasonably assured.

Interest income from bank deposits is accrued on a time basis, by reference to the principal outstanding and at the interest rate applicable.

Cost of sales

Cost of sales consists primarily of content fees, payroll and related expenses for the editorial and operations staff, telecommunications and computer-related expenses for the support and delivery of the Group’s services.

Advertising expense

All costs of advertising are expensed when incurred.

Software research and development costs

Costs incurred in the research and development of software products of the Group are expensed as incurred unless the costs of the development satisfy the criteria for the recognition of such costs as assets. During the period, no significant software research and development costs have been incurred.

– 161 – APPENDIX I ACCOUNTANTS’ REPORT

Prepaid airtime

Prepaid airtime represents amounts paid to reserve airtime, both television and internet, for future usage by the Group. Prepaid airtime is amortised over the life of the contract based on the Group’s actual usage and at the rates as stipulated in the contracts.

Property and equipment

Property and equipment is stated at cost less accumulated depreciation. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its present working condition and location for its intended use. Expenditure for additions and improvements is capitalised and expenditure for maintenance and repairs is charged to the income statement in the period in which it is incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the assets, the expenditure is capitalised as an additional cost of the assets.

The gain or loss arising from the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the income statement.

Where the recoverable amount of an asset has declined below its carrying amount, the carrying amount is reduced to reflect the decline in value. In determining the recoverable amount of assets, expected future cash flows are not discounted to their present values.

Depreciation is provided to write off the cost of property and equipment over their estimated useful lives, on a straight-line basis, at the following rates per annum:

Leasehold improvements Shorter of the lease term or 5 years Furniture, fixtures and equipment 20% 1 Network and computer equipment 33 /3% Operating equipment 20% Motor vehicles 20%

Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or where shorter, the term of the relevant lease.

Taxation

The charge for taxation is based on the results for the period after adjusting for items which are non-assessable or disallowed. Certain items of income and expense are recognised for tax purposes in a different accounting period from that in which they are recognised in the financial statements. The tax effect of the resulting timing differences, computed under the liability method, is recognised as deferred taxation in the financial statements to the extent that it is probable that a liability or asset will crystallise in the foreseeable future.

Foreign currencies

Transactions in foreign currencies are translated into Hong Kong dollars at the rates ruling on the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated into Hong Kong dollars at the rates ruling on the balance sheet date. Profits and losses arising on exchange are dealt with in the income statement. – 162 – APPENDIX I ACCOUNTANTS’ REPORT

On combination, the financial statements of overseas operations which are denominated in currencies other than Hong Kong dollars are translated into Hong Kong dollars at the rates ruling on the balance sheet date. All exchange differences arising on translation are dealt with in reserves.

Leases

Assets held under finance leases are capitalised at their fair value at the date of acquisition. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation. Finance costs, which represent the difference between the total leasing commitments and the fair value of the assets acquired, are charged to the income statement over the term of the relevant lease so as to produce a constant periodic rate of charge on the remaining balance of the obligations for each accounting period.

All other leases are classified as operating leases and the annual rentals are charged to the income statement on a straight-line basis over the term of the relevant lease.

Goodwill

Goodwill represents the excess of the purchase consideration over the fair value ascribed to the Group’s share of the separable net assets at the date of acquisition of a subsidiary and is written off to reserves immediately on acquisition. Negative goodwill, which represents the excess of the fair value ascribed to the Group’s share of the separable net assets at the date of acquisition of a subsidiary over the purchase consideration, is credited to reserves.

3. RESULTS

The following is a summary of the combined results of the Group for the Relevant Periods (“Summary of Results”) prepared on the basis set out in section 1 above: Period from Eleven-month 18th February, 1999 period ended to 31st March, 1999 29th February, 2000 Notes HK$’000 HK$’000

Turnover (a) – 6,740 Cost of sales – 15,485

Gross loss – (8,745)

Operating expenses: Advertising and promotion – 18,903 Administration 197 29,280

197 48,183

Loss from operations (b) (197) (56,928) Other income (expense): Interest income – 986 Interest expense and finance lease charges – (150) Exchange gain – 230

Loss for the period (197) (55,862)

Dividend (d) ––

Loss per share, in cents (g) (0.024) (6.730)

– 163 – APPENDIX I ACCOUNTANTS’ REPORT

Notes:

(a) Turnover

Period from Eleven-month 18th February, 1999 period ended to 31st March, 1999 29th February, 2000 HK$’000 HK$’000

Advertising revenues – 3,444 Sales of goods, net of discounts and allowances – 3,296

– 6,740

(b) Loss from operations

Period from Eleven-month 18th February, 1999 period ended to 31st March, 1999 29th February, 2000 HK$’000 HK$’000 Loss from operations has been arrived at after charging:

Auditors’ remuneration – 350 Depreciation: Owned assets – 2,267 Assets held under finance leases – 413 Directors’ remuneration (note e) –– Operating lease rentals in respect of: Office premises – 1,887 Internet leased lines – 1,292 Staff costs 152 21,966

No provision for Hong Kong Profits Tax has been made in the financial statements as the Group incurred a tax loss for the Relevant Periods.

At 29th February, 2000, the major components of unrecognised deferred tax asset are as follows:

HK$’000 Tax effect of timing differences attributable to:

Taxation losses available to set off future profits 10,045 Excess of tax allowances over depreciation (1,976)

8,069

The amounts of unrecognised deferred tax credit for the Relevant Periods are as follows:

Period from Eleven-month 18th February, 1999 period ended to 31st March, 1999 29th February, 2000 HK$’000 HK$’000 Tax effect of timing differences attributable to:

Tax losses 32 10,013 Excess of tax allowances over depreciation – (1,976)

32 8,037

A deferred tax asset has not been recognised in the financial statements in respect of tax losses available to offset future profits as it is not certain that the tax losses will be utilised in the foreseeable future.

– 164 – APPENDIX I ACCOUNTANTS’ REPORT

(d) Dividend

No dividends have been paid or declared by the Company since the date of its incorporation. In addition, no dividends have been paid by any companies comprising the Group during the Relevant Periods.

(e) Remuneration of directors and employees of the Company

No remuneration was paid or payable to any directors of the Company during the Relevant Periods.

During the eleven-month period ended 29th February, 2000, included in the salaries reimbursed to the group companies of ITC Corporation Limited (“ITC”) and of Star East Holdings Limited (“SEH”), details of which are set out in section 4(b), is an amount of HK$2,669,000 paid in respect of the services provided to the Group by ITC’s and SEH’s employee who was subsequently appointed as a director of the Company.

Under the arrangements presently in force, the aggregate remuneration of the Company’s directors for the year ended 31st March, 2000 is estimated to be approximately HK$422,000.

The five individuals with the highest emoluments in the Group for the Relevant Periods did not include directors of the Company. The emoluments of these individuals were as follows:

Period from Eleven-month 18th February, 1999 period ended to 31st March, 1999 29th February, 2000 HK$’000 HK$’000

Salaries and other benefits 25 3,180

The number of individuals whose emoluments fall into the following bands is as follows:

Period from Eleven-month 18th February, 1999 period ended to 31st March, 1999 29th February, 2000 Number Number

HK$Nil – HK$1,000,000 5 5

During the Relevant Periods, no emoluments were paid by the Group to the five highest paid individuals (including directors and employees) as an inducement to join or upon joining the Group or as compensation for loss of office. None of the directors waived any emoluments during the Relevant Periods.

(f) Retirement benefit scheme

The Company and its subsidiaries operating in Hong Kong do not currently operate any retirement schemes covering their employees.

(g) Loss per share

The calculation of the loss per share for the Relevant Periods is based on the combined results for each of the Relevant Periods and on 830,000,000 share in issue during those periods on the assumption that the group reorganisation had been effective on 18th February, 1999.

– 165 – APPENDIX I ACCOUNTANTS’ REPORT

4. NET TANGIBLE ASSETS

The following is a summary of the combined net tangible assets of the Group as at 29th February, 2000 prepared on the basis set out in section 1 above:

Notes HK$’000 HK$’000

NON-CURRENT ASSETS Property and equipment, net (a) 21,066 Prepaid airtime – long-term portion (b) 41,806 62,872

CURRENT ASSETS Accounts receivable 4,363 Prepaid expenses and other current assets 11,312 Prepaid airtime – short-term portion (b) 40,000 Receivables from related parties (b) 4,012 Bank balances and cash 12,645

72,332

CURRENT LIABILITIES Accounts payable 2,776 Other liabilities and accrued expenses 2,023 Payables to related parties (b) 32,877 Current portion of finance lease obligations (c) 719

38,395

NET CURRENT ASSETS 33,937

TOTAL ASSETS LESS CURRENT LIABILITIES 96,809

DEDUCT: Long-term portion of finance lease obligations (c) 953

NET TANGIBLE ASSETS 95,856

– 166 – APPENDIX I ACCOUNTANTS’ REPORT

Notes:

(a) Property and equipment

Property and equipment consists of the following:

Accumulated Net Cost depreciation book value HK$’000 HK$’000 HK$’000

Leasehold improvements 3,654 571 3,083 Furniture, fixtures and equipment 975 84 891 Network and computer equipment 13,957 1,658 12,299 Operating equipment 4,904 343 4,561 Motor vehicles 256 24 232

23,746 2,680 21,066

Included in property and equipment are assets held under finance leases with the following net book values:

HK$’000

At cost:

Computer equipment and motor vehicles 2,216 Less: Accumulated depreciation (413)

1,803

(b) Related party transactions

HK$’000

Prepaid airtime to Pacific Convergence Corporation, Limited (“PCC”) (note i):

Long-term portion 41,806 Short-term portion 40,000

81,806

Receivables from related parties consist of the amounts due from the following companies:

Group companies of Paul Y. - ITC Construction Holdings Limited (“Paul Y.”) (note ii) 2,000 SEH (note iii) 256 Group company of Tung Fong Hung (Holdings) Limited (“TFH”) (note iv) 8 Group company of Hanny Holdings Limited (“Hanny”) (note iii) 1,748

4,012 Payables to related parties consist of the amounts payable to the following companies:

PCC (note i) 31,000 Hanny (note iii) 886 Paul Y. (note ii) 794 SEH (note iii) 197

32,877

The receivables from and payables to the related parties are unsecured, and have no fixed repayment terms. These balances arise from the Group’s trading activities and accordingly are interest free. – 167 – APPENDIX I ACCOUNTANTS’ REPORT

Notes:

(i) The Group on 24th August, 1999 entered into a contract with PCC, an affiliate of Pacific Century Cyberworks Limited (“PCCW”), a company which has an indirect beneficial interest in the Company, to secure and pre- occupy a future Pan Asia promotion platform for access to airtime, including television and internet. The amount paid by the Group under the contract was US$6,556,000, equivalent to approximately HK$50,806,000. This airtime will be used for marketing and promotion purposes. The contract contains, among others, the following terms:

a. The value of the airtime used by the Group will be based on the then current fees and charges in PCC’s rate cards;

b. The airtime must be used by the Group within a two-year period commencing upon the expiry of two years after the contract date;

c. The airtime may be sold by the Group to third parties provided that it is not at rates lower than PCC’s then current rates and charges shown on PCC’s rate cards; and

d. Any unused airtime at 24th August, 2003, subsequently extended to 23rd February, 2004 (see section 7 (a)), will be forfeited.

At 29th February, 2000, no part of the airtime under the contract had been utilised. Subsequent to 29th February, 2000, the Group entered into an agreement with PCC pursuant to which the consideration for the airtime was reduced by approximately US$1,162,000, equivalent to approximately HK$9,000,000, by way of a cash refund (see section 7(a)) and accordingly, this amount has been classified as a current asset. The Group’s management believes that the remaining airtime will be fully utilised during the contract term. The Group will evaluate the carrying value of this asset whenever circumstances indicate the carrying amount may no longer be recoverable.

On 22nd October, 1999 and 25th November, 1999, the Group entered into two contracts with PCC which related to the access to airtime including television and internet. The airtime will be used for marketing and promotion purposes. These contracts have a term of two years and expire on 22nd October, 2001 and 25th November, 2001, respectively. Each contract requires US$2,000,000, equivalent to approximately HK$15,500,000, to be paid to PCC within three months of the date of the respective contract. These contracts and related liabilities were cancelled subsequent to 29th February, 2000 (see section 7(b)) and accordingly, the corresponding amount of the prepaid airtime has been classified as a current asset.

(ii) Paul Y. is an affiliate of ITC. The amount receivable represents the rental deposits pursuant to operating leases for office premises and the amount payable arose from the transactions entered into with Paul Y. as detailed in the following notes (x) and (xii).

(iii) SEH, ITC and Hanny are the companies which have indirect beneficial interests in the Group. The balances with SEH arose from the transactions entered into with SEH as detailed in the following notes (v), (vi), (viii), (x) and (xi). The payable to Hanny arose from the transactions as detailed in the following note (xi). The receivable from Hanny represents the deposit paid by the Group for technical services, including computer software development installation and setting up of computer systems, provided by Hanny.

(iv) TFH is an affiliate of ITC. The amount represents the advertising revenue receivable from TFH.

The Group entered into the following transactions with related parties in the ordinary course of business during the Relevant Periods:

Period from Eleven-month 18th February, 1999 period ended to 31st March, 1999 29th February, 2000 HK$’000 HK$’000

Continuing transactions: Advertising revenue (note v) – 233 Rent and building management expenses (note x) – 2,153 Discontinued transactions: Advertising and promotion expenses (note vi) – 650 Artistes shooting and consulting fees (note vii) – 3,857 Entertainment expense (note viii) – 172 Interest expense (note ix) –54 Salaries (note xi) 127 7,345 Sundry (note xii) –47

– 168 – APPENDIX I ACCOUNTANTS’ REPORT

(v) The advertising revenue was received from TFH and SEH. The amount was charged in accordance with the rates pre-set by the Group.

(vi) The advertising and promotion expenses were paid to SEH. The amounts represented the actual amounts incurred by SEH on behalf of the Group.

(vii) The artistes shooting and consulting fees were paid to Gold Miracles Limited, which is a shareholder of the Company. The amounts were charged at the pre-agreed rates.

(viii) The entertainment expenses were paid to SEH. The amounts represented the actual amounts incurred by SEH on behalf of the Group.

(ix) During the eleven-month period ended 29th February, 2000, ITC advanced to the Group an aggregate amount of HK$4,500,000 bearing interest at Hong Kong prime interest rate plus 4% per annum, which was fully repaid by the Group during the same period. The interest expense charged by ITC amounted to approximately HK$54,000.

(x) The rent and building management expenses of approximately HK$2,023,000 were paid to Paul Y. and the rent expense of approximately HK$130,000 was paid to a subsidiary of SEH, which, subsequent to 29th February, 2000, was disposed of by SEH, and accordingly this will not be a related party transaction after the listing of the Company. The amounts were charged at pre-agreed fixed monthly rates.

(xi) The salaries were reimbursed to ITC, SEH and Hanny for the secondment of certain employees to the Group or services provided by employees of ITC, SEH and Hanny on the business of the Group. The amounts represented the actual amounts incurred by SEH, ITC and Hanny on behalf of the Group.

(xii) The sundry expenses were paid to Paul Y. The amounts represented the actual amounts incurred by Paul Y. on behalf of the Group.

In addition to the above, during the eleven-month period ended 29th February, 2000, the Group purchased property and equipment from Paul Y. amounting to approximately HK$163,000 and paid deposits to Hanny amounting to HK$1,748,000 for the purchase of computer equipment from Hanny. The amounts were charged in accordance with terms agreed between both parties and by reference to market prices.

Under a management agreement dated 19th November, 1999, the Group appointed Star East Information Technology Management Co. Limited (“SEITM”), a company which is equally owned by PCCW and SEH to manage the day- to-day affairs and business of the Group and provide the Group at cost with management services including, among others, general administrative and accounting services and repairs and maintenance services. No such services have been provided by SEITM to the Group during the Relevant Periods. This management agreement was terminated in May 2000.

Except for the transactions set out in notes (vi), (vii), (viii), (ix), (xi) and (xii), the Directors have confirmed that the above-mentioned transactions will continue to be conducted in the ordinary course of business and on normal commercial terms after the listing of the Company’s shares on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited.

During the eleven-month period ended 29th February, 2000, Perpetual Gold Company Limited (“Perpetual Gold”), which is a wholly-owned subsidiary of the Group, acquired a 51% equity interest in The Saint News Limited, a company in which a former director of STAREASTnet (BVI) Limited has a beneficial interest, for HK$2,550,000. During the same period, the Group subsequently sold its entire interests in Perpetual Gold and The Saint News Limited to SEH for the same amount. The results of The Saint News Limited have been excluded from the Group’s Summary of Results because at the time of acquisition the Group intended such ownership in The Saint News Limited to be temporary.

In the opinion of the directors of the Company, all of the above-mentioned transactions were entered into in the ordinary course of business and on normal commercial terms.

The maturity of finance lease obligations is as follows: HK$’000

Within one year 719 More than one year but not exceeding two years 777 More than two years but not exceeding five years 176

1,672 Less: Amount due within one year shown under current liabilities (719)

Amount due after one year 953 – 169 – APPENDIX I ACCOUNTANTS’ REPORT

(d) Commitments and contingencies

(i) Operating lease commitments

At 29th February, 2000, the Group had outstanding annual commitments payable in the following year under non-cancellable operating leases as follows:

Office Internet premises leased lines HK$’000 HK$’000

Operating leases which expire:

Within one year 160 1,570 In the second to fifth year inclusive 4,755 –

4,915 1,570

(ii) Capital commitments

At 29th February, 2000, the Group had commitments of approximately HK$40,127,000 relating to the acquisition of the computer software and equipment which are contracted but not provided for in the Summaries and are expected to be expended in 2000.

(iii) Contingencies

In the normal course of business, a subsidiary of the Company has been named defendant in a lawsuit relating to a claim against the subsidiary of approximately HK$789,000. Although the ultimate outcome of this lawsuit cannot be ascertained at this time, it is the opinion of the directors, after consultation with counsel, that the resolution of such suit will not have a material adverse effect on the Group’s financial position or results of operations.

5. NET TANGIBLE ASSETS OF THE COMPANY

At 29th February, 2000, the Company did not have any significant net tangible assets.

The Company became a holding company of the Group on 15th May, 2000 pursuant to the group reorganisation. Had the group reorganisation been completed on 29th February, 2000, the net tangible assets of the Company at 29th February, 2000 would have been HK$95,856,000, representing investments in subsidiaries.

The Company had no distributable reserves at 29th February, 2000.

– 170 – APPENDIX I ACCOUNTANTS’ REPORT

6. ADDITIONAL INFORMATION OF REAL PLEASURE LIMITED

As set out in section 7, the Group, subsequent to 29th February, 2000, entered into an agreement to acquire the entire share capital of Real Pleasure Limited by means of cash. The following are summaries of the unaudited consolidated results, assets and liabilities of Real Pleasure Limited and its subsidiary, which are not included in the summaries:

9th August, 1999 (date of incorporation) to 29th February, 2000 HK$’000

RESULTS

Turnover – Pre-operating expenses written off (4,524) Other expenses (5)

Loss from operations (4,529) Waiver of loans from shareholders 3,700

Increase in liabilities (829)

ASSETS AND LIABILITIES

At 29th February, 2000 HK$’000

Fixed assets 934

Current assets 2,742

Current Liabilities (527)

3,149

Shareholders’ loan (3,977)

Net liabilities (828)

7. SUBSEQUENT EVENTS

(a) On 9th March, 2000 the Group and PCC agreed to modify the terms and conditions of their original contract relating to the access to television and internet airtime which was signed on 24th August, 1999. Pursuant to the new agreement consideration for the airtime was reduced to approximately US$5,394,000 from approximately US$6,556,000 and the usage of airtime

– 171 – APPENDIX I ACCOUNTANTS’ REPORT

was changed to a two-year period commencing upon the expiry of 30 months after the date of contract on 24th August, 1999. The Group had received a cash refund from PCC in the amount of approximately US$1,162,000 in March 2000.

(b) In addition, on 9th March, 2000, the Group and PCC mutually agreed to the cancellation of the contracts, at no cost to the Group, that were signed on 22nd October, 1999 and 25th November, 1999 which related to access to television and internet airtime.

(c) The Group completed a group reorganisation in preparation for the listing of shares of the Company on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited, details of which are set out in the paragraph headed “Corporate reorganisation” in Appendix III of the Prospectus.

(d) On 17th March, 2000, the Group entered into an agreement with Bob & Partners Co., Limited (“Bob”), a subsidiary of SEH, whereby Bob grants to the Group the exclusive licence to distribute, exploit and exhibit specified films owned by Bob on the internet or any other media of a similar nature for a term of three years at a consideration of not less than HK$9,000,000.

(e) On 1st April, 2000, the Group entered into an agreement to purchase the entire issued share capital of and assume the shareholders’ loan to Real Pleasure Limited for a total consideration of approximately HK$7,688,000. SEH and Hanny have 50% and 30% beneficial interests, respectively, in this company.

(f) In April and May of 2000, the former shareholders of STAREASTnet (BVI) Limited (except Hikari Tsushin, Inc.) advanced an aggregate amount of HK$61.5 million to STAREASTnet (BVI) Limited. The loans are unsecured, bear interest at prevailing market rates and are for a term of three years from 1st May, 2000.

8. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements of the Group, the Company or any of its subsidiaries have been prepared in respect of any period subsequent to 29th February, 2000.

Yours faithfully, DELOITTE TOUCHE TOHMATSU Certified Public Accountants Hong Kong

– 172 – APPENDIX II SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

Set out below is a summary of certain provisions of the memorandum of association (the “Memorandum of Association”) and Articles of Association of the Company and of certain aspects of the Cayman Islands company law.

1. MEMORANDUM OF ASSOCIATION

The Memorandum of Association of the Company was adopted on 15th May, 2000 and states, inter alia, that the liability of members of the Company is limited, that the objects for which the Company is established are unrestricted (including acting as a holding and investment company) and the Company shall have full power and authority to carry out any object not prohibited by any law as provided by section 7(4) of the Companies Law, that the Company shall have and be capable of exercising all the functions of a natural person of full capacity irrespective of any question of corporate benefit as provided in section 27(2) of the Companies Law and (in view of the fact that the Company is an exempted company) that the Company will not trade in the Cayman Islands with any person, firm or corporation except in furtherance of the business of the Company carried on outside the Cayman Islands.

The objects of the Company are set out in full in clause 3 of the Memorandum of Association which is available for inspection at the address specified in Appendix IV in the section headed “Documents available for inspection”.

2. ARTICLES OF ASSOCIATION

The Articles of Association of the Company were adopted on 15th May, 2000 and include provisions to the following effect:

A. Classes of Shares

The share capital of the Company consists of ordinary shares.

B. Directors

(a) Power to allot and issue Shares

Subject to the provisions of the Companies Law and the Memorandum and Articles of Association, the unissued shares in the Company (whether forming part of its original or any increased capital) shall be at the disposal of the Directors, who may offer, allot, grant options over or otherwise dispose of them to such persons, at such times and for such consideration, and upon such terms, as the Directors may determine.

Subject to the provisions of the Articles of Association and to any direction that may be given by the Company in general meeting and without prejudice to any special rights conferred on the holders of any Shares or attaching to any class of Shares, any Share may be issued with or have attached thereto such preferred, deferred, qualified or other special rights or restrictions, whether in regard to dividend, voting, return of capital or otherwise, and to such persons at such time and for such consideration as the Directors may determine. Subject to the Companies Law and to any special rights conferred on the holders of any Shares or

– 173 – APPENDIX II SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

attaching to any class of Shares, any Share may, with the sanction of a special resolution, be issued on terms that it is, or at the option of the Company or the holder thereof, liable to be redeemed.

(b) Power to dispose of the assets of the Company or any subsidiary

The management of the business of the Company shall be vested in the Directors who, in addition to the powers and authorities by the Articles of Association expressly conferred upon them, may exercise all such powers and do all such acts and things as may be exercised or done by the Company and are not by the Articles of Association or the Companies Law expressly directed or required to be exercised or done by the Company in general meeting, but subject nevertheless to the provisions of the Companies Law and of the Articles of Association and to any regulations from time to time made by the Company in general meeting not being inconsistent with such provisions or the Articles of Association, provided that no regulation so made shall invalidate any prior act of the Directors which would have been valid if such regulation had not been made.

Payment to any Director or past Director of any sum by way of compensation for loss of office or as consideration for or in connection with his retirement from office (not being a payment to which the Director is contractually entitled) must first be approved by the Company in general meeting.

(d) Loans to Directors

There are provisions in the Articles of Association prohibiting the making of loans to Directors and associates which are equivalent to the restrictions imposed by the Companies Ordinance.

(e) Financial assistance to purchase Shares

Subject to all applicable laws, the Company may give financial assistance to Directors and employees of the Company, its subsidiaries or any holding company or any subsidiary of such holding company in order that they may buy shares in the Company or any such subsidiary or holding company. Further, subject to all applicable laws, the Company may give financial assistance to a trustee for the acquisition of Shares in the Company or shares in any such subsidiary or holding company to be held for the benefit of employees of the Company, its subsidiaries, any holding company of the Company or any subsidiary of any such holding company (including salaried Directors).

(f) Disclosure of interest in contracts with the Company or any of its subsidiaries

No Director or proposed Director shall be disqualified by his office from contracting with the Company either as vendor, purchaser or otherwise nor shall any such contract or any contract or arrangement entered into by or on behalf of the Company with any person,

– 174 – APPENDIX II SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

company or partnership of or in which any Director shall be a member or otherwise interested be capable on that account of being avoided, nor shall any Director so contracting or being any member or so interested be liable to account to the Company for any profit so realised by any such contract or arrangement by reason only of such Director holding that office or the fiduciary relationship thereby established, provided that such Director shall, if his interest in such contract or arrangement is material, declare the nature of his interest at the earliest meeting of the board of Directors (the “Board”) at which it is practicable for him to do so, either specifically or by way of a general notice stating that, by reason of the facts specified in the notice, he is to be regarded as interested in any contracts of a specified description which may be made by the Company.

A Director shall not be entitled to vote on (nor shall he be counted in the quorum in relation to) any resolution of Directors in respect of any contract or arrangement or any other proposal in which he has any material interest but this prohibition shall not apply to any of the following matters, namely:

(i) the giving to such Director of any security or indemnity in respect of money lent or obligations incurred by him at the request of or for the benefit of the Company, its holding company or any of its subsidiaries;

(ii) the giving of any security or indemnity to a third party in respect of a debt or obligation of the Company or any of its subsidiaries for which the Director has himself guaranteed or secured in whole or in part;

(iii) any proposal concerning an offer of shares, debentures or other securities of or by the Company or any other company which the Company may promote or be interested in for subscription or purchase where the Director is or is to be interested as a participant in the underwriting or sub-underwriting of the offer;

(iv) any proposal concerning any other company in which he is interested only, whether directly or indirectly, as an officer, executive or shareholder or in which the Director is beneficially interested in shares of that company, provided that, he, together with any of his associates, is not beneficially interested in 5% or more of the issued shares of any class of such company (or of any third company through which his interest is derived) or of the voting rights;

(v) any proposal or arrangement concerning the benefit of employees of the Company or any of its subsidiaries including:

(aa) the adoption, modification or operation of any employees’ share scheme or any share incentive scheme or share option scheme under which he may benefit;

(bb) the adoption, modification or operation of a pension or provident fund or retirement, death or disability benefits scheme which relates both to Directors and employees of the Company or any of its subsidiaries and does not

– 175 – APPENDIX II SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

provide in respect of any Director as such any privilege or advantage not generally accorded to the class of persons to which such scheme or fund relates; and

(vi) any contract or arrangement in which the Director is interested in the same manner as other holders of Shares or debentures or other securities of the Company by virtue only of his interest in Shares or debentures or other securities of the Company.

(g) Remuneration

The Directors shall be entitled to receive by way of remuneration for their services such sum as shall from time to time be determined by the Board, or the Company in general meeting, as the case may be, such sum (unless otherwise directed by the resolution by which it is determined) to be divided amongst the Directors in such proportions and in such manner as they may agree, or failing agreement, equally, except that in such event any Director holding office for less than the whole of the relevant period in respect of which the remuneration is paid shall only rank in such division in proportion to the time during such period for which he has held office. Such remuneration shall be in addition to any other remuneration to which a Director who holds any salaried employment or office in the Company may be entitled by reason of such employment or office.

The Directors shall also be entitled to be paid all expenses reasonably incurred by them in or about the performance of their duties as Directors including their expenses of travelling to and from board meetings, committee meetings or general meetings or otherwise incurred whilst engaged on the business of the Company or in the discharge of their duties as Directors.

The Directors may grant special remuneration to any Director who shall perform any special or extra services at the request of the Company. Such special remuneration may be made payable to such Director in addition to or in substitution for his ordinary remuneration as a Director, and may be made payable by way of salary, commission or participation in profits or otherwise as may be agreed.

The remuneration of an executive Director or a Director appointed to any other office in the management of the Company shall from time to time be fixed by the Directors and may be by way of salary, commission or participation in profits or otherwise or by all or any of those modes and with such other benefits (including share option and/or pension and/or gratuity and/or other benefits on retirement) and allowances as the Directors may from time to time decide. Such remuneration shall be in addition to such remuneration as he may be entitled to receive as a Director.

(h) Retirement, appointment and removal

The Directors shall have power at any time and from time to time to appoint any person to be a Director, either to fill a casual vacancy or as an addition to the existing Board. Any Director so appointed shall hold office only until the next annual general meeting of the Company and shall then be eligible for re-election by ordinary resolution.

– 176 – APPENDIX II SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

The Company may by special resolution remove any Director and may by ordinary resolution appoint another person in his place. The Company may also by ordinary resolution elect any person to be a Director, either to fill a casual vacancy or as an addition to the existing Board. Any Director so appointed shall hold office only until the next following annual general meeting of the Company and shall then be eligible for re-election but shall not be taken into account in determining the Directors who are to retire by rotation at such meeting. No person other than a Director retiring at the meeting shall, unless recommended by the Directors, be eligible for election to the office of Director at any general meeting unless, not less than seven and not more than 28 clear days before the day appointed for the meeting, there has been given to the Secretary of the Company notice in writing by some member of the Company (not being the person to be proposed) entitled to attend and vote at the meeting for which such notice is given of his intention to propose such person for election and also notice in writing signed by the person to be proposed of his willingness to be elected.

There is no shareholding qualification for Directors nor is there any specified age limit for Directors.

The office of a Director shall be vacated:

(i) if he resigns his office by notice in writing;

(ii) if an order is made by any competent court or official on the grounds that he is or may be suffering from mental disorder or is otherwise incapable of managing his affairs and the Board resolves that his office be vacated;

(iii) if, without leave, he is absent from meetings of the Board (unless an alternate Director appointed by him attends) for 12 consecutive months, and the Board resolves that his office is vacated;

(iv) if he becomes bankrupt or has a receiving order made against him or suspends payment or compounds with his creditors generally;

(v) if he ceases to be or is prohibited from being a Director by law or by virtue of any provision in the Articles of Association;

(vi) if he is removed from office by notice in writing served upon him signed by not less than three-fourths in number (or, if that is not a round number, the nearest lower round number) of the Directors (including himself) for the time being then in office; or

(vii) if he shall be removed from office by a special resolution of the members of the Company under the Articles of Association.

At every annual general meeting of the Company one-third of the Directors (other than the managing Director or joint managing Director) for the time being shall retire from office

– 177 – APPENDIX II SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

by rotation. Each Director shall retain office until the close of the meeting at which he retires and shall be eligible for re-election. Subject to the provision of the Articles of Association, the Company may at each annual general meeting at which the Directors retire fill each of the vacated offices by electing a person thereto.

(i) Borrowing powers

The Directors may from time to time at their discretion exercise all the powers of the Company to raise or borrow or to secure the payment of any sum or sums of money for the purposes of the Company and to mortgage or charge its undertaking, property and assets (present and future) and uncalled capital or any part thereof.

(j) Proceedings of the Board

The Directors may meet in any part of the world for the despatch of business, adjourn and otherwise regulate their meetings as they think fit. Questions arising at any meeting shall be determined by a majority of votes. In the case of an equality of votes, the chairman of the meeting shall have an additional or casting vote.

C. Alteration to constitutional documents

No alteration to the Memorandum or Articles of Association may be made except by special resolution.

D. Variation of rights of existing Shares or classes of shares

If at any time the share capital of the Company is divided into different classes of Shares, all or any of the special rights attached to any class (unless otherwise provided for in the terms of issue of the shares of that class) may, subject to the provisions of the Companies Law, be varied or abrogated either with the consent in writing of the holders of not less than three-fourths in nominal value of the issued shares of that class or with the sanction of a special resolution passed at a separate general meeting of the holders of the shares of that class. To every such separate general meeting all the provisions of the Articles of Association relating to general meetings shall mutatis mutandis apply, but so that the quorum for the purposes of any such separate general meeting and of any adjournment thereof shall be a person or persons together holding (or representing by proxy) at the date of the relevant meeting not less than one-third in nominal value of the issued shares of that class, and that any holder of shares of the class present in person or by proxy may demand a poll.

The special rights conferred upon the holders of shares of any class shall not, unless otherwise expressly provided in the rights attaching to or the terms of issue of such shares, be deemed to be varied by the creation or issue of further shares ranking pari passu therewith.

– 178 – APPENDIX II SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

E. Alteration of Capital

The Company in general meeting may, from time to time, whether or not all the Shares for the time being authorised shall have been issued and whether or not all the Shares for the time being issued shall have been fully paid up, by ordinary resolution increase its share capital by the creation of new shares, such new capital to be of such amount and to be divided into shares of such respective amounts as the resolution shall prescribe.

The Company may from time to time by ordinary resolution:

(i) consolidate and divide all or any of its share capital into shares of larger amount than its existing Shares. On any consolidation of fully paid Shares and division into shares of larger amount, the Board may settle any difficulty which may arise as it thinks expedient and in particular (but without prejudice to the generality of the foregoing) may as between the holders of Shares to be consolidated determine which particular Shares are to be consolidated into each consolidated share, and if it shall happen that any person shall become entitled to fractions of a consolidated share or shares, such fractions may be sold by some person appointed by the Board for that purpose and the person so appointed may transfer the shares so sold to the purchaser thereof and the validity of such transfer shall not be questioned, and so that the net proceeds of such sale (after deduction of the expenses of such sale) may either be distributed among the persons who would otherwise be entitled to a fraction or fractions of a consolidated share or shares rateably in accordance with their rights and interests or may be paid to the Company for the Company’s benefit;

(ii) cancel any Shares which at the date of the passing of the resolution have not been taken or agreed to be taken by any person, and diminish the amount of its share capital by the amount of the Shares so cancelled subject to the provisions of the Companies Law; and

(iii) sub-divide its Shares or any of them into shares of smaller amount than is fixed by the Memorandum of Association, subject nevertheless to the provisions of the Companies Law, and so that the resolution whereby any Share is sub-divided may determine that, as between the holders of the shares resulting from such sub-division, one or more of the shares may have any such preferred or other special rights, over, or may have such deferred rights or be subject to any such restrictions as compared with the others as the Company has power to attach to unissued or new shares.

The Company may by special resolution reduce its share capital, any capital redemption reserve or any share premium account in any manner authorised and subject to any conditions prescribed by the Companies Law.

F. Special resolution – majority required

A “special resolution” is defined in the Articles of Association to have the meaning ascribed thereto in the Companies Law, for which purpose, the requisite majority shall be not less than three-fourths of the votes of such members of the Company as, being entitled to do so, vote in

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person or, in the case of corporations, by their duly authorised representatives or, where proxies are allowed, by proxy at a general meeting of which notice specifying the intention to propose the resolution as a special resolution has been duly given and includes a special resolution approved in writing by all of the members of the Company entitled to vote at a general meeting of the Company in one or more instruments each signed by one or more of such members, and the effective date of the special resolution so adopted shall be the date on which the instrument or the last of such instruments (if more than one) is executed.

In contrast, an “ordinary resolution” is defined in the Articles of Association to mean a resolution passed by a simple majority of the votes of such members of the Company as, being entitled to do so, vote in person or, in the case of corporations, by their duly authorised representatives or, where proxies are allowed, by proxy at a general meeting held in accordance with the Articles of Association and includes an ordinary resolution approved in writing by all the members of the Company aforesaid.

G. Voting rights (generally, on a poll and right to demand a poll)

Subject to any special rights, privileges or restrictions as to voting for the time being attached to any class or classes of Shares, at any general meeting on a show of hands every member of the Company who is present in person (or, in the case of a member being a corporation, by its duly authorised representative) shall have one vote, and on a poll every member present in person (or, in the case of a member being a corporation, by its duly authorised representative) or by proxy shall have one vote for each Share registered in his name in the register of members of the Company.

In the case of joint holders of any share, the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders, and for this purpose seniority shall be determined by the order in which the names stand in the register of members of the Company in respect of the joint holding.

A member of the Company in respect of whom an order has been made by any competent court or official on the ground that he is or may be suffering from mental disorder or is otherwise incapable of managing his affairs may vote, whether on a show of hands or on a poll, by any person authorised in such circumstances to do so and such person may vote on a poll by proxy.

No member shall, unless the Directors otherwise determine, be entitled to vote, or be reckoned in a quorum, at any general meeting in respect of any Share unless he is registered as a shareholder of the Company at the date of such meeting and all calls which have been made by the Directors, or other sums presently payable by him, in respect of such Share have been paid.

At any general meeting a resolution put to the vote of the meeting shall be decided on a show of hands unless (before or on the declaration of the result of the show of hands or on the withdrawal of any other demand for a poll) a poll is duly demanded. A poll may be demanded by:

(a) the chairman of the meeting; or

(b) at least five members present in person or by proxy and entitled to vote; or

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(c) any member or members present in person or by proxy and representing in the aggregate not less than one-tenth of the total voting rights of all members having the right to attend and vote at the meeting; or

(d) any member or members present in person or by proxy and holding shares conferring a right to attend and vote at the meeting on which there have been paid up sums in the aggregate equal to not less than one-tenth of the total sum paid up on all shares conferring that right.

On a poll votes may be given either personally or by proxy and a person entitled to more than one vote on a poll need not use all his votes or cast all the votes he uses in the same way.

If a recognised clearing house (or its nominee) is a member of the Company it may authorise such person or persons as it thinks fit to act as its representatives at any meeting of the Company or at any meeting of any class of members of the Company provided that, if more than one person is so authorised, the authorisation shall specify the number and class of shares in respect of which each such person is so authorised. A person authorised pursuant to this provision shall be entitled to exercise the same powers on behalf of the recognised clearing house (or its nominee) which he represents as that clearing house (or its nominee) could exercise if it were an individual shareholder of the Company.

H. Annual general meetings

The Company shall in each year hold a general meeting as its annual general meeting in addition to any other general meeting in that year and shall specify the meeting as such in the notice calling it; and not more than 15 months shall elapse between the date of one annual general meeting of the Company and that of the next.

I. Accounts and audit

The Directors shall cause to be kept accounting records sufficient to give a true and fair view of the state of the Company’s affairs and to show and explain its transactions and otherwise in accordance with the Companies Law.

The Directors shall from time to time determine whether and to what extent and at what times and places and under what conditions or regulations the accounts and books of the Company or any of them shall be open to the inspection of members of the Company (other than officers of the Company) and no such member shall have any right of inspecting any account or book or document of the Company except as conferred by the Companies Law or as authorised by the Directors or by the Company in general meeting.

The Directors shall from time to time commencing with the first annual general meeting cause to be prepared and to be laid before the members of the Company at every annual general meeting profit and loss accounts, balance sheets and the Directors’ and the auditors’ reports thereon. Copies of these documents which are to be laid before the members of the Company at an annual general meeting shall not less than 21 days before the date of the meeting, be sent to every member

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of the Company and every holder of debentures of the Company provided that the Company shall not be required to send printed copies of those documents to any person of whose address the Company is not aware or to more than one of the joint holders of any Shares or debentures.

The Company shall at any annual general meeting appoint an auditor or auditors of the Company who shall hold office until the next annual general meeting and shall fix his or their remuneration provided that in respect of any particular year the Company in general meeting may delegate the fixing of such remuneration to the Directors.

J. Notice of meetings and business to be conducted thereat

An annual general meeting and any extraordinary general meeting called for the passing of a special resolution shall be called by not less than 21 days’ notice in writing and any other extraordinary general meeting shall be called by not less than 14 days’ notice in writing. The notice shall be exclusive of the day on which it is served or deemed to be served and of the day for which it is given, and shall specify the time, place and agenda of the meeting, particulars of the resolutions to be considered at the meeting and, in the case of special business, the general nature of that business. The notice convening an annual general meeting shall specify the meeting as such, and the notice convening a meeting to pass a special resolution shall specify the intention to propose the resolution as a special resolution. Notice of every general meeting shall be given to all members of the Company (other than those who, under the provisions of the Articles of Association or the terms of issue of the Shares they hold, are not entitled to receive such notices from the Company).

Notwithstanding that a meeting of the Company is called by shorter notice than that mentioned above, it shall be deemed to have been duly called if it is so agreed:

(a) in the case of a meeting called as an annual general meeting, by all members of the Company entitled to attend and vote thereat or their proxies; and

(b) in the case of any other meeting, by a majority in number of the members having a right to attend and vote at the meeting, being a majority together holding not less than 95% in nominal value of the Shares giving that right.

All business shall be deemed special that is transacted at an extraordinary general meeting and also all business shall be deemed special that is transacted at an annual general meeting with the exception of the following, which shall be deemed ordinary business:

(a) the declaration and sanctioning of dividends;

(b) the consideration and adoption of the accounts and balance sheets and the reports of the Directors and the auditors;

(d) the appointment of auditors;

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(e) the fixing of, or the determining of the method of fixing, the remuneration of the Directors and of the auditors;

(f) the granting of any mandate or authority to the Directors to offer, allot, grant options over or otherwise dispose of the unissued shares in the capital of the Company representing not more than 20% (or such other percentage as may from time to time be specified in the Listing Rules) in nominal value of its existing issued share capital and the number of any securities repurchased pursuant to sub-paragraph (g) below; and

(g) the granting of any mandate or authority to the Directors to repurchase securities of the Company.

K. Transfer of Shares

All transfers of shares may be effected by an instrument of transfer in the usual common form or in any other form which the Directors may approve.

The instrument of transfer of a Share shall be signed by or on behalf of the transferor and, unless the Directors otherwise determine, the transferee, and the transferor shall be deemed to remain the holder of the Share until the name of the transferee is entered in the register of members of the Company in respect thereof. All instruments of transfer, when registered, shall be retained by the Company.

The Directors may decline to register any transfer of any Share which is not fully paid up or on which the Company has a lien. The Directors may also decline to register any transfer of any other Shares unless:

(a) the instrument of transfer is lodged at such place or places where the Board from time to time determines to keep a branch register of Shareholders and where (except where the Board otherwise determines) transfers of documents of title for Shares are to be lodged for registration and are to be registered, with the Company accompanied by the certificate for the Shares to which it relates (which shall upon the registration of the transfer be cancelled) and such other evidence as the Directors may reasonably require to show the right of the transferor to make the transfer;

(b) the instrument of transfer is in respect of only one class of Share;

(d) in the case of a transfer to joint holders, the number of joint holders to whom the Share is to be transferred does not exceed four;

(e) the Shares concerned are free of any lien in favour of the Company; and

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(f) a fee of such maximum as the Stock Exchange may from time to time determine (or such lesser sum as the Directors may from time to time require) is paid to the Company.

If the Directors refuse to register a transfer they shall, within two months after the date on which the instrument of transfer was lodged with the Company, send to each of the transferor and the transferee notice of such refusal.

The registration of transfers may, on 14 days’ notice being given by advertisement in such one or more newspapers as the Directors may determine be suspended at such times and for such periods as the Directors may from time to time determine either generally or in respect of any class of Shares, provided that the registration of transfers shall not be suspended or the register closed for more than 30 days in any year (or such longer period as the members may by ordinary resolution determine provided that such period shall not be extended beyond 60 days in any year).

L. Power of the Company to purchase its own Shares

The Company is empowered by the Companies Law and the Articles of Association to purchase its own Shares subject to certain restrictions and the Directors may only exercise this power on behalf of the Company subject to the authority of its members in general meeting as to the manner in which they do so and to any applicable requirements imposed from time to time by the Stock Exchange and the Securities and Futures Commission of Hong Kong or by any other recognised stock exchange.

M. Power of any subsidiary of the Company to own Shares

There are no provisions in the Articles of Association relating to the ownership of Shares by a subsidiary.

N. Dividends and other methods of distributions

Subject to the Companies Law and Articles of Association, the Company in general meeting may declare dividends in any currency but no such dividends shall exceed the amount recommended by the Directors. No dividend may be declared or paid other than out of profits and reserves of the Company lawfully available for distribution, including share premium.

Except in so far as the rights attaching to, or the terms of issue of, any Share otherwise provides:

(a) all dividends shall be declared and paid according to the amounts paid up on the Shares in respect of which the dividend is paid, but no amount paid up on a share in advance of calls shall be treated for this purpose as paid up on the Share; and

(b) all dividends shall be apportioned and paid pro rata according to the amounts paid upon the Shares during any portion or portions of the period in respect of which the dividend is paid.

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The Directors may also pay any dividend which is payable on any Shares half-yearly or on any other dates, whenever the position of the Company, in the opinion of the Directors, justifies such payment.

The Directors may retain any dividends or other moneys payable on or in respect of a Share upon which the Company has a lien, and may apply the same in or towards satisfaction of the debts, liabilities or engagements in respect of which the lien exists. The Directors may also deduct from any dividend or bonus payable to any member all sums of money (if any) presently payable by him to the Company on account of calls, instalments or otherwise.

No dividend or other monies payable by the Company on or in respect of any Share shall bear interest against the Company.

In respect of any dividend proposed to be paid or declared on the share capital of the Company, the Directors may resolve: (a) that such dividend be satisfied wholly or in part in the form of an allotment of Shares credited as fully paid up on the basis that the Shares so allotted are to be of the same class or classes as the class or classes already held by the allottee, provided that the members of the Company entitled thereto will be entitled to elect to receive such dividend (or part thereof) in cash in lieu of such allotment; or (b) that the members entitled to such dividend will be entitled to elect to receive an allotment of Shares credited as fully paid up in lieu of the whole or such part of the dividend as the Directors may think fit on the basis that the Shares so allotted are to be of the same class or classes as the class or classes already held by the allottee. The Directors may also, with the sanction of the members of the Company in general meeting, resolve and direct in respect of any particular dividend of the Company that notwithstanding the foregoing a dividend may be satisfied wholly in the form of an allotment of Shares credited as fully paid up without offering any right of members to elect to receive such dividend in cash in lieu of such allotment.

Any dividend or bonus may be paid by cheque or warrant sent through the post addressed to the holder at his registered address, or in the case of joint holders, addressed to the holder whose name stands first in the register of the Company in respect of the Shares at his address as appearing in the register or addressed to such person and to such addresses as the holder or joint holders may in writing direct. Every such cheque or warrant shall, unless the holder or joint holders otherwise direct, be made payable to the order of the holder or, in the case of joint holders, to the order of the holder whose name stands first on the register of members of the Company in respect of such Shares, and shall be sent at his or their risk and payment of the cheque or warrant by the bank on which it is drawn shall constitute good discharge by the Company. Any one of two or more joint holders may give effectual receipts for any dividends or other moneys payable or property distributable in respect of the Shares held by such joint holders.

Any dividend unclaimed after a period of six years from the date of declaration of such dividend shall be forfeited and shall revert to the Company.

The Directors may, with the sanction of the members of the Company in general meeting, direct payment or satisfaction of any dividend wholly or in part by the distribution of specific assets, and in particular of paid up shares, debentures or warrants to subscribe securities of any

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other company, and where any difficulty arises in regard to such distribution the Directors may settle it as they think expedient, and in particular may issue fractional certificates, disregard fractional entitlements, round the same up or down or provide that the same shall accrue to the benefit of the Company, and may fix the value for distribution of such specific assets and may determine that cash payments shall be made to any members of the Company upon the footing of the value so fixed in order to adjust the rights of all parties, and may vest any such specific assets in trustees as may seem expedient to the Directors.

O. Proxies

Any member of the Company entitled to attend and vote at a meeting of the Company shall be entitled to appoint another person as his proxy to attend and vote instead of him and a proxy so appointed shall have the same right as the member to speak at the meeting. A proxy need not be a member of the Company.

Instruments of proxy shall be in any common form or in such other form as the Directors may approve. The instrument of proxy shall be deemed to confer authority to demand or join in demanding a poll and to vote on any amendment of a resolution put to the meeting for which it is given as the proxy thinks fit. The instrument of proxy shall, unless the contrary is stated therein, be valid as well for any adjournment of the meeting as for the meeting to which it relates.

The instrument appointing a proxy shall be in writing under the hand of the appointor or his attorney authorised in writing or if the appointor is a corporation either under its seal or under the hand of an officer, attorney or other person authorised to sign the same.

The instrument appointing a proxy and (if required by the Directors) the power of attorney or other authority (if any) under which it is signed, or a notarially certified copy of such power or authority, shall be delivered at the registered office of the Company (or at such other place as may be specified in the notice convening the meeting or in any notice of any adjournment or, in either case, in any document sent therewith) not less than 48 hours before the time appointed for holding the meeting or adjourned meeting at which the person named in the instrument proposes to vote or, in the case of a poll taken subsequently to the date of a meeting or adjourned meeting, not less than 48 hours before the time appointed for the taking of the poll and in default the instrument of proxy shall not be treated as valid. No instrument appointing a proxy shall be valid after the expiration of 12 months from the date named in it as the date of its execution. Delivery of any instrument appointing a proxy shall not preclude a member of the Company from attending and voting in person at the meeting or poll concerned and, in such event, the instrument appointing a proxy shall be deemed to be revoked.

P. Calls on Shares and forfeiture of Shares

The Directors may from time to time make calls upon the members of the Company in respect of any moneys unpaid on their Shares (whether on account of the nominal amount of the Shares or by way of premium) and not by the conditions of allotment thereof made payable at fixed times and each member shall (subject to the Company serving upon him at least 14 days’ notice specifying the time and place of payment) pay to the Company at the time and place so specified

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the amount called on his Shares. A call may be revoked or postponed as the Directors may determine. A person upon whom a call is made shall remain liable on such call notwithstanding the subsequent transfer of the Shares in respect of which the call was made.

A call may be made payable either in one sum or by instalments and shall be deemed to have been made at the time when the resolution of the Directors authorising the call was passed. The joint holders of a Share shall be jointly and severally liable to pay all calls and instalments due in respect of such share or other moneys due in respect thereof.

If a sum called in respect of a Share shall not be paid before or on the day appointed for payment thereof, the person from whom the sum is due shall pay interest on the sum from the day appointed for payment thereof to the time of actual payment at such rate, not exceeding 15% per annum, as the Directors may determine, but the Directors shall be at liberty to waive payment of such interest wholly or in part.

If any call or instalment of a call remains unpaid on any Share after the day appointed for payment thereof, the Directors may at any time serve a notice on the holder of such Shares requiring payment of so much of the call or instalment as is unpaid together with any interest which may be accrued and which may still accrue up to the date of actual payment.

The notice shall name a further day (not being less than 14 days from the date of the notice) on or before which, and the place where, the payment required by the notice is to be made, and shall state that in the event of non-payment on or before the day and at the place appointed, the Shares in respect of which such call was made or instalment is unpaid will be liable to be forfeited.

If the requirements of such notice are not complied with, any Share in respect of which such notice has been given may at any time thereafter, before payment of all calls or instalments and interest due in respect thereof has been made, be forfeited by a resolution of the Directors to that effect. Such forfeiture shall include all dividends and bonuses declared in respect of the forfeited Shares and not actually paid before the forfeiture. A forfeited Share shall be deemed to be the property of the Company and may be sold, re-allotted, cancelled or otherwise disposed of.

A person whose Shares have been forfeited shall thereupon cease to be a member of the Company in respect of the forfeited Shares but shall, notwithstanding the forfeiture, remain liable to pay to the Company all moneys which at the date of forfeiture were payable by him to the Company in respect of the Shares, together with interest thereon at such rate not exceeding 15% per annum (or such lower rate as the Directors may determine) from the date of forfeiture until payment, and the Directors may enforce payment without being under any obligation to make any allowance for the value of the Shares forfeited, at the date of forfeiture.

Q. Inspection of register of members

The register of members of the Company shall be kept in such manner as to show at all times the members of the Company for the time being and the Shares respectively held by them. The register may, on notice being given by advertisement in such one or more newspapers as the Directors may determine, be closed at such times and for such periods as the Directors may from

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time to time determine either generally or in respect of any class of Shares, provided that the register shall not be closed for more than 30 days in any year (or such longer period as the members may by ordinary resolution determine provided that such period shall not be extended beyond 60 days in any year).

Any register of members kept in Hong Kong shall during normal business hours (subject to such reasonable restrictions as the Directors may impose) be open to inspection by any member of the Company without charge and by any other person on payment of such fee not exceeding $2.50 (or such higher amount as may from time to time be permitted under the Listing Rules) as the Directors may determine for each inspection.

R. Quorum for meetings and separate class meetings

No business shall be transacted at any general meeting unless a quorum is present when the meeting proceeds to business, but the absence of a quorum shall not preclude the appointment, choice or election of a chairman which shall not be treated as part of the business of the meeting.

Save as otherwise provided by the Articles two members of the Company present in person or by proxy shall be a quorum provided always that if the Company has only one shareholder of record the quorum shall be that one member present in person or by proxy.

A corporation being a member shall be deemed for the purpose of the Articles of Association to be present in person if represented by its duly authorised representative being the person appointed by resolution of the directors or other governing body of such corporation or by power of attorney to act as its representative at the relevant general meeting of the Company or at any relevant general meeting of any class of members of the Company.

The quorum for a separate general meeting of the holders of a separate class of Shares of the Company is described in sub-paragraph D above.

S. Rights of minorities in relation to fraud or oppression

There are no provisions in the Articles of Association concerning the rights of minority shareholders in relation to fraud or oppression.

T. Procedure on liquidation

Subject to any special rights, privileges or restrictions as to the distribution of available surplus assets on liquidation for the time being attached to any class or classes of Shares (i) if the Company shall be wound up and the assets available for distribution amongst the members of the Company shall be more than sufficient to repay the whole of the capital paid up at the commencement of the winding up, the excess shall be distributed pari passu amongst such members in proportion to the amount paid up on the Shares held by them respectively and (ii) if the Company shall be wound up and the assets available for distribution amongst the members as such shall be insufficient to repay the whole of the paid-up capital, such assets shall be distributed so that, as nearly as may be, the losses shall be borne by the members in proportion to the capital paid up, or which ought to have been paid up, at the commencement of the winding up on the Shares held by them respectively.

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If the Company shall be wound up, the liquidator may with the sanction of a special resolution of the Company, divide amongst the members of the Company in specie or kind the whole or any part of the assets of the Company (whether they shall consist of property of the same kind or not) and may, for such purpose, set such value as he deems fair upon any property to be divided as aforesaid and may determine how such division shall be carried out as between the members or different classes of members. The liquidator may, with the like sanction, vest the whole or any part of such assets in trustees upon such trusts for the benefit of the contributories as the liquidator, with the like sanction, shall think fit, but so that no member shall be compelled to accept any assets, shares or other securities in respect of which there is a liability.

U. Untraceable members

The Company shall be entitled to sell any Shares of a member or the Shares to which a person is entitled by virtue of transmission on death or bankruptcy or operation of law if: (i) all cheques or warrants, not being less than three in number, for any sums payable in cash to the holder of such Shares have remained uncashed for a period of 12 years; (ii) the Company has not during that time or before the expiry of the three month period referred to in (iv) below received any indication of the whereabouts or existence of the member; (iii) during the 12 year period, at least three dividends in respect of the Shares in question have become payable and no dividend during that period has been claimed by the member; and (iv) upon expiry of the 12 year period, the Company has caused an advertisement to be published in the newspaper, giving notice of its intention to sell such Shares and a period of three months has elapsed since such advertisement and the recognised Stock Exchange has been notified of such intention. The net proceeds of any such sale shall belong to the Company and upon receipt by the Company of such net proceeds it shall become indebted to the former member for an amount equal to such net proceeds.

SUMMARY OF CAYMAN ISLANDS COMPANY LAW AND TAXATION

A. Introduction

The Companies Law (1998 Revision) of the Cayman Islands (the “Companies Law”) is derived, to a large extent, from the older Companies Acts of England, although there are significant differences between the Companies Law and the current Companies Act of England. Set out below is a summary of certain provisions of the Companies Law, although this does not purport to contain all applicable qualifications and exceptions or to be a complete review of all matters of corporate law and taxation which may differ from equivalent provisions in jurisdictions with which interested parties may be more familiar.

B. Incorporation

The Company was incorporated in the Cayman Islands as an exempted company with limited liability on 31st January, 2000 under the Companies Law. As such, its operations must be conducted mainly outside the Cayman Islands. The Company is required to file an annual return each year with the Registrar of Companies of the Cayman Islands and pay a fee which is based on the size of its authorised share capital.

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C. Share capital

The Companies Law permits a company to issue ordinary shares, preference shares, redeemable shares or any combination thereof.

The Companies Law provides that where a company issues shares at a premium, whether for cash or otherwise, a sum equal to the aggregate amount of the value of the premia on those shares shall be transferred to an account called the “share premium account”. At the option of a company, these provisions may not apply to premia on shares of that company allotted pursuant to any arrangement in consideration of the acquisition or cancellation of shares in any other company and issued at a premium. The Companies Law provides that the share premium account may be applied by a company, subject to the provisions, if any, of its memorandum and articles of association, in such manner as the company may from time to time determine including, but without limitation:

(a) paying distributions or dividends to members;

(b) paying up unissued shares of the company to be issued to members as fully paid bonus shares;

(d) writing-off the preliminary expenses of the company;

(e) writing-off the expenses of, or the commission paid or discount allowed on, any issue of shares or debentures of the company; and

(f) providing for the premium payable on redemption or purchase of any shares or debentures of the company.

No distribution or dividend may be paid to members out of the share premium account unless immediately following the date on which the distribution or dividend is proposed to be paid the company will be able to pay its debts as they fall due in the ordinary course of business.

The Companies Law provides that, subject to confirmation by the Grand Court of the Cayman Islands, a company limited by shares or a company limited by guarantee and having a share capital may, if so authorised by its articles of association, by special resolution reduce its share capital in any way.

Subject to the detailed provisions of the Companies Law, a company limited by shares or a company limited by guarantee and having a share capital may, if so authorised by its articles of association, issue shares which are to be redeemed or are liable to be redeemed at the option of the company or a shareholder. In addition, such a company may, if authorised to do so by its articles of association, purchase its own shares, including any redeemable shares. However, if the articles of association do not authorise the manner of purchase, a company cannot purchase any of its own shares unless the manner of purchase has first been authorised by an ordinary resolution of the company. At no time may a company redeem or purchase its shares unless they are fully paid. A company may not redeem or purchase any of

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its shares if, as a result of the redemption or purchase, there would no longer be any member of the company holding shares. A payment out of capital by a company for the redemption or purchase of its own shares is not lawful unless immediately following the date on which the payment is proposed to be made, the company shall be able to pay its debts as they fall due in the ordinary course of business.

There is no statutory restriction in the Cayman Islands on the provision of financial assistance by a company for the purchase of, or subscription for, its own or its holding company’s shares. Accordingly, a company may provide financial assistance if the directors of the company consider, in discharging their duties of care and to act in good faith, for a proper purpose and in the interests of the company, that such assistance can properly be given. Such assistance should be on an arm’s-length basis.

D. Dividends and distributions

With the exception of section 34 of the Companies Law, there are no statutory provisions relating to the payment of dividends. Based upon English case law which is likely to be persuasive in the Cayman Islands in this area, dividends may be paid only out of profits. In addition, section 34 of the Companies Law permits, subject to a solvency test and the provisions, if any, of the company’s memorandum and articles of association, the payment of dividends and distributions out of the share premium account (see C. above for further details).

E. Shareholders’ suits

The Cayman Islands courts can be expected to follow English case law precedents. The rule in Foss v. Harbottle (and the exceptions thereto which permit a minority shareholder to commence a class action against or derivative actions in the name of the company to challenge (a) an act which is ultra vires the company or illegal, (b) an act which constitutes a fraud against the minority where the wrongdoers are themselves in control of the company, and (c) an action which requires a resolution with a qualified (or special) majority which has not been obtained has been applied and followed by the courts in the Cayman Islands.

F. Protection of minorities

In the case of a company (not being a bank) having a share capital divided into shares, the Grand Court of the Cayman Islands may, on the application of members holding not less than one fifth of the shares of the company in issue, appoint an inspector to examine into the affairs of the company and to report thereon in such manner as the Grand Court shall direct.

Any shareholder of a company may petition the Grand Court of the Cayman Islands which may make a winding up order if the court is of the opinion that it is just and equitable that the company should be wound up.

Claims against a company by its shareholders must, as a general rule, be based on the general laws of contract or tort applicable in the Cayman Islands or their individual rights as shareholders as established by the company’s memorandum and articles of association.

The English common law rule that the majority will not be permitted to commit a fraud on the minority has been applied and followed by the courts of the Cayman Islands.

– 191 – APPENDIX II SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

G. Disposal of assets

The Companies Law contains no specific restrictions on the powers of directors to dispose of assets of a company. As a matter of general law, in the exercise of those powers, the directors must discharge their duties of care and to act in good faith, for a proper purpose and in the interests of the company.

H. Accounting and auditing requirements

The Companies Law requires that a company shall cause to be kept proper books of account with respect to:

(a) all sums of money received and expended by the company and the matters in respect of which the receipt and expenditure takes place;

(b) all sales and purchases of goods by the company; and

Proper books of account shall not be deemed to be kept if there are not kept such books as are necessary to give a true and fair view of the state of the company’s affairs and to explain its transactions.

I. Register of members

An exempted company may, subject to the provisions of its articles of association, maintain its principal register of members and any branch registers at such locations, whether within or without the Cayman Islands, as its directors may, from time to time, think fit. There is no requirement under the Companies Law for an exempted company to make any returns of members to the Registrar of Companies in the Cayman Islands. The names and addresses of the members are, accordingly, not a matter of public record and are not available for public inspection.

J. Inspection of books and records

Members of a company will have no general right under the Companies Law to inspect or obtain copies of the register of members or corporate records of the company. They will, however, have such rights as may be set out in the company’s articles of association.

K. Special resolutions

The Companies Law provides that a resolution is a special resolution when it has been passed by a majority of not less than two-thirds (or such greater number as may be specified in the articles of association of the company) of such members as, being entitled to do so, vote in person or, where proxies are allowed, by proxy at a general meeting of which notice specifying the intention to propose the resolution as a special resolution has been duly given. Written resolutions signed by all the members entitled to vote for the time being of the company may take effect as special resolutions if this is authorised by the articles of association of the company.

– 192 – APPENDIX II SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

L. Subsidiary owning shares in parent

The Companies Law does not prohibit a Cayman Islands company acquiring and holding shares in its parent company provided its objects so permit. The directors of any subsidiary making such acquisition must discharge their duties of care and to act in good faith, for a proper purpose and in the interests of the subsidiary.

M. Reconstructions

There are statutory provisions which facilitate reconstructions and amalgamations approved by a majority in number representing 75% in value of shareholders or creditors, depending on the circumstances, as are present at a meeting called for such purpose and thereafter sanctioned by the Grand Court of the Cayman Islands. Whilst a dissenting shareholder would have the right to express to the Grand Court his view that the transaction for which approval is sought would not provide the shareholders with a fair value for their shares, the Grand Court of the Cayman Islands is unlikely to disapprove the transaction on that ground alone in the absence of evidence of fraud or bad faith on behalf of management and if the transaction were approved and consummated the dissenting shareholder would have no rights comparable to the appraisal rights (i.e. the right to receive payment in cash for the judicially determined value of his shares) ordinarily available, for example, to dissenting shareholders of United States corporations.

N. Take-overs

Where an offer is made by a company for the shares of another company and, within four months of the offer, the holders of not less than 90% of the shares which are the subject of the offer accept, the offeror may at any time within two months after the expiration of the said four months, by notice require the dissenting shareholders to transfer their shares on the terms of the offer. A dissenting shareholder may apply to the Grand Court of the Cayman Islands within one month of the notice objecting to the transfer. The burden is on the dissenting shareholder to show that the Grand Court should exercise its discretion, which it will be unlikely to do unless there is evidence of fraud or bad faith or collusion as between the offeror and the holders of the shares who have accepted the offer as a means of unfairly forcing out minority shareholders.

O. Indemnification

Cayman Islands law does not limit the extent to which a company’s articles of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the Cayman Islands courts to be contrary to public policy (e.g. for purporting to provide indemnification against the consequences of committing a crime).

P. Liquidation

A company is placed in liquidation either by an order of the court or by a special resolution (or, in certain circumstances, an ordinary resolution) of its members. A liquidator is appointed whose duties are to collect the assets of the company (including the amount (if any) due from the contributories (shareholders)), settle the list of creditors and discharge the company’s liability to them, rateably if insufficient assets exist to discharge the liabilities in full, and to settle the list of contributories and divide the surplus assets (if any) amongst them in accordance with the rights attaching to the shares.

– 193 – APPENDIX II SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

Q. Stamp duty on transfers

No stamp duty is payable in the Cayman Islands on transfers of shares of Cayman Islands companies except those which hold interests in land in the Cayman Islands.

R. Taxation

Pursuant to section 6 of the Tax Concessions Law (1995 Revision) of the Cayman Islands, the Company has obtained an undertaking from the Governor-in-Council:

(1) that no law which is enacted in the Cayman Islands imposing any tax to be levied on profits or income or gains or appreciation shall apply to the Company or its operations; and

(2) in addition, that no tax to be levied on profits, income gains or appreciations or which is in the nature of estate duty or inheritance tax shall be payable by the Company:

(i) on or in respect of the shares, debentures or other obligations of the Company; or

(ii) by way of withholding in whole or in part of any relevant payment as defined in Section 6(3) of the Tax Concessions Law (1995 Revision).

The undertaking is for a period of twenty years from 15th February, 2000.

The Cayman Islands currently levy no taxes on individuals or corporations based upon profits, income, gains or appreciations and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to the Company levied by the Government of the Cayman Islands save certain stamp duties which may be applicable, from time to time, on certain instruments executed in or brought within the jurisdiction of the Cayman Islands. The Cayman Islands are not party to any double tax treaties.

S. Exchange control

There are no exchange control regulations or currency restrictions in the Cayman Islands.

T. General

Maples and Calder Asia, the Company’s legal advisers on Cayman Islands law, have sent to the Company a letter of advice summarising aspects of Cayman Islands company law. This letter, together with a copy of the Companies Law, is available for inspection as referred to in the section headed “Documents available for inspection” in Appendix IV. Any person wishing to have a detailed summary of Cayman Islands company law or advice on the differences between it and the laws of any jurisdiction with which he/she is more familiar is recommended to seek independent legal advice.

– 194 – APPENDIX III STATUTORY AND GENERAL INFORMATION

FURTHER INFORMATION ABOUT THE COMPANY

Incorporation

The Company was incorporated as an exempted company in the Cayman Islands under the Companies Law on 31st January, 2000, with an authorised share capital of US$50,000 divided into 500,000 shares of US$0.10 each. The Company has established a principal place of business in Hong Kong at Units 2509- 11, Paul Y. Centre, 51 Hung To Road, Kwun Tong, Kowloon, Hong Kong and on 12th May, 2000 was registered as an oversea company in Hong Kong under Part XI of the Companies Ordinance. In connection with such registration, an executive Director, Mr. Wong Kun To of Flat B, 13th Floor, Block 1, Wing On Tower, 7 Boyce Road, Jardine’s Lookout, Hong Kong was appointed as the authorised representative of the Company for the acceptance of service of process and notices on behalf of the Company. As the Company was incorporated in the Cayman Islands, it operates subject to the Companies Law and to its constitution which comprises a memorandum of association and articles of association. A summary of various provisions of its constitution and the relevant aspects of the Companies Law is set out in Appendix II.

Changes in the share capital

As at the date of incorporation of the Company, its initial authorised share capital was US$50,000 divided into 500,000 shares of US$0.10 each. On 28th February, 2000, two shares of US$0.10 each in the Company were allotted and issued, credited as fully paid, to the initial subscribers and such shares were then transferred to Star East (BVI).

Pursuant to a written resolution of the sole shareholder of the Company passed on 2nd May, 2000, the authorised share capital of the Company was increased by HK$1,000,000,000 by the creation of an additional 10,000,000,000 Shares of HK$0.10 each. The two issued existing shares of US$0.10 each were repurchased and cancelled and the unissued share capital of US$49,999.80 was also cancelled. Two shares of HK$0.10 each were issued to Star East (BVI), credited as fully paid.

On 18th May, 2000, the Company entered into a reorganisation agreement with Hikari, Star East (BVI), SEIT Management, Gold Miracles and Genius Ideas pursuant to which the Company agreed to issue 299,999,998 new Shares in exchange for 1,000 shares in STAREASTnet (BVI) held by the parties to the reorganisation agreement.

Pursuant to a written resolution of the sole shareholder of the Company passed on 15th May, 2000, the Company will immediately after completion of the Share Offer capitalise HK$53,000,000 standing to the credit of the Company’s share premium account towards paying up in full 530,000,000 unissued Shares and distributed such Shares, as Capitalisation Issue, to the Company’s shareholders pro rata to their shareholdings on a basis of 53 shares for every 30 shares held by the shareholders.

Other than pursuant to the exercise of any options which may be granted under the Share Option Schemes or pursuant to the exercise of the Over-allotment Option, the Directors have no present intention to issue any part of the authorised but unissued share capital of the Company, and without the prior approval of the shareholders of the Company in general meeting, no issue of Shares will be made which would effectively alter the control of the Company.

Save as aforesaid, there has been no alteration in the share capital of the Company since the date of its incorporation.

– 195 – APPENDIX III STATUTORY AND GENERAL INFORMATION

Shareholder’s resolutions of the Company passed on 15th May, 2000

Pursuant to the resolutions passed by the sole shareholder of the Company on 15th May, 2000:

(a) the Company adopted its new memorandum and articles of association;

(b) conditional on the same conditions as stated in the paragraph headed “Conditions of the Share Offer” in the section headed “Structure of the Share Offer”:

(i) the Share Offer was approved and the Directors were authorised to allot and issue the Offer Shares (including the Over-allotment Option) upon the terms set out in this prospectus;

(ii) conditional on the GEM Listing Committee of the Stock Exchange granting approval of the Employee Share Option Scheme and the grant of options thereunder and the listing of, and permission to deal in, any Shares which may fall to be issued pursuant to the exercise of any such options, the rules of the Employee Share Option Scheme was approved and adopted and the Directors were authorised to grant options to subscribe for Shares thereunder and to allot, issue and deal with Shares pursuant thereto and to take all such steps as they consider necessary or desirable to implement the Employee Share Option Scheme; and the rules governing the Pre-IPO Share Option Scheme was approved and adopted and the Directors were authorised to grant options to subscribe for Shares thereunder and to allot and issue Shares pursuant thereto and the options pursuant to the Pre-IPO Share Option Scheme were granted to the grantees as selected by the Company;

(iii) conditional on the share premium account of the Company being credited as a result of the Share Offer, HK$53,000,000 of such amount will be directed to be capitalised and applied in paying up in full at par 530,000,000 Shares for allotment and issue to holders of Shares on the register of members of the Company as at 23rd May, 2000 (or as they may direct) in proportion as nearly as possible to their then respective shareholding;

(c) a general unconditional mandate was given to the Directors to allot, issue and deal with (otherwise than by way of rights issue, by virtue of scrip dividend schemes or other similar arrangements in accordance with the Articles or pursuant to the exercise of any option which may be granted under the Share Option Schemes or similar arrangements), on behalf of the Company, Shares with an aggregate nominal value not exceeding the sum of:

(i) 20% of the aggregate nominal amount of the share capital of the Company in issue and to be issued as mentioned herein; and

(ii) the aggregate nominal amount of the share capital of the Company purchased under the authority referred to in paragraph (d) below; and

(d) a general unconditional mandate was given to the Directors to exercise all the powers for and on behalf of the Company to purchase on the Stock Exchange or any other stock exchange on which the securities of the Company may be listed and which is recognised by the Securities and Futures Commission and the Stock Exchange for this purpose Shares with an aggregate

– 196 – APPENDIX III STATUTORY AND GENERAL INFORMATION

nominal value not exceeding 10% of the aggregate nominal amount of the share capital of the Company in issue and to be issued as mentioned herein.

Each of the general mandates referred to in paragraphs (c) and (d) above will remain in effect until the conclusion of the next annual general meeting of the Company, the expiration of the period within which the next annual general meeting of the Company is required by its Articles or any applicable laws to be held or when it is revoked or varied by an ordinary resolution by the shareholders of the Company in general meeting, whichever is the earliest.

Corporate reorganisation

The companies comprising the Group underwent a reorganisation to rationalise the Group’s structure in preparation for the listing of the Shares on the GEM, pursuant to which the Company became the ultimate holding company within the Group. Pursuant to an agreement entered into on 18th May, 2000 (being the reorganisation agreement referred to in sub-paragraph (z) in the section headed “Summary of material contracts” in this Appendix), the Company acquired the entire issued share capital of STAREASTnet (BVI) from its existing shareholders and, in consideration for such acquisition, the Company allotted and issued 299,999,998 Shares in aggregate, credited as fully paid at HK$0.10 each, to the then existing shareholders of STAREASTnet (BVI) as follows:

Name of Shareholder No. of Shares allotted

SEIT Management 120,000,000 Genius Ideas 81,600,000 Hikari 54,000,000 Gold Miracles 31,500,000 Star East (BVI) 12,899,998

Total 299,999,998

Changes in the share capital of subsidiaries

The Company’s subsidiaries are referred to in the accountants’ report, the text of which is set out in Appendix I to this prospectus.

In addition to those disclosed in the sections headed “Changes in the share capital” and “Corporate reorganisation” in this Appendix, the following alterations in the share capital of the Company’s subsidiaries have also taken place within the two years immediately preceding the date of this prospectus:

STAREASTnet (BVI)

On 18th February, 1999, STAREASTnet (BVI) was incorporated with an authorised capital of US$50,000 divided into 50,000 shares of par value US$1.00 each (“STAREASTnet (BVI) Shares”), to which Genius Ideas, Star East Group and Gold Miracles were allotted 50, 30, and 20 STAREASTnet (BVI) Shares, respectively at par on 9th March, 1999.

– 197 – APPENDIX III STATUTORY AND GENERAL INFORMATION

On 7th July, 1999, Star East Group transferred 30 STAREASTnet (BVI) Shares to Star East (BVI) at par.

Pursuant to a subscription agreement dated 19th August, 1999 between Hikari, Genius Ideas, Gold Miracles, Star East (BVI) and STAREASTnet (BVI), Hikari subscribed for and was allotted 20 STAREASTnet (BVI) Shares on 2nd September, 1999 whilst Genius Ideas, Gold Miracles and Star East (BVI) subscribed for and were allotted 40, 16 and 24 STAREASTnet (BVI) Shares, respectively on 2nd September, 1999. The total cash consideration of the subscription was approximately HK$83,644,015 with the following breakdown:

Number of Total Name of Subscriber STAREASTnet (BVI) Shares subscription price (in HK$)

Hikari 20 73,482,500 Genius Ideas 40 6,304,329 Gold Miracles 16 3,857,000 Star East (BVI) 24 186

Pursuant to directors’ resolutions of STAREASTnet(BVI) on 8th November, 1999, a sum of US$700 was capitalised from the share premium account and new STAREASTnet(BVI) Shares were allotted to STAREASTnet (BVI)’s then shareholders on the basis of seven new STAREASTnet(BVI) Shares for every two existing STAREASTnet (BVI) Shares held.

On 8th November, 1999, STAREASTnet (BVI) allotted 100 STAREASTnet (BVI) Shares to SEIT Management (being the nominee of Splendid Stars) for a total cash consideration of approximately US$10,556,000 in accordance with a subscription agreement dated 27th September, 1999. On the same day, Genius Ideas and Gold Miracles respectively transferred 70 and 30 STAREASTnet (BVI) Shares in consideration of approximately HK$57,264,000 and HK$24,542,000, respectively to SEIT Management (being the nominee of Splendid Stars). Each of Star East (BVI) and Splendid Stars transferred 200 STAREASTnet (BVI) Shares to SEIT Management in return for 1 new share in SEIT Management.

On 8th November, 1999, Genius Ideas and Gold Miracles transferred 63 and 27 STAREASTnet (BVI) Shares in consideration of US$6,650,000 and US$2,850,000, respectively, to Hikari.

On 18th May, 2000, STAREASTnet (BVI) and its then shareholders entered into a reorganisation agreement with the Company, pursuant to which the Company issued new Shares to the then existing shareholders of STAREASTnet (BVI) in exchange for their shares in STAREASTnet (BVI).

The Saint News Limited

On 23rd September, 1999, Perpetual Gold Company Limited, a former wholly-owned subsidiary of STAREASTnet (BVI), acquired 51% interest in The Saint News Limited for a consideration of HK$2,550,000, which was paid by STAREASTnet (BVI).

On 8th November, 1999, STAREASTnet (BVI) disposed of its entire interest in Perpetual Gold Company Limited together with the 51% equity interest in The Saint News Limited to Star East (BVI) for a consideration of HK$2,550,000.

– 198 – APPENDIX III STATUTORY AND GENERAL INFORMATION

Star East On-Line Limited

On 22nd February, 1999, two subscriber shares were allotted to Time Way Limited and Cheerfit Development Limited at par.

On 25th March, 1999, one subscriber share was transferred from Time Way Limited to STAREASTnet (BVI) at par while the other one subscriber share was transferred from Cheerfit Development Limited to Wong Kun To at par (on trust for STAREASTnet (BVI)).

On 14th April, 2000, one share was transferred from Wong Kun To to STAREASTnet.com Services Limited at par (on trust for STAREASTnet (BVI)).

Star East IT Management Limited

On 18th January, 1999, two subscriber shares were allotted to Time Way Limited and Cheerfit Development Limited at par.

On 14th April, 2000, one share was transferred from Wong Kun To to STAREASTnet.com Services Limited at par (on trust for STAREASTnet (BVI)).

Star East Web Stars Limited

On 9th March, 1999, 100 shares of par value US$1.00 each was allotted to STAREASTnet (BVI).

Star East Website Limited

On 19th April, 1999, two subscriber shares were allotted to Creation Management Limited and Prince Nice Limited at par.

On 19th May, 1999, one subscriber share was transferred from Creation Management Limited to STAREASTnet (BVI) at par while the other one subscriber share was transferred from Prince Nice Limited to Wong Kun To (on trust for STAREASTnet (BVI)).

On 14th April, 2000, one share was transferred from Wong Kun To to STAREASTnet.com Services Limited at par (on trust for STAREASTnet (BVI)).

Star East Multimedia Limited

On 24th February,1999, two subscriber shares were allotted to Time Way Limited and Cheerfit Development Limited at par.

On 2nd June, 1999, one subscriber share was transferred from Time Way Limited to STAREASTnet (BVI) at par while the other one subscriber share was transferred from Cheerfit Development Limited to Wong Kun To at par (on trust for STAREASTnet (BVI)).

– 199 – APPENDIX III STATUTORY AND GENERAL INFORMATION

On 14th April, 2000, one share was transferred from Wong Kun To to STAREASTnet.com Services Limited at par (on trust for STAREASTnet (BVI)).

Star East IT Production Limited

On 7th July, 1999, two subscriber shares were allotted to Creation Management Limited and Prince Nice Limited at par.

On 14th October, 1999, one subscriber share was transferred from Creation Management Limited to STAREASTnet (BVI) at par while the other one subscriber share was transferred from Prince Nice Limited to Wong Kun To (on trust for STAREASTnet (BVI)).

On 14th April, 2000, one share was transferred from Wong Kun To to STAREASTnet.com Services Limited at par (on trust for STAREASTnet (BVI)).

Harvest Star Limited

On 22nd September, 1999, two subscriber shares were allotted to Creation Management Limited and Prince Nice Limited at par.

On 7th October, 1999, one subscriber share was transferred from Creation Management Limited to STAREASTnet (BVI) at par while the other one subscriber share was transferred from Prince Nice Limited to Wong Kun To (on trust for STAREASTnet (BVI)).

On 14th April, 2000, one share was transferred from Wong Kun To to STAREASTnet.com Services Limited at par (on trust for STAREASTnet (BVI)).

Hottest Choice Limited

On 3rd January, 2000, 100 shares of par value US$1.00 each were allotted to STAREASTnet (BVI).

Starnet Technology Limited

On 31st January, 2000, 100 shares of par value US$1.00 each were allotted to STAREASTnet (BVI).

Lightening Investments Limited

On 22nd February, 2000, 100 shares of par value US$1.00 each were allotted to STAREASTnet (BVI).

STAREASTnet.com Management Limited

On 27th October, 1999, two subscriber shares were allotted to Creation Management Limited and Prince Nice Limited at par.

– 200 – APPENDIX III STATUTORY AND GENERAL INFORMATION

On 17th March, 2000, one subscriber share was transferred from Creation Management Limited to STAREASTnet (BVI) at par while the other one subscriber share was transferred from Prince Nice Limited to STAREASTnet.com Services Limited at par (on trust for STAREASTnet (BVI)).

STAREASTnet.com Services Limited

On 17th January, 2000, two subscriber shares were allotted to Creation Management Limited and Prince Nice Limited at par.

On 17th March, 2000, one subscriber share was transferred from Creation Management Limited to STAREASTnet.com Management Limited at par while the other subscriber share was transferred from Prince Nice Limited to Harvest Star Limited at par (on trust for STAREASTnet.com Management Limited).

STAREASTnet.com Corporation Limited

On 11th February, 2000, two subscriber shares were allotted to Creation Management Limited and Prince Nice Limited at par.

STAREASTnet Limited

On 8th February, 2000, two subscriber shares were allotted to Creation Management Limited and Prince Nice Limited at par.

STAREASTnet.com Limited

On 1st March, 2000, two subscriber shares were allotted to Creation Management Limited and Prince Nice Limited at par.

LEONSTAREASTnet.com Limited

On 24th January, 2000, two subscriber shares were allotted to Creation Management Limited and Prince Nice Limited at par.

On 13th March, 2000, one subscriber share was transferred from Creation Management Limited to Star East Web Stars Limited at par while the other one subscriber share was transferred from Prince Nice Limited to STAREASTnet.com Services Limited at par (on trust for Star East Web Stars Limited).

– 201 – APPENDIX III STATUTORY AND GENERAL INFORMATION

Stareastnet Holdings Pte Ltd

On 28th January, 2000, two subscriber shares were allotted to Lee Kim Shin and Ng Yoke Ping Pauline at par (both on trust for Hottest Choice Limited).

On 1st March, 2000, two subscriber shares were transferred from Lee Kim Shin and Ng Yoke Ping Pauline to Hottest Choice Limited at nil consideration.

Stareastnet Multimedia Pte Ltd

On 10th February, 2000, two subscriber shares were allotted to Lee Kim Shin and Ng Yoke Ping Pauline at par (both on trust for Stareastnet Holdings Pte Ltd).

On 8th March, 2000, two subscriber shares were transferred from Lee Kim Shin and Ng Yoke Ping Pauline to Stareastnet Holdings Pte Ltd at nil consideration.

Stareastnet Management Pte Ltd

On 10th February, 2000, two subscriber shares were allotted to Lee Kim Shin and Ng Yoke Ping Pauline at par (both on trust for Stareastnet Holdings Pte Ltd).

On 8th March, 2000, two subscriber shares were transferred from Lee Kim Shin and Ng Yoke Ping Pauline to Stareastnet Holdings Pte Ltd at nil consideration.

Star East Information Technology Corporation

On 8th February, 2000, one common share without par value was allotted to Franky Tai in consideration of one Canadian dollar.

On 16th February, 2000, one common share without par value was transferred from Franky Tai to Starnet Technology Limited for nominal consideration.

Star East Multimedia Limited

On 16th February, 2000, 100 common shares without par value were allotted to Franky Tai in consideration for one Canadian dollar.

On 16th February, 2000, 100 common shares without par value were transferred from Franky Tai to Star East Information Technology Corporation in consideration for one Canadian dollar.

Save as aforesaid, there has been no alteration in the share capital of the subsidiaries of the Company within the two years preceding the date of this prospectus.

Star East Information Technology Corporation (Taiwan)

On 11th May, 2000, 99,994 shares of par value of 10 New Taiwan dollars each were allotted to Hottest Choice Limited, and one share of par value of 10 New Taiwan dollars was allotted to each of Wong Kun To, Chan Pak Cheung, Natalis, Siu Mei Wai, Irene Olivia, Wong Yiu Hung, Wong Lai Kin, Elsa and Chan Ka Fai, Stephen (all on trust for Hottest Choice Limited).

– 202 – APPENDIX III STATUTORY AND GENERAL INFORMATION

Repurchase by the Company of its own Shares

This section includes the information required by the Stock Exchange to be included in this prospectus concerning the repurchase by the Company of its own securities.

A resolution was passed by the sole shareholder of the Company on 15th May, 2000, pursuant to which a general unconditional mandate (the Repurchase Mandate) has been granted to the Directors authorising the repurchase by the Company on the Stock Exchange, or on any other stock exchange on which the securities of the Company may be listed and which is recognised by the Securities and Futures Commission and the Stock Exchange for this purpose, of Shares with an aggregate nominal value not exceeding 10% of the aggregate nominal amount of the share capital of the Company in issue and to be issued as mentioned herein, during the period from the passing of such resolution up to:

(a) the conclusion of the next annual general meeting of the Company;

(b) the expiration of the period within which the next annual general meeting of the Company is required by the Articles or any applicable laws to be held; or

(c) the revocation or variation of the Repurchase Mandate by an ordinary resolution of shareholders of the Company in general meeting, whichever is the earliest.

(a) Provisions of the GEM Listing Rules

The GEM Listing Rules permit companies whose primary listing is on GEM to repurchase their securities on GEM subject to certain restrictions, the most important of which are summarised below:

(i) Shareholders’ approval

All proposed repurchases of securities (which must be fully paid up in the case of shares) on GEM by a company with its primary listing on GEM must be approved in advance by an ordinary resolution of shareholders, either by way of general mandate or by specific approval in relation to specific transactions.

(ii) Source of funds

Any repurchases must be financed out of funds legally available for the purpose in accordance with its memorandum of association and articles of association and the applicable laws.

(iii) Trading restrictions

Under the GEM Listing Rules, a company is authorised to repurchase on GEM or any other stock exchange recognised by the Securities and Futures Commission in Hong Kong and the Stock Exchange the total number of shares which represents up to a maximum of 10% of the existing issued share capital at the date of the passing of the ordinary resolution approving the repurchase mandate. A company may not issue or announce an issue of new shares for a period of 30 days

– 203 – APPENDIX III STATUTORY AND GENERAL INFORMATION

immediately following a repurchase (except pursuant to the exercise of share options or similar instruments outstanding prior to such repurchase). In addition, the purchase price of shares purchased on the Stock Exchange should not be higher than the latest or current independent bid price or the last independent sale (contract) price quoted or reported on the system (as defined in the Rules of the Stock Exchange) and the opening bid or any bid shall not be made in the last 30 minutes before the close of normal trading hours as stipulated in the Rules of the Stock Exchange. A company is also prohibited from making securities repurchases on the Stock Exchange if the repurchase would result in the number of listed securities in the hands of the public falling below the relevant minimum prescribed percentage as required by the Stock Exchange.

A company shall procure that any broker appointed by it to effect the purchase of its own shares shall disclose to the Stock Exchange such information with respect to purchases made on behalf of the company as the Stock Exchange may request.

(iv) Status of repurchased securities

The listing of all repurchased securities (whether on GEM or otherwise) is automatically cancelled and the certificates of those securities must be cancelled and destroyed as soon as reasonably practicable.

(v) Suspension of repurchases

Any repurchase of securities is prohibited after a piece of price sensitive information has developed or has been the subject of a decision until the price sensitive information has been publicly announced. In particular, during the period of one month immediately preceding either the preliminary announcement of the company’s annual results or the publication of the company’s interim report, a company is prohibited from making any repurchase of securities on the Stock Exchange unless the circumstances are exceptional. In addition, the Stock Exchange reserves the right to prohibit a company from making any repurchase of securities on the Stock Exchange if a company has breached any of the GEM Listing Rules.

(vi) Reporting requirements

Repurchases of securities on the Stock Exchange or otherwise must be reported to the Stock Exchange not later than 9:30 a.m. (Hong Kong time) on the following business day. The Stock Exchange is to make this information publicly available as soon as possible. In addition, a company’s annual report is required to disclose details regarding securities repurchases made during the year, including a monthly analysis of the number of securities repurchased, the purchase price per share or the highest and lowest investment price paid for such purchases and the aggregate price paid. The directors’ report shall contain reference to the purchases made during the year and the directors’ reasons for making such purchases.

(vii) Connected parties

A company is prohibited from knowingly repurchasing securities on the Stock Exchange from a connected person, that is, a director, chief executive, substantial shareholder or management shareholder of the company or an associate of any of them (as defined in the GEM Listing Rules),

– 204 – APPENDIX III STATUTORY AND GENERAL INFORMATION

and a connected person is prohibited from knowingly selling his securities to the company on the Stock Exchange.

(b) Reasons for Repurchases

The Directors believe that it is in the best interests of the Company and its shareholders for the Directors to have a general authority from shareholders to enable the Company to repurchase Shares in the market. Repurchases of Shares will only be made when the Directors believe that such a repurchase will benefit the Company and its shareholders. Such repurchases may, depending on the market conditions and funding arrangements at the time, lead to an enhancement of the net value of the Company and its assets or its earnings per Share or both.

(i) In repurchasing securities, the Company may only apply funds legally available for such purpose in accordance with its memorandum of association and articles of association and the applicable laws of the Cayman Islands.

(ii) The Directors do not propose to exercise the Repurchase Mandate to such extent as would, in the circumstances, have a material adverse effect on the working capital requirements of the Company or the gearing levels which in the opinion of the Directors are from time to time appropriate for the Company. Hovever, there might be a material adverse effect on the working capital requirements of the Company or the gearing level (as compared with the position disclosed in the accountants’ report, the text of which is set out in Appendix I) in the event the Repurchase Mandate is exercised in full.

(d) Exercise of the Repurchase Mandate

Exercise in full of the Repurchase Mandate, on the basis of 1,000,000,000 Shares in issue immediately after the completion of the Share Offer could accordingly result in up to 100,000,000 Shares being repurchased by the Company during the period from the passing of such resolution up to:

(i) the conclusion of the next annual general meeting of the Company;

(ii) the expiration of the period within which the next annual general meeting of the Company is required by the Articles or any applicable laws to be held; or

(iii) the revocation or variation of the Repurchase Mandate by an ordinary resolution of the shareholders of the Company in general meeting, whichever is the earliest.

(e) Disclosure of Interests

None of the Directors and, to the best of their knowledge, having made all reasonable enquiries, none of their respective associates, have any present intention, if the Repurchase Mandate is exercised, to sell any Share to the Company.

– 205 – APPENDIX III STATUTORY AND GENERAL INFORMATION

No connected person (as defined in the GEM Listing Rules) of the Company has notified the Company that he has a present intention to sell Shares to the Company, or has undertaken not to do so, if the Repurchase Mandate is exercised.

(f) Directors Undertaking

The Directors have undertaken to the Stock Exchange that, so far as the same may be applicable, they will exercise the Repurchase Mandate in accordance with the GEM Listing Rules and the applicable laws of Cayman Islands.

(g) Takeovers Code Consequences

If as a result of a repurchase of Shares, a shareholder’s proportionate interest in the voting rights of the Company increases, such increase will be treated as an acquisition for the purposes of the Takeovers Code. Accordingly, a shareholder, or a group of shareholders acting in concert, depending on the level of increase of the shareholder’s interest, could obtain or consolidate control of the Company and become obliged to make a mandatory offer in accordance with Rule 26 of the Takeovers Code as a result of any such increase.

FURTHER INFORMATION ABOUT THE BUSINESS

Summary of material contracts

The following contracts (not being contracts in the ordinary course of business) have been entered into by the Company or any of its subsidiaries within the two years proceding the date of this prospectus and are or may be material:

(a) a shareholders agreement dated 11th June, 1999 between Star East Group, Genius Ideas, Gold Miracles and STAREASTnet (BVI) in relation to certain arrangements as to the shareholders’ rights and obligations in STAREASTnet (BVI), which has been terminated by the deed of termination referred to in paragraph (i) below;

(b) a subscription agreement dated 19th August, 1999 between Hikari, Star East (BVI), Genius Ideas, Gold Miracles and STAREASTnet (BVI) whereby Hikari, Star East (BVI), Genius Ideas and Gold Miracles subscribed for an aggregate of 100 shares in STAREASTnet (BVI) for considerations of US$9,500,000, US$24, HK$6,304,329 and HK$3,857,000, respectively;

(c) an artiste web-hosting agreement between Star East On-line Limited and Mr. Tam Wing Lun, Alan signed on 18th May, 1999 with effect from 1st September, 1999;

(d) an advertising contract dated 24th August, 1999 between STAREASTnet (BVI) and PCC whereby STAREASTnet (BVI) has agreed to purchase airtime on PCC’s internet and television network to the value of approximately US$6,556,000;

(e) an artiste web-hosting agreement between Star East On-line Limited and Mr. Chan Pak Cheung, Natalis signed on 1st September, 1999;

– 206 – APPENDIX III STATUTORY AND GENERAL INFORMATION

(f) a deed of adherence dated 2nd September, 1999 between Hikari, Star East (BVI), Star East Group, Genius Ideas, Gold Miracles and STAREASTnet (BVI) in relation to certain amendments of the shareholders’ agreement dated 11th June, 1999 referred to in paragraph (a) above;

(g) a memorandum of understanding dated 6th September, 1999 between Star East Multimedia Limited and China Internet Corporation, (a licensed distributor which is licensed to distribute the service provided by America Online Hong Kong Services to localised users in Hong Kong) whereby the parties agreed to form the Star East – AOL Cyberfans Club and invite their members to join such club;

(h) an agreement dated 27th September, 1999 between Splendid Stars, Hikari, Star East (BVI), Genius Ideas, Gold Miracles, Star East Holdings, ITC, Tam Wing Lun, Alan, Chan Pak Cheung, Natalis, Tsang Chi Wai, Eric, PCCW and STAREASTnet (BVI) in relation to the subscription for 100 shares of US$1 each in STAREASTnet (BVI) by Splendid Stars for a consideration of approximately US$10,556,000;

(i) a deed of termination dated 19th November, 1999 between Hikari, Star East (BVI), Genius Ideas, Gold Miracles and STAREASTnet (BVI) for the termination of the shareholders’ agreement dated 11th June, 1999 referred to in paragraph (a) above;

(j) deed of option dated 19th November, 1999 between STAREASTnet (BVI) and Splendid Stars whereby Splendid Stars is granted an option to subscribe for 100 Shares in STAREASTnet (BVI) at an option price of US$137,222 per share, which was terminated by the deed of termination referred to in paragraph (gg) below;

(k) deed of option dated 19th November, 1999 between STAREASTnet (BVI) and Hikari whereby Hikari is granted an option to subscribe for 100 Shares in STAREASTnet (BVI) at an option price of US$137,222 per share, which was terminated by the deed of termination referred to in paragraph (hh) below;

(l) a supplemental agreement dated 19th November, 1999 between Splendid Stars, Hikari, Star East (BVI), Genius Ideas, Gold Miracles, Star East Holdings, ITC, Tam Wing Lun, Alan, Chan Pak Cheung, Natalis, Tsang Chi Wai, Eric, PCCW and STAREASTnet (BVI) in relation to the agreement referred to in paragraph (h) above;

(m) a shareholders’ agreement dated 19th November, 1999 between STAREASTnet (BVI), Hikari, Genius Ideas, Star East (BVI), Gold Miracles and SEIT Management in relation to certain arrangements as to the management and control of STAREASTnet (BVI) which has been varied and will be terminated immediately prior to the listing of the Company pursuant to the reorganisation agreement referred to in paragraph (z) below;

(n) a management agreement dated 19th November, 1999 between STAREASTnet (BVI) and SEIT Management appointing SEIT Management to manage the day-to-day affairs and the business of STAREASTnet (BVI) and its subsidiaries, which has been terminated by termination agreement referred to in paragraph (dd);

– 207 – APPENDIX III STATUTORY AND GENERAL INFORMATION

(o) a memorandum of understanding dated 22nd January, 2000 between CBN (as representative of the Group) and Pacific Internet Ltd. whereby both parties have agreed to co-promote websites, events and activities in relation to their internet businesses;

(p) a memorandum of understanding dated 15th February, 2000 and a supplemental agreement dated 27th April, 2000 between STAREASTnet (BVI) and Hikari whereby the two parties have agreed (on a non-legally binding basis) to form a strategic alliance to promote the popularity of the Group’s Asian artistes among the Japanese masses, deliver content on both broadband and narrowband internet and utilise Hikari’s technical and distribution capability in Japan on its broadband internet for the pursuit of mutually beneficial business objectives;

(q) a second memorandum of understanding dated 3rd March, 2000 between Star East Multimedia Limited and China Internet Corporation in relation to the promotion of the Group’s entertainment content through the America Online Hong Kong Service network;

(r) a memorandum of understanding dated 18th February, 2000 and a supplemental agreement dated 28th April, 2000 between STAREASTnet (BVI) and Korea Thrunet whereby the two parties have agreed (on a non-legally binding basis) to form a strategic alliance to promote the popularity of the Group’s Asian artistes among the Korean masses, deliver content on both broadband and narrowband internet and utilise Thrunet’s technical and distribution capability in Korea on its broadband internet for the pursuit of mutually beneficial business objectives;

(s) a memorandum of understanding dated 18th February, 2000 and a supplemental agreement dated 2nd May, 2000 between STAREASTnet (BVI) and Digital United whereby the two parties have agreed (on a non-legally binding basis) to form a strategic alliance to promote the popularity of the Group’s Asian artistes among the Taiwan masses, deliver content on both broadband and narrowband internet and utilise Seednet’s technical and distribution capability in Taiwan on its broadband internet for the pursuit of mutually beneficial business objectives;

(t) a memorandum of understanding dated 24th February, 2000 and a supplemental agreement dated 3rd May, 2000 between STAREASTnet (BVI) and PCC whereby the two parties agree (on a non legally-binding basis) to form a strategic alliance for the distribution arrangement of stareastnet.com’s contents;

(u) an agreement dated 7th March, 2000 between Pacific Internet Limited, CBN and Stareastnet Multimedia Pte Ltd whereby the parties agreed to co-promote websites, events and activities in relation to their internet businesses;

(v) a supplemental agreement dated 9th March, 2000 between STAREASTnet (BVI) and PCC whereby the parties agreed to reduce the consideration in the agreement referred to in paragraph (d) from approximately US$6,556,000 to US$5,394,000 and the term of the contract was extended to a term of 30 months after 24th August, 1999;

(w) a distribution agreement dated 17th March, 2000 between Star East Multimedia Limited and Bob whereby Bob has granted to Star East Multimedia Limited the exclusive licence to

– 208 – APPENDIX III STATUTORY AND GENERAL INFORMATION

exhibit or distribute on the internet films produced or owned by or licensed to Bob at the request of Star East Multimedia Limited for a minimum consideration of HK$9,000,000 for the term of the distribution agreement;

(x) a content provision agreement dated 17th March, 2000 between Star East Multimedia Limited and The Saint News Limited whereby The Saint News Limited provides content to the Star East Multimedia Limited on the internet for a period of 12 months on a revenue sharing basis;

(y) a share sale and purchase agreement dated 1st April, 2000 between Immense Winnings Limited (a wholly-owned subsidiary of Hanny), Bob, Precious Days Limited (both wholly-owned subsidiaries of Star East Holdings), Jing’s Production Limited (an independent third party) and STAREASTnet (BVI) pursuant to which STAREASTnet (BVI) agreed to acquire the entire issued capital of and loan to Real Pleasure Limited at a consideration of approximately HK$7,688,000;

(z) a reorganisation agreement dated 18th May, 2000 between SEIT Management, Genius Ideas Limited, Hikari, Gold Miracles, Star East (BVI) and the Company for the transfer of shares in STAREASTnet (BVI) to the Company as disclosed in the paragraph headed “Corporate Reorganisation” of Appendix III;

(aa) a Deed of First Right of Refusal dated 18th May, 2000 between Star East Holdings and the Company whereby Star East Holdings has undertaken to give the Company a first right of refusal in relation to certain business opportunities relating to the provision of Chinese artistes entertainment content on the internet;

(bb) a trademark licence agreement dated 17th May, 2000 between Star East Concept Limited and Star East Website Limited under which Star East Concept Limited granted to Star East Website Limited an exclusive licence to use the trademark “StarEastNet” and a non-exclusive licence to use the trademark “Star East” for a licence fee of HK$800,000 per year;

(cc) a deed of indemnity dated 18th May, 2000 granted by SEIT Management in favour of the Company and its subsidiaries containing indemnities in respect of certain Hong Kong taxation and estate duty liabilities;

(dd) a termination agreement dated 17th May, 2000 between STAREASTnet (BVI) and SEIT Management in relation to the termination of the management agreement referred to in paragraph (n) above;

(ee) the Underwriting Agreement dated 22nd May, 2000 relating to the Share Offer between the Company and the Underwriters under which the Underwriters have agreed to act as underwriters for the Share Offer;

(ff) a sponsors’ agreement dated 22nd May, 2000 between the Company and the Sponsors;

(gg) a deed of termination dated 17th May, 2000 between STAREASTnet (BVI) and Splendid Stars whereby the deed of option referred to in paragraph (j) was terminated;

– 209 – APPENDIX III STATUTORY AND GENERAL INFORMATION

(hh) a deed of termination dated 10th May, 2000 between STAREASTnet (BVI) and Hikari whereby the deed of option referred to in paragraph (k) was terminated;

(ii) an agreement dated 23rd February, 2000 and a supplemental agreement dated 17th May, 2000 between Star East On-line Limited, Jackie & Willie Production Ltd. and Chan Kong Sang, Jackie whereby Mr. Chan grants to Star East On-line Limited the rights to use, update and manage Mr. Chan’s official website; and

(jj) an agreement dated 19th May, 2000 between Star East Multimedia Ltd. and Bob whereby Star East Multimedia Ltd. will provide sponsorship to Bob for its film and television programme productions.

Intellectual property

Pursuant to the trademark licence agreement referred to in the paragraph headed summary of material contracts in this Appendix dated 17th May, 2000, Star East Website Limited, a wholly-owned subsidiary of the Company, is granted from Star East Concept Limited the following rights to use the trademarks and service marks shown below:

(i) sole and exclusive right, but excluding the operation of theme cafes, restaurants or business of the same type or description, in the following classes:

Trade/ Place of Application Application Date Service Mark Registration Class Number (Pending Registration)

StarEastNet Taiwan 9 89002089 14th January, 2000

StarEastNet Taiwan 16 89002091 14th January, 2000

StarEastNet Taiwan 35 89002094 14th January, 2000

StarEastNet Taiwan 38 89002096 14th January, 2000

StarEastNet Taiwan 41 89002098 14th January, 2000

StarEastNet Taiwan 42 89002099 14th January, 2000

stareastnet PRC 9 2000025820 8th March, 2000

stareastnet PRC 16 2000025821 8th March, 2000

stareastnet PRC 35 2000025822 8th March, 2000

stareastnet PRC 38 2000025823 8th March, 2000

stareastnet PRC 41 2000025824 8th March, 2000

stareastnet PRC 42 2000025825 8th March, 2000 – 210 – APPENDIX III STATUTORY AND GENERAL INFORMATION

(ii) non-exclusive right, including the manufacture and / or sale of the goods by the sub-licensees of Star East Website Limited but excluding the operation of theme cafes, restaurants or business of the same type or description, in the following classes:

(a) Registered trademarks and service marks

Trade/ Place of Registration Service Mark Registration Class Number Registration Date

Hong Kong 9 B16849 23rd December, 1999

Hong Kong 14 B16850 23rd December, 1999

Hong Kong 16 B16851 23rd December, 1999

Hong Kong 25 B16852 23rd December, 1999

Hong Kong 41 B16853 23rd December, 1999

Hong Kong 42 B16854 23rd December, 1999

Taiwan 9 861389 1st September, 1999

Taiwan 14 855932 16th July, 1999

Taiwan 16 869794 1st November, 1999

Taiwan 25 877063 1st January, 2000

Taiwan 41 120900 1st March, 2000

– 211 – APPENDIX III STATUTORY AND GENERAL INFORMATION

Trade/ Place of Registration Service Mark Registration Class Number Registration Date

PRC 9 9800083504 28th December, 1999

PRC 14 9800083505 21st November, 1999

PRC 16 9800083506 14th October, 1999

PRC 42 1357398 21st January, 2000

Japan 9, 14, 16, 10-57322 27th August, 1999 25, 41, 42

Thailand 9 367399 22nd July, 1998

(b) Trademarks / trade names pending or in the process of registration

Trade/ Place of Application Application Date Service Mark Registration Class Number (Pending Registration)

Australia 42 815523 29th November, 1999

Australia 35 815524 29th November, 1999

Australia 41 815525 29th November, 1999

– 212 – APPENDIX III STATUTORY AND GENERAL INFORMATION

Trade/ Place of Application Application Date Service Mark Registration Class Number (Pending Registration)

Australia 38 815526 29th November, 1999

Australia 16 815527 29th November, 1999

Australia 9 815528 29th November, 1999

STAR EAST Thailand 9 408734 14th January, 2000

STAR EAST Thailand 16 408735 14th January, 2000

STAR EAST Thailand 35 408736 14th January, 2000

STAR EAST Thailand 38 408737 14th January, 2000

STAR EAST Thailand 41 408738 14th January, 2000

STAR EAST Thailand 42 408739 14th January, 2000

Thailand 14 367400 19th August, 1998

Thailand 16 367401 19th August, 1998

Thailand 25 367402 19th August, 1998

Thailand 41 367403 19th August, 1998

– 213 – APPENDIX III STATUTORY AND GENERAL INFORMATION

Trade/ Place of Application Application Date Service Mark Registration Class Number (Pending Registration)

Thailand 42 367404 19th August, 1998

Hong Kong 38 15858/99 3rd November, 1999

Hong Kong 41 15859/99 3rd November, 1999

Hong Kong 42 15860/99 3rd November, 1999

Hong Kong 9 15924/99 4th November, 1999

Hong Kong 16 15925/99 4th November, 1999

Hong Kong 35 15926/99 4th November, 1999

– 214 – APPENDIX III STATUTORY AND GENERAL INFORMATION

Trade/ Place of Application Application Date Service Mark Registration Class Number (Pending Registration)

New Zealand 9 604318 6th December, 1999

New Zealand 16 604319 6th December, 1999

New Zealand 42 604320 6th December, 1999

New Zealand 38 604224 3rd December, 1999

New Zealand 41 604225 3rd December, 1999

New Zealand 35 604233 3rd December, 1999

– 215 – APPENDIX III STATUTORY AND GENERAL INFORMATION

Trade/ Place of Application Application Date Service Mark Registration Class Number (Pending Registration)

Malaysia 9 2000-00181 11th January, 2000

Malaysia 16 2000-00182 11th January, 2000

Malaysia 35 2000-00183 11th January, 2000

Malaysia 38 2000-00184 11th January, 2000

Malaysia 41 2000-00185 11th January, 2000

Malaysia 42 2000-00188 11th January, 2000

– 216 – APPENDIX III STATUTORY AND GENERAL INFORMATION

Trade/ Place of Application Application Date Service Mark Registration Class Number (Pending Registration)

Malaysia 9 98-08409 18th July, 1998

Malaysia 14 98-08420 18th July, 1998

Malaysia 16 98-08421 18th July, 1998

Malaysia 25 98-08422 18th July, 1998

Malaysia 41 98-08423 18th July, 1998

Malaysia 42 98-08424 18th July, 1998

STAR EAST Indonesia 35 J 99 23672 30th December, 1999

STAR EAST Indonesia 16 D 99 23673 30th December, 1999

STAR EAST Indonesia 9 D 99 23674 30th December, 1999

STAR EAST Indonesia 38 J 99 23677 30th December, 1999

STAR EAST Indonesia 41 J 99 23678 30th December, 1999

STAR EAST Indonesia 42 J 99 23679 30th December, 1999

Indonesia 9 D98-11271 30th June, 1998

Indonesia 14 D98-11272 30th June, 1998

Indonesia 16 D98-11273 30th June, 1998

Indonesia 25 D98-11274 30th June, 1998

– 217 – APPENDIX III STATUTORY AND GENERAL INFORMATION

Trade/ Place of Application Application Date Service Mark Registration Class Number (Pending Registration)

Indonesia 41 D98-11275 30th June, 1998

Indonesia 42 D98-11276 30th June, 1998

STAR EAST PRC 35 2000014700 1st February, 2000

STAR EAST PRC 38 2000014701 1st February, 2000

STAR EAST PRC 41 2000014702 1st February, 2000

STAR EAST PRC 42 2000014703 1st February, 2000

STAR EAST PRC 9 2000014712 1st February, 2000

STAR EAST PRC 16 2000014713 1st February, 2000

PRC 25 9800083507 24th July, 1998

PRC 41 9800083508 24th July, 1998

PRC 42 9800083509 24th July, 1998

STAR EAST Taiwan 9 89002090 14th January, 2000

STAR EAST Taiwan 41 89002092 14th January, 2000

STAR EAST Taiwan 16 89002093 14th January, 2000

STAR EAST Taiwan 35 89002095 14th January, 2000

STAR EAST Taiwan 38 89002097 14th January, 2000

STAR EAST Taiwan 42 89002100 14th January, 2000

Taiwan 42 8737375 31st July, 1998

– 218 – APPENDIX III STATUTORY AND GENERAL INFORMATION

Trade/ Place of Application Application Date Service Mark Registration Class Number (Pending Registration)

Singapore 16 T99/15186H 22nd December, 1999

Singapore 35 T99/15187F 22nd December, 1999

Singapore 38 T99/15189B 22nd December, 1999

Singapore 41 T99/15190F 22nd December, 1999

Singapore 42 T99/15191D 22nd December, 1999

Singapore 9 T99/15185Z 22nd December, 1999

Singapore 9, 14, 16, 5956-5961/98 10th June, 1998 25, 41, 42

– 219 – APPENDIX III STATUTORY AND GENERAL INFORMATION

Trade/ Place of Application Application Date Service Mark Registration Class Number (Pending Registration)

Canada N/A 882160 23rd June, 1998

STAR EAST Canada N/A 1050509 13th March, 2000

Korea 9 40-2000-3094 19th January, 2000

Korea 16 40-2000-3095 19th January, 2000

Korea 35 40-2000-1500 19th January, 2000

Korea 38 40-2000-1501 19th January, 2000

Korea 41 40-2000-1502 19th January, 2000

Korea 42 40-2000-1503 19th January, 2000

– 220 – APPENDIX III STATUTORY AND GENERAL INFORMATION

Trade/ Place of Application Application Date Service Mark Registration Class Number (Pending Registration)

Korea 9, 14, 16, 99-1668 9th July, 1999 25, 41, 42

Philippines 9 4-2000-0001400 24th February, 2000

Philippines 16 4-2000-0001401 24th February, 2000

Philippines 35 4-2000-0001402 24th February, 2000

Philippines 38 4-2000-0001403 24th February, 2000

Philippines 41 4-2000-0001404 24th February, 2000

Philippines 42 4-2000-0001405 24th February, 2000

– 221 – APPENDIX III STATUTORY AND GENERAL INFORMATION

Trade/ Place of Application Application Date Service Mark Registration Class Number (Pending Registration)

Philippines 9, 14, 16, 4-1998-04902 7th July, 1998 25, 41, 42

STAR EAST Japan 9, 16, 35, 121597/99 29th December, 1999 38, 41, 42

U.S.A. 9 75/507930 24th June, 1998

U.S.A. 14 75/507931 24th June, 1998

U.S.A. 16 75/507932 24th June, 1998

U.S.A. 25 75/507933 24th June, 1998

U.S.A. 41 75/507934 24th June, 1998

U.S.A. 42 75/507935 24th June ,1998

STAR EAST U.S.A. 9, 16, 75/927813 25th February, 2000 35, 38, 41 and 42

As at the Latest Practicable Date, the Group has registered the following domain names:

Domain Names Date of Registration

chinastareastnet.com 20th January, 2000

cnstareastnet.com 22nd January, 2000

golala.com 8th November, 1999

hknat.com l5th December, 1999

hkstareastnet.com 22nd January, 2000

– 222 – APPENDIX III STATUTORY AND GENERAL INFORMATION

Domain Names Date of Registration

impressionsof.com 24th January, 2000

i-se-e.com 1st September, 1999

isee2000.com 1st September, 1999

iconclub.com 21st January, 2000

leonclub.net 21st January, 2000

leonfans.com 21st January, 2000

kelly.com.hk 17th January, 2000

leonfans.net 21st January, 2000

leonstar.com 21st January, 2000

leonstar.com.hk 24th January, 2000

leonstar.com.sg 12th May, 2000

leonstar.net 21st January, 2000

leonstareastnet.com 21st January, 2000

leonstareastnet.com.cn 6th April, 2000

leonstareastnet.com.hk 31st March, 2000

leonstareastnet.com.sg 20th March, 2000

mination.com 1st September, 1999

moviedragon.com 8th November, 1999

radiois.com 11th November, 1999

sgstareast.com 21st January, 2000

se-mall.com 14th September, 1999

sgstareast.com 21st January, 2000

sgstareastnet.com 20th January, 2000

– 223 – APPENDIX III STATUTORY AND GENERAL INFORMATION

Domain Names Date of Registration

sgstareast.com.sg 19th January, 2000

sgstareastnet.com.sg l9th January, 2000

stareast.com.hk 11th February, 1999

stareast.com.sg 11th January, 2000

stareast.net.cn 21st February, 2000

stareastentertainment.com 9th February, 1999

stareastnet.com 7th April, 1999

stareastnet.com.hk 16th July, 1999

stareastnet.com.sg 12th March, 2000

stareastnet.net.cn 21st February, 2000

stareastnetcat.com 5th January, 2000

stareastnetdog.com 5th January, 2000

stareastnetleon.com 21st January, 2000

stareastnetpet.com 5th January, 2000

startaste.com 6th July, 1999

startaste.com.cn 11th November, 1999

startaste.com.hk 7th July, 1999

twstareast.com 20th January, 2000

twstareastnet.com 20th January, 2000

twstareast.com.tw 15th January, 2000

twstareastnet.com.tw 15th January, 2000

zestfor.com 24th January, 2000

. 27th April, 2000

– 224 – APPENDIX III STATUTORY AND GENERAL INFORMATION

Domain Names Date of Registration

. 27th April, 2000

. 20th February, 2000

. 9th February, 2000

. 14th February, 2000

. 9th February, 2000

. 20th February, 2000

. 9th February, 2000

. 20th February, 2000

– 225 – APPENDIX III STATUTORY AND GENERAL INFORMATION

Domain Names Date of Registration

. 20th February, 2000

. 21st February, 2000

. 20th February, 2000

– 226 – APPENDIX III STATUTORY AND GENERAL INFORMATION

Domain Names Date of Registration

. 20th February, 2000

. 21st February, 2000

. 20th February, 2000

– 227 – APPENDIX III STATUTORY AND GENERAL INFORMATION

Domain Names Date of Registration

. 20th February, 2000

– 228 – APPENDIX III STATUTORY AND GENERAL INFORMATION

Domain Names Date of Registration

. 20th February, 2000

. 21st February, 2000

. 9th February, 2000

. 20th February, 2000

. 9th February, 2000

– 229 – APPENDIX III STATUTORY AND GENERAL INFORMATION

Domain Names Date of Registration

. 9th February, 2000

– 230 – APPENDIX III STATUTORY AND GENERAL INFORMATION

Domain Names Date of Registration

. 9th February, 2000

. 20th February, 2000

. 9th February, 2000

. 20th February, 2000

. 9th February, 2000

– 231 – APPENDIX III STATUTORY AND GENERAL INFORMATION

Domain Names Date of Registration

. 9th February, 2000

– 232 – APPENDIX III STATUTORY AND GENERAL INFORMATION

Summary of property interests

Save for eleven operating leases, which have no capital value in existing state as at 30th April, 2000 in accordance to a property valuation report prepared by American Appraisal Hong Kong Limited, and independent property valuer, the Group has no other property interest. The report is one of the documents available for inspection as set out in Appendix IV to this prospectus. The particulars of the operating leases are set out below:

1. The Group leases from Cycle Company Limited and Gunnell Properties Limited (both independent third parties), Units 2509-2511, 25th Floor, Paul Y. Centre, No. 51 Hung To Road, Kwun Tong, Kowloon, Hong Kong, which has a total gross floor area of approximately 316 sq.m.. The property is rent by Star East IT Management Limited for a term of 22 months commencing from 15th April, 1999 to 14th February, 2001 at a monthly rental of HK$37,356 exclusive of rates, government rent, management and air-conditioning charges and other outgoings. The lease provides for agreed rent free periods of one month each commencing from 15th April, 1999 to 14th May, 1999 and 15th January, 2001 to 14th February, 2001. The property is currently occupied by the Group for office use.

2. The Group leases from Cycle Company Limited and Gunnell Properties Limited, Unit 2508, 25th Floor, Paul Y. Centre, No. 51 Hung To Road, Kwun Tong, Kowloon, Hong Kong, which has a gross floor area of approximately 103 sq.m.. The property is rented by Star East IT Management Limited on a monthly basis commencing from 26th July, 1999 at a monthly rental of HK$11,120 exclusive of rates, government rent, management and air-conditioning charges and other outgoings. The lease provides for an agreed rent free period of 21 days commencing from 26th July, 1999 to 15th August, 1999. The property is currently occupied by the Group for office use.

3. The Group leases from Cycle Company Limited and Gunnell Properties Limited, Unit 2503, 25th Floor, Paul Y. Centre, No. 51 Hung To Road, Kwun Tong, Kowloon, Hong Kong, which has a total gross floor area of approximately 105 sq.m.. The property is rented by Star East IT Management Limited on a monthly basis commencing from 24th August, 1999 at a monthly rental of HK$11,280 exclusive of rates, government rent, management and air-conditioning charges and other outgoings. The lease provides for an agreed rent free period of 21 days commencing from 24th August, 1999 to 13th September, 1999. The property is currently occupied by the Group for office use.

4. The Group leases from Cycle Company Limited and Gunnell Properties Limited, Unit 2507, 25th Floor, Paul Y. Centre, No. 51 Hung To Road, Kwun Tong, Kowloon, Hong Kong, which has a total gross floor area of approximately 96 sq.m.. The property is rented by Star East IT Management Limited on a monthly basis commencing from 18th October, 1999 at a monthly rental of HK$10,300 exclusive of rates, government rent, management and air-conditioning charges and other outgoings. The lease provides for an agreed rent free period of 21 days commencing from 18th October, 1999 to 28th October, 1999. The property is currently occupied by the Group for office use.

5. The Group leases from Cycle Company Limited and Gunnell Properties Limited, Units 3008- 3012, 30th Floor, Paul Y. Centre, No. 51 Hung To Road, Kwun Tong, Kowloon, Hong Kong,

– 233 – APPENDIX III STATUTORY AND GENERAL INFORMATION

which has a total gross floor area of approximately 590 sq.m.. The property is rented by Star East IT Management Limited for a term of 2 years commencing from 22nd November, 1999 to 21st November, 2001 at a monthly rental of HK$73,025 exclusive of rates, government rent, management and air-conditioning charges and other outgoings. The lease provides for agreed rent free periods of two months commencing from 22nd November, 1999 to 21st January, 2000 and one month commencing from 22nd October, 2001 to 21st November, 2001. The property is currently occupied by the Group for office use.

6. The Group leases from Cycle Company Limited and Gunnell Properties Limited (both not connected persons of the Company), Units 2705-2706, 27th Floor, Paul Y. Centre, No. 51 Hung To Road, Kwun Tong, Kowloon, Hong Kong, which has a total gross floor area of approximately 180 sq.m.. The property is rented by Star East IT Management Limited for a term of a year commencing from 1st December, 1999 to 30th November, 2000 at a monthly rental of HK$19,360 exclusive of rates, government rent, management and air-conditioning charges and other outgoings. The lease provides for an agreed rent free period of one month commencing from 1st December, 1999 to 31st December, 1999. The property is currently occupied by the Group for office use.

7. The Group leases from Quinway Company Limited (which is not a connected person of the Company), Shop No. G9, Ground Floor, Bank of America Tower, 12 Harcourt Road, Central, Hong Kong, which has a total gross floor area of approximately 139 sq.m.. The property is rented by Star East IT Management Limited for a term of two years commencing from 1st October, 1999 to 30th September, 2001 at a monthly rental of HK$70,000 exclusive of rates, management fees and air-conditioning charges and other outgoings. The lease provides for an agreed rent free period of two months from 1st October, 1999 to 30th November, 1999 and 1st August, 2001 to 30th September, 2001. The property is currently occupied by the Group as a studio.

8. The Group leases from Cheer Universe Development Limited (an independent third party) the whole of l9th Floor and 20th Floor, Yu Fung Commercial Centre, 289 Hennessy Road, Wanchai, Hong Kong, which has a total gross floor area of approximately 399 sq.m.. The property is rented by Star East IT Management Limited for a term of two years commencing from 1st December, 1999 to 30th November, 2001 at a monthly rental of HK$47,256 exclusive of rates and service charges. The lease provides for an agreed rent free period of two months commencing from 1st December, 1999 to 31st January, 2000. The property is currently occupied by the Group for office use.

9. The Group leases from Fargood Limited (not a connected person of the Company) the whole of 60th Floor, Shun Hing Square, Di Wang Commercial Centre, Shenzhen, the PRC, which has a total gross floor area of approximately 2,223 sq.m.. The property is rented by Star East IT Management Limited for a term of two years commencing from 1st October, 1999 to 30th September, 2001 at a monthly rental of HK$239,310 exclusive of management charges and all outgoings. The lease provides for agreed rent free periods of three months commencing from 1st October, 1999 to 31st December, 1999, 1.5 months commencing from 1st October, 2000 to 15th November, 2000 and a month commencing from 1st September, 2001 to 30th September, 2001. The property is currently occupied by the Group for office use.

– 234 – APPENDIX III STATUTORY AND GENERAL INFORMATION

10. The Group leases from Chase Style Limited (an independent third party), Unit 05, 7th Floor, Tower I, Harbour Centre, No. 1 Hok Cheung Street, Hunghom, Kowloon, Hong Kong, which has a total gross floor area of approximately 310 sq.m.. The property is rented by Lightening Investments Limited for a term of two years commencing 16th April, 2000 with an option to renew for further 2 years. The monthly rental is HK$16,660 exclusive of rates and management fee. The lease provides for an agreed rent free period from 1st March, 2000 to 15th April, 2000. The property is currently used by the Group for office use.

11. The Group leases from Cycle Company Limited and Gunnell Properties Limited, Units 3005- 3007, 3013, 3015 & 3016, 30th Floor, Paul Y. Centre, No. 51 Hung To Road, Kwun Tong, Kowloon, Hong Kong, which has a total gross floor area of approximately 641 sq.m.. The property is rented by Star East IT Management Limited for a term of 2 years commencing from 1st March, 2000 to 28th February, 2002 for a monthly rental of HK$72,031.4 exclusive of rates, government rent, management and air-conditioning charges and other outgoings. The property is currently occupied by the Group for office use.

FURTHER INFORMATION ABOUT DIRECTORS, MANAGEMENT, STAFF AND EXPERTS

Disclosure of interests

(a) BNP Prime Peregrine and Tai Fook will receive a commission and a financial advisory fee as mentioned in the section headed “Underwriting”.

(b) Maples and Calder Asia will receive usual professional fees in connection with matters relating to the Share Offer.

Particulars of service contracts

Each of Tam Wing Lun, Alan, Chan Pak Cheung, Natalis and Wong Kun To has entered into a service contract with the Company for a term of three years from the date on which dealings in the Shares on the Stock Exchange commence, which may be terminated by either party thereto giving to the other not less than six calendar months prior notice in writing, which notice period shall not expire until the end of the first year. Under the service contracts, the fixed salary for each of the above three executive Directors are HK$360,000 per annum. There is no provision for annual increment in the existing service contracts with the said Directors. One executive Director, Wong Kun To also receives basic salary (including housing allowance) of HK$211,000 per month for acting as the chief executive director of the Group. In addition, he is entitled to a discretionary bonus each year, which has no upper limit, at the discretion of the Board (excluding Wong Kun To) calculated by reference to operating results of the Group and the performance of the Director.

Directors’ remuneration

It is the policy of the Company to remunerate its executive Directors by means of a director’s fee payable at a standard rate to each of them, fixed salaries payable to full time executive Directors at rates that reflect their anticipated relative contributions to the day-to-day operations of the Group and to divide any performance related bonuses, as outlined above, in accordance with the relative contributions, status and responsibilities of the executive Directors.

– 235 – APPENDIX III STATUTORY AND GENERAL INFORMATION

An aggregate of approximately HK$422,000 was paid in cash to Wong Kun To as remuneration for the year ended 31st March, 2000. Further information in respect of the Directors’ remuneration is set out in Appendix I to this prospectus.

Save as disclosed above, none of the executive Directors is expected to receive any other remuneration for holding their office as an executive Director.

The non-executive Directors, including Peter Anthony Allen, Chung Cho Yee, Mico, Masahide Saito, Masanori Suzuki and Chan Kong Sang, Jackie have no set term of office but retire from office at each annual general meeting of the Company, subject to re-election. Save for directors’ fees of HK$120,000 per annum per independent non-executive Director (including Bradford Allen, Dominic Lai and Cheung Ting Kau, Vincent), none of the non-executive Directors is expected to receive any other remuneration for holding their office as a non-executive Director.

Under the present arrangement, the aggregate of the Director’s fees and remuneration paid or payable to, and benefits in kind received or receivable by, the Directors for the year ending 31st March, 2001 are estimated to be approximately HK$4 million.

Interests of Directors and experts in the share capital of the Company after the Share Offer

Immediately following the completion of the Share Offer and taking no account of any Share which may be taken up under the Share Offer, the interests of the Directors and chief executive in the equity or debt securities of the Company or any associated corporation (within the meaning of the SDI Ordinance) which will have to be notified to the Company and the Stock Exchange pursuant to Section 28 of the SDI Ordinance (including interests which they are taken or deemed to have under Section 31 of, or Part 1 of the Schedule to, the SDI Ordinance) once the Shares are listed, or which will be required, pursuant to Section 29 of the SDI Ordinance, to be entered in the register referred to therein once the Shares are listed, or pursuant to Rules 5.40 to 5.59 of the GEM Listing Rules relating to securities transactions by Directors to be notified to the Company and the Stock Exchange once the Shares are listed will be as follows:

(a) Shares in the Company

No. of Shares Personal Family Corporate Other Name of Director Name of company interests interests interests interests (Note 1)

Tam Wing Lun, Alan STAREASTnet.com – – 87,150,000 – Corporation

Chan Pak Cheung, STAREASTnet.com – – 87,150,000 – Natalis Corporation

Note 1: These Shares were beneficially owned by Gold Miracles in which the relevant Director holds one third of the issued share capital. Each Director is therefore deemed to be interested in 87,150,000 Shares.

– 236 – APPENDIX III STATUTORY AND GENERAL INFORMATION

(b) Options to subscribe for Shares

No. of share options Personal Family Corporate Other Name of Director Name of company interests interests interests interests (Note2)

Tam Wing Lun, Alan STAREASTnet.com 12,500,000 – – – Corporation

Wong Kun To STAREASTnet.com 12,500,000 – – – Corporation

Chan Pak Cheung, STAREASTnet.com 12,500,000 – – – Natalis Corporation

Chan Kong Sang, STAREASTnet.com 6,000,000 – – – Jackie Corporation

Peter Anthony Allen STAREASTnet.com 1,000,000 – – – Corporation

Chung Cho Yee, STAREASTnet.com 1,000,000 – – – Mico Corporation

Masahide Saito STAREASTnet.com 1,000,000 – – – Corporation

Masanori Suzuki STAREASTnet.com 1,000,000 – – – Corporation

Bradford Allen STAREASTnet.com 1,000,000 – – – Corporation

Dominic Lai STAREASTnet.com 1,000,000 – – – Corporation

Cheung Ting Kau, STAREASTnet.com 1,000,000 – – – Vincent Corporation

Note 2: The share options were granted to the Directors on 15th May, 2000 pursuant to the Pre-IPO Share Option Scheme.

Details of the persons (not being Directors or chief executive of the Company) who will, immediately following the completion of the Share Offer, be interested in 10% or more of the voting power at general meetings of members of the Group are set out in the section headed “Substantial and Initial Management Shareholders” of this prospectus.

Agency fees or commissions received

None of the Directors, the promoter of the Company or the experts named in the paragraph headed “Consents of experts” in this Appendix had received any agency fee or commission from the Group within the two years immediately preceding the date of this prospectus.

– 237 – APPENDIX III STATUTORY AND GENERAL INFORMATION

Related party transactions

The Group entered into the related party transactions within the two years immediately preceding the date of this prospectus as mentioned in note (b) to section 4 of the accountants’ report set out in Appendix I to this prospectus and in the paragraph headed “Summary of material contracts” in this Appendix.

Disclaimers

Save as disclosed herein:

(a) taking no account of any Share which may be taken up under the Share Offer, none of the Directors or chief executive of the Company has any interest in the equity or debt securities of the Company or any of its associated corporations (within the meaning of the SDI Ordinance) which will have to be notified to the Company and the Stock Exchange pursuant to Section 28 of the SDI Ordinance (including interests which he will be taken or deemed to have under Section 31 of, or Part 1 of the Schedule to, the SDI Ordinance) once the Shares are listed, or which will be required, pursuant to Section 29 of the SDI Ordinance, to be entered in the register referred to therein once the Shares are listed or pursuant to Rules 5.40 to 5.59 of the GEM Listing Rules relating to securities transactions by Directors, to be notified to the Company and the Stock Exchange once such securities are listed on GEM;

(b) none of the Directors or experts referred to in the paragraph headed “Consents of experts” in this Appendix has any direct or indirect interest in the promotion of the Company, or in any assets which have been, within the two years immediately preceding the date of this prospectus, acquired or disposed of, by or leased to any member of the Group, or are proposed to be acquired or disposed of, by or leased to any member of the Group;

(c) except for a sponsor’s agreement dated 22nd May, 2000 entered into between the Sponsors and the Company whereby the Company has appointed the Sponsors to act as its sponsors (for a sponsor’s fee) for the purposes of the GEM Listing Rules, none of the Directors or experts referred to in the paragraph headed “Consents of experts” in this Appendix is materially interested in any contract or arrangement subsisting at the date of this prospectus which is significant in relation to the business of the Group taken as a whole;

(d) none of the Directors has any existing or proposed service contracts with any member of the Group (excluding contracts expiring or determinable by the employer within one year without payment of compensation, other than statutory compensation);

(e) taking no account of any Share which may be taken up under the Share Offer, the Directors are not aware of any person (not being a Director or chief executive of the Company) who will, immediately following the completion of the Share Offer, be interested, directly or indirectly, in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any member of the Group; and

(f) none of the experts referred to in the paragraph headed “Consents of experts” in this Appendix has any shareholding in any member of the Group or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

– 238 – APPENDIX III STATUTORY AND GENERAL INFORMATION

EMPLOYEE SHARE OPTION SCHEME

Summary of terms

The following is a summary of the principal terms of the Employee Share Option Scheme conditionally approved by a written resolution passed by the sole shareholder of the Company on 15th May, 2000:

(a) Who may join

A committee comprising non-executive and independent non-executive Directors of the Company established in accordance with the Employee Share Option Scheme (the “Compensation Committee”) may, at its discretion, offer full-time employees, including executive directors of the Company or of any of its subsidiaries, options to subscribe for such number of Shares at an exercise price determined in accordance with paragraph (b) below. Each grantee shall pay HK$1.00 to the Company as consideration for the grant on acceptance of the option offer.

(b) Price of Shares

The subscription price of Shares on acceptance of the option offer under the Employee Share Option Scheme shall be determined by the Compensation Committee and notified to each grantee, save that such price will not be less than the highest of (i) the closing price of the Shares as stated in the Stock Exchange’s daily quotation sheets on the date of grant of the option; (ii) the average of the closing prices of the Shares as stated in the Stock Exchange’s daily quotation sheets on the five business days immediately preceding the date of grant of the option; and (iii) the nominal value of a Share.

The maximum number of Shares in respect of which options may be granted under the Employee Share Option Scheme (or under any other similar schemes, including the Pre-IPO Share Option Scheme) shall be such number which, in aggregate, shall not exceed 30% of the issued ordinary share capital of the Company from time to time, excluding for this purpose (A) Shares issued pursuant to the Employee Share Option Scheme and any such other schemes; and (B) any pro rata entitlements to further Shares issued in respect of those Shares mentioned in (A). The Company has applied for a waiver from strict compliance with Rule 23.03(2) of the GEM Listing Rules so that the total number of Shares available for issue under the options may increase up to 30% of the issued share capital of the Company from time to time. Please refer to paragraph “Share Option Schemes” under the section headed “Waivers in respect of the GEM Listing Rules and Companies Ordinance” for the details of the grant of waiver and the relevant conditions in relation thereto.

(d) Time of exercise of option

An option may be exercised in accordance with the terms of the Employee Share Option Scheme at any time during a period (the “Option Period”) commencing 1 year after the date of grant of the option and ending 5 years after the date of grant of the option in accordance with the

– 239 – APPENDIX III STATUTORY AND GENERAL INFORMATION

following schedule (each year below refers to each successive period of twelve months, the first such period commencing on the date of grant of the option):

Percentage of Shares comprised in options Period since date of grant which become exercisable

Year 1 zero

Year 2 up to 25%

Year 3 up to 50% (less the percentage of Shares which arose upon the exercise of options between the first anniversary and the second anniversary)

Year 4 up to 75% (less the percentage of Shares which arose upon the exercise of options between the first anniversary and the third anniversary)

Year 5 all Shares in respect of which the option has not been previously exercised

(e) Rights are personal to grantee

An option may not be transferred and is personal to the grantee and may be exercised or treated as exercised, as the case may be, in whole or in part.

(f) Rights on cessation of employment by death

If the grantee of an option ceases to be an employee of the Company or any of its subsidiaries by reason of death, his personal representatives may exercise the option (to the extent not already exercised) within a period of twelve months from the date of death, failing which it will lapse.

(g) Rights on cessation of employment by dismissal

If the grantee of an option ceases to be an employee of the Company or any of its subsidiaries on the grounds that he has been guilty of serious misconduct, or appears either to be unable to pay or to have no reasonable prospect of being able to pay his debts or has become insolvent or has made any arrangements or composition with his creditors generally, or has been convicted of any criminal offence involving his integrity or honesty, his option (to the extent not already exercised) will lapse and not be exercisable on the date of termination of his employment.

(h) Rights on cessation of employment for other reasons

If the grantee of an option leaves the service of the Company or any of its subsidiaries for any reason other than (f) or (g) above, his option (to the extent not already exercised) may be exercised on or before the date on which is one month after the date of such cessation.

(i) Effects of alterations to share capital

In the event of any alteration in the capital structure of the Company whilst any option remains exercisable, such corresponding alterations (if any) shall be made in the number or nominal

– 240 – APPENDIX III STATUTORY AND GENERAL INFORMATION

amount of Shares subject to the options so far as unexercised, and/or the subscription price and/or the method of exercise of the option as the independent financial adviser or the auditors of the Company shall certify in writing. No such alteration will be made if the effect of which would be to enable a Share to be issued at less than its nominal value or which would give a grantee a different proportion of the issued share capital of the Company as that to which he was previously entitled. The issue of Shares as consideration in a transaction is not to be regarded as a circumstance of any of such alterations.

(j) Rights on a general offer by way of takeover

In the event of a general offer by way of takeover is made to all holders of Shares (or all such holders other than the offeror, any person controlled by the offeror and any person acting in association or concert with the offeror) and such offer becomes or is declared unconditional prior to the expiry date of the relevant option, the grantee (or his legal personal representatives) shall be entitled to exercise the option in full (to the extent not already exercised) at any time within one month after the date on which the offer becomes or is declared unconditional.

(k) Rights on a general offer by way of scheme of arrangement

In the event of a general offer by way of scheme of arrangement is made to all holders of Shares with the terms of the Offer having been approved by the necessary number of holders of Shares at the requisite meetings, the grantee (or his personal representatives) may thereafter (but before such time as notified by the Company) exercise the option (to the extent not already exercised) to its full extent or to the extent specified in such notice.

(l) Rights on winding up

In the event a notice is given by the Company to its shareholders to convene a shareholders’ meeting for the purpose of considering and, if thought fit, approving a resolution to voluntarily wind-up the Company, the Company shall forthwith give notice thereof to the grantee and the grantee (or his or her legal personal representatives) may by notice in writing to the Company (such notice to be received by the Company not later than four business days prior to the proposed shareholders’ meeting) exercise the option (to the extent not already exercised) either to its full extent or to the extent specified in such notice and the Company shall as soon as possible and in any event no later than the day immediately prior to the date of the proposed shareholders’ meeting, allot and issue such number of Shares to the grantee which falls to be issued on such exercise.

(m) Rights on compromise or arrangement

In the event of a compromise or arrangement between the Company and its members or creditors being proposed in connection with the scheme for the reconstruction or amalgamation of the Company, the Company shall give notice thereof to all grantees on the same day as it gives notice of the meeting to its members or creditors to consider such a scheme or arrangement and the grantee (or his personal representatives) may by notice in writing to the Company accompanied by the remittance for the exercise price in respect of the relevant option (such notice to be received by the Company not later than two business days prior to the proposed meeting) exercise the option (to the extent not already exercised) either to its full extent or to the extent specified in such notice and the Company shall as soon as possible and in any event no later than the day immediately prior to the date of the proposed meeting, allot and issue such number of Shares to the grantee which falls to be issued on such exercise credited as fully paid and registered the grantee as holder of such Shares.

– 241 – APPENDIX III STATUTORY AND GENERAL INFORMATION

(n) Ranking of Shares

Shares allotted and issued on the exercise of options will rank pari passu with the other fully-paid Shares in issue as from the date when the name of the grantee is registered on the register of members of the Company, save that they will not rank for any dividend or other distribution declared or recommended or resolved to be paid or made if the record date therefor is before the date of exercise of the option.

(o) Period and administration of the Employee Share Option Scheme

Subject to earlier termination by the Company in general meeting, the Employee Share Option Scheme shall be valid and effective for a period of ten years from 15th May, 2000, the date on which the Employee Share Option Scheme was conditionally or unconditionally adopted by the Company. The Employee Share Option Scheme will be administered by the Compensation Committee including the independent non-executive Directors of the Company.

(p) Alteration to the Employee Share Option Scheme

The majority of the provisions of the Employee Share Option Scheme cannot be altered to the advantage of grantees or prospective grantees of options except with the prior approval of the shareholders of the Company in general meeting and, if the alteration is of material nature, the approval of the Stock Exchange.

(q) Cancellation of unexercised options

Any cancellation of options granted under the Employee Share Option Scheme but not exercised must be approved by the shareholders of the Company in general meeting, and the relevant grantees and their respective associates are required to abstain from voting. Any vote taken at the general meeting to approve such cancellation must be taken by poll.

(r) Requirements on granting options to connected persons

If options are granted to a connected person (as such term is defined in the GEM Listing Rules), the granting of such option must be subject to all independent non-executive Directors’ approval. Where options are proposed to be granted to a connected person who is also a substantial shareholder (as such term is defined in the GEM Listing Rules) or an independent non-executive Director of the Company or any of its associates, and the proposed grant of options, when aggregated with the options already granted to that connected person in the past 12 months period, would entitle him to receive more than 0.1% of the total issued Shares for the time being and the value of which is in excess of HK$5,000,000, the granting of such option must be subject to independent Shareholders’ approval.

PRESENT STATUS OF THE EMPLOYEE SHARE OPTION SCHEME

The Employee Share Option Scheme is conditional on the GEM Listing Committee granting approval of such scheme and the grant of options thereunder and granting of the listing of, and permission to deal in, the Shares to be issued as mentioned therein.

As at the date of this prospectus, no option has been granted or agreed to be granted under the Employee Share Option Scheme.

– 242 – APPENDIX III STATUTORY AND GENERAL INFORMATION

Application has been made to the GEM Listing Committee for the approval of the Employee Share Option Scheme and the subsequent granting of options under the Employee Share Option Scheme and for the listing of, and permission to deal in, the Shares which may fall to be issued pursuant to the exercise of the options granted under the Employee Share Option Scheme.

PRE-IPO SHARE OPTION SCHEME

The purpose of the Pre-IPO Share Option Scheme is to recognise the contribution of certain employees and contracted celebrities of the Group to the growth of the Group and/or to the listing of Shares on GEM. The principal terms of the Pre-IPO Share Option Scheme, approved by a written resolution of the sole shareholder of the Company dated 15th May, 2000 (which is still subject to the GEM Listing Committee of the Stock Exchange approving the granting of the listing of and permission to deal in the Shares which may fall to be issued pursuant to the exercise of the options under the Pre- IPO Share Option Scheme) are the same as the terms of the Employee Share Option Scheme except that:

(a) the subscription price for Shares is the Offer Price;

(b) the total number of Shares subject to the Pre-IPO Share Option Scheme is 100,000,000, equivalent to 10% of the enlarged issued share capital;

(c) the grantees eligible for the options (see paragraph (o) above) includes not only full-time, but also part-time or temporary employees and contracted celebrities of the Group, including directors of the Company and its subsidiaries; and

(d) save for the options which have been granted (see below) no further options will be offered or granted, as the right to do so will end upon the listing of Shares on GEM.

The options under this scheme are valid for 5 years from the date of grant. Details of the timing of exercise of the options have been described under the paragraph of “Time of exercise of option” on page 239.

Outstanding Options under the Pre-IPO Share Option Scheme

As of the date of this prospectus, options to subscribe for an aggregate of 100,000,000 Shares at an exercise price equal to the Offer Price have conditionally been granted by the Company under the Pre- IPO Share Option Scheme. All of these options may be exercised within 5 years from 15th May, 2000, but shall lapse where the grantee ceases to be employed by, or have contractual relationships as artistes with, the Group. Particulars of the outstanding options granted to the grantees in excess of 1,000,000 underlying Shares are set out below:

Directors Number of Name of grantee Address underlying Shares

Tam Wing Lun, Alan Flat 1B, 32 Kennedy Road, Hong Kong 12,500,000

Wong Kun To Flat B, 13th Floor, Block 1, Wing On Tower, 12,500,000 7 Boyce Road, Jardine’s Lookout, Hong Kong

Chan Pak Cheung, Natalis Flat D3, 6th Floor, Faber Garden, 12,500,000 6 Marconi Road, Kowloon, Hong Kong

– 243 – APPENDIX III STATUTORY AND GENERAL INFORMATION

Directors Number of Name of grantee Address underlying Shares

Chan Kong Sang, Jackie G/F, 145 Waterloo Road, Kowloon Tong, 6,000,000 Kowloon, Hong Kong

Peter Anthony Allen Ground Floor, Flat 28, Hanae Villa, 1,000,000 28-30 Stubbs Road, Hong Kong

Chung Cho Yee, Mico House 8B, Chateau de Peak, 8 Mount Kellett Road, 1,000,000 The Peak, Hong Kong

Masahide Saito 4-20-2 Ebisu, Shibuya-ku, Tokyo, Japan 1,000,000

Masanori Suzuki 3-10-19, Minami-Azabu, Minato-ku, 1,000,000 Tokyo, Japan

Bradford Allen 17 Forest Hills, Monarch Beach, CA 92629, 1,000,000 United States of America

Dominic Lai Apartment 10, 3rd Floor, Vivian Court 1,000,000 18-22 Mount Kellett Road, The Peak, Hong Kong

Cheung Ting Kau, Vincent 51D, Mount Kellett Road, The Peak, Hong Kong 1,000,000

Contracted celebrities

Position in Number of Name of grantee Address the Group underlying Shares

Tsang Chi Wai, Eric Flat A, 11/F, Prosperous Centre, Contracted 10,000,000 No. 1 Knutsford Terrace, Artiste Tsimshatsui, Kowloon, Hong Kong

Lai Ming, Leon G/F, No. 4 College Road, Kowloon Tong, Contracted 6,000,000 Kowloon, Hong Kong Artiste

Wong Yat Cheung No. 106 Sunderland Estate, 1 Hereford Road, Contracted 4,910,000 alias Wong Jing Kowloon Tong, Kowloon, Hong Kong Artiste

Employees

Chau Mei Wah, Rosanna Flat AB, 8/F, 45 Hankow Road, Corporate 2,000,000 Tsimshatsui, Kowloon, Hong Kong Financial Advisor

Siu Mei Wai Irene Olivia 39A Island Road, Deep Water Bay, Hong Kong Chief Strategy 2,000,000 and Investment Officer

Wong Yiu Hung Flat D, 9th Floor, Block 1, Hoover Tower, Chief Financial 2,000,000 Sau Wa Fong, Wanchai, Hong Kong Officer

Yu Wing San, Sandy 25B, Broadville, 4 Broadwood Road, Chief Content 1,900,000 Happy Valley, Hong Kong Officer

– 244 – APPENDIX III STATUTORY AND GENERAL INFORMATION

Position in Number of Name of grantee Address the Group underlying Shares

Wong Shui Wah, Winston 15A, Celestial Garden, 5 Repulse Bay Road, Chief Technology 1,500,000 Repulse Bay, Hong Kong Officer

Chan Yan Yin, Philip 109 Grand Court, 1/F, Kadoorie Avenue, Chief Operating 1,100,000 Kowloon, Hong Kong Officer Kam Chi Fai, Philip Flat C, 1/F, Eastbourn Court, General Manager 1,100,000 5 Eastbourn Road, Beacon Hill, – Taiwan Kowloon, Hong Kong Allan Yap 1919 West 57 Avenue, Strategic 1,000,000 Vancouver B.C., Canada Investment Advisor

Chan Kwok Hung Flat E4, Goodview Garden, Strategic 1,000,000 24 Stubbs Road, Hong Kong Investment Advisor Wong Lai Kin, Elsa Flat C, 10/F, Royal Court, Company 1,000,000 9M Kennedy Road, Wanchai, Hong Kong Secretary and Legal Counsel

112 others (holding options 13,990,000 of less than 1,000,000 underlying Shares)

Total 100,000,000

A total of 11 Directors, 122 employees and 3 contracted celebrities of the Group have been granted options under the Pre-IPO Share Option Scheme.

The Securities and Futures Commission has granted a waiver to the Company from full compliance with the disclosure requirements of paragraph 10(d) of the Third Schedule to the Companies Ordinance in relation to certain particulars of options granted under the Pre-IPO Share Option Scheme, details of which are stated in the paragraph “Companies Ordinance Waivers” under the section headed “Waivers in respect of the GEM Listing Rules and Companies Ordinance”.

Save as disclosed above, no other options have been granted or agreed to be granted by the Company under the Share Option Schemes.

OTHER INFORMATION

Estate duty and tax indemnity

SEIT Management has given indemnities in connection with, among other things, (a) any liability for Hong Kong estate duty which might be payable by any member of the Group, by reason of any transfer of property (within the meaning of section 35 of the Estate Duty Ordinance (Chapter 111 of the Laws of Hong Kong)) to any member of the Group and any other tax liabilities of the Group on or before

– 245 – APPENDIX III STATUTORY AND GENERAL INFORMATION the date on which the Share Offer becomes unconditional; and (b) any other taxation liabilities falling on any member of the Group resulting from any income, profits or gains earned, accrued or received (or deemed to be earned, accrued or received) on or before the date on which the Share Offer becomes unconditional. The indemnities do not include certain circumstances including:

(1) where provisions have been made in the audited accounts of the Group up to 29th February, 2000;

(2) where such liability would not have arisen but for any act or omission by any member of the Group voluntarily effected otherwise than in the ordinary course of business after 29th February, 2000;

(3) where any member of the Group is primarily liable as a result of transactions entered into in the ordinary course of business after 29th February, 2000;

(4) where such liability arises or is incurred as a result of the imposition of tax as a result of any retrospective change in relevant tax legislation;

(5) where any provision or reserve made for tax in the audited accounts of the Group up to 29th February, 2000 is finally established to be an over-provision or an excessive reserve; and

(6) where penalty is imposed on any member of the Group by reason of any member of the Group defaulting in any obligation to give information to the tax authority.

The Directors have been advised that no material liability for estate duty is likely to fall on the Company or any of its subsidiaries in the Cayman Islands, or Hong Kong, being jurisdiction in which one or more of the companies comprising the Group are incorporated.

Litigation

Except as disclosed below, no member of the Group is engaged in any litigation or arbitration of material importance and no litigation, arbitration or claim of material importance is known to the Directors to be pending or threatened by or against any member of the Group.

On 13th January, 2000, Ludgate Asia Limited (“Ludgate”), an independent third party, brought an action in the High Court of Hong Kong against STAREASTnet (BVI) for a sum of HK$789,180 being the balance due from STAREASTnet (BVI) to Ludgate for public relation services rendered at the request of STAREASTnet (BVI). STAREASTnet (BVI) is contesting the proceedings. The claim amount has been fully provided for in the accountants’ report set out in Appendix I.

Agency fees or commissions received

The Underwriters will receive an underwriting commission, and BNP Prime Peregrine will in addition receive an advisory and documentation fee as mentioned in the paragraph “Commission and expenses” under the section headed “Underwriting” of this prospectus.

Taxation of holders of Shares

(a) Cayman Islands

Under present Cayman Islands law, transfers and other dispositions of Shares are exempt from Cayman Islands stamp duty. – 246 – APPENDIX III STATUTORY AND GENERAL INFORMATION

(b) Hong Kong

Dealings in Shares registered on the Company’s Hong Kong branch register of members will be subject to Hong Kong stamp duty.

Potential holders of Shares are recommended to consult their professional advisers if they are in any doubt as to the taxation implications of applying for, purchasing, holding or disposing of, or dealing in, Shares. It is emphasised that none of the Company, the Directors, the Sponsors, the Underwriters, their respective directors nor any other parties involved in the Share Offer accepts responsibility for any tax effect on, or liabilities of, persons resulting from the subscription for, holding, purchase or disposal of or dealing in, Shares.

Preliminary expenses

The preliminary expenses of the Company are estimated to be approximately HK$35,000 and are payable by the Company.

Promoter

The promoters of the Company are Star East Holdings and Gold Miracles. Star East Holdings is a company incorporated in Bermuda on 6th February, 1996. As at the Latest Practicable Date, Star East Holdings had a paid-up capital of HK$73,942,778.10, consisting of 739,427,781 issued shares of HK$0.10 per share. Its directors were Tam Wing Lun, Alan, Chan Pak Cheung, Natalis, Tsang Chi Wai, Eric, Wong Yat Cheung, Wong Kun To, Chan Kwok Hung, Chan Kong Sang, Jackie, Chan Yan Kin, Philip, Mui Yim Fong, Chan Chak Mo, Chau Mei Wah, Rosanna, Siu Mei Wai, Irene Olivia, Lai Ming, Leon, Au Chun Kwok, Augustus and Lam Tak Shing. Its auditors were Deloitte Touche Tohmatsu and its principal banker was Citibank, N.A.. Gold Miracles is a company incorporated in the British Virgin Islands on 18th February, 1999. As at the Latest Practicable Date, Gold Miracles had a paid-up capital of US$90, consisting up 90 issued shares of US$1.0 each. Its directors were Tam Wing Lun, Alan, Chan Pak Cheung, Natalis and Tsang Chi Wai, Eric. Its principal banker was The Hongkong and Shanghai Banking Corporation. It has not appointed any auditors.

Save as disclosed in this prospectus, no cash, securities or other benefit has been paid, allotted or given to the promoters in connection with the Share Offer or related transactions described in this prospectus within the two years preceding the date of this prospectus.

Qualification of experts

The following are the qualifications of the experts which have given their opinion or advice as at the date of this propectus which is contained in this prospectus:

Expert Qualification

BNP Prime Peregrine Capital Registered investment adviser

Tai Fook Capital Registered investment adviser

Deloitte Touche Tohmatsu Certified public accountants

– 247 – APPENDIX III STATUTORY AND GENERAL INFORMATION

Expert Qualification

American Appraisal Property valuers

Maples and Calder Asia Cayman Islands attorneys-at-law

Consents of experts

Each of BNP Prime Peregine Capital, Tai Fook Capital, Deloitte Touche Tohmatsu, American Appraisal and Maples and Calder Asia has given and has not withdrawn its written consent to the issue of this prospectus with the inclusion of its report and/or letter and/or valuation certificate and/or opinion and/or the references to its name included herein in the form and context in which it is respectively included.

Binding effect

This prospectus shall have the effect, if an application is made in pursuance of it, of rendering all persons concerned bound by all of the provisions (other than the penal provisions) of sections 44A and 44B of the Companies Ordinance so far as applicable.

Miscellaneous

(a) Save as disclosed in this prospectus:

(i) within the two years preceding the date of this prospectus, no share or loan capital of the Company or its subsidiaries has been issued or agreed to be issued fully or partly paid either for cash or for a consideration other than cash;

(ii) no share or loan capital of the Company or its subsidiary is under option or is agreed conditionally or unconditionally to be put under option;

(iii) no founders, management or deferred shares of the Company have been issued or agreed to be issued; and

(iv) within the two years preceding the date of this prospectus, no commissions, discounts, brokerages or other special terms have been granted in connection with the issue or sale of any share or loan capital of the Company or its subsidiaries.

(b) The Directors confirm that:

(i) since 29th February, 2000 (being the date to which the latest audited consolidated financial statements of the Group were made up), there has been no material adverse change in the financial or trading position or prospects of the Group; and

(ii) there has not been any interruption in the business of the Group which may have or have had a material adverse effect on the financial position of the Group in the 24 months preceding the date of this prospectus.

– 248 – APPENDIX IV DOCUMENTS DELIVERED TO THE REGISTRAR OF COMPANIES AND AVAILABLE FOR INSPECTION

DOCUMENTS DELIVERED TO THE REGISTRAR OF COMPANIES

The documents attached to the copy of this prospectus delivered to the Registrar of Companies in Hong Kong for registration were copies of the WHITE and YELLOW application forms, the written consents referred to in the paragraph headed “Consents of experts” in Appendix III, and copies of the material contracts referred to in the paragraph headed “Summary of material contracts” in Appendix III.

DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the offices of Clifford Chance of 29th Floor, Jardine House, 1 Connaught Place, Hong Kong during normal business hours up to and including 6th June, 2000:

(a) the memorandum and articles of association of the Company;

(b) the accountants’ report dated 23rd May, 2000 and prepared by Deloitte Touche Tohmatsu, the text of which is set out in Appendix I;

(c) the audited consolidated accounts of the STAREASTnet (BVI) for the period from 18th February to 31st March, 1999 and the eleven months ended 29th February, 2000;

(d) the letter, summary of valuation and valuation certificate dated 23rd May, 2000 relating to the property interests of the Group prepared by American Appraisal;

(e) the letter prepared by Maples and Calder Asia dated 23rd May, 2000 summarising certain aspects of Cayman Islands company law referred to in Appendix II;

(f) the Companies Law;

(g) the rules of the Share Option Schemes;

(h) a list of the persons who have been granted options to subscribe for Shares under the Pre-IPO Share Option Scheme referred to in the paragraph headed “Outstanding options under the Pre-IPO Share Option Scheme” in the section headed “Pre-IPO Share Option Scheme” in Appendix III;

(i) the material contracts referred to in the paragraph headed “Summary of material contracts” in Appendix III to this prospectus, together with the service contracts with the executive Directors referred to in the paragraph headed “Particulars of service contracts” in Appendix III; and

(j) the written consents referred to in the paragraph headed “Consents of experts” in Appendix III.

– 249 –