Vertex Communications & Technology Group Limited

IMPORTANT

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

VERTEX COMMUNICATIONS & TECHNOLOGY GROUP LIMITED 慧㶴集團有限公司* (Incorporated in the Cayman Islands with limited liability) LISTING ON THE GROWTH ENTERPRISE MARKET OF THE STOCK EXCHANGE OF HONG KONG LIMITED BY WAY OF PLACING AND PUBLIC OFFER Number of Offer Shares : 123,050,000 Shares (subject to Over-allotment Option) Number of Placing Shares : 86,050,000 Shares (subject to Over-allotment Option and reallocation) Number of Public Offer Shares : 37,000,000 Shares (subject to reallocation) Offer Price Range : Not more than HK$0.8 per Share and no less than HK$0.6 per Share Nominal value : HK$ 0.01 each GEM stock code : 8228 Sponsor

Kingsway Capital Limited Lead Manager

Kingsway SW Securities Limited Co-Lead Manager

Hani Securities (H.K.) Limited Co-Managers Celestial Capital Limited First Shanghai Securities Limited Shun Loong Securities Company 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 VI to this prospectus, has been registered by the Registrar of Companies in Hong Kong as required under Section 342C of the Companies Ordinance (Chapter 32 of the Laws of Hong Kong). The Securities and Futures Commission and the Registrar of Companies in Hong Kong take no responsibility as to the contents of this prospectus or any other documents referred to above. Prospective investors of the Offer Shares should note that Kingsway SW Securities has the absolute right upon giving a notice in writing to the Company to terminate the Underwriting Agreement upon the occurrence of any of the events set forth under the paragraph headed “Grounds for termination” in the section headed “Underwriting” in this prospectus at any time prior to 5:00 p.m. (Hong Kong time) on the business day prior to the Listing Date. Such events include, but without limitation, any act of God, war, riot, public disorder, civil commotion, fire, flood, explosion, epidemic terrorism, terrorist strike, future terrorist strike or act of terrorism anywhere in the world, strike or lockout. The Offer Price is expected to be fixed on or before 6th August, 2002, by agreement between Kingsway SW Securities (on behalf of the Underwriters) and the Company with reference to market demand for the Shares and will not be more than HK$0.8 per Share and will not be less than HK$0.6 per Share. If Kingsway SW Securities (on behalf of the Underwriters) and the Company are unable to reach agreement on the Offer Price on or before 6th August, 2002, the Share Offer will not proceed. An announcement of the Offer Price will be published in the South China Morning Post (in English) and the Hong Kong Economic Journal (in Chinese) and on the GEM website on or before 14th August, 2002. * For identification purposes only 30th July, 2002 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 Internet website operated by the Stock Exchange. GEM-listed companies are not generally required to issue paid announcements in gazetted newspapers. Accordingly, prospective investors should note that they need to have access to the GEM website in order to obtain up-to-date information on GEM-listed issuers.

– i – EXPECTED TIMETABLE

2002 (Note 1)

Application lists open (Note 2) ...... 11:45 a.m. on Friday, 2nd August

Latest time to lodge WHITE and YELLOW application forms ...... 12:00 noon on Friday, 2nd August

Application lists close ...... 12:00 noon on Friday, 2nd August

Price Determination Date on or before (Note 3) ...... Tuesday, 6th August

Allotment of Offer Shares on or before ...... Wednesday, 14th August

Announcement of the Offer Price, the level of interests in the Placing, the results of applications and the basis of allotment of the Public Offer Shares and the number of Shares, if any, reallocated between the Placing and the Public Offer and the identification numbers of successful applicants in the Public Offer to be published in South China Morning Post (in English) and Hong Kong Economic Journal (in Chinese) and on the GEM website at www.hkgem.com on or before ...... Wednesday, 14th August

Despatch/collection of share certificates and refund cheques in respect of wholly or partially unsuccessful applications on or before (Notes 4 to 6) ...... Wednesday, 14th August

Deposit of share certificates into CCASS on or before ...... Wednesday, 14th August

Dealings in the Shares on GEM commence on ...... Thursday, 15th August

Notes:

1. All dates and times refer to Hong Kong local time.

2. If there is a “black” rainstorm signal 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, 2nd August, 2002, the application lists will not open on that day. Further information is set out in the paragraph headed “Effect of bad weather on the opening of the application lists” under the section headed “How to apply for Public Offer Shares” in this prospectus.

3. The Price Determination Date is expected to be on or before Tuesday, 6th August, 2002. If, for any reason, the Offer Price is not agreed on or before 6th August, 2002, the Share Offer will not proceed.

4. Applicants who apply on WHITE application forms for 2,000,000 Shares or more under the Public Offer may, by indicating in their application forms that they wish to collect refund cheques (where applicable) and/or share certificates in person, collect them in person from the Company’s branch share registrar, Secretaries Limited, from 9:00 a.m. to 1:00 p.m. on 14th August, 2002. Identification and (where applicable) authorisation documents acceptable to Secretaries Limited must be produced at the time of collection.

– ii – EXPECTED TIMETABLE

5. Applicants who apply on YELLOW application forms for 2,000,000 Shares or more under the Public Offer may collect their refund cheques, if any, in person but may not elect to collect their share certificates, which will be deposited into CCASS for credit to their designated CCASS participants’ stock accounts or CCASS investor participant stock accounts, as appropriate. The procedure for collection of refund cheques for YELLOW application form applicants is the same as those for WHITE application form applicants.

6. Uncollected share certificates and/or refund cheques will be despatched by ordinary post at the applicants’ own risk to the addresses specified in the relevant application forms. Further information is set out in the paragraph headed “Collection/posting of share certificates/refund cheques and deposit of share certificates into CCASS” under the section headed “How to apply for Public Offer Shares” in this prospectus.

7. If there is any change to the above expected timetable after the date of this prospectus, the Company will make an appropriate announcement to inform investors.

For details of the conditions of the Share Offer, please refer to the section headed “Structure and conditions of the Share Offer” in this prospectus.

– iii – 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 anyone to provide you with information that is different from what is contained in this prospectus and the application forms.

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

Page

CHARACTERISTICS OF GEM ...... i

EXPECTED TIMETABLE ...... ii

SUMMARY ...... 1

DEFINITIONS ...... 26

GLOSSARY ...... 38

RISK FACTORS ...... 44

WAIVER FROM COMPLIANCE WITH THE GEM LISTING RULES ...... 61

INFORMATION ABOUT THIS PROSPECTUS AND THE SHARE OFFER ...... 62

DIRECTORS AND PARTIES INVOLVED IN THE SHARE OFFER ...... 65

CORPORATE INFORMATION ...... 69

INDUSTRY OVERVIEW ...... 71

BUSINESS Group and shareholding structure ...... 81 History and development ...... 85 Statement of active business pursuits ...... 87 Description of business ...... 89 Revenue model ...... 104

– iv – CONTENTS

Page

Strategic alliances ...... 106 Strengths of the Group ...... 111 Sales and marketing ...... 113 Research and development ...... 114 After-sales service and technical support ...... 114 Procurement ...... 116 Largest customers and suppliers ...... 116 Competition ...... 117 The relationship with the SAR1 Group ...... 118 On-going connected transactions ...... 120

STATEMENT OF BUSINESS OBJECTIVES AND STRATEGIES Business objectives and proposed strategies ...... 123 Implementation schedule ...... 125 Bases and assumptions ...... 129

USE OF PROCEEDS Reasons for the Share Offer and use of proceeds ...... 131

FINANCIAL INFORMATION Indebtedness ...... 133 Working capital, liquidity, financial resources and capital structure ...... 135 Rules 17.15 to 17.21 of the GEM Listing Rules ...... 136 Trading record ...... 137 Management discussion and analysis of the trading record ...... 139 Taxation ...... 143 Distributable reserves ...... 144 Property interests ...... 144 Adjusted net tangible assets ...... 145 Dividend policy ...... 146 Estate duty and tax indemnity ...... 146 No material adverse change ...... 146

DIRECTORS, SENIOR MANAGEMENT AND STAFF ...... 147

SPONSOR’S INTERESTS ...... 154

SUBSTANTIAL, INITIAL MANAGEMENT, SIGNIFICANT AND OTHER SHAREHOLDERS ...... 155

– v – CONTENTS

Page

UNDERTAKINGS ...... 164

SHARE CAPITAL ...... 166

UNDERWRITING ...... 169

STRUCTURE AND CONDITIONS OF THE SHARE OFFER ...... 173

HOW TO APPLY FOR PUBLIC OFFER SHARES ...... 178

Appendix I – Accountants’ Report ...... 188

Appendix II – Additional Financial Information ...... 222

Appendix III – Property Valuation ...... 225

Appendix IV – Summary of the Constitution of the Company and Cayman Islands Company Law ...... 232

Appendix V – Statutory and General Information ...... 259

Appendix VI – Documents Delivered to the Registrar of Companies and Available for Inspection ...... 302

– vi – SUMMARY

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

All the trademarks mentioned in this prospectus (other than those set out in the paragraph headed “Intellectual property” in the section headed “Property interests of the Group” in Appendix V to this prospectus) are for reference only and do not connote any business relationship between the Group and the relevant trademark proprietors unless otherwise indicated.

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

NATURE OF BUSINESS

The Group is engaged in communications and technology business, specializing in the provision of communications infrastructure services, application and development of content delivery technology and content production, procurement and delivery. The Group utilizes and complements its experience and expertise in the above three business segments to converge traditional media and communication technology into new technology-based media which will make use of various communication infrastructures and traditional media distribution channels to deliver contents to users in the Greater China Region.

The following diagram illustrates the core business segments of the Group:

Communication infrastructure services

Application Content and production, development of procurement content delivery and technology delivery

– 1 – SUMMARY

EXISTING BUSINESS OF THE GROUP

I) Communication infrastructure services

Since the Group’s establishment in 1998, the Group has been providing communication infrastructure services for network carriers in Hong Kong. For the two years ended 31st December, 2001, the Group had completed about 350 communication infrastructure projects for major network carriers.

These projects involved the FTNS (wireline based and local wireless) network and cellular network deployment. Currently, the Group was appointed by one of the major local network operators to transform the existing network of the network operator to 3G networks.

Apart from engaging in the network deployment, the Group also develops and provides other communication infrastructure services. For example, in November 2001, the Group was appointed by International Bank of Asia to install an Internet remote intelligent surveillance (“IRIS”) system for the five branches of International Bank of Asia in Hong Kong. IRIS system is a cost-efficient and multi-functional surveillance solution. Through IRIS system, high- quality digital live video is distributed from multiple locations to selected users by using the latest IP video delivery technology. Digitally captured video/images in desired locations are continuously distributed to selected viewers over the Internet Protocol network. Selected users can access the monitoring images/video with any computers over IP networks (Internet/ Intranet/Virtual Private Networks). Depending on the required quality, the users can access the monitoring video with dial-up modem or broadband access.

– 2 – SUMMARY

II) Application and development of content delivery technology

The Group has acquired, developed and customized various content delivery technologies, which include Digital Rights Management, voice and language technology, cross-platform broadcast and Internet multimedia broadcast. Utilizing its expertise in communication infrastructure services and content delivery technologies, the Directors believe that the Group can provide competitive solutions to clients to satisfy their needs.

Building on the Group’s expertise in application and development of content delivery technology, the Group has the capability to offer comprehensive and competitive solutions to clients. The Group’s solution service consists of Website design, Website construction, consulting services, content delivery technology application developments and post-installation services to clients.

III) Content production, procurement and delivery

In order to support the Group’s communications and technology businesses, the Group has carried on its content production, procurement and delivery business. The content delivered by the Group includes the online media content and offline media content. a) Online media content

The Group develops and expands its content database through in-house production studios and procures contents from external content providers.

(1) In-house multimedia content production

The Group currently owns and operates two content production studios in Hong Kong and Shanghai. The Group owns the contents provided by these studios.

These two content production studios are operated to produce audio and visual programs by production teams with channel hosts and guest appearances. The programs produced for MMChina, Shanghai Online II and subscribers to i-Home solution include live online show broadcasting, program post-production and encoding and partnership in program production.

(2) Content procured from external content providers

As the contents from in-house production studios are limited in variety and quantity, the Group also procures content from other content providers.

– 3 – SUMMARY

Shanghai Library

The Group is currently negotiating with a media company in the PRC on publishing its content offline and online. The Group will continue to seek and negotiate PRC and international well-known media companies to further expand its source of content for its online media delivery business.

II) Offline media content

Chinese language Newsweek Special Edition

In October 2000, negotiation between the Group and Newsweek, Inc. on publishing Chinese language Newsweek Special Edition commenced.

The Group entered into an agreement with Newsweek Inc. in October 2001. Under the licensing agreement with Newsweek, Inc., the Group was granted a worldwide licence to reproduce, market and disseminate Chinese language Newsweek Special Editions in print form and in electronic form. The Group has the right of first refusal to the reproduction, marketing and dissemination of the corresponding Chinese special editions of all new issues of Newsweek Special Editions which are published with an initial period of three years. The licensing agreement is for the initial period of three years, with automatic annual renewal after the first three-year period.

– 4 – SUMMARY

the Chinese character version of Newsweek Special Edition to the cooperating publisher of that particular issue. The responsibilities of these PRC magazine publishers are to apply for special permit to publish the Newsweek Special Edition and to package their magazines in bundle with the simplified Chinese character version of Newsweek Special Edition. Such arrangement in publishing and distributing the simplified Chinese character version of Newsweek Special Edition in the PRC, which is acknowledged and permitted by Newsweek, Inc., is a common arrangement under the current PRC legal requirements and will continue to be adopted. The PRC version is sold in bundle with Popular Medicine and Mother and Baby respectively. As for the first issue, the simplified character version had a circulation of around 250,000 and the traditional character version had around 50,000. The total sales of the first issue of the Chinese language Newsweek Special Edition until 31st March, 2002 was HK$930,270.

DEVELOPING BUSINESS OF THE GROUP

I) Provision of online media contents to SIE, MMChina and i-Home

Under the cooperation agreement with Shanghai Chuan Yi, the Group provides the online media contents, which are developed from Shanghai Library, to SIE, MMChina and i-Home indirectly. MMChina is a showcase of the Group to demonstrate its capacity and expertise in content delivery technology and content production. The Group does not receive any revenue from providing online media contents to MMChina.

On the other hand, after the finalization of revenue-sharing arrangement with SIE and Rui Hong New Town, the Group will receive revenue from SIE and subscribers to i-Home for the provision of online media contents. Please refer to the section headed “Revenue Model” for details of the revenue arrangements.

II) i-Home solution

Building on the expertise and experience in communication infrastructure, application and development of content delivery technology, and online media content production, the Group successfully developed i-Home solution which brings intelligent community network into residential properties in the PRC.

The components of i-Home solution:

1. Broadband infrastructure

– design the system and terminal network

– assist in the broadband equipment and cable installation and commissioning

– manage and maintain the hardware

– 5 – SUMMARY

2. Platform for community broadcast, e-commerce and estate management

Build up the platform applications including the online media broadcasting application, e-commerce application and Internet remote intelligent surveillance system (IRIS)

3. Online contents delivery

Through the i-Home platform, the Group cooperates with Shanghai Chuan Yi to deliver online multimedia contents to subscribers. These contents are produced by the Group and procured by the Group from other content providers.

The Group and Shanghai Chuan Yi entered into an agreement with Rui Cheng in December 2001 to install i-Home solution for its newly developed residential property, Rui Hong New Town in Shanghai. i-Home solution was successfully installed at Rui Hong New Town and was subject to a trial period commencing from January 2002. The trial period has been extended because Rui Cheng so far has not solved its technical problems in connection with the ISP and only a few residents could get access to i-Home solution at this moment. Rui Cheng is currently negotiating with the Group for a revenue-sharing scheme and the Directors believe that a substantive agreement will be concluded after the completion of the trial period.

As the broadband network had already been developed at Rui Hong New Town before the Group commenced its negotiation with Rui Cheng, the Group did not provide its broadband infrastructure services to Rui Hong New Town.

III) Electronic publishing platform

As the convergence of traditional media and communication technology is the focal point of the Group’s business development, the Group will utilize its content delivery technologies to develop the electronic publishing with its traditional media partners.

As at the Latest Practicable Date, the Group only distributes the Chinese language Newsweek Special Editions via traditional printed media. The Directors plan to utilize the Group’s various communication technologies, including text-to-speech, Digital Rights Management, Internet payment gateway and video streaming to set up an electronic publishing platform. Through this platform, people can subscribe to and view the content of Chinese language Newsweek Special Editions.

– 6 – SUMMARY

Currently, the Website of SinoWorld Media is used as a testing ground for its online publishing platform. In addition, a forum Website for readers to express views, share experiences and seek advice on the topics of the magazine is available at www.sinoworldmedia.com. SinoWorld Media intends to make available a facility in the Website for readers to purchase copies of the magazine online.

The following is a summary of the Company’s turnover by business segments for each of the two years ended 31st December, 2001:

Year ended Year ended 31st December, 2000 31st December, 2001 % of total % of total Business Segments Total turnover Total turnover Note HK$’000 HK$’000

1. Communication infrastructure services 9,582 81 6,822 55 2. Application and development of content delivery technology 2,218 19 5,558 45 3. Content production, procurement and delivery 1 ––––

11,800 100 12,380 100

Note:

1. As the Group published the first issue of Chinese language Newsweek Special Edition in January 2002, the business of content production, procurement and delivery has not recorded any revenue during the Track Record Period. In addition, the online media contents of the Group are mainly produced by the content production studio in the PRC which is operated by Shanghai WFOE. As the Group acquired Shanghai WFOE in February 2002, the financial performance of Shanghai WFOE was not reflected in the financial statement of the Group during the Track Record Period.

– 7 – SUMMARY

REVENUE MODEL

Set out below is a summary of the core revenue model of the Group.

Name of business Source of revenue Record revenue during Track Record Period

Existing business of the Group

1) Communication infrastructure – charges a service fee on the ✓ services basis of size and scope of communication infrastructure project

2) Application and development – charges a one-off project fee ✓ of content delivery technology which depends on the complexity of the project

3) Content production, procurement – For the traditional Chinese The first and second issues of and delivery character version which is sold Chinese language Newsweek in Hong Kong, Macau and Special Edition were published in Taiwan, the Group receives January and April 2002. The the sales revenue and Group recorded the sales revenue advertising income. and advertising income after the Track Record Period. – For the simplified Chinese character version which is sold in the PRC, the Chinese language Newsweek Special Edition is published by the PRC publishers appointed by the Group in form of bundle sales with local magazines. Under the arrangement with the PRC publishers in publishing the first and second issues of Chinese language Newsweek Special Edition, the Group is entitled to the advertising income.

– Under the licensing agreement with Newsweek Inc., certain percentage of income generated from the Chinese language Newsweek Special Edition is payable from the Group to Newsweek Inc. as the licensing fee.

– 8 – SUMMARY

Developing business of the Group

1) Provision of online media content to

a) MMChina – MMChina is the showcase of No subscription fee was charged the Group’s content delivery and contents were delivered for technology and online media free to viewers of MMChina. contents.

b) SIE (Shanghai Online II) – Under the contractual No subscription revenue was arrangement with Shanghai recorded because the revenue Chuan Yi, the Group produces sharing arrangement between the its online media content in its Group, on behalf of Shanghai production studios in Hong Chuan Yi, and SIE is not yet Kong and Shanghai, and finalized. procures contents from Shanghai Library and other sources. The Group, through Shanghai Chuan Yi, provides these contents to SIE and SIE establishes a paid channel at its portal Shanghai Online II, and Shanghai Chuan Yi receives certain percentage of monthly subscription fees received by SIE. The Group is entitled to receive 60% of the subscription revenue received by Shanghai Chuan Yi.

c) Subscribers to i-Home – Similar to the arrangement in No subscription revenue was solution the provision of online media recorded because the trial period contents to SIE, the Group, of i-Home solution provided to through Shanghai Chuan Yi, Rui Hong New Town is extended provides its online media and the revenue sharing content to subscribers arrangement is not yet finalized. to i-Home solution and receive certain percentage of subscription revenue.

2) i-Home solution – For the broadband No service fee was recorded at infrastructure service, the the i-Home solution project at Group receives service fee Rui Hong New Town because the from property developer on broadband network was already the basis of the size and scope developed before the Group of broadband network. negotiated the installation of i-Home solution at Rui Hong New Town.

– 9 – SUMMARY

– For the i-Home platform, the No project fee, licensing fee and Group charges property maintenance fee were recorded at developer a one-off project the Rui Hong New Town project fee to develop and customise because the trial period is the functions requested by extended and revenue sharing property developers. The arrangement is not yet finalized. Group also receives an annual licensing fee and maintenance fee from property developer.

– For the online media content No subscription fee was recorded delivery, the Group will at the Rui Hong New Town receive subscription revenue project. from subscribers to i-Home solution. Please refer to section headed “Strategic alliances” for the details of the revenue sharing arrangement.

STRENGTHS OF THE GROUP

The Directors believe that the Group’s principal strengths are as follows:

Support from Initial Management Shareholders and Directors

– The Initial Management Shareholders, Directors and Shareholders possess good connections with the international business communities, especially in Hong Kong and the PRC. The Directors believe that these connections and the Group’s competence in communication technologies have generated and shall continue to generate quality business opportunities for the Group.

Professional management team

– The Group has a professional management and technical team which possess the needed in-depth telecommunication and technology knowledge required to support and implement the Group’s objectives.

– In addition, the Directors and management team possess extensive experience in financial management and business operation which enables the Group to formulate and implement its business strategies effectively.

Proven track record in communications and technology business in Hong Kong

– The Group has been involved in the development of fixed-line, wireless and broadband network infrastructure for well-known network carriers in Hong Kong. In

– 10 – SUMMARY

the two years ended 31st December, 2001, the Group had completed about 350 projects for major network carriers. Leveraging on its comprehensive and integrated content delivery technologies, such as Internet multimedia broadcast, Digital Rights Management and Internet payment gateway, the Group has established a proven track record in providing solution services to a wide range of industries such as telecommunications, media, entertainment, public utilities and transportation. The Directors believe that the Group’s track record in communication and technology industries is a strength for its business development in the PRC and Hong Kong.

Strategic cooperation with reputable technology companies

– The Group has established cooperation and partnerships with reputable technology companies such as Net2Voice. These relationships enable the Group to maintain its competitiveness in communication technology. The Directors believe that this is an important asset of the Group in further expanding its business into the PRC and Hong Kong. Please refer to the section headed “Strategic alliances” for details of these strategic cooperations.

Strategic cooperation with reputable international media companies

– The Directors believe that the strategic cooperation with reputable PRC and international media companies such as Sino United Publishing offers competitive advantage to the Group in developing its business in the Greater China Region. Through such cooperation, the Group is able to procure quality contents and make these contents available offline and online to customers.

– The Directors believe that the Group’s success in publishing, marketing and distribution of the Chinese language Newsweek Special Edition demonstrates the capability of the Group to introduce renowned international media companies to the PRC’s media market. Such capability will assist the Group to negotiate with other well-known international media companies for future business development in the PRC. Please refer to the section headed “Strategic alliances” for details of these strategic cooperations.

INITIAL MANAGEMENT SHAREHOLDERS, SIGNIFICANT SHAREHOLDER AND OTHER SHAREHOLDERS OF THE COMPANY

To facilitate the Listing, the Group underwent Reorganization which principally involved the establishment of the Company as a holding company of the Group. The Reorganization is detailed in the paragraph headed “Corporate reorganization” in Appendix V to this prospectus. Set out below are the respective shareholdings of the Initial Management Shareholders, the Significant Shareholder and other Shareholders of the Company immediately after the completion of the Share Offer but taking no account of any Shares which may be issued upon the exercise of (i) the Over-allotment Option, and (ii) options granted under the Pre-IPO Share

– 11 – SUMMARY

Option Scheme or the Post-IPO Share Option Scheme, and the respective moratorium periods for the restriction on disposal of Shares by them:

Number of Percentage of Shares held shareholding immediately after immediately after completion of the completion of the Share Offer Share Offer Date of (assuming (assuming Moratorium becoming that the Over- that the Over- Approximate period from Name of a Shareholder allotment Option allotment Option investment the Listing Shareholder Notes of the Group is not exercised) is not exercised) cost per share Date (HK$) Initial Management Shareholders

Dr. Poon 1 22nd July, 1993 282,701,528 57.44 0.0022 12 months (Note 15) Mrs. Poon Wong Wai Ping 1 26th May, 2000 67,154,666 13.64 0.0022 12 months Ms. Poon Ching Mei 1 26th May, 2000 16,788,667 3.41 0.0022 12 months Mr. Poon 2 26th May, 2000 16,788,667 3.41 0.0022 12 months Amazing Nova 1 26th May, 2000 167,886,666 34.11 0.0022 12 months Corporation Matrix Worldwide 1 25th May, 2000 61,606,666 12.52 0.0022 12 months Corporation Forever Triumph 1 25th May, 2000 53,208,196 10.81 0.0022 12 months Limited Arabian Gulf Investments 3 1st September, 2000 18,269,638 3.71 2.56 12 months (Far East) Limited Arabian Gulf Investments 3 1st September, 2000 18,269,638 3.71 2.56 12 months Overseas Limited Dr. Lee Peng Fei Allen 4 29th September, 1998 11,100,000 2.26 negligible 12 months (note 10) Ms. Choi Yuen Ha Maria 4 25th May, 2000 5,550,000 1.13 negligible 12 months (note 10) Supreme Lucky Ltd. 4 25th May, 2000 11,100,000 2.26 negligible 12 months (note 10) Hong Kong University 5 25th May, 2000 9,966,667 2.02 0.0803 12 months of Science and Technology Hong Kong University 5 25th May, 2000 9,966,667 2.02 0.0803 12 months of Science and Technology R and D Corporation Limited

– 12 – SUMMARY

Significant Shareholders

Bahrain Middle 6 15th July, 2000 28,729,812 5.84 1.42 6 months East Bank (E.C.)

Sheikh Ali Khalifa 6,7 15th September, 2000 13,645,254 2.77 1.48 6 months Athbi Al Sabah

Other Shareholders Dr. Shen Vincent 8 25th May, 2000 4,233,333 0.86 negligible Not applicable Yun Shen (note 11) Bright Progress 8 25th May, 2000 4,233,333 0.86 negligible Not applicable Holdings Limited (note 11) Sir Chung Sze Yuen 9 31st January, 2002 500,000 0.1 Not applicable 12 months

Notes:

1. Amazing Nova Corporation is beneficially owned by Dr. Poon, Mrs. Poon Wong Wai Ping, Mr. Poon and Ms. Poon Ching Mei as to 40%, 40%, 10% and 10% respectively of its issued share capital. Mrs. Poon Wong Wai Ping is the spouse of Dr. Poon whilst Mr. Poon and Ms. Poon Ching Mei are children over the age of 18 of Dr. Poon respectively. As Dr. Poon and Mrs. Poon Wong Wai Ping hold 80% of the shareholding in Amazing Nova Corporation, Dr Poon is deemed, by virtue of the SDI Ordinance, to be interested in the same 167,886,666 Shares held by Amazing Nova Corporation.

Matrix Worldwide Corporation is wholly and beneficially owned by Dr. Poon. Dr Poon is deemed, by virtue of the SDI Ordinance, to be interested in the same 61,606,666 Shares held by Matrix Worldwide Corporation.

Forever Triumph Limited is wholly and beneficially owned by Dr. Poon. Dr Poon is deemed, by virtue of the SDI Ordinance, to be interested in the same 53,208,196 Shares held by Forever Triumph Limited.

As Dr. Poon and Mr. Poon are executive Directors and Dr. Poon and his spouse and Mr. Poon collectively own 90% interest in Amazing Nova Corporation, Amazing Nova Corporation is regarded as an Initial Management Shareholder.

As Dr. Poon is an executive Director and the beneficial owner of Matrix Worldwide Corporation and Forever Triumph Limited respectively, Matrix Worldwide Corporation and Forever Triumph Limited are regarded as Initial Management Shareholders.

Dr. Poon and Mr. Poon believe that the communications and technology industries have enormous growth potential and they therefore formed the Group in May 1998. – 13 – SUMMARY

2. As Mr. Poon is an executive Director and owns 10% interest in Amazing Nova Corporation, Mr. Poon is regarded as an Initial Management Shareholder and effectively holds 3.41% interest in the Company.

3. The beneficial shareholder of Arabian Gulf Investments Overseas Limited is Arabian Gulf Investments (Far East) Limited, a joint venture private equity fund held by The Hongkong and Shanghai Banking Corporation Limited and certain Middle East interests. The principal activities of Arabian Gulf Investments Overseas Limited are the provision of fund management and direct investment in equity market. Arabian Gulf Investments Overseas Limited intends to hold the shareholding interest in the Company as a medium to long term investment.

Mr. Christopher J. Weir, the managing director of Arabian Gulf Investments (Far East) Limited, was appointed as director of SAR1 on 19th September, 2000 and as non-executive Director of the Company on 28th March, 2002. Mr. Christopher J. Weir resigned as non-executive Director of the Company with effect from 27th June, 2002. Because of his directorship during the Track Record Period, Arabian Gulf Investments (Far East) Limited and Arabian Gulf Investments Overseas Limited are regarded as Initial Management Shareholders.

4. Supreme Lucky Ltd is wholly and beneficially owned by Dr. Lee Peng Fei Allen and Ms. Choi Yuen Ha Maria, as to 50% and 50% respectively of its issued share capital. Ms. Choi Yuen Ha Maria is the spouse of Dr. Lee Peng Fei Allen. Dr. Lee Peng Fei Allen is deemed, by virtue of the SDI Ordinance, to be interested in the same 11,100,000 Shares held by Supreme Lucky Ltd. As Dr. Lee Peng Fei Allen is one of the non-executive Directors of the Company, by reason of its shareholding in the Company and Dr. Lee Peng Fei Allen’s representation in the Board, Supreme Lucky Ltd. is regarded as an Initial Management Shareholder. In addition, by reason of Dr. Lee Peng Fei Allen’s representation in the Board and his shareholding in Supreme Lucky Ltd., Dr. Lee Peng Fei Allen is also regarded as an Initial Management Shareholder. As Dr. Lee Peng Fei Allen is optimistic about the future in the telecommunications and technology industries, he invests in the Company as a medium to long term investment.

5. Hong Kong University of Science and Technology R and D Corporation Limited is a subsidiary wholly owned by Hong Kong University of Science and Technology. It participates in the research, development and commercialisation of science and technology products and systems. Professor Lin Otto Chui Chau, who holds the position of Director of Hong Kong University of Science and Technology R and D Corporation Limited, is one of the non-executive Directors of the Company. By reason of its shareholding in the Company and Professor Lin Otto Chui Chau’s representation in the Board, Hong Kong University of Science and Technology R and D Corporation Limited and Hong Kong University of Science and Technology are both regarded as Initial Management Shareholders. Through the cooperation in the development of Internet payment gateway technology, Hong Kong University of Science and Technology R and D Corporation Limited became an investor of the Company.

6. Bahrain Middle East Bank (E.C.) is a company listed on the Bahrain Stock Exchange since June 1989. Its principal business is banking and equity investment. Bahrain Middle East Bank (E.C.) has no involvement in the management of the Company. In July 2000, Bahrain Middle East Bank (E.C.) invested in the Group as part of its equity investment portfolio. Bahrain Middle East Bank (E.C.), together with Sheikh Ali Khalifa Athbi Al Sabah who is one of its directors, is a Significant Shareholder of the Company.

7. Sheikh Ali Khalifa Athbi Al Sabah is a director of Bahrain Middle East Bank (E.C.) and therefore together with Bahrain Middle East Bank (E.C.) is a Significant Shareholder of the Company. He is a telecommunications and technology investor in the Middle East. He was formerly a minister of the government in the State of Kuwait. His businesses cover mobile telephone system, micro-wave telecommunications, Internet technologies, banking and newspaper and magazine publication. One of his companies publishes Newsweek Arabic edition in the Middle East. Sheikh Ali Khalifa Athbi Al Sabah is a strategic investor of the Company. He also holds 10% of the issued share capital of SinoWorld CNW. Save as disclosed herein, Sheikh Ali Khalifa Athbi Al Sabah has no involvement in the management of the Company. In September 2000, Sheikh Ali Khalifa Athbi Al Sabah became a strategic investor of the Group. He believed that there is promising future of the Group’s businesses in the

– 14 – SUMMARY

telecommunications, technology and media sectors. Sheikh Ali Khalifa Athbi Al Sabah and his associates have no shareholding interests or control in Bahrain Middle East Bank (E.C.) apart from his directorship.

8. Bright Progress Holdings Limited is an investment holding company. Dr. Shen Vincent Yun Shen is the controlling shareholder of Bright Progress Holdings Limited. Dr. Shen Vincent Yun Shen is an investor of the Company but is independent of and not connected with the Directors, chief executive, substantial shareholders and Initial Management Shareholders of the Company or any of their respective associates and has no involvement in the management of the Company. Dr. Shen Vincent Yun Shen subscribed for 20% of the shareholding in Bright Progress Holdings Limited in July 1999. Bright Progress Holdings Limited acquired shares in eCyberPay.com Limited in October 1999 and subsequently transferred them to Unifine. eCyberPay.com Limited was further transferred to the SAR1 Group under the corporate reorganization in December 2001. In May 2000, as a result of the reorganization, 63,500,000 shares in SAR1 were allotted to Bright Progress Holdings Limited. In January, 2002, Dr. Shen Vincent Yun Shen agreed to the transfer of 50,800,000 shares in SAR1 among the said 63,500,000 shares in SAR1 to Forever Triumph Limited in return for the acquisition of the other 80% of the shareholding in Bright Progress Holdings Limited from Amazing Nova Corporation. Since then, Bright Progress Holdings Limited has been wholly and beneficially owned by Dr. Shen Vincent Yun Shen and Dr. Shen Vincent Yun Shen is interested in the Shares held by Bright Progress Holdings Limited. Bright Progress Holdings Limited is an Existing Public Shareholder of the Company.

9. Sir Chung Sze Yuen was appointed Chairman of SAR1 in September 2000. Sir Chung Sze Yuen has no involvement in the management of the Company. In recognition to the advice given by Sir Chung Sze Yuen to the board of SAR1 and to his service as the chairman of the board of SAR1 since September 2000, the Group’s controlling shareholder, Dr. Poon transferred from Forever Triumph Limited certain number of shares of SAR1 to Sir Chung Sze Yuen. Sir Chung Sze Yuen thus became a shareholder of the Company. Since the Shares held by Sir Chung Sze Yuen were transferred indirectly from Dr. Poon, the controlling shareholder, he is subject to a 12-month moratorium period.

10. Dr. Lee Peng Fei Allen and his spouse, Ms. Choi Yuen Ha Maria, subscribed for 240,000 and 250,000 shares in Network Engineering Limited in consideration of HK$2 and HK$1 respectively on 29th September, 1998. The 490,000 shares in Network Engineering Limited represent 11,100,000 Shares after the Reorganization.

11. Dr. Shen Vincent Yun Shen subscribed for 20% shareholding in Bright Progress Holding Limited in consideration of HK$2,000 on 16th July, 1999. The 20% shareholding in Bright Progress Holdings Limited represents 4,233,333 Shares after the Reorganization.

12. Network Engineering Limited was established in 1992. Network Engineering Limited was known as Consure Limited and it was a shelf company. Bright World Enterprise Limited, wholly owned by Dr. Poon and his spouse, Mrs. Poon Wong Wai Ping, acquired Consure Limited on 22 July 1993 and changed the company’s name to Network Engineering Limited on 12 September 1995. The business of Network Engineering Limited was dormant until September 1998.

– 15 – SUMMARY

13. Each of Amazing Nova Corporation, Matrix Worldwide Corporation, Forever Triumph Limited, Arabian Gulf Investments Overseas Limited, Supreme Lucky Ltd., Hong Kong University of Science and Technology R and D Corporation Limited and Sir Chung Sze Yuen has undertaken to the Company, the Stock Exchange and the Sponsor that for a period of 12 months from the Listing Date, he/it will not dispose of (or enter into any agreement to dispose of) any of his/its shareholding in the Company. Each of Dr. Poon, Mrs. Poon Wong Wai Ping, Ms. Poon Ching Mei, Mr. Poon, Arabian Gulf Investments (Far East) Limited, Dr. Lee Peng Fei Allen, Ms. Choi Yuen Ha Maria, Hong Kong University of Science and Technology has also undertaken to the Stock Exchange, the Company and the Sponsor that for a period of 12 months from the Listing Date, he/she/it will not dispose of (or enter into any agreement to dispose of) his/her/its interests in Amazing Nova Corporation, Matrix Worldwide Corporation, Forever Triumph Limited, Arabian Gulf Investments Overseas Limited, Supreme Lucky Ltd. and Hong Kong University of Science and Technology R and D Corporation Limited (as the case may be).

14. Each of Sheikh Ali Khalifa Athbi Al Sabah and Bahrain Middle East Bank (E.C.) has undertaken to the Company, the Stock Exchange and the Sponsor that for a period of 6 months from the Listing Date, he/it will not dispose of (or enter into any agreement to dispose of) any of his/its shareholding in the Company.

15. Under the Pre-IPO Share Option Scheme, 5 Directors, 3 advisers and consultants and 14 employees were granted options under the Pre-IPO Share Option Scheme. Particulars of options granted to the existing shareholder under the Pre-IPO Share Option Scheme are set out below:

Number of Shares to be issued upon Subscription exercise of Price per Name Position Address Option Period options Share (HK$)

Dr. Poon Chairman and No. 3A, Elite Villas 17/6/2002 to 8,334,000 0.12 Executive 22 Shouson Hill 17/6/2012 Director Road, Hong Kong

Mr. Poon Chief No. 3A, Elite Villas 17/6/2002 to 8,000,000 0.12 Executive 22 Shouson Hill 17/6/2012 Officer and Road, Hong Kong Executive Director

The number of shares to be issued upon the exercise in full of the share options granted to Dr. Poon and Mr. Poon under the Pre-IPO Share Option Scheme represent 1.69% and 1.63% of the issued share capital of the Company as at the Listing Date, assuming the Over-allotment Option is not exercised.

Details of the Pre-IPO Share Option Scheme are set out under the section headed “Pre-IPO Share Option Scheme” in Appendix V to this prospectus.

16. In December 2001 and June 2002, HK$25 million and HK$5 million were transferred from SAR1 to the Company respectively. Approximately HK$2 million of the shareholders’ fund in SAR1 is reserved for the purpose of winding up various subsidiaries of the SAR1 Group.

– 16 – SUMMARY

STATEMENT OF BUSINESS OBJECTIVES AND STRATEGIES

Overall Business Objectives

The Group is engaged in communications and technology business, specializing in the provision of communications infrastructure services, application and development of content delivery technology, and content production, procurement and delivery. The Group utilizes and complements its experience and expertise in the above three business segments to converge traditional media and communication technology into new technology-based media which will make use of various telecommunication infrastructure and traditional media distribution channels to deliver content to users in the Greater China Region. The Directors have devised the following strategies to achieve the Group’s objectives:

Closely monitor and match up the broadband and 3G network developments in the Greater China Region

The transformation of existing telecommunication network to the broadband and 3G networks will create opportunities to the Group. The Group will deploy its resources to position the Group to match up the broadband and 3G network development and related business opportunities. The Group will strengthen its network convergence department by recruiting high calibre staff in telecommunication network and providing training to the engineering staff to cope with the latest development in telecommunication industry. During the Track Record Period, the Group has developed its cross-platform broadcast technology to deliver content through mobile phone networks. The Directors expect that 3G networks can become an effective platform for content delivery. The Group intends to enhance its technologies in the live broadcast applications on 3G networks by setting up a new department responsible for the development of content delivery applications on broadband and 3G networks.

Develop its cross-media content delivery business in the Greater China Region

To capitalize on the huge business opportunity created by the convergence of traditional media and communication technologies in the Greater China Region, the Group will continue to develop its cross-media content delivery business. The Group will develop electronic publishing platforms to be integrated with the communication technologies of the Group. The Group will continue to negotiate with traditional media to further expand its sources of content. The Group intends to introduce other well-known international magazines into the China media market in both printed and electronic forms.

– 17 – SUMMARY

Develop and strengthen its expertise in communication technologies

The Directors consider that competitive communication technologies set the foundation of the Group’s business development. Therefore, the Group will develop and acquire communication technologies that fit the Group’s business through its R&D effort, joint ventures and cooperation agreements with potential media technologies companies which specialise in digital content production technologies, software platform management technologies and network equipment in support of content delivery on broadband network. Currently, the Group is receiving the transfer of the voice and language technologies from Net2Voice and will establish a joint venture with Net2Voice to further develop the sales of these language technologies in the Greater China Region. The technology transfer and establishment of joint venture are expected to complete in the third quarter of 2002. The Group intends to develop interactive voice response system and call centre by utilizing text-to-speech and voice recognition technologies and provides these application solutions to corporate clients in the Greater China Region.

Develop new products and services and strengthen its presence in the Greater China Region

The Group plans to offer new products and services to meet the changing needs of its customers arising from the technology improvement and business expansion. Currently, the Group is preparing to cooperate with network equipment manufacturers to sell the network equipment to network operators in late 2002. A development centre will be established in the PRC to provide technology solutions services, as well as research and development, for the Group’s products and service, including DRM clearance service. It is the present intention of the Directors to procure and deliver contents of Newsweek Weekly in both printed and electronic format. Currently, the Group is negotiating with Newsweek Inc. on the publication of Chinese language Newsweek Weekly. The Directors expect that the Group will obtain the licence from Newsweek Inc. to publish Chinese language Newsweek Weekly in the third quarter of 2002. The Group also prepares to strengthen its presence in the Greater China Region through expanding its advertising and sales team, and marketing effort. The Group will cooperate with Newsweek Inc. to launch a marketing campaign to enhance the brand name of Newsweek.

Selectively pursue acquisitions

As the financial strength of the Group will further be improved after the Listing, the Group will selectively pursue acquisition of small to medium sized media technology companies in the Greater China Region. The Directors are of the view that strategic acquisitions will assist the Group to develop its business. Currently, the Group is looking for media technology companies which specialise in digital content production technologies, software platform management technologies and network equipment in support of content delivery on broadband network.

– 18 – SUMMARY

REASONS FOR SHARE OFFER AND USE OF PROCEEDS

The Directors believe that the Listing will enhance the Group’s profile and the proceeds from the Share Offer will enable the Group to implement its future business plans as stated in the section headed “Statement of business objectives and strategies” in this prospectus.

The net proceeds of the Share Offer (assuming that the Over-allotment Option is not exercised) after deducting related expenses, are estimated to be approximately HK$64 million based on the minimum point of the stated price range of HK$0.6 per Share. The Directors currently intend to use such net proceeds from the Share Offer as follows:

– Approximately 10 million will be used to acquire potential media technologies companies in the Greater China Region;

– Approximately 5 million will be used to expand communication infrastructure services in the Greater China Region, in which approximately 3 million will be used to finance the purchase of network equipment to handle the transformation of 3G network and approximately 2 million will be used to recruit high calibre staff in the field of telecommunication infrastructure and provide training to the Group’s engineering staff to cope with the latest development of telecommunication industry;

– Approximately 9 million will be used to develop cross-media content delivery business which utilizes different media channels, including electronic publishing platform, community broadcast platform of i-Home solution, mobile phone network and traditional media distribution channel to deliver contents to users. In the Greater China Region, in which approximately 6.8 million will be used for the integration of the multi-media platform with related communication technologies such as DRM, content protection and Internet payment gateway, and approximately 2.2 million will be used for sales and marketing of the cross-media content delivery business;

– Approximately 13 million will be used to strengthen its expertise in communication technology, in which approximately 1 million will be used to develop voice and language technology and approximately 11 million will be used to recruit high calibre staff in the field of communication technologies. The balance of 1 million will be used to purchase computer hardware and equipment;

– Approximately 25 million will be used to develop new products and services and strengthen its presence in the Greater China Region, in which 6 million will be used to establish development centres in the PRC to provide technology solutions services, as well as research and development, for the Group’s products and services including DRM clearance service in the PRC, approximately 12 million will be used to recruit personnel for development and production of offline and online media content

– 19 – SUMMARY

including Chinese language Newsweek Weekly and Special Edition, approximately 4 million will be used to purchase equipment for expansion of content production, procurement and delivery business and approximately 3 million will be used for public relation and marketing campaign to enhance the brand name of the Group’s products and services; and

– Approximately 2 million will be used for general working capital.

In the event that the Over-allotment Option is exercised in full, 65% of additional net proceeds of approximately HK$9.9 million will be used for strategic acquisitions and the balance will be used for general working capital.

If the Offer Price is set above HK$0.6, the net proceeds will increase accordingly. 40% of additional net proceeds will be used for new products and services development and for strategic acquisition respectively. The balance of additional net proceeds will be used for general working capital.

TRADING RECORD

The following table is a summary of the consolidated results of the Group for each of the two years ended 31st December, 2001, prepared on the basis that the current structure of the Group was in existence throughout the period under review except, in the case of SinoWorld Media, from the date of acquisition to 31st December, 2001 and the results of Optimum Cyber and Shanghai WFOE which were acquired by the Group after 31st December, 2001 and were accounted for as an acquisition using the purchase method of accounting of the Group. The summary should be read in conjunction with the accountants’ report set out in Appendix I to this prospectus.

– 20 – SUMMARY

Consolidated income statements Year ended 31st December 2000 2001 HK$’000 HK$’000 Turnover (Note 1) – Communication infrastructure service income 9,582 6,822 – Service income from application and development of content delivery technology 2,218 5,558

11,800 12,380

Other revenue 20 14 Depreciation (123) (154) Management fees (3,974) (1,466) Other operating expenses (485) (2190) Subcontracting costs (5,298) (5,000) Staff costs (2,458) (3,119)

(Loss) profit from operations (518) 465

Taxation (37) (52)

(Loss) profit before minority interests (555) 413 Minority interests – 27

Net (loss) profit for the year (555) 440

(Loss) earning per Share – Basic (Note 2) HK(0.150) cents HK0.119 cents

– Diluted (Note 3) HK(0.150) cents HK0.111 cents

Notes:

1. Turnover represents service income from communication infrastructure services and application and development of content delivery technology, and is recognized when the services are rendered.

2. The calculation of the basic (loss) earning per Share is based on the net (loss) profit during the Track Record Period and on 369,146,232 Shares in issue on the assumption that the corporate reorganization, as described in the section headed “Corporate reorganization” in Appendix V to this prospectus, had been effective on 1st January, 2000.

– 21 – SUMMARY

3. The calculation of diluted (loss)/earning per Share for the Track Record Period is based on the net (loss)/profit during the year under review and 369,146,232 Shares deemed to be in issue throughout the year under review on the assumption that the reorganization of the Group had been completed on 1st January, 2000 taking no account of any Shares which may be issued under the Over-allotment Option.

The computation of diluted loss per Share for the year ended 31st December, 2000 does not assume the exercise of the Company’s potential ordinary Shares since its exercise would result in a reduction in net loss per Share. The diluted loss per Share for the year ended 31st December, 2000 is HK$0.150.

Assuming that the Over-allotment Option is not exercised and that all the options to subscribe for an aggregate of 27,689,000 Shares (representing 5.63% of the issued share capital of the Company as at the Listing Date) that have been conditionally granted under the Pre-IPO Share Option Scheme are exercised in full, the diluted earnings per Share for the year ended 31st December, 2001 would be HK0.111 cents. Particulars of the outstanding options conditionally granted under the Pre-IPO Share Option Scheme to the Directors, advisers, consultants and employees of the Group are set out in the paragraph headed “Pre-IPO Share Option Scheme” in Appendix V to this prospectus.

THE LATEST FINANCIAL PERIOD REPORTED ON BY THE REPORTING ACCOUNTANTS REQUIRED UNDER RULE 11.11 OF THE GEM LISTING RULES

Pursuant to Rule 11.11 of the GEM Listing Rules, the Company is required to include the financial results which must not have ended more than six months before the date of this prospectus. As this prospectus includes the financial results of the Group covering only the period from 1st January, 2000 up to 31st December, 2001 which has ended more than six months before the issue date of this prospectus, the Company has applied for and has been granted a waiver from strict compliance with Rule 11.11 of the GEM Listing Rules by the Stock Exchange.

The Company has sought and obtained from the Stock Exchange a waiver from strict compliance with the requirement of Rule 11.11 of the GEM Listing Rules on the basis of the Directors’ confirmation that they have performed sufficient due diligence on the Group to ensure that, up to the date of this prospectus and there has been no material adverse change in the financial or trading position of the Group since 31st December, 2001 (the date up to which the latest audited financial statement of the Group were made) and there is no event which would materially affect the information shown in the accountants’ report set out in Appendix I to this prospectus.

– 22 – SUMMARY

SHARE OFFER STATISTICS

Minimum Offer Price Maximum Offer Price

Offer Price HK$0.6 HK$0.8

Market capitalisation (Notes 1 and 2) HK$295 million HK$394 million

Adjusted net tangible asset value per Share (Notes 1 and 3) 0.19 0.24

Notes:

1. Except where otherwise indicated, the statistics have been prepared on the assumption that the Over-allotment Option has not been exercised.

2. The market capitalisation is calculated on the basis of the minimum and maximum of the stated price range between HK$0.6 and HK$0.8 per Share and 492,196,232 Shares in issue immediately after the Share Offer, taking no account of (i) any Shares which may be issued upon the exercise of any options which may be granted under the Over-allotment Option, the Pre-IPO Share Option Scheme or the Post-IPO Share Option Scheme and (ii) any Shares which may be allotted or issued or purchased by the Company under the general mandates for the issue or repurchase of Shares granted to the Directors referred to in Appendix V to this prospectus or otherwise.

3. The adjusted net tangible asset value per Share has been arrived at after making the adjustments set out under the paragraph “Adjusted net tangible assets” in the section headed “Financial information” in this prospectus and on the basis of a total of 492,196,232 Shares in issue and to be issued as mentioned herein, but takes no account of (i) any Shares which may be issued upon the exercise of any options which may be granted under the Over-allotment Option, the Pre-IPO Share Option Scheme or the Post-IPO Share Option Scheme; and (ii) any Shares which may be allotted or issued or purchased by the Company under the general mandates for the issue or repurchase of Shares granted to the Directors referred to in Appendix V to this prospectus or otherwise. The adjusted net tangible asset value per Share will be HK$0.19 and HK$0.23 based on the Offer Price of HK$0.6 and HK$0.8 respectively and upon the exercise of all the options granted under the Pre-IPO Share Option Scheme which will result in the subsequent issue of 27,689,000 Shares, assuming the Over- allotment Option is not exercised.

RISK FACTORS

The Directors consider that the Group’s business and investments in the Shares are subject to a number of risk factors, which include those set out in the section headed “Risk factors” in this prospectus and are summarised as follows:

Risks relating to the Group

• Profitability of the Group during the Track Record Period may not fully reflect the Group’s performance

• The Group operates in a highly competitive market

– 23 – SUMMARY

• The Group may not be able to successfully implement its strategies and implementation plans

• Reliance on a few major customers

• The Group depends on its key executives and personnel

• The Group may not be able to maintain its reputation and brand

• There can be no assurance that the Group’s strategy to grow by selectively pursuing acquisitions will be effective

• There can be no assurance that the Group’s cross-media content delivery business will be successful

• The Group does not anticipate paying dividends in the foreseeable future

• The Group may not be able to sustain the strategic relationships with its partners

• Short operating history

• The Group depends on a reliable Internet infrastructure and computer network

• The business of Sino United Publishing may compete with the Group

• The Group’s control over SinoWorld Media is based on a verbal agreement

• The Group may not be able to control the decision making process of Net2Voice (Hong Kong) without the cooperation of the joint venture partner

• The Group will rely in varying degrees on external content providers

• Directors’ emoluments

Risks relating to the industry

• Liabilities for unauthorised use of data in the PRC

• Uncertain protection of the Group’s intellectual property rights

• The Group operates in markets subject to rapid technological changes

• Risks relating to the accuracy of statistics

– 24 – SUMMARY

• The Group is exposed to political and economic risks in the PRC

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

Risks relating to legal and other regulatory considerations

• Liabilities for publication of the magazines and their contents in Hong Kong

• Protection of personal data in Hong Kong

• Liabilities for publication of the magazines and their contents in the PRC

• Liabilities for destabilising content on the Internet in the PRC

• Liabilities relating to contents provided at MMChina

• Loss may be suffered by the Group if Shanghai Online II is suspended because of the contents of other content providers

• The legal framework with respect to Internet and media in Hong Kong and the PRC is developing

• Uncertain protection of the Group’s own rights and possible infringement of third parties’ rights

Risks relating to the Share Offer

• Options have been granted under the Pre-IPO Share Option Scheme which may result in the dilution of the Shareholders’ interests in the Company and the earnings per Share thereof

• The interests held by the public may fall below the minimum percentage as required under the GEM Listing Rules if the options granted under the Pre-IPO Share Option Scheme are exercised

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

– 25 – DEFINITIONS

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

“AC Nielsen” AC Nielsen, a VNU company, has 21,000 employees worldwide and is the world’s leading market research firm, offering measurement and analysis of marketplace dynamics, consumer attitudes and behavior, and new and traditional media in more than 100 countries. AC Nielsen’s clients include leading consumer product manufacturers and retailers, service firms, media and entertainment companies and the Internet community

“Affiliated company” has the meaning ascribed thereto in the GEM Listing Rules

“Articles” the articles of association of the Company

“associate(s)” has the meaning ascribed thereto in the GEM Listing Rules

“Audit Committee” the audit committee of the Board

“Board” the board of Directors

“Bright World” Bright World Enterprise Limited, a company incorporated in Hong Kong with limited liability and wholly owned by Dr. Poon and his associate

“BVI” the British Virgin Islands

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

“CNNIC” China Internet Network Information Center, an institution established by the Chinese Academy of Sciences in June 1997 and is now under the administration of the PRC Ministry of Information Industry, responsible for the registration of all “.cn” domain names other than “edu.cn” domain names. CNNIC’s official web-site is www.cnnic.com.cn

– 26 – DEFINITIONS

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

“Companies Law” the Companies Law, Cap 22 (Laws of 1961, as consolidated and revised) of the Cayman Islands

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

“Company” Vertex Communications & Technology Group Limited, a company with limited liability incorporated in the Cayman Islands on 16th November, 2001 under the Companies Law

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

“Dr. Poon” Poon Kwok Lim Steven, Chairman of the Group and an Initial Management Shareholder, holding approximately 76.58% and 57.44% of the Shares prior to and after the Share Offer respectively (assuming the Over-allotment Option is not exercised)

“eCyberPay.com Limited” eCyberPay.com Limited, a company incorporated in Hong Kong with limited liability and a wholly-owned subsidiary of SAR1

“Existing Public Shareholder” Bright Progress Holdings Limited (a company incorporated in Hong Kong on 3rd August, 1999 and wholly-owned by Dr. Shen Vincent Yun Shen)

“GEM” the Growth Enterprise Market of the Stock Exchange

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

“GEM Listing Rules” the Rules Governing the Listing of Securities on GEM

“Grandworld Technology Limited” Grandworld Technology Limited, a company incorporated in Hong Kong with limited liability and a wholly-owned subsidiary of SAR1

“Greater China Region” the PRC, Taiwan, Hong Kong and Macau

– 27 – DEFINITIONS

“Group” the Company, its subsidiaries and its associates or, where the context so requires, in respect of the period before the Company became the holding company of its present subsidiaries and/or associates, the present subsidiaries and associates of the Company

“Hongkong Clearing” Hong Kong Securities Clearing Company Limited

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

“Initial Management has the meaning ascribed thereto under the GEM Listing Shareholder(s)” Rules and, in the context of the Company, comprises Dr. Poon, Mrs. Poon Wong Wai Ping, Ms. Poon Ching Mei, Mr. Poon, Amazing Nova Corporation, Matrix Worldwide Corporation, Forever Triumph Limited, Arabian Gulf Investments (Far East) Limited, Arabian Gulf Investments Overseas Limited, Dr. Lee Peng Fei Allen, Ms. Choi Yuen Ha Maria, Supreme Lucky Ltd., Hong Kong University of Science and Technology and Hong Kong University of Science and Technology R and D Corporation Limited, or any one of them

“ISO” the International Standard Organization

“ITU” International Telecommunications Union, an international organization founded in 1865 and headquartered in Geneva that sets communications standards. The ITU comprises of more than 150 member countries

“Kingsway Capital” or “Sponsor” Kingsway Capital Limited, an investment adviser registered with the SFC under the Securities Ordinance and a fellow subsidiary of Kingsway SW Securities

“Kingsway SW Securities” Kingsway SW Securities Limited, a securities dealer or “Lead Manager” registered with the SFC under the Securities Ordinance and a fellow subsidiary of Kingsway Capital

“Latest Practicable Date” 23rd July, 2002, being the latest practicable date before the printing of this prospectus for ascertaining certain information in this prospectus

– 28 – DEFINITIONS

“Listing” the listing of the Shares on GEM

“Listing Date” the date on which the trading of the Shares on GEM commences

“Macau” the Macau Special Administrative Region of the PRC

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

“MMChina” a website operated by Shanghai Chuan Yi, the trademark and domain name of which are owned by the Group

“Mother and Baby” the magazine published by職業女性雜誌社. The second issue of the Chinese language Newsweek Special Edition is sold together with Mother and Baby in form of bundle sale. 職業女性雜誌社is independent of and not connected with the Directors, chief executive, substantial shareholders and Initial Management Shareholders of the Company or any of their respective associates

“Mr. Poon” Poon Shu Yan Joseph, Chief Executive Officer, Executive Director and Initial Management Shareholder of the Company

“Net2Voice” Net2Voice, Inc., organized and existing under the laws of Delaware, USA, and which is a leading developer of multilingual voice-enabled solutions for the Internet and phone. It offers voice over Internet, mobile Internet, and speech applications, including PC-to-PC, PC-to-telephone and unique voice-enabled solutions applicable to any wireless or conventional landline phone. According to a shareholders’ agreement dated 20th October, 2001 and a letter of assignment from SAR1 and the Company to Net2Voice accepted by Net2Voice on 5th February, 2002, Net2Voice will subscribe for 51% shareholding in Net2Voice (Hong Kong). From the Directors’ understanding, the subscription will happen after the Listing. Net2Voice is independent of and not connected with the Directors, chief executive, substantial shareholders and Initial Management Shareholders of the Company or any of their respective associates

– 29 – DEFINITIONS

“Net2Voice (Hong Kong)” Net2Voice (Hong Kong) Limited, a company incorporated on 24th October, 2001 in Hong Kong with limited liability and the joint venture company established by the Group and Net2Voice pursuant to which Net2Voice will subscribe for 51% shareholding at the fourth quarter of 2002

“Network Engineering” Network Engineering Limited, a wholly-owned subsidiary of the Company incorporated in Hong Kong with limited liability on 29th September, 1992. Network Engineering is involved in the provision of telecommunication engineering services

“Newsweek, Inc.” Newsweek, Inc., a US based publishing company which publishes Newsweek Weekly and Newsweek Special Edition

“Newsweek Special Edition” the magazine published by Newsweek, Inc. irregularly. According to the agreement between the Group and Newsweek, Inc., Newsweek, Inc. granted a worldwide exclusive licence to the Group to reproduce, market and disseminate the Chinese language Newsweek Special Editions

“Newsweek Weekly” a weekly magazine published by Newsweek Inc.

“Offer Price” the price per Share (exclusive of brokerage, the Stock Exchange trading fee and SFC transaction levy) at which the Shares are to be subscribed and issued pursuant to the Share Offer, and which is to be determined as described in the section headed “Structure and conditions of the Share Offer” in this prospectus

“Offer Share(s)” the Placing Share(s) and/or the Public Offer Share(s)

“OFTA” Office of the Telecommunications Authority of Hong Kong

“Optimum Cyber” Optimum Cyber Limited, a company incorporated in the BVI with limited liability on 18th July, 2000 and a wholly-owned subsidiary of the Company. Optimum Cyber is an investment holding company

– 30 – DEFINITIONS

“Over-allotment Option” the option granted by the Company to Kingsway SW Securities, on behalf of the Underwriters, under the Underwriting Agreement pursuant to which the Company may be required to allot and issue up to 18,455,000 additional Offer Shares (representing approximately 15% of the total number of the Offer Shares initially available under the Share Offer) at the Offer Price to cover over- allocations in the Share Offer

“Over-allotment Shares” up to an aggregate of 18,455,000 new Shares which may be allotted and issued by the Company pursuant to the exercise of the Over-allotment Option

“Pacific Digitals” Pacific Digitals (HK) Limited, a wholly-owned subsidiary of the Company incorporated in Hong Kong with limited liability on 19th July 2000. Pacific Digitals is involved in the provision of Web solutions and other Internet solution services.

“Placing” the conditional placing of the Placing Shares for cash at the Offer Price subject to the terms and conditions stated herein

“Placing Shares” the 86,050,000 new Shares to be issued by the Company pursuant to the Placing

“Placing Underwriters” Kingsway SW Securities, Hani Securities (H.K.) Limited, Celestial Capital Limited, First Shanghai Securities Limited and Shun Loong Securities Company Limited

“Popular Medicine” the magazine published by Shanghai Science and Technology Publishing Limited. The first issue of the Chinese language Newsweek Special Edition is sold together with Popular Medicine in form of bundle sale. Shanghai Science and Technology Publishing Limited is independent of and not connected with the Directors, chief executive, substantial shareholders and Initial Management Shareholders of the Company or any of their respective associates

– 31 – DEFINITIONS

“Post-IPO Share Option Scheme” the share option scheme conditionally adopted by written resolutions of the sole shareholder dated 22nd July, 2002, the principal terms of which are summarised in the section headed “Summary of terms of the Share Option Schemes” in Appendix V to this prospectus

“Price Determination Agreement” the agreement to be entered into between the Company and Kingsway SW Securities (for itself and on behalf of the Underwriters) pursuant to which the Offer Price will be determined

“Price Determination Date” the date on which the Offer Price will be fixed for the purpose of the Share Offer. This is expected to be on 6th August, 2002

“PRC” the People’s Republic of China, which for the purpose of this prospectus and for geographical reference only, excludes Hong Kong, Macau and Taiwan

“Pre-IPO Share Option Scheme” the share option scheme conditionally approved and adopted by written resolutions of the sole shareholder dated 22nd July, 2002, the principal terms of which are summarised in the section headed “Summary of terms of the Share Option Schemes” in Appendix V to this prospectus

“Public Offer” the offer for subscription of the Public Offer Shares to members of the public for cash at the Offer Price and subject to terms and conditions stated herein and in the application forms

“Public Offer Shares” the 37,000,000 new Shares being initially offered by the Company for subscription under the Public Offer as described in the section headed “Structure and conditions of the Share Offer” in this prospectus

“Public Offer Underwriters” Kingsway SW Securities, Hani Securities (H.K.) Limited, Celestial Capital Limited, First Shanghai Securities Limited and Shun Loong Securities Company Limited

“RadioRepublic.com Limited” RadioRepublic.com Limited, a company incorporated in Hong Kong with limited liability and a wholly-owned subsidiary of SAR1

– 32 – DEFINITIONS

“Regulation S” Regulation S under the Securities Act

“Relevant Securities” has the meaning ascribed thereto in Rule 13.15 of the GEM Listing Rules

“Reorganization” the corporate reorganization of the companies now comprised in the Group in preparation for the listing of the Shares on GEM, details of which are set out in the section headed “Corporate reorganization” in Appendix V to this prospectus

“Rui Cheng” 上海瑞城房地產有限公司 (Shanghai Rui Cheng Property Company Limited), a subsidiary of Shui On Group Limited

“SAR1” SAR1 Innovations Limited (formerly known as SAR1.com Limited), a company with limited liability incorporated on 21st November, 2000 in the Cayman Islands which was owned by the same Shareholders of the Company before the Listing. Before the Reorganization, Pacific Digitals (HK) Limited, Network Engineering Limited, Net2Voice (Hong Kong), Optimum Cyber Limited and Unifine were owned by SAR1. Through the share transactions between SAR1 and the Company under the Reorganization, Pacific Digitals (HK) Limited, Network Engineering Limited, Net2Voice (Hong Kong), and Unifine were transferred from SAR1 to the Company. The Group acquired Optimum Cyber Limited from SAR1 in February 2002 and Optimum Cyber has been a subsidiary of SAR1 since its establishment in July 2000. The shareholders of SAR1 held the Shares in the same proportion immediately before the Share Offer

“SAR1 Group” SAR1 and its subsidiaries, namely, RadioRepublic.com Limited, eCyberPay.com Limited, Grandworld Technology Limited and SAR1 (HK)

“SAR1 (HK)” SAR1 (HK) Limited, a company incorporated in Hong Kong with limited liability and a wholly-owned subsidiary of SAR1. SAR1 (HK) serves as a corporate office of the SAR1 Group

– 33 – DEFINITIONS

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

“Securities Act” the US Securities Act of 1933, as amended

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

“SFC” the Securities and Futures Commission of Hong Kong

“Shanghai Chuan Yi” 上海傳一信息技術有限公司(Shanghai Chuan Yi Information Technology Company Limited), a licensed ICP incorporated under the laws of the PRC with limited liability on 16th March, 2001. Shanghai Chuan Yi is independent of and not connected with the Directors, chief executive, substantial shareholders and Initial Management Shareholders of the Company or any of their respective associates

“Share(s)” ordinary share(s) of HK$0.01 each in the capital of the Company

“Share Offer” the Placing and the Public Offer

“Shareholder(s)” the shareholder(s) of the Company

“Shanghai WFOE” 上海創一信息技術有限公司(Shanghai Vertex Communications & Technology Group Limited), a company with limited liability incorporated on 13th November, 2001 in the PRC and a wholly-owned subsidiary of the Company

“Shanghai Online II” a subscription-based portal owned and operated by SIE

“SIE” 上海信息產業公司(Shanghai Information Enterprises Limited), an ISP incorporated in January 1995 in the PRC and a subsidiary of China Telecommunications Corporation in Shanghai. SIE is independent of and not connected with the Directors, chief executive, substantial shareholders and Initial Management Shareholders of the Company or any of their respective associates

– 34 – DEFINITIONS

“Significant Shareholder(s)” has the meaning ascribed thereto under the GEM Listing Rules and, in the context of the Company, comprises Bahrain Middle East Bank (E.C.) and Sheikh Ali Khalifa Athbi Al Sabah, or any of them

“SinoWorld CNW” SinoWorld CNW Publishing Limited (formerly known as Newsweek Publishing Company Limited) a company incorporated in Hong Kong with limited liability on 28th November, 2001 and beneficially owned by the Company. SinoWorld CNW is involved in publishing the Chinese language Newsweek Special Edition

“SinoWorld Media” SinoWorld Media Company Limited, a company incorporated in Hong Kong on 22nd August, 2001 with limited liability and the joint venture company established by the Group and Sino United Publishing. As at the Latest Practicable Date, the Group owns 50% equity interest in SinoWorld Media and SinoWorld Media is the subsidiary of the Group because of the control of the Group on the board of SinoWorld Media

“Sino United Publishing” Sino United Publishing (Holdings) Limited, incorporated in Hong Kong in September 1988, the holding company of a large group of publishing companies, including the long-established Commercial Press (Hong Kong) Limited, whose business covers Hong Kong, the PRC and overseas

“Stock Exchange” The Stock Exchange of Hong Kong Limited

“subsidiaries” has the meaning ascribed thereto in section 2 of the Companies Ordinance

“substantial shareholder” has the meaning ascribed thereto under the GEM Listing Rules

“TMT”“Technology, Media and Telecom”, a term to describe the convergence of the Telecom, Media and Technology business

“Track Record Period” the period commencing from 1st January, 2000 to 31st December, 2001

– 35 – DEFINITIONS

“Underwriters” the Placing Underwriters and the Public Offer Underwriters

“Underwriting Agreement” the underwriting agreement relating to the Share Offer dated 29th July, 2002 and entered into between the Company, the Warrantors, the Sponsor and the Underwriters, particulars of which are set out in the section headed “Underwriting” in this prospectus

“US” or “USA” or “United States” the United States of America

“VNU” VNU, Inc. is one of the world’s leading media and information companies. Its core activities are marketing and media information, business information and directories. VNU is active in more than 100 countries around the world. The company employs over 35,000 people and has an annual revenue of approximately US$ 4 billion

“Warrantors” the Company, the Executive Directors and the Initial Management Shareholders

“WTO” World Trade Organization

“HK$ and cents” Hong Kong dollars and cents respectively, the lawful currency of Hong Kong

“RMB” or “Renminbi” Renminbi in units of yuan, the lawful currency of the PRC

“sq.ft.” square foot (feet)

“Unifine” Unifine Ltd., a company incorporated in the BVI with limited liability on 18th February, 2000 and a wholly- owned subsidiary of the Company. Unifine Ltd. is an investment holding company

“US$” US dollars, the lawful currency of the USA

“%” per cent

– 36 – DEFINITIONS

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

US$1: HK$7.75 HK$1: RMB1.07

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

Certain monetary amounts included in this prospectus have been subject to rounding adjustments; accordingly, certain amounts of less than HK$1 million are rounded to the nearest million.

– 37 – GLOSSARY

This glossary contains explanations of certain terms and definitions used in this prospectus. The terms and their meanings may not correspond to standard industry meanings or usage of these terms.

“2G” Second generation (2G) systems used digital encoding and include GSM, TDMA and CDMA. Except for GSM’s SMS text message service, 2G systems have been used mostly for voice

“3G” or “third generation” a type of wireless communications technology that has broadband capability to support multimedia services, such as real-time interactive video

“broadband” high-speed transmission. The term is commonly used to refer to communications lines or services at T1 rates (1.544 Mbps) and above. Broadband often refers to Internet access using cable modems and DSL, both of which deliver speeds above and below T1

“cdma2000” a 3G technology that increases data transmission rates for existing CDMA (cdmaOne) network operators

“CDMA” code division multiple access – a digital cellular technology developed in the US which provides a way of multiplying a variety of signals onto a single communications channel

“chatroom” a specific platform to facilitate online chatting among multiple users

“community” an interacting population of individual Internet users in a common location on the Web

“content(s)” information, whether in the form of text, image or video, contained on a Website

“digital” a term used to describe any system based on discontinuous data or events. All data that a computer process 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 education entity, for example, “.com” “.net” and “.org”

– 38 – GLOSSARY

“domain name” the unique name that identifies a Website which is registered with an approved domain name registrar

“download” to copy information from a Website to a user’s computer

“DRM” or “Digital Rights Digital Rights Management (DRM) is a technology Management” developed and owned by Microsoft for the protection and management of digital contents. The technology is developed for the distribution of media contents, such as audio and video contents on the Internet. The core of the technology is to encode the media contents into a specialized format that can only be decrypted by authorized “digital keys”. With a copy of the digital key, a user can play the media content on selective devices, such as on a Personal Computer or MP3 player. With the DRM technology, the encoded media content can be sent to the users via various means. The users will be required to purchase the digital keys to play the media contents

“DSL” Digital Subscriber Line, a technology that dramatically increases the digital capacity of ordinary telephone lines (the local loops) into the home or office

“e-business” electronic business, a means of transacting business over the Internet

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

“e-mail” electronic mail, a means of delivering electronic messages over the Internet

“e-merchant” a merchant who conducts business, especially sales of goods and services, over 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

“FTNS” Fixed Telecommunications Network Services

– 39 – GLOSSARY

“gateway” hardware or software interface that translates between two dissimilar protocols or incompatible networks such as a gateway that translates between internal, proprietary e-mail format and Internet e-mail format

“GSM” global system for mobile communications standard, including GSM 900 which uses the 900 megahertz frequency band, and GSM 1800, which uses the 1800 megahertz frequency band

“ICP” Internet content provider, a company that provides information, articles and other content over the Internet

“IMT-2000” a framework from the ITU for third-generation (3G) wireless phone standards throughout the world that deliver high-speed multimedia data as well as voice

“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

“IP” Internet Protocol, a set of communication rules for the fast and efficient routing and delivery of packets of information between computer systems. It specifies how data is transmitted over the Internet

“ISP” Internet service provider, a company that provides businesses and individuals with access to the Internet usually for a fee

“Kbps” kilobits per second, which is a measurement of speed for digital signal transmission expressed in thousand of bits per second

“local loop” the lines between a customer and the telephone company’s central office, often called the “last mile”

“Mbps” megabits per second, which is a measurement of speed for digital signal transmission expressed in million of bits per second

– 40 – GLOSSARY

“modem” a device that allows a PC to communicate and exchange information with other computers via telephone lines

“multimedia” the use of computer to combine text, graphics, sound and video

“online” being connected to other interconnected computers on the Internet

“Optical Fiber” a thin glass strand designed for light transmission. A single hair-thin fiber is capable of transmitting trillions of bits per second. In addition to their huge transmission capacity, optical fibers offer many advantages over electricity and copper wire

“PC” personal computer

“PC penetration” number of PCs divided by the subject population

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

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

“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

“server hosting” a geographical location of server grade equipment in a controlled environment

“streaming” playing audio or video content immediately as it is downloaded from the Internet, rather than first storing it in a file on the receiving computer

“T- 1 ” T-1 is the standard for digital broadband telecommunications bearers used on public networks in the US and Japan

– 41 – GLOSSARY

“TDMA” Time Division Multiple Access, a satellite and cellular phone technology that interleaves multiple digital signals onto a single high-speed channel. For cellular phone technology, TDMA triples the capacity of the original analog method (FDMA). It divides each channel into three sub-channels providing service to three users instead of one

“text-to-speech” Converting text into voice output using speech synthesis techniques. Although initially used by the blind to listen to written material, it is now used extensively to convey financial data and other information via telephone for everyone

“traffic” the volume of Web users visiting a Website

“UMTS” Universal Mobile Telecommunications System, the European implementation of the 3G wireless phone system that provides service in the 2GHz band and offers global roaming and personalized features

“video-on-demand” or “VOD” the provision of video programming as demanded by a user, as opposed to broadcasting by a pre-determined schedule

“voice recognition technology” the conversion of spoken words into computer text. Speech is first digitized and then matched against a dictionary of coded waveforms. The matches are converted into text as if the words were typed on the keyboard

“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-mails and chatting in newsgroup discussion

“WCDMA” A 3G technology that increases data transmission rates in GSM systems by using the CDMA air interface instead of TDMA. In the ITU’s IMT-2000 3G specification, W- CDMA has become known as the Direct Sequence (DS) mode

– 42 – GLOSSARY

“Web browser” software which provides a graphical interface through which an Internet user can navigate to various Websites and other Internet content, and which intergrates various tools which perform Internet-related functions for users, such as transferring files and reading e-mail

“Web casting” the delivery of live or archived sound or video over the Web to multiple recipients

“Web hosting” the housing and maintenance of Web pages for another party

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

“Website” a collection of web pages on the World Wide Web

“World Wide Web” or “Web” a full-colour, multimedia database of information on the Internet. The Web comprises a network of computer servers that uses a special communications protocol to link different servers throughout the Internet and permits communication of text, graphics, video and sound

– 43 – RISK FACTORS

This prospectus contains forward-looking statements that include, among other things, statements of business objectives concerning the Group’s development, expectations as to funding its capital requirements, anticipated customer demand, statements as to the revenue and profitability of the Company and other statements of expectations, belief, future, plans and strategies, anticipated developments and other matters that are not historical facts. The Directors generally identify these forward-looking statements by using the words “may”, “will”, “expect”, “anticipate”, “estimate”, “continue”, “believe” or similar expressions. The Directors caution potential investors that there are risks and uncertainties associated with the Company and actual events or results may differ materially from those expressed or implied by the statements.

Potential investors should carefully consider all information set out in this prospectus and, in particular, should consider the following risks and special considerations associated with an investment in the Company before making any investment decision in relation to the Company.

RISKS RELATING TO THE GROUP

Profitability of the Group during the Track Record Period may not fully reflect the Group’s performance

The future development of the Group critically depends on its success in its business developments on three interrelated business segments. During the Track Record Period, only two of these business segments contributed revenue to the Group and the financial performances of the remaining business segments, namely, content production, procurement and delivery business, are not fully reflected in the financial statement of the Group during the Track Record Period. As the Group published the first issue of Chinese language Newsweek Special Edition in January 2002, the business of content production, procurement and delivery business was not reflected in the financial statement of the Group during the Track Record Period.

The Group operates in a highly competitive market

Currently, most of the Group’s revenue is generated from the provision of communication infrastructure services and application and development of content delivery business. The market of these services are highly competitive and there is no significant entry barrier. The Group faces competition both from new entrants and international companies with the relevant technology and experience. Increase in competition may erode the Group’s market share, leading to price reduction and increased spending in service development. Any of these events could have a material adverse effect on the Group’s financial condition, operation and prospect.

– 44 – RISK FACTORS

The Group may not be able to successfully implement its strategies and implementation plans

The Directors have formulated the Group’s strategies and implementation plans after making due enquiry and market study by reference to matters including the Group’s own market position and competitive advantages, the expected future prospects of the markets in which the Group involve and other relevant factors. Such strategies are based on a number of assumptions, details of which are set out in the paragraph headed “Bases and assumptions” in the section headed “Statement of business objectives and strategies” of this prospectus. There is no assurance that the strategies and plans will be successfully implemented by the Group in the future.

If the Group fails to implement any of the business plans as a result of any material adverse change in the operating environment and the Group fails to counteract by adopting new strategies, its prospects may be adversely affected.

Reliance on a few major customers

A significant portion of the Group’s revenue has been, or may continue to be, derived from a limited number of customers.

For the years ended 31st December, 2000 and 2001, the Group’s five largest customers together contributed approximately 94% and 82% of the Group’s total turnover respectively, and the Group’s largest customer accounted for approximately 78% and 30% of the Group’s turnover respectively. If the Group’s top five customers are unsatisfied with the Group’s services or if they encounter any internal operating or financial problems, there may be material adverse effect on the Group’s business.

The Group depends on its key executives and personnel

The Group is dependent on the services and performance of its key executives. The Group’s performance will depend on its ability to retain and motivate its key executives, especially the executive Directors. To achieve its business objectives, the Group needs to recruit additional suitable personnel. Competition for employees with the necessary experience in the IT and media business is intense and may increase. As a result, the Group may not be able to retain its existing employees or recruit suitable new employees. Should the Group fail to retain or recruit the necessary personnel, the Group’s business and results may be adversely affected.

– 45 – RISK FACTORS

The Group may not be able to maintain its reputation and brand

The Directors believe that reputation and brand recognition are crucial for the Group to maintain long term business relationship with clients. The provision of quality services is vital to the promotion and enhancement of the Group’s reputation. However, there is no assurance that the Group can always provide quality services. Failure of the Group to promote and enhance its brand or spending of excessive amounts for such purpose will adversely affect the Group’s business and results.

There can be no assurance that the Group’s strategy to grow by selectively pursuing acquisitions will be effective

One component of the Group’s growth strategy is to selectively pursue acquisitions of related high quality assets or businesses in the area of media and solutions services. There can be no assurance that suitable acquisition candidates at an acceptable consideration can be found. The Group is also likely to face competition from other companies for available acquisition opportunities. In addition, there can be no assurance that the Group will have sufficient capital resources to complete acquisitions, that acquisitions can be completed on acceptable terms or on terms not substantially greater than the cost of establishing and organically growing a comparable enterprise, that any acquisitions that are completed will not lead to a diversion of management time and effort or that such acquisition can be successfully integrated.

There can be no assurance that the Group’s cross-media content delivery business will be successful

Approximately 14% of the net proceeds from the Share Offer will be used to develop the cross-media content delivery business. The Group intends to develop multi-media platforms, including electronic publishing platform, community broadcast platform (i-Home system), mobile phone network and traditional media distribution channel, which integrate with the Group’s communication technologies to deliver contents to users in the Greater China Region. The commercial viability of the cross-media content delivery business has not yet been proven. There can be no assurance that the Group’s cross-media content delivery business will be successful. If cross-media content delivery business is not commercially successful, the Group’s business, financial condition and results of operations could be adversely affected.

The Group does not anticipate paying dividends in the foreseeable future

The Group does not anticipate paying dividends on the Shares in the foreseeable future. The Group currently intends to retain all available funds for use in the expansion and operation of the Group’s business, and does not anticipate paying dividends in the foreseeable future. Any future dividend will depend on the Group’s net income and its investment policy at the time.

– 46 – RISK FACTORS

The Group may not be able to sustain the strategic relationships with its partners

The Group has established strategic partnerships with certain companies and institutions in the Greater China Region to develop its communication and technology business. Details of such co-operation are described in the section headed “Description of business” in this prospectus. However, the PRC has been reforming the industry structure and regulation governing the communication technology and media industries, which may affect the cooperation between the Group and its partners. Further, some of the partnerships may be terminated by either party by giving notice to the other. In the event of deterioration in such relationships as mentioned above, the business plan of the Group may be seriously disrupted and the Group’s financial prospect may be adversely affected.

Short operating history

The Group has only a limited operating history upon which an evaluation of its prospects can be based. Such prospects must be considered in light of the risks, expenses and difficulties encountered by any new company. Such risks include the Group’s ability to develop brand recognition, continued market acceptance of the Group’s business proposition, and potential competition from the providers who may develop services which may compete directly with the Group’s services. The Group can give no assurance that it will sustain profitability or positive cash flow from its existing operations or from any expanded or new operations, nor that the Group will be able, upon the completion of the Share Offer, to expand operations beyond their current level.

The Group depends on a reliable Internet infrastructure and computer network

The Group depends heavily on a reliable Internet infrastructure and computer network to conduct its communication and technology business. In particular, unauthorized access to information or systems – commonly known as “cracking” or “hacking”– could jeopardize the business of the Group. The computer network of the Group is also susceptible to viruses and other disruptions that may cause interruptions, delays or cessation in the Group’s services and have an adverse effect on the Group’s profit.

The business of Sino United Publishing may compete with the Group

Sino United Publishing, the partner of the Group in SinoWorld Media, may engage in similar business to that of the Group, particularly in relation to the publication of magazines similar to the Chinese language Newsweek Special Edition in Hong Kong and the PRC. Sino United Publishing may render direct competition to the Group, which may adversely affect the Group’s profitability.

– 47 – RISK FACTORS

The Group’s control over SinoWorld Media is based on a verbal agreement

SinoWorld Media is a joint venture of the Group and Sino United Publishing. At the date of this prospectus, each of the Group and Sino United Publishing owns 50% of the equity interests in SinoWorld Media. Pursuant to a verbal agreement between the Group and Sino United Publishing in October 2001 as evidenced by minutes of a meeting of the board of directors of SinoWorld Media held on 24th May, 2002, an additional director representing the Group was appointed. The verbal agreement was the extension of the mutual understanding between the Group and Sino United Publishing in relation to the management and control of SinoWorld Media. Under the mutual understanding, the Group and Sino United Publishing are entitled to the equal economic interests in SinoWorld Media and the Group is allowed to control the board of directors of SinoWorld Media, as the Group manages and controls the operations of SinoWorld Media and the publication of Chinese language Newsweek Special Edition remains the major business of SinoWorld Media. As at the Latest Practicable Date, the board of directors of SinoWorld Media comprised three directors appointed by the Group and two directors appointed by Sino United Publishing. However, as the said verbal agreement has not been put in writing, any dispute in this regard between the Group and Sino United Publishing may change the control of the Group over SinoWorld Media and may therefore adversely affect the Group’s interests in the business of SinoWorld Media, including the publication of Chinese language Newsweek Special Editions.

The Group may not be able to control the decision making process of Net2Voice (Hong Kong) without the cooperation of the joint venture partner

According to a shareholder’s agreement dated 22nd October, 2001 and a letter of assignment dated 31st January, 2002, the Group entered into a shareholders agreement with Net2Voice for the establishment and management of the joint venture company, Net2Voice (Hong Kong), for the development and operation of voice technologies business in the Asia Pacific Region and the PRC. Pursuant to the shareholders agreement and letter of assignment, the Group has established Net2Voice (Hong Kong), and Net2Voice Inc. will subscribe for 51% of its shareholding in the fourth quarter of 2002. Before the share subscription, the business of Net2Voice (Hong Kong) is dormant and wholly-owned by the Group. After the share subscription, the Group will own 49% equity interest in Net2Voice (Hong Kong) and cannot control the board of Net2Voice (Hong Kong); therefore, it may involve risks associated with the possibility that its joint venture partner may at any time have economic or business interests or goals which are inconsistent with that of the Group or take actions contrary to the Group’s requests, policies or objectives. The joint venture partner may also experience financial difficulties or be unable or unwilling to fulfil its obligations under the joint venture contract, and it may be unduly expensive or impracticable for the Group to attempt to enforce its contractual rights. Any disagreement over joint venture obligations or otherwise could have an adverse effect on the financial condition or results of operations of the joint venture business and the business plan of the Group.

– 48 – RISK FACTORS

The Group will rely in varying degrees on external content providers

The Group currently has a worldwide licence to re-produce, market and disseminate Chinese language Newsweek Special Edition. Under the licence, Newsweek Inc. will provide the content of Newsweek Special Edition to the Group and the Group will translate it into Chinese. Pursuant to the licence, the Group has a worldwide right to reproduce, market and disseminate the Chinese language Newsweek Special Edition in both print form and electronic form. The Group has the right of first refusal to the reproduction, marketing and dissemination of the corresponding Chinese special edition of all new issues of Newsweek Special Editions which are published with an initial period of three years. The licensing agent is for the initial period of three years, with automatic annual renewal after the first three-year period. In January and April 2002 respectively, SinoWorld Media has already published its first and second issues of the Chinese language Newsweek Special Edition. If due to any reason the licence is not renewed upon its expiry, the Group would lose the right to publish the Chinese language Newsweek Special Edition under the agreement. This may adversely affect the Group’s profitability. As the Directors are just planning to utilise the Group’s various communication technologies to set up an electronic publishing platform for the subscription of the contents of the Chinese language Newsweek Special Edition, there is no assurance that the electronic publication of the Chinese language Newsweek Special Edition will take place.

The Group has also entered into an agreement with Shanghai Library to digitise its audio collection and these contents can be accessed by users of MMChina, Shanghai Online II and i- Home. The development of the Group’s business relationship with Newsweek Inc. and Shanghai Library is at the initial stage. There is no assurance that these content providers are capable of meeting the Group’s specific requirements on the creation and development of content. In the event any of these content providers is unable to satisfy the Group’s needs, there is no assurance that the Group will find suitable replacements without any adverse impact on the Group’s operational and financial position. Furthermore, there is a risk that external content providers may infringe intellectual property rights of third parties by providing content to the Group and that the Group could be exposed to liability for infringement of such intellectual property rights when it uses such contents on its Websites.

Directors’ emoluments

During the year ended 31st December, 2000, the Group paid HK$20,000 as directors’ emoluments. No directors’ emolument was paid by the Group during the year ended 31st December, 2001. During the Track Record Period, directors’ remuneration of the Group was paid by a subsidiary of SAR1 in return for the management fee received by that subsidiary of SAR1. The notional directors’ emoluments for each of the year ended 31st December, 2000 and 2001 included in the management fee charged to the Group amounted to approximately HK$643,000 and HK$300,000 respectively.

– 49 – RISK FACTORS

Pursuant to the service agreements entered into between the Company and each of the executive Directors, namely Dr. Poon, Mr. Poon, Mr. Lee Shu Fan, Mr. Tam Chi Keung and Ms. Au Yeung Pui Shan, Karen, they are entitled to receive an annual remuneration (including salary and remuneration) of HK$4,626,200 in aggregate from 15th August, 2002 for the terms of three years less one day. The non-executive Directors namely Dr. Lee Peng Fei Allen and Professor Lin Chui Chau, Otto and independent non-executive Directors namely Mr. Tsui Yiu Wa, Alec and Mr. Yeung Pak Sing are entitled to receive an annual directors’ fee of HK$600,000 in aggregate from 15th August, 2002 for the terms of two years. In addition, Mr. Tsui Yiu Wa, Alec and Mr. Yeung Pak Sing are entitled to receive an additional annual directors’ fee of HK$100,000 in aggregate for being the members of the audit committee. Therefore, the annual directors’ emoluments will amount to HK$5,326,200 in aggregate.

Had the said level of aggregate annual directors’ emoluments been paid to the Directors during the Track Record Period, the financial results of the Group would be reduced by an aggregate amount of HK$5,326,200 per annum (or such other amount as approved by the Board from time to time). Potential investors should note that the Group’s future net profit (or loss) will be further reduced (or increased) by the aforesaid aggregate amount of HK$5,326,200 per annum (or such other amount as approved by the Board from time to time).

RISKS RELATING TO THE INDUSTRY

Liabilities for unauthorised use of data in the PRC

The Group may face potential liability for defamation, copyright, patent or trademark infringement and other claims based on the nature and content of its Websites. In particular, the Group will not be able to screen content generated by its users on the online bulletin board and the statements given under any discussion forum. As such, the Group could be exposed to liability with respect to such content.

Uncertain protection of the Group’s intellectual property rights

The Group regards its copyrights, service marks, trade marks, domain names and similar intellectual property as critical to its success. Applications have been made by the Group for registration of the service marks and trade marks referred to in the paragraph headed “Intellectual property” in the section headed “Property interests of the Group” of Appendix V to this prospectus. There is no assurance that these applications will not be opposed by third parties who claim to have proprietary rights to such intellectual property.

– 50 – RISK FACTORS

The Group operates in markets subject to rapid technological changes

The Group is engaged in the businesses which are characterised by rapid technological changes, frequent new product and service development and enhancement, evolving industry standard and changes in consumer requirement. There is no guarantee that the Group will be able to keep abreast of the latest development in technology, and if it is unable to do so, the Group’s competitiveness and profitability may be adversely affected.

Risks relating to the accuracy of statistics

Certain statistics derived from unofficial publications relating to the industries in which the Group has been involved, such as statistics relating to projected growth in TMT industries, may not be complete and accurate. The Group has not verified such information independently, and makes no representation as to the accuracy and correctness of such statements.

RISKS RELATING TO POLITICAL AND ECONOMIC CONSIDERATIONS

The Group is exposed to political and economic risks in Hong Kong

Currently, a substantial part of the operation and facilities of the Group is located in Hong Kong, which is a special administrative region of the PRC, with its own government and legislature. Under the Basic Law, Hong Kong is entitled to a high degree of legislative, judicial and economic autonomy. However, there is no assurance that the present political and economic environment of Hong Kong can be maintained. Any adverse change in the political and economic environment in Hong Kong may have an unfavourable effect on the business and financial condition of the Group.

The exchange rate of Hong Kong dollar has remained relatively stable due to the US dollar peg and currency board system that has been in effect in Hong Kong since 1983. If the currency peg of the Hong Kong dollar to the US dollar cannot be maintained, the business and the financial position of the Group may be adversely effected.

The Group is exposed to political and economic risks in the PRC

The PRC is a market which the Group intends to explore. The PRC is in the process of transforming its economy from a planned economy into a more market-oriented economy. Political, economic and social factors may result in the PRC government making further changes to its laws or regulations, introducing additional tax measures, imposing restrictions on currency exchange and changing tax rates or customs duties. Such factors may adversely affect the Group’s plans to explore the market in the PRC or may result in the Group’s operations in the PRC being adversely affected.

– 51 – RISK FACTORS

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

RMB

The PRC government imposes control over the convertibility of RMB into foreign currencies. With effect from 1st January, 1994, the PRC government implemented an unified floating exchange rate system based on supply and demand in the market. Under such system, the People’s Bank of China (中國人民銀行) (“PBOC”) publishes a daily exchange rate for RMB based on the inter-bank exchange rate of RMB of the preceding day. Foreign currency designated banks use the exchange rate published by the PBOC as a basis and enter into foreign exchange transactions at exchange rates within the floating range specified by the PBOC.

Since the introduction of the unified floating exchange rate system, the PRC government has issued regulations, rules and notices with respect to the changes, mainly, the “PRC Regulations on the Control of Foreign Exchange” (中華人民共和國外匯管理條例) which came into effect on 1st April, 1996 and were amended on 14th January, 1997 and the “Regulations on the Administration on Foreign Exchange Settlement, Sale and Payment” (結匯、售匯及付匯管理規定) which came into effect on 1st July, 1996 (the “Foreign Exchange Administration Regulations”).

Conversion of RMB into foreign currencies by foreign investment enterprises for the use of recurring items, including the distribution of dividends to foreign investors, is permissible. Conversion of RMB into foreign currencies for capital items, including items such as direct investment, loans and security investment, is subject to more stringent control. The Group is subject to the above regulations. There can be no assurance that any change in the new law or regulation prohibits or further restricts the convertibility of RMB into foreign currencies or any shortages in the availability of foreign currency in the PRC will not restrict the Company’s ability to obtain sufficient foreign currency to pay dividends on the Shares to the Group.

US dollar

Though the Hong Kong dollar is currently pegged against the US dollar, there is no assurance that the linkage of the value of Hong Kong dollar to the US dollar will not altered or unpegged in the future.

During the Track Record Period, the Group only had insignificant foreign currency position. It is anticipated that the Group will generate revenue and expenses in RMB and US dollar. As a result, the Group is subject to the effects of exchange rate fluctuations with respect to any of these currencies. The Group has not entered into agreements or purchase instruments to hedge its exchange rate risks although it may do so in the future.

– 52 – RISK FACTORS

RISKS RELATING TO LEGAL AND OTHER REGULATORY CONSIDERATIONS

Liabilities for publication of the magazines and their contents in Hong Kong

In order for the Group to carry on its magazine publication business in Hong Kong, the company within the Group which is directly engaged in publishing the Group’s magazines is required to register the respective publications under the Books Registration Ordinance (Chapter 142 of the Laws of Hong Kong). Furthermore, the publication of magazines by the Group may be subject to, among others, the Control of Obscene and Indecent Articles Ordinance, Undesirable Medical Advertisements Ordinance, Personal Data (Privacy) Ordinance and laws relating to including, but not limited to, libel and defamation, intellectual property rights, public security, solicitation, gambling, pornography and infringement of third parties’ rights. The Group could be found liable under such laws or other laws in other jurisdictions in which the Group operates, sources or markets for the sourcing, provision, delivery or transmission of regulated or prohibited information.

Contravention of the above may expose the Group to criminal and civil liabilities including penalties, fines, damages and other sanctions. Such sanctions may include the loss of the right of the Group to source all or some of the magazines that it publishes, or a loss of its right to engage in its business on a temporary or permanent basis in the relevant jurisdiction. The Group could also be exposed to legal proceedings. The Group does not currently maintain any insurance in this respect and any significant liability claim may have a material adverse effect on the Group.

Protection of personal data in Hong Kong

The Personal Data (Privacy) Ordinance (Chapter 486 of the Laws of Hong Kong) (“PDPO”) requires any person (a “data user”) who controls the collection, holding, processing or use of data to comply with the data protection principles prescribed by PDPO. These principles govern the manner of collection, use and security of personal data. The Group may be considered as a “data user” when it collects information on the subscribers for its services. As such, the Group will be required to comply with the data protection principles prescribed under PDPO. PDPO also prohibits the use of personal data by the data user for direct marketing purposes unless certain requirements have been complied with. In addition, the content distributed by the Group is regulated by the Control of Obscene and Indecent Articles Ordinance (Chapter 390 of the Laws of Hong Kong) (“COIAO”). Under COIAO, any person who publishes, possesses or imports for the purposes of publication any obscene article, whether or not he knows that it is an obscene article, commits a criminal offence which may give rise to a fine and an imprisonment sentence. Should the Group be deemed to have breached PDPO or COIAO, the Group and/or its officers will be subject to a fine and/or imprisonment, depending on the nature and extent of the offence committed. Other applicable laws include the Copyright Ordinance and the Trade Marks Ordinance, which protect owners against infringement of their relevant intellectual property rights.

– 53 – RISK FACTORS

Liabilities for publication of the magazines and their contents in the PRC

A publisher of a magazine shall obtain all approvals and permits required for the publication, distribution and bundling of magazines under PRC law and is legally liable for compliance with the PRC legal requirements for publication, distribution and bundling of magazines. In the absence of the authorisation by the relevant authorities to import and distribute magazines in the PRC, the Group may need to rely on third party agents authorised so to do. There is no assurance that the publishers to be authorised in the future will comply with all approvals and permits required for the publication, distribution and bundling of the Newsweek Special Edition under PRC law. However, because of the authorisation granted to the publishers in the PRC, the Group is not liable to any civil and criminal liability arising for the publication, distribution and bundling of the Chinese language Newsweek Special Edition. Given the vast number of qualified publishers in the PRC to choose for the publication of the diverse topics of the Newsweek Special Editions over a considerable period of time, the Group does not foresee any imminent difficulty locating a suitable publisher in the PRC for each Newsweek Special Edition.

As the current PRC laws and regulations do not allow foreign publishers to publish books and magazines on their own in the PRC, the Group has up to the Latest Practicable Date authorised Shanghai Science and Technology Publishing Limited and 職業女性雜誌社 to publish and distribute the first and second issues of the Chinese language Newsweek Special Edition. Under a cooperation agreement dated 10th January, 2002 between Shanghai WFOE and Shanghai Science and Technology Publishing Limited and a cooperation agreement dated 8th April, 2002 between Shanghai WFOE and 職業女性雜誌社, Shanghai Science and Technology Publishing Limited and 職業女性雜誌社 have been authorised to publish and distribute the first and second issues of the simplified Chinese character version of the Newsweek Special Edition in bundle with Popular Medicine and Mother and Child respectively. According to the PRC legal adviser to the Group, all approvals and permits have been obtained. In particular, Shanghai Science and Technology Publishing Limited and 職業女性雜誌社 have respectively completed any required registration with and obtained all the approvals from the relevant authorities in the PRC in respect of these two cooperation agreements in accordance with PRC law. The two cooperation agreements are therefore enforceable and binding on their respective parties and any rights and obligations thereunder are legal and binding under PRC law. Further, all the obligations under the two cooperation agreements have already been performed by both parties in full and the Group has received all the payments under the cooperation agreements. However, as the Group will continue to rely on the PRC publishers to file and register their future cooperation agreements with the relevant authorities in the PRC, there is no assurance that the publishers of the future issues will do so. In the event that the PRC publishers fail to file and register the cooperation agreements with the relevant authorities in the PRC, the Group may be subject to non-performance of any or all obligations by the publishers under the cooperation agreements, including failure to pay the advertising income to the Group.

– 54 – RISK FACTORS

If the quality of the magazine under the licensed title is substantially and regularly below standard, the registration of the title as trademark may be cancelled by the Trademark Office. A licensor shall take reasonable measures to supervise the quality of the magazine. The publication and distribution of the first and second issues of the Chinese language Newsweek Special Edition have been licensed by Newsweek Inc. to the Group, which have obtained all approvals and permits required under PRC law. The Group has made every effort to ensure that the magazine is of quality printing standard and that its articles comply with the theme and ideology of its original magazine, as may be required under PRC law. However, the Directors believe that the PRC standard for the quality of the magazine may be different from that of Hong Kong to a great extent and the current management team of the Group does not have the experience in that regard; therefore, any changes in the legislation or the related interpretation or any misinterpretation in the legislation may, in turn, adversely affect the business and prospects of the Group.

Further, publication of contents in magazines may lead to libel, defamation, intellectual property rights, public security, solicitation, gambling, pornography and infringement of third parties’ rights under PRC law. Contravention of the above may expose the Group to criminal, civil and administrative liabilities including penalties, fines, damages and other sanctions. Such sanctions may include the loss of the right of the Group to publish, import and distribute the Chinese language Newsweek Special Edition on a temporary or permanent basis in the PRC. The Group does not currently maintain any insurance in this respect and any liability claim may have a material adverse effect on the Group.

Liabilities for destabilising content on the Internet in the PRC

The PRC government has enacted regulations governing Internet access and the distribution of information which expose online information providers to potential liability for content included on their portals and liability for distribution of content deemed to be socially destabilising. Most recently, the State Secrets Protection Bureau of the PRC has issued regulations restricting the distribution of Internet content involving State secrets, requiring approval for distribution of Internet content and setting forth penalties for distributing State secrets on the Internet. Such laws, regulations and legal requirements are relatively new and untested, thus the interpretation and enforcement of these regulations are uncertain. In addition, as the Chinese legal system is a civil law system in which decided legal cases have little precedential value, the Group will have difficulties in determining the type of content that could result in liability. Under the new State Secrets Protection Bureau regulations, Website owners will be held liable if State secrets are posted on or transmitted through their sites. Such restrictions also extend to e-mail account users registered with the Website owners. Based on advice of the PRC legal adviser to the Group, although content provided by the Group on the World Wide Web which is accessible by Internet users in the PRC will not subject the Group to the new regulations, they could affect MMChina since it is a Website operated by the Group and Shanghai Chuan Yi in the PRC. On the face of the new regulations, Website operators in

– 55 – RISK FACTORS the PRC are required to scrutinize their own contents. However, it is unclear as to the degree of care required to be undertaken by the Website operators. Further, if a Website operator is to adopt any filtering method in order to comply with the regulations, operation of its system may thereby be slowed down. The PRC government has from time to time stopped the distribution of information over the Internet which it believes to be socially destabilising by blocking Websites maintained outside of the PRC. Certain news-related Websites operated by Internet content providers outside of the PRC have been blocked in the PRC in the past. Meanwhile, in view of the relatively modest volume of contents on the Website, the Group and Shanghai Chuan Yi have made a regular scrutiny on their own contents.

Liabilities relating to contents provided at MMChina

The Group is the registered owner of the domain name mmchina.com. By a licence agreement entered into between the Group and Shanghai Chuan Yi on 18th January, 2002 (as supplemented by a supplemental agreement dated 8th May, 2002), an exclusive and non- transferable licence for the use of the domain name mmchina.com has been granted to Shanghai Chuan Yi, an ICP of the PRC, for its operation of MMChina. Pursuant to another two licence agreements and a technical service agreement with Shanghai Chuan Yi, the Group will provide technical support service and contents, which are equipped with video and audio recording and live broadcasting facilities, to Shanghai Chuan Yi for its operation of MMChina.

In April 2000, provisional regulations in relation to the supervision and management of broadcasting film and television contents on information networks entitled “信息網絡傳播廣播電影電視類節目監督管理暫行辦法” have been promulgated by the State Administration for Radio, Film and Television (“SARFT”). Pursuant to these regulations, no one shall carry on the business in broadcasting film and television contents on the Internet, unless he has obtained a Licence for Broadcasting Film and Television Contents on the Internet (the “Licence”) from SARFT. The extent to which the expression “broadcasting film and television contents” covers is not clearly defined in the above regulations and it is indefinite and unclear as to whether the contents provided at MMChina, which are provided by the Group, will fall into such category. Accordingly, there is no assurance that SARFT will not regard the audio and video contents provided from time to time at MMChina as being covered by the regulations and that such contents can be provided on the Internet without the Licence. Based on the advice of the PRC legal adviser to the Group, although the licence granted by the Group to Shanghai Chuan Yi in respect of the use of MMChina.com and the contents provided by the Group to Shanghai Chuan Yi for its further provision to users on the Internet will not subject the Group directly to the regulations, they could affect Shanghai Chuan Yi as the Website operator of MMChina in the PRC. In that event, the operation of MMChina and the Group’s business in that regard may be adversely affected. As advised by the PRC legal adviser to the Group, Shanghai Chuan Yi, the operator of MMChina, will take the whole responsibilities of any non-compliance, breach or infringement in relevant regulations in the PRC with respect to the operation of MMChina.

– 56 – RISK FACTORS

Pursuant to a cooperation memorandum entered into between the Group and Shanghai Library in October 2000, Shanghai Library has supplied the Group with its audio collections for digitisation and the Group has supplied such digitised audio contents to Shanghai Chuan Yi for its further provision of such digitised audio contents to users through MMChina. Under the cooperation memorandum, Shanghai Library is responsible for applying to and registering with the relevant copyright authorities in respect of the audio collections it provides to the Group. However, given that the Group is the registered owner of mmchina.com, as advised by the PRC legal adviser to the Group, the Group may have to cease the intellectual property right infringements, compensate loss and damage or be subject to fines ranging from RMB1,000 to RMB50,000 if no royalties have been paid by Shanghai Library for the audio collections supplied by Shanghai Library and provided at MMChina. In such case, the Group is only entitled to seek indemnity under the cooperation memorandum from Shanghai Library for loss and damage it may suffer.

Apart from the digitised audio collections from Shanghai Library, the Group has also provided and will continue to provide Shanghai Chuan Yi with other audio contents, to which third party copyrights may be adhered, for use at MMChina. To safeguard the Group from potential copyright claims by composers and other copyright owners of such audio contents, the Group has procured a licence from Music Compositions Society of China (中國音樂著作權協會) (“MCSC”) which authorises the Group’s use of such audio contents and its further provision of such audio contents to Shanghai Chuan Yi for use at MMChina. There is no assurance that the licence granted by MCSC covers all the works of the composers and copyright owners of the audio contents. As such, the Group, as the registered owner of mmchina.com, may be exposed to potential claims by any composers or copyright owners who are not members of MCSC, though the Group considers the number of such composers and copyright owners to be minimal as compared with the number of members of MCSC.

Loss may be suffered by the Group if Shanghai Online II is suspended because of the contents of other content providers

Pursuant to a cooperation agreement dated 19th December, 2001 between SIE and Shanghai WFOE, under the contractual arrangement between the Group and Shanghai Chuan Yi, the Group will provide contents to SIE for their delivery through Shanghai Online II which is operated by SIE and will enjoy part of the revenue generated therefrom. The Group, however, is only one of the content providers supplying contents to Shanghai Online II. There is no assurance that the operation of Shanghai Online II will comply with all laws and regulations in the PRC and that the contents supplied by other content providers will not be in breach of any regulation in the PRC nor infringe any third party rights. As advised by the PRC legal adviser to the Group, although such non-compliance, breach or infringement will not subject the Group directly to any liability, any such event may lead to the suspension of Shanghai Online II and will adversely affect the revenue of the Group.

– 57 – RISK FACTORS

The legal framework with respect to Internet and media in the PRC and Hong Kong is developing

In the PRC and Hong Kong, only a few pieces of legislation are directly applicable to the Internet. It is possible that the legislature may introduce new laws with respect to the business covering issues such as content, copyright, distribution and quality of services and products. Any enactment of any new laws or regulations may hinder, whether directly or indirectly, the growth of the cross-platform content delivery business of the Group.

The Chinese government has also expressed its intention to closely control possible new areas of business presented by the Internet. If the PRC government takes 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 could have a material adverse effect on its business, financial condition and results of operations.

Uncertain protection of the Group’s own rights and possible infringement of third parties’ rights

In the course of conducting its business, the Group may not be able to protect its own rights or could be found liable for having infringed third parties’ rights, which might include, among others, intellectual property rights.

It may be possible for third parties to copy or otherwise obtain and use the Group’s intellectual property rights such as copyrights in publications including text, typography, photography and design layout and especially the Group’s publishing titles without authorisation. In addition, there are countries where protection of intellectual property rights may not be effective or may be limited. There can be no assurance that any steps taken by the Group will prevent misappropriation or infringement of, and enforcement of, the Group’s intellectual property rights.

It is also possible that during its course of business, the Group could be found liable for having infringed third parties’ rights including, among others, intellectual property rights and should the Group be found to have infringed the rights of others, the Group could be exposed to liabilities including damages and other sanctions. Such sanctions may include the loss of the right of the Group to source all or some of the magazines that it publishes, or a loss of its rights to engage in its business on a temporary or permanent basis.

The Group considers that intellectual property rights are important in relation to the publication of the Chinese language Newsweek Special Edition. Therefore, should the Group fail to protect or be unable to assert its rights to these intellectual property rights, there might be an adverse impact on its marketing plan and business.

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RISKS RELATING TO THE SHARE OFFER

Options have been granted under the Pre-IPO Share Option Scheme which may result in the dilution of the Shareholders’ interests in the Company and the earnings per Share thereof

As at the Latest Practicable Date, options to subscribe for an aggregate of 27,689,000 Shares have been granted by the Company under the Pre-IPO Share Option Scheme at an exercise price ranging from HK$0.12 to HK$0.45. Details of the options are set out in Appendix V to this prospectus. The options were granted at a discount of up to approximately 80 per cent of the minimum point of the stated price range of HK$0.6 per Share. Options to subscribe for 8,334,000 Shares and 8,000,000 Shares have been granted to two Initial Management Shareholders, namely Dr. Poon and Mr. Poon respectively. Options to subscribe for 2,767,000 Shares, 1,334,000 Shares and 667,000 Shares have been granted to three Directors, namely Mr. Lee Shu Fan, Mr. Tam Chi Keung and Ms. Au Yeung Pui Shan, Karen respectively. As the number of Shares subject to the options represents approximately 5.63 per cent of the issued share capital of the Company as at the Listing Date assuming the Over- allotment Option is not exercised and no options granted under the Pre-IPO Share Option Scheme have been exercised, the interest in the Company held by, and the earnings per Share of, each of the Shareholders may be diluted from HK$0.119 cents to HK$0.111 cents upon the exercise of the options granted under the Pre-IPO Share Option Scheme.

The interests held by the public may fall below the minimum percentage required by the GEM Listing Rules if the options granted under the Pre-IPO Share Option Scheme are exercised

Pursuant to Rule 11.23 of the GEM Listing Rules, there must be an open market in the securities for which listing is sought, which means for the purposes of the Share Offer, at least 25 per cent of the share capital of the Company in issue from time to time must, at the time of Listing and at all times thereafter, be in the hands of the public. Immediately following the completion of the Share Offer, assuming the Over-allotment Option is not exercised and no options granted under the Pre-IPO Share Option Scheme and the Post-IPO Share Option Scheme are exercised, more than 25 per cent of the share capital of the Company in issue will be in the hands of the public as required by the GEM Listing Rules.

As at the Latest Practicable Date, however, options to subscribe for 6,587,000 Shares and 21,102,000 Shares have been granted by the Company to its advisers and employees and its Directors respectively under the Pre-IPO Share Option Scheme, details of which are set out in Appendix V to this prospectus. As restricted by the Pre-IPO Share Option Scheme, the options cannot be exercised before the expiration of 1 year from the Listing Date. The total number of Shares subject to the options represents approximately 5.63 per cent of the issued share capital of the Company as at the Listing Date assuming the Over-allotment Option is not exercised and

– 59 – RISK FACTORS no options granted under the Pre-IPO Share Option Scheme have been exercised. Assuming the Over-allotment Option is not exercised, if more than 4,233,333 Shares in aggregate are allotted to the Directors pursuant to the exercise of the options at any time after 1 year from the Listing Date, the issued share capital of the Company may increase to an extent that the total interests in the Company held by the public are diluted to less than 25 per cent of the share capital of the Company in issue at that time. In that event, the listing of the Shares may be cancelled and the trading of the Shares may be suspended, until appropriate steps have been taken to restore the minimum percentage of the issued share capital of the Company in public hands, by the Stock Exchange. As at the Listing Date, the Company and Dr. Poon have already given undertakings to restore the minimum percentage of the issued share capital of the Company in public hands within 3 months in case such minimum percentage is not maintained.

Forward looking statements contained in this prospectus may not be accurate

This prospectus contains forward looking statements that are subject to risks, uncertainties and assumptions about the Group, including, among other things:

• the Group’s ability to accomplish its goals and strategies;

• the Group’s ability to execute its acquisition and expansion plans;

• the growth in demand for products and services;

• the Group’s ability to acquire interests in additional assets or businesses; and

• the Group’s ability to complete its anticipated use of proceeds.

Such statements can be identified by the use of forward looking terminology such as “believes”, “expects”, “estimates”, “may”, “ought to”, “will”, “should”, or “anticipates” or similar words, or by discussions of strategy that involve risks and uncertainties. These statements may discuss the Group’s future expectations or contain projections of the Group’s results of operations or financial condition or expected or implied benefits to the Group’s resulting from future transactions. The Group’s actual results could differ materially from those anticipated in these forward looking statements as a result of the risks, as described above and elsewhere in this prospectus. The Group does not intend to update any of the forward looking statements after the date of this prospectus to conform such statements to actual results.

– 60 – WAIVER FROM COMPLIANCE WITH THE GEM LISTING RULES

For the purposes of the listing of the Shares on GEM, the Company has sought the following waiver from the Stock Exchange from strict compliance with the GEM Listing Rules. Details of such waivers are described below:

THE LATEST FINANCIAL PERIOD REPORTED ON BY THE REPORTING ACCOUNTANTS REQUIRED UNDER RULE 11.11 OF THE GEM LISTING RULES

– 61 – INFORMATION ABOUT THE 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, contains particulars given in compliance with the Companies Ordinance and the GEM Listing Rules for the purpose of giving information to the public with regard to the Group. The Directors, having made all reasonable enquiries, confirm that, to the best of their knowledge, information 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.

The Share Offer is made 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 any information or representation not contained herein must not be relied upon as having been authorised by the Company, the Sponsor, the Underwriters, any of their respective directors, officers, employees and/or representatives or any other person involved in the Share Offer.

UNDERWRITING

This prospectus is published in connection with the Share Offer, which is sponsored by Kingsway Capital and managed by Kingsway SW Securities and fully underwritten by the Underwriters. Information relating to the underwriting arrangements is set out in the section headed “Underwriting” in this prospectus.

PROSPECTUS TO BE DISTRIBUTED IN HONG KONG ONLY

No action has been taken in any jurisdiction other than Hong Kong to permit any of the offering of the Offer Shares or the distribution of this prospectus in any jurisdiction other than Hong Kong. Accordingly, this prospectus may not be used for the purposes 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.

– 62 – INFORMATION ABOUT THE PROSPECTUS AND THE SHARE OFFER

APPLICATION FOR LISTING ON GEM

The Company has applied to the GEM Listing Committee for the listing of, and permission to deal in, the Shares in issue and to be issued pursuant to the Share Offer (including the additional Shares which may be issued pursuant to the exercise of the Over- allotment Option) and any Shares which are to be issued pursuant to the exercise of any options granted or to be granted under the Pre-IPO Share Option Scheme and the Post-IPO Share Option Scheme, on GEM.

No part of the share or loan capital of the Company is listed or dealt in on the Main Board or on any other stock exchange and at present, no such listing or permission to deal is being or is proposed to be sought on the Main Board or any other stock exchange.

In compliance with the GEM Listing Rules, the Company will be required to maintain a public float of at least 25% of the issued share capital of the Company at the time of and at all times after the listing of the Shares on GEM as required in Rule 11.23 of GEM Listing Rules.

HONG KONG BRANCH REGISTER AND STAMP DUTY

All Shares to be issued must be registered on the Company’s branch register of members to be maintained by Secretaries Limited in Hong Kong. The Company’s principal register of members will be maintained by Bank of Bermuda (Cayman) Limited in the Cayman Islands. Only Shares registered on the Company’s branch register of members maintained in Hong Kong may be traded on GEM.

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 subscribing for, purchasing, holding, disposing of, dealing in, or the exercise of any rights in relation to, the Offer Shares, you should consult an expert.

The Company, the Directors, Kingsway Capital, the Underwriters, any of their respective directors, agents or advisers or any other person involved in the Share Offer do not accept responsibility for any tax effects on or liabilities resulting from the subscription for, purchase, holding, disposing of, dealing in, or the exercise of any rights in relation to, the Offer Shares.

– 63 – INFORMATION ABOUT THE PROSPECTUS AND THE SHARE OFFER

STAMP DUTY

All the Offer Shares will be registered on the Hong Kong branch register of members of the Company in Hong Kong in order to enable them to be traded on GEM. Only Shares registered on the Company’s branch register of members maintained in Hong Kong may be traded on GEM. Dealings in Shares registered on the Company’s branch register of members in Hong Kong will be subject to Hong Kong stamp duty.

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” in this prospectus and in the relevant application forms.

STRUCTURE OF THE SHARE OFFER

Details of the structure and conditions of the Share Offer, are set out in the section headed “Structure and conditions of the Share Offer” of this prospectus.

SHARES WILL BE ELIGIBLE FOR ADMISSION INTO CCASS

Subject to the granting of the approval for listing of, and permission to deal in, the Shares on GEM and the 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 Listing Date or any other date Hongkong Clearing chooses. Settlement of transactions between participants of the Stock Exchange is required to take place in CCASS on the second business day after any trading day. Investors should seek the advice of their stockbrokers or other professional advisers for details of those settlement arrangements and how such arrangements will affect their rights and interests.

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.

COMMENCEMENT OF DEALINGS IN THE SHARES

Dealings in the Shares on GEM are expected to commence on 15th August, 2002. Shares will be traded in board lots of 5,000 each.

The GEM stock code for the Shares is 8228.

– 64 – DIRECTORS AND PARTIES INVOLVED IN THE SHARE OFFER

DIRECTORS

Name Address Nationality

Executive Directors

Dr. Poon Kwok Lim, Steven No. 3A, Elite Villas Chinese 22 Shouson Hill Road Hong Kong

Mr. Poon Shu Yan, Joseph No. 3A, Elite Villas Chinese 22 Shouson Hill Road Hong Kong

Mr. Lee Shu Fan 20A, Monmouth Villa Chinese 3 Monmouth Terrace, Wanchai Hong Kong

Mr. Tam Chi Keung Flat F, 17th Floor Chinese Fook Hey Court Holford Garden Tai Wai Shatin, N.T. Hong Kong

Ms. Au Yeung Pui Shan, Karen Flat K, 35th Floor Chinese Civic House Affluence Garden Tuen Mun, N.T. Hong Kong

Non-executive Directors

Dr. Lee Peng Fei Allen House 11, Windsor Park Chinese Phase I, Ma Ling Path Kau To Shan Road Shatin, N.T. Hong Kong

– 65 – DIRECTORS AND PARTIES INVOLVED IN THE SHARE OFFER

Professor Lin Chui Chau, Otto Hong Kong University of Chinese Science and Technology Senior Staff Quarters Tower 5, Flat 7A Clear Water Bay, Kowloon Hong Kong

Independent non-executive Directors

Name Address Nationality

Mr. Tsui Yiu Wa, Alec 11A, Branksome British 3 Tregunter Path Mid Levels Hong Kong

Mr. Yeung Pak Sing 2 Ridgeway Chinese 33 Plantation Road The Peak Hong Kong

– 66 – DIRECTORS AND PARTIES INVOLVED IN THE SHARE OFFER

Sponsor Kingsway Capital Limited 5th Floor, Hutchison House 10 Harcourt Road, Central Hong Kong

Underwriters Lead Manager: Kingsway SW Securities Limited 5th Floor, Hutchison House 10 Harcourt Road, Central Hong Kong

Co-Lead Manager: Hani Securities (H.K.) Limited 5th Floor, Henley Building 5 Queen’s Road Central Hong Kong

Co-Managers: Celestial Capital Limited 21st Floor, Low Block Grand Millennium Plaza 181 Queen’s Road Central Hong Kong

First Shanghai Securities Limited 19th Floor, Wing On House 71 Des Voeux Road Central Hong Kong

Shun Loong Securities Company Limited Room 2202, Admiralty Centre Tower 1, 18 Harcourt Road Hong Kong

Legal advisors to the Company As to Hong Kong law: Wilkinson & Grist, Solicitors & Notaries 6th Floor, Prince’s Building Chater Road, Central Hong Kong

– 67 – DIRECTORS AND PARTIES INVOLVED IN THE SHARE OFFER

Chan & Co Unit 605 6th Floor, Tower 2 Admiralty Centre 18 Harcourt Road Hong Kong

As to PRC law: Jin Mao Law Firm 21st Floor Universal Mansion 168 Yu Yuan Road Shanghai 200040 China

As to Cayman Islands law: Conyers Dill & Pearman, Cayman Century Yard Cricket Square Hutchins Drive P.O. Box 2681GT George Town Grand Cayman British West Indies

Legal advisors to the Sponsor, Dibb Lupton Alsop the Lead Manager, 41st Floor, Bank of China Tower the Co-Lead Manager and 1 Garden Road, Central the Underwriters Hong Kong

Reporting accountants and auditors Deloitte Touche Tohmatsu 26th Floor, Wing On Centre 111 Connaught Road Central Hong Kong

Property valuer Sallmanns (Far East) Limited 15th Floor, Trinity House 165-171 Wanchai Road Wanchai Hong Kong

Receiving banker International Bank of Asia 38 Des Voeux Road Central Hong Kong

– 68 – CORPORATE INFORMATION

Registered office Century Yard Cricket Square Hutchins Drive P.O. Box 2681GT George Town Grand Cayman British West Indies

Head office and principal place 25th Floor, MLC Millennia Plaza of business in Hong Kong 663 King’s Road North Point Hong Kong

Group’s website http://www.vctg.com

Company secretary Ms. Au Yeung Pui Shan, Karen LL. B.

Compliance officer Mr. Lee Shu Fan

Qualified accountant Mr. Mok Hay Hoi AHKSA, CPA (Aust.)

Audit committee Mr. Tsui Yiu Wa, Alec Mr. Yeung Pak Sing

Authorised representatives Mr. Poon Shu Yan, Joseph No. 3A, Elite Villas 22 Shouson Hill Road Hong Kong

Mr. Tam Chi Keung Flat F, 17th Floor Fook Hey Court Holford Garden Tai Wai, Shatin, N.T. Hong Kong

Principal share registrar and Bank of Bermuda (Cayman) Limited transfer office P.O. Box 513 GT 36C, Bermuda House, 3rd Floor Dr. Roy’s Drive, George Town Grand Cayman, Cayman Islands British West Indies

– 69 – CORPORATE INFORMATION

Hong Kong branch share registrar Secretaries Limited and transfer office 5th Floor, Wing On Centre 111 Connaught Road Central Hong Kong

Principal bankers International Bank of Asia 38 Des Voeux Road Central Hong Kong

Hang Seng Bank 83 Des Voeux Road Central Hong Kong

– 70 – INDUSTRY OVERVIEW

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

INDUSTRY OVERVIEW

Telecommunications industry in Hong Kong

Being the pre-eminent telecommunications and Internet hub for Asia, the telecommunications market in Hong Kong is well developed and vibrant. The following is an overview of different sub-sectors of Hong Kong telecommunications industry.

Local Fixed Telecommunications Network Services

Businesses and consumers in Hong Kong enjoy an excellent telecommunications infrastructure. Hong Kong had 4.9 million telephone sets served by more than 3.9 million exchange lines in March 2002. The penetration of fixed telephone lines in Hong Kong was one of the highest in the world. Also serving the needs of Hong Kong in data communications were about 408,147 dedicated facsimile lines.

Key statistics for local fixed telecommunications network services in Hong Kong

Exchange Lines* Telephone Facsimile End of months Business Residential Total Sets** Lines

02/2002 1,751,561 2,152,276 3,903,837 4,905,630 408,147 01/2002 1,757,911 2,157,519 3,915,430 4,922,921 409,715 12/2001 1,764,623 2,161,151 3,925,774 4,940,525 411,099 12/2000 1,736,056 2,209,518 3,945,574 5,019,556 404,037 12/1999 1,648,601 2,190,134 3,838,735 4,910,045 383,887 12/1998 1,548,667 2,158,857 3,707,524 4,763,257 359,779 12/1997 1,526,068 2,098,187 3,624,255 4,685,034 342,671 12/1996 1,373,718 2,028,210 3,401,928 4,445,671 307,732 12/1995 1,287,997 1,966,352 3,254,349 4,234,000 272,574 12/1994 1,206,008 1,907,552 3,113,560 4,049,800 252,016 12/1993 1,120,734 1,834,829 2,955,563 3,854,100 226,397 12/1992 1,017,597 1,760,135 2,777,732 3,649,400 183,407 12/1991 900,481 1,695,916 2,596,397 3,455,200 136,640 12/1990 821,294 1,625,695 2,446,989 3,279,600 106,545

Note:

* Include Direct Dialing in lines, Faxlines and Datel lines

** Estimated figures

Source: OFTA, 18th April, 2002

– 71 – INDUSTRY OVERVIEW

At present, there are a total of ten wireline based and local wireless FTNS carriers in Hong Kong. In order to further promote the development of telecommunications market in Hong Kong, OFTA announced that it will implement full liberalisation of fixed line telecommunications services market from 1st January, 2003. Under the full liberalisation policy, there will be no pre-set limit on the number of licences to be issued, nor will there be any time limit for licence applications. The Directors expect the increasing number of network carriers entering the market will stimulate the demand for the telecommunication engineering service from independent companies.

FTNS or Fixed Carrier Licensees

Wireline based FTNS

Name of Licensee Issue Date

PCCW-HKT Telephone Limited 29/06/1995 (Amended on 31st March, 1998 and 31st January, 2001)

Hutchison Global Crossing Limited 30/06/1995

Wharf New T&T Limited 27/06/1995

New World Telephone Limited 20/06/1995

Hong Kong Cable Television Limited 18/01/2000

Local Wireless FTNS

Name of Licensee Issue Date

Hong Kong Broadband Network Limited 03/02/2000

SmarTone Broadband Services Limited 03/02/2000

Hua Nan-Teligent Co., Ltd. 10/02/2000

Eastar Technology Limited 16/02/2000

Winstar Wireless Hong Kong Limited 07/03/2000

Source: OFTA, 28th May, 2002

– 72 – INDUSTRY OVERVIEW

Broadband Services

Under the liberalisation policy and keen competition of the market, the development of broadband services has grown quickly. According to the statistics from OFTA, the number of broadband subscribers surges from 51,000 in February 2000 to 543,000 in October 2001, an increase of more than 10-fold in less than two years. In respect of broadband coverage, 95% of the households in Hong Kong are covered by broadband network, either through fibre installed in buildings or DSL technology on local loops. In July 2001, the penetration of the broadband Internet access was about 6.6 per cent which is high as compared with other developed countries. However, the Directors expect broadband Internet access to homes and small and medium enterprises (SMEs) is about to take off due to the following favourable factors: 1) the development of multimedia technology requires higher speed of data transmission and 2) about 95% of the area in Hong Kong is under the coverage of broadband network coverage.

Switched Access Customers

2,500,000

2,000,000

1,500,000

1,000,000 Dialup Access Broadband

Number of registered account of registered Number 500,000

0 Source: OFTA, 29th October, 2001 Mar Jun Sep Dec Mar Jun Sep Dec Mar Jun 99 99 99 99 00 00 00 00 01 01

The growing penetration of broadband service provides business opportunity to the Group in providing wireless broadband network engineering services and establishes a suitable environment for the Group to develop its cross-platform content delivery business.

– 73 – INDUSTRY OVERVIEW

Mobile Phone Service

The market for mobile phone services is highly competitive, but promising, in Hong Kong. According to OFTA, in December 2001, six operators were operating a total of 11 digital systems, serving a customer base of about 5.7 million. The penetration rate of mobile phone services was one of the highest in the world.

Growth of the Mobile Services in Hong Kong

Prepaid SIM Registered Subscriber Units

6,000,000

5,000,000

4,000,000

3,000,000

2,000,000

1,000,000

0 Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec Jan Feb Mar 91 92 93 94 95 96 97 98 99 00 01 02 02 02 Month/Year

Source: OFTA, 14th May, 2002

In September 2001, OFTA granted four licences to Hutchison 3G HK Limited, SmarTone 3G Limited, Hong Kong CSL Limited and SUNDAY 3G (Hong Kong) Limited respectively to develop the 3G telecommunication network in Hong Kong.

The third generation (3G) is defined by the ITU under the IMT-2000 global framework and is implemented regionally in Europe (UMTS), North America (cdma2000) and Japan (NTT DoCoMo). 3G is designed for high-speed multimedia data and voice. Its goals include high- quality audio and video and advanced global roaming, which means being able to go anywhere and automatically be handed off to whatever wireless system is available.

The Directors believe there are numerous business opportunities when the existing telecommunication network transforms into a 3G network. First, the large-scale 3G transformation will stimulate the demand for network engineering services. Secondly, the data transmission capability of 3G network can serve as one of the Group’s technology based content delivery platforms and be used to deliver content to subscribers beyond the limitation of geographical boundary.

– 74 – INDUSTRY OVERVIEW

Internet Usage in Hong Kong

According to OFTA, there were 260 ISPs in January 2002. The Internet traffic volume (Terabits) through broadband network surges from 1,285 in December 2000 to 11,373 in January 2002, an increase of 8.8-fold.

Number of Licensed Internet Service Providers

256 260 250 235

200

159 150 133 124

100 94 No. of Licensees

56 50

1 3 0 Dec Dec Dec Dec Dec Dec Dec Dec Nov Jan 93 94 95 96 97 98 99 00 01 02 Month/Year

Source: OFTA, February, 2002

Internet Traffic Volume (Terabits) (customer access via broadband* networks) 13,000 12,705

12,000 11,373 11,000 10,547 10,000 8,950 9,000 8,543 8,135 8,000 7,750 6,924 7,000 6,080 6,000 Terabits 5,000 4,310 4,340 4,000 3,671 3,000 2,770 2,000 1,587 1,285 1,000

0 Dec Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec Jan Feb 00 01 01 01 01 01 01 01 01 01 01 01 01 02 02 Month/Year

* Broadband means the capacity to transmit data at the rate of 1.5Mbps or above using family of Digital Subscriber Line (xDSL), Local Multipoint Distribution Services (LMDS), Fibre-to-the-Building (FTTB), cable modem or other technologies.

Source: OFTA, 14th May, 2002

– 75 – INDUSTRY OVERVIEW

The rapid deployment 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. The structure of Web documents allows an organization 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.

The Directors believe the growth in e-commerce and Internet usage in Hong Kong has stimulated the demand for Internet solutions services and other related communication technologies, such as Internet payment and content protection from corporations in Hong Kong.

PROCUREMENT AND DELIVERY OF CONTENTS OF TRADITIONAL MEDIA

Overview of advertising and media industry in the Greater China Region

According to the research conducted by AC Nielsen on 11th March, 2002, the advertising expenditure in Asia, especially in the PRC, has continued to increase despite the global economic slowdown. In 2001, advertising expenditure in the PRC grew 16% to US$11.2 billion compared with 2000.

Advertising expenditure trends in selected media in the PRC

Advertising expenditure in 2001 Annual Growth (US$ in million) (%)

TV 8,100 17 Newspapers 2,900 13 Magazines 200 21

Source: AC Nielsen, 11th March, 2002

As the global economy improves gradually, the advertising expenditure in Asia continues to grow at the first quarter of 2002, according to figures released by AC Nielsen on 22nd May, 2002. Compared with the figure of the first quarter of 2001, the advertising expenditure in the PRC increases 32% to US$3.2 billion of the first quarter of 2002. The growth rate of PRC is the highest compared with other Asian countries.

The following table shows the situation on the supply of magazines in the PRC from 1985 to 1999 which may be considered when evaluating the development potential of cross-media content delivery business in the PRC.

– 76 – INDUSTRY OVERVIEW

Supply of magazines in 1985-1999 in the PRC

Magazines Average copies Year No. of Types per edition Total copies Total pages (in ten thousand) (in 100 million) (in 100 million)

1985 4,705 23,952 25.6 77.3 1986 5,248 21,980 24.0 68.1 1987 5,687 24,375 25.9 72.7 1988 5,865 23,275 25.5 71.2 1989 6,078 17,145 18.4 50.7

1990 5,751 16,156 17.9 48.1 1991 6,056 18,216 20.6 54.4 1992 6,486 20,506 23.6 62.7 1993 7,011 20,780 23.5 64.2 1994 7,325 19,763 22.1 63.9 1995 7,583 19,794 23.4 67.0

1996 7,916 19,300 23.1 68.1 1997 7,918 20,046 24.4 73.3 1998 7,999 20,928 25.4 79.9 1999 8,187 21,845 28.5 96.8

Source: National Bureau of Statistics of China, 2000

The supply of magazines in the PRC has increased substantially since 1985. According to National Bureau of Statistics of China, in 1985, there were approximately 4,705 types of magazines and 2,560 million copies were published in the PRC’s media market. After 14 years of development in the PRC’s media market, the types of magazines have increased to approximately 8,787 types and 2,850 million copies published in 1999.

However, the average copies per edition have decreased from 24 million copies to 22 million copies in 1985 and 1999 respectively. The Directors believe that it is the result of keen competition in the PRC’s magazine market. On the other hand, the Directors believe that the PRC market for quality foreign media has huge development potential.

The Group intends to strengthen its presence in the PRC, especially in large cities like Shanghai, to develop its cross-platform content delivery business. It is expected that the Group’s new technology-based media will serve as one of the media for advertising and will contribute considerable revenue to the Group in future.

– 77 – INDUSTRY OVERVIEW

Internet usage in the PRC

According to the statistical report of China Internet Network Information Center (中國互聯網絡信息中心) (“CNNIC”) on the development of Internet in the PRC issued in January 2002, the number of Internet users and computers connected to Internet in the PRC were 33,700,000 and 12,540,000 respectively. Both figures have shown remarkable growth since 1997.

Number of Internet users and computers on Internet in the PRC

35,000,000

30,000,000

25,000,000

20,000,000

15,000,000

10,000,000

5,000,000

0 Oct Jul Jan Jul Jan Jul Jan Jul Jan 97 98 99 99 00 00 01 01 02 Month/Year

Internet users in the PRC Computers on Internet in the PRC

Source: CNNIC, 15th January, 2002

Potential of cross-media content delivery business in the PRC

The cross-platform content delivery business of the Group involves publishing magazines and delivering contents of magazines and other traditional media to users through various network channels, including printed format, Internet, mobile phone and cable TV network.

The development of content delivery business in the PRC seems promising because of the following favourable factors:

1. the PRC’s admission to WTO membership and trend of globalisation have stimulated the demand for foreign media;

– 78 – INDUSTRY OVERVIEW

2. the rapid growth of Internet usage is expected to continue in the near future because of a reduction in Internet access costs, an increase in ownership of personal computers and a rise of disposable income of people in the PRC;

3. the acceptance of Internet users in the PRC towards online shopping has improved; and

4. the size of the media market of the PRC attracts many international media companies, which are the potential partners of the Group, into the PRC market.

Below are the summaries of CNNIC’s statistical report on the development of Internet in the PRC issued in January 2002:

• 31.6% of the respondents purchased goods or services online, compared with only 8.79% of the respondents under the same survey conducted in January 2000;

• 54.5% of the respondents put “browsing for online shopping” on the top of their lists of reasons for accessing the Internet;

• 58% of the respondents purchased books and magazines online;

• 51.6% of the respondents considered books and magazines the most popular items for online shopping; and

• 31% of the respondents considered Internet security the top of the obstacles for the development of online shopping in the PRC.

LAWS AND REGULATIONS RELATING TO PUBLICATION OF MAGAZINES AND THE INTERNET IN THE PRC

A publisher of a magazine has to obtain all approvals and permits required for the publication and distribution of magazines under PRC law and is legally liable for complying with the PRC legal requirements for publication and distribution of magazines. Under the Publication Administration Regulations（出版管理條例）promulgated by the State Council of the PRC, the publisher has to apply to the publication administration authority of the people’s government at the relevant level. Upon approval of such application, the publisher has to be endorsed by the publication administration authority of the State Council and registered with its relevant industrial administrative management authority.

– 79 – INDUSTRY OVERVIEW

The PRC government regulates access to the Internet, value-added telecommunication businesses and commercial Internet information services providers by imposing various strict licensing requirements and requiring Internet service providers in the PRC to use the international inbound and outbound Internet backbones. Further, existing PRC legislation expressly regulates foreign investment in the operation of telecommunication services, including Internet services.

Please see the relevant risk factors for practical implications of the above requirements to the Group’s business.

– 80 – BUSINESS

GROUP AND SHAREHOLDING STRUCTURE

The following chart sets out the shareholders and subsidiaries and minority interest of the Group immediately following the completion of the Share Offer, assuming there is no exercise of the Over-allotment Option and no exercise of options which have been granted under the Pre-IPO Share Option Scheme and the Post-IPO Share Option Scheme.

Amazing Nova Forever Triumph Supreme Lucky Sheikh Ali Arabian Gulf Sir Chung Corporation Limited Ltd. Khalifa Athbi Al Investments Sze Yuen (Note 1,2) (Note 1) (Note 3) Sabah Overseas Limited (Note 6) (Note 4) (Note 5)

34.11% 10.81% 2.26% 2.77% 3.71% 0.1%

Hong Kong Matrix Bright Progress University of Bahrain Middle Public Worldwide Holdings Limited Science and East Bank (E.C.) (Note 10) Corporation (Existing Public Technology R and D (Note 9) (Note 1) Shareholder) Corporation (Note 7) Limited (Note 8) 12.52% 0.86% 2.02% 5.84% 25%

Vertex Communications & Technology Group Limited

100% 49% 100% 100% 100% Network Pacific Digitals Net2Voice *** Optimum (HK) (Hong Kong) Engineering Unifine Ltd. Cyber Limited*** Limited** Limited** Limited** (Note 14) (Note 15) Provision of Provision of web Voice and communication 50% (Note 12) 100% solutions and language infrastructure services other Internet technology Sino World services development Media Company 上海創一信息 (Note 11) Limited ** 技術有限公司 (Shanghai WFOE) 80% (Note 13) Software and hardware SinoWorld CNW development **** Publishing Limited** Publish Newsweek Special Edition in Chinese language * Incorporated in the Cayman Islands ** Incorporated in Hong Kong *** Incorporated in the British Virgin Islands **** Incorporated in the PRC

Notes:

– 81 – BUSINESS

In addition, as Dr. Poon is an executive Director and owns shares in Amazing Nova Corporation, Matrix Worldwide Corporation and Forever Triumph Limited respectively, Dr. Poon is regarded as an Initial Management Shareholder. Dr. Poon and Mr. Poon believe that the communications and technology industries have enormous growth potential and they therefore formed the Group in May 1998.

2. As Mr. Poon is an executive Director and owns 10% interest in Amazing Nova Corporation, Mr. Poon is regarded as an Initial Management Shareholder and effectively holds 4.55% interest in the Company.

3. Supreme Lucky Ltd is wholly and beneficially owned by Dr. Lee Peng Fei Allen and Ms. Choi Yuen Ha Maria, as to 50% and 50% respectively of its issued share capital. Ms. Choi Yuen Ha Maria is the spouse of Dr. Lee Peng Fei Allen. Dr. Lee Peng Fei Allen is deemed, by virtue of the SDI Ordinance, to be interested in the same 11,100,000 Shares held by Supreme Lucky Ltd. As Dr. Lee Peng Fei Allen is one of the non-executive Directors of the Company, by reason of its shareholding in the Company and Dr. Lee Peng Fei Allen’s representation in the Board, Supreme Lucky Ltd. is regarded as an Initial Management Shareholder. In addition, by reason of Dr. Lee Peng Fei Allen’s representation in the Board and his shareholding in Supreme Lucky Ltd., Dr. Lee Peng Fei Allen is also regarded as an Initial Management Shareholder. As Dr. Lee Peng Fei Allen is optimistic about the future in the telecommunications and technology industries, he invests in the Company as a medium to long term investment.

4. Sheikh Ali Khalifa Athbi Al Sabah is a director of Bahrain Middle East Bank (E.C.) and therefore together with Bahrain Middle East Bank (E.C.) is a Significant Shareholder of the Company. He is a telecommunications and technology investor in the Middle East. He was formerly a minister of the government in the State of Kuwait. His businesses cover mobile telephone system, micro-wave telecommunications, Internet technologies, banking, newspaper and magazine. One of his companies publishes Newsweek Arabic edition in the Middle East. Sheikh Ali Khalifa Athbi Al Sabah is a strategic investor of the Company. He also holds 10% of the issued share capital of SinoWorld CNW. Sheikh Ali Khalifa Athbi Al Sabah has no involvement in the management or board of the Group. In September 2000, Sheikh Ali Khalifa Athbi Al Sabah became a strategic investor of the Group. He believed that there is promising future of the Group’s businesses in the telecommunications, technology and media sectors. Sheikh Ali Khalifa Athbi Al Sabah or his associates have no shareholding interests or control in Bahrain Middle East Bank (E.C.) apart from his director role.

5. The beneficial shareholder of Arabian Gulf Investments Overseas Limited is Arabian Gulf Investments (Far East) Limited, a joint venture private equity fund held by The Hongkong and Shanghai Banking Corporation Limited and certain Middle East interests. The principal activities of Arabian Gulf Investments Overseas Limited are the provision of fund management and direct investment in equity market. Arabian Gulf Investments Overseas Limited intends to hold the shareholding interest in the Company as a medium to long term investment.

Mr. Christopher J. Weir, the managing director of Arabian Gulf Investments (Far East) Limited, was appointed as director of SAR1 on 19th September, 2000 and as non-executive Director of the Company on 28th March 2002. Mr. Christopher J. Weir resigned as non-executive Director of the Company with effect from 27th June, 2002. Because of his directorship during the Track Record Period, Arabian Gulf Investments (Far East) Limited and Arabian Gulf Investments Overseas Limited are regarded as Initial Management Shareholder.

– 82 – BUSINESS

6. Sir Chung Sze Yuen was appointed Chairman of SAR1 in September 2000. Sir Chung Sze Yuen has no involvement in the management of the Company. In recognition to the advice given by Sir Chung Sze Yuen to the board of SAR1 and to his service as the chairman of the board of SAR1 since September 2000, the Group’s controlling shareholder, Dr. Poon, transferred from Forever Triumph Limited certain number of shares of SAR1 to Sir Chung Sze Yuen. Sir Chung Sze Yuen thus became a shareholder of the Company. Since the Shares held by Sir Chung Sze Yuen were transferred indirectly from Dr. Poon, the controlling shareholder, he is subject to a 12-month moratorium period.

7. Bright Progress Holdings Limited is an investment holding company. Dr. Shen Vincent Yun Shen, is the controlling shareholder of Bright Progress Holdings Limited. Dr. Shen Vincent Yun Shen is an investor of the Company but is independent of and not connected with the Directors, chief executive, substantial shareholders and Initial Management Shareholders of the Company or any of their respective associates and has no involvement in the management of the Company. Dr. Shen Vincent Yun Shen subscribed for 20% of the shareholding in Bright Progress Holdings Limited in July 1999. Bright Progress Holdings Limited acquired shares in eCyberPay.com Limited in October 1999 and subsequently transferred them to Unifine. eCyberPay.com Limited was further transferred to the SAR1 Group under the corporate reorganization in December 2001. In May 2000, as a result of the reorganization, 63,500,000 shares in SAR1 were allotted to Bright Progress Holdings Limited. In January 2002, Dr. Shen Vincent Yun Shen agreed to the transfer of 50,800,000 shares in SAR1 among the said 63,500,000 shares in SAR1 to Forever Triumph Limited in return for the acquisition of the other 80% of the shareholding in Bright Progress Holdings Limited from Amazing Nova Corporation. Since then, Bright Progress Holdings Limited has been wholly and beneficially owned by Dr. Shen Vincent Yun Shen and Dr. Shen Vincent Yun Shen is interested in the Shares held by Bright Progress Holdings Limited. Bright Progress Holdings Limited is an Existing Public Shareholder of the Company.

8. Hong Kong University of Science and Technology R and D Corporation Limited is a subsidiary wholly owned by Hong Kong University of Science and Technology. It participates in the research, development and commercialisation of science and technology products and systems. Professor Lin Otto Chui Chau, who holds the position of director of Hong Kong University of Science and Technology R and D Corporation Limited, is one of the non-executive Directors of the Company. By reason of its shareholding in the Company and Professor Lin Otto Chui Chau’s representation in the Board, Hong Kong University of Science and Technology R and D Corporation Limited and Hong Kong University of Science and Technology are both is regarded as Initial Management Shareholders. Through the cooperation in the development of Internet payment gateway technology, Hong Kong University of Science and Technology R and D Corporation Limited became an investor of the Company.

9. Bahrain Middle East Bank (E.C.) is a company listed on the Bahrain Stock Exchange since June 1989. Its principal business is banking and equity investment. Bahrain Middle East Bank (E.C.) has no involvement in the management of the Company. In July 2000, Bahrain Middle East Bank (E.C.) invested in the Group as part of its equity investment portfolio. Bahrain Middle East Bank (E.C.) is the Significant Shareholder of the Company.

– 83 – BUSINESS

10. The 25% public shareholding (excluding the shareholdings of the Existing Public Shareholder) is calculated based on the total number of Shares issued after the Share Offer but before the exercise of the Over-allotment Option and any options granted under the Pre-IPO Share Option Scheme and the Post-IPO Share Option Scheme. If the Over-allotment Option is fully exercised, the shareholding structure of the Company immediately after completion of the Share Offer and the exercise of the Over-allotment Option is as follows:

Shareholders Percentage of Shareholding

Amazing Nova Corporation 32.88 Matrix Worldwide Corporation 12.06 Forever Triumph Limited 10.42 Bahrain Middle East Bank (E.C.) 5.63 Arabian Gulf Investments Overseas Limited 3.58 Supreme Lucky Ltd. 2.17 Hong Kong University of Science and Technology R and D Corporation Limited 1.95 Sheikh Ali Khalifa Athbi Al Sabah 2.67 Bright Progress Holdings Limited 0.83 Sir Chung Sze Yuen 0.1 Public 27.71

Total 100

11. According to a shareholders’ agreement dated 20th October, 2001 and a letter of assignment accepted by Net2Voice on 5th February, 2002, Net2Voice will subscribe for 51% shareholding in Net2Voice (Hong Kong). From the Directors’ understanding, the subscription will take place in the fourth quarter of 2002.

12. The remaining 50% of the issued share capital of SinoWorld Media is owned by Sino United Publishing.

13. The remaining 20% of the issued share capital of SinoWorld CNW is owned by Sheikh Ali Khalifa Athbi Al Sabah (10%) and Forever Triumph Limited (10%) respectively. Sheikh Ali Athbi Al Sahah together with Bahrain Middle East Bank (E.C.) is a Significant Shareholder. Forever Triumph Limited is wholly-owned by Dr. Poon.

14. Unifine was incorporated on 18th February, 2000 and was wholly owned by the SAR1 Group. On 2nd August, 2001, the Company acquired all issued share capital of Unifine from the SAR1 Group. Please refer to the section headed “Corporate reorganization” at Appendix V to this prospectus for details.

15. Optimum Cyber Limited was incorporated on 18th July, 2000 and was wholly owned by the SAR1 Group. On 5th February, 2002, the Company acquired all issued share capital of Optimum Cyber Limited from the SAR1 Group. Please refer to the section headed “Statement of active business pursuits” to this prospectus for details.

– 84 – BUSINESS

HISTORY AND DEVELOPMENT

The path of the Group’s development in communications and technology industries

Publication of Chinese Language 2002: Newsweek Special Edition and Launch of MMChina

Partnerships with media companies 2001: (Sino United Publishing, Newsweek Inc. and SIE) for content production, procurement and delivery

2000: Application and development of content delivery technology

1998: Communication infrastructure Services

Recognizing the business trend of integration of communication and media industries, Dr. Poon and Mr. Poon envisioned that numerous business opportunities would be created by the same trend in the Greater China Region.

Dr. Poon and Mr. Poon believed that communication infrastructures are the fundamental building blocks of the communication and technology businesses. In September 1995, Dr. Poon and Mr. Poon founded Network Engineering Limited. Since September 1998, Network Engineering Limited had been engaging in telecommunication infrastructure services, including network design, network planning and implementation. Network Engineering Limited has participated in a number of telecommunication infrastructure projects of network carriers in Hong Kong.

In April 1999, Network Engineering Limited was engaged by Welcome Engineering Company Limited, an engineering company in Hong Kong independent of and not connected to the Directors, chief executive, substantial shareholders and Initial Management Shareholders of the Company or any of their respective associates, as a contractor to provide the telecommunication infrastructure services of, inter alia, site survey, preliminary design, laying, connecting, testing and commissioning of, in-building copper cable (Cat. 3 & Cat. 5) and fibre optic network by entering into three contracts, namely, blockwiring survey contract, blockwiring planning contract and blockwiring installation contract. Network Engineering Limited completed all the jobs assigned by Welcome Engineering Company Limited in or about August 2000.

Witnessing the growing demand for digital information and entertainment, especially on the Internet, the Group began to develop technology solutions, which make use of various communication infrastructures and content delivery technology to deliver content to users. The Group recruited Mr. Wong Shing Bun as the Chief Technology Officer in June 1999 to assemble a team of experts in information technology, specializing in the application of communication and Internet technology. – 85 – BUSINESS

By the end of 1999, the Group together with University of Science and Technology R and D Corporation Limited jointly developed an Internet payment system, eCyberPay. It was designed to provide a secure, simple and consolidated online payment system for the Internet users. The eCyberPay system was formally launched in mid 2000.

The first reorganization took place in March 2000 with a holding company, SAR1, being incorporated. SAR1, as the holding company, directed the business development in telecommunication infrastructure services and technologies solutions. In the months thereafter, SAR1 acquired and developed technologies relating to the delivery of contents, including applications of streaming technology (including cross-platform content delivery), Digital Rights Management, Internet payment system and Internet surveillance system. Since July 2000, the Group has begun to offer technology solutions to corporate clients.

New funds of an aggregate of HK$79,691,895 were injected by Sheikh Ali Khalifa Athbi Al Sabah, Bahrain Middle East Bank (E.C.) and Arabian Gulf Investments Overseas Limited from July to September 2000 for the subscription of 12,250,000, 12,250,000 and 23,636,000 shares respectively in the capital of SAR1. From mid-2000 to the end of 2001, the Group began the effort of bringing together traditional media and technology-based delivery platform. Discussions and negotiations with various reputable content and international media companies took place. Partnership arrangements, in the form of agreement, memorandum of understanding or the establishment of joint venture company, were entered into with Sino United Publishing in July 2001, Newsweek Inc. in October 2001, Shanghai Library in October, 2000, Rui Cheng in December 2001, SIE in December 2001 and Net2Voice in October 2001. Please refer to the section headed “Strategic alliances” in this prospectus for details of these cooperations.

Reorganization took place in preparation for the proposed Listing. SAR1’s communication and technology businesses were grouped under the Company, a separate new holding company.

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STATEMENT OF ACTIVE BUSINESS PURSUITS

The following table is a summary of the Group’s operations including its business development, research and development, sales and marketing and human resource deployment from 1st January, 2000 to the Latest Practicable Date.

Year ended 31st December, 2000 Year ended 31st December, 2001 Period from 1st January, 2002 to the Latest Practicable Date

BUSINESS DEVELOPMENT

Provided communications Obtained business contracts from Entered into agreements with infrastructure services to leading several renowned customers, Shanghai Chuan Yi, from January fixed-line and wireless network including Hong Kong Broadband to May, to develop the online carriers in Hong Kong Network Ltd. and Academy of media market in the PRC Chinese Studies since September and April respectively

Development of content delivery Established strategic alliances Published its first and second technology and provision of with Sino United Publishing, issues of the Chinese language application solutions to Newsweek Inc. and SIE in July, Newsweek Special Edition in corporations, particularly in the October and December January and April respectively. area of cross-platform content respectively The magazine was sold in the delivery solutions PRC, Hong Kong, Taiwan and other territories

SAR1 signed a memorandum of Set up a forum Website at understanding with Shanghai www.sinoworldmedia.com for Library on 1st October, 2000 to viewers to express views and seek obtain a right to digitise Shanghai advice on the topics of the Library’s audio collections to magazine expand the Group’s content database. The rights and obligations of SAR1 under the agreement with Shanghai Library Started to negotiate with were assigned to the Company on Newsweek Inc. in February for 4th June, 2002 the publication, marketing and sales of Chinese language edition of Newsweek Weekly

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Year ended 31st December, 2000 Year ended 31st December, 2001 Period from 1st January, 2002 to the Latest Practicable Date

RESEARCH AND DEVELOPMENT

Established a technology team Entered into agreement with Began to work on the technology headed by Mr. Wong Shing Bun Net2Voice for the establishment transfer of text-to-speech and for the development of content of a joint venture company in voice-recognition technology from delivery technologies in April Hong Kong to develop text-to- Net2Voice to Net2Voice (Hong speech and voice-recognition Kong) Established studios, hardware and technology from Net2Voice in equipment facilities for Internet October broadcast and content production

Developed various applications of Digital Rights Management and Internet multimedia broadcast technology at the third quarter of 2000

SALES AND MARKETING

No. of projects done by the Group 2000 2001 2002 (Up to the Latest Practicable Date)

(i) Communication infrastructure 177 173 77 services

(ii) Application and development of 11 105 13 content delivery technology

(iii) Content production procurement and ––Two issues of Chinese language delivery Newsweek Special Edition

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HUMAN RESOURCES DEPLOYMENT

As at As at As at the Latest 31st December, 31st December, Practicable Date 2000 2001 PRC Hong Kong

Management ––24 Network Project Management 9 7 – 11 Administration and Office Support 1 1 1 3 Finance ––22 Business and Market Development ––23 Media and Content Production – 343 Technology Operation and Development 7 5 3 4

17 16 14 30

DESCRIPTION OF BUSINESS

Overview

The Group has its headquarters in Hong Kong and an office in Shanghai. As at the Latest Practicable Date, there are 44 employees in Hong Kong and Shanghai. The Group is engaged in communication and technology business, specializing in the provision of communication infrastructure services, application and development of content delivery technology and content production, procurement and delivery. The Group utilizes and complements its experience and expertise in the above three business segments to converge traditional media and communication technology into new technology-based media which will make use of various communication infrastructures and traditional media distribution channels to deliver contents to users in the Greater China Region.

The following diagram illustrates the core business segments of the Group:

Communication infrastructure services

Application Content and production, development of procurement content delivery and technology delivery

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EXISTING BUSINESS OF THE GROUP

I) Communication infrastructure services

Since the Group’s establishment in 1998, the Group has been providing communication infrastructure services for network carriers in Hong Kong. For the two years ending 31st December, 2001, the Group had completed about 350 communication infrastructure projects for major network carriers.

(a) FTNS (wireline based and local wireless)

The Group provides engineering services to several well-known local network carriers in the area of FTNS network deployment:

– Transmission Network: overall transmission network planning.

– Optical Fibre Network: optical fibre network planning and construction.

– In-building Networks: In-building distribution cable planning, implementation and wireless local loop design.

– Central Office and Equipment: equipment layout design and electrical works.

– Equipment Installation: transmission equipment installation, equipment stand-alone test and system integration.

(b) Cellular network engineering services

The Group provides cellular network services to well-known wireless and mobile network carriers in Hong Kong in the following areas:

– Network Planning and Design: cell site location, equipment room design, antenna positioning and coverage and network performance.

– Base Station Design: equipment layout, housing unit construction, antenna erection, cabling and electrical works.

– Equipment Installation: cell site equipment installation, equipment stand-alone test, system integration and commissioning.

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Currently, the Group was appointed by one of the major local network operators to transform the existing network of the network operator to a 3G network.

Throughout the years, the Group has placed heavy emphasis on providing high quality communication infrastructure services to customers in order to maintain long-term customer

– 91 – BUSINESS relationships. On 6th September, 2001, the effort of the Group in providing high quality communication infrastructure services was recognized by the internationally renowned ISO9001 certificate.

For the two years ended 31st December, 2001, the revenue derived from the communication infrastructure services amounted to HK$9,582,000 and HK$6,822,000 respectively and constituted 81.2% and 55.1% respectively of the Group’s total turnover for the corresponding periods.

A retention money, representing approximately 10% of the contract sum of an infrastructure services project, may be withheld by the client during the maintenance period. The purpose of the retention money arrangement is to guarantee the quality of work done by the Group for the project during the maintenance period. Such money will be released upon expiration of maintenance period which is normally 6-12 months from the project completion day. On the other hand, the Group also adopts the retention money arrangement with its subcontractors. The retention money is normally about 20% of the contract sum and the maintenance period ranges from 6 months to 12 months.

II) Application and development of content delivery technology

The Group has acquired, developed and customised various content delivery technologies, which include Digital Rights Management, voice & language technology, cross-platform broadcast and Internet multimedia broadcast. Utilizing its expertise in communication infrastructure services and content delivery technologies, the Directors believe the Group can provide competitive solutions to clients and satisfy their needs.

– Digital Rights Management: Digital Rights Management is a technology developed by Microsoft for the protection and management of digital contents. The Group develops and customises the DRM solution to clients and provides the following DRM solution services to clients:

– Content encoding and packaging (application/application services)

• digitise media contents, encrypt to produce a protected format

– Rights clearing services

• Maintain the licence key management system and deliver to users upon request for unlocking protected media contents

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– Payment clearing integration

• Provide interface to talk with payment gateways for financial transaction before issuing the licence keys

– Statistics tracking for customers

• Licence key download statistics for content provider/storefront

• Financial clearing request statistics for payment gateway/content provider/ storefront

– Voice & language technology: To further improve its ability to serve its technology solutions services customers, the Group has access to the text-to-speech technology and voice recognition technology through a joint venture arrangement with Net2Voice. Net2Voice is a provider of linguistics software specialised in English, Arabic, Korean, Chinese, Turkish, Persian and most European languages. Following the completion of technology transfer from Net2Voice to Net2Voice (Hong Kong) in the third quarter of 2002, the Group will be able to add the voice interface solutions to its technology base to serve its technology solutions services customers. In the last few months, a free-of-charge demo interactive voice response system was built by the Group for a local bus company. Utilizing the voice- activated inquiry system, an inquirer can inquire about a bus route by telling his starting point and destination on the phone. The interactive voice response system will select and tell the appropriate bus route information to the inquirer.

– Cross-platform broadcast: Based on the streaming software developed by Microsoft, the Group customerizes and

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provides cross-platform broadcast solution services to clients. Through the cross-platform broadcast solution, clients can deliver the contents across a number of platforms including cellular network, and fixed line broadband network.

– Internet multimedia broadcast: Using streaming technologies developed by various companies, such as Microsoft and Real Networks, the Group develops applications and customerizes the streaming technology specifically for media companies. Such applications include the distribution of advertising material along with the digital contents as they are streamed to the users.

Along with the core streaming technologies developed by Microsoft and Real Networks, the Group provides value-added software packages that provide media content management, advertising management and special user interface design.

Building on the Group’s expertise in application and development of content delivery technology, the Group has the capability to offer comprehensive and competitive solution services to clients. The Group’s solution services consists of Website design, Website construction, consulting services, content delivery technology application developments and post-installation services to clients.

Below is a partial list of the clients in application and development of content delivery technology and the projects done by the Group:

Name of client Job nature

Sony Music The Group offers certain communication technology solution services, including Web hosting, content storage, monthly reporting, hosting technical support, customer service support and streaming service for its website.

Hong Kong Trade Development Council The Group provides video shooting, editing, data conversion service and streaming service for events and exhibitions of Hong Kong Trade Development Council.

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The Academy of Chinese Studies Limited The Group designs and develops the Internet- based multimedia learning platform regarding Chinese culture for secondary schools’ students, teachers and education professionals.

For the two years ended December 2001, the revenue derived from the application and development of content delivery technology, amounted to HK$2,218,000 and HK$5,558,000 respectively and constituted 18.8% and 44.9% respectively of the Group’s total turnover for the corresponding periods.

The clients for application and development of content delivery are corporate clients from diverse sectors such as telecommunication, media, entertainment, public utilities and transportation. The Group charges its clients a service fee on the basis of the number of hours incurred and it normally takes a few months to over a half year for the completion of solutions services.

III) Content production, procurement and delivery

The Group develops and expands its content database through in-house production studios and procures contents from external content providers.

(1) In-house multimedia contents production

The Group currently owns and operates two content production studios in Hong Kong and Shanghai. The Group owns the contents provided by these studios.

These two content production studios are operated to produce audio and visual programs by production teams with channel host and guest appearances. The programs produced to supply for MMChina, Shanghai Online II and subscribers to i-Home solution include:

Live online shows broadcasting The Group produces daily live programs at the Group’s studios or in remote locations and transmits the programs back to the studios for real-time processing.

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Program post-production and encoding The Group edits and encodes pre-recorded programs in special formats to be broadcast on the Internet.

Partnership in program production The Group co-produces multimedia programs with other content providers using its studio facilities and equipment.

(2) Content procured from external content providers

As the contents produced by the in-house production studios are limited in variety and quantity, the Group also procures content from other content providers.

Shanghai Library

The Group is licensed by Shanghai Library, which is one of the largest libraries in the PRC, to digitize its audio collection. The Group successfully digitized about 20 hours of audio collection of Shanghai Library during 2001. The Group has the right to deliver these online media contents to the subscribers. The Directors are evaluating market response to the existing digitized collection in order to determine the pace of digitization. According to the PRC legal adviser to the Group, the parties’ duties and obligations under the above licensing arrangement are legal and binding on the parties and no further approval from any governmental authorities is required. Please refer the section headed “Strategic alliances” for the details of cooperation with Shanghai Library.

Chinese language Newsweek Special Edition

In October 2000, negotiations between the Group and Newsweek, Inc. on publishing Chinese language Newsweek Special Edition commenced.

The Group entered into an agreement with Newsweek, Inc. in October 2001. Under the licensing agreement with Newsweek, Inc, the Group was granted a worldwide exclusive licence to reproduce, market and disseminate Chinese language Newsweek Special Editions in print form and in electronic form. The Group has the right of first

– 96 – BUSINESS refusal to the reproduction, marketing and dissemination of the corresponding Chinese special editions of all new issues of Newsweek Special Editions which are published with an initial period of three years. The licensing agreement is for the initial period of three years, with automatic annual renewal after the first three-year period.

Pursuant to the licensing agreement between the Group and Newsweek, Inc., Newsweek, Inc. is entitled to receive a licensing fee being certain percentage of the total revenue arising from publication of Chinese language Newsweek Special Edition in print form and electronic form or a minimum annual guaranteed payment of US100,000.

In January and April 2002, SinoWorld Media published its first and second issues of the Chinese language Newsweek Special Edition “Health for Life: Living Longer, Living Better” and “Your Child: Birth to three” respectively. The first and second issues of the English language Newsweek Special Editions were published in the fourth quarter of 2000 and 2001 respectively. The magazine was sold in the PRC, Hong Kong, Taiwan and other territories. The non-PRC version is in traditional Chinese characters, whilst the PRC version is in simplified Chinese characters. As the current PRC laws and regulations do not allow foreign publishers to publish books and magazines on their own in China, the Group cooperates with PRC publishers to publish the simplified Chinese character version of Newsweek Special Edition in form of bundle sale with other PRC magazines. The selected local magazine must fit the quality requirements of the Group and its theme is consistent with the topics of the particular issue of the Chinese language Newsweek Special Edition. Under such cooperation, the Group is responsible for the provision of the content, printing and delivery of an agreed number of a particular issue of the Chinese character version of Newsweek Special Edition to the cooperating publisher of that particular issue. The responsibilities of these PRC magazine publishers are to apply for special permit to publish the Newsweek Special Edition and to package their magazines in bundle with the simplified Chinese character version of Newsweek Special Edition. Such arrangement in publishing and distributing simplified Chinese character version of Newsweek Special Edition in the PRC, which is acknowledged and permitted by Newsweek, Inc., is a common arrangement under the current PRC legal requirements and will continue to be adopted. The first and second issues of PRC version were sold in bundle with Popular Medicine and Mother and Baby respectively. As for the first issue, the simplified character version had a circulation of around 250,000 and the traditional character version had around 50,000. The total sales of the first issue of the Chinese language Newsweek Special Edition until 31st March, 2002 was HK$930,270. According to the PRC legal adviser to the Group, the PRC publishers appointed by the Group for the publication and distribution of the first and second issues of the Chinese language Newsweek Special Edition, namely Shanghai Science and Technology Publishing Limited and 職業女性雜誌社, have respectively obtained all necessary authorisations and approvals and have complied with all necessary

– 97 – BUSINESS formalities for publishing the first and second issues of the Chinese language Newsweek Special Edition. The publication and distribution of the first and second issues of Newsweek Special Edition are legal and valid.

The Group intends to publish approximately 8 to 10 issues of the Chinese language Newsweek Special Edition each year. The next issue of the Chinese language Newsweek Special Edition is expected to be published in August 2002. Each issue of Chinese language Newsweek Special Edition has a specific topic, including health, baby, technology, worklife and the like.

Publishing Chinese language Newsweek Weekly will be the next step of development of the Group. The successful publications of the first and second issue of Chinese language Newsweek Special Editions demonstrate the Group’s capacity and reflect the enormous demand for foreign magazines in the PRC. Both Newsweek Inc. and the Group intend to commence publishing the Chinese language Newsweek Weekly in the Greater China Region. The Directors expect the negotiation on the publication of Chinese language Newsweek Weekly to be concluded in the third quarter of 2002.

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DEVELOPING BUSINESS OF THE GROUP

I) Provision of online media contents to SIE, MMChina and i-Home

Under the cooperation agreement with Shanghai Chuan Yi, the Group has agreed to provide online media contents, which are developed from Shanghai Library, to SIE, MMChina and i-Home indirectly. MMChina is a showcase of the Group to demostrate its capacity and expertise in content delivery technology and content production. The Group does not receive any revenue from providing online media contents to MMChina.

On the other hand, after the finalization of revenue-sharing arrangement with SIE and Rui Hong New Town, the Group will receive revenue from SIE and subscribers to i-Home from the provision of online media contents. Please refer to the section headed “Revenue Model” for details of the revenue arrangement.

Under the contractual arrangement with Shanghai Chuan Yi, the Group has granted a licence to Shanghai Chuan Yi for the use of the trademark and domain name of MMChina and the Group produces the online multimedia content of MMChina through its studios and provides certain technology solutions services, including Internet broadcasting and multimedia content delivery, to Shanghai Chuan Yi. The contents available at MMChina are different and separated from the contents sold to SIE and i-Home subscribers. It is unclear as to whether the contents provided by the Group for use at MMChina will fall within the scope of “信息網絡傳播廣播電影電視類節目監督管理暫行辦法”. In any event, according to the PRC legal advisers to the Group, if the operation of MMChina is in breach of the relevant PRC laws, Shanghai Chuan Yi will be responsible and the Group as a mere owner of the domain name mmchina.com will not be held responsible.

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Shanghai Online II

II) i-Home solution

– 100 – BUSINESS residential properties in the PRC.

The components of i-Home solution:

1. Broadband infrastructure

– design the system and terminal network

– assist in the broadband equipment and cable installation and commissioning

– manage and maintain the hardware

2. Platform for community broadcast, e-commerce and estate management

– Build up the platform applications including the online media broadcasting application, e-commerce application and Internet remote intelligent surveillance system (IRIS)

3. Online contents delivery

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The interface of i-Home

The Group and Shanghai Chuan Yi entered into an agreement with Rui Cheng in December 2001 to develop i-Home for its newly developed residential property, Rui Hong New Town in Shanghai. i-Home was successfully installed at Rui Hong New Town and was subject to a trial period commencing from January 2002. The trial period has been extended because Rui Cheng so far has not solved its technical problems in connection with the ISP and only a few residents could get access to i-Home at this moment. Rui Cheng is currently negotiating with the Group, on behalf of Shanghai Chuan Yi, for a revenue-sharing scheme and the Directors believe that a substantive agreement will be concluded after the completion of the trial period.

As the broadband network was developed at Rui Hong New Town before the Group commenced its negotiation with Rui Cheng, the Group did not provide its broadband infrastructure services to Rui Hong New Town.

The Group in association with Shanghai Chuan Yi will provide the multimedia broadcast contents at i-Home and will deliver the contents to the residents of Rui Hong New Town on a subscription basis. The Directors believe that the business model of i-Home has enormous potential in the PRC and may also provide other value-added services such as distance learning and e-commerce on the community broadcast platform. The Group currently negotiates with other property developers in the PRC for the development of i-Home for their residential

– 102 – BUSINESS properties. According to the PRC legal adviser to the Group, the engineering services provided and to be provided by the Group in respect of the business of iHome are not within the scope of the intelligence systems, engineering designs and implementation services mentioned in “建築智能化系統工程設計管理暫行規定”. The business of iHome carried on or planned to be carried on by the Group is not in breach of the relevant PRC laws and regulations.

III) Electronic publishing platform

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REVENUE MODEL

Set out below is a summary of the revenue model of the Group:

Name of business Source of revenue Record revenue during the Track Record Period

Existing business of the Group

1) Communication infrastructure – charges a service fee on the ✓ services basis of size and scope of communication infrastructure project

2) Application and development – charges a one-off project fee ✓ of content delivery technology which depends on the complexity of the project

3) Content production, procurement – For the traditional Chinese The first and second issues of and delivery character version which is sold Chinese language Newsweek in Hong Kong, Macau and Special Edition were published in Taiwan, the Group receives January and April 2002. The the sales revenue and Group recorded the sales revenue advertising income. and advertising income after the Track Record Period. – For simplified Chinese character version which is sold in the PRC, the Chinese language Newsweek Special Edition is published by the PRC publishers appointed by the Group in form of bundle sales with local magazines. Under the arrangement with PRC publishers in publishing the first and second issues of Chinese language Newsweek Special Edition, the Group is entitled to the advertising income.

– Under the licensing agreement with Newsweek, Inc. dated October 2001, certain percentage of income generated from the Chinese language Newsweek Special Edition is payable from the Group to Newsweek, Inc. as the licensing fee.

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Developing business of the Group

1) Provision of online media content to

b) SIE (Shanghai Online II) – Under the contractual No subscription revenue was arrangement with Shanghai recorded because the revenue Chuan Yi dated January to sharing arrangement between the May 2002, the Group produces Group, on behalf of Shanghai its online media content in its Chuan Yi, and SIE is not yet production studios in Hong finalized. Kong and Shanghai, and procure contents from Shanghai Library and other sources. The Group, through Shanghai Chuan Yi, provides these contents to SIE and SIE establishes a paid channel at its portal Shanghai Online II, and Shanghai Chuan Yi receives certain percentage of monthly subscription fees received by SIE. The Group is entitled to receive 60% of the subscription revenue received by Shanghai Chuan Yi.

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STRATEGIC ALLIANCES

With a view to developing its communications and technology services industry, the Group forms strategic alliances with other technologies and media-related companies to enhance its communication technologies and expand its sources of content, details of which are set out below:

Sino United Publishing

Sino United Publishing is the holding company of a large group of publishing companies, including the long-established Commercial Press (Hong Kong) Limited, whose business covers Hong Kong, the PRC and overseas. In July 2001, the Group entered into a legally binding memorandum of understanding with Sino United Publishing to form a new media company, SinoWorld Media. In setting up the joint venture with Sino United Publishing, both the Group and Sino United Publishing had a mutual understanding that the equity interest in SinoWorld Media would be held equally by both parties but the Group would control the composition of the board of directors of SinoWorld Media. On 31st December, 2001, after the Group acquired 50,000 shares in SinoWorld Media from Bright World at HK$50,000 and further subscribed for 460,000 new shares in SinoWorld Media, the Group held a 51% equity interest in SinoWorld Media. On 25th March, 2002, the Group transferred 10,000 shares in SinoWorld Media to Sino United Publishing at a nominal value of HK$10,000. Subsequent to the transfer, the Group’s equity interest in SinoWorld Media decreased from 51% to 50%. On 24th May, 2002, the Group finally obtained written consent from Sino United Publishing to evidence the mutual agreement that the Group controls SinoWorld Media by allowing the Group to have majority in the board of directors of SinoWorld Media by appointing one additional director to the board of directors of SinoWorld Media on the condition that SinoWorld Media’s sole business is the

– 106 – BUSINESS publishing of Newsweek magazine. On the same date, the Group appointed one additional director to the board of directors of SinoWorld Media. As the Group controls the composition of the board of directors of SinoWorld Media and the decision in financial and operating decision policies of SinoWorld Media, the Group has accounted for SinoWorld Group as subsidiaries from the effect date of acquisition to 31st December, 2001 during the Track Record Period and after the transfer of 10,000 shares in SinoWorld Media to Sino United Publishing on 25th March, 2002.

SinoWorld Media’s main objective is to combine the strengths of the Group and Sino United Publishing in communication technologies and ownership of the large volume of quality contents respectively to develop the cross-media content delivery business in the Greater China Region. Under the cross-media content delivery business model, the Group will utilize different media channels, including electronic publishing platform, community broadcast platform of i-Home solution, mobile phone network and traditional media distribution channel to deliver contents to users. Pursuant to the memorandum of understanding, the Group and Sino United Publishing have agreed to provide initial funding to SinoWorld Media in equal shares of up to HK$1 million each; Sino United Publishing shall provide advice and services relating to marketing and sales of media products and the Chinese language Newsweek Special Editions and the Group shall provide advice and services relating to international dealings and applications of advanced technologies and the dealing with Newsweek, Inc. and the production of the Chinese language Newsweek Special Editions.

The initial funding to SinoWorld Media was provided by the Group and Sino United Publishing in form of share capital of HK$1 million, which was made in December 2001. There was no further funding committed to be made to SinoWorld Media by the shareholders.

Currently, the Group is in discussion with Sino United Publishing to develop Chinese characters database which will be equipped with voice and language technology. Under the proposed cooperation, Sino United Publishing will be responsible to develop the Chinese characters database and the Group will integrate its voice and language technology into the Chinese characters database. After the completion, the Group and Sino United Publishing will both have the right to access that database. The Group plans to integrate this database with its electronic publishing platform and serves as an add-on feature to strengthen the interactiveness of the platform.

Newsweek, Inc.

In October 2001, SinoWorld Media obtained a worldwide licence from Newsweek Inc. to reproduce, market and disseminate Chinese language Newsweek Special Editions in print form and in electronic form. SinoWorld Media has the right of first refusal to the reproduction, marketing and dissemination of the corresponding Chinese special editions of all new issues of Newsweek Special Editions which are published with an initial period of three years. The licensing agreement is for an initial period of three years, with automatic annual renewal after the first three-year period. Any party may terminate the agreement after the initial three years by giving 3-month notice. – 107 – BUSINESS

Pursuant to the licensing agreement between the Group and Newsweek, Inc., Newsweek Inc. is entitled to receive a licensing fee being certain percentage of the total revenue arising from publication of Chinese language Newsweek Special Edition in print form and electronic form or a minimum annual guaranteed payment of US100,000.

The first and second issues of the Chinese language Newsweek Special Edition were published in January and April 2002 respectively. The Group intends to publish about 8 issues of Newsweek Special Editions each year and the third issue is expected to be published in August 2002.

The next step of cooperation with Newsweek Inc. is to publish Chinese language Newsweek Weekly. The success in publishing the Chinese language Newsweek Special Edition has generated a desire in both Newsweek, Inc. and the Group to commence publishing the Chinese language Newsweek Weekly as early as possible. The negotiation on the Chinese language Newsweek Weekly commenced in February 2002 and it is expected to be concluded in the third quarter of 2002.

As the convergence of traditional media and communication technology is the focal point of the Group’s business development, the Group will utilize its content delivery technologies to develop electronic publishing with its traditional media partners, including Newsweek, Inc.

Shanghai Chuan Yi

Shanghai Chuan Yi is an ICP in the PRC. From January to May 2002, the Group entered into the following agreements with Shanghai Chuan Yi.

(i) a licence agreement dated 18th January, 2002 (as supplemented by a supplemental agreement dated 8th May, 2002) for the grant of use of certain trademark to Shanghai Chuan Yi, effective until cessation of business of Shanghai Chuan Yi or termination by Shanghai WFOE, and subject to payment of a royalty equivalent to 10% of Shanghai Chuan Yi’s total revenue;

(ii) a licence agreement dated 18th January, 2002 (as supplemented by a supplemental agreement dated 8th May, 2002) for the grant of use of the domain name mmchina.com to Shanghai Chuan Yi, effective until cessation of business of Shanghai Chuan Yi or termination by Shanghai WFOE, and subject to payment of a royalty equivalent to 20% of Shanghai Chuan Yi’s total revenue;

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(iii) a licence agreement dated 8th May, 2002 for the grant of the use of certain contents and database to Shanghai Chuan Yi for a term of 10 years, subject to payment of a royalty equivalent to 10% of Shanghai Chuan Yi’s total revenue; and

(iv) a technical services agreement dated 18th January, 2002 whereby Shanghai WFOE has agreed to provide technical services to Shanghai Chuan Yi, effective until cessation of business of Shanghai Chuan Yi or termination by Shanghai WFOE, and subject to payment of a royalty equivalent to 20% of Shanghai Chuan Yi’s total revenue.

Pursuant to these agreements, the Group provides communication technologies solutions services and grants a licence to Shanghai Chuan Yi for the access to its content database by Shanghai Chuan Yi and the use of the domain name and trademark of “MMChina” which are owned by the Group to operate the website of “MMChina.com” in return of 60% revenue of Shanghai Chuna Yi generated from the provision of the Group’s online media contents to SIE and subscribers to i-Home solution. Shanghai Chuan Yi is the strategic partner of the Group in developing online content delivery business in the PRC. According to the PRC legal advisers to the Group, the terms (including the payment obligations) under these agreements are legal, valid, binding on the parties thereto and enforceable in accordance with PRC laws.

The domain name and trademark of MMChina are owned by the Group and MMChina is operated by Shanghai Chuan Yi according to the above agreements. In order to protect its interest, the Group has the right to access the accounting records of Shanghai Chuan Yi to ensure the completeness and correctness of the royalties receivable.

SIE

In December 2001, the Group, under the contractual arrangement with Shanghai Chuan Yi, entered into a cooperation agreement with SIE for a term of 1 year, renewable by further agreement. Pursuant to the cooperation agreement, the Group will provide multimedia contents for delivery through SIE’s portal, namely “Shanghai Online II”, to its subscribers. The revenue generated from providing the above service to subscribers will be apportioned between the parties subject to their further agreement. In order to protect its interest, the Group has the right to access the accounting records of Shanghai Chuan Yi to ensure the completeness and correctness of the royalties receivable.

Rui Cheng

– 109 – BUSINESS period has been extended because Rui Cheng so far has not solved its technical problems in connection with the ISP and only a few residents could get access to i-Home at this moment. Rui Cheng is currently negotiating with the Group for a revenue-sharing scheme and the Directors believe that a substantive agreement will be concluded after the completion of the trial period.

The Group in associated with Shanghai Chuan Yi will provide the multimedia broadcast contents in the community broadcast platform of i-Home solution and will deliver the contents to the residents of Rui Hong New Town on a subscription basis.

As the broadband network was already developed on Rui Hong New Town before the Group commenced its negotiation with Rui Cheng, the Group did not provide its broadband infrastructure services to Rui Hong New Town.

Shanghai Library

In October 2000, SAR1 entered into a legally binding cooperation memorandum with Shanghai Library for a term of 3 years, which is extendable by further agreement. Under the cooperation memorandum, Shanghai Library has agreed to provide SAR1 with its audio collections for digitization and their distribution through multimedia delivery platforms and the Group has agreed to pay a fee of HK$300,000 to Shanghai Library in return.

In November 2000, RadioRepublic.com Limited paid HK$100,000 to Shanghai Library and digitized 20 hours audio collection of Shanghai Library during the year 2001. Under the licensing agreement between SAR1 (the then holding company of RadioRepublic.com Limited) and the Group, SAR1 granted to the Group with effect from 1st January, 2002 in perpetuity certain rights and licences for the use of certain application software developed by RadioRepublic.com Limited, including these digitized audio collection of Shanghai Library in consideration of HK$1.

As RadioRepublic.com Limited is not a subsidiary of the Group, the amount paid to Shanghai Library is not reflected in the accountants’ report. With the consent given by Shanghai Library on 4th June, 2002 by its reply to a letter from SAR1, the rights and obligations of SAR1 under the agreement with Shanghai Library were assigned to the Company. Therefore, if the Group continues other stages of the digitization of audio collection of Shanghai Library, the Group is required to pay the remaining HK$200,000 to Shanghai Library as licensing fee. Currently, the Group is evaluating the market response to these audio collections and no other audio collection is being digitized. Currently, these digitized materials are accessible from the websites at MMChina and Shanghai Online II and by the subscribers to i-Home solution. The Directors consider that it is a significant achievement of the Group in converging communication technology and traditional media and that experience assists the Directors to create the Group’s future plan in communications and technology business.

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Net2Voice

Net2Voice is a leading developer of multilingual voice-enabled solutions for the Internet and phone. Pursuant to a shareholders’ agreement dated 22nd October, 2001 and a letter of assignment dated 31st January, 2002, the Group and Net2Voice jointly established and managed a joint venture company, Net2Voice (Hong Kong), for the development and operation of voice technologies business in the Asia Pacific Region and the PRC. Pursuant to the shareholders agreement and letter of assignment, the Group has established Net2Voice (Hong Kong), and Net2Voice Inc. will subscribe for 51% of its shareholding in the fourth quarter of 2002. Before the share subscription, the business of Net2Vocie (Hong Kong) is dormant and wholly-owned by the Group.

Through the cooperation with Net2Voice, the Group can obtain the voice and language technologies from Net2Voice and can assist the Group to develop its cross-media content delivery business which not only transmits texts and pictures, but also voice.

TranSystem Inc.

TranSystem Inc. designs, develops and manufactures state-of-the-art cable and wireless video and data communication products. In July 2001, SAR1 entered into a cooperation agreement with TranSystem Inc. for the joint marketing and sales of the MMDS system in Hong Kong and the PRC for a term of 1 year, which will be extended automatically unless terminated by either party. Each party has agreed to cooperate in bidding for contracts regarding MMDS data transmission systems and networks. Further, TranSystem Inc. has agreed to be responsible for providing MMDS data transmission systems and its associated equipment and SAR1 has agreed to be responsible for marketing the equipment and services provided by TranSystem Inc. to its clientele and marketing the services through its business connections in Hong Kong and Mainland China and to undertake commercial negotiations with the potential clients on project charges and payment terms. In January 2002, by virtue of a letter of acknowledgment issued by SAR1 to TransSystem Inc., TransSystem Inc. has acknowledged that the Group, after the Reorganization, will honour all previous contractual and financial engagements and undertakings under the cooperation agreement from SAR1. Accordingly, the Group will commit to TranSystem Inc. the charges and payment terms for the MMDS systems on a per project basis after the service orders have been placed by the clients.

STRENGTHS OF THE GROUP

The Directors believe that the Group’s principal strengths are as follows:

Support from Initial Management Shareholders and Directors

– The Initial Management Shareholders, Directors and Shareholders possess good connections with the international business communities, especially in Hong Kong and the PRC. The

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Directors believe that these connections and the Group’s competence in communication technologies have generated and shall continue to generate quality business opportunities for the Group.

Professional management team

– The Group has a professional management and technical team which possesses the needed in-depth telecommunication and technology knowledge required to support and implement the Group’s objectives.

– In addition, the Directors and the management team possess extensive experience in financial management and business operation which enables the Group to formulate and implement its business strategies effectively.

Proven track record in communications and technology business in Hong Kong

– The Group has been involved in the development of fixed-line, wireless and broadband network infrastructure for well-known network carriers in Hong Kong. For the two years ended 31st December, 2001, the Group had completed about 350 projects for major network carriers. Leveraging on its comprehensive and integrated content delivery technologies, such as Internet multimedia broadcast, Digital Rights Management and Internet payment gateway, the Group has established a proven track record in providing services to a wide range of industries such as telecommunications, media, entertainment, public utilities and transportation. The Directors believe that the Group’s track record in communications and technology is a strength for its development in its business in the PRC and Hong Kong.

Strategic cooperation with reputable technology companies

– The Group has established cooperation and partnerships with reputable technology companies such as Net2Voice and TranSystem Inc. These relationships enable the Group to maintain its competitiveness in communication technology. The Directors believe that this is an important asset of the Group in further expanding its business into the PRC and Hong Kong.

Strategic cooperation with reputable international media companies

– The Directors believe that the strategic cooperation with reputable PRC and International media companies such as Sino United Publishing offers competitive advantage to the Group in developing its business in the Greater China Region. Through such cooperation, the Group is able to procure quality contents and make these content available offline and online to customers.

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– The Directors believe that the Group’s success in publishing, marketing and distribution of the Chinese language Newsweek Special Edition demonstrate the capability of the Group to introduce renowned international media to the PRC’s media market. Such capability will assist the Group to negotiate with other well-known international media companies for future business development in the PRC.

SALES AND MARKETING

The following is a summary of the Company’s turnover by business segments for each of the two years ended 31st December, 2001:

Year ended Year ended 31st December, 2000 31st December, 2001 % of total % of total Business Segments Total turnover Total turnover Note HK$’000 HK$’000 1. Communication infrastructure services 9,582 81 6,822 55 2. Application and development of content delivery technology 2,218 19 5,558 45 3. Content production, procurement and delivery 1 ––––

11,800 100 12,380 100

Note:

1. As the Group published the first issue of Chinese language Newsweek Special Edition in January 2002, the business of content production, procurement and delivery has not recorded any revenue during the Track Record Period. In addition, the online media contents of the Group are mainly produced by the content production studio which is operated by Shanghai WFOE. As the Group acquired Shanghai WFOE in February 2002 in the PRC, the financial performance of Shanghai WFOE was not reflected in the financial statement of the Group during the Track Record Period.

The Directors believe the revenue generated from communication infrastructure services and application and development of content delivery technology will continue to be the significant source of the Group’s revenue in the next couple of years. However, the Directors predict that contribution of the content production, procurement and delivery solution, including offline media and online media, will gradually increase and will outpace those of provision of communication infrastructure services and application and development of content delivery technology in about two years’ time.

Since the Group’s establishment in 1998, the Group has achieved a proven track record in the communications and technology industry in Hong Kong and has already acquired a diverse and well-known customer base. The Directors believe that, owing to its successful implementation

– 113 – BUSINESS of these projects, the Group has set up a show case effect that provides the Group an advantage to maintain stable business relationship with existing customers and secure new clients in the Greater China Region.

At the Latest Practicable Date, the Company has a dedicated team of 4 sales and marketing staff. The marketing team, under the supervision of the Directors, is responsible for coordinating the marketing activities and participating in seminars and exhibitions to promote the Group’s business.

The Group has set up its advertising sales team and circulation, marketing and sales team for the media business. Such personnel has proved to be effective in the marketing and sales of the Chinese-language Newsweek Special Edition both in advertising sales and in circulation.

RESEARCH AND DEVELOPMENT

The research and development of the Group focus on development of media-enabling platform such as media streaming, Internet payment gateway, Digital Rights Management system and other related communication technologies.

During the Track Record Period, the research and development activities of the Group were carried out by SAR1 (HK) Limited and RadioRepublic.com Limited in developing communication technologies solutions in a streaming platform and its related technologies.

On 31st December, 2001, the R&D facilities of RadioRepublic.com Limited, a fellow subsidiaries of SAR1, were acquired by the Group. Under the licensing agreement dated 18th June, 2002, the technology developed by RadioRepublic.com Limited is licensed to the Group.

The Group’s research and development work is primarily conducted through its Media Communication Department, which is under the supervision of the Mr. Wong Shing Bun.

To maintain the competitiveness of the Group’s communication technologies in the rapidly changing technology environment, the Group will continue to cooperate with reputable international technology companies like Net2Voice and plans to invest HK$1.8 million in research and development for 2003 and 2004 respectively.

AFTER SALES SERVICES AND TECHNICAL SUPPORT

The Directors believe that good after sales services are vital in building up a long-term customer base. Therefore, the Group’s telecommunication infrastructure arm, in accordance with the standards set up in ISO 9001, established a comprehensive and well-managed quality control system for its services and products to assure customer satisfaction in terms of after sales services and technical support. The Group provides after sales consultation to customers and deals with customer enquiries and complaints efficiently and in a timely manner.

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The Group provides the following after sales services to its customers:

1. the Group will provide quality assurance certificates, which are issued by the original manufacturers and agents, for all its computer and networking products; and

2. the Group will provide a warranty period for the system installed by the Group, starting from the date of the customer’s acceptance of the products. The Group also provides 24-hour technical support to its customers. If the customers have any problems with the Group’s products, be it software or hardware problem, they are always assured of the necessary help through the dedicated hot line. For more serious problems that cannot be resolved over the hot line, the Group will send systems engineers for on-site maintenance until all malfunctions are fixed and all equipment resumes to normal operations. The warranty period usually lasts from six months to one year. Within the warranty period, the after-sales services and technical support services are free of charge.

The Group provides the following technical supports for its customers:

1. as soon as the customer receives delivery of the required hardware and related software, installation and testing will take place in accordance with the programme of the relevant projects;

2. the Group provides all necessary technical information, including:

– all technical information such as test reports, quality conformity certificates and product descriptions;

– lists of special parts and accessories, technical parameters and related manufacturers;

– all certificates of place of origin on equipment supplied by independent commercial verification organizations;

3. software upgrading services within the scope of the relevant contracts; and

4. free training to the customer’s management and network maintenance staff until these staff are familiar with the basic principles of the network system and can conduct daily maintenance for the network system.

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PROCUREMENT

The Group’s main procurement items are out-sourcing services, computers, software, hardware and broadband network equipment. Such materials and services have been and are mainly sourced from various independent service providers, distributors and suppliers in Hong Kong.

The Group has not encountered any significant difficulties in the sourcing of outsourcing services, computers, software, hardware and broadband network equipment. The Directors do not anticipate any major difficulty in the sourcing of such materials and services for the Group’s business as such materials and services are commonly and readily available.

As all purchases are backed by customers’ orders and the Group normally provides professional services only, the Group keeps only minimal amount of consumable inventory.

As the Group has sub-contracted a portion of the construction works of telecommunication network to some independent engineering companies, in order to control the quality of service of the sub-contractors, the Group examines carefully the qualifications and experience of each prospective sub-contractor. In addition, the Group’s engineers also perform site visits to monitor the work progress and conduct performance check on the performance of the subcontractors.

LARGEST CUSTOMERS AND SUPPLIERS

For each of the two financial years ended 31st December, 2001, turnover from the five largest customers of the Group represented approximately 94% and 82% of the total turnover respectively. For each of the two financial years ended 31st December, 2001, the provision of telecommunication infrastructure services to the largest customers of the Group, Hutchison Telecommunications (Hong Kong) Limited and Hong Kong Broadband Network Ltd., represented approximately 78% and 30% of the total turnover respectively. Academy of Chinese Studies, a non-profit making organization supported by Quality Education Fund, contributed 28% of the total turnover of the Group in 2001. All the Group’s turnovers are denominated in Hong Kong dollars and payments are made by cheque with credit terms of 60 to 90 days. Formal collection letters are issued to clients when its accounts are delinquent. The length of business relationships with the Group’s top 5 customers ranged from 8 months to 3 years.

For each of the two financial years ended 31st December, 2001, purchases from the five largest suppliers of the Group who are sub-contractors of the Group’s engineering projects and Web solutions services represent approximately 76% and 79% of the total purchase cost respectively. For each of the two financial years ended 31st December, 2001, purchases from the largest supplier of the Group, Yiu Ming Electrical Engineering Ltd., represented

– 116 – BUSINESS approximately 42% and 65% of the total purchase respectively. All the purchases incurred by the Group are denominated in Hong Kong dollars and payments are made on an accrual basis with credit period of 60 to 90 days. The length of business relationships with the Group’s top 5 suppliers ranged from 8 months to 3 years.

Invoices for communication infrastructure services are issued to clients when job orders have been completed. No progress billing is normally made. The Group will accrue the income with reference to the estimated percentage of job completed. On the other hand, progress billing for technology solution service is made with reference to the estimated percentage of job completed.

The Company does not make any general provision for receivables in the financial statements and only makes specific provision against receivables to the extent when they are considered to be doubtful.

The Company carries out certain measures to follow up overdue balance. Monthly aging report is submitted to the Chief Executive Officer for review after closure of monthly accounts. A letter of reminder is issued by the financial department to clients when their accounts are overdue. When the accounts are identified as delinquent, a final reminder will be issued by the in-house counsel of the Company.

None of the Directors with their respective associates and existing shareholders who own more than 5% of the issued share capital of the Company had any interest in any of such five largest customers and suppliers mentioned above.

COMPETITION

Generally, the potential growth and size of the communication and technology business in the Greater China Region has attracted many new entrants, so the Directors realize that competition in the industries is keen.

In respect of communication infrastructure services, many of these existing and potential competitors have greater financial resources than the Group, and enjoy economy of scale that can result in a lower cost structure, which could cause significant pricing pressures on the Group.

In respect of the application and development of content delivery technology, competition is also very keen as there are numerous competitors and nearly no entry barrier in the market. However, the Directors consider that, compared with its competitors, the Group has a competitive advantage in the content delivery technology because (1) the Group possesses the recognized competence in communication technologies, particularly in cross-platform content delivery solutions and payment gateway technology; (2) the Group has capability to offer a full

– 117 – BUSINESS range communication technology services to customers; and (3) there is support from the Initial Management Shareholders, Shareholders and Directors who possess good connections with international business communities, particularly in Hong Kong and the PRC. Therefore, the Directors are of the view that the Group has a competitive edge in gaining access to prospective customers.

For the content production, procurement and delivery, the Directors believe the business opportunity of bringing in foreign media into the PRC is only at the beginning stage and the business of cross-media content delivery for commercial purpose has not yet been explored. With the first-mover advantage, the possession of sophisticated communication technologies and the strategic partnerships with well-known traditional media, the Directors believe that the Group has a competitive advantage over its prospective competitors in developing the new media market in the Greater China Region.

RELATIONSHIP WITH THE SAR1 GROUP

The shareholders of SAR1 are those of the Company in the same proportion immediately before the Listing. SAR1 is the holding company of the Group immediately before the Listing and its other subsidiaries, namely, eCyberPay.com Limited, RadioRepublic.com Limited, Grandworld Technology Limited and SAR1 (HK), which will not form part of the Group before and after the Listing.

The relationship between eCyberPay.com Limited and the Group

eCyberPay.com Limited was incorporated in November 1999 and is principally engaged in the development of micro-payment system to provide payment gateway services to the e- commerce business community in Hong Kong. The main revenue stream of eCyberPay.com Limited was generated from commissions paid by the e-merchant. The Directors are of the view that pure provision of payment gateway services by eCyberPay.com Limited to the e- commerce business community in Hong Kong will not be viable in the foreseeable future as the e-commerce market in Hong Kong has not been mature to attract a critical mass. As eCyberPay.com Limited has only a few customers with minimal monthly income, which is not sufficient to cover the cost of its business operation, the SAR1 Group decided not to further expand this business and considered that it was not in line with the core business of the Group. Therefore, eCyberPay.com was not transferred to the Group. However, the Directors believe that the micro-payment technology will form part of the foundation of the cross platform content delivery business of the Group, in particular, for the development of Newsweek electronic publishing platform. On 3rd December, 2001, the micro-payment system and related intellectual property rights of eCyberPay.com Limited were assigned to the Group at a cash consideration of HK$1. On 31st December, 2001, the fixed assets of HK$156,637 consisted of computer hardware and software were transferred at net book value from eCyberPay.com Limited to the Group. SAR1 has undertaken with the Company and the Stock Exchange that eCyberPay.com Limited will be wound up within 6 months of the Listing.

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The relationship between RadioRepublic.com Limited and the Group

RadioRepublic.com Limited was incorporated on 21st June, 1999 and was engaged in the provision of web radio to the Internet users in Hong Kong. Since 2002, no revenue has been generated by RadioRepublic.com Limited and the SAR1 Group has ceased to further develop this business. In addition, the Directors believe that the business of provision of web radio is not promising and is not in line with the core business of the Group, therefore the business of RadioRepublic.com was not transferred to the Group. On 31st December, 2001, the fixed assets of HK$938,857 consisted of computer hardware and software, furniture & fixtures and leasehold improvements were transferred from RadioRepublic.com Limited to the Group at net book value. With effect from 1st January, 2002, the application software and contents developed under RadioRepublic.com Limited has been licensed to the Group at a consideration of HK$1. SAR1 has undertaken to the Company and the Stock Exchange that RadioRepublic.com Limited will be wound up within six months from Listing.

The relationship between Grandworld Technology Limited and the Group

Grandworld Technology Limited was incorporated on 2nd May, 1995. Its principal activity was for the provision of ISP services in Hong Kong. As the provision of ISP services in Hong Kong is in keen competition and no longer profitable, the Directors ceased its operations in September 2001 and no revenue was generated since then. The SAR1 Group has no plan for the reactivation nor further development of the business of Grandworld Technology Limited, which is not in line with the focused line of business of the Group, and therefore has not been transferred to the Group. On 31st December, 2001, the fixed assets of HK$3,947,047 consisted of computer hardware and software, furniture & fixture and leasehold improvement were transferred at net book value from Grandworld Technology Limited to the Group. SAR1 has undertaken with the Company and the Stock Exchange that Grandworld Technology Limited will be wound up within 6 months of the Listing.

The relationship between SAR1 (HK) and the Group

SAR1 (HK) was incorporated on 16th February, 2000. SAR1 (HK) has not commenced any business other than provision of management services for the SAR1 Group. SAR1 (HK) has no plan for the provision of management services to any other third party and even if it will, the business is not in line with the focused line of business of the Group and therefore has not been transferred to the Group. On 31st December, 2001, the fixed assets of SAR1 (HK) of HK$1,247,863 consisted of mainly computer hardware and software were transferred at net book value to the Group. Since then, SAR1 (HK) has been inactive.

In the opinion of the Directors, all the fixed assets acquired from the SAR1 Group are at fair value and these assets can assist the Group in future business development.

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Non-competition undertaking given by SAR1

SAR1 has undertaken to the Group that neither it nor its subsidiaries will compete, directly or indirectly, with the Group in any business undertaken by the Group in the jurisdiction where such business is carried out.

ON-GOING CONNECTED TRANSACTIONS

(1) Service agreement with Bright World

Immediately following completion of the Share Offer, Dr. Poon will have an attributable interest in about 57.44% of the enlarged issued share capital of the Company (assuming the Over-allotment Option and options granted under the Pre-IPO Share Option Scheme and Post- IPO Share Option Scheme are not exercised).

After the Reorganization and upon the Listing, Bright World, which is wholly owned by Dr. Poon and his associate, will be deemed a connected person of the Company for the purpose of the GEM Listing Rules. Accordingly, any transactions between the Group and Bright World subsequent to the Listing will constitute connected transactions of the Company which, depending on the nature and size of each transaction, may require full disclosure and/or approval of the independent shareholders of the Company at a special general meeting.

Bright World is an investment holding company and has provided certain management services on a reimbursement basis for the start-up of the SAR1 Group and has not provided similar services to other independent third parties during the Track Record Period. The management services provided by Bright World include the provision of office space, recruitment of staff, insurance, financial support and other day-to-day administration support. The fees charged are on an at cost basis. The fees include a rental recharge on the actual space occupied by the SAR1 Group without any surcharge, and reimbursement at cost for the staff’s salaries, insurance coverage and administration support. The financial support provided by Bright World is an interest-free loan.

During the Track Record Period, there was sharing of administrative expenses at cost amounting to HK$1.4 million and HK$1.5 million charged by Bright World to SAR1 (HK) in 2000 and 2001 respectively. The individual components of the administrative expenses were then included in the total expenses incurred by SAR1 (HK) and re-charged to the operating companies according to the company policy. At the Latest Practicable Date, the Group repaid the financial support from Bright World, representing HK$475,223.

In order to achieve optimum cost savings for the Group, the Directors advise that in connection with the Group’s daily operations, the Group will utilize certain management and financial services of Bright World, including the provision of office space, insurance and other

– 120 – BUSINESS day-to-day administration support, which may be more conveniently or readily provided by Bright World for a fee based on the actual or allocated cost of providing the services, but will be less than HK$1,000,000 per year. For such services, the Company entered into a service agreement dated 1st January, 2002 with Bright World.

In the opinion of the Directors (including the independent non-executive Directors) and the Sponsor, the transactions under the above service agreement are and/or will be carried out in the ordinary and usual course of business, on normal commercial terms, are fair and reasonable and are in the interest of the shareholders of the Company as a whole. As the maximum amount of fee to be received by Bright World will be less than HK$1,000,000 per year, such transactions are de minimis transactions which are exempted under Rule 20.23 (2)(a) of the GEM Listing Rules from the usual requirements on disclosure and/or independent shareholders’ approval. If the consideration of the aforesaid transactions exceeds the higher of HK$1,000,000 or 0.03% of the net tangible assets of the Group, the Company will comply with the requirements of the GEM Listing Rules.

(2) Personal guarantees

A deed of indemnity was executed by Dr. Poon in favour of Hang Seng Bank Limited to indemnify the bank for and against all actions and liabilities arising from a letter of guarantee issued by the bank to guarantee the performance of Network Engineering Limited, a wholly- owned subsidiary of the Company in its delivery of services to a certain independent third party customer. Such indemnity was subsequently replaced with a deed of indemnity dated 4th April, 2001 and thereafter with another deed of indemnity dated 2nd April, 2002, both executed by Dr. Poon in favour of the bank.

Pursuant to an assignment of tenancy dated 22nd March, 2002 between Conestoga Limited and Randash Investment Limited as landlord, Grandworld Technology Limited as tenant and the Company as assignee in respect of the tenancy agreement for the Group’s premises at 25th Floor, Office Block, MLC Millennia Plaza (formerly known as CEF Lend Lease Plaza), 663 King’s Road, North Point, Hong Kong, Mr. Poon entered into a letter of guarantee in favour of the landlord for the due performance by the Company as the tenant under such tenancy agreement. Also, the Company and SAR1 have entered into a guarantee and indemnity with the landlord on 22nd March, 2002.

– 121 – BUSINESS covenants and conditions of the tenancy agreement with the landlord in any event. In addition, SAR1 has had no employees and has in fact not occupied any part of the premises since March 2002, except that the premises has been adopted by SAR1 as its principal place of business on record. As such, though the guarantee and indemnity have been given by the Company, no benefit has been and will be conferred on SAR1 by the Company and no extra liability will be incurred by the Company as a matter of fact.

On the other hand, apart from the aforesaid indemnity given jointly and severally by SAR1 and the Company to the landlord, SAR1 has also warranted and guaranteed that the Company shall pay all the rent and perform and observe all the terms, covenants and conditions of the tenancy agreement. Pursuant to rule 20.52(2) of the GEM Listing Rules, such indemnity, warranty and guarantee given by SAR1 in favour of the Company will be regarded as financial assistance provided by a connected person of the Company and be exempt from any disclosure and approval requirements relating to connected transactions under the GEM Listing Rules.

No security over the assets of the Group or payment of any kind was provided or made by the Group to Dr. Poon and Mr. Poon for the above indemnity and guarantee respectively.

As far as the above indemnity given by Dr. Poon and the above guarantee given by Mr. Poon are concerned, applications have been made to the relevant bank and landlord for the release of such indemnity and guarantee and their replacement by corporate guarantees or other security from the Company and/or other members of the Group upon Listing. At the Latest Practicable Date, the Group has obtained an in-principle approval from the landlord to release the personal guarantee given by Mr. Poon and the landlord will release such personal guarantee before Listing. On the other hand, Hang Seng Bank has refused to replace Dr. Poon’s personal guarantee with a corporate guarantee. The Group intends to use cash deposit to replace the personal guarantee given by Dr. Poon before the Listing. As the use of cash deposit is acceptable to the bank to replace the personal guarantee given by Dr. Poon within a short period of time. Thus, the Directors expect that it is very likely such guarantee can be released upon the Listing. If such personal guarantee cannot be released upon the Listing, the Directors undertake to release the personal guarantee within one month after the Listing. In any event, the above indemnity and guarantee will be exempted under Rule 20.52(2) of the GEM Listing Rules from the usual requirements on disclosure and/or independent shareholders’ approval.

– 122 – STATEMENT OF BUSINESS OBJECTIVES AND STRATEGIES

BUSINESS OBJECTIVES AND PROPOSED STRATEGIES

Overall Business Objectives

The Group is engaged in communications and technology business, specializing in the provision of communications infrastructure service, application and development of content delivery technology and content production, procurement and delivery. The Group utilizes and complements its experience and expertise in the three business segments to converge traditional media and communication technology into new technology-based media which will make use of various communication infrastructures and traditional media distribution channels to deliver contents to users in the Greater China Region.

The Directors have devised the following strategies to achieve the Group’s objectives:

Closely monitor and match up the broadband and 3G network developments in the Greater China Region

The transformation of existing telecommunication network to the broadband and 3G networks will create opportunities to the Group. The Group will deploy its resources to position the Group to match up the broadband and 3G network development and related business opportunities. The Group will strengthen its network convergence department by recruiting high calibre staff in telecommunication network and providing training to the engineering staff to cope with the latest development in the telecommunication industry. During the Track Record Period, the Group has developed its cross-platform broadcast technology to deliver content through mobile phone networks. The Directors expect 3G networks can become an effective platform for content delivery. The Group intends to enhance its technologies in the live broadcast applications on 3G networks by setting up a new department responsible for the development of content delivery applications on broadband and 3G networks.

Develop its cross-media content delivery business in the Greater China Region

To capitalize the huge business opportunity created by the convergence of traditional media and communication technologies in the Greater China Region, the Group will continue to develop its cross-media content delivery business. The Group will develop electronic publishing platforms to be integrated with the communication technologies of the Group. The Group will continue to negotiate with traditional media to further expand its sources of content. The Group intends to introduce other well-known international magazines into the China media market in both printed and electronic forms.

– 123 – STATEMENT OF BUSINESS OBJECTIVES AND STRATEGIES

Develop and strengthen its expertise in communication technologies

The Directors consider that competitive communication technologies set the foundation of the Group’s business development. Therefore, the Group will develop and acquire communication technologies that fit the Group’s business through its R&D effort, joint ventures and cooperation agreements with potential media technologies companies which specialise in digital content production technologies, software platform management technologies and network equipment in support of content delivery on broadband network. Currently, the Group receives the transfer of the voice and language technologies from Net2Voice and establishes a joint venture with Net2Voice to further develop the sales of these language technologies in the Greater China Region. The technology transfer and establishment of joint venture are expected to complete in the third quarter of 2002. The Group intends to develop interactive voice response system and call centre by utilizing text-to-speech and voice recognition technologies and provides these application solutions to corporate clients in the Greater China Region.

Develop new products and services and strengthen its presence in the Greater China Region

The Group plans to offer new products and services to meet the changing needs of its customers arising from the technology improvement and business expansion. Currently, the Group is preparing to cooperate with network equipment manufacturers to sell the network equipment to network operators in late 2002. A development centre will be established in the PRC to provide technology solutions services, as well as research and development, for the Group’s products and service, including DRM clearance service. It is the present intention of the Directors to procure and deliver contents of Newsweek Weekly in both printed and electronic format. Currently, the Group is negotiating with Newsweek, Inc. on the publication of Chinese language Newsweek Weekly. The Directors expect that the Group will obtain the licence from Newsweek, Inc. to publish Chinese language Newsweek Weekly in the third quarter of 2002. The Group also prepares to strengthen its presence in the Greater China Region through expanding its advertising and sales team, and marketing effort. The Group will cooperate with Newsweek, Inc. to launch a marketing campaign to enhance the brand name of Newsweek.

Selectively pursue acquisitions

– 124 – STATEMENT OF BUSINESS OBJECTIVES AND STRATEGIES

The following is a recapitulation of the Group’s use of proceeds and budgeted semi-annual expenses in support of the strategies above:

Six Months Six Months Six Months Six Months Six Months ended ended ended ended ended 31st December, 30th June, 31st December, 30th June, 31st December, 2002 2003 2003 2004 2004 Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Expand network infrastructure 300 900 1,300 1,100 1,000 4,600 services in the Greater China Region

Develop cross-media content delivery 1,800 1,600 1,900 1,800 1,400 8,500 business in the Greater China Region

Develop and strengthen its expertise 2,500 2,300 2,200 3,000 3,400 13,400 in communication technology

Develop new products and services, and 4,790 4,520 4,320 5,920 5,320 24,870 strengthen its presence in the Greater China Region

Total 9,390 9,320 9,720 16,800 16,120 51,370

Note: HK$10 million will be reserved for acquisition of potential media technologies companies in the Greater China Region.

IMPLEMENTATION SCHEDULE

The Group intends to implement its strategy in the time periods set out below. However, it should be appreciated that the Group operates in a dynamic market which is subject to rapid changes in technologies and market environment which are difficult to predict. Consequently the implementation schedule set out below reflects only the Directors’ present intention which may change in response to changes in the market environment.

Period I: 6 months ending 31st December, 2002

Closely monitor and match up the development of broadband and 3G networks in the Greater China Region

• Set up a new department responsible for the development of content delivery applications on broadband and 3G networks • Provide training to management and engineering staff to enrich their knowledge on the broadband and 3G networks

– 125 – STATEMENT OF BUSINESS OBJECTIVES AND STRATEGIES

Develop cross-media content delivery business in the Greater China Region

• Complete the development of electronic publishing platform equipped with content delivery technologies • Negotiate with property developers in the PRC for installation of i-Home

Strengthen its expertise in communication technology

• Set up Net2Voice (Hong Kong) to further develop the voice and language technology

Develop new products and services, and strengthen its presence in the Greater China Region

• Evaluate the market potential of broadband network infrastructure services in Shanghai • Set up a new department handling sales of broadband network equipment in the PRC and Hong Kong • Complete the negotiation with Newsweek, Inc. on the publication of Chinese language Newsweek Weekly • Publish the first issue of the Chinese language Newsweek Weekly at the third quarter of 2002 • Establish strategic partnerships with PRC media companies to develop the online media and traditional media business.

Period II: 6 months ending 30th June, 2003

Closely monitor and match up the development of broadband and 3G networks in the Greater China Region

• Expand its engineering work force to handle the increasing demand of broadband and 3G telecommunication infrastructure services • Conduct a testing on the capability of 3G network in delivering multimedia content

Develop cross-media content delivery business in the Greater China Region

• Trial test the electronic publishing platform and its integration with content delivery technologies

– 126 – STATEMENT OF BUSINESS OBJECTIVES AND STRATEGIES

• Continue to negotiate with property developers in the PRC for installation of i-Home

Strengthen its expertise in communication technology

• Complete the development of e-mail platform equipped with voice and language technologies

Develop new products and services, and strengthen its presence in the Greater China Region

Period III: 6 months ending 31st December, 2003

Closely monitor and match up the development of broadband and 3G networks in the Greater China Region

• Continue to test the capability of 3G network in delivering multimedia content

Develop cross-media content delivery business in the Greater China Region

• Launch the electronic publishing platform equipped with content delivery technologies

Strengthen its expertise in communication technology

• Integrate the improved Internet payment gateway on subscription-based content and electronic publishing platform • Develop interactive voice response system and call centre by utilizing text-to-speech and voice recognition technologies

Develop new products and services, and strengthen its presence in the Greater China Region

• Negotiate with PRC and international media companies to expand the Group’s sources of content

– 127 – STATEMENT OF BUSINESS OBJECTIVES AND STRATEGIES

Period IV : 6 months ending 30th June, 2004

Closely monitor and match up the development of broadband and 3G networks in the Greater China Region

• Evaluate the 3G development progress in the PRC and Hong Kong

Strengthen its expertise in communication technology

• Develop PC-based Net2Voice software for small and medium enterprises in the PRC and Hong Kong

Develop new products and services, and strengthen its presence in the Greater China Region

• Introduce renowned magazines from international media companies to the PRC media market • Consolidate strategic relationship with online media partners in the PRC through joint marketing campaign • Establish a development centre in the PRC to offer DRM clearance service and other technology solutions • Establish partnerships with regional ISPs to develop the online media market • Continue to look for and negotiate with well-known PRC and international media companies to develop the content delivery business online and offline

Period V: 6 months ending 31st December, 2004

Closely monitor and match up the development of broadband and 3G networks in the Greater China Region

• Trial run multimedia content delivery platform on 3G network

Develop cross-media content delivery business in the Greater China Region

• Strengthen its content delivery business by expanding the sources of content

Strengthen its expertise in communication technology

• Launch the PC-based Net2Voice software

– 128 – STATEMENT OF BUSINESS OBJECTIVES AND STRATEGIES

Develop new products and services, and strengthen its presence in the Greater China Region

• Promote the DRM clearance service to electronic publishing and digital media companies in the PRC • Evaluate overseas markets for multimedia contents, especially in Taiwan and Singapore • Continue to look for and negotiate with well-known PRC and international media companies to develop the content delivery business online and offline

BASES AND ASSUMPTIONS

Set out below is a summary of the key assumptions in relation to the business plan of the Group and the estimated application of the net proceeds of the Share Offer for the current financial year and the two years ending 31st December, 2004:

• the Group will be successful in raising sufficient amount of capital;

• there will be no material changes in existing government policies, or political, economic, fiscal, regulatory or legal conditions (including changes in legislation or regulations or rules) in the respective countries or industries in which the Group operates or from which the Group imports and sources supplies;

• there will be no significant fluctuations in inflation rates, currency exchange rates, interest rates and tariffs and duties from those currently prevailing;

• there will be no material changes in the bases or rates of taxation applicable to the Group in the respective jurisdictions in which it operates;

• suitable personnel can be retained and recruited by the Group;

• the Group will obtain the licence to publish Chinese language Newsweek Weekly and its PRC partners will obtain the licence for the distribution of Chinese language Newsweek Special Edition and Newsweek Weekly in the PRC in form of bundle sales.

• there will be no change in the funding requirement for each of the near term development strategies described herein from the amounts as currently estimated by the Group;

• the market for the application of communication technologies, cross-platform content delivery and related services will grow in accordance with the Group’s and/or industry expectations and such growth will be sustainable; and

– 129 – STATEMENT OF BUSINESS OBJECTIVES AND STRATEGIES

• there will be no catastrophes, natural disasters, or political or other events which may cause material disruptions to the Group’s business or operation, or cause significant losses or damage to the Group’s properties or facilities.

Your attention is also drawn to the risk factors set out in the section headed “Risk Factors” in this prospectus, the occurrence of any of which may delay or otherwise adversely affect the attainment by the Group of any of its business objectives.

– 130 – USE OF PROCEEDS

REASONS FOR THE SHARE OFFER AND USE OF PROCEEDS

– Approximately 10 million will be used to acquire potential media technologies companies in the Greater China Region;

– 131 – USE OF PROCEEDS

including Chinese language Newsweek Weekly and Special Edition, approximately 4 million will be used to purchase equipment for expansion of content production, procurement and delivery business and approximately 3 million will be used for public relations and marketing campaign to enhance the brand name of the Group’s products and services; and

– Approximately 2 million will be used for general working capital

In the event that the Over-allotment Option is exercised in full, the 65% of additional net proceeds of approximately HK$9.9 million will be used for strategic acquisition and the balance will be used for general working capital.

If the Offer Price is set above HK$0.6, the net proceeds will increase accordingly. The 40% of additional net proceeds will be used for new products and services development and used for strategic acquisition respectively. The balance of additional net proceeds will be used for general working capital.

To the extent that the net proceeds of the issue of the New Shares under the Share Offer and the Over-allotment Shares under the Over-allotment Option are not immediately required for the above purposes, it is the present intention of the Directors that such proceeds should be placed on deposit with banks or financial institutions. If, for any reason, (i) the proceeds are not utilised as described above or are reallocated, or (ii) any of the business objectives of the Group does not materialise or proceed as planned, the Directors will evaluate the situation and may reallocate the intended funding to other business plans and/or hold the funds on deposit so long as the Directors consider it to be in the best interest of the Group and its shareholders as a whole. In that event, the Company will issue an announcement in accordance with the GEM Listing Rules.

– 132 – FINANCIAL INFORMATION

INDEBTEDNESS

Borrowings

At the close of business on 30th June, 2002, being the Latest Practicable Date for the purpose of this indebtedness statement prior to the printing of this prospectus, the Group had outstanding borrowings from SAR1 and Bright World of approximately HK$32.4 million and HK$0.5 million respectively.

The borrowing from Bright World has been settled prior to the date of this prospectus.

The borrowing from SAR1 of approximately HK$32.4 million as at 30th June, 2002 has been fully settled prior to the date of this prospectus in that on 22nd July, 2002, the Company allotted and issued 369,146,182 ordinary shares of HK$0.01 each to the shareholders of SAR1 as directed by SAR1 to settle the amount due to SAR1 as at that date.

Pledge of assets

A bank guarantee of HK$2.0 million has been made in favour of one of the Group’s customers to secure the due performance by the Group of its obligations and responsibilities under the purchase orders.

As at 30th June, 2002, the Group had provided a personal guarantee from a Director and pledged fixed deposits of approximately HK$0.5 million to a bank as a collateral for the bank guarantee. The Group intends to use cash deposit to replace the personal guarantee given by the Director and expects the release of such guarantee can be released upon the Listing. If this personal guarantee cannot be released upon Listing, the Directors undertake to release this personal guarantees within one month after the Listing. Please refer to the section headed “On- going connected transactions”.

Contingent liabilities

Apart from the contingent liability of approximately HK$664,000 in respect of a claim set out in the paragraph headed “Litigation” below, the Group had no material litigation or contingent liabilities as at 30th June, 2002.

Guarantee and Indemnity

– 133 – FINANCIAL INFORMATION

Lease Plaza), 663 King’s Road, North Point, Hong Kong, Mr. Poon entered into a letter of guarantee in favour of the landlord for the due performance by the Company as the tenant under such tenancy agreement. Also, the Company and SAR1 have entered into a guarantee and indemnity with the landlord on 22nd March, 2002.

Pursuant to the guarantee and indemnity, the landlord permits SAR1 to occupy the above premises. In return, the Company has warranted and guaranteed that SAR1 shall perform and observe all the terms, covenants and conditions under the tenancy agreement and, has, together with SAR1, jointly and severally agreed to indemnify the landlord against all losses, damages, claims and expenses arising out of directly or indirectly connected with the use and occupation of the premises. Since the rights and obligations under the tenancy agreement have been assigned to the Company, the Company will be liable for any non-compliance with the terms, covenants and conditions of the tenancy agreement with the landlord in any event. In addition, SAR1 has had no employees and has in fact not occupied any part of the premises since March 2002, except that the premises have been adopted by SAR1 as its principal place of business on record. As such, though the guarantee and indemnity have been given by the Company, no benefit has been and will be conferred on SAR1 by the Company and no extra liability will be incurred by the Company as a matter of fact.

Disclaimer

Save as aforesaid or as otherwise disclosed herein, and apart from inter-company liabilities in the Group, neither the Company nor any of its subsidiaries as at the close of business on 30th June, 2002, had any debt securities (whether outstanding or authorised but unissued), bank overdrafts, loans or other similar indebtedness, liabilities under acceptance (other than normal trade bills) or acceptance credits, debentures, mortgages, charges, finance lease or hire purchase commitments, guarantees or other material contingent liabilities.

Capital commitments

As at 30th June, 2002, the Group had a commitment to subscribe for 49% equity interest in Net2Voice (Hong Kong) amounting to approximately HK$980,000. The source of funding for the capital commitment in Net2Voice (Hong Kong) will come from the net proceeds from the Share Offer. From the Directors’ understanding, the subscription may take place at the fourth quarter of 2002.

Pursuant to an agreement entered into between SAR1, the then ultimate holding company, and Net2Voice dated 20th October, 2001, the issued share capital of Net2Voice (Hong Kong) will be increased to 2,000,000 shares of which 1,020,000 shares will be subscribed by Net2Voice at the par value of HK$1 each and the remaining shares will be subscribed by the Company at the par value of HK$1 each. After the enlarged share capital of Net2Voice (Hong Kong) has been issued and subscribed, the Company will hold a 49% interest in Net2Voice (Hong Kong), which will become an associate of the Company.

– 134 – FINANCIAL INFORMATION

No material adverse change

The Directors confirm that there has not been any material adverse change in the indebtedness and contingent liabilities of the Group since 30th June, 2002.

WORKING CAPITAL, LIQUIDITY, FINANCIAL RESOURCES AND CAPITAL STRUCTURE

Net current assets

As at 30th June, 2002 the net current assets of the Group amounted to approximately HK$18.5 million. The current assets comprised cash and bank balances of approximately HK$8.9 million, pledged bank deposits of approximately HK$0.5 million, trade receivables of approximately HK$5.6 million, and prepayments, deposits and other receivables of HK$6.9 million. The current liabilities comprised trade payables of approximately HK$1.2 million, accruals and other payables of HK$1.7 million and an amount due to Bright World of HK$0.5 million. The amount due to Bright World as at 30th June, 2002 represented advances made by Bright World to finance ordinary course of business in SinoWorld Media. Such arrangement will not be continued after the Listing.

During the financial year of 2000 and 2001, allowance for bad and doubtful debts amounting to HK$100,000 and HK$731,000 respectively was written back and charged to the income statement. Out of the balance of the trade receivable amounting to HK$7,485,000 before provision as at 31st December, 2001, HK$5,566,877 was subsequently settled by customers on 30th June, 2002.

Financial resources

Since its inception, the Group has been financed by cash from operations, equity subscriptions from its shareholders and borrowings from SAR1 and Bright World.

Taking into account the estimated net proceeds from the Share Offer (assuming that the Over-allotment Option is not exercised), the Directors believe that the Group has sufficient working capital to meet its present requirements. In order to achieve its long-term growth strategy, additional sources of capital will be required. It is the intention of the Group to finance its future growth through additional borrowings, debt or equity or equity-linked offerings or a combination of the above.

– 135 – FINANCIAL INFORMATION

LITIGATION

Pacific Digitals (HK) Limited, a wholly-owned subsidiary of the Company, signed the service contract with the network service provider and the services were used by Grandworld Technology Limited, which is a subsidiary company of SAR1. Pacific Digitals (HK) Limited was claimed by the liquidator of a network service provider for approximately HK$664,000 being services allegedly rendered by the service provider. Pacific Digitals (HK) Limited refused to pay the above sum on the ground that the services provided are unsatisfactory for reasons including frequent network interruption and lack of technical support. The Directors are assessing the merits of such claim with the Group’s legal advisors. Dr. Poon has provided an indemnity to the Group under which Dr. Poon will indemnify the Group from such possible claim and the related charges if the Group is required to settle the claim. Such claim will not substantially affect the financial position of the Group in any event.

Save as disclosed above, 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 by the directors to be pending or threatened against any member of the Group.

BANKING FACILITIES

As at 30th June, 2002, the Group did not have any banking facilities except a performance bond of HK$2 million issued in favour of a customer of the Group by a bank.

FOREIGN CURRENCY EXPOSURE

During the Track Record Period, the Group has insignificant foreign currency exposure as the Group’s assets, liabilities, revenue and expenses were substantially denominated in Hong Kong dollar. Thus, the Group did not use any financial instruments to hedge its foreign currency exposure. Since the Group will expand its presence and business in the PRC after the acquisition of Optimum Cyber and Shanghai WFOE, the Directors believe that in the coming years, the Group’s liabilities and assets denominated in RMB would be naturally hedged by each other.

RULES 17.15 TO 17.21 OF THE GEM LISTING RULES

The Directors confirm that as at the Latest Practicable Date, they were 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.

– 136 – FINANCIAL INFORMATION

TRADING RECORD

The following table is a summary of the results of the Group for each of the two years ended 31st December, 2001, prepared on the basis that the current structure of the Group was in existence throughout the period under review, except, in the case of SinoWorld Media, from the date of acquisition to 31st December, 2001 and the results of Optimum Cyber Limited and Shanghai WFOE which were acquired by the Group after 31st December, 2001 and were accounted for as an acquisition using the purchase method of accounting by the Group. The summary should be read in conjunction with the accountants’ report set out in Appendix I to this prospectus.

Consolidated income statements

Year ended 31st December 2000 2001 HK$’000 HK$’000

Turnover (Note 1) – Communication infrastructure service income 9,582 6,822 – Service income from application and development of content delivery technology 2,218 5,558

11,800 12,380

Other revenue 20 14 Depreciation (123) (154) Management fees (3,974) (1,466) Other operating expenses (485) (2,190) Subcontracting costs (5,298) (5,000) Staff costs (2,458) (3,119)

(Loss) profit from operations (518) 465 Taxation (37) (52)

(Loss) profit before minority interests (555) 413 Minority interests – 27

Net (loss) profit for the year (555) 440

(Loss) earning per Share – Basic (Note 2) HK(0.150) cents HK0.119 cents

– Diluted (Note 3) HK(0.150) cents HK0.111 cents

– 137 – FINANCIAL INFORMATION

Notes:

1. Turnover represents service income from communication infrastructure and, application and development of content delivery technology and is recognized when the services are rendered. All of the activities of the Group are based in Hong Kong. Thus, all of the turnover is derived from Hong Kong.

2. The computation of the basic (loss) earning per Share is based on the net (loss) profit during the Track Record Period and on 369,146,232 Shares in issue on the assumption that the corporate reorganization, as described in the section headed “Corporate Reorganization” in Appendix V to the Prospectus, had been effective on 1st January, 2000.

3. The computation of diluted (loss)/earning per Share for the Track Record Period is based on the net (loss)/profit during the year under review and 369,146,232 Shares are deemed to be in issue throughout the year under review on the assumption that the reorganization of the Group had been completed on 1st January, 2000 taking no account of any Shares which may be issued under the Over-allotment Option.

The computation of the diluted loss per Share for the year ended 31st December, 2000 does not assume the exercise of the Company’s potential ordinary Shares since their exercise would result in a reduction in net loss per Share. The diluted loss per Share for the year ended 31st December, 2000 is HK$0.150.

Assuming that the Over-allotment Option is not exercised and that all the options to subscribe for an aggregate of 27,689,000 Shares (representing 5.63% of the issued share capital of the Company as at the Listing Date) that have been conditionally granted under the Pre-IPO Share Option Scheme are exercised in full, the diluted earning per Share for the year ended 31st December, 2001 would be HK0.111 cents. Particulars of the outstanding options conditionally granted under the Pre-IPO Share Option Scheme to the Directors, advisers, consultants and employees of the Group are set out in the paragraph headed “Pre-IPO Share Option” in Appendix V to this prospectus.

THE LATEST FINANCIAL PERIOD REPORTED ON BY THE REPORTING ACCOUNTANTS REQUIRED UNDER RULE 11.11 OF THE GEM LISTING RULES

– 138 – FINANCIAL INFORMATION

MANAGEMENT DISCUSSION AND ANALYSIS OF THE TRADING RECORD

Management Discussion and Analysis of the Trading Record

The following is a discussion of the results of operations of the Group for the two years ended 31st December, 2001. The following discussion should be read in conjunction with the financial information and related notes and other financial data in the accountants’ report, the text of which is set forth in Appendix I to this prospectus.

Financial Year ended 31st December, 2000

For the year ended 31st December, 2000, the Group recorded a turnover of approximately HK$11.8 million, of which approximately 81% was attributable to the provision of communication infrastructure services and approximately 19% was attributable to application and development of content delivery technology.

During the financial year, the Group paid management fee of approximately HK$3.97 million, representing approximately 33.6% of total turnover to SAR1 (HK). The management fees were paid for market development, management, financial, accounting, corporate secretarial and human resources services provided by SAR1 (HK). In the financial year of 2000, the management fee was charged on a monthly basis and was computed by multiplying the monthly operating expenses of SAR1(HK) with the fraction of the monthly operating expenses of the Group to the total monthly expenses of the operating expenses of all subsidiaries of SAR1. The operating expenses excluded the capital expenses.

Other operating expenses were approximately HK$485,000, representing approximately 4.1% of the total turnover for this year. The other operating expenses mainly comprised rental expense of approximately HK$220,000, travelling expense of approximately HK$106,000, utility and communication expenses of approximately HK$59,000, and production and content expenses of HK$60,000.

Subcontracting cost for the provision of communication infrastructure services and application and development of content delivery technology amounted to approximately HK$5.3 million, representing approximately 44.9% of the total turnover for this year. In order to maintain flexibility in providing communication infrastructure services, the Group has sub- contracted a portion of the construction works of communication network to some independent engineering companies and the Group focuses on the planning and supervision of these communication infrastructure projects.

Staff costs amounted to approximately HK$2.46 million, representing approximately 20.8% of the total turnover for this year.

– 139 – FINANCIAL INFORMATION

The taxation amounted to HK$37,000 and the effective tax rate was not computed as the Group incurred losses for the year.

During the year ended 31st December, 2000, there was only one executive Director who received emolument of HK$20,000 directly from the Group. Since 1st April, 2000, the emoluments of all executive Directors, including the aforesaid Director, were paid by a subsidiary of SAR1 in return for a management fee. The notional directors’ emoluments included in the management fee were approximately HK$643,000.

The Group incurred a net loss of approximately HK$0.55 million.

Financial Year ended 31st December, 2001

The turnover for the year ended 31st December, 2001 amounted to approximately HK$12.38 million, of which approximately 55% was attributable to communication infrastructure services and approximately 45% was attributable to application and development of content delivery technology. The overall increase in turnover by approximately 4.9% as compared to the previous financial year was mainly due to the successful expansion of the Group’s business in application and development of content delivery technology for this period. The application and development of content delivery technology was commenced in July 2000.

The decrease in revenue generated from communication infrastructure services by approximately 29% as compared to the previous financial year was due to transition of investment focus from 2G to 3G in the communications market; therefore, lesser contracting works were released from network carriers before licences of 3G were finalized by the Government at the end of the year.

In addition, the mark up of communication infrastructure services fell during the financial year of 2001 because fewer contracting works were released from network carriers and keen competition for such contracting works.

During the year of 2001, the Group paid management fee of HK$1.47 million, representing approximately 11.9% of total turnover to SAR1 (HK). There was a decrease in management fee by HK$2.5 million and such decrease was due to the change in the charging basis. The change in charging basis reflected the policy of gradual grooming of its operating subsidiaries to run its business independently. In the financial year of 2000, the calculation of management fee for subsidiaries of the SAR1 Group was based on the amounts of operating expenses incurred by these subsidiaries compared with the total operating expenses of all subsidiaries of SAR1 Group. The subsidiary with high operating expenses would be charged by the SAR1 (HK) with a higher management fee and vice versa. In the financial year of 2001, management fee was computed with reference to the estimated time spent by the relevant staff on work done for the subsidiaries of the SAR1 Group and the estimated office space occupied

– 140 – FINANCIAL INFORMATION by the subsidiaries of the SAR1 Group. As the SAR1 Group adopted the policy of grooming its subsidiaries to run its business independently, the time spent by the relevant staff of corporate office on the operation of the Group was reduced and a lesser amount of management fee was charged by the corporate office. An analysis of the management fee and its corresponding expenses incurred by the Group for 2000 and 2001 is set out at the table below:

2000 2001 Staff costs Staff costs Expenses and other Expenses and other recharged to operating recharged to operating the Group expenses the Group expenses through directly through directly management recorded by management recorded by fees the Group Total fees the Group Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Staff costs 1,836 2,438 4,274 399 3,119 3,518 Marketing costs 184 38 222 112 110 222 Rental 505 220 725 262 331 593 Directors’ remuneration 643 20 663 300 – 300 Other administration expenses 806 327 1,133 393 764 1,157

3,974 3,043 7,017 1,466 4,324 5,790

During the financial year of 2001, the increase in staff costs (including directors’ remuneration) of approximately HK$661,000, marketing cost of HK$72,000, rental of HK$111,000 and other administration expenses of HK$437,000 were attributable to the policy of running the operations independently.

After the Listing, the Group will continue to utilize certain management, marketing and financial services of Bright World in order to achieve optimum cost saving but the management fee payable to Bright World will be less than HK$1,000,000 per year. For details of such on- going connection transaction, please refer to the section headed “On-going connection transactions” in this prospectus.

Other operating expenses amounted to approximately HK$2.19 million, representing approximately 17.7% of total turnover. The increase in other operating expenses was partly due to the overall increase in expenses in production, marketing, utility and communications for expansion of Web solution business which amounted to approximately HK$740,000 and partly due to the overall increase in administrative expenses which mainly comprised the provision for bad and doubtful debts of approximately HK$731,000, loss on disposal of property, plant and equipment of approximately HK$254,000 and rental expense of HK$331,000. During the

– 141 – FINANCIAL INFORMATION financial year of 2001, the Group made a bad and doubtful debts provision of approximately HK$731,000 as some debts had been outstanding for more than a year and the Group had stopped trading with these customers. A provision of HK$100,000 was written back in year 2000 after the amount had been recovered. The Company did not make any general provision for receivables in the financial statements and only makes specific provision against receivables to the extent when they were considered to be doubtful.

The loss on disposal of property, plant and equipment was resulted from the writing off of obsolescent assets during year 2001. There was no disposal of property, plant and equipment during year 2000.

Comparing to the rental expense in the financial year of 2000, the amount increased by approximately HK$111,000 and was mainly due to an additional office unit rented by the Group in order to match up its expansion of workforce in application and development of content delivery technology.

As the mark up of communication infrastructure services fell during the year and the Company could not transfer the loss of decreasing profit margin to subcontractors because the Group had already obtained competitive prices from subcontractors by tender, the amount of subcontracting cost of communication infrastructure services did not decease to the same extent as the turnover from communication infrastructure services. During the year, the subcontracting cost was approximately HK$5 million, representing approximately 40.4% of the total turnover of this year.

Staff costs amounted to approximately HK$3.12 million, representing approximately 25.2% of the total turnover for this year. The increase in staff costs reflected the change in revenue stream towards technology solutions services. The Web design team which was recruited during the middle of year 2000 worked for the whole year of 2001 for the Group.

The taxation for the year amounted to HK$52,000. The effective tax rate of 11.2% and which was lower than 16% as there were tax losses brought forward. The taxation represented the deferred tax charged for the year. The major component of the deferred taxation was the net tax effect of timing difference attributable to the excess of tax allowance over depreciation charged in the financial statements and the estimated tax losses.

During the year ended 31st December, 2001, there was no directors’ emolument paid directly by the Group. Similar to the financial year of 2000, the directors’ emoluments in financial year of 2001 were paid by a fellow subsidiary in return for a management fee. The notional directors’ emoluments included in the management fee during the year ended 31st December, 2001 was approximately HK$300,000. The estimated directors’ remuneration for the year ending 31st December, 2002 is approximately HK$3,819,000. The expected increase in directors’ remuneration is due to the appointments of independent non-executive Directors and

– 142 – FINANCIAL INFORMATION non-executive Directors. In addition, in years 2000 and 2001, the directors’ remuneration were paid by a fellow subsidiary and shared among the companies of the SAR1 Group in return for management fee. Since January, 2002, the Group will pay the directors’ remuneration directly.

During the financial year of 2001, the Group recorded a profit of approximately HK$440,000 that represents a net profit margin of approximately 3.6% of the total turnover for this year.

TAXATION

The Group is principally subject to Hong Kong and PRC taxation. In year 2000, one of the operating subsidiaries of the Group was subject to Hong Kong profits tax at the rate of 16% as its profit was derived from Hong Kong. No provision for Hong Kong profits tax has been made in the financial statements for the year ended 31st December, 2001 since the subsidiaries of the Group have no assessable profit.

Pursuant to the statement dated 30th January, 2001 issued by the Inland Revenue Department, Pacific Digitals (HK) Limited is not required to file any tax return to the Inland Revenue Department since the year of assessment of 2000/2001 as Pacific Digitals (HK) Limited had no assessable profit. The company’s estimated tax loss has not yet been advised by the Inland Revenue Department.

Pursuant to the statement dated 24th October, 2001 issued by the Inland Revenue Department, Net2Voice (Hong Kong) is not required to file any tax return to the Inland Revenue Department since the year of assessment of 2000/2001 as Net2Voice (Hong Kong) had no assessable profit. The company’s estimated tax loss has not yet been advised by the Inland Revenue Department.

As Optimum Cyber Limited and Unifine are incorporated in the British Virgin Islands and do not carry on any business operation, it is not subject to Hong Kong profits tax or other jurisdictions in the Track Record Period.

A uniform income tax rate of 33% is generally applicable to all Chinese enterprises, including the Company’s subsidiary in the PRC, Shanghai WFOE. Pursuant to the Income Tax Law of the PRC for Enterprises with Foreign Investment and Foreign Enterprises, Shanghai WFOE is exempted from income tax for its first two profitable years of operation and is entitled to a 50% relief on the income tax of the PRC for the following three years. As Shanghai WFOE was incorporated in November 2001, there is no tax filing for PRC tax in accordance with the applicable laws and regulations of the PRC.

– 143 – FINANCIAL INFORMATION

DISTRIBUTABLE RESERVES

As at 31st December, 2001, the amount of the reserves of the Company available for distribution to Shareholders was approximately HK$2,749,000, being the capital reserve of approximately HK$2,787,000 less the accumulated losses of approximately HK$38,000.

Pursuant to PRC law, a wholly foreign owned enterprise shall make reservation on reserve fund and bonus and welfare funds. The proportion of reserve fund to be withdrawn shall not be lower than 10% of the total amount of profits after payment of tax. The withdrawal of reserve fund may be stopped when the total cumulative reserve has reached 50% of the registered capital. The proportion of bonus and welfare funds for workers and staff members to be withdrawn shall be determined by the wholly foreign owned enterprise. Under PRC law, the reserve fund can be used to offset prior years’ losses, if any, and may be converted into share capital by issuing new shares to shareholders in proportion to their existing shareholdings, and the bonus and welfare funds are utilised for the capital expenditure on employees’ welfare facilities.

PROPERTY INTERESTS

The leased office of the Group is situated at 25th Floor of Office Block, MLC Millennia Plaza (formerly known as CEF Lend Lease Plaza), No. 663 King’s Road, North Point, Hong Kong. The premises have a gross floor area of approximately 7,818 sq.ft.

The Group also rents other industrial units in Hong Kong and one office unit in Shanghai. Details of these property interests of the Group in Hong Kong and the PRC are set out in the paragraph headed “Summary of Values” and “Valuation Certificates” in Appendix III to this prospectus. All these premises are leased from an independent third party.

Property Valuation

The property interests of the Group have been valued to be of no commercial value as at 30th June, 2002 by Sallmanns (Far East) Limited, an independent property valuer. The text of the letter with summary of values and valuation certificates of these property interests prepared by Sallmanns (Far East) Limited is set out in Appendix III to this prospectus.

– 144 – FINANCIAL INFORMATION

ADJUSTED NET TANGIBLE ASSETS

The following pro forma statement of adjusted net tangible assets of the Group is prepared based on the audited consolidated net assets of the Group as at 31st December, 2001 as shown in the accountants’ report, the text of which is set out in the accountants’ report in Appendix I to this prospectus, and adjusted as follows:

Based on an Based on an Offer Price of Offer Price of HK$0.6 HK$0.8 HK$’000 HK$’000

Audited consolidated net tangible assets of the Group as at 31st December, 2001 as set out in the accountants’ report in Appendix I 2,677 2,677

Unaudited consolidated loss after taxation for the six months ended 30th June, 2002 based on the Group’s management accounts (6,237) (6,237)

Capitalization of current account with SAR1 as at 30th June, 2002 (Note 1) 32,362 32,362

Estimated net proceeds from the Share Offer

(assuming that the Over-allotment Option is not exercised) 63,831 87,197

Adjusted net tangible assets 92,633 115,999

Adjusted net tangible assets value per Share (Note 2) 0.19 0.24

Notes:

(1) The amount due to SAR1 as at 30th June, 2002 was subsequently settled prior to the date of this prospectus by issuing 369,146,182 ordinary shares of HK$0.01 each in the Company to the shareholders of the SAR1 as directed by SAR1.

(2) The adjusted net tangible asset value per Share has been arrived at after making the adjustments set out under the paragraph “Adjusted net tangible assets” in the section headed “Financial information” in this prospectus and on the basis of a total of 492,196,232 Shares in issue and to be issued as mentioned herein, but takes no account of (i) any Shares which may be issued upon the exercise of any options which may be granted under the Over-allotment Option, the Pre-IPO Share Option Scheme or the Post- IPO Share Option Scheme; and (ii) any Shares which may be allotted or issued or purchased by the Company under the general mandates for the issue or repurchase of Shares granted to the Directors referred to in Appendix V to this prospectus or otherwise. The adjusted net tangible asset value per Share will be HK$0.19 and HK$0.23 based on an Offer Price of HK$0.6 and HK$0.8 respectively upon the exercise of all the options granted under the Pre-IPO Share Option Scheme which will result in the subsequent issue of 27,689,000 Shares, assuming the Over-allotment Option is not exercised.

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DIVIDEND POLICY

The Directors currently do not expect to recommend payment of any dividends in the foreseeable future. The amount of any dividends to be declared in the future will depend on, among other things, the Company’s results of operations, cash flows and financial conditions, operating and capital requirements.

TAX AND ESTATE DUTY

The Directors confirm that there are no material tax and estate duty liabilities arising under the Reorganization as described under the paragraph headed “Corporate reorganization” in Appendix V.

NO MATERIAL ADVERSE CHANGE

The Directors have confirmed that they have performed sufficient due diligence on the Group to ensure that, up to the date of this prospectus, there has been no material adverse change in the financial position or prospect of the Group since 31st December, 2001 (being the date to which the latest audited financial statement of the Group were made up) and there is no event which would materially affect the information shown in the accountants’ report of the Group as set out in Appendix I to this prospectus.

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BOARD OF DIRECTORS

Executive Directors

Dr. Poon Kwok Lim, Steven, JP, aged 59, is the Chairman of the Group. Dr. Poon has been worked for the Group since May 1998 and was one of the founders of the Group in 1998. Dr. Poon holds a Bachelor’s degree in Electrical Engineering from the National Taiwan University, a Master’s degree in Electrical Engineering from the University of Hong Kong and an honorary doctoral degree in Business Administration from the Hong Kong University of Science and Technology. Dr. Poon was formerly the General Manager and Chief Operating Officer of the China Light & Power Company Limited. Dr. Poon was previously a member of the Hong Kong Legislative Council. Dr. Poon has served as a member of the Council of the Stock Exchange and was a member of the Listing Committee of the Stock Exchange. Dr. Poon is currently the Managing Director of Bright World Enterprise Limited and an independent non-executive director of International Bank of Asia and China Merchants China Direct Investments Limited. Dr. Poon was a founding Council Member of the Hong Kong University of Science and Technology (“HKUST”). Dr. Poon is the father of Mr. Poon.

Mr. Poon Shu Yan, Joseph, aged 32, is the Chief Executive Officer of the Group. Mr. Poon has been employed by the Group since May 1998. Mr. Poon was one of the founders of the Group in 1998. Mr. Poon holds a Bachelor of Science degree in Electrical Engineering from the University of Southern California. Upon graduation, Mr. Poon joined Hong Kong Cable Television Company, where Mr. Poon was in charge of the design and construction of the territory-wide fibre network. Mr. Poon later became the senior engineer at New T & T (Hong Kong) Limited, where Mr. Poon was responsible for the design and building of its overall telecommunication transmission network. Mr. Poon is the son of Dr. Poon.

Mr. Lee Shu Fan, aged 38, is the Chief Financial Officer and Compliance Officer of the Group. Mr. Lee has been employed by the Group since February 2000. Mr. Lee holds a Juris Doctor degree from the American University Washington College of Law as well as a Bachelor of Arts degree in Economics from the State University of New York. Mr. Lee is a qualified US lawyer and Hong Kong solicitor. Prior to joining the Group, Mr. Lee worked with Goodman Financial Services, a US based private investment firm for more than 1 year. Before that, Mr. Lee was a Director of Capital Markets at Nikko Securities Asia during the period from 1996 to 1998, with responsibility for the origination and execution of all Nikko group’s Asia (ex-Japan) equity capital markets activities. Mr. Lee was also Vice President of Equity Capital Markets at W.I. Carr Indosuez Capital Asia during the period from 1984 to 1996, specializing in the structuring, execution and marketing of equity investments.

Mr. Tam Chi Keung, aged 42, is the Chief Administrative Officer of the Group. Mr. Tam has been worked for the Group since May 1998. Mr. Tam obtained his Master of Business Administration degree from Newport University in the US and graduated from The Hong Kong

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Polytechnic in Electrical Engineering. Mr. Tam is a member of The Institution of Incorporated Engineers in electronic, electrical and mechanical engineering in the United Kingdom. Mr. Tam has more than 20 years of experience in development, operation and management of infrastructure projects both in Hong Kong and the PRC. Prior to joining the Group, Mr. Tam worked for China Light & Power Company Limited and held a key position in a power station project in the PRC from 1978 to 1989. Mr. Tam was the Permanent Way Superintendent at the Hongkong Tramways Limited from 1989 to 1991 and held the position of Business Development Manager at Bright World Enterprise Limited at 1992.

Ms. Au Yeung Pui Shan, Karen, aged 30, is the In-house Counsel and Company Secretary of the Group. Ms. Au Yeung has been employed by the Group since July 2000. Ms. Au Yeung obtained her Bachelor of Laws and Postgraduate Certificate in Laws from the University of Hong Kong and was admitted as a solicitor both in Hong Kong and England & Wales.

Non-executive Director

Dr. Lee Peng Fei Allen, CBE, BS, FHKIE, JP, aged 62, became a non-executive Director of the Company in March 2002. Dr. Lee holds an honorary doctoral degree in Engineering from the Hong Kong Polytechnic University and an honorary doctoral degree in Law from the Chinese University of Hong Kong. He was formerly a member of the Hong Kong Legislative Council from 1978 to 1997 and was a senior member of the Hong Kong Legislative Council from 1988 to 1991. Dr. Lee was also a member of the Hong Kong Executive Council from 1985 to 1992.

Professor Lin Chui Chau, Otto, aged 63, became a non-executive Director of the Company in March 2002. He is the vice president for Research and Development of HKUST. Professor Lin obtained his master’s and doctor’s degrees from Columbia University.

Independent non-executive Directors

Mr. Tsui Yiu Wa, Alec, aged 52, joined the Group in March 2002. He is one of the founders of WAG, a financial and management consulting services group in Hong Kong. He is the chairman of the Hong Kong Securities Institute. He also serves on the boards of various listed companies as an independent non-executive director. Mr. Tsui was the chief executive of iRegent Group Limited from August 2000 to February 2001. Prior to joining iRegent, he was the chief operating officer of the Stock Exchange from March to July 2000 and the Chief Executive of the Stock Exchange from February 1997. He has extensive experience in finance and administration, corporate and strategic planning, information technology and human resources management.

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Mr. Yeung Pak Sing, aged 52, joined the Group in June 2002. He is one of the founders of World Power Investment Limited and World Power Management Consultancy Limited, which are investment and management companies for coal-fired, hydro and diesel power stations in Fujian and Jiangsu Provinces. He is the Council Member of the Kwun Tong District Council of Hong Kong and a Member of the Chinese Consultative Council of Nanping City, Fujian Province. Mr. Yeung holds a Bachelor of Science degree in Engineering and a Master of Science degree in Engineering from the University of Hong Kong.

SENIOR MANAGEMENT

Mr. Wong Shing Bun, aged 31, is the Chief Technology Officer of the Group. Mr. Wong has been employed by the Group since June 1999 and is responsible for Internet broadcast and voice technology. Mr. Wong received his Master of Philosophy degree in Computer Science from HKUST.

Mr. Mok Hay Hoi, aged 41, is the Financial Controller and Qualified Accountant of the Group. Mr. Mok has been employed by the Group since March 2000. Mr. Mok obtained a Bachelor of Commerce degree majoring in Accounting and Economics, and a master of information systems degree from University of Queensland, Australia. Mr. Mok is an associate member of the Hong Kong Society of Accountants and a full member of the Australian Society of Certified Public Accountants and the Institute of Certified Public Accountants of Singapore. Mr. Mok previously worked with two international accounting firms for 6 years specializing in general business assurance and computer security assurance sections. Prior to joining the Group, he was the general manager of Aztech Systems (Hong Kong) Ltd., a company specializing in sound cards, modem and other telecommunication equipment from 1996 to 1999. Mr. Mok has about 10 years experience in accounting and finance.

Mr. Chiu Keith, aged 32, is the Business Development Manager of the Group. Mr. Chiu has been employed by the Group since September 1998. He completed his tertiary education in the United States. Prior to joining the Group, he worked with the operation department of Japan Airlines in Hong Kong.

Mr. Ng Kin Shun, aged 28, is the Business Development Manager of the Group. Mr. Ng has been employed by the Group since February 2001. He is a holder of Bachelor of Industrial Engineering from the University of Hong Kong and a member of Chartered Institute of Marketing. Prior to joining the Group, Mr. Ng was the director of business development in AdforAll.com and business development manager in Jardines Engineering.

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Mr. Yeung Wai Hing, aged 38, was employed by the Group as Business Development Manager in September 2000 and was appointed as General Manager of the Shanghai office in the same year. Mr. Yeung has more than ten years’ experiences in business development and operation management both in Hong Kong and in the PRC.

DIRECTORS’ REMUNERATION

Each of Dr. Poon, Mr. Poon, Mr. Lee Shu Fan, Mr. Tam Chi Keung and Ms. Au Yeung Pui Shan, Karen has entered into a service agreement with the Company for a term of three years less one day from 15th August, 2002 which will continue thereafter until termination by three months’ prior written notice served by either party to the other. Under the five service agreements, they are entitled to an aggregate of annual remuneration (including salary and remuneration) of HK$4,626,200 from 15th August, 2002.

The non-executive Directors have no set term of office but will retire from office at each annual general meeting of the Company, subject to re-election. Each of the non-executive Directors is entitled to an annual director’s fee of HK$150,000. Each of Mr. Tsui Yiu Wa, Alex and Mr. Yeung Pak Sing is entitled to an additional director’s fee of HK$50,000 for being a member of the audit committee.

AUDIT COMMITTEE

The Company has established an audit committee on 22nd July, 2002 with written terms of reference in compliance with Rules 5.23, 5.24 and 5.25 of the GEM Listing Rules. The primary duties of the audit committee are (i) to review the Company’s annual report and accounts, half-yearly and quarterly reports; (ii) to provide advice and comments thereon to the board of Directors; and (iii) to review and supervise the financial reporting process and internal control systems of the Group. The members of the audit committee are Mr. Tsui Yiu Wa, Alec and Mr. Yeung Pak Sing, which is chaired by Mr. Yeung Pak Sing.

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STAFF

As at the Latest Practicable Date, the hierarchy of the Group’s various business units/ departments with corresponding persons-in-charge and number of staff is shown as follows:

Poon Shu Yan, Joseph Chief Executive Officer

Hong Kong

Wong Shing Bun Tam Chi Keung Lee Shu Fan Chief Technology Chief Administrative Chief Financial Officer Officer Officer

Business Dev. Media Internet Solution Network Dept HR & Admin Legal Dept Communication Media Dept Finance Dept Service Dept Engineering Persons-in-charge: Dept Person-in-charge: Dept Person-in-charge: Person-in-charge: Person-in-charge: Person-in-charge: Chiu Keith Person-in-charge: Au-Yeung Pui Shan, Person-in-charge: Chang Jo Mok Hay Hoi Wong Sze Nga Kam Yuen Hung Ng Kin Shun Lau Yuen Mei Karen Tse Yuen King Number of Staff: 3 Number of Staff: 2 Number of Staff: 3 Number of Staff: 11 Ng Pak Ngong Number of Staff: 2 Number of Staff: 1 Number of Staff: 1 Number of Staff: 3

Shanghai

Yeung Wai Hing General Manager

Pan Lin Chen Qin Di Operation Manager Admin & Accounts Manager

Web Solution Production Business Dev. Personnel & Accounts I.T. Dept Dept Dept Dept Admin Dept Dept Person-in-charge: Person-in-charge: Person-in-charge: Person-in-charge: Person-in-charge: Person-in-charge: Fan Chao Hua Huang Yan Chen Qing Song Lau Man Kit Liu Ying Lin Guo Bao Number of Staff: 1 Number of Staff: 4 Number of Staff: 2 Number of Staff: 1 Number of Staff: 2 Number of Staff: 1

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Staff number

As at 31st December, 2000 and 2001, and the Latest Practicable Date, the Group had a total of 17, 16 and 44 full time staff respectively. A breakdown of the number of staff of the Group by function as at 31st December, 2000 and 2001, and the Latest Practicable Date is set out below:

As at As at As at the Latest 31st December, 31st December, Practicable Date 2000 2001 PRC Hong Kong

17 16 14 30

The Group maintains good relations with its staff and has not encountered any major difficulties in its recruitment and retention of its experienced personnel. There has not been any interruption to its operations as a result of labour disputes.

Benefit scheme for the employees

The Group’s subsidiaries in the PRC, in compliance with the applicable regulations of the PRC, participated in social insurance schemes (including retirement benefits scheme, medical insurance scheme and unemployment benefit scheme) operated by the relevant local government authorities. The Group is required to make contribution to the social insurance schemes on behalf of employees who are registered permanent residents in the PRC. The insurance premium is borne by the Company and the employees on a specified proportion of the employees’ salaries laid down under the relevant PRC law.

The Group’s Hong Kong office has no provident fund scheme for its staff in the past. The Group implemented a medical scheme and a mandatory provident fund scheme in compliance with the requirement under the Mandatory Provident Fund Schemes Ordinance (Chapter 485 of the Laws of Hong Kong).

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Pre-IPO and Post-IPO Share Option Schemes

The Group has conditionally adopted the Pre-IPO Share Option Scheme and Post-IPO Share Option Scheme under which full time employees (including any Directors) of the Group may be granted options to subscribe for Shares. Under the Pre-IPO Share Option Scheme, options to subscribe for an aggregate of 27,689,000 Shares, equivalent to approximately 5.63% of the issued share capital of the Company as at the Listing Date (assuming the Over-allotment Option is not exercised), have been granted by the Company to the Directors, advisers and employees of the Group. The principal terms of the Pre-IPO Share Option Scheme and Post- IPO Share Option Scheme are summarised in the section headed “Summary of terms of Share Option Schemes” in Appendix V to this prospectus.

– 153 – SPONSOR’S INTERESTS

SPONSOR’S INTERESTS

Neither the Sponsor nor its associates are expected 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 management, underwriting and selling commissions to be paid to them and/or their associates, for acting as one of the Underwriters to the Share Offer; (ii) the financial advisory, documentation and sponsorship fees to be paid to Kingsway Capital, as Sponsor; (iii) by way of fees under a sponsor’s agreement entered into between Kingsway Capital and the Company on 29th July, 2002 pursuant to which Kingsway Capital will be appointed as the Sponsor of the Company for the period commencing from the date of listing and ending on 31st December, 2004 and the Company shall pay an agreed advisory fee to Kingsway Capital for its provision of such services; (iv) an incentive fee, determined on an agreed basis, to Kingsway SW Securities, as the Lead Manager of the Share Offer pursuant to the Underwriting Agreement; and Kingsway SW Securities, whose ordinary business involves the trading and dealing in securities, may be involved in the trading of and dealing in the securities of the Company.

Save for the obligations under the Underwriting Agreement, neither the Sponsor nor its associates have, as a result of the Share Offer, any interest in any class of securities of the Company or any other company in the Group (including options or rights to subscribe for such securities).

No director or employee of the Sponsor who is involved in providing advice to the Company has, as a result of the Share Offer, any interest in any class of securities of the Company or any other company in the Group, including options or rights to subscribe for such securities.

No directors or employees of the Sponsor hold any directorship in the Company or any other company in the Group.

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SUBSTANTIAL SHAREHOLDERS

So far as the Directors are aware, immediately following the completion of the Share Offer, taking no account of any Shares which may be issued upon the exercise of (i) the Over- allotment Option, (ii) any options granted under the Pre-IPO Share Option Scheme or the Post- IPO Share Option Scheme, and (iii) the general mandate to issue Shares referred to in Appendix V to this prospectus, the following persons will be directly or indirectly interested in 10% or more of the Shares then in issue for the purpose of the SDI Ordinance:

Number of Shareholding Name Shares percentage

Dr. Poon 282,701,528 57.44 Amazing Nova Corporation 167,886,666 34.11 Matrix Worldwide Corporation 61,606,666 12.52 Forever Triumph Limited 53,208,196 10.81

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INITIAL MANAGEMENT SHAREHOLDERS

The table below sets out the respective shareholding interests in the Company held by each of the Initial Management Shareholders and their related parties immediately after completion of the Share Offer, taking no account of any Shares which may be issued upon the exercise of (i) the Over-allotment Option, (ii) any options granted under the Pre-IPO Share Option Scheme or the Post-IPO Share Option Scheme, and (iii) the general mandate to issue Shares referred to in Appendix V to this prospectus:

Number of Shareholding Name Shares held percentage

Dr. Poon 282,701,528 57.44%

Mrs. Poon Wong Wai Ping 67,154,666 13.64%

Ms. Poon Ching Mei 16,788,667 3.41%

Mr. Poon 16,788,667 3.41%

Amazing Nova Corporation 167,886,666 34.11%

Matrix Worldwide Corporation 61,606,666 12.52%

Forever Triumph Limited 53,208,196 10.81%

Arabian Gulf Investments (Far East) Limited 18,269,638 3.71

Arabian Gulf Investments Overseas Limited 18,269,638 3.71

Dr. Lee Peng Fei Allen 11,100,000 2.26%

Ms. Choi Yuen Ha Maria 5,550,000 1.13%

Supreme Lucky Ltd. 11,100,000 2.26%

Hong Kong University of Science and Technology 9,966,667 2.02%

Hong Kong University of Science and Technology R and D Corporation Limited 9,966,667 2.02%

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SIGNIFICANT SHAREHOLDERS

So far as the Directors are aware, immediately following the completion of the Share Offer, taking no account of any Shares which may be issued upon the exercise of (i) the Over- allotment Option, (ii) options granted under the Pre-IPO Share Option Scheme or the Post-IPO Share Option Scheme, and (iii) the general mandate to issue Shares referred to in Appendix V to this prospectus, apart from the substantial shareholders and Initial Management Shareholders disclosed herein, the following entity and person together will be directly interested in 5% or more of the Shares then in issue in that the person is a director of the entity:

Number of Shareholding Name Shares held percentage

Bahrain Middle East Bank (E.C.) 28,729,812 5.84%

Sheikh Ali Khalifa Athbi Al Sabah 13,645,254 2.77%

OTHER SHAREHOLDER

Sir Chung Sze Yuen was formerly a Senior Member of the Executive Council of the Hong Kong Government and the Convener of the Executive Council of the Hong Kong Special Administrative Region Government. He is currently the Chairman of Kowloon Motor Bus Company Limited. Sir Chung Sze Yuen was appointed the chairman of the board of SAR1 in September 2000. Sir Chung Sze Yuen has no involvement in the management of the Company and has no specific relationship with the Company. In recognition to the advice given by Sir Chung Sze Yuen to the board of SAR1 and to his service as the chairman of the board of SAR1 since September 2000, the Group’s controlling shareholder, Dr. Poon, transferred from Forever Triumph Limited certain number of shares of SAR1 to Sir Chung Sze Yuen. Sir Chung Sze Yuen thus became a shareholder of the Company. Since the Shares held by Sir Chung Sze Yuen were transferred indirectly from Dr. Poon, the controlling shareholder, he is subject to a 12- month moratorium period.

The interests of the Initial Management Shareholders, the Significant Shareholders and other Shareholders immediately after completion of the Share Offer (assuming the Over- allotment Option is not exercised and no options granted under the Pre-IPO Share Option

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Scheme and the Post-IPO Share Option Scheme are exercised), the cost at which they acquired their Shares and the relevant moratorium periods are set out below:

Initial Management Shareholders

Dr. Poon 1 22nd July, 1993 Note (10) 282,701,528 57.44 0.0022 12 months Mrs. Poon Wong Wai Ping 1 26th May, 2000 67,154,666 13.64 0.0022 12 months Ms. Poon Ching Mei 1 26th May, 2000 16,788,667 3.41 0.0022 12 months Mr. Poon 2 26th May, 2000 16,788,667 3.41 0.0022 12 months Amazing Nova 1 26th May, 2000 167,886,666 34.11 0.0022 12 months Corporation Matrix Worldwide 1 25th May, 2000 61,606,666 12.52 0.0022 12 months Corporation Forever Triumph 1 25th May, 2000 53,208,196 10.81 0.0022 12 months Limited Arabian Gulf Investments 3 1st September, 2000 18,269,638 3.71 2.56 12 months (Far East) Limited Arabian Gulf Investments 3 1st September, 2000 18,269,638 3.71 2.56 12 months Overseas Limited Dr. Lee Peng Fei Allen 4 29th September, 1998 11,100,000 2.26 negligible 12 months (note 11) Ms. Choi Yuen Ha Maria 4 25th May, 2000 5,550,000 1.13 negligible (note 11) 12 months Supreme Lucky Ltd 4 25th May, 2000 11,100,000 2.26 negligible 12 months (note 11) Hong Kong University 5 25th May, 2000 9,966,667 2.02 0.0803 12 months of Science and Technology Hong Kong University 5 25th May, 2000 9,966,667 2.02 0.0803 12 months of Science and Technology R and D Corporation Limited

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Number of Percentage of Shares held shareholding immediately after immediately after completion of the completion of the Share Offer Share Offer Date of (assuming (assuming Moratorium becoming that the Over- that the Over- Approximate period from Name of a Shareholder allotment Option allotment Option investment the Listing shareholders Notes of the Group is not exercised) is not exercised) cost per share Date (HK$) Significant Shareholders Bahrain Middle 6 15th July, 2000 28,729,812 5.84 1.42 6 months East Bank (E.C.) Sheikh Ali Khalifa 7 15th September, 2000 13,645,254 2.77 1.48 6 months Athbi Al Sabah Other Shareholders

Dr. Shen Vincent Yun Shen 8 25th May, 2000 4,233,333 0.86 negligible Not applicable Bright Progress Holdings 8 25th May, 2000 4,233,333 0.86 negligible Not applicable Limited Sir Chung Sze Yuen 9 31st January, 2002 500,000 0.1 Not applicable 12 months

Notes:

1. Amazing Nova Corporation is beneficially owned by Dr. Poon, Mrs. Poon Wong Wai Ping, Mr. Poon and Ms. Poon Ching Mei as to 40%, 40% 10% and 10% respectively of the issued share capital. Mrs. Poon Wong Wai Ping is the spouse of Dr. Poon whilst Mr. Poon and Ms. Poon Ching Mei are children over the age of 18 of Dr. Poon respectively. As Dr. Poon and Mrs. Poon Wong Wai Ping hold 80% of the shareholding in Amazing Nova Corporation, Dr Poon is deemed, by virtue of the SDI Ordinance, to be interested in the same 167,886,666 Shares held by Amazing Nova Corporation.

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4. Supreme Lucky Ltd. is wholly and beneficially owned by Dr. Lee Peng Fei Allen and Ms. Choi Yuen Ha Maria, as to 50% and 50% respectively of its issued share capital, Ms. Choi Yuen Ha Maria is the spouse of Dr. Lee Peng Fei Allen. Dr. Lee Peng Fei Allen is deemed, by virtue of the SDI Ordinance, to be interested in the same 11,100,000 Shares held by Supreme Lucky Ltd. As Dr. Lee Peng Fei Allen is one of the non-executive Directors of the Company, by reason of its shareholding in the Company and Dr. Lee Peng Fei Allen’s representation in the Board, Supreme Lucky Ltd. is regarded as an Initial Management Shareholder. In addition, by reason of Dr. Lee Peng Fei Allen’s representation in the Board and his shareholding in Supreme Lucky Ltd., Dr. Lee Peng Fei Allen is also regarded as an Initial Management Shareholder.

5. Hong Kong University of Science and Technology R and D Corporation Limited is a subsidiary wholly owned by Hong Kong University of Science and Technology. It participates in the research, development and commercialisation of science and technology products and systems. Professor Lin Otto Chui Chau, who holds the position of Chief Executive Officer of Hong Kong University of Science and Technology R and D Corporation Limited, is one of the non-executive Directors of the Company. By reason of its shareholding in the Company and Professor Lin Otto Chui Chau’s representation in the Board, Hong Kong University of Science and Technology R and D Corporation Limited and Hong Kong University of Science and Technology are both regarded as Initial Management Shareholders. Through the cooperation in the development of Internet payment gateway technology, Hong Kong University of Science and Technology R and D Corporation Limited became an investor of the Company.

6. Bahrain Middle East Bank (E.C.) is a company listed on the Bahrain Stock Exchange since June 1989. Its principal business is banking and equity investment. Bahrain Middle East Bank (E.C.) has no involvement in the management of the Company. In July 2000, Bahrain Middle East Bank (E.C.) invested in the Group as part of its equity investment portfolio. Bahrain Middle East Bank (E.C.), together with Sheikh Ai Khalifa Athbi Al Sabah who is one of its directors, is a Significant Shareholder of the Company.

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Investments (Far East) Limited and Arabian Gulf Investments Overseas Limited are regarded as Initial Management Shareholders.

8. Bright Progress Holdings Limited is an investment holding company. Dr. Shen Vincent Yun Shen, is the controlling shareholder of Bright Progress Holdings Limited. Dr. Shen Vincent Yun Shen is an investor of the Company but is independent of and not connected with the Directors, chief executive, substantial shareholders and Initial Management Shareholders of the Company or any of their respective associates and has no involvement in the management of the Company. Dr. Shen Vincent Yun Shen subscribed for 20% of the shareholding in Bright Progress Holdings Limited in July 1999. Bright Progress Holdings Limited acquired shares in eCyberPay.com Limited in October 1999 and subsequently transferred them to Unifine. In May 2000, as a result of which 63,500,000 shares in SAR1 were allotted to it. In January 2002, Dr. Shen Vincent Yun Shen agreed to the transfer of 50,800,000 shares in SAR1 among the said 63,500,000 shares in SAR1 to Forever Triumph Limited in return for the acquisition of the other 80% of the shareholding in Bright Progress Holdings Limited from Amazing Nova Corporation. Since then, Bright Progress Holdings Limited has been wholly and beneficially owned by Dr. Shen Vincent Yun Shen and Dr. Shen Vincent Yun Shen is interested in the Shares held by Bright Progress Holdings Limited. Bright World Holdings Limited is an Existing Public Shareholder of the Company.

9. Sir Chung Sze Yuen was appointed chairman of the board of SAR1 in September 2000. Sir Chung Sze Yuen has no involvement in the management of the Company. In recognition to the advice given by Sir Chung Sze Yuen to the board of SAR1 and to his service as the chairman of the board of SAR1 since September 2000, the Group’s controlling shareholder, Dr. Poon Kwok Lim, Steven, transferred from Forever Triumph Limited certain number of shares of SAR1 to Sir Chung Sze Yuen. Sir Chung Sze Yuen thus became a shareholder of the Company. Since the Shares held by Sir Chung Sze Yuen were transferred indirectly from Dr. Poon, the controlling shareholder, he is subject to a 12-month moratorium period.

10. Under the Pre-IPO Share Option Scheme, 5 Directors, 3 advisers and consultants, 14 employees were granted options under the Pre-IPO Share Option Scheme. Particulars of options granted to the existing shareholder under the Pre-IPO Share Option Scheme are set out below:

Number of Shares to be issued upon Subscription exercise of Price per Name Position Address Option Period options Share (HK$)

Dr. Poon Chairman and No. 3A, Elite Villas 17/6/2002 – 8,334,000 0.12 Executive 22 Shouson Hill 17/6/2012 Director Road, Hong Kong

Mr. Poon Chief No. 3A, Elite Villas 17/6/2002 – 8,000,000 0.12 Executive 22 Shouson Hill 17/6/2012 Officer and Road, Hong Kong Executive Director

The number of Shares to be issued upon the exercise in full of the share options granted to Dr. Poon and Mr. Poon under the Pre-IPO Share Option Scheme represent 1.69% and 1.63% of the issued share capital of the Company as at the Listing Date, assuming the Over-allotment Option is not exercised.

Details of the Pre-IPO Share Option Scheme are set out under the section headed “Pre-IPO Share Option Scheme” in Appendix V to this prospectus.

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11. Network Engineering Limited was established in 1992. In 1992, Network Engineering Limited was known as Consure Limited and it was a shelf company. Bright World Enterprise Limited, wholly owned by Dr. Poon and his spouse, Mrs. Poon Wong Wai Ping, acquired Consure Limited on 22nd July, 1993 and changed the company’s name as Network Engineering Limited on 12th September, 1995. The business of Network Engineering Limited was dormant until September 1998.

12. Dr. Lee Peng Fei Allen and Ms. Choi Yuen Ha Maria subscribed for 240,000 and 250,000 shares in Network Engineering Limited for HK$2 and HK$1 respectively on 29th September, 1998. The 490,000 shares in Network Engineering Limited represent 11,100,000 shares in the Company after the Reorganization.

13. In December 2001 and June 2002, HK$25 million and HK$5 million were transferred from SAR1 to the Company respectively. Approximately HK$2 million of the shareholders’ fund in SAR1 is reserved for the purpose of winding up various subsidiaries of the SAR 1 Group.

FURTHER INFORMATION RELATING TO ARABIAN GULF INVESTMENTS OVERSEAS LIMITED

Arabian Gulf Investments (Far East) Limited (“AGIFEL”) was established in 1983 by The Hongkong and Shanghai Banking Corporation Limited (“HSBC”) and two shareholders from each of Kuwait and Saudi Arabia. It operates as an open ended investment fund targeted at regional public equity markets. In the past three years AGIFEL through its wholly owned subsidiaries, Arabian Gulf Investments Overseas Limited (“AGIOL”) and AGIFEL International Limited (“AGIL”), has undertaken a limited amount of direct investment.

The investment assets of the group of companies of AGIFEL as at 31st May, 2002 stated at fair or market value were:

USD %

(i) Direct investments 12,306,431 19.81 (ii) Listed investments 25,725,676 41.41 (iii) Bonds & other fixed income 688,930 1.11 (iv) Unlisted equity funds 7,484,824 12.05 (v) Cash & term deposits 15,919,530 25.62

TOTAL 62,919,530 100.00

AGIFEL and its two subsidiaries solely invest in proprietary capital and consequently do not seek third party funds to manage. The group functions as a long equity investor with regard to the Asia/Pacific regional public stock markets. Since the beginning of 2002 a limited amount of trading activity has been undertaken in the light of the volatility exhibited by regional equity markets. Portfolio guidelines for the management of the public equity portfolio have been laid down by the AGIFEL Steering Committee, a body of three directors (one of whom is to be the HSBC director) to whom such responsibility has been delegated by the full board. These are conservative in nature in that they do not permit leverage and, because of the religious

– 162 – SUBSTANTIAL, INITIAL MANAGEMENT, SIGNIFICANT AND OTHER SHAREHOLDERS affiliation of the majority shareholders, participation in companies whose names suggest gambling, tobacco or the production/sale of alcohol is forbidden. Within these guidelines the AGIFEL executive management has always had, and continue to enjoy, a completely free hand in managing the fixed income, liquid cash and publicly traded equities. AGIFEL’s shareholders and directors have, and do, not become involved on a day to day basis as most rarely visit Hong Kong.

The largest group of shareholders in Arabian Gulf Investments (Far East) Limited currently holds approximately 37.34% of the issued share capital and they are unable to control Arabian Gulf Investments (Far East) Limited. The unanimous consent of shareholders, representing 100% of the share capital of AGIFEL, is required before the shareholders could force the AGIFEL to dispose the shares held by AGIOL in the Company.

Direct investment activity on behalf of AGIFEL has only been undertaken in the past three years. Proposed investments are recommended to the AGIFEL Investment Committee on the proviso that they do not exceed USD5 million in the first tranche and are targetted specifically at industries approved by the board. Such investments are also to be treated as financial in nature. In practice the directors and shareholders have been content to leave this aspect of the group’s business to the AGIFEL executive management. There is no indication that this will change.

Mr. Christopher J. Weir, the managing director of Arabian Gulf Investments (Far East) Limited, was appointed as director of SAR1 on 19th September, 2000 and as non-executive Director of the Company on 28th March, 2002. Mr. Christopher J. Weir resigned as non- executive Director of the Company with effect from 27th June, 2002. Because of his directorship during the Track Record Period, Arabian Gulf Investments (Far East) Limited and Arabian Gulf Investments Overseas Limited are regarded as Initial Management Shareholders.

– 163 – UNDERTAKINGS

RESTRICTIONS ON DISPOSAL OF SHARES AND ESCROW ARRANGEMENT

Each of the Initial Management Shareholders and Sir Chung Sze Yuen has undertaken to the Company, the Stock Exchange and the Sponsor that for a period of 12 months from the Listing Date:

(i) save under the circumstances provided in Rule 13.18 of the GEM Listing Rules and with the prior written consents of the Company, the Stock Exchange and the Sponsor, he/she/it will not and will procure that the registered holder(s) will not dispose of (or enter into any agreement to dispose of) nor permit the registered holder(s) to dispose of (or enter into any agreement to dispose of) any of his/her/its direct or indirect interest in the Relevant Securities; and

(ii) if he/she/it pledges or charges any direct or indirect interest in the Relevant Securities under Rule 13.18(1) of the GEM Listing Rules or pursuant to any right or waiver granted by the Stock Exchange pursuant to Rule 13.18(4) of the GEM Listing Rules, he/she/it must inform the Company immediately thereafter, disclosing the details specified in Rules 17.43(1) to (4) of the GEM Listing Rules and having pledged or charged any interest in the Relevant Securities, he/she/it must inform the Company immediately in the event that he/she/it becomes 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.

Each of the Significant Shareholders has undertaken to the Company, the Stock Exchange and the Sponsor that for a period of 6 months from the Listing Date:

(i) save under the circumstances provided in Rule 13.18 of the GEM Listing Rules and with the prior written consents of the Company, the Stock Exchange and the Sponsor, he/it will not and will procure that the registered holder(s) will not dispose of (or enter into any agreement to dispose of) nor permit the registered holder(s) to dispose of (or enter into any agreement to dispose of) any of his/its direct or indirect interest in the Relevant Securities; and

(ii) if he/it pledges or charges any direct or indirect interest in the Relevant Securities under Rule 13.18(1) of the GEM Listing Rules or pursuant to any right or waiver granted by the Stock Exchange pursuant to Rule 13.18(4) of the GEM Listing Rules, he/it must inform the Company immediately thereafter, disclosing the details specified in Rules 17.43(1) to (4) of the GEM Listing Rules and having pledged or charged any interest in the Relevant Securities, he/it must inform the Company immediately in the event that he/it becomes 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.

– 164 – UNDERTAKINGS

In addition, each of Dr. Poon, Mrs. Poon Wong Wai Ping, Ms. Poon Ching Mei, Mr. Poon, Arabian Gulf Investments (Far East) Limited, Dr. Lee Peng Fei Allen, Ms. Choi Yuen Ha Maria, Hong Kong University of Science and Technology has undertaken to the Company, the Stock Exchange and the Sponsor that for a period of 12 months from the Listing Date, he/she/it will not dispose of (or enter into any agreement to dispose of) his/her/its interests in Amazing Nova Corporation, Matrix Worldwide Corporation, Forever Triumph Limited, Arabian Gulf Investments Overseas Limited, Supreme Lucky Ltd. and Hong Kong University of Science and Technology R and D Corporation Limited (as the case may be).

OTHER UNDERTAKINGS

Each of the Initial Management Shareholders and Sir Chung Sze Yuen has undertaken to the Company, the Stock Exchange and the Sponsor that he/she/it will place in escrow with an escrow agent acceptable to the Stock Exchange and approved by the Sponsor his/her/its interests, whether direct or indirect, in the Relevant Securities for a period of 12 months from the Listing Date on terms acceptable to the Stock Exchange.

Each of the Significant Shareholders has undertaken to the Company, the Stock Exchange and the Sponsor that he/it will place in escrow with an escrow agent acceptable to the Stock Exchange and approved by the Sponsor his/its interests, whether direct or indirect, in the Relevant Securities for a period of 6 months from the Listing Date on terms acceptable to the Stock Exchange.

– 165 – SHARE CAPITAL

The authorised and issued share capital of the Company are as follows:

HK$ Authorised:

60,000,000,000 Shares 600,000,000

Issued and to be issued, fully paid or credited as fully paid:

369,146,232 Shares in issue 3,691,462 123,050,000 Shares to be issued under the Share Offer 1,235,000

492,196,232 Shares 4,921,962

Notes:

– If the Over-allotment Option is exercised in full, the total Shares to be issued under the Share Offer will be increased to 141,505,000 Shares.

– Pursuant to Rule 11.23(l) of the GEM Listing Rules at the time of Listing and at all times thereafter, the Company must maintain the “minimum prescribed percentage” of 25% of the issued share capital of the Company in the hands of the public.

Assumptions

This table assumes the Share Offer becomes unconditional and the issue of Shares pursuant thereto is made as described herein.

It takes no account of any Shares which may be allotted and issued under the Over- allotment Option or upon the exercise of options granted under the Pre-IPO Share Option Scheme or the Post-IPO Share Option Scheme or of any Shares which may be allotted and issued or repurchased by the Company under the general mandates for the allotment and issue or purchase of Shares granted to Directors or any Shares which may be bought back by the Company pursuant to the general mandate given to the Directors for the repurchase of Shares as referred to below or otherwise.

Ranking

The Offer Shares will rank equally with all of the Shares now in issue or to be issued, and will be qualified for all dividends or other distributions declared, made or paid on the Shares after the date of this prospectus.

– 166 – SHARE CAPITAL

Pre-IPO Share Option Scheme and Post-IPO Share Option Scheme

The Company has adopted the Pre-IPO Share Option Scheme and the Post-IPO Share Option Scheme and has conditionally granted options thereunder to a number of grantees. Under the Pre-IPO Share Option Scheme, options to subscribe for an aggregate of 27,689,000 Shares, equivalent to approximately 5.63% of the issued share capital of the Company as at the Listing Date (assuming the Over-allotment Option is not exercised), have been granted by the Company to the Directors, advisers and employees of the Group. A summary of the main terms of the Share Option Schemes and particulars of the options granted are set out in the paragraph headed “Summary of terms of the Share Option Schemes” in Appendix V to this prospectus.

General mandate to issue Shares

Subject to the Share Offer becoming unconditional, the Directors have been granted a general unconditional mandate to allot, issue and deal with (otherwise than by way of rights issues or scrip dividend schemes or other similar arrangements in accordance with the articles of association or pursuant to the exercise of any options which may be granted under the Pre- IPO Share Option Scheme and the Post-IPO Share Option Scheme) 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 completion of the Share Offer (such share capital include the Shares which may be issued pursuant to the exercise of the Over-allotment Option); and

(b) the aggregate nominal value of the share capital of the Company repurchased by the Company (if any).

The mandate will remain in effect until:

• the conclusion of the next annual general meeting of the Company; or

• the expiration of the period within which the next annual general meeting of the Company is required by any applicable law or the articles of association of the Company to be held; or

• it is varied, renewed or revoked by an ordinary resolution of shareholders in general meeting,

whichever is the earliest.

For further details of this general mandate, see “Written resolutions of the sole shareholder dated 22nd July, 2002” in Appendix V to this prospectus.

– 167 – SHARE CAPITAL

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 amount of not more than 10% of the aggregate nominal value of the share capital of the Company in issue immediately following completion of the Share Offer and the aggregate nominal value of the share capital of the Company which may be issued pursuant to the exercise of the Over-allotment Option.

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 recognized by the SFC 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 section headed “Repurchase by the Company of its own securities” in Appendix V to this prospectus.

The mandate will remain in effect until:

• the conclusion of the next annual general meeting of the Company; or

• the expiration of the period within which the next annual general meeting of the Company is required by any applicable law or the articles of association of the Company to be held; or

• it is varied, renewed or revoked by an ordinary resolution of shareholders in general meeting,

whichever is the earliest.

– 168 – UNDERWRITING

UNDERWRITERS

Kingsway SW Securities Limited Hani Securities (H.K.) Limited Celestial Capital Limited First Shanghai Securities Limited Shun Loong Securities Company Limited

UNDERWRITING AGREEMENT

Pursuant to the Underwriting Agreement, the Company is offering 37,000,000 new Shares at the Offer Price for subscription by members of the public under the Public Offer on and subject to the terms and conditions of this prospectus and the application forms relating thereto. The Company is also offering 86,050,000 new Shares at the Offer Price for subscription by way of the Placing with selected professional, institutional and other investors. The Company has granted the Over-allotment Option to the Placing Underwriters, exercisable by Kingsway SW Securities (on behalf of the Placing Underwriters) from time to time during the period of 30 days from the date of this prospectus to require the Company to issue an aggregate of not more than 18,455,000 additional new Shares, representing 15% of the Shares initially available under the Share Offer, on the same terms as those applicable to the Placing.

Subject to the GEM Listing Committee granting the listing of, and permission to deal in, the Shares in issue and to be issued as mentioned in this prospectus (subject only to allotment) and to certain other conditions set out in the Underwriting Agreement being satisfied by not later than 29th July, 2002 (or such later date as the Company and Kingsway SW Securities (on behalf of the Underwriters) may agree), (a) the Public Offer Underwriters have severally agreed to subscribe for or procure subscribers to subscribe for, on the terms and conditions of this prospectus and the application forms relating thereto, for their respective applicable proportions of the Public Offer Shares now being offered and which are not taken up under the Public Offer; and (b) the Placing Underwriters have severally agreed to subscribe for or procure placees to subscribe for, on the terms and conditions of this prospectus, their respective applicable proportions of the Placing Shares, now being offered.

– 169 – UNDERWRITING

GROUNDS FOR TERMINATION

The respective obligations of the Underwriters to subscribe or procure subscribers to subscribe for the Offer Shares are subject to termination and Kingsway SW Securities (on behalf of the Underwriters) has the absolute right upon giving a notice in writing to the Company to terminate the Underwriting Agreement if any of the following events shall occur at any time prior to 5:00 p.m. (Hong Kong time) on the business day immediately before the Listing Date (which is expected to be on 15th August, 2002):

(A) if it has come to the notice of Kingsway SW Securities of:

(a) any breach by parties other than any of the Underwriters, which is considered by Kingsway SW Securities in its sole opinion to be material in the context of the Share Offer, of any of the warranties or any other provision of the Underwriting Agreement;

(b) any matter has arisen or has been discovered which, had it arisen or been discovered immediately before the date of this prospectus, would have constituted an omission by parties (other than the Underwriters) considered by Kingsway SW Securities in its sole opinion to be materially adverse in the context of the Share Offer;

(c) any statement contained in this prospectus considered by Kingsway SW Securities to be material is discovered in the sole opinion of Kingsway SW Securities to be, or in their sole opinion becomes, untrue, incorrect or misleading in any respect considered by Kingsway SW Securities to be material;

(d) there is any adverse change in the business or in the financial or trading position of any member of the Group, or any such change is discovered to have occurred, which is considered by Kingsway SW Securities in its sole opinion to be material in the context of the Share Offer;

(e) there is, in the sole opinion of Kingsway SW Securities, any event, act or omission which has given rise or will give rise to any material liability of the Group pursuant to the indemnities given under the Underwriting Agreement; or

(B) if there develops, occurs or comes into effect:

(a) any event or series of events having an effect on, or any change or prospective change (whether or not permanent) in Hong Kong, the PRC, or any other place of a financial, political, industrial, economic, military, terrorist strike, legal, fiscal and/or other nature (whether or not sui generis with any of the foregoing)

– 170 – UNDERWRITING

shall be considered by Kingsway SW Securities in its sole opinion to have occurred, happened or come into effect and which in the sole opinion of Kingsway SW Securities makes it inappropriate, inadvisable or inexpedient to proceed with the Share Offer;

(b) any new law or regulation or change in existing laws or regulations or any change in the interpretation or application thereof by any court or other competent authority in the PRC, Hong Kong, the Cayman Islands or any other jurisdiction relevant to the Group shall have been, or is scheduled to be, introduced or effected which shall have a materially adverse effect in the context of the Share Offer as a whole;

(i) the conditions or sentiments of the financial market (including, without limitation, securities and money markets) in the PRC, Hong Kong, the United States or other major financial markets; or

(ii) the rate of exchange between the RMB and the Hong Kong dollar or the Hong Kong dollar and the US dollar,

shall be considered by Kingsway SW Securities, in its sole opinion, to have occurred or happened, which in the sole opinion of Kingsway SW Securities makes it inappropriate, inadvisable or inexpedient to proceed with the Share Offer;

(d) any change or prospective change in taxation or exchange control (or the implementation of any exchange control) in the PRC, Hong Kong, the Cayman Islands or any other jurisdiction relevant to the Group or affecting an investment in the Shares or the transfer or dividend payment in respect thereof, which, in the sole opinion of Kingsway SW Securities:–

(i) 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

(ii) makes it inadvisable or inexpedient to proceed with the Share Offer;

(e) the imposition, or publicly announced prospective imposition, of economic sanctions or withdrawal of trading privileges, in whatever form, by the United States or the European Community on the PRC, Hong Kong or any other jurisdiction relevant to the Group;

– 171 – UNDERWRITING

(f) any act of God, war, riot, public disorder, civil commotion, fire, flood, explosion, epidemic, terrorism, terrorist strike, future terrorist strike or act of terrorism anywhere in the world, strike or lockout shall be considered by Kingsway SW Securities in its sole opinion to have occurred, happened or come into effect, which in the sole opinion of Kingsway SW Securities is materially adverse to or materially prejudicially affects the Group or its prospects and/or the Share Offer or the success thereof or which in the sole opinion of Kingsway SW Securities makes it inappropriate, inadvisable or inexpedient to proceed with the Share Offer; or

(g) any litigation or claim which in the sole opinion of Kingsway SW Securities is of material importance by any third party being threatened or instigated against the Group,

which will or may, in the sole opinion of Kingsway SW Securities (for itself and on behalf of the Underwriters), be materially adverse to or materially affect the Group or its prospects and/or the Share Offer or the success thereof or which makes it inadvisable or inexpedient to proceed with the Share Offer.

COMMISSION AND EXPENSES

The Underwriters will receive a commission of 5% of the Offer Price of all the Offer Shares (including such number of Shares, being not more than 18,455,000 Shares, pursuant to the exercise of the Over-allotment Option by Kingsway SW Securities (on behalf of the Placing Underwriters), out of which each Underwriter will pay it own sub-underwriting commissions. In addition, Kingsway Capital will receive a financial advisory, documentation and sponsorship fee in relation to the Share Offer and Kingsway SW Securities will receive an incentive fee, determined on an agreed basis, in relation to the Share Offer. Such fees and underwriting commissions, together with the Stock Exchange listing fees, the Stock Exchange trading fees and the SFC transaction levy, legal and other professional fees, printing and other expenses relating to the Share Offer which are currently estimated to be approximately HK$9.9 million (based on the lower end of the stated price range of HK$0.60 per Share and assuming the Over- allotment Option is not exercised) are payable by the Company.

UNDERWRITERS’ INTEREST IN THE GROUP

Save for the interests and obligations of the Underwriters under the Underwriting Agreement and save as described under the section headed “Sponsor’s Interest” in this prospectus, none of the Underwriters has any shareholding interest 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. In addition, each of the Underwriters and/ or its associates may subscribe for Shares under the Share Offer or otherwise in the market for its own account.

– 172 – STRUCTURE AND CONDITIONS OF THE SHARE OFFER

DETERMINING THE OFFER PRICE

The Offer Price is expected to be fixed on or before Tuesday, 6th August, 2002, or by agreement between Kingsway SW Securities (for and on behalf of the Underwriters) and the Company with reference to market demand for the Shares and will be not more than HK$0.8 per Share and will be not less than HK$0.6 per Share.

If the Kingsway SW Securities (for and on behalf of the Underwriters) and the Company are unable to reach an agreement on the Offer Price on or before 6th August, 2002, the Share Offer will not proceed.

An announcement of the Offer Price will be published in the South China Morning Post (in English) and the Hong Kong Economic Journal (in Chinese) and on the GEM website on 14th August, 2002.

CONDITIONS OF THE SHARE OFFER

Acceptance of all applications for Shares under the Share Offer will be conditional on:–

(i) the GEM Listing Committee of the Stock Exchange granting listing of, and permission to deal in, the Shares in issue and to be issued as mentioned herein; and

(ii) the obligations of the Underwriters under the Underwriting Agreement becoming unconditional (including, if relevant, as a result of the waiver of any conditions by Kingsway SW Securities on behalf of the Underwriters) and not being terminated in accordance with its terms or otherwise,

in each case, on or before the dates and times specified in the Underwriting Agreement (unless and to the extent such conditions are validly waived on or before such dates and times) and in any event no later than 29th August, 2002, being the date which is 30 days after the date of this prospectus.

If such conditions have not been fulfilled or waived prior to the times and dates specified, the Share Offer will lapse and the Stock Exchange will be notified immediately. Notice of the lapse of the Share Offer will be published by the Company on the GEM website on the next day following such lapse.

In the above eventuality, all application monies will be returned to the applicants without interest. The terms on which monies will be returned are set out in the Share Offer letter in respect of the Share Offer.

– 173 – STRUCTURE AND CONDITIONS OF THE SHARE OFFER

THE SHARE OFFER

The Share Offer comprises the Public Offer and the Placing. The Offer Shares, comprising in aggregate 123,050,000 new Shares, will represent approximately 25% of the Company’s enlarged issued share capital immediately following completion of the Share Offer (without taking into consideration any Shares which may be issued pursuant to the Over-allotment Option and any Shares which may be allotted and issued upon the exercise of the options which have been or may be granted under the Pre-IPO Share Option Scheme and the Post-IPO Share Option Scheme).

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 forth under “Underwriting Agreement” in the section headed “Underwriting” in this prospectus.

References in this prospectus to applications, application forms or application monies or to the procedure for application relate solely to the Public Offer.

THE PUBLIC OFFER

The Company is initially offering 37,000,000 Public Offer Shares under the Public Offer, representing about 30% of the Offer Shares, for subscription by members of the public at the Offer Price. The Public Offer is fully underwritten by the Public Offer Underwriters subject to the terms and conditions of the Underwriting Agreement.

Applicants under the Public Offer are required to pay on application the Offer Price, together with a 1% brokerage fee, 0.007% SFC transactions levy and 0.005% Stock Exchange trading fee.

The Public Offer Shares will be allocated on an equitable basis to applicants who have applied for the Public Offer Shares. If there is a full or over subscription of Public Offer Shares, allocation of Public Offer Shares will be solely based on the level of valid applications received. 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 on a strictly pro rata basis. However, this may involve balloting, which would mean that some applicants may be allocated 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 balloting may not receive any Public Offer Shares.

– 174 – STRUCTURE AND CONDITIONS OF THE SHARE OFFER

THE PLACING

A total of 86,050,000 Placing Shares are initially being offered for subscription at the Offer Price under the Placing, representing about 70% of the Offer Shares. Pursuant to the Placing, it is expected that the Placing Underwriters, on behalf of the Company, will conditionally place the Placing Shares at the Offer Price plus 1% brokerage, 0.007% SFC transaction levy and 0.005% Stock Exchange trading fee. The Placing Offer is arranged by Kingsway SW Securities and fully underwritten by the Placing Underwriters subject to the terms and conditions of the Underwriting Agreement and this prospectus.

The Placing Shares are to be placed with selected professional, institutional and other investors. Professional, institutional and other investors generally include brokers, dealers and fund mangers, whose ordinary course of business involves dealing in shares and other securities and corporate entities which regularly invest in shares and other securities.

Allocation of the Placing Shares to investors pursuant to the Placing is based on a number of factors including the level 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. 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 for the benefit of the Company and its shareholders as a whole.

OFFER MECHANISM – REALLOCATION OF THE OFFER SHARES BETWEEN THE PUBLIC OFFER AND THE PLACING

The allocation of the Shares between the Placing and the Public Offer is subject to reallocation. If the Public Offer is not fully subscribed, Kingsway SW Securities (acting on behalf of the Underwriters) may, in its absolute discretion, reallocate all or any unsubscribed Public Offer Shares originally included in the Public Offer to the Placing in such proportion and in such manner as the Kingsway SW Securities considers appropriate provided that there is sufficient demand in the Placing. If the Placing is not fully subscribed, Kingsway SW Securities (acting on behalf of the Underwriters) may, in its absolute discretion, reallocate all or any unplaced Placing Shares originally included in the Placing to the Public Offer in such proportion and in such manner as Kingsway SW Securities considers appropriate, provided that there is sufficient demand in the Public Offer.

– 175 – STRUCTURE AND CONDITIONS OF THE SHARE OFFER

OVER-ALLOTMENT OPTION

In connection with the Share Offer, the Company has granted the Over-allotment Option to the Underwriters (exercisable by Kingsway SW Securities, on behalf of the Underwriters) within a period of 30 days from the date of this prospectus, to cover over-allocations in the Share Offer. The number of Shares that can be over-allocated will not be greater than the number of Shares that can be issued upon the exercise of the Over-allotment Option in full, being 18,455,000 Shares, which is equivalent to 15% of the Offer Shares. Further details regarding the Over-allotment Option are set out in the paragraph headed “Over-allotment Option” of the section headed “Information about this prospectus and the Share Offer” in this prospectus. In the event that the Over-allotment Option is exercised, an announcement will be made on the GEM website.

In order to facilitate settlement of over-allocations in connection with the Share Offer, a stock borrowing arrangement has also been entered into between Kingsway SW Securities and Forever Triumph Limited.

Pursuant to this arrangement, Forever Triumph Limited has agreed that, if so requested by Kingsway SW Securities, Forever Triumph Limited will lend to Kingsway SW Securities up to 18,455,000 Shares on the following terms:

1. the borrowed Shares will only be used to settle over-allocation in the Share Offer

2. the same number of Shares borrowed must be returned to Forever Triumph Limited and be placed in escrow, not 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 an escrow agent as soon as possible.

STABILISATION

In connection with the Share Offer, Kingsway SW Securities (on behalf of the Underwriters) may over-allot up to an aggregate of 18,455,000 additional Shares (such over- allocations may be covered by exercising the Over-allotment Option in full or in part, at any time up to 30 days from the date of this prospectus or by purchasing Shares in the secondary market) and/or effect transactions which stabilise or maintain the market price of the Shares at levels other than those which might otherwise prevail but which are not higher than the Offer Price. Any such over-allocation purchase transactions will be made in compliance with all applicable laws.

– 176 – STRUCTURE AND CONDITIONS OF THE SHARE OFFER

Stabilisation is a practice used by underwriters in some markets to facilitate the distribution of securities. To stabilise, the underwriters may bid or purchase the newly issued securities in the secondary market, during a specified period of time, to retard and, if possible, prevent a decline in the initial public offer prices of the securities. Such transactions may be effected in all jurisdictions where it is permissible to do so, in each case in compliance with all applicable laws and regulatory requirements.

In Hong Kong, such stabilisation activities on the Stock Exchange are restricted to cases where the underwriters purchase shares in the secondary market genuinely and solely for the purpose of covering over-allocations in the relevant offer. Such transactions, if commenced, may be discontinued at any time. Should stabilising transactions be effected in connection with the distribution of the Shares, they will be done at the absolute discretion of Kingsway SW Securities. The stabilisation price to cover the over-allocation will not normally be higher than the Offer Price. Relevant provisions of the Securities Ordinance prohibit market manipulation in the form of pegging or stabilising the price of securities in certain circumstances.

– 177 – 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 Public Offer Shares are not available to existing beneficial owners of Shares, the chief executive of the Company, the Directors, the directors of the subsidiaries of the Company or the associates (as defined in the GEM Listing Rules) of any of them.

WHERE TO COLLECT THE APPLICATION FORMS FOR THE PUBLIC OFFER SHARES

Copies of this prospectus, together with the WHITE application forms, may be obtained from:

1. Kingsway SW Securities Limited at 5th Floor, Hutchison House, 10 Harcourt Road, Central, Hong Kong

2. Hani Securities (H.K.) Limited at 5th Floor, Henley Building, 5 Queen’s Road Central, Hong Kong;

3. Celestial Capital Limited at 21st Floor, Low Block , Grand Millennium Plaza, 181 Queen’s Road Central, Hong Kong;

4. First Shanghai Securities Limited at 19th Floor, Wing On House, 71 Des Voeux Road Central, Hong Kong;

5. Shun Loong Securities Company Limited at Room 2202, Admiralty Centre, Tower 1, 18 Harcourt Road, Hong Kong; and

6. Any one of the following branches of International Bank of Asia:

Hong Kong Island: Central Main Branch 38 Des Voeux Road, Central Causeway Bay Branch G/F., Island Building, 439-445 Hennessy Road Chaiwan Branch Shop 82, 83, 85 & 86 Lower G/F., Koway Plaza, 111 Chaiwan Road North Point Branch Shop 2, G/F., Tsing Wan Building, 334-336 King’s Road, North Point Taikoo Shing Branch Unit 3-4, Cityplaza II, Taikoo Shing

– 178 – HOW TO APPLY FOR THE PUBLIC OFFER SHARES

Kowloon: Mongkok Branch G/F., President Commercial Center, 602 Nathan Road Ngau Tau Kok Branch Shop K, G/F., Kwun Tong Lap Shing Building, 325 Ngau Tau Kok Road Tsimshatsui Branch G/F., Grand Right Center, 10-10A Cameron Road, Tsimshatsui

New Territories: Shatin Center Branch Shop 31L, Shatin Center, 2-16 Wang Poh Street, Shatin Tsuen Wan Branch G/F & 1/F, Wing On Mansion, 22-28 Tai Ho Road

You can collect a YELLOW application form and a prospectus from:

(1) the depository counter of HKSCC at 2nd Floor, Vicwood Plaza, 199 Des Voeux Road Central, Hong Kong;

(2) the Customer Service Centre of HKSCC at Upper Ground Floor, V-Heun Building, 128-140 Queen’s Road Central, Hong Kong; or

(3) your stock broker may have the application forms available.

HOW TO COMPLETE THE APPLICATION FORMS

There are detailed instructions on each application form. You should read those instructions carefully. If you do not follow the instructions your application may be rejected. 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”.

If your application is made through a duly authorised attorney, the Sponsor, in consultation with the Company, or their agents may accept your application at their discretion, and subject to any conditions they think fit, including evidence of the authority of your attorney.

– 179 – HOW TO APPLY FOR THE PUBLIC OFFER SHARES

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 beneficial owners. In the box on your application form marked “For nominees”, you must include for each beneficial owner:–

– an account number; or

– some other identification code.

If you do not include this information, the application will be treated as being for your own benefit.

Otherwise, multiple applications are not allowed.

It will be a term and condition of all applications 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.

Multiple applications or suspected multiple applications will be rejected. Save as referred to above, all of your applications will be rejected as multiple applications if you, or you and your joint applicants together: –

– make more than one application (either individually or jointly with others) on a WHITE or YELLOW application form; or

– apply on one WHITE or YELLOW application form (either individually or jointly with others) for more than 100% of the Public Offer Shares initially being offered to the public for subscription.

– 180 – HOW TO APPLY FOR THE PUBLIC OFFER SHARES

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 deemed to be made 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 TO PAY FOR THE PUBLIC OFFER SHARES

The proposed board lot for trading in the Shares is 5,000 Shares. You must pay the maximum Offer Price of $0.8 per Public Offer Share, together with a 1% brokerage, a 0.007% Securities and Futures Commission transaction levy and a 0.005% Stock Exchange trading fee. This means that for every 5,000 Public Offer Shares, you will pay $4,040.48. The application forms have tables showing the exact amount payable for multiples of Shares applied for.

Your payment must be made by one cheque or one banker’s cashier order and must comply with the terms of the related application forms. Your cheque or banker’s cashier order will not be presented for payment before 12:00 noon on 2nd August, 2002.

If your application is successful, brokerage is paid to participants of the Stock Exchange, the Securities and Futures Commission transaction levy is paid to the Securities and Futures Commission and the Stock Exchange trading fee is paid to the Stock Exchange.

– 181 – HOW TO APPLY FOR THE PUBLIC OFFER SHARES

TIME FOR APPLYING FOR THE PUBLIC OFFER SHARES

Completed WHITE or YELLOW application forms, with payment attached, must be lodged by 2nd August, 2002, or, if the application lists are not open on that day, then by 12:00 noon on the day 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 International Bank of Asia listed above at the following times:–

Tuesday, 30th July, 2002 – 9:00 a.m. to 4:00 p.m. Wednesday, 31st July, 2002 – 9:00 a.m. to 4:00 p.m. Thursday, 1st August, 2002 – 9:00 a.m. to 4:00 p.m. Friday, 2nd August, 2002 – 9:00 a.m. to 12:00 noon

The latest time for lodging your application is 12:00 noon on 2nd August, 2002. The application lists will be open from 11:45 a.m. to 12:00 noon on 2nd August, 2002 subject only to the weather conditions.

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 2nd August, 2002. 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 purpose of this section, business day means a day that is not a Saturday, Sunday or public holiday in Hong Kong.

– 182 – HOW TO APPLY FOR THE PUBLIC OFFER SHARES

CIRCUMSTANCES IN WHICH YOU WILL NOT BE ALLOCATED THE PUBLIC OFFER SHARES

Details of the circumstances which you will not be allotted the Public 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 situations in which the Public Offer Shares will not be allotted to you:

– If your application is revoked

By completing your application form you agree that you cannot revoke your application before the end of 9th August, 2002, being the fifth day after the time of the opening of the application lists (for this purpose any day which is a Saturday, Sunday or public holiday in Hong Kong), except that you may revoke your application 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. This agreement will take effect as a collateral contract with the Company, and will become binding when you lodge your application form.

If your application has been accepted, it cannot be revoked.

– If the allotment of Public Offer Shares will be void

Your allotment of Public Offer Shares 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.

– If, at the discretion of the Company or its agent, your application is rejected

The Sponsor (for itself and on behalf of the Public Offer Underwriters) as agent for the Company, or its agents and nominees, has full discretion to reject or accept any application in whole, or to accept only part of any application.

The Sponsor as agent for the Company does not have to give any reason for any rejection or acceptance.

– 183 – HOW TO APPLY FOR THE PUBLIC OFFER SHARES

If your application is rejected:

Your application will be rejected if:

– it is a multiple application;

– your application form is not completed correctly;

– you or the person for whose benefit you are applying have been allotted Offer Shares;

– your payment is not in correct form; or

– you pay by cheque or banker’s cashier order and the cheque or banker’s cashier order is dishonoured on its first presentation.

If your application is not accepted:

Your application will not be accepted if:

– the Underwriting Agreement does not become unconditional; or

– the Underwriting Agreement is terminated in accordance with its terms.

PUBLICATION OF RESULTS

The results of applications in respect of the Public Offer (with successful applicants’ identification numbers), the agreed Offer Price, the level of interest in the Placing, the basis of allotment of the Public Offer Shares, the number of Shares (if any) reallocated between the Placing and the Public Offer and the procedures for collecting Share certificates and refund cheques (if any) are expected to be announced on the GEM website and in the South China Morning Post (in English) and in the Hong Kong Economic Journal (in Chinese) on or before 14th August, 2002.

COLLECTION/POSTING OF SHARE CERTIFICATES/REFUND CHEQUES AND DEPOSIT OF SHARE CERTIFICATES INTO CCASS

The Company will not issue temporary documents of title. No receipt will be issued for application monies paid.

– 184 – HOW TO APPLY FOR THE PUBLIC OFFER SHARES

WHITE application form:

No receipt will be issued for application monies paid. If you have applied for 2,000,000 Public Offer Shares or above and have indicated on your application form that you will collect your share certificate(s) and/or refund cheque(s) (if any) personally, you may collect it/them in person from:

Secretaries Limited 5/F, Wing On Centre 111 Connaught Road Central Hong Kong between 9:00 a.m. and 1:00 p.m. on 14th August, 2002.

Applicants being individuals who opt for personal collection must not authorise any other person to make collection on their behalf. Applicants being corporations who opt for personal collection must attend by their authorised representatives bearing letters of authorisation from their corporations stamped with the corporations’ chops. Both individuals and authorised representatives (if applicable) must produce, at the time of collection, evidence of identity acceptable to Secretaries Limited.

If you have opted for personal collection but do not collect your share certificate(s) and/or refund cheque(s) (if any) within the time specified for collection, they will be sent to the address on your application form shortly after the date of despatch, by ordinary post and at your own risk.

If you have not indicated on your application form that you will collect your share certificate(s) and/or refund cheque(s) (if any) in person, then your share certificate(s) and/or refund cheque(s) (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.

The Company will not issue temporary documents of title.

YELLOW application form:

No receipt will be issued for application monies paid. If your application is wholly or partially successful, 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 on or before the close of business on 14th August, 2002, or under any contingent situation, on any other date as shall be determined by HKSCC or HKSCC Nominees Limited.

– 185 – HOW TO APPLY FOR THE PUBLIC OFFER SHARES

If you are applying through a designated CCASS participant (other than a CCASS investor participant):

– for the Public Offer Shares credited to the stock account of your designated CCASS participant (other than a CCASS investor participant), you can check the number of Public Offer Shares allocated to you with that CCASS participant.

If you are applying as a CCASS investor participant:

– the Company will publish the results of investor participants’ applications together with the results of the Public Offer on the GEM website on or before 14th August, 2002. You should check against the announcement published by the Company and report any discrepancies to HKSCC before 5:00 p.m. on 14th August, 2002 or any other date as shall be determined by HKSCC or HKSCC Nominees Limited. On 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 and CCASS Internet System (under the procedures contained in HKSCC’s “An Operating Guide for Investor Participants” in effect from time to time). HKSCC will also mail to you an activity statement showing the number of Public Offer Shares credited to your stock account.

The Company will not issue temporary documents of title.

If you have opted for personal collection of refund cheque (if any), please follow the procedures as stipulated in the paragraph “WHITE application form” above.

If you have not indicated on your application form that you intend to collect your refund cheque (if any) in person, then your 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.

COMMENCEMENT OF DEALINGS IN THE SHARES

Dealings in the Shares on GEM are expected to commence on 15th August, 2002. Shares will be traded in board lots of 5,000 Shares each.

– 186 – HOW TO APPLY FOR THE PUBLIC OFFER SHARES

SHARES WILL BE ELIGIBLE FOR CCASS

Subject to the granting of the approval of the listing of, and permission to deal in, the Shares on GEM as well as compliance with the stock admission requirements of HKSCC, the Shares will be accepted as eligible securities by HKSCC 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 HKSCC chooses. Investors should seek advice from 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.

– 187 – APPENDIX I ACCOUNTANTS’ REPORT

The following is the text of a report, prepared for the purpose of incorporation in this prospectus, received from the auditors and reporting accountants of the Company, Deloitte Touche Tohmatsu, Certified Public Accountants, Hong Kong:

30th July 2002

The Directors Vertex Communications & Technology Group Limited Kingsway Capital Limited

Dear Sirs,

We set out below our report on the financial information relating to Vertex Communications & Technology Group Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”) for each of the two years ended 31st December 2001 (the “Relevant Periods”) for inclusion in the prospectus of the Company dated 30th July 2002 (the “Prospectus”).

The Company was incorporated in the Cayman Islands on 16th November 2001 as an exempted company under the Companies Law, Cap.22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands. Pursuant to the reorganization to rationalise the structure of the Group in preparation for the listing of the Company’s shares on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited, the Company became the holding company of the Group on 18th December 2001 by principally issuing 4 shares of HK$0.1 of the Company in exchange for the entire issued share capital of Network Engineering Limited, Net2Voice (Hong Kong) Limited, Pacific Digitals (HK) Limited and Unifine Ltd. Details of the reorganization are set out in the paragraph head “Corporate reorganization” in Appendix V of the Prospectus.

At the date of this report, the Company has the following subsidiaries, which are either private limited companies incorporated in or outside Hong Kong or a wholly-owned foreign enterprise registered in the People’s Republic of China (“PRC”):

Place and Issued and date of fully paid Attributable incorporation/ share capital/ equity interest held Name registration registered capital by the Company Principal activities Directly Indirectly Network Engineering Limited Hong Kong Ordinary 100% – Provision of 29th September 1992 HK$1,000,000 communication infrastructure services

– 188 – APPENDIX I ACCOUNTANTS’ REPORT

Place and Issued and date of fully paid Attributable incorporation/ share capital/ equity interest held Name registration registered capital by the Company Principal activities Directly Indirectly

Net2Voice (Hong Kong) Hong Kong Ordinary 100% – Inactive Limited (formerly known as 1st March 2000 HK$2 (Note i) CinemaRepublic.com Limited)

Pacific Digitals (HK) Limited Hong Kong Ordinary 100% – Provision of (formerly known as E-Zone 31st May 1999 HK$2 application and Creation Limited) development of content delivery technology services

Optimum Cyber Limited British Virgin Ordinary 100% – Investment holding Islands US$157,844 18th July 2000

上海創一信息技術 The PRC US$140,000 – 100% Software and 有限公司 (Note ii) hardware development 13th November 2001

Unifine Ltd. British Virgin Ordinary 100% – Investment holding Islands US$1 18th February 2000

SinoWorld Media Company Hong Kong Ordinary – 50% Investment holding Limited (formerly known as 6th June 2001 HK$1,000,000 Sino World Media Company Limited and Clarance Company Limited) (note iii)

SinoWorld CNW Hong Kong Ordinary – 40% Publication of Publishing Limited 21st September 2001 HK$1,000,000 magazine (formerly known as Newsweek Publishing Company Limited and Joint Venture Holdings Limited)

– 189 – APPENDIX I ACCOUNTANTS’ REPORT

Notes:

(i) Pursuant to an agreement entered into between SAR1 Innovations Limited (“SAR1”), the then ultimate holding company, and Net2Voice Inc. dated 20th October 2001, the issued share capital of Net2Voice (Hong Kong) Limited will be increased to 2,000,000 shares of which 1,020,000 shares will be subscribed by Net2Voice Inc. at the par value of HK$1 each and the remaining shares will be subscribed by the Company at the par value of HK$1 each. After the enlarged share capital of Net2Voice (Hong Kong) Limited has been issued and subscribed, the Company will hold a 49% interest in Net2Voice (Hong Kong) Limited, which will become an associate of the Company.

(ii) The registered capital of 上海創一信息技術有限公司is US$140,000, which was fully paid up on 25th March 2002 and verified by Shanghai Gao Ke Certified Public Accountants Co., Ltd on 1st April 2002.

(iii) From the effective date of acquisition of SinoWorld Media Company Limited acquired by the Group up to 31st December 2001, the Group held a 51% equity interest in SinoWorld Media Company Limited. As the Group has majority equity interests in SinoWorld Media Company Limited and is in a position to control the composition of its board of directors and the decision in its financial and operating decision policies, the Group has accounted for SinoWorld Media Company Limited and its subsidiary as subsidiaries from 18th October 2001, the effective date of acquisition, to 31st December 2001. On 25th March 2002, the Group transferred 10,000 shares in SinoWorld Media Company Limited to Sino United Publishing Holdings Limited at a nominal value of HK$10,000 in consideration of appointing one additional director to the board of directors of SinoWorld Media Company Limited by the Company. Subsequent to the transfer, the Group’s equity interests in SinoWorld Media Company Limited is decreased from 51% to 50% with the control over SinoWorld Media Company Limited retained. Accordingly, the Company continues to recognize SinoWorld Media Company Limited as a subsidiary subsequent to the transfer.

(iv) The principal place of operation of all the companies is in Hong Kong except 上海創一信息技術有限公司 which is operated in other regions in the PRC.

No audited financial statements have been prepared for Net2Voice (Hong Kong) Limited, Unifine Ltd., SinoWorld Media Company Limited and SinoWorld CNW Publishing Limited since their respective dates of incorporation as they either have not carried on any business other than the reorganization referred to in Appendix V of the Prospectus or were incorporated in a country where there is no statutory audit requirements. We have, however, reviewed all relevant transactions of these companies since their respective dates of incorporation.

For the purpose of this report, we have, undertaken our own independent audit of the consolidated financial statements of Optimum Cyber Limited and its subsidiary, 上海創一信息技術有限公司(collectively referred to as “Optimum Cyber Group”), prepared in accordance with accounting principles generally accepted in Hong Kong, since 18th July 2000 (date of incorporation of Optimum Cyber Limited) to 31st December 2001, in accordance with Statements of Auditing Standards in Hong Kong.

Up to the date of this report, no statutory audited financial statements of 上海創一信息技術有限公司 were prepared in accordance with the applicable accounting rules and financial regulations applicable to wholly-owned foreign enterprises registered in the PRC.

– 190 – APPENDIX I ACCOUNTANTS’ REPORT

We have acted as auditors of all the companies now comprising the Group for the Relevant Periods except for the following:

Name of subsidiary Financial period Auditors

Network Engineering Limited For the year ended Ernst & Young 31st December 2000 Certified Public Accountants Registered in Hong Kong

Pacific Digitals (HK) Limited For the year ended Ernst & Young 31st December 2000 Certified Public Accountants Registered in Hong Kong

We have examined the audited financial statements or, where appropriate, management accounts of the companies now comprising the Group for the Relevant Periods, or since the respective dates of incorporation to 31st December 2001, where this is a shorter period. Our examination was made in accordance with the Auditing Guideline “Prospectuses and the Reporting Accountant” as recommended by the Hong Kong Society of Accountants.

The financial information of the Group for the Relevant Periods set out in this report have been prepared from the audited financial statements or management accounts (“Underlying Financial Statements”) of the companies now comprising the Group, on the basis set out in note 1 to the financial information.

The directors of the Company are responsible for preparing the Underlying Financial Statements which give a true and fair view. They are also responsible for the contents of the Prospectus in which this report is included. It is our responsibility to compile the financial information set out in this report from the Underlying Financial Statements, to form an opinion on the financial information and to report our opinion to you.

In our opinion, on the basis of presentation set out in note 1 below, the financial information gives, for the purpose of this report, a true and fair view of the state of affairs of the Company as at 31st December 2001 and the Group as at 31st December 2000 and 2001 and of the consolidated results and cash flows of the Group for the Relevant Periods.

– 191 – APPENDIX I ACCOUNTANTS’ REPORT

(A) FINANCIAL INFORMATION

Consolidated income statements

Year ended 31st December Notes 2000 2001 HK$’000 HK$’000

Turnover 3 11,800 12,380 Other revenue 20 14 Depreciation (123) (154) Management fees (3,974) (1,466) Other operating expenses (485) (2,190) Subcontracting costs (5,298) (5,000) Staff costs (2,458) (3,119)

(Loss) profit from operations 5 (518) 465

Taxation 7 (37) (52)

(Loss) profit before minority interests (555) 413 Minority interests – 27

Net (loss) profit for the year (555) 440

(Loss) earning per share 9 – Basic HK(0.150) cents HK0.119 cents

– Diluted HK(0.150) cents HK0.111 cents

There were no recognized gains or losses other than the net (loss) profit for the year.

– 192 – APPENDIX I ACCOUNTANTS’ REPORT

Consolidated balance sheets The Group The Company As at As at 31st December 31st December Notes 2000 2001 2001 HK$’000 HK$’000 HK$’000 Non-current assets Property, plant and equipment 10 387 6,749 – Investments in subsidiaries ––2,787 387 6,749 2,787 Current assets Trade receivables 11 2,708 6,754 – Prepayments, deposits and other receivables 12 217 674 – Amounts due from fellow subsidiaries 13 8,555 –– Amount due from a subsidiary ––11,592 Pledged bank deposits 14 268 529 – Bank balances and cash 1,503 26,450 – 13,251 34,407 11,592 Current liabilities Trade payables 15 799 1,626 – Other payables and accrued expenses 662 481 4 Amount due to a related company 16 2,829 13,061 10,232 Amounts due to fellow subsidiaries 17 4,557 –– Amount due to the then ultimate holding company 18 2,517 –– Amount due to a subsidiary ––1,394 Taxation 8 8 – 11,372 15,176 11,630 Net current assets (liabilities) 1,879 19,231 (38) 2,266 25,980 2,749

Capital and reserves Share capital 19 1,000 –– Reserves 20 1,237 2,677 2,749 2,237 2,677 2,749 Minority interests – 663 – Non-current liabilities Amount due to the then ultimate holding company 18 – 22,559 – Deferred taxation 21 29 81 – 29 22,640 – 2,266 25,980 2,749

– 193 – APPENDIX I ACCOUNTANTS’ REPORT

Consolidated cash flow statements

Year ended 31st December Notes 2000 2001 HK$’000 HK$’000

Net cash (outflow) inflow from operating activities 22 (6,367) 5,757

Cash inflow from returns on investments Interest received 19 14

Investing activities Purchase of property, plant and equipment (62) (481) Increase in pledged fixed deposits (268) (261)

Cash outflow from investing activities (330) (742)

Net cash (outflow) inflow before financing (6,678) 5,029

Financing 23 New borrowings raised 7,614 23,985 Repayments of borrowings – (4,557) Contribution from a minority shareholder – 490

Net cash inflow from financing 7,614 19,918

Increase in cash and cash equivalents 936 24,947

Cash and cash equivalents at beginning of year 567 1,503

Cash and cash equivalents at end of year 1,503 26,450

Analysis of the balances of cash and cash equivalents Bank balances and cash 1,503 26,450

– 194 – APPENDIX I ACCOUNTANTS’ REPORT

Notes to the financial information

1. BASIS OF PRESENTATION OF FINANCIAL INFORMATION

The consolidated income statements and consolidated cash flow statements include the results and cash flows of the Company and its subsidiaries as if the current group structure had been in existence throughout the Relevant Periods, or since their respective dates of incorporation or effective date of acquisition, where this is a shorter period, except the results of Optimum Cyber Group, which are set out in section D in this report, were not included in the consolidated income statements of the Group because they were acquired by the Group from SAR1 after 31st December 2001. Details of the acquisition of the Optimum Cyber Group are set out in section C (i) of this report.

The consolidated balance sheets of the Group as at 31st December 2000 and 2001 have been prepared to present the assets and liabilities of the Company and its subsidiaries as at 31st December 2000 and 2001 as if the current group structure had been in existence as at those dates except the assets and liabilities of the Optimum Cyber Group, which are set out in section D in this report, were not included in the consolidated balance sheets of the Group because they were acquired by the Company after 31st December 2001.

All significant intra-group transactions, cash flows and balances have been eliminated on consolidation.

2. SIGNIFICANT ACCOUNTING POLICIES

The financial information have been prepared under the historical cost convention and in accordance with the accounting policies set out below which conform with accounting principles generally accepted in Hong Kong. The principal accounting policies adopted are set out as follows:

Revenue recognition

Income derived from communication infrastructure services and application and development of content delivery technology services are recognized when the services are rendered. Income is recognized on the percentage of completion method, measured by reference to the proportion that costs incurred to date bear to estimated total cost for the job. Income is accrued in the financial statements if the estimated percentage of the job completed exceeds 20%.

Interest income is accrued on a time basis, by reference to the principal outstanding and at the interest rate applicable.

Operating leases

Rentals payable under operating leases are charged to the income statement on a straight-line basis over the term of the relevant lease.

– 195 – APPENDIX I ACCOUNTANTS’ REPORT

Foreign currencies

Transactions in currencies other than Hong Kong dollars are translated at the rates of exchange ruling on the dates of the transactions. Monetary assets and liabilities denominated in such currencies are re-translated at the rates ruling on the balance sheet date. Profits and losses arising on exchange are dealt with in the income statement.

On consolidation, the financial information of subsidiaries which are denominated in currencies other than Hong Kong dollars are translated at rates ruling on the balance sheet date. All exchange differences arising on consolidation are dealt with in reserves.

Taxation

The charge for taxation is based on the results for the year as adjusted for items which are non-assessable or disallowed. Timing differences arise from the recognition for tax purposes of certain items of income and expense in a different accounting period from that in which they are recognized in the financial statements. The tax effect of timing differences, computed using the liability method, is recognized 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.

Allowance for doubtful debts

Allowance is made against receivables to the extent when they are considered to be doubtful. Receivables in the balance sheet are stated net of such allowance .

Property, plant and equipment

Property, plant and equipment are stated at cost less depreciation and accumulated impairment losses, if any. 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 incurred after the asset has been put into operation, such as repairs and maintenance and overhaul costs, is normally 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 asset, the expenditure is capitalised as an additional cost of the asset.

Depreciation is provided to write off the cost of items of property, plant and equipment over their estimated useful lives and after taking into account their estimated residual value, using the straight-line method, at 20% per annum.

The gain or loss arising on 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 recognized in the income statement.

– 196 – APPENDIX I ACCOUNTANTS’ REPORT

Impairment

At each balance sheet date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. Impairment losses are recognized as an expense immediately, unless the relevant asset is carried at a revalued amount under another Statement of Standard Accounting Practice (“SSAP”), in which case the impairment loss is treated as revaluation decrease under that SSAP.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, such that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset in prior years. A reversal of an impairment loss is recognized as income immediately, unless the relevant asset is carried at a revalued amount under another SSAP, in which case the reversal of the impairment loss is treated as a revaluation increase under that SSAP.

Related parties

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party, or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence.

3. TURNOVER

Year ended 31st December 2000 2001 HK$’000 HK$’000

Communication infrastructure service income 9,582 6,822 Service income from application and development of content delivery technology 2,218 5,558

11,800 12,380

– 197 – APPENDIX I ACCOUNTANTS’ REPORT

4. BUSINESS AND GEOGRAPHICAL SEGMENTS

Business segments

For management purposes, the Group is currently organised into three operating segments, namely communication infrastructure, application and development of content delivery technology and content production, procurement and delivery. These segments are the basis on which the Group reports its primary segment information. The principal activities of these segments are as follows:

Communication infrastructure – provision of communication infrastructure services Application and development of – provision of information technology solutions content delivery including web solutions, system integration technology and payment solution Content production, – production and procurement of media contents, procurement and delivery including traditional media and online contents

Segment information about these businesses is presented below.

Income statement for the year ended 31st December 2000

Application and development of content Communication delivery infrastructure technology Consolidated

HK$’000 HK$’000 HK$’000

TURNOVER 9,582 2,218 11,800

RESULTS Segment results 7 (545) (538)

Other revenue 20

Loss before taxation (518) Taxation (37)

Loss after taxation (555)

– 198 – APPENDIX I ACCOUNTANTS’ REPORT

Balance sheet as at 31st December 2000

Application and development of content Communication delivery infrastructure technology Consolidated HK$’000 HK$’000 HK$’000

ASSETS Segment assets 10,861 2,777 13,638

LIABILITIES Segment liabilities 1,246 252 1,498

Unallocated corporate liabilities 9,903

Consolidated total liabilities 11,401

Other information for the year ended 31st December 2000

Application and development of content Communication delivery infrastructure technology HK$’000 HK$’000

Additions to property, plant and equipment 62 – Depreciation 123 –

– 199 – APPENDIX I ACCOUNTANTS’ REPORT

Income statement for the year ended 31st December 2001

Application and development of Content content production, Communication delivery procurement infrastructure technology and delivery Consolidated HK$’000 HK$’000 HK$’000 HK$’000

TURNOVER 6,822 5,558 – 12,380

RESULTS Segment results 15 550 (75) 490

Interest income 14 Unallocated corporate expenses (39)

Profit before taxation 465 Taxation (52)

Profit after taxation 413

Balance sheet as at 31st December 2001

Application and development of Content content production, Communication delivery procurement infrastructure technology and delivery Consolidated

ASSETS Segment assets 5,861 33,862 1,433 41,156

LIABILITIES Segment liabilities 1,585 606 5 2,196

Unallocated corporate liabilities 35,620

Consolidated total liabilities 37,816

– 200 – APPENDIX I ACCOUNTANTS’ REPORT

Other information for the year ended 31st December 2001

Application and development of Content content production, Communication delivery procurement infrastructure technology and delivery HK$’000 HK$’000 HK$’000

Additions to property, plant and equipment 195 6,545 30 Depreciation 127 26 1

All of the activities of the Group are based in Hong Kong. Thus, all of the turnover and (loss) profit from operations are derived from Hong Kong, and the carrying amount of segment assets and additions to property, plant and equipment are in Hong Kong.

5. (LOSS) PROFIT FROM OPERATIONS

Year ended 31st December 2000 2001 HK$’000 HK$’000

(Loss) profit from operations has been arrived at after charging (crediting):

Auditors’ remuneration –– Loss on disposal of property, plant and equipment – 254 Operating lease rentals in respect of land and buildings 220 331 Staff costs, including directors’ remuneration Retirement benefits scheme contributions – 125 Salaries and allowances 2,458 2,994

2,458 3,119 (Write-back of allowance) allowance for bad and doubtful debts (100) 731 Interest income on bank deposits (19) (14)

Auditors’ remuneration of HK$100,000 for each of the year ended 31st December 2000 and 2001 respectively are borne by a subsidiary of SAR1 in return for management fees.

– 201 – APPENDIX I ACCOUNTANTS’ REPORT

6. DIRECTORS’ AND EMPLOYEES’ EMOLUMENTS

Directors’ emoluments Year ended 31st December 2000 2001 HK$’000 HK$’000

Fees: Executive directors –– Independent non-executive directors ––

–– Other emoluments – Executive directors: – salaries and other benefits 20 – – bonus –– – retirement benefits scheme contributions ––

20 –

The emoluments of the directors were within the following band:

2000 2001 Number of directors Number of directors

Nil to HK$1,000,000 9 9

No directors of the Company waived any emoluments during the Relevant Periods.

During the year ended 31st December 2000, there was one director who received emoluments of HK$20,000. The other directors did not receive any emoluments.

During the year ended 31st December 2001, the directors did not receive any emoluments.

During the Relevant Periods, the directors of the Group were remunerated by a subsidiary of SAR1. Management fees paid by the Group to SAR1 included the following amounts in respect of directors’ remuneration: HK$643,000 and HK$300,000 respectively in respect of each of the year ended 31st December 2000 and 2001.

– 202 – APPENDIX I ACCOUNTANTS’ REPORT

Employees’ emoluments

During the Relevant Periods, the five highest paid individuals did not include any directors of the Company. The emoluments of the five highest paid individuals of the Company for each of the year ended 31st December 2000 and 2001 respectively were as follows: Year ended 31st December 2000 2001 HK$’000 HK$’000

Salaries and other benefits 1,327 1,471 Bonus –– Retirement benefits scheme contributions – 55

1,327 1,526

The aggregate emoluments of each of the highest paid individuals were less than HK$1,000,000 for both years.

During the Relevant Periods, no emoluments were paid by the Group to the directors and the five highest paid individuals as an inducement to join or upon joining the Group or as compensation for loss of office.

7. TAXATION

Year ended 31st December 2000 2001 HK$’000 HK$’000

The charge comprises: Profit for the year 8 – Deferred taxation (note 21) 29 52

37 52

Hong Kong Profits Tax was calculated at 16% on the estimated assessable profit for the year ended 31st December 2000. No provision for Hong Kong Profits Tax for the year ended 31st December 2001 has been made as the Group has no assessable profits for the year.

Details of the Group’s deferred taxation are set out in note 21.

8. DIVIDEND

No dividend has been paid or declared by the Company or any of its subsidiaries during the Relevant Periods.

– 203 – APPENDIX I ACCOUNTANTS’ REPORT

9. (LOSS) EARNING PER SHARE

Year ended 31st December 2000 2001 HK$’000 HK$’000

(Loss) earning for the purpose of basic and diluted (loss) earning per share (555) 440

Number of ordinary shares for the purpose of basic (loss) earning per share 369,146,232 369,146,232 Effect of dilutive potential ordinary shares: Options N/A 27,689,000

Number of ordinary shares for the purpose of diluted (loss) earning per share 369,146,232 396,835,232

The computation of the basic (loss) earning per share is based on 369,146,232 shares in issue on the assumption that the corporate reorganization, as described in the section headed “Corporate reorganization” in Appendix V to the Prospectus, had been effective on 1st January 2000.

The computation of diluted loss per share for the year ended 31st December 2000 does not assume the exercise of the Company’s potential ordinary shares since their exercises would result in a reduction in net loss per share.

– 204 – APPENDIX I ACCOUNTANTS’ REPORT

10. PROPERTY, PLANT AND EQUIPMENT

Furniture, fixtures Leasehold and office Motor improvements equipment vehicles Total HK$’000 HK$’000 HK$’000 HK$’000

THE GROUP COST At 1st January 2000 295 267 25 587 Additions – 62 – 62

At 31st December 2000 295 329 25 649

DEPRECIATION At 1st January 2000 65 69 5 139 Provided for the year 59 59 5 123

At 31st December 2000 124 128 10 262

NET BOOK VALUE At 31st December 2000 171 201 15 387

COST At 1st January 2001 295 329 25 649 Additions 1,240 5,530 – 6,770 Disposals (426) ––(426)

At 31st December 2001 1,109 5,859 25 6,993

DEPRECIATION At 1st January 2001 124 128 10 262 Provided for the year 56 93 5 154 Eliminated on disposals (172) ––(172)

At 31st December 2001 8 221 15 244

NET BOOK VALUE At 31st December 2001 1,101 5,638 10 6,749

– 205 – APPENDIX I ACCOUNTANTS’ REPORT

11. TRADE RECEIVABLES

THE GROUP

The credit terms offered by the Group to its customers is 60 to 90 days. The aged analysis of trade receivables is stated as follows:

At 31st December 2000 2001 HK$’000 HK$’000

0 to 30 days 1,786 4,764 31 to 60 days 767 875 61 to 90 days 77 68 91 to 180 days 70 302 Over 180 days 8 745

2,708 6,754

12. PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES

Included in prepayments, deposits and other receivables are retention money held by customers of approximately HK$97,000 (2000: HK$113,000) and an amount due from a minority shareholder of HK$200,000 (2000: nil). The amount due from a minority shareholder represents capital contribution not yet paid up by the minority shareholder and was subsequently settled in May 2002.

13. AMOUNTS DUE FROM FELLOW SUBSIDIARIES

THE GROUP

The amounts were unsecured, non-interest bearing and had no fixed repayment term.

Had interest been charged on the outstanding balances with the fellow subsidiaries which were non-interest bearing during the year ended 31st December 2000 based on the interest rate earned on the Group’s saving deposits of approximately 5% and 2% per annum for each of the year ended 31st December 2000 and 2001, the Group would have received interest of approximately HK$214,000 and HK$86,000 for each of the year ended 31st December 2000 and 2001 respectively.

The outstanding balances as at 31st December 2000 were subsequently settled in the year 2001.

14. PLEDGED BANK DEPOSITS

THE GROUP

The Group had pledged fixed deposits of HK$529,000 (2000: HK$268,000) to a bank in respect of a bank guarantee of HK$2,000,000 (2000: HK$1,000,000) issued under a performance bond granted to a customer of the Group.

– 206 – APPENDIX I ACCOUNTANTS’ REPORT

15. TRADE PAYABLES

THE GROUP

The aged analysis of trade payables is stated as follows:

At 31st December 2000 2001 HK$’000 HK$’000

0 to 30 days 145 1,489 31 to 60 days 69 – 61 to 90 days 126 59 91 to 180 days 233 5 Over 180 days 226 73

799 1,626

16. AMOUNT DUE TO A RELATED COMPANY

Details of the amount due to a related company in which Dr. Poon Kwok Lim, Steven has a beneficial interest and Dr. Poon Kwok Lim, Steven and Mr. Poon Shu Yan, Joseph are also directors are as follows:

THE GROUP THE COMPANY At 31st December At 31st December Name of related entity Terms 2000 2001 2001 HK$’000 HK$’000 HK$’000

Bright World Enterprise Unsecured, non-interest Limited bearing and has no fixed repayment term 2,829 13,061 10,232

Had interest been charged on the outstanding balance with the related company which were non-interest bearing during the Relevant Periods based on the Hong Kong prime lending rates of approximately 9% and 6% per annum for each of the year ended 31st December 2000 and 2001 respectively, the Group would have paid interest of approximately HK$127,000 and HK$476,000 for each of the year ended 31st December 2000 and 2001 respectively.

The outstanding balance as at 31st December 2001 has been fully repaid by the Group’s internal resources prior to the date of listing of the Company’s shares on the Growth Enterprises Market (“GEM”) of The Stock Exchange of Hong Kong Limited.

– 207 – APPENDIX I ACCOUNTANTS’ REPORT

17. AMOUNTS DUE TO FELLOW SUBSIDIARIES

THE GROUP

The amounts were unsecured, non-interest bearing and had no fixed repayment term.

Had interest been charged on the outstanding balances with the fellow subsidiaries which were non-interest bearing during the year ended 31st December 2000 based on the Hong Kong prime lending rates of approximately 9% and 6% per annum for each of the year ended 31st December 2000 and 2001, the Group would have paid interest of approximately HK$205,000 and HK$137,000 for each of the year ended 31st December 2000 and 2001 respectively.

The outstanding balances as at 31st December 2000 were subsequently settled in the year 2001.

18. AMOUNT DUE TO THE THEN ULTIMATE HOLDING COMPANY

THE GROUP

The amount is unsecured, non-interest bearing and has no fixed repayment term.

Had interest been charged on the outstanding balance with SAR1, the then ultimate holding company, which was non-interest bearing during the Relevant Periods based on the Hong Kong prime lending rates of approximately 9% and 6% per annum for each of the year ended 31st December 2000 and 2001 respectively, the Group would have paid interest of approximately HK$216,000 and HK$752,000 for each of the year ended 31st December 2000 and 2001 respectively.

The outstanding balance as at 31st December 2001 has been fully settled prior to the date of listing of the Company’s shares on the GEM of The Stock Exchange of Hong Kong Limited in that on 22nd July 2002 the Company allotted and issued 369,146,182 ordinary shares of HK$0.01 each to the shareholders of SAR1 as directed by SAR1 to settle the amount due to SAR1 as at that date. As such, the outstanding balance as at 31st December 2001 is shown as a non-current liability.

– 208 – APPENDIX I ACCOUNTANTS’ REPORT

19. SHARE CAPITAL

Number of shares HK$’000

Ordinary shares of HK$0.1 each

Authorised: On incorporation 3,900,000 390 Increase during the period 5,996,100,000 599,610

At 31st December 2001 6,000,000,000 600,000

Issued and fully paid: Allotted and issued on incorporation –– Issue of shares 1 – Issue of shares on the reorganization 4 –

At 31st December 2001 5 –

The Company was incorporated with an authorised share capital of HK$390,000 divided into 39,000,000 shares of HK$0.01 each. One share of HK$0.01 each was allotted and issued to the subscriber on 3rd December 2001. On 12th December 2001, the Company issued nine shares of HK$0.01 each for a total consideration of HK$0.09 to the sole shareholder. Pursuant to the written resolution passed by the sole shareholder on 12th December 2001, every ten shares of HK$0.01 each in the capital of the Company were consolidated into one share of HK$0.1 each and the authorised share capital of the Company was increased from HK$390,000 to HK$600,000,000 by the creation of additional 5,996,100,000 shares of HK$0.1 each, ranking pari passu in all respect with the existing shares of the Company.

On 18th December 2001, the Company allotted and issued four ordinary shares of HK$0.1 each for the acquisitions of the entire issued share capital of Pacific Digitals (HK) Limited, Net2Voice (HK) Limited, Network Engineering Limited and Unifine Ltd. from SAR1.

Pursuant to a written resolution passed by the sole shareholder on 18th January 2002, each of the issued and unissued share of HK$0.1 each in the share capital of the Company were sub- divided into ten shares of HK$0.01 each and the authorised share capital of the Company thus became HK$600,000,000 divided into 60,000,000,000 shares of HK$0.01 each.

The share capital as at 31st December 2000 represented the aggregate amount of the nominal values of the companies comprising the Group at that date.

– 209 – APPENDIX I ACCOUNTANTS’ REPORT

20. RESERVES

Retained profits (accumulated Special Capital losses) reserve reserve Total HK$’000 HK$’000 HK$’000 HK$’000

THE GROUP At 1st January 2000 1,792 ––1,792 Net loss for the year (555) ––(555)

At 31st December 2000 and at 1st January 2001 1,237 ––1,237 Net profit for the year 440 ––440 Surplus arising on the reorganization – 1,000 – 1,000

At 31st December 2001 1,677 1,000 – 2,677

THE COMPANY Net loss for the period (38) ––(38) Surplus arising on the reorganization ––2,787 2,787

At 31st December 2001 (38) – 2,787 2,749

The special reserve of the Group represents the difference between the nominal value of shares of the acquired subsidiaries and the nominal value of the shares of the Company issued for the acquisitions at the time of the reorganization.

The capital reserve of the Company arose as a result of the reorganization and represents the excess of the combined net assets of the subsidiaries acquired over the nominal value of the share capital of the Company issued in exchange thereof. Under the Companies Law of the Cayman Islands, this reserve is available for paying distributions or dividends to shareholders subject to the provisions of its memorandum or articles of association and provided that immediately following the distribution of dividend, the Company is also able to pay its debts as they fall due in the ordinary course of business. In accordance with the articles of association of the Company, with the sanction of an ordinary resolution, dividends may also be declared and paid out of the capital reserve.

At 31st December 2001, the amount of the reserves of the Company available for distribution to shareholders of the Company was approximately HK$2,749,000, being the capital reserve of approximately HK$2,787,000 less the accumulated losses of approximately HK$38,000.

– 210 – APPENDIX I ACCOUNTANTS’ REPORT

21. DEFERRED TAXATION

At 31st December 2000 2001 HK$’000 HK$’000

THE GROUP At beginning of year – 29 Charged for the year (note 7) 29 52

At end of year 29 81

At the balance sheet date, the components of the deferred taxation liability (asset) provided are as follows:

Provided 2000 2001 HK$’000 HK$’000

THE GROUP Tax effect of timing differences because of:

Excess of tax allowances over depreciation 29 818 Estimated tax losses – (737)

29 81

There was no significant unprovided deferred taxation for the Relevant Periods or at the balance sheet dates.

– 211 – APPENDIX I ACCOUNTANTS’ REPORT

22. RECONCILIATION OF (LOSS) PROFIT FROM OPERATIONS TO NET CASH (OUTFLOW) INFLOW FROM OPERATING ACTIVITIES

Year ended 31st December 2000 2001 HK$’000 HK$’000

(Loss) profit from operations (518) 465 Interest income (19) (14) Depreciation 123 154 Loss on disposal of property, plant and equipment – 254 Increase in trade receivables (2,021) (4,046) Increase in prepayments, deposits and other receivables (158) (257) (Increase) decrease in amounts due from fellow subsidiaries (4,445) 8,555 Decrease in amounts due from shareholders 490 – Increase in trade payables 49 827 Increase (decrease) in other payables and accrued expenses 132 (181)

Net cash (outflow) inflow from operating activities (6,367) 5,757

23. ANALYSIS OF CHANGES IN FINANCING DURING THE YEAR

Amount due to Amounts Amount ultimate due to due to Special Share Minority holding fellow a related reserve capital interests company subsidiaries company HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

At 1st January 2000 – 1,000 – 2,289 –– New borrowings raised –––228 4,557 2,829

At 31st December 2000 and at 1st January 2001 – 1,000 – 2,517 4,557 2,829 Reorganization 1,000 (1,000) –––– New borrowings raised –––13,753 – 10,232 Repayments during the year ––––(4,557) – Acquisition of property, plant and equipment (note 24) –––6,289 –– Cash contribution from a minority shareholder ––490 ––– Amount due from a minority shareholder in respect of capital contribution ––200 ––– Share of net loss ––(27) –––

At 31st December 2001 1,000 – 663 22,559 – 13,061

– 212 – APPENDIX I ACCOUNTANTS’ REPORT

24. MAJOR NON-CASH TRANSACTION

During the year ended 31st December 2001, the Group acquired property, plant and equipment at a consideration of approximately HK$6,289,000. The amount was settled through the current account with SAR1.

25. CONTINGENT LIABILITIES

A claim has been made against a wholly-owned subsidiary of the Company by the liquidator of a network service provider for approximately HK$664,000 being services allegedly rendered by the service provider. The directors are assessing the merits of this claim with the Company’s legal advisors. Dr. Poon Kwok Lim, Steven, a director of the Company, has provided an indemnity to the Group under which the director will indemnify the Group for any losses resulting from such claim and the related charges if the Group is required to settle the claim. As such, no provision has been made during the Relevant Periods.

26. LEASE COMMITMENTS

At the balance sheet date, the Group had the following future minimum payments under non- cancellable operating leases which fall due as follows:

At 31st December 2000 2001 HK$’000 HK$’000

Within one year 25 174 In the second to fifth year inclusive – 29

25 203

Operating lease payments represent rentals payable by the Group for its office premises. Leases are mainly negotiated for an average term of two years and rentals are fixed for an average of two years.

27. CAPITAL COMMITMENT

At 31st December 2001, the Company had a commitment to subscribe for shares of Net2Voice (Hong Kong) Limited amounting to approximately HK$980,000.

There was no capital commitment as at 31st December 2000.

28. RELATED PARTY TRANSACTIONS

Apart from the amounts due from and to related parties as disclosed in notes 13, 16, 17 and 18, during the Relevant Periods, the Group had the following related party transactions:

(a) The Group paid management fees of approximately HK$1,466,000 (2000: HK$3,974,000) to SAR1 (HK) Limited, a subsidiary of SAR1, being an allocation of costs incurred by

– 213 – APPENDIX I ACCOUNTANTS’ REPORT

SAR1 (HK) Limited for the provision of administrative and other supporting services. In year 2000, the management fee was charged on a monthly basis and was computed by multiplying all of the monthly operating expenses of SAR1 (HK) Limited with the fraction of the monthly operating expenses of the subject company to the total monthly expenses of the operating expenses of all the subsidiaries of SAR1. The operating expenses excluded the capital expenses. In year 2001, the management fee was computed with reference to the estimated time spent by the relevant staff of SAR1 (HK) Limited on work done for the Group and the estimated office space occupied by the Group.

(b) The Group purchased the intellectual property rights of a micro-payment system for a nominal consideration of HK$1 (2000: nil) from eCyberPay.com Limited, a subsidiary of SAR1.

(c) The Group purchased the streaming and other technology developed for web radio for a nominal consideration of HK$1 (2000: nil) from RadioRepublic.com Limited, a subsidiary of SAR1.

(d) The Group purchased property, plant and equipment at a net book value of approximately HK$6,289,000 (2000: nil) from certain subsidiaries of SAR1.

(e) Account payables of approximately HK$10,232,000 (2000: nil) to Bright World Enterprise Limited was novated to the Group by SAR1. The Directors explained that the account payable represented advances made by Bright World Enterprise Limited to SAR1. Such advances were in return loaned to the Group by SAR1 to finance the Group’s operations. Thus, the amount was novated to the Group as part of the reorganization.

(f) Dr. Poon Kwok Lim, Steven had provided a personal guarantee to a bank to secure a bank guarantee of HK$2,000,000 (2000: HK$1,000,000) granted to a customer of the Group, for which no charge is made.

(g) An account receivable of nil (2000: HK$485,000) of a subsidiary was assigned to Bright World Enterprise Limited. The account receivable assigned to Bright World Enterprise Limited was related to an ordinary network engineering work. As at 31st December 2000, the receivable had been outstanding for more than one year. This receivable was thus assigned to Bright World Enterprise Limited which originally introduced this particular account to the Group at its carrying value of HK$485,000.

(h) Mr. Poon Shu Yan, Joseph had provided a personal guarantee to the landlord of the offices of the Group at 25th Floor, 663 King’s Road, North Point, Hong Kong to secure the obligations of the Group as a tenant, for which no charge is made.

The directors have represented that the above related party transactions were carried out in the ordinary course of the Group’s business and on normal commercial terms. All the transactions described above will be terminated following the listing the Company’s shares on the GEM of The Stock Exchange of Hong Kong Limited.

– 214 – APPENDIX I ACCOUNTANTS’ REPORT

29. RETIREMENT BENEFITS SCHEMES

Before 30th November 2000, the Group did not contribute to any retirement benefits scheme for either its employees or its directors in Hong Kong. With effect from 1st December 2000, the Group had joined the Mandatory Provident Fund Scheme under the rules and regulations of the Mandatory Provident Fund Schemes Authority. The Group’s employees are required to join the scheme. The Group has followed the minimum statutory contribution requirement of 5% of eligible employees’ relevant aggregated income.

At 31st December 2001, the Group had no significant obligations for long service payments to its employees pursuant to the requirements of the Employment Ordinance, Chapter 57 of the Laws of Hong Kong.

30. NET TANGIBLE ASSETS OF THE COMPANY

The Company was incorporated on 16th November 2001. The net tangible assets of the Company as at 31st December 2001 were approximately HK$2,749,000.

31. THE THEN ULTIMATE HOLDING COMPANY

At 31st December 2001, the then ultimate holding company of the Company is SAR1, a company incorporated in the Cayman Islands.

(B) DIRECTORS’ REMUNERATION

Save as disclosed in this report, no remuneration has been paid or is payable in respect of the Relevant Periods by the Company or any of its subsidiaries to the Company’s directors.

Under the arrangement presently in force, the aggregate amount of the directors’ fees and emoluments for the year ending 31st December 2002 is estimated to be approximately HK$3,819,000.

The following transactions took place subsequent to 31st December 2001:

(i) On 5th February 2002, the Company acquired the Optimum Cyber Group from SAR1 at a cash consideration of HK$3,000,000. Details of the sale and purchase agreement in relation to this acquisition are set out in the paragraph headed “Summary of material contracts” in Appendix V of the Prospectus. Details of the financial information of the Optimum Cyber Group are set out in section D. This acquisition results in a goodwill of approximately HK$3,233,000 which will be amortised over 10 years.

– 215 – APPENDIX I ACCOUNTANTS’ REPORT

(ii) On 22nd July 2002, the Company allotted and issued, credited as fully paid, a total of 369,146,182 ordinary shares of HK$0.01 each to the shareholders of SAR1 as directed by SAR1 to settle the amount due to SAR1 as at that date. The details of this transaction are set out in paragraph headed “Corporate reorganization” in Appendix V to the Prospectus.

(D) FINANCIAL INFORMATION OF THE OPTIMUM CYBER GROUP

Subsequent to 31st December 2001, the Group acquired the Optimum Cyber Group. The following are summaries of the results and assets and liabilities of the Optimum Cyber Group which are not included in the financial information as set out in section A above and which have been audited by Deloitte Touche Tohmatsu for the purpose of this report.

Consolidated income statements of Optimum Cyber Limited

18.7.2000 (date of incorporation) 1.1.2001 to to 31.12.2000 31.12.2001 Notes HK$’000 HK$’000

Turnover –– Depreciation – (44) Management fees (53) (355) Other operating expenses (55) (146) Operating lease rentals – (134) Staff costs (a) (127) (315)

Loss before taxation (235) (994) Taxation (b) ––

Net loss for the period/year (235) (994)

There were no recognized gains or losses other than the net loss for the period/year.

– 216 – APPENDIX I ACCOUNTANTS’ REPORT

Consolidated balance sheets of Optimum Cyber Limited

As at 31st December 2000 2001 Notes HK$’000 HK$’000

Non-current assets Property, plant and equipment (c) – 1,263

Current assets Prepayments, deposits and other receivables (d) – 1,207 Bank balances and cash (e) – 113

– 1,320

Current liabilities Other payables and accrued expenses – 120 Amount due to the then ultimate holding company (f) 235 –

235 120

Net current (liabilities) assets (235) 1,200

(235) 2,463

Capital and reserves Share capital (g) –– Exchange reserve – (2) Accumulated losses (235) (1,229)

(235) (1,231)

Non-current liability Amount due to the then ultimate holding company (f) – 3,694

(235) 2,463

– 217 – APPENDIX I ACCOUNTANTS’ REPORT

Notes to financial information of Optimum Cyber Limited

(a) STAFF COSTS

18.7.2000 (date of incorporation) 1.1.2001 to to 31.12.2000 31.12.2001 HK$’000 HK$’000

Salaries and allowances 127 310 Retirement benefits scheme contributions – 5

127 315

(b) TAXATION

No provision for Hong Kong Profits Tax has been made in the financial statements as the Optimum Cyber Group has no assessable profit for the period/year.

Pursuant to the relevant laws and regulations in the PRC, the Optimum Cyber Group’s PRC subsidiary is exempted from the PRC income tax for two years starting from their first profit- making year, followed by a 50% reduction for the next three years. No provision for the PRC income tax has been made in the financial statements as the PRC subsidiary had no assessable profit in the PRC during the period/year.

Furniture, fixtures Leasehold and office improvements equipment Total HK$’000 HK$’000 HK$’000

COST Additions and at 31st December 2001 1,095 211 1,306

DEPRECIATION Provided for the year and at 31st December 2001 36 7 43

NET BOOK VALUE At 31st December 2001 1,059 204 1,263

– 218 – APPENDIX I ACCOUNTANTS’ REPORT

(d) PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES

At 31st December 2000 2001 HK$’000 HK$’000

Advances to employees – 7 Advance to a service provider – 825 Rental deposits – 375

– 1,207

The advance to a service provider is unsecured, non-interest bearing and has no fixed repayment terms.

(e) BANK BALANCES AND CASH

At 31st December 2001, the bank balances and cash were denominated in Renminbi which is not freely convertible into other currencies.

(f) AMOUNT DUE TO THE THEN ULTIMATE HOLDING COMPANY

The amount is unsecured, non-interest bearing and has no fixed repayment term.

Had interest been charged on the outstanding balance with SAR1, the then ultimate holding company, which was non-interest bearing during the Relevant Periods based on the Hong Kong prime lending rates of approximately 9% and 6% per annum for each of the year ended 31st December 2000 and 2001 respectively, the Group would have paid interest of approximately HK$11,000 and HK$118,000 for each of the year ended 31st December 2000 and 2001 respectively.

The outstanding balance as at 31st December 2001 has been fully settled prior to the date of listing of the Company’s shares on the GEM of The Stock Exchange of Hong Kong Limited in that on 22nd July 2002, the Company allotted and issued 369,146,182 ordinary shares of HK$0.01 each to the shareholders of SAR1 as directed by SAR1 to settle the amount due to SAR1 as at that date. As such, the outstanding balance as at 31st December 2001 is shown as a non-current liability.

(g) SHARE CAPITAL 2000 2001 US$’000 US$’000 Authorised: 50,000 Shares of US$1 each 50 50

Issued and fully paid: 1 Share of US$1 each ––

Optimum Cyber Limited was incorporated with an authorised share capital of US$50,000 divided into 50,000 shares of US$1 each. One share of US$1 each was allotted and issued to the subscriber on 3rd November 2000. On 4th February 2002, the authorised share capital was increased from US$50,000 to US$500,000 by the creation of 450,000 shares of US$1 each. On the same date, 157,843 shares of US$1 each was allotted and issued at par to the shareholders. – 219 – APPENDIX I ACCOUNTANTS’ REPORT

(h) RELATED PARTY TRANSACTIONS

Apart from the amount due to SAR1 as disclosed in note (f) above, during the Relevant Periods, Optimum Cyber Group paid management fees of approximately HK$355,000 (18.7.2000 – 31.12.2000: HK$53,000) to SAR1 (HK) Limited, a subsidiary of SAR1, being an allocation of costs incurred by SAR1 (HK) Limited for the provision of administrative and other supporting services. In year 2000, the management fee was charged on a monthly basis and was computed by multiplying all of the monthly operating expenses of SAR1 (HK) Limited with the fraction of the monthly operating expenses of the subject company to the total monthly expenses of the operating expenses of all the subsidiaries of SAR1. The operating expenses excluded the capital expenses. In year 2001, the management fee was computed with reference to the estimated time spent by the relevant staff of SAR1 (HK) Limited on work done for the Optimum Cyber Group and the estimated office space occupied by the Optimum Cyber Group.

The directors have confirmed that following the listing of the Company’s shares on the GEM of The Stock Exchange of Hong Kong Limited, this transaction will be terminated.

(i) LEASE COMMITMENTS

At the balance sheet date, Optimum Cyber Group had the following future minimum payments under non-cancellable operating leases in respect of office premises which fall due as follows:

At 31st December 2000 2001 HK$’000 HK$’000

Within one year – 905 In the second to fifth year inclusive – 188

– 1,093

(j) CAPITAL COMMITMENT

At 31st December 2000 and 2001, the Optimum Cyber Group had no material capital commitment.

(k) CONTINGENT LIABILITY

At 31st December 2000 and 2001, the Optimum Cyber Group had no material contingent liability.

– 220 – APPENDIX I ACCOUNTANTS’ REPORT

(E) SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by any companies in the Group in respect of any period subsequent to 31st December 2001.

Yours faithfully, Deloitte Touche Tohmatsu Certified Public Accountants

– 221 – APPENDIX II ADDITIONAL FINANCIAL INFORMATION

The information set out below is for information purposes only and does not form part of the Accountants’ Report prepared by Deloitte Touche Tohmatsu, the auditors and reporting accountants of the Company, as set out in appendix I to this prospectus.

On 5th February, 2002, the Group acquired Optimum Cyber and its subsidiary (collectively the “Optimum Cyber Group”) from SAR1 at a cash consideration of HK$3,000,000, which represented the fair value of the Optimum Cyber Group and was based on the net present value of the projected yearly profit after tax in the coming three years.

The consolidated income statements of the Group for the years ended 31st December 2000 and 2001 as set out in section A of the Accountants’ Report include the results of the Group as if the current group structure had been in existence throughout the Track Record Period, or since their respective dates of incorporation or effective date of acquisition, where this is a shorter period, except the results of the Optimum Cyber Group which were not included in the consolidated income statements of the Group as the Optimum Cyber Group was acquired by the Group on 5th February, 2002.

The consolidated balance sheets of the Group as at 31st December, 2000 and 2001 as set out in section A of the Accountants’ Report have been prepared to present the assets and liabilities of the Group as at 31st December, 2000 and 2001 as if the current group structure had been in existence as at those dates except the assets and liabilities of the Optimum Cyber Group which were not included in the consolidated balance sheets of the Group because the Optimum Cyber Group was acquired by the Group on 5th February, 2002.

To provide additional financial information, set out below are the pro forma combined income statements of the Group and Optimum Cyber Group for the Track Record Period and the pro forma combined balance sheets of the Group and the Optimum Cyber Group as at 31st December, 2000 and 2001 which had been presented to include the results and assets and liabilities of the Group and the Optimum Cyber Group as if the acquisition of the Optimum Cyber Group by the Group had taken place on 18th July, 2000 (date of incorporation of Optimum Cyber).

The pro forma unaudited combined income statements and balance sheets of the Group presented below do not purport to present what the results of operations and the financial position would actually have been if the acquisition of the Optimum Cyber Group by the Group had taken place on 18th July, 2000 (date of incorporation of Optimum Cyber), or to project the results of operations for any future period and the financial position at any future date and are included for information purposes only.

– 222 – APPENDIX II ADDITIONAL FINANCIAL INFORMATION

In preparing the pro forma unaudited combined income statements and balance sheets of the Optimum Cyber Group, the directors have made the following assumptions:

(i) The goodwill arising from the acquisition of the Optimum Cyber Group of approximately HK$3,000,000 is assumed to have arisen on 18th July, 2000 (date of incorporation of Optimum Cyber) and is estimated as the purchase consideration of HK$3,000,000 minus the net assets value of Optimum Cyber of HK$8 as at its date of incorporation. In accordance with the amortisation policy of ten years, assumption is further made that there was additional amortisation of goodwill at approximately HK$150,000 and HK$300,000 respectively for the years ended 31st December, 2000 and 2001.

(ii) The acquisition consideration was loaned from SAR1 and thus, the amount due to SAR1 would be increased by HK$3,000,000.

PRO FORMA UNAUDITED COMBINED INCOME STATEMENTS

Year ended 31st December 2000 2001 HK$’000 HK$’000

Turnover 11,800 12,380 Other revenue 20 14 Amortization of goodwill (150) (300) Depreciation (123) (198) Management fees (4,027) (1,821) Other operating expenses (540) (2,470) Subcontracting costs (5,298) (5,000) Staff costs (2,585) (3,434)

Loss from operations (903) (829)

Taxation (37) (52)

Loss before minority interests (940) (881) Minority interests – 27

Net loss for the year (940) (854)

– 223 – APPENDIX II ADDITIONAL FINANCIAL INFORMATION

PRO FORMA UNAUDITED COMBINED BALANCE SHEETS

As at 31st December 2000 2001 HK$’000 HK$’000

Non-current assets Property, plant and equipment 387 8,012 Goodwill 2,850 2,550

3,237 10,562

Current assets Trade receivables 2,708 6,754 Prepayments, deposits and other receivables 217 1,881 Amounts due from fellow subsidiaries 8,555 – Pledged bank deposits 268 529 Bank balances and cash 1,503 26,563

13,251 35,727

Current liabilities Trade payables 799 1,626 Other payables and accrued expenses 662 601 Amount due to a related company 2,829 13,061 Amounts due to fellow subsidiaries 4,557 – Amount due to the then ultimate holding company 5,752 3,000 Taxation 8 8

14,607 18,296

Net current (liabilities) assets (1,356) 17,431

1,881 27,993

Capital and reserves Share capital 1,000 – Reserves 852 996

1,852 996

Minority interests – 663

Non-current liabilities Amount due to the then ultimate holding company – 26,253 Deferred taxation 29 81

29 26,334

1,881 27,993

– 224 – APPENDIX III PROPERTY VALUATION

The following is the texts of a letter, summary of values and valuation certificates, prepared for the purposes of incorporation of this prospectus received from Sallmanns (Far East) Limited, an independent valuer, in connection with their valuations as at 30th June, 2002 of the property interests of the Group.

Sallmanns CHARTERED SURVEYORS, PROPERTY CONSULTANTS 15/F Trinity House LAND, BUILDING, PLANT & MACHINERY VALUERS 165-171 Wanchai Road FINANCIAL AND INTANGIBLE ASSET VALUERS Hong Kong Tel : (852) 2169 6000 Fax : (852) 2528 5079

30th July, 2002

The Directors Vertex Communications & Technology Group Limited 25th Floor MLC Millennia Plaza No. 663 King’s Road North Point Hong Kong

Dear Sirs,

In accordance with your instructions to value the property interests in which Vertex Communications & Technology Group Limited (hereinafter referred to as the “Company”), and its subsidiaries (hereinafter together referred to as the “Group”) have interests in Hong Kong and the People’s Republic of China (the “PRC”), we confirm that we have carried out inspections, made relevant enquiries and obtained such further information as we consider necessary for the purpose of providing you with our opinion of the value of the property interests as at 30th June, 2002.

Our valuations of the property interests are our opinion of the open market value which we would define as intended to mean “the best price at which the sale of an interest in a property would have been completed unconditionally for cash consideration on the date of the valuation assuming:

(a) a willing seller;

(b) that, prior to the date of valuation, there had been a reasonable period (having regard to the nature of the property and the state of the market) for the proper marketing to the interests, for the agreement of price and terms and for the completion of the sales;

– 225 – APPENDIX III PROPERTY VALUATION

(c) that the state of the market, level of values and other circumstances were, on any earlier assumed date of exchange of contracts, the same as on the date of valuation;

(d) that no account is taken of any additional bid by a prospective purchaser with a special interest; and

(e) that both parties to the transaction had acted knowledgeably, prudently and without compulsion.”

Our valuations have been made on the assumption that the owner sells the property interests on the open market in its existing state without the benefit of a deferred terms contract, leaseback, joint venture, management agreement or any similar arrangement which would serve to affect the values of the property interests.

The property interests in Groups I and II which are rented by the Group have no commercial value due mainly to the short term nature or the prohibition against assignment or sub-letting or otherwise due to the lack of substantial profit rents or the insufficient proof of legal title to the property interests.

In our valuations, we have complied with all the requirements contained in the Chapter 8 to the Rules Governing the Listing of Securities on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited.

We have not carried out detailed site measurements to verify the correctness of the site areas in respect of the relevant property interests but have assumed that the site areas shown on the documents and official site plans handed to us are correct. Based on our experience of valuation of similar property interests in the PRC, we consider the assumptions so made to be reasonable. All documents and contracts have been used as reference only and all dimensions, measurements and areas are approximations. No on-site measurements have been taken.

For the property interests located in Hong Kong, we have been provided with copies of the tenancy agreements relating to the property interests and have caused searches to be made at the relevant Land Registry in Hong Kong. However, we have not searched the original documents to verify ownership or to ascertain the existence of any amendments which may not appear on the copies handed to us.

In valuing the property interest in the PRC, we have not searched the title of the property interest and have not scrutinised the original title documents, we have been given a copy of the tenancy agreement under which the property interest was leased to the Group.

– 226 – APPENDIX III PROPERTY VALUATION

We have relied to a very considerable extent on the information provided by the Group and have accepted advice given to us on such matters as planning approvals or statutory notices, easements, tenures, occupations, lettings, rentals, site and floor areas and all other relevant matters.

We have inspected the exterior of the property interests included in the attached valuation certificates, in respect of which we have been provided with such information as we have required for the purposes of our valuations. However, no structural survey has been made, but in the course of our inspection we did not note any apparent serious defects. We are not, however, able to report that the property interests are free from rot, infestation or any other structural defects. No tests were carried out to any of the services.

No allowance has been made in our report for any charges, mortgages or amounts owing on the property interests valued nor for any expenses or taxation which may be incurred in affecting a sale. Unless otherwise stated, it is assumed that the property interests are free from encumbrances, restrictions, and outgoings of an onerous nature which could affect their values.

We have had no reason to doubt the truth and accuracy of the information provided to us by the Group. We have also sought and received confirmation from the Group that no material factors have been omitted from the information supplied. We consider that we have been provided with sufficient information to reach an informed view, and have no reason to suspect that any material information has been withheld.

Unless otherwise stated, all monetary amounts stated in this report are in Hong Kong Dollars.

Our valuations are summarised below and the valuation certificates are attached.

Yours faithfully, for and on behalf of SALLMANNS (FAR EAST) LIMITED Paul L. Brown BSc FRICS FHKIS Director

Note: Paul L. Brown is a Chartered Surveyor who has 19 years experience in valuation of properties in the PRC and 22 years of property valuation experience in Hong Kong, the United Kingdom and Asia- Pacific region.

– 227 – APPENDIX III PROPERTY VALUATION

SUMMARY OF VALUES

GROUP I – Property interests rented and occupied by the Group in Hong Kong

Open market value in existing state as at Property 30th June, 2002 HK$

1. 25th Floor of Office Block No commercial MLC Millennia Plaza value (formerly known as CEF Lend Lease Plaza) No. 663 King’s Road North Point Hong Kong

2. Unit No. 1 on 1st Floor No commercial (Part of Unit A) and value Unit No. 2 on 1st Floor (Part of Unit A) Lai Cheong Factory Building Nos. 479-479A Castle Peak Road Cheung Sha Wan Kowloon

GROUP II – Property interests rented and occupied by the Group in the PRC

3. Units 04-8 on 37th Floor No commercial Hong Kong Plaza value Nos. 282-283 Hwai Hai Zhong Road Shanghai The PRC

– 228 – APPENDIX III PROPERTY VALUATION

VALUATION CERTIFICATE

Group I – Property interests rented and occupied by the Group in Hong Kong

Open market value Particulars of in existing state as at Property Description and tenure occupancy 30th June, 2002 HK$

1. 25th Floor of The property comprises The property is No Commercial Office Block entire office units on the currently occupied by value MLC 25th floor of a 32-storey the Group for office Millennia commercial building purposes. Plaza completed in about 1999. (formerly known as CEF The property has a gross Lend Lease floor area of 7,818 sq.ft. or Plaza) thereabouts. No. 663 King’s Road North Point Hong Kong

Notes:

(1) Grandworld Technology Limited, a wholly-owned subsidiary of SAR1 Innovations Limited, rented the property from an independent third party landlord for a term of 3 years from 15th December, 1999 to 14th December, 2002 at a monthly rental of HK$83,140 exclusive of government rent, rates, air-conditioning and management fees.

(2) Pursuant to an assignment dated 22nd March, 2002, the rights and obligations of Grandworld Technology Limited under the tenancy set out in note (1) above were assigned to the Company.

– 229 – APPENDIX III PROPERTY VALUATION

VALUATION CERTIFICATE

Open market value Particulars of in existing state as at Property Description and tenure occupancy 30th June, 2002 HK$

2. Unit No. 1 on The property comprises 2 The property is No commercial 1st Floor industrial units on the 1st currently occupied by value (Part of Unit floor of a 9-storey industrial the Group for A) and building completed in about industrial purposes. Unit No. 2 on 1964. 1st Floor (Part of Unit The property has a total A) gross floor area of 12,164 Lai Cheong sq.ft. or thereabouts. Factory Building The property is rented by Nos. 479- Network Engineering 479A Castle Limited from an Peak Road independent third party for a Cheung Sha term of 2 years from 1st Wan March, 2001 to 28th Kowloon February, 2003 at a monthly rental of HK$14,500 exclusive of rates and management fees.

Note:

(1) Network Engineering Limited is a wholly-owned subsidiary of the Company.

– 230 – APPENDIX III PROPERTY VALUATION

VALUATION CERTIFICATE

Group II – Property interests rented and occupied by the Group in PRC

Open market value Particulars of in existing state as at Property Description and tenure occupancy 30th June, 2002 HK$

3. Units 04-8 on The property comprise The property is No commercial 37th Floor 5 office units on the 37th currently occupied by value Hong Kong floor of a 38-storey the Group for office Plaza commercial building purposes. Nos. 282-283 completed in about 1997. Hwai Hai Zhong Road The property has a gross Shanghai floor area of 535.79 sq.m or The PRC thereabouts.

The property is rented to Shanghai Vertex Communications & Technology Group Limited from an independent third party for a period from 1st November, 2001 to 15th March, 2003 at a monthly rental of US6,591 exclusive of management fees, air- condition & maintenance fees and water & electricity charges with rent-free period from 1st March, 2002 and 31st March, 2002 and from 16th February, 2003 to 15th March, 2003.

Note:

(1) Shanghai Vertex Communications & Technology Group Limited is a wholly-owned subsidiary of the Company.

– 231 – APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

Set out below is a summary of certain provisions of the Memorandum and Articles of Association of the Company and of certain aspects of Cayman company law.

The Company was incorporated in the Cayman Islands as an exempted company with limited liability on 16th November, 2001 under the Companies Law. The Memorandum of Association (the “Memorandum”) and the Articles comprise its constitution.

1. MEMORANDUM OF ASSOCIATION

(a) The Memorandum states, inter alia, that the liability of members of the Company is limited to the amount, if any, for the time being unpaid on the Shares respectively held by them and that the objects for which the Company is established are unrestricted (including acting as an investment company), and that the Company shall have and be capable of exercising any and all of the powers at any time or from time to time exercisable by 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.

(b) The Company may by special resolution alter its Memorandum with respect to any objects, powers or other matters specified therein.

2. ARTICLES OF ASSOCIATION

The Articles were adopted on 22nd July, 2002. The following is a summary of certain provisions of the Articles:

(a) Directors

(i) Power to allot and issue shares and warrants

Subject to the provisions of the Companies Law and the Memorandum and Articles and to any special rights conferred on the holders of any shares or class of shares, any share may be issued with or have attached thereto such rights, or such restrictions, whether with regard to dividend, voting, return of capital, or otherwise, as the Company may by ordinary resolution determine (or, in the absence of any such determination or so far as the same may not make specific provision, as the board may determine). Subject to the Companies Law, the rules of any Designated Stock Exchange (as defined in the Articles) and the Memorandum and Articles, any share may be issued on terms that, at the option of the Company or the holder thereof, they are liable to be redeemed.

– 232 – APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

The board may issue warrants conferring the right upon the holders thereof to subscribe for any class of shares or securities in the capital of the Company on such terms as it may from time to time determine.

Subject to the provisions of the Companies Law and the Articles and, where applicable, the rules of any Designated Stock Exchange (as defined in the Articles) and without prejudice to any special rights or restrictions for the time being attached to any shares or any class of shares, all unissued shares in the Company shall be at the disposal of the board, which may offer, allot, grant options over or otherwise dispose of them to such persons, at such times, for such consideration and on such terms and conditions as it in its absolute discretion thinks fit, but so that no shares shall be issued at a discount.

Neither the Company nor the board shall be obliged, when making or granting any allotment of, offer of, option over or disposal of shares, to make, or make available, any such allotment, offer, option or shares to members or others with registered addresses in any particular territory or territories being a territory or territories where, in the absence of a registration statement or other special formalities, this would or might, in the opinion of the board, be unlawful or impracticable. Members affected as a result of the foregoing sentence shall not be, or be deemed to be, a separate class of members for any purpose whatsoever.

(ii) Power to dispose of the assets of the Company or any subsidiary

There are no specific provisions in the Articles relating to the disposal of the assets of the Company or any of its subsidiaries. The Directors may, however, exercise all powers and do all acts and things which may be exercised or done or approved by the Company and which are not required by the Articles or the Companies Law to be exercised or done by the Company in general meeting.

(iii) Compensation or payments for loss of office

Pursuant to the Articles, payments 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 be approved by the Company in general meeting.

– 233 – APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

(iv) Loans and provision of security for loans to Directors

There are provisions in the Articles prohibiting the making of loans to Directors.

(v) Disclosure of interests in contracts with the Company or any of its subsidiaries

A Director may hold any other office or place of profit with the Company (except that of the auditor of the Company) in conjunction with his office of Director for such period and, subject to the Articles, upon such terms as the board may determine, and may be paid such extra remuneration therefor (whether by way of salary, commission, participation in profits or otherwise) in addition to any remuneration provided for by or pursuant to any other Articles. A Director may be or become a director or other officer of, or otherwise interested in, any company promoted by the Company or any other company in which the Company may be interested, and shall not be liable to account to the Company or the members for any remuneration, profits or other benefits received by him as a director, officer or member of, or from his interest in, such other company. Subject as otherwise provided by the Articles, the board may also cause the voting power conferred by the shares in any other company held or owned by the Company to be exercised in such manner in all respects as it thinks fit, including the exercise thereof in favour of any resolution appointing the Directors or any of them to be directors or officers of such other company, or voting or providing for the payment of remuneration to the directors or officers of such other company.

Subject to the Companies Law and the Articles, no Director or proposed or intended Director shall be disqualified by his office from contracting with the Company, either with regard to his tenure of any office or place of profit or as vendor, purchaser or in any other manner whatsoever, nor shall any such contract or any other contract or arrangement in which any Director is in any way interested be liable to be avoided, nor shall any Director so contracting or being so interested be liable to account to the Company or the members for any remuneration, profit or other benefits realised by any such contract or arrangement by reason of such Director holding that office or the fiduciary relationship thereby established. A Director who to his knowledge is in any way, whether directly or indirectly, interested in a contract or arrangement or proposed contract or arrangement with the Company shall declare the nature of his interest at the meeting of the board at which the question of entering into the contract or arrangement is first taken into consideration, if he knows his interest then exists, or in any other case, at the first meeting of the board after he knows that he is or has become so interested.

– 234 – APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

A Director shall not vote (nor be counted in the quorum) on any resolution of the board in respect of any contract or arrangement or other proposal in which he is to his knowledge materially interested but this prohibition shall not apply to any of the following matters, namely:

(aa) any contract or arrangement for giving of any security or indemnity to the Director in respect of money lent or obligations incurred or undertaken by him at the request of or for the benefit of the Company or any of its subsidiaries;

(bb) any contract or arrangement for the giving by the Company 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 assumed responsibility in whole or in part whether alone or jointly under a guarantee or indemnity or by the giving of security;

(cc) any contract or arrangement concerning an offer of shares or debentures or other securities of or by the Company or any other company which the Company may promote or be interested in for subscription or purchase, where the Director is or is to be interested as a participant in the underwriting or sub-underwriting of the offer;

(dd) any contract or arrangement in which the Director is interested in the same manner as other holders of shares or debentures or other securities of the Company or any of its subsidiaries by virtue only of his interest in shares or debentures or other securities of the Company;

(ee) any contract or arrangement concerning any other company in which he is interested only, whether directly or indirectly, as an officer or executive or a shareholder other than a company in which the Director together with any of his associates (as defined by the rules, where applicable, of any Designated Stock Exchange (as defined in the Articles)) is beneficially interested in 5 percent. or more of the issued shares or of the voting rights of any class of shares of such company (or of any third company through which his interest is derived); or

(ff) any proposal concerning the adoption, modification or operation of a share option scheme, a pension fund or retirement, death, or disability benefits scheme or other arrangement which relates both to Directors and employees of the Company or of any of its subsidiaries and does not provide in respect of any Director as such any privilege or advantage not accorded to the employees to which such scheme or fund relates.

– 235 – APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

(vi) Remuneration

The ordinary remuneration of the Directors shall from time to time be determined by the Company in general meeting, such sum (unless otherwise directed by the resolution by which it is voted) to be divided amongst the Directors in such proportions and in such manner as the board may agree or, failing agreement, equally, except that any Director holding office for part only of the period in respect of which the remuneration is payable shall only rank in such division in proportion to the time during such period for which he held office. The Directors shall also be entitled to be prepaid or repaid all travelling, hotel and incidental expenses reasonably expected to be incurred or incurred by them in attending any board meetings, committee meetings or general meetings or separate meetings of any class of shares or of debentures of the Company or otherwise in connection with the discharge of their duties as Directors.

Any Director who, by request, goes or resides abroad for any purpose of the Company or who performs services which in the opinion of the board go beyond the ordinary duties of a Director may be paid such extra remuneration (whether by way of salary, commission, participation in profits or otherwise) as the board may determine and such extra remuneration shall be in addition to or in substitution for any ordinary remuneration as a Director. An executive Director appointed to be a managing director, joint managing director, deputy managing director or other executive officer shall receive such remuneration (whether by way of salary, commission or participation in profits or otherwise or by all or any of those modes) and such other benefits (including pension and/or gratuity and/or other benefits on retirement) and allowances as the board may from time to time decide. Such remuneration may be either in addition to or in lieu of his remuneration as a Director.

The board may establish or concur or join with other companies (being subsidiary companies of the Company or companies with which it is associated in business) in establishing and making contributions out of the Company’s monies to any schemes or funds for providing pensions, sickness or compassionate allowances, life assurance or other benefits for employees (which expression as used in this and the following paragraph shall include any Director or ex-Director who may hold or have held any executive office or any office of profit with the Company or any of its subsidiaries) and ex-employees of the Company and their dependents or any class or classes of such persons.

– 236 – APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

The board may pay, enter into agreements to pay or make grants of revocable or irrevocable, and either subject or not subject to any terms or conditions, pensions or other benefits to employees and ex-employees and their dependents, or to any of such persons, including pensions or benefits additional to those, if any, to which such employees or ex-employees or their dependents are or may become entitled under any such scheme or fund as is mentioned in the previous paragraph. Any such pension or benefit may, as the board considers desirable, be granted to an employee either before and in anticipation of, or upon or at any time after, his actual retirement.

(vii) Retirement, appointment and removal

At each annual general meeting, one third of the Directors for the time being (or if their number is not a multiple of three, then the number nearest to but not greater than one third) will retire from office by rotation provided that no Director holding office as chairman and/or managing director shall be subject to retirement by rotation, or be taken into account in determining the number of Directors to retire. The Directors to retire in every year will be those who have been longest in office since their last re-election or appointment but as between persons who became or were last re-elected Directors on the same day those to retire will (unless they otherwise agree among themselves) be determined by lot. There are no provisions relating to retirement of Directors upon reaching any age limit.

The Directors shall have the power from time to time and at any time to appoint any person as a Director either to fill a casual vacancy on the board 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. Neither a Director nor an alternate Director is required to hold any shares in the Company by way of qualification.

A Director may be removed by a special resolution of the Company before the expiration of his period of office (but without prejudice to any claim which such Director may have for damages for any breach of any contract between him and the Company) and may by ordinary resolution appoint another in his place. Unless otherwise determined by the Company in general meeting, the number of Directors shall not be less than two. There is no maximum number of Directors.

– 237 – APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

The office or director shall be vacated:

(aa) if he resigns his office by notice in writing delivered to the Company at the registered office of the Company for the time being or tendered at a meeting of the Board whereupon the Board resolves to accept such resignation;

(bb) if he becomes of unsound mind or dies;

(cc) if, without special leave, he is absent from meetings of the board (unless an alternate director appointed by him attends) for six (6) consecutive months, and the board resolves that his office is vacated;

(dd) if he becomes bankrupt or has a receiving order made against him or suspends payment or compounds with his creditors;

(ee) if he is prohibited from being a director by law;

(ff) if he ceases to be a director by virtue of any provision of law or is removed from office pursuant to the Articles.

The board may from time to time appoint one or more of its body to be managing director, joint managing director, or deputy managing director or to hold any other employment or executive office with the Company for such period and upon such terms as the board may determine and the board may revoke or terminate any of such appointments. The board may delegate any of its powers, authorities and discretions to committees consisting of such Director or Directors and other persons as the board thinks fit, and it may from time to time revoke such delegation or revoke the appointment of and discharge any such committees either wholly or in part, and either as to persons or purposes, but every committee so formed shall, in the exercise of the powers, authorities and discretions so delegated, conform to any regulations that may from time to time be imposed upon it by the board.

(viii)Borrowing powers

The board may exercise all the powers of the Company to raise or borrow money, to mortgage or charge all or any part of the undertaking, property and assets (present and future) and uncalled capital of the Company and, subject to the Companies Law, to issue debentures, bonds and other securities of the Company, whether outright or as collateral security for any debt, liability or obligation of the Company or of any third party.

– 238 – APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

(ix) Proceedings of the Board

The board may meet 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.

(x) Register of Directors and Officers

The Companies Law and the Articles provide that the Company is required to maintain at its registered office a register of directors and officers which is not available for inspection by the public. A copy of such register must be filed with the Registrar of Companies in the Cayman Islands and any change must be notified to the Registrar within 30 days of any change in such directors or officers.

(b) Alterations to constitutional documents

The Articles may be rescinded, altered or amended by the Company in general meeting by special resolution. The Articles state that a special resolution shall be required to alter the provisions of the Memorandum, to amend the Articles or to change the name of the Company.

The Company may from time to time by ordinary resolution in accordance with the relevant provisions of the Companies Law:

(i) increase its capital by such sum, to be divided into shares of such amounts as the resolution shall prescribe;

(ii) consolidate and divide all or any of its capital into shares of larger amount than its existing shares;

(iii) divide its shares into several classes and without prejudice to any special rights previously conferred on the holders of existing shares as the directors may determine;

– 239 – APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

(iv) sub-divide its shares or any of them into shares of smaller amount than is fixed by the Memorandum, 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; and

(v) cancel any shares which, at the date of passing of the resolution, have not been taken, or agreed to be taken, by any person, and diminish the amount of its capital by the amount of the shares so cancelled.

The Company may subject to the provisions of the Companies Law reduce its share capital or share premium account or any capital redemption reserve or other undistributable reserve in any way by special resolution.

(d) Variation of rights of existing shares or classes of shares

Subject to the Companies Law, all or any of the special rights attached to the shares or any class of shares may (unless otherwise provided for by the terms of issue of that class) be varied, modified or abrogated either with the consent in writing of the holders of not less than three-fourths in nominal value of the issued shares of that class or with the sanction of a special resolution passed at a separate general meeting of the holders of the shares of that class. To every such separate general meeting the provisions of the Articles relating to general meetings will mutatis mutandis apply, but so that the necessary quorum (other than at an adjourned meeting) shall be two persons holding or representing by proxy not less than one-third in nominal value of the issued shares of that class and at any adjourned meeting two holders present in person or by proxy whatever the number of shares held by them shall be a quorum. Every holder of shares of the class shall be entitled on a poll to one vote for every such share held by him, and 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 any shares or class of shares shall not, unless otherwise expressly provided in the rights attaching to the terms of issue of such shares, be deemed to be varied by the creation or issue of further shares ranking pari passu therewith.

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(e) Special resolution – majority required

Pursuant to the Articles, a special resolution of the Company must be passed by a majority of not less than three-fourths of the votes cast by such members as, being entitled so to do, vote in person or, in the case of such members as are corporations, by their duly authorised representatives or, where proxies are allowed, by proxy at a general meeting of which not less than 21 clear days’ notice, specifying the intention to propose the resolution as a special resolution, has been duly given. Provided that, except in the case of an annual general meeting, if it is so agreed by a majority in number of the members having a right to attend and vote at such meeting, being a majority together holding not less than 95 per cent. in nominal value of the shares giving that right and, in the case of an annual general meeting, if so agreed by all Members entitled to attend and vote thereat, a resolution may be proposed and passed as a special resolution at a meeting of which less than 21 clear days’ notice has been given.

A copy of any special resolution must be forwarded to the Registrar of Companies in the Cayman Islands within 15 days of being passed.

An ordinary resolution is defined in the Articles 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.

(f) Voting rights (generally and on a poll) and right to demand a poll

Subject to any special rights or restrictions as to voting for the time being attached to any shares by or in accordance with the Articles, at any general meeting on a show of hands, every member who is present in person or by proxy or, being a corporation, is present by its duly authorised representative shall have one vote and on a poll every member present in person or by proxy or, in the case of a member being a corporation, by its duly authorised representative shall have one vote for every fully paid share of which he is the holder but so that no amount paid up or credited as paid up on a share in advance of calls or installments is treated for the foregoing purposes as paid up on the share. Notwithstanding anything contained in the Articles, where more than one proxy is appointed by a member which is a clearing house (or its nominee(s)), each such proxy shall have one vote on a show of hands. On a poll, a member entitled to more than one vote need not use all his votes or cast all the votes he uses in the same way.

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At any general meeting a resolution put to the vote of the meeting is to 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 demanded by (i) the chairman of the meeting or (ii) at least three members present in person or, in the case of a member being a corporation, by its duly authorised representative or by proxy for the time being entitled to vote at the meeting or (iii) any member or members present in person or, in the case of a member being a corporation, by its duly authorised representative or by proxy and representing not less than one-tenth of the total voting rights of all the members having the right to vote at the meeting or (iv) a member or members present in person or, in the case of a member being a corporation, by its duly authorised representative or by proxy and holding shares in the Company conferring a right to vote at the meeting being shares on which an aggregate sum has been paid equal to not less than one-tenth of the total sum paid up on all the shares conferring that right.

If a recognized clearing house (or its nominee(s)) is a member of the Company it may authorise such person or persons as it thinks fit to act as its representative(s) 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 recognized clearing house (or its nominee(s)) as if such person was the registered holder of the shares of the Company held by that clearing house (or its nominee(s)) including the right to vote individually on a show of hands.

(g) Requirements for annual general meetings

An annual general meeting of the Company must be held in each year, other than the year of incorporation (within a period of not more than 15 months after the holding of the last preceding annual general meeting or a period of 18 months from the date of incorporation, unless a longer period would not infringe the rules of any Designated Stock Exchange (as defined in the Articles)) at such time and place as may be determined by the board.

(h) Accounts and audit

The board shall cause true accounts to be kept of the sums of money received and expended by the Company, and the matters in respect of which such receipt and expenditure take place, and of the property, assets, credits and liabilities of the Company and of all other matters required by the Companies Law or necessary to give a true and fair view of the Company’s affairs and to explain its transactions.

The accounting records shall be kept at the registered office or at such other place or places as the board decides and shall always be open to inspection by any Director. No

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member (other than a Director) shall have any right to inspect any accounting record or book or document of the Company except as conferred by law or authorised by the board or the Company in general meeting.

A copy of every balance sheet and profit and loss account (including every document required by law to be annexed thereto) which is to be laid before the Company at its general meeting, together with a printed copy of the Directors’ report and a copy of the auditors’ report, shall not less than 21 days before the date of the meeting be sent to every person entitled to receive notices of general meetings of the Company under the provisions the Articles; however, subject to compliance with all applicable laws, including the rules of the Designated Stock Exchange (as defined in the Articles), the Company may send to such persons a summary financial statement derived from the Company’s annual accounts and the directors’ report instead provided that any such person may by notice in writing served on the Company, demand that the Company sends to him, in addition to a summary financial statement, a complete printed copy of the Company’s annual financial statement and the directors’ report thereon.

Auditors shall be appointed and the terms and tenure of such appointment and their duties at all times regulated in accordance with the provisions of the Articles. The remuneration of the auditors shall be fixed by the Company in general meeting or in such manner as the members may determine.

The financial statements of the Company shall be audited by the auditor in accordance with generally accepted auditing standards. The auditor shall make a written report thereon in accordance with generally accepted auditing standards and the report of the auditor shall be submitted to the members in general meeting. The generally accepted auditing standards referred to herein may be those of a country or jurisdiction other than the Cayman Islands. If so, the financial statements and the report of the auditor should disclose this fact and name such country or jurisdiction.

(i) Notices of meetings and business to be conducted thereat

An annual general meeting and any extraordinary general meeting at which it is proposed to pass a special resolution shall (save as set out in sub-paragraph (e) above) be called by at least 21 clear days’ notice in writing, and any other extraordinary general meeting shall be called by at least 14 clear days’ notice (in each case exclusive of the day on which the notice is served or deemed to be served and of the day for which it is given). The notice must specify the time and place of the meeting and, in the case of special business, the general nature of that business. In addition notice of every general meeting shall be given to all members of the Company other than such as, under the provisions of the Articles or the terms of issue of the shares they hold, are not entitled to receive such notices from the Company, and also to the auditors for the time being of the Company.

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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:

(i) in the case of a meeting called as an annual general meeting, by all members of the Company entitled to attend and vote thereat; and

(ii) 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 per cent in nominal value of the issued 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:

(aa) the declaration and sanctioning of dividends;

(bb) the consideration and adoption of the accounts and balance sheet and the reports of the directors and the auditors;

(cc) the election of directors in place of those retiring;

(dd) the appointment of auditors and other officers;

(ee) the fixing of the remuneration of the directors and of the auditors; and

(ff) the granting of any mandate or authority to the directors to offer, allot, grant options over or otherwise dispose of the unissued shares of the Company representing not more than 20 per cent in nominal value of its existing issued share capital.

(j) Transfer of shares

All transfers of shares may be effected by an instrument of transfer in the usual or common form or in a form prescribed by the Designated Stock Exchange (as defined in the Articles) or in such other form as the board may approve and which may be under hand or, if the transferor or transferee is a clearing house or its nominee(s), by hand or by machine imprinted signature or by such other manner of execution as the board may approve from time to time. The instrument of transfer shall be executed by or on behalf of the transferor and the transferee provided that the board may dispense with the execution

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of the instrument of transfer by the transferee in any case in which it thinks fit, in its discretion, to do so and the transferor shall be deemed to remain the holder of the share until the name of the transferee is entered in the register of members in respect thereof. The board may also resolve either generally or in any particular case, upon request by either the transferor or the transferee, to accept mechanically executed transfers.

The board in so far as permitted by any applicable law may, in its absolute discretion, at any time and from time to time transfer any share upon the principal register to any branch register or any share on any branch register to the principal register or any other branch register.

Unless the board otherwise agrees, no shares on the principal register shall be transferred to any branch register nor may shares on any branch register be transferred to the principal register or any other branch register. All transfers and other documents of title shall be lodged for registration and registered, in the case of shares on a branch register, at the relevant registration office and, in the case of shares on the principal register, at the registered office in the Cayman Islands or such other place at which the principal register is kept in accordance with the Companies Law.

The board may, in its absolute discretion, and without assigning any reason, refuse to register a transfer of any share (not being a fully paid up share) to a person of whom it does not approve or any share issued under any share incentive scheme for employees upon which a restriction on transfer imposed thereby still subsists, and it may also refuse to register any transfer of any share to more than four joint holders or any transfer of any share (not being a fully paid up share) on which the Company has a lien.

The board may decline to recognize any instrument of transfer unless a fee of such maximum sum as any Designated Stock Exchange (as defined in the Articles) may determine to be payable or such lesser sum as the Directors may from time to time require is paid to the Company in respect thereof, the instrument of transfer, if applicable, is properly stamped, is in respect of only one class of share and is lodged at the relevant registration office or registered office or such other place at which the principal register is kept accompanied by the relevant share certificate(s) and such other evidence as the board may reasonably require to show the right of the transferor to make the transfer (and if the instrument of transfer is executed by some other person on his behalf, the authority of that person so to do).

The registration of transfers may be suspended and the register closed on giving notice by advertisement in a relevant newspaper and, where applicable, any other newspapers in accordance with the requirements of any Designated Stock Exchange (as defined in the Articles), at such times and for such periods as the board may determine and either generally or in respect of any class of shares. The register of members shall not be closed for periods exceeding in the whole 30 days in any year.

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(k) Power for the Company to purchase its own shares

The Company is empowered by the Companies Law and the Articles to purchase its own Shares subject to certain restrictions and the Board may only exercise this power on behalf of the Company subject to any applicable requirements imposed from time to time by any Designated Stock Exchange.

(l) Power for any subsidiary of the Company to own shares in the Company

There are no provisions in the Articles relating to ownership of shares in the Company by a subsidiary.

(m) Dividends and other methods of distribution

Subject to the Companies Law, the Company in general meeting may declare dividends in any currency to be paid to the members but no dividend shall be declared in excess of the amount recommended by the board.

The Articles provide dividends may be declared and paid out of the profits of the Company, realised or unrealised, or from any reserve set aside from profits which the directors determine is no longer needed. With the sanction of an ordinary resolution dividends may also be declared and paid out of share premium account or any other fund or account which can be authorised for this purpose in accordance with the Companies Law.

Except in so far as the rights attaching to, or the terms of issue of, any share may otherwise provide, (i) all dividends shall be declared and paid according to the amounts paid up on the shares in respect whereof the dividend is paid but no amount paid up on a share in advance of calls shall for this purpose be treated as paid up on the share and (ii) all dividends shall be apportioned and paid pro rata according to the amount paid up on the shares during any portion or portions of the period in respect of which the dividend is paid. The Directors may deduct from any dividend or other monies payable to any member or in respect of any shares all sums of money (if any) presently payable by him to the Company on account of calls or otherwise.

Whenever the board or the Company in general meeting has resolved that a dividend be paid or declared on the share capital of the Company, the board may further resolve either (a) that such dividend be satisfied wholly or in part in the form of an allotment of shares credited as fully paid up, provided that the shareholders entitled thereto will be entitled to elect to receive such dividend (or part thereof) in cash in lieu of such allotment, or (b) that shareholders entitled to such dividend will be entitled to elect to receive an

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allotment of shares credited as fully paid up in lieu of the whole or such part of the dividend as the board may think fit. The Company may also upon the recommendation of the board by an ordinary resolution resolve in respect of any one particular dividend of the Company that it may be satisfied wholly in the form of an allotment of shares credited as fully paid up without offering any right to shareholders to elect to receive such dividend in cash in lieu of such allotment.

Any dividend, interest or other sum payable in cash to the holder of shares 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 at 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 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 a good discharge to 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.

Whenever the board or the Company in general meeting has resolved that a dividend be paid or declared the board may further resolve that such dividend be satisfied wholly or in part by the distribution of specific assets of any kind.

All dividends or bonuses unclaimed for one year after having been declared may be invested or otherwise made use of by the board for the benefit of the Company until claimed and the Company shall not be constituted a trustee in respect thereof. All dividends or bonuses unclaimed for six years after having been declared may be forfeited by the board and shall revert to the Company.

No dividend or other monies payable by the Company on or in respect of any share shall bear interest against the Company.

(n) Proxies

Any member of the Company entitled to attend and vote at a meeting of the Company is entitled to appoint another person as his proxy to attend and vote instead of him. A member who is the holder of two or more shares may appoint more than one proxy to represent him and vote on his behalf at a general meeting of the Company or at a class meeting. A proxy need not be a member of the Company and shall be entitled to exercise the same powers on behalf of a member who is an individual and for whom he acts as

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proxy as such member could exercise. In addition, a proxy shall be entitled to exercise the same powers on behalf of a member which is a corporation and for which he acts as proxy as such member could exercise if it were an individual member. On a poll or on a show of hands, votes may be given either personally (or, in the case of a member being a corporation, by its duly authorised representative) or by proxy.

(o) Call on shares and forfeiture of shares

Subject to the Articles and to the terms of allotment, the board may from time to time make such calls upon the members in respect of any monies unpaid on the shares held by them respectively (whether on account of the nominal value of the shares or by way of premium). A call may be made payable either in one lump sum or by installments. If the sum payable in respect of any call or instalment is not paid on or before the day appointed for payment thereof, the person or persons from whom the sum is due shall pay interest on the same at such rate not exceeding 20 per cent. per annum as the board may agree to accept from the day appointed for the payment thereof to the time of actual payment, but the board may waive payment of such interest wholly or in part. The board may, if it thinks fit, receive from any member willing to advance the same, either in money or money’s worth, all or any part of the monies uncalled and unpaid or installments payable upon any shares held by him, and upon all or any of the monies so advanced the Company may pay interest at such rate (if any) as the board may decide.

If a member fails to pay any call on the day appointed for payment thereof, the board may serve not less than 14 clear days’ notice on him requiring payment of so much of the call as is unpaid, together with any interest which may have accrued and which may still accrue up to the date of actual payment and stating that, in the event of non-payment at or before the time appointed, the shares in respect of which the call was made will be liable to be forfeited.

If the requirements of any such notice are not complied with, any share in respect of which the notice has been given may at any time thereafter, before the payment required by the notice has been made, be forfeited by a resolution of the board to that effect. Such forfeiture will include all dividends and bonuses declared in respect of the forfeited share and not actually paid before the forfeiture.

A person whose shares have been forfeited shall cease to be a member in respect of the forfeited shares but shall, notwithstanding, remain liable to pay to the Company all monies which, at the date of forfeiture, were payable by him to the Company in respect of the shares, together with (if the board shall in its discretion so require) interest thereon from the date of forfeiture until the date of actual payment at such rate not exceeding 20 per cent. per annum as the board determines.

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(p) Inspection of register of members

Pursuant to the Articles the register and branch register of members shall be open to inspection for at least two (2) hours on every business day by members without charge, or by any other person upon a maximum payment of HK$2.50 dollars or such lesser sum as may be specified by the board, at the registered office or such other place in the Cayman Islands at which the register is kept in accordance with the Companies Law or, upon a maximum payment of HK$1.00 or such lesser sum as may be specified by the board, at the Registration Office (as defined in the Articles), unless the register is closed in accordance with the Articles.

(q) 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 of a chairman.

Save as otherwise provided by the Articles the quorum for a general meeting shall be two members present in person (or, in the case of a member being a corporation, by its duly authorised representative) or by proxy and entitled to vote. In respect of a separate class meeting (other than an adjourned meeting) convened to sanction the modification of class rights the necessary quorum shall be two persons holding or representing by proxy not less than one-third in nominal value of the issued shares of that class.

A corporation being a member shall be deemed for the purpose of the Articles 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 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.

(r) Rights of the minorities in relation to fraud or oppression

There are no provisions in the Articles relating to rights of minority shareholders in relation to fraud or oppression. However, certain remedies are available to shareholders of the Company under Cayman law, as summarised in paragraph 3(f) of this Appendix.

(s) Procedures on liquidation

A resolution that the Company be wound up by the court or be wound up voluntarily shall be a special resolution.

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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.

If the Company shall be wound up (whether the liquidation is voluntary or by the court) the liquidator may, with the authority of a special resolution and any other sanction required by the Companies Law divide among the members in specie or kind the whole or any part of the assets of the Company whether the assets shall consist of property of one kind or shall consist of properties of different kinds and the liquidator may, for such purpose, set such value as he deems fair upon any one or more class or classes of property to be divided as aforesaid and may determine how such division shall be carried out as between the members or different classes of members. The liquidator may, with the like authority, vest any part of the assets in trustees upon such trusts for the benefit of members as the liquidator, with the like authority, shall think fit, but so that no contributory shall be compelled to accept any shares or other property in respect of which there is a liability.

(t) Untraceable members

Pursuant to the Articles, the Company may sell any of the shares of a member who is untraceable if (i) all cheques or warrants (being not less than three in total number) for any sum payable in cash to the holder of such shares have remained uncashed for a period of 12 years; (ii) upon the expiry of the 12 year period, the Company has not during that time received any indication of the existence of the member; and (iii) the Company has caused an advertisement to be published in accordance with the rules of the Designated Stock Exchange (as defined in the Articles) giving notice of its intention to sell such shares and a period of three months, or such shorter period as may be permitted by the Designated Stock Exchange (as defined in the Articles), has elapsed since such advertisement and the Designated Stock Exchange (as defined in the Articles) 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 of the Company for an amount equal to such net proceeds.

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(u) Subscription rights reserve

The Articles provide that to the extent that it is not prohibited by and is in compliance with the Companies Law, if warrants to subscribe for shares have been issued by the Company and the Company does any act or engages in any transaction which would result in the subscription price of such warrants being reduced below the par value of a share, a subscription rights reserve shall be established and applied in paying up the difference between the subscription price and the par value of a share on any exercise of the warrants.

3. CAYMAN ISLANDS COMPANY LAW

The Company is incorporated in the Cayman Islands subject to the Companies Law and, therefore, operates subject to Cayman law. Set out below is a summary of certain provisions of Cayman company law, although this does not purport to contain all applicable qualifications and exceptions or to be a complete review of all matters of Cayman company law and taxation, which may differ from equivalent provisions in jurisdictions with which interested parties may be more familiar:

(a) Operations

As an exempted company, the Company’s 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 amount of its authorised share capital.

(b) Share capital

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 or value of the premiums on those shares shall be transferred to an account, to be called the “share premium account”. At the option of a company, these provisions may not apply to premiums or 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 the company subject to the provisions, if any, of its memorandum and articles of association in (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; (c) in the redemption and repurchase of shares (subject to the provisions of section 37 of the Companies Law); (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.

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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 business.

The Companies Law provides that, subject to confirmation by the court, 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.

The Articles includes certain protections for holders of special classes of shares, requiring their consent to be obtained before their rights may be varied. The consent of the specified proportions of the holders of the issued shares of that class or the sanction of a resolution passed at a separate meeting of the holders of those shares is required.

Subject to all applicable laws, the Company may give financial assistance to Directors and employees of the Company, its subsidiaries, its holding company or any subsidiary of such holding company in order that they may buy Shares in the Company or shares in any 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).

There is no statutory restriction in the Cayman Islands on the provision of financial assistance by a company to another person 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 acting 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) Purchase of shares and warrants by a company and its subsidiaries

Subject to the 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 or

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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 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.

A company is not prohibited from purchasing and may purchase its own warrants subject to and in accordance with the terms and conditions of the relevant warrant instrument or certificate. There is no requirement under Cayman Islands law that a company’s memorandum or articles of association contain a specific provision enabling such purchases and the directors of a company may rely upon the general power contained in its memorandum of association to buy and sell and deal in personal property of all kinds.

Under Cayman Islands law, a subsidiary may hold shares in its holding company and, in certain circumstances, may acquire such shares.

(e) 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, 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 paragraph 2(m), above for further details).

(f) Protection of minorities

The Cayman Islands courts ordinarily would be expected to follow English case law precedents which permit a minority shareholder to commence a representative 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 and the wrongdoers are themselves in control of the company, and (c) an irregularity in the passing of a resolution which requires a qualified (or special) majority.

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In the case of a company (not being a bank) having a share capital divided into shares, the court 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 court shall direct.

Any shareholder of a company may petition the court 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.

Generally claims against a company by its shareholders must 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.

(g) Management

The Companies Law contains no specific restrictions on the power of directors to dispose of assets of a company. However, as a matter of general law, every officer of a company, which includes a director, managing director and secretary, in exercising his powers and discharging his duties must do so honestly and in good faith with a view to the best interests of the company and exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.

(h) Accounting and auditing requirements

A company shall cause proper records of accounts to be kept with respect to (i) all sums of money received and expended by the company and the matters in respect of which the receipt and expenditure takes place; (ii) all sales and purchases of goods by the company and (iii) the assets and liabilities of the company.

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) Exchange control

There are no exchange control regulations or currency restrictions in the Cayman Islands.

– 254 – APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

(j) Taxation

Pursuant to section 6 of the Tax Concessions Law (1999 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) that the aforesaid tax or any tax in the nature of estate duty or inheritance tax shall not be payable on the shares, debentures or other obligations of the Company.

The undertaking to the Company is for a period of twenty years from 4th December, 2001.

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.

(k) 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.

(l) Loans to directors

There is no express provision in the Companies Law prohibiting the making of loans by a company to any of its directors.

(m) Inspection of corporate records

Members of the 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.

– 255 – APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

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 the 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.

(n) Winding up

A company may be wound up by either an order of the court or by a special resolution of its members. The court also has authority to order winding up in a number of specified circumstances including where it is, in the opinion of the court, just and equitable that such company be wound up.

A company may be wound up voluntarily when the members so resolve in general meeting by special resolution, or, in the case of a limited duration company, when the period fixed for the duration of the company by its memorandum expires, or the event occurs on the occurrence of which the memorandum provides that the company is to be dissolved. In the case of a voluntary winding up, such company is obliged to cease to carry on its business from the time of passing the resolution for voluntary winding up or upon the expiry of the period or the occurrence of the event referred to above. Upon the appointment of a liquidator, the responsibility for the company’s affairs rests entirely in his hands and no future executive action may be carried out without his approval.

A company is placed in liquidation either by an order of the court or by a special 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), 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 (shareholders) and divide the surplus assets (if any) amongst them in accordance with the rights attaching to the shares.

In the case of a members’ voluntary winding up of a company, the company in general meeting must appoint one or more liquidators for the purpose of winding up the affairs of the company and distributing its assets.

As soon as the affairs of the company are fully wound up, the liquidator must make up an account of the winding up, showing how the winding up has been conducted and the property of the company has been disposed of, and thereupon call a general meeting of the company for the purposes of laying before it the account and giving an explanation

– 256 – APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

thereof. This final general meeting shall be called by Public Notice or otherwise as the Registrar of Companies may direct.

For the purpose of conducting the proceedings in winding up a company and assisting the Court, there may be appointed one or more than one person to be called an official liquidator or official liquidator; and the Court may appoint to such office such person or persons, either provisionally or otherwise, as it thinks fit, and if more persons than one are appointed to such office, the Court shall declare whether any act hereby required or authorised to be done by the official liquidator is to be done by all or any one or more of such persons. The Court may also determine whether any and what security is to be given by an official liquidator on his appointment; if no official liquidator is appointed, or during any vacancy in such office, all the property of the company shall be in the custody of the Court.

(o) Reconstructions

There are statutory provisions which facilitate reconstructions and amalgamations approved by a majority in number representing 75 per cent. 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 Courts. Whilst a dissenting shareholder would have the right to express to the Court his view that the transaction for which approval is sought would not provide the shareholders with a fair value for their shares, the Courts are 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 their shares) ordinarily available, for example, to dissenting shareholders of a United States corporation.

(p) 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 per cent. 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 Court of the Cayman Island within one month of the notice objecting to the transfer. The burden is on the dissenting shareholder to show that the 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.

– 257 – APPENDIX IV SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW

(q) 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 court to be contrary to public policy (e.g. for purporting to provide indemnification against the consequences of committing a crime).

4. GENERAL

Conyers Dill & Pearman, Cayman, the Company’s special legal counsel on Cayman Islands law, have sent to the Company a letter of advice summarising certain 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 paragraph headed “Documents available for inspection” in Appendix VI. 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 is more familiar is recommended to seek independent legal advice.

– 258 – APPENDIX V STATUTORY AND GENERAL INFORMATION

FURTHER INFORMATION ABOUT THE COMPANY AND ITS SUBSIDIARIES

1. Incorporation of the Company

The Company was incorporated on 16th November, 2001 in the Cayman Islands under the Companies Law as an exempted company with limited liability. The Company has established a place of business in Hong Kong at 25/F, 663 King’s Road, North Point, Hong Kong and was registered on 18th December, 2001 as an overseas company under Part XI of the Companies Ordinance. In connection with such application, Mr. Poon Shu Yan, Joseph and Mr. Tam Chi Keung, have been appointed as the authorised representatives of the Company for the acceptance of service of process and notices on behalf of the Company in Hong Kong. As the Company is incorporated in the Cayman Islands, it operates subject to the Companies Law and to its constitution which comprises a memorandum and articles of association. A summary of various parts of its constitution and relevant aspects of the Companies Law is set out in Appendix IV to this prospectus.

2. Changes in share capital of the Company

(a) As at the date of incorporation of the Company, its initial authorised share capital was HK$390,000 divided into 39,000,000 shares with a nominal value of HK$0.01 each. On 3rd December, 2001, one subscriber share was allotted and issued for cash at par to Codan Trust Company (Cayman) Limited and was subsequently transferred to SAR1 on the same date.

(b) On 12th December, 2001, 9 shares in the Company of HK$0.01 each were allotted and issued for cash at par to SAR1.

(i) every 10 shares in the Company of HK$0.01 each were consolidated into 1 share of HK$0.10; and

(ii) the authorised share capital of the Company was increased from HK$390,000 divided into 3,900,000 shares to HK$600,000,000 divided into 6,000,000,000 shares of HK$0.10 each by the creation of an additional 5,996,100,000 shares.

(d) On 18th December, 2001, the Company allotted and issued 1 share with a par value of HK$0.10 to SAR1, credited as fully paid as consideration for the acquisition of the entire issued capital of each of

(i) Pacific Digitals (HK) Limited;

(ii) Net2Voice (Hong Kong);

– 259 – APPENDIX V STATUTORY AND GENERAL INFORMATION

(iii) Network Engineering Limited; and

(iv) Unifine.

There were altogether 4 shares of HK$0.10 each allotted and issued to SAR1.

(e) Pursuant to the written resolutions passed by SAR1, the then sole shareholder of the Company, dated 18th January, 2002, each of the issued and unissued shares of HK$0.10 each in the share capital of the Company was sub-divided into 10 Shares and the authorised share capital of the Company thus became HK$600,000,000 divided into 60,000,000,000 Shares.

(f) Pursuant to the written resolutions passed by SAR1, the then sole shareholder of the Company, dated 22nd July, 2002, the Directors were authorised at the direction of SAR1 to allot and issue, credited as fully paid, a total of 369,146,182 Shares, as to such number of Shares set against the name of each of the following persons and companies as capitalisation of the amount of HK$32,362,165 due and payable by the Company to SAR1:–

Name Number of Shares

Amazing Nova Corporation 167,886,666

Matrix Worldwide Corporation 61,606,666

Forever Triumph Limited 53,208,146

Bright Progress Holdings Limited 4,233,333

Supreme Lucky Ltd. 11,100,000

Hong Kong University of Science and Technology R and D Corporation Limited 9,966,667

Sheikh Ali Khalifa Athbi Al Sabah 13,645,254

Bahrain Middle East Bank (E.C.) 28,729,812

Arabian Gulf Investments Overseas Limited 18,269,638

Sir Chung Sze Yuen 500,000

Total: 369,146,182

– 260 – APPENDIX V STATUTORY AND GENERAL INFORMATION

Assuming that the Share Offer becomes unconditional and the issue of the Offer Shares is completed but taking no account of any Shares which may be issued pursuant to the Over- allotment Option and the exercise of options granted or to be granted under the Pre-IPO Share Option Scheme or the Post-IPO Share Option Scheme, immediately afterwards the authorised share capital of the Company will be HK$600,000,000 divided into 60,000,000,000 Shares and the issued share capital of the Company will be HK$4,921,962 divided into 492,196,232 Shares fully paid or credited as fully paid, with 59,507,803,768 Shares remaining unissued. Other than pursuant to the exercise of any options which may be granted under the Over-allotment Option, Pre-IPO Share Option Scheme and the Post-IPO Share Option Scheme as described in this Appendix, and save as otherwise disclosed herein, there is 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 to the knowledge of the Directors 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.

3. Written resolutions of the sole shareholder dated 22nd July, 2002

On 22nd July, 2002 written resolutions were passed by SAR1, the then sole shareholder of the Company, pursuant to which, inter alia:

(a) conditional on (i) the GEM Listing Committee granting the listing of and permission to deal in the Shares in issue and to be issued, as mentioned in this prospectus (including any Shares which may be made available pursuant to the exercise of the Over-allotment Option, options granted pursuant to the Pre-IPO Share Option Scheme and the Post-IPO Share Option Scheme) and (ii) the obligations of Kingsway SW Securities and the Underwriters under the Underwriting Agreement becoming unconditional (including, if relevant, as a result of the waiver of any condition(s) by Kingsway SW Securities on behalf of the Underwriters) and not being terminated in accordance with the terms of that agreement or otherwise, in each case on or before 14th August, 2002 (or such later date as Kingsway SW Securities may agree) (the “Conditions”):–

(i) the Share Offer, subject to the Over-allotment Option, as such price per Share as shall be determined by the Directors and subject to the terms and conditions stated in this prospectus were approved and the Directors were authorised to allot and issue such new Shares pursuant thereto and such new Shares which may be required to be issued if the Over-allotment Option is exercised; and

(ii) conditional on the Stock Exchange granting approval of the listing of, and permission to deal in, any Shares which may fall to be issued pursuant to the

– 261 – APPENDIX V STATUTORY AND GENERAL INFORMATION

exercise of any such option under the Pre-IPO Share Option Scheme, the rules of the Pre-IPO Share Option Scheme for employees, directors, advisers and consultants of, and person having contributed to, the Company and its subsidiaries were approved and adopted by the Company, and the Directors were authorised, at their absolute discretion, to grant options to subscribe for Shares thereunder and to allot, issue and deal with the Shares pursuant to the exercise of subscription rights under any options which may be granted under the Pre- IPO Share Option Scheme and to take all such steps as they consider necessary or desirable to implement the Pre-IPO Share Option Scheme; and

(iii) conditional on the Stock Exchange granting approval of the Post-IPO Share Option Scheme, granting of any options thereunder and granting of the listing of, and permission to deal in, any Shares which may fall to be issued pursuant to the exercise of any such option under the Post-IPO Share Option Scheme, the rules of the Post-IPO Share Option Scheme for employees, directors, advisers and consultants of, and person having contributed to, the Company and its subsidiaries were approved and adopted by the Company, and the Directors were authorised, at their absolute discretion, to grant options to subscribe for Shares thereunder and to allot, issue and deal with the Shares pursuant to the exercise of subscription rights under any options which may be granted under the Post- IPO Share Option Scheme and to take all such steps as they consider necessary or desirable to implement the Post-IPO Share Option Scheme.

(b) (i) subject to paragraph (b)(ii) below, the exercise by the Directors during the period from the passing of the resolution until whichever is the earliest of:-

(1) the conclusion of the next annual general meeting of the Company;

(2) the revocation, variation or renewal of the authority given under this paragraph (b) by ordinary resolution of the shareholders in general meeting; and

(3) the expiration of the period within which the next annual general meeting of the Company is required by the articles of association of the Company or any applicable law of the Cayman Islands to be held

(the “Relevant Period”) of all the powers of the Company to allot, issue and deal with additional shares in the share capital of the Company or securities convertible into such shares or options, agreements or other rights to subscribe for such shares and to make or grant offers, agreements and options which might require the exercise of such power either during or after the Relevant Period, was generally and unconditionally approved;

– 262 – APPENDIX V STATUTORY AND GENERAL INFORMATION

(ii) the aggregate nominal amount of the share capital allotted or agreed conditionally or unconditionally to be allotted (whether pursuant to an option or otherwise) by the Directors pursuant to the approval in paragraph (b)(i) above, otherwise than pursuant to an offer of shares in the capital of the Company open for a period fixed by the Directors to holders of shares in the capital of the Company whose names appear on the register of members of the Company on a fixed record date in proportion to their holdings of such shares (subject to such exclusions or other arrangements as the Directors may deem necessary or expedient in relation to fractional entitlements or having regard to any restrictions or obligations under the laws of, or the requirements of, any recognized regulatory body or any stock exchange in any territory applicable to the Company) or pursuant to the exercise of any options which may be granted under the Pre-IPO Share Option Scheme and the Post-IPO Share Option Scheme or any other option scheme or similar arrangement for the time being adopted for the grant or issue to officers and/or employees of the Company of Shares or rights to acquire Shares or pursuant to scrip dividend schemes or similar arrangements providing for the allotment and issue of Shares in lieu of the whole or part of a dividend on Shares in accordance with the articles of association of the Company or a specific authority granted by the shareholders of the Company in general meeting, should not exceed 20 per cent of the aggregate of (i) the total nominal amount of the share capital of the Company in issue immediately following completion of the Share Offer and (ii) the total nominal amount of share capital of the Company which may be issued pursuant to the Over-allotment Option.

(c) (i) subject to paragraph (c)(ii) below, the exercise by the Directors during the Relevant Period (as defined above in paragraph (b) except that reference to paragraph (b) therein shall mean paragraph (c)) of all the powers of the Company to purchase Shares on GEM, or on any other stock exchange on which the securities of the Company may be listed and which is recognized by the Securities and Futures Commission of Hong Kong and the Stock Exchange for such purpose, subject to and in accordance with all applicable laws and the requirements of the GEM Listing Rules or of any other stock exchange as amended from time to time, was generally and unconditionally approved;

(ii) the aggregate nominal amount of share capital to be repurchased by the Company pursuant to the approval in paragraph (c)(i) above shall not exceed 10 per cent of the aggregate of (i) the total nominal amount of the share capital of the Company in issue immediately following completion of the Share Offer and (ii) the total nominal amount of share capital of the Company which may be issued pursuant to the Over-allotment Option.

– 263 – APPENDIX V STATUTORY AND GENERAL INFORMATION

(d) the aggregate nominal amount of the share capital of the Company purchased by the Company after the date hereof under the authority granted to the Directors pursuant to paragraph (c) above shall be added to the aggregate nominal amount of the share capital of the Company which may be allotted or agreed conditionally or unconditionally to be allotted by the Directors pursuant to paragraph (b) above, provided that such extended amount shall not exceed 10 per cent of the aggregate of (i) the total nominal amount of the share capital of the Company in issue immediately following completion of the Share Offer and (ii) the total nominal amount of share capital of the Company which may be issued pursuant to the Over- allotment Option.

(e) subject to the fulfilment of the Conditions, the new articles of association of the Company signed by a Director as approved at a board meeting held earlier on that day were adopted as the new articles of association of the Company in substitution for and to the exclusion of the then existing articles of association of the Company.

(f) “慧㶴集團有限公司” was approved and adopted as the name in Chinese of the Company for identification purpose.

(g) pursuant to the terms of a share subscription agreement dated 22nd July, 2002 entered into between SAR1 and the Company (the “Agreement”) whereby the Company agreed to, inter alia, capitalise an amount of HK$32,362,165 due and payable by the Company to SAR1 by the allotment and issue by the Company of an aggregate of 369,146,182 new Shares (the “Consideration Shares”) at the direction of SAR1 to the shareholders of SAR1 as set out in paragraph (f) of the section headed “Corporate reorganization” in this Appendix (together the “Subscriber’s Shareholders”), the Agreement was approved and the Directors were authorised to allot and issue the Consideration Shares, credited as fully paid, to the Subscriber’s Shareholders as aforesaid, as capitalisation of the amount of HK$32,362,165 due and payable by the Company to SAR1.

4. Corporate reorganization

The companies comprising the Group underwent a reorganization to rationalize the Group’s structure in preparation for the proposed Listing of the Shares on GEM. As a result, the Company became the ultimate holding company of the Group. The reorganization involved the following:

(a) On 3rd December, 2001, Pacific Digitals (HK) Limited acquired from eCyberPay.com Limited the eCyerPay micro-payment system and related intellectual property rights for a cash consideration of HK$1.00.

– 264 – APPENDIX V STATUTORY AND GENERAL INFORMATION

(b) On 14th December, 2001, SAR1 acquired from Optimum Cyber Limited the entire issued share capital of RadioRepublic.com Limited for a cash consideration of HK$1.00.

(c) On 18th December, 2001, the Company allotted and issued 1 share with a par value of HK$0.10 to SAR1, credited as fully paid as consideration for the acquisition of the entire issued capital of each of

(i) Pacific Digitals (HK) Limited;

(ii) Net2Voice (Hong Kong);

(iii) Network Engineering Limited; and

(iv) Unifine.

Altogether 4 such shares of HK$0.10 each in the Company were allotted and issued to SAR1.

(d) On 18th December, 2001, SAR1 novated to the Group its accounts payable to Bright World. The accounts payable represent advances made by Bright World to SAR1, which were in return loaned to the Group by SAR1 to finance the Group’s operations.

(e) On 31st December, 2001, the Group acquired fixed assets consisting of leasehold improvement, furniture and texture, equipment and computer and software from RadioRepublic.com Limited, Grandworld Technology Limited, SAR1 (HK) and eCyerPay.com Limited which are wholly-owned subsidiaries of SAR1 at an aggregate net book value of HK$6,289,398. The consideration was left as an outstanding debt due and payable by the Company to SAR1.

(f) On 22nd July, 2002, the Company allotted and issued, credited as fully paid, a total of 369,146,182 Shares, as to such number of Shares set against the name of each of the following persons and companies at the direction of SAR1 as capitalisation of the

– 265 – APPENDIX V STATUTORY AND GENERAL INFORMATION

amount of HK$32,362,165 due and payable by the Company to SAR1, including the amount of HK$6,289,398 mentioned under paragraph (e) above:–

Name Number of Shares

Amazing Nova Corporation 167,886,666

Matrix Worldwide Corporation 61,606,666

Forever Triumph Limited 53,208,146

Bahrain Middle East Bank (E.C.) 28,729,812

Arabian Gulf Investments Overseas Ltd. 18,269,638

Sheikh Ali Khalifa Athbi Al Sabah 13,645,254

Supreme Lucky Ltd. 11,100,000

Hong Kong University of Science and Technology R and D Corporation Limited 9,966,667

Bright Progress Holdings Limited 4,233,333

Sir Chung Sze Yuen 500,000

Total: 369,146,182

(g) On 22nd July, 2002, Forever Triumph Limited acquired 50 Shares from SAR1 for a cash consideration of HK$1.00.

– 266 – APPENDIX V STATUTORY AND GENERAL INFORMATION

5. Property interests of the Group

(a) Intellectual property

As at the Latest Practicable Date, the Group had applied for registration of the following service marks:

(i) Trademark registrations

Appli- Application date Place of cation Application (pending Mark application class number registration)

(a) Hong Kong 42 02081/2002 15 February 2002 (Note 1)

(b)

(a) Hong Kong 42 02080/2002 15 February 2002 (Note 1)

(b)

PRC 42 3139946 8 April 2002 (Note 2)

PRC 42 3134709 3 April 2002 (Note 2)

Notes:

1. Class 42 in Hong Kong covers, among other services, services relating to scientific and industrial research or computer programming or services that cannot be placed in other classes.

2. Class 42 in the PRC covers, among other services, services relating to scientific and technological services and research and design relating thereto, industrial analysis and research services or design and development of computer hardware and software.

– 267 – APPENDIX V STATUTORY AND GENERAL INFORMATION

(ii) Domain name registrations

At the Latest Practicable Date, the Company is the registered holder of the domain names specified below:–

Domain Name Date of Registration/Transfer

www.vctg.com 9 January 2002 www.mmchina.com 18 January 2002 www.radiorepublic.com 18 January 2002 www.mmnewsweek.com 9 January 2002 www.pacificdigitals.com 30 June 2002 www.net2voice.com.hk 18 May 2002 www.newsweekhk.com 9 January 2002 www.newsweekcn.com 9 January 2002 www.mmtaiwan.com 18 January 2002

(b) Property Interests

Save for the three tenancy agreements referred to in the report of Sallmanns (Far East) Limited, a copy of which is set out in Appendix III to this prospectus, which have no capital value, the Group has no property interests. The report of Sallmanns (Far East) Limited, which contains particulars of the three tenancy agreements, is one of the documents available for inspection as referred to in Appendix VI to this prospectus.

6. Changes in the share capital of subsidiaries

The Company’s principal 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 mentioned in the section headed “Corporate reorganization” in this Appendix, the following alterations in the share capital of the Company’s subsidiaries have taken place within the two years preceding the date of this prospectus:

(a) On 1st March, 2000, 2 subscriber shares of HK$1.00 each in Net2Voice (Hong Kong) were allotted and issued for cash at par to Bright World and Mr. Poon as to one share each. The 1 subscriber share held by Bright World was subsequently transferred to Legend Day Limited (now known as Pacific Digitals Holdings Limited) on 25th May, 2000.

(b) On 25th May, 2000, 1 subscriber share of US$1.00 each in Unifine was allotted and issued for cash at par to Lucky Pacific Ltd.

– 268 – APPENDIX V STATUTORY AND GENERAL INFORMATION

(c) On 21st July, 2000, 2 subscriber shares of HK$1.00 each in Pacific Digitals (HK) Limited were transferred from the third party subscribers to Pacific Digitals Limited (now known as Pacific Hermes Telecommunications Limited) and Mr. Poon (in trust for Pacific Digitals Limited) as to one share each for a cash consideration of HK$1.00. The 1 share held by Pacific Digitals Limited and the beneficial interest in the 1 share held by Mr. Poon in trust for Pacific Digitals Limited were transferred to Legend Day Limited (now known as Pacific Digitals Holdings Limited) on 2nd August, 2001.

(d) On 3rd November, 2000, 1 subscriber share of US$1.00 each in Optimum Cyber was allotted and issued for cash at par to Lucky Pacific Ltd.. The 1 subscriber share held by Lucky Pacific Ltd. was subsequently transferred to SAR1 on 2nd August, 2001.

(e) On 13th August, 2001, 2 subscriber shares of HK$1.00 each in SinoWorld Media were transferred from the third party subscribers to Bright World and Sino United Publishing as to one share each for a cash consideration of HK$1.00.

(f) On 16th August, 2001, 99,998 shares of HK$1.00 each in SinoWorld Media were allotted and issued for cash at par to Bright World and Sino United Publishing as to 49,999 shares each.

(g) On 18th October, 2001, 900,000 shares of HK$1.00 each in SinoWorld Media were allotted and issued for cash at par to Sino United Publishing and Unifine as to 440,000 shares and 460,000 shares respectively.

(h) On 13th November, 2001, 2 subscriber shares of HK$1.00 each in SinoWorld CNW were transferred from the third party subscribers to SinoWorld Media and Sheikh Ali Khalifa Athbi Al Sabah as to one share each for a cash consideration of HK$1.00.

(i) On 19th November, 2001, 999,998 shares of HK$1.00 each in SinoWorld CNW were allotted and issued for cash at par to SinoWorld Media and Sheikh Ali Khalifa Athbi Al Sabah as to 799,999 and 199,999 shares respectively.

(j) On 4th February, 2002, the authorised share capital of Optimum Cyber was increased from US$50,000 to US$500,000 by the creation of 450,000 shares of US$1.00 each and 157,843 shares of US$1.00 each in Optimum Cyber were allotted and issued for cash at par to SAR1.

– 269 – APPENDIX V STATUTORY AND GENERAL INFORMATION

7. Information about the Group’s principal PRC enterprise

On 13th November, 2001, Shanghai WFOE was established by Optimum Cyber as a wholly foreign-owned enterprise in the PRC, further particulars of which are as follows:–

Registered capital: US$140,000 Total investment amount: US$200,000 Attributable interest of the Company: 100% Term of business operation: 30 years from date of establishment

8. Repurchase by the Company of its own securities

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:

(a) Shareholders’ approval

All repurchases of securities on GEM by a company with its primary listing on GEM must be approved in advance by an ordinary resolution, either by way of general mandate or by specific approval in relation to specific transactions.

Note: Pursuant to a written resolution of the sole Shareholder dated 22nd July, 2002, a general unconditional mandate (the “Buyback Mandate”) was given to the Directors authorising any repurchase by the Company of Shares on GEM or on any other stock exchange recognized by the Securities and Futures Commission in Hong Kong and the Stock Exchange of up to 10% of the aggregate of the total nominal value of the share capital of the Company in issue immediately after completion of the Share Offer (including Shares which may be issued pursuant to the exercise of the Over-allotment Option), and at any time until the conclusion of the next annual general meeting of the Company or the expiration of the period within which the next annual general meeting of the Company is required by the articles of association of the Company or applicable laws to be held or the passing of an ordinary resolution of Shareholders in general meeting revoking, varying or renewing such mandate, whichever occurs first.

(b) Exercise of the Buyback Mandate

Exercise in full of the Buyback Mandate, on the basis of 492,196,232 Shares in issue immediately after completion of the Share Offer and taking no account of the Shares which may be allotted pursuant to any share options in issue from time to time or the Over-allotment Option or otherwise issued by the Company could accordingly result in up to 49,219,623 Shares being repurchased by the Company during the period 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 of association of the Company or any applicable law to be held; or (iii) the revocation, variation or renewal of the Buyback Mandate by ordinary resolution of the shareholders of the Company in general meeting, whichever occurs first.

– 270 – APPENDIX V STATUTORY AND GENERAL INFORMATION

Repurchases of Shares will only be made when the Directors believe that such a repurchase will benefit the Company and its members. Such repurchases may, depending on market conditions and funding arrangements at the time, lead to an enhancement of the net asset value per Share of the Company and/or its earnings per Share.

(d) Source of funds

Any repurchases must be financed out of funds legally available for the purpose in accordance with the memorandum and articles of association of the Company and the applicable laws of the Cayman Islands. A listed company may not repurchase its own securities on GEM for a consideration other than cash or for settlement otherwise than in accordance with the trading rules of the Stock Exchange from time to time.

(e) General

There might be a material adverse impact on the working capital or gearing position of the Company (as compared with the position disclosed in this prospectus) in the event that the Buyback Mandate is exercised in full. However, the Directors do not propose to exercise the Buyback Mandate to such extent as would, in the circumstances, have a material adverse effect on the working capital requirements of the Company or on its gearing levels which in the opinion of the Directors are from time to time appropriate for the Company.

As at the Latest Practicable Date and to the best of the knowledge of the Directors, having made all reasonable enquiries, none of the Directors or their associates has a present intention to sell Shares to the Company.

The Directors have undertaken to the Stock Exchange that, so far as the same may be applicable, they will exercise the Buyback Mandate in accordance with the GEM Listing Rules, the memorandum and the articles of association of the Company and the applicable laws of the Cayman Islands.

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 Hong Kong Code on Takeovers and Mergers (the “Code”). As a result, a Shareholder, or a group of Shareholders acting in concert (as defined in the Code), depending on the level of increase in the Shareholder’s interests, could obtain or consolidate control of the Company and become obliged to make a mandatory offer in accordance with Rule 26 of the Code. Save as aforesaid, the Directors are not aware of any consequences under the Code as a result of a repurchase of securities made immediately after the listing of the Shares.

– 271 – APPENDIX V STATUTORY AND GENERAL INFORMATION

No repurchases of Shares have been made by the Company during the last six months (whether on GEM or otherwise).

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.

9. Summary of material contracts

The following contracts (not being contracts in the ordinary course of business) have been entered into by members of the Group within the two years preceding the date of this prospectus and are or may be material:

(a) a cooperation memorandum dated 1st October, 2000 between Shanghai Library and SAR1 for the digitization of Shanghai Library’s audio and video collections and their distribution through multimedia delivery platforms; a letter from SAR1 and the Company to Shanghai Library dated 18th May, 2002 and the reply thereto by Shanghai Library dated 4th June, 2002 whereby Shanghai Library consented to the assignment of the rights and obligations of SAR1 under such memorandum to the Company;

(b) a memorandum of understanding dated 9th July, 2001 between Sino United Publishing and Bright World for the formation of the joint venture company, SinoWorld Media for the development, operation, management and investment in modern media businesses and a letter of assignment dated 13th August, 2001 by Bright World to Unifine assigning the rights and obligations of Bright World under such memorandum to the Group;

(c) a shareholders agreement dated 20th October, 2001 between SAR1 and Net2Voice on the establishment and management of the joint venture company, Net2Voice (Hong Kong) for the development and operation of voice technologies business in the Asia Pacific and the PRC areas and a letter of assignment from SAR1 and the Company to Net2Voice accepted by Net2Voice on 5th February, 2002 whereby the rights and obligations of SAR1 under such agreement were assigned to the Company;

(d) a grant of licence dated 22nd October, 2001 between Newsweek Inc. and SinoWorld Media whereby Newsweek Inc. granted to SinoWorld Media a worldwide exclusive licence to reproduce, market and disseminate the Special Editions of Newsweek in Chinese language for a fee equivalent to certain percentage of the annual revenue of such Special Editions subject to an annual guaranteed amount of US$100,000;

– 272 – APPENDIX V STATUTORY AND GENERAL INFORMATION

(e) an assignment dated 3rd December, 2001 between eCyerPay.com Limited and Pacific Digitals (Hong Kong) Limited whereby eCyberPay.com Limited assigned to Pacific Digitals (Hong Kong) Limited its micro-payment system and related intellectual property rights for a cash consideration of HK$1.00;

(f) a cooperation agreement dated 19th December, 2001 between SIE and Shanghai WFOE, under the contractual arrangement with Shanghai Chuan Yi, an ICP in the PRC, for the delivery of contents through Shanghai Online II’s broadband network to its subscribers;

(g) a cooperation letter of intent dated 19th December, 2001 between Rui Cheng and Shanghai WFOE, under the contractual arrangement with Shanghai Chuan Yi, an ICP in the PRC, for the delivery of contents through Rui Cheng’s broadband network to its subscribers;

(h) a licence agreement dated 18th January, 2002 between the Company and Shanghai WFOE whereby Shanghai WFOE was granted a licence for the use of certain trade mark (as set out in the licence agreement) for the operation of MMChina free of charge;

(i) a licence agreement dated 18th January, 2002 between the Company and Shanghai WFOE whereby Shanghai WFOE was granted a licence for the use of the domain name mmchina.com free of charge;

(j) a licence agreement dated 8th May, 2002 between the Company and Shanghai WFOE whereby Shanghai WFOE was granted a licence for the use of certain contents as provided by the Company from time to time in MMChina free of charge;

(k) a licence agreement dated 18th January, 2002 (as supplemented by a supplemental agreement dated 8th May, 2002) between Shanghai WFOE and Shanghai Chuan Yi whereby Shanghai Chuan Yi was granted a non-exclusive and non-transferable sub- licence for the use of certain trade mark (as set out in the supplemental agreement) subject to payment of a royalty fee equivalent to 10% of Shanghai Chuan Yi’s total revenue;

(l) a licence agreement dated 18th January, 2002 (as supplemented by a supplemental agreement dated 8th May, 2002) between Shanghai WFOE and Shanghai Chuan Yi whereby Shanghai Chuan Yi was exclusively granted a non-transferable sub-licence for the use of the domain name mmchina.com subject to payment of a royalty fee equivalent to 20% of Shanghai Chuan Yi’s total revenue;

– 273 – APPENDIX V STATUTORY AND GENERAL INFORMATION

(m) a licence agreement dated 18th January, 2002 between Shanghai WFOE and Shanghai Chuan Yi whereby Shanghai Chuan Yi was granted a non-exclusive and non-transferable licence for the use of certain software, contents and database to be agreed between the parties, subject to payment of a royalty equivalent to 10% of Shanghai Chuan Yi’s total revenue;

(n) a licence agreement dated 8th May, 2002 between Shanghai WFOE and Shanghai Chuan Yi whereby Shanghai Chuan Yi was granted a non-exclusive and non- transferable licence for the use of certain contents and database (as set out in the licence agreement) subject to payment of a royalty equivalent to 10% of Shanghai Chuan Yi’s total revenue and a cancellation agreement dated 8th May, 2002 between Shanghai WFOE and Shanghai Chuan Yi whereby the licence agreement dated 18th January, 2002 mentioned in paragraph (m) above was cancelled and replaced with the licence agreement dated 8th May, 2002.

(o) a technical services agreement dated 18th January, 2002 between Shanghai WFOE and Shanghai Chuan Yi whereby Shanghai WFOE agreed to provide technical services to Shanghai Chuan Yi for a fee equivalent to 20% of Shanghai Chuan Yi’s total revenue;

(p) an assignment dated 22nd March, 2002 between Conestoga Limited and Randash Investment Limited as landlord, Grandworld Technology Limited as tenant and the Company as assignee whereby the rights and obligations of Grandworld Technology Limited under the tenancy agreement for the Group’s premises at 25th Floor, Office Block, MLC Millennia Plaza (formerly known as CEF Lend Lease Plaza), 663 King’s Road, North Point, Hong Kong were assigned to the Company;

(q) an instrument of transfer dated 2nd August, 2001 between Lucky Pacific Ltd. and Optimum Cyber Limited for the transfer of one share in Unifine to Optimum Cyber Limited for a cash consideration of US$1.00;

(r) an instrument of transfer dated 2nd August, 2001 between Meadville International Limited and Optimum Cyber Limited for the transfer of 14,999,999 shares in RadioRepublic.com Limited to Optimum Cyber Limited for a cash consideration of HK$1.00; sold and bought notes dated 2nd August, 2001 for the transfer of the beneficial interest in one share in RadioRepublic.com Limited from Meadville International Limited to Optimum Cyber Limited and a declaration of trust dated 2nd August, 2001 by Mr. Poon for one share in RadioRepublic.com Limited in favour of Optimum Cyber Limited for a cash consideration of HK$1.00;

– 274 – APPENDIX V STATUTORY AND GENERAL INFORMATION

(s) an instrument of transfer dated 2nd August, 2001 between Unifine and Legend Day Limited (now known as Pacific Digitals Holdings Limited) for the transfer of 2,699,999 shares in eCyberPay.com Limited to Legend Day Limited for a cash consideration of HK$1.00; sold and bought notes dated 2nd August, 2001 for the transfer of the beneficial interest in one share in eCyberPay.com Limited from Unifine to Legend Day Limited for a cash consideration of HK$1.00;

(t) an instrument of transfer dated 18th October, 2001 between Bright World and Unifine for the transfer of 50,000 shares in SinoWorld Media to Unifine for a cash consideration of HK$50,000;

(u) an instrument of transfer dated 11th December, 2001 between Pacific Digitals Holdings Limited and the Company for the transfer of one share in Pacific Digitals (HK) Limited to the Company; sold and bought notes dated 11th December, 2001 for the transfer of the beneficial interest in one share in Pacific Digitals (HK) Limited from Pacific Digitals Holdings Limited to the Company and a declaration of trust dated 11th December, 2001 by Mr. Poon for one share in Pacific Digitals (HK) Limited in favour of the Company in consideration of the allotment and issue of one share of HK$0.1 each in the capital of the Company as previously constituted;

(v) an instrument of transfer dated 11th December, 2001 between Pacific Digitals Holdings Limited and the Company for the transfer of one share in Net2Voice (Hong Kong) to the Company; sold and bought notes dated 11th December, 2001 for the transfer of the beneficial interest in one share in Net2Voice (Hong Kong) from Pacific Digitals Holdings Limited to the Company and a declaration of trust dated 11th December, 2001 by Mr. Poon for one share in Net2Voice (Hong Kong) in favour of the Company in consideration of the allotment and issue of one share of HK$0.1 each in the capital of the Company as previously constituted;

(w) an instrument of transfer dated 11th December, 2001 between Pacific Hermes Telecommunications Limited and the Company for the transfer of 999,999 shares in Network Engineering Limited to the Company; sold and bought notes dated 11th December, 2001 for the transfer of the beneficial interest in one share in Network Engineering Limited from Pacific Hermes Telecommunications Limited to the Company and a declaration of trust dated 11th December, 2001 by Mr. Poon for one share in Network Engineering Limited in favour of the Company in consideration of the allotment and issue of one share of HK$0.1 each in the capital of the Company as previously constituted;

– 275 – APPENDIX V STATUTORY AND GENERAL INFORMATION

(x) an instrument of transfer dated 10th December, 2001 between Optimum Cyber Limited and the Company for the transfer of one share in Unifine Limited to the Company in consideration of the allotment and issue of one share of HK$0.1 each in the capital of the Company as previously constituted;

(y) an instrument of transfer dated 5th February, 2002 (as supplemented by a deed of ratification dated 15th April, 2002) between SAR1 and the Company for the transfer of 157,844 shares in Optimum Cyber Limited to the Company for a cash consideration of HK$3,000,000;

(z) an instrument of transfer dated 11th December, 2001 between Optimum Cyber Limited and SAR1 for the transfer of 14,999,999 shares in RadioRepublic.com Limited to SAR1; sold and bought notes dated 11th December, 2001 for the transfer of the beneficial interest in one share in RadioRepublic.com Limited from Optimum Cyber Limited to SAR1 for a cash consideration of HK$1.00;

(aa) an instrument of transfer dated 25th March, 2002 between Unifine and Sino United Publishing for the transfer of 10,000 shares in SinoWorld Media to Sino United Publishing for a cash consideration of HK$10,000;

(bb) an instrument of transfer dated 11th April, 2002 between Sheikh Ali Khalifa Athbi Al Sabah and Forever Triumph Limited for the transfer of 100,000 shares in SinoWorld CNW to Forever Triumph Limited for a cash consideration of HK$10.00;

(cc) a deed of novation dated 18th December, 2001 between SAR1, the Company and Bright World for the transfer of a debt in the sum of HK$10,231,978 from SAR1 to the Company;

(dd) an asset transfer agreement dated 31st December, 2001 between the Company and its subsidiary Pacific Digital (HK) Limited and SAR1 and its subsidiaries, namely RadioRepublic.com Limited, Grandworld Technology Limited, SAR1 (HK) and eCyberPay.com Limited whereby Pacific Digitals (HK) Limited acquired certain fixed assets from such subsidiaries of SAR1 at an aggregate book value of HK$6,289,398;

(ee) a licence agreement dated 18th June, 2002 with effect from 1st January, 2002 between SAR1, RadioRepublic.com Limited and the Company whereby the Group was granted certain rights and licences for the use of certain software and multimedia contents in perpetuity;

– 276 – APPENDIX V STATUTORY AND GENERAL INFORMATION

(ff) a share subscription agreement dated 22nd July, 2002 between SAR1 and the Company whereby the Company allotted and issued, credited as fully paid, a total of 369,146,182 Shares to the persons and companies as set out in paragraph (f) of the section headed “Corporate reorganization” in this Appendix as consideration for the capitalisation of the amount due and payable by the Company to SAR1 of HK$32,362,165;

(gg) a deed of indemnity dated 29th July, 2002 executed by Amazing Nova Corporation, Matrix Worldwide Corporation, Forever Triumph Limited and Dr. Poon in favour of the Group containing the indemnities in respect of taxation referred to in the paragraph headed “Estate duty and tax indemnity” in this Appendix and the possible claim referred to in the paragraph headed “Litigation” in this Appendix;

(hh) a deed of non-competition dated 22nd July, 2002 executed by SAR1 in favour of the Company whereby SAR1 undertakes that neither SAR1 nor any of its associated companies shall compete, directly or indirectly, with the business of the Group in any location where such business is carried on;

(ii) the Underwriting Agreement; and

(jj) a sponsor’s agreement dated 29th July, 2002 referred to the section headed “Sponsor’s interest” in this Appendix.

FURTHER INFORMATION ABOUT DIRECTORS, MANAGEMENT AND STAFF

10. Directors

I) Disclosure of interests

(a) Immediately following completion of the Share Offer and taking no account of Shares which may be taken up under the Share Offer (assuming no exercise of the Over-allotment Option and any options granted or to be granted under the Pre-IPO Share Option Scheme and the Post-IPO Share Option Scheme), the beneficial interests of the Directors in the then issued share capital 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 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 will be required, pursuant to section 29 of the SDI Ordinance, to be entered in the register required to be kept therein once the Shares are listed, or will be required pursuant to rules 5.40 to 5.59 of the GEM Listing Rules relating to securities

– 277 – APPENDIX V STATUTORY AND GENERAL INFORMATION

transactions by directors to be notified to the Company and the Stock Exchange once the Shares are listed will be as follows:

Number of % of options Shares held granted over the as at the issued share Listing Date Number capital as at the assuming of Shares Listing Date the Over- % of to be issued assuming the Over- Nature of allotment Option shareholding in upon exercise allotment Option Directors Notes Interest is not exercised the Company of options is not exercised

Dr. Poon 1 Corporate 282,701,528 57.44 8,334,000 1.693 and family Mr. Poon 2 Corporate 16,788,667 3.41 8,000,000 1.625 Dr. Lee Peng Fei Allen 3 Corporate 11,100,000 2.26 Nil Nil and family Mr. Lee Shu Fan Personal Nil Nil 2,767,000 0.562 Mr. Tam Chi Keung Personal Nil Nil 1,334,000 0.271 Ms. Au Yeung Pui Shan Personal Nil Nil 667,000 0.135 Karen

Notes:

1. Dr. Poon and his spouse, Mrs. Poon Wong Wai Ping, are entitled to exercise or control the exercise of one-third or more of the voting rights of Amazing Nova Corporation. Dr Poon is deemed, by virtue of the SDI Ordinance, to be interested in the same 167,886,666 Shares held by Amazing Nova Corporation.

2. Mr. Poon is an executive Director and one of the founders of the Group. As a result of his 10% interest in Amazing Nova Corporation, Mr. Poon is regarded as an Initial Management Shareholder and effectively holds 3.41% interest in the Company.

3. Supreme Lucky Ltd is wholly and beneficially owned by Dr. Lee Peng Fei Allen and Ms. Choi Yuen Ha Maria. Ms. Choi Yuen Ha Maria is the spouse of Dr. Lee Peng Fei Allen. Dr. Lee Peng Fei Allen is deemed, by virtue of the SDI Ordinance, to be interested in the same 11,100,000 Shares held by Supreme Lucky Ltd.

– 278 – APPENDIX V STATUTORY AND GENERAL INFORMATION

Save for the above corporate and family interests held by Dr. Poon, Mr. Poon and Dr. Lee Peng Fei Allen in the Company, none of them has any family and/or personal interest in the Company.

(b) Save as disclosed herein but taking no account of any Shares which may be issued pursuant to the Over-allotment Option and the exercise of options granted or to be granted under the Pre-IPO Share Option Scheme or the Post- IPO Share Option Scheme, the Directors are not aware of any person who will immediately following completion of the Share Offer be directly or indirectly interested in 10% or more of the Share then in issue or equity interest in any member of the Group representing 10% or more of the equity in such company.

II) Particulars of service agreement

Each of Dr. Poon, Mr. Poon, Mr. Lee Shu Fan, Mr. Tam Chi Keung and Ms. Au Yeung Pui Shan, Karen, being an executive Director, has entered into a service agreement with the Company. Particulars of these contracts, are in all material respects identical except as indicated, and are set out below:

(a) the term of each service agreement will be 3 years less one day commencing from and including 15th August, 2002, subject to early termination pursuant to such service agreement including either the Company or the relevant executive Director giving to the other party not less than 3 months’ notice of termination or payment in lieu of notice;

(b) under the present arrangement, the aggregate of the executive Directors’ fees and remuneration paid or payable to, and benefit in kind received or receivable by, the executive Directors from 15th August, 2002 to 31st December, 2002 are estimated to be approximately HK$1,730,000; and

(c) the same terms as set out in each service agreement will apply to any renewed term of appointment, save as to remuneration, the applicable amount of which shall be such as may be prevailing in the year immediately preceding the commencement of such renewed term.

Save as disclosed, none of the Directors has entered into any written service agreement 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).

– 279 – APPENDIX V STATUTORY AND GENERAL INFORMATION

III) Directors’ remuneration

(a) The Company’s policies concerning remuneration of executive Directors are:

(i) the amount of remuneration is determined on the basis of the relevant Director’s experience, responsibility, workload and the time devoted to the Group;

(ii) non-cash benefits may be provided to the Directors as part of their remuneration package; and

(iii) the executive Directors may be granted, at the discretion of the board of Directors, options under the Post-IPO Share Option Scheme, as part of their remuneration packages.

(b) An aggregate of HK$20,000 was paid in cash and in kind to the Directors as remuneration for the year ended 31st December, 2000. Further information in respect of the Directors’ remuneration is set out in the section headed “Directors, Senior Management and Staff ” and Appendix I to this prospectus.

(c) None of the Directors or any past or present directors of any member of the Group has been paid any sum of money for each of the two years ended 31st December, 2001 (i) as an inducement to join or upon joining the Company or (ii) for loss of office as a director of any member of the Group or of any other office in connection with the management of the affairs of any member of the Group.

(d) There has not been and there is no arrangement under which a Director has waived or agreed to waive any emoluments for either of the two years ended 31st December, 2001.

(e) The non-executive Directors have no set term of office but will retire from office at each annual general meeting of the Company, subject to re-election. Save for annual directors’ fees of HK$150,000 per non-executive Director and with the exception of the independent non-executive Directors who are members of the audit committee who will be paid an additional HK$50,000 each, none of the non-executive Directors is expected to receive any other remuneration for holding their office as a non-executive Director.

– 280 – APPENDIX V STATUTORY AND GENERAL INFORMATION

11. Related party transactions

Within the two years immediately preceding the date of this prospectus the Group entered into the related party transactions as mentioned in note 28 in the section headed “Financial Information” in the accountants’ report set out in Appendix I to this prospectus, the paragraph headed “Summary of material contracts” in this Appendix, and the paragraph headed “On- going connected transactions” in the section headed “Business” of this prospectus.

12. Disclaimers

Save as disclosed herein:

(a) none of the Directors or the chief executive of the Company has for the purposes of section 28 of the SDI Ordinance, nor is any of them taken to or deemed to have under section 31 of, or Part 1 of the Schedule to, the SDI Ordinance, any interests in the securities of the Company or any of its associated corporations (within the meaning of the SDI Ordinance) or any interests which will have to be entered in the register to be kept by the Company pursuant to section 29 of the SDI Ordinance 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 the Stock Exchange;

(b) none of the Directors nor any of the persons whose names are listed in the paragraph headed “Consent and qualifications of experts” in this Appendix is interested in the promotion of the Company or in any assets which have within the two years immediately preceding the issue of this prospectus been 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) none of the Directors nor any of the persons whose names are listed in the paragraph headed “Consents and qualifications of experts” under the section headed “Other information” 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;

(d) none of the persons whose names are listed in the paragraph headed “Consents and qualifications of experts” under the section headed “Other information” 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;

– 281 – APPENDIX V STATUTORY AND GENERAL INFORMATION

(e) none of the Directors has entered or has proposed to enter into any service agreements with the Company or any members of the Group (other than contracts expiring or determinable by the employer within one year without payment of compensation other than statutory compensation);

(f) no cash, securities or other benefit has been paid, allotted or given within the two years preceding the date of this prospectus to any promoter of the Company nor is any such cash, securities or benefit intended to be paid, allotted or given on the basis of the Share Offer or related transaction as mentioned in this prospectus;

(g) none of the Directors, their respective associates (as “associates” is defined in the GEM Listing Rules) or Shareholders who are interested in 5% or more of the issued share capital of the Company so far as is known to the Directors have any interests in the five largest customers of the Group; and

(h) so for as the Directors are aware but taking no account of Shares that may be taken up in the Share Offer, there are no persons (not being Directors or a chief executive of the Company) who will, immediately upon Listing of the Shares on GEM, be interested in 10% or more of the voting power at general meetings of the Company.

OTHER INFORMATION

13. Summary of terms of the Share Option Schemes

(1) Post-IPO Share Option Scheme

The following is a summary of the principal terms of the Post-IPO Share Option Scheme conditionally approved by a written resolution of the sole shareholder dated 22nd July, 2002 (the “Effective Date”). The Post-IPO Share Option Scheme enables the Company to grant options to selected persons as incentives or rewards for their contribution to the Group. For the purpose of this section, unless the context otherwise requires, references to

“Board” means the board of directors of the Company from time to time or a duly authorised committee thereof;

“Employee” means any employee (whether or not full time including directors and executives) of any member of the Group;

“Grantee” means any Participant who has been offered and accepted an option in accordance with the terms of the Post-IPO Share Option Scheme or (where the context so permits) a person entitled to any such option in consequence of the death of the original Grantee; and

– 282 – APPENDIX V STATUTORY AND GENERAL INFORMATION

“Participant” means

(i) any Employee;

(ii) any directors (including non-executive directors and independent non-executive directors) of any member of the Group;

(iii) advisor and consultant to any member of the Group (in the areas of technical, financial or corporate managerial);

(iv) any supplier of goods or services to any member of the Group;

(v) any customer of any member of the Group;

(vi) any shareholder of any member of the Group or any holder of securities issued by any member of the Group; and

(vii) any provider of financial assistance (directly or indirectly) to any member of the Group,

and for the purposes of the Post-IPO Share Option Scheme, the offer may be made to any company wholly-owned by one or more persons belonging to any of the above classes of Participants.

(a) Who may join

The Board may, at its discretion, invite any Participants to take up options to subscribe for Shares at a price calculated in accordance with sub-paragraph (e) below.

(b) Grant of Options

(i) Any grant of options must not be made after a price sensitive development has occurred or a price sensitive matter has been the subject of a decision, until such price sensitive information has been announced pursuant to the requirements of Chapter 16 of the GEM Listing Rules. In particular, no option may be granted during the period commencing one month immediately preceding the earlier of:

(1) the date of the Board meeting (as such date is first notified to the Stock Exchange in accordance with Rule 17.48 of the GEM Listing Rules) for the approval of the Company’s results for any year, half-year or quarter- year period; and

– 283 – APPENDIX V STATUTORY AND GENERAL INFORMATION

(2) the deadline for the Company to publish announcement of its results for any year, half-year or quarter-year period under Rule 18.49 or 18.53 of the GEM Listing Rules,

and ending on the date of the results announcement.

(ii) The grant of options to a connected person of the Company (as such term is defined in the GEM Listing Rules) requires the approval of the independent non-executive Directors (excluding an independent non-executive Director who is the Grantee of the options). Where any grant of options to a substantial shareholder or an independent non-executive Director or their respective associates (as such term is defined in the GEM Listing Rules) will result in the Shares issued and to be issued upon exercise of all options already granted and to be granted (including options exercised, cancelled and outstanding) to such person in the 12-month period up to and including the date of the grant to exceed in aggregate 0.1% of the Shares in issue and having an aggregate value, based on the closing price of the Shares at the date of each grant, in excess of HK$5 million, such grant of options must be subject to Shareholders’ approval taken on a poll and a circular must be sent to the Shareholders. All connected persons of the Company must abstain from voting, except that any connected person may vote against the resolution provided that his intention to do so has been stated in the circular to Shareholders seeking their approval;

The circular must contain the following:

(1) details of the number and terms of the options (including the subscription price) to be granted to each Participant which must be fixed before the relevant Shareholders’ approval and the date of board meeting for proposing such further grant should be taken as the date of grant for the purpose of calculating the subscription price;

(2) a recommendation from the independent non-executive Directors (excluding any independent non-executive Director who is the grantee of the options in question) to the independent Shareholders as to voting; and

(3) all other information as required by the GEM Listing Rules.

The requirements for the granting of options to a Director or chief executive of the Company set out in this paragraph (b)(ii) above do not apply where the Participant is only a proposed Director or chief executive of the Company.

– 284 – APPENDIX V STATUTORY AND GENERAL INFORMATION

(iii) Shareholders’ approval as described in paragraph (b)(ii) above is also required for any change in the terms of options granted to a Participant who is a substantial shareholder, an independent non-executive Director or their respective associates.

HK$1 is payable by the Grantee to the Company on acceptance of the option offer. The option offer will be offered for acceptance for a period of 14 days from the date on which the offer is granted.

(d) Terms and Conditions of Options

Options may be granted on such terms and conditions in relation to their vesting, exercise or otherwise as the Board may determine, provided such terms and conditions shall not be inconsistent with any other terms and conditions of the Post-IPO Share Option Scheme. The Grantees are not required to hold any options or any Shares allotted pursuant to any options for any minimum period.

(e) Price of Shares

The subscription price for Shares under the Post-IPO Share Option Scheme will be determined by the Board and notified to each Grantee and will be at least the highest of (i) the closing price of the Shares as stated in the Stock Exchange’s daily quotations sheet on the date of grant of the option, which must be a business day, (ii) the average closing price of the Shares as stated in the Stock Exchange’s daily quotations sheets for the five business days immediately preceding the date of grant and (iii) the nominal value of a Share. For the purpose of calculating the subscription price where the Company has been listed for less than 5 business days, the issue price shall be used as the closing price for any business day falling within the period before the Listing Date.

(f) Maximum number of Shares

(i) The limit on the number of Shares which may be issued upon exercise of all outstanding options granted and yet to be exercised under the Post-IPO Share Option Scheme and other share option schemes must not exceed 30% of the Shares in issue from time to time.

– 285 – APPENDIX V STATUTORY AND GENERAL INFORMATION

(ii) The total number of Shares which may be issued upon exercise of all options to be granted under the Post-IPO Share Option Scheme and any other share option schemes must not in aggregate exceed 10% of the Shares in issue as at the date dealings in the Shares first commence on GEM, amounting to 49,219,623 Shares assuming the Over-allotment Option is not exercised (the “Scheme Mandate Limit”). Options lapsed in accordance with the terms of the Post-IPO Share Option Scheme and any other share option schemes will not be counted for the purpose of calculating the Scheme Mandate Limit.

(iii) The Company may renew the Scheme Mandate Limit at any time subject to prior Shareholders’ approval. However, the Scheme Mandate Limit as renewed must not exceed 10% of the Shares in issue as at the date of the aforesaid Shareholders’ approval. Options previously granted under the Post-IPO Share Option Scheme and other share option schemes (including those outstanding, cancelled, lapsed in accordance with the schemes or exercised options) will not be counted for the purpose of calculating the limit as renewed. A circular containing information required under the GEM Listing Rules must be sent to Shareholders in connection with the meeting at which their approval will be sought.

(iv) The Company may also seek separate Shareholders’ approval for granting options beyond the Scheme Mandate Limit to Participants specifically identified by the Company before the aforesaid Shareholders’ meeting where such approval is sought. A circular must be sent to Shareholders containing a generic description of the specified Participants, the number and terms of the options to be granted, the purpose of granting options to the specified Participants, how the terms of such options serve such purpose and such other information required by the GEM Listing Rules.

(v) The total number of Shares issued and to be issued upon exercise of the options granted under the Post-IPO Share Option Scheme to each Participant (including both exercised and outstanding options) in any 12-month period must not exceed 1% of the Shares in issue from time to time. Any further grant of options to such Participant which would result in the Shares issued and to be issued upon exercise of all options granted and to be granted to such Participant (including exercised, cancelled and outstanding options) in the 12-month period up to and including the date of such further grant representing in aggregate over 1% of the Shares in issue, must be subject to Shareholders’ approval with such Participant and his associates (as such term is defined in the GEM Listing

– 286 – APPENDIX V STATUTORY AND GENERAL INFORMATION

Rules) abstaining from voting. A circular must be sent to the Shareholders disclosing the identity of the Participant, the number and terms of the options granted and to be granted and such other information as required under the GEM Listing Rules. The number and terms (including the subscription price) of options to be granted to such Participant must be fixed before the Shareholders’ approval is sought and the date of board meeting for proposing such further grant should be taken as the date of grant for the purpose of calculating the subscription price.

(g) Time of exercise of option

An option may be exercised in accordance with the terms of the Post-IPO Share Option Scheme at any time during the period (the “Option Period”) notified by the Board to each Grantee provided that the period within which the option must be exercised shall not be more than 10 years from the date of grant of the option.

An option does not require a performance target which must be achieved before the option can be exercised. The Board shall be entitled at its absolute discretion to decide the option period subject to the terms of the Post-IPO Share Option Scheme.

(h) Rights are personal to Grantee

An option may not be transferred or assigned and is personal to the Grantee.

(i) Rights on ceasing employment for reasons other than death

If the Grantee ceases to be an Employee for any reason other than death, ill-health, injury, disability, misconduct or such other grounds referred to in paragraph (p)(v) below, the Grantee may exercise the option up to the Grantee’s entitlement at the date of cessation (to the extent not already exercised) within the period of three months following the date of such cessation, failing which the option will lapse.

(j) Rights on death

If the Grantee dies before exercising the option in full and no event which would be a ground for termination of his or her employment arises, the personal representative(s) of the Grantee shall be entitled within a period of twelve months from the date of death to exercise the option up to the entitlement of the Grantee as at the date of death (to the extent not already exercised).

– 287 – APPENDIX V STATUTORY AND GENERAL INFORMATION

(k) Rights on ill-health, injury, disability or employing company ceasing to be a member of the Group

If ill-health, injury or disability occurs to a Grantee or (in the case of the Grantee being an Employee) his employing company ceases to be a member of the Group, then he may exercise all his options (to the extent not already exercised) within a period of 6 months of such ill-health, injury, disability or cessation, failing which they shall lapse and determine at the end of the relevant period.

(l) Effects of alterations to share capital

In the event of an alteration in the capital structure of the Company whilst any option remains exercisable, whether by way of a capitalisation issue, rights issue, sub-division or consolidation of Shares or reduction of share capital of the Company, such corresponding alterations (if any) shall be made to give a Grantee as nearly as possible the same (but shall not be greater than) proportion of the equity capital as that to which that Grantee was previously entitled but no such alteration may be made to the extent that a Share would be issued at less than its nominal value. No alteration shall be made if any alteration in the capital structure of the Company is the result of an issue of Shares as consideration in a transaction. In respect of any such adjustments other than those made on a capitalisation issue, an independent financial adviser or the Company’s auditors must confirm to the Board in writing that the adjustments satisfy the requirements of the GEM Listing Rules in that they give a Grantee the same proportion of the equity capital as that to which that Grantee was previously entitled.

(m) Rights on a general offer

If a general offer (other than by way of a scheme of arrangement) is made to all the Shareholders (or all such holders other than the offeror and/or any person controlled by the offeror and/or any person acting in concert with the offeror) to acquire all or part of the issued Shares and such offer becomes or is declared unconditional prior to the expiry date of the relevant option, the Grantee may by notice in writing to the Company within 21 days thereafter exercise the option (to the extent not already exercised) to its full extent or to the extent specified in such notice.

In the event of a general offer, by way of scheme of arrangement, being made to all the Shareholders and has been approved by the necessary number of holders of Shares at the requisite meetings, the Grantee may thereafter (but before such time as shall be 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.

– 288 – APPENDIX V STATUTORY AND GENERAL INFORMATION

(n) Rights on a compromise or arrangement

Other than a scheme of arrangement contemplated in paragraph (m) above, in the event of a compromise or arrangement between the Company and its members or creditors is proposed for the purposes of or in connection with a scheme for the reconstruction of the Company or its amalgamation with any other company or companies, the Company shall give notice to the Grantee on the same day as it dispatches the notice to each member or creditor of the Company summoning the meeting to consider such a compromise or arrangement, and thereupon the Grantee may by notice in writing to the Company accompanied by the remittance for the subscription price in respect of the relevant option (such notice to be received by the Company not later than four business days prior to the proposed meeting) exercise any of his or her options (to the extent not already exercised) whether in full or in part, as specified in such notice and the Company shall as soon as possible and in any event no later than the business 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.

(o) 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 thereupon the Grantee may by notice in writing to the Company accompanied by the remittance for the subscription 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 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 business 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 credited as fully paid.

(p) Lapse of Option

An option shall lapse automatically and not be exercisable (to the extent not already exercised) on the earliest of:

(i) the expiry of the Option Period;

(ii) the expiry of the periods referred to in paragraphs (i), (j), (k), (n) and (o) above respectively;

– 289 – APPENDIX V STATUTORY AND GENERAL INFORMATION

(iii) subject to the High Court of Hong Kong not making an order the effect of which is to prohibit the offeror acquiring the Shares in the offer referred to in paragraph (m) above, the expiry of the period referred to in paragraph (m) above;

(iv) subject to the scheme of arrangement referred to in paragraph (m) above becoming effective, the expiry of the period referred to in paragraph (m) above;

(v) the date on which the Grantee who is an Employee ceases to be an Employee by reason that his employment is terminated for his misconduct, bankruptcy, insolvency, arrangement or composition with his creditors generally or conviction of any criminal offence involving his integrity or honesty;

(vi) in the case of the Grantee not being an Employee, the date on which his contract or arrangement with any member of the Group in respect of which his options are granted is terminated for his misconduct or breach of such contract or arrangement, bankruptcy, insolvency or arrangement or composition with his creditors generally;

(vii) the date of the commencement of the winding-up of the Company; or

(viii) the date on which the Grantee sells, transfers, charges, mortgages, encumbers or creates any interest in favour of any third party over or in relation to any option in breach of the Post-IPO Share Option Scheme.

(q) Ranking of Shares

The Shares to be allotted and issued upon the exercise of an option will be subject to the Company’s articles of association for the time being in force and will rank pari passu with the fully paid Shares in issue on the date of exercise of the option and in particular will rank in full for all dividends or other distributions declared paid or made on or after the date of exercise of the option other than any dividend or other distribution previously declared or recommended or resolved to be paid or made if the record date therefor is before the date of exercise of the option.

Unless the context otherwise requires, references to “Shares” in the Post-IPO Share Option Scheme include references to shares in the Company of any such nominal amount as shall result from a sub-division, consolidation, reclassification or reconstruction of the share capital of the Company from time to time.

– 290 – APPENDIX V STATUTORY AND GENERAL INFORMATION

(r) Cancellation of Options granted

Any cancellation of options granted but not exercised must be approved by Shareholders in general meeting, with Participants and their associates (as such term is defined in the GEM Listing Rules) abstaining from voting. Any vote taken at the meeting to approve such cancellation must be taken by poll. Notwithstanding the above, new options may be granted to the same Participant subject to the availability of the unissued options (excluding the cancelled options) within the limit prescribed by paragraph (f) above.

(s) Period of Post-IPO Share Option Scheme

The Post-IPO Share Option Scheme will remain valid for a period of 10 years commencing on the Effective Date after which period no further options may be granted but the provisions of the Post-IPO Share Option Scheme shall remain in full force and effect to the extent necessary to give effect to the exercise of any option granted prior thereto or otherwise as may be required in accordance with the provision of the Post-IPO Share Option Scheme. Options which are granted during the life of the Post-IPO Share Option Scheme may continue to be exercisable in accordance with their terms of issue. The Company may, by ordinary resolution in general meeting or the Board may at any time terminate the operation of the Post-IPO Share Option Scheme. After termination, no further options will be granted but the provisions of the Post-IPO Share Option Scheme shall in all other respects remain in full force and effect and options which are granted during the life of the Post-IPO Share Option Scheme may continue to be exercisable in accordance with their terms of issue.

(t) Alteration to Post-IPO Share Option Scheme

The Post-IPO Share Option Scheme may be altered in any respect by resolution of the Board except that the provisions of the Post-IPO Share Option Scheme relating to matters contained in rule 23.03 of the GEM Listing Rules shall not be altered to the advantage of Grantees or prospective Grantees except with the prior approval of the Shareholders in general meeting.

Any alteration to the terms and conditions of the Post-IPO Share Option Scheme, which are of a material nature, or any change to the terms of options granted must be approved by the Shareholders, except where the alterations take effect automatically under the existing terms of the Post-IPO Share Option Scheme.

The amended terms of the Post-IPO Share Option Scheme or the options must still comply with the relevant requirements of Chapter 23 of the GEM Listing Rules.

– 291 – APPENDIX V STATUTORY AND GENERAL INFORMATION

Any change to the authority of the Directors in relation to any alteration to the terms of the Post-IPO Share Option Scheme must be approved by the Shareholders in general meeting.

(u) Conditions of the Post-IPO Share Option Scheme

The Post-IPO Share Option Scheme is conditional on (a) the GEM Listing Committee of the Stock Exchange granting approval of the listing of and permission to deal in any Shares which may be issued pursuant to the exercise of options granted under the Post-IPO Share Option Scheme, and (b) the commencement of dealings in the Shares on GEM.

(v) If exercise of a share option is unlawful

If at the time a Grantee wishes to exercise an option, and the exercise of the relevant option or the consequence of such exercise is not permitted by applicable laws, the option shall not entitle the Grantee to subscribe for Shares.

(w) Administration

The Post-IPO Share Option Scheme shall be subject to the administration by the Board, and the decision of the Board shall be final and binding on all parties. The Board shall have power from time to time to make or vary regulations for the administration and operation of the Post-IPO Share Option Scheme, provided that they are not inconsistent with the GEM Listing Rules.

(x) Present status of the Post-IPO Share Option Scheme

As at the Latest Practicable Date, no option has been granted or agreed to be granted by the Company under the Post-IPO Share Option Scheme.

Application has been made to the GEM Listing Committee for the listing of and permission to deal in the Shares which may be issued pursuant to the exercise of the options granted under the Post-IPO Share Option Scheme.

– 292 – APPENDIX V STATUTORY AND GENERAL INFORMATION

(2) Pre-IPO Share Option Scheme

The purpose of the Pre-IPO Share Option Scheme is to recognize the contribution of certain directors, employees, advisers and consultants of the Company to the growth of the Company and/or to the listing of the Shares on GEM. The employment periods of grantees range from 1 to 3 years. The principal terms of the Pre-IPO Share Option Scheme, conditionally approved by a written resolution of the sole Shareholder dated 22nd July, 2002, are substantially the same as the terms of the Post-IPO Share Option Scheme except that:

(a) the subscription price per Share ranges from HK$0.12 to HK$0.45, depending on the employment period of the grantee and/or the grantee’s contribution to the Group, representing a discount of approximately 25% to 80% to the minimum point of the stated price range of HK$0.6 per Share;

(b) the total number of Shares subject to the Pre-IPO Share Option Scheme is 27,689,000 equivalent to approximately 5.63% of the issued share capital of the Company as of the Listing Date (assuming the Over-allotment Option is not exercised);

(c) save for the options which have been conditionally granted (see below), no further options will be offered or granted under the Pre-IPO Share Option Scheme, as the right to do so will end upon the date of this prospectus;

(d) no option granted under the Pre-IPO Share Option Scheme can be exercised before the expiration of 1 year from the Listing Date; and

(e) the Pre-IPO Share Option Scheme contains no provisions on (i) the granting of options to connected persons (as defined in the GEM Listing Rules); (ii) the restrictions of the total number of Shares which may be issued upon exercise of all the options to be granted; and (iii) the maximum entitlement of a grantee under the Pre-IPO Share Option Scheme.

– 293 – APPENDIX V STATUTORY AND GENERAL INFORMATION

As at the Latest Practicable Date, options to subscribe for an aggregate of 27,689,000 Shares at an exercise price ranging from HK$0.12 to HK$0.45 have been granted by the Company to 5 Directors, 3 advisers and consultants, and 14 employees under the Pre-IPO Share Option Scheme each for HK$1 and in return for each of the grantees’ surrender of their options previously granted by SAR1 under a share option scheme for subscription of shares in SAR1. A portion of each grantee’s right to exercise the option that has been conditionally granted under the Pre-IPO Share Option Scheme shall be deemed to have vested on 17th June, 2002 (such portion is fixed on the basis of the grantee’s employment period and/or contribution to the Group and as set out in the table below) and the rest of the right shall continue to vest over a period of not more than 4 years from 17th June, 2002 on a monthly basis each time for 1/48th of the total number of Shares comprised in the option and, subject to that no option granted under the Pro-IPO Share Option Scheme can be exercised before the expiration of 1 year from the Listing Date, any vested right shall remain exercisable for 10 years from the date of acceptance of the relevant option.

Under the Pre-IPO Share Option Scheme, options to subscribe for 21,102,000 Shares, 1,768,000 Shares and 4,819,000 Shares have been granted to Directors, advisers and consultants, and employees respectively.

As the number of Shares subject to the options represents approximately 5.63 per cent of the issued share capital of the Company as at the Listing Date assuming the Over-allotment Option is not exercised and no options granted under the Pre-IPO Share Option Scheme have been exercised, the interest in the Company held by, and the earnings per Share of, each of the Shareholders may be diluted from HK$0.119 cents to HK$0.111 cents upon the exercise of the options granted under the Pre-IPO Share Option Scheme.

– 294 – APPENDIX V STATUTORY AND GENERAL INFORMATION

Particulars of the options granted are set out below:

Percentage of the options granted over the issued capital of the Company Number of as at Listing Shares to be Date assuming Subscription issued upon the Over-allotment price per exercise of Name and address of Grantee Position Option is not exercised Share (HK$) options

Directors Dr. Poon Kwok Lim, Steven Chairman 1.693% 0.12 8,334,000 No. 3A, Elite Villas, 22 Shouson Hill Road, Hong Kong

Poon Shu Yan, Joseph Chief Executive Officer 1.625% 0.12 8,000,000 No. 3A, Elite Villas, 22 Shouson Hill Road, Hong Kong

Lee Shu Fan Chief Financial Officer 0.562% 0.21 2,767,000 20A, Monmouth Villa, 3 Monmouth Terrace, Wanchai, Hong Kong

Tam Chi Keung Chief Administrative Officer 0.271% 0.12 1,334,000 Flat F, 17th Floor, Fook Hey Court, Holford Garden, Tai Wai, Shatin, N.T., Hong Kong

Au Yeung Pui Shan, Karen In-house Counsel 0.135% 0.21 667,000 Flat K, 35/F., Civic House, Affluence Garden, Tuen Mun, N.T. Hong Kong

– 295 – APPENDIX V STATUTORY AND GENERAL INFORMATION

Advisers Zhao Bin (Note 1) Adviser 0.135% 0.45 667,000 Room 2, 25/F., Block C, Mount Parker Lodge, Quarry Bay, Hong Kong

Chan Man Hung (Note 2) Adviser 0.135% 0.45 667,000 704, Block J, Kornhill Garden, Quarry Bay, Hong Kong

Mike Murad (Note 3) Adviser 0.088% 0.12 434,000 Apartment 31, 18th Floor, Tower 4, Hong Kong Parkview, 88 Tai Tam Reservoir Road, Hong Kong

Employees Wong Shing Bun Chief Technology Officer 0.440% 0.12 2,167,000 1st Floor, 26 Lake Court Villa, Sai Kung, N.T.

Mok Hay Hoi Financial Controller 0.088% 0.21 434,000 Flat 3, 3/F., Block B, Mount Parker Lodge, Quarry Bay, HK

Yeung Wai Hing Business Development 0.088% 0.21 434,000 Room 1314, Fu Wah House, Manager Tai Wo Hau, Tsuen Wan, N.T.

Chiu, Keith Business Development 0.088% 0.12 434,000 Block 3, Flat G, 9/F, Bayshore Towers, Manager 608 Sai Sha Road, Ma On Shan, N.T.

– 296 – APPENDIX V STATUTORY AND GENERAL INFORMATION

Notes:

1. Mr. Zhao Bin is a director of SinoWorld Media. He is also the President and Vice-Chairman of Sino United Publishing (Holdings) Limited. He advises the Group regarding the Group’s media business in China.

2. Mr. Chan Man Hung is a director of SinoWorld Media. He is the Managing Director & Chief Editor of The Commercial Press (Hong Kong) Limited and a Vice-Chairman & Vice-President of Sino United Publishing (Holdings) Limited. He advises the Group regarding the Group’s media business in China.

3. Mr. Mike M Murad is the Chief Executive Officer of International Bank of Asia, which is owned by Arab Banking Corporation in the Middle East. His origin is from the Middle East. He advises the Group regarding business opportunities, including funding opportunities, in the Middle East.

Ng Kin Shun Business Development 0.088% 0.45 434,000 Flat B, 16/F., Block 2, Cayman Rise, Manager 29 Ka Wai Man Road, Kennedy Town, HK

Kam Yuen Hung Project Manager 0.088% 0.12 434,000 Flat A, 20/F., Block 5, Lung Mun Oasis, Tuen Mun, N.T.

Han Yee Yeen Corporate Communication, VP 0.018% 0.12 87,000 Room 5, Block D, 25/F., Mount Parker Lodge, 10 Hong Pak Road, Quarry Bay, H.K.

Wong Sze Nga Operation Manager 0.014% 0.12 70,000 Flat 604, Hoi Yu Hse, Hoi Fu Crt, Mong Kok West, Kowloon

Leung Yuen Ping Executive Producer 0.014% 0.21 70,000 Room 3504, Yue Yat House, Yue Tin Court, Shatin, N.T.

Liu Man Yui Officer 0.014% 0.12 70,000 Room 4, 7/F., Ting Lok House, Siu On Court, Tuen Mun, N.T.

– 297 – APPENDIX V STATUTORY AND GENERAL INFORMATION

Wu Kin Chuen Officer 0.014% 0.12 70,000 No. 623, Tin Sum Tsuen, Pat Heung, Yuen Long, N.T.

Ho Kwai Lan Senior Web Designer 0.011% 0.21 60,000 Room 1903, Cheung Tin House, Pak Tin Estate, Kowloon

Ho Cho Wai Officer 0.004% 0.12 30,000 Room 204, Chee Mei House, Choi Hung Estate, Kowloon

Kong Suet Yee Administrator 0.001% 0.21 25,000 Room 1705, Yiu Cheong House, Tin Yiu Estate, Tin Shui Wai, N.T.

Total: 27,689,000

– 298 – APPENDIX V STATUTORY AND GENERAL INFORMATION

Save as disclosed above, no other options have been granted or agreed to be granted under the Pre-IPO Share Option Scheme or by the Company under the Post-IPO Share Option Scheme. No further options will be granted under the Pre-IPO Share Option Scheme after listing of the Shares on GEM, but the provisions of the Pre-IPO Share Option Scheme shall remain in all other respects in full force and effect in respect of any options granted during the life of the Pre-IPO Share Option Scheme which may continue to be exercisable in accordance with their terms of issue.

14. Estate duty and tax indemnity

Each of Amazing Nova Corporation, Matrix Worldwide Corporation, Forever Triumph Limited and Dr. Poon has given indemnities in connection with taxation and 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 Estate Duty Ordinance, Chapter 111 of the Laws of Hong Kong) to any member of the Group on or before the date on which the Share Offer becomes unconditional and other taxation which may be payable by any member of the Group on or before the date on which the Share Offer becomes unconditional save in certain circumstances including where provision has been made for such taxation in the combined audited accounts of the Group for the two years ended 31st December, 2001.

The Directors have been advised that no material liability for estate duty is likely to fall on any member of the Group in the Cayman Islands and the British Virgin Islands.

15. Sponsor

The Sponsor has made an application on behalf of the Company to the GEM Listing Committee for the listing of, and permission to deal in, the Shares in issue and to be issued as mentioned herein.

16. Litigation

Pacific Digitals (HK) Limited, a wholly-owned subsidiary of the Company, entered into a service contract with a network service provider for services provided to Grandworld Technology Limited, which is a subsidiary company of SAR1. As there has been a dispute over the quality of the services rendered by the network service provider, Pacific Digitals (HK) Limited is claimed by the liquidator of a network service provider for approximately HK$664,000 being services allegedly rendered by the service provider. The Directors are assessing the merits of such claim with the Group’s legal advisors. Dr. Poon has provided an indemnity to the Group under which Dr. Poon will indemnify the Group from such possible claim and the related charges if the Group is required to settle the claim.

Save as disclosed above, 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 by the Directors to be pending or threatened against any member of the Group.

– 299 – APPENDIX V STATUTORY AND GENERAL INFORMATION

17. Consents and qualifications of the experts

The Sponsor, Deloitte Touche Tohmatsu, Sallmanns (Far East) Limited, Conyers Dill & Pearman, Cayman and Jin Mao Law Firm have given and have not withdrawn their respective written consents to the issue of this prospectus with the inclusion of their respective reports, valuation, letters, opinions and/or advice (as the case may be) and/or the references to their respective names in the form and context in which they are respectively included.

The qualifications of the experts referred to in this prospectus are as follows:–

Name Qualifications

Kingsway Capital Limited Registered investment adviser

Deloitte Touche Tohmatsu Certified public accountants

Sallmanns (Far East) Limited Registered professional surveyors and independent valuers

Conyers Dill & Pearman, Cayman Cayman Islands attorneys-at-law

Jin Mao Law Firm PRC legal adviser

None of Kingsway Capital Limited, Deloitte Touche Tohmatsu, Sallmanns (Far East) Limited, Conyers Dill & Pearman, Cayman and Jin Mao Law Firm:

(i) is interested in any shares in any member of the Group; or

(ii) has any right or option (whether legally enforcement or not) to subscribe for or to nominate persons to subscribe for any shares in any member of the Group.

18. Preliminary expenses

The preliminary expenses of the Company are estimated to be approximately US$2,500 and are payable by the Company.

19. Binding effect

This prospectus shall have the effect, if an application is made in pursuance hereof, 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).

– 300 – APPENDIX V STATUTORY AND GENERAL INFORMATION

20. Miscellaneous

Save as disclosed herein:–

(a) within the two years preceding the date of this prospectus, no share or loan capital of the Company or of any of its subsidiaries has been issued, agreed to be issued or is proposed to be issued fully or partly paid either for cash or for a consideration other than cash;

(b) no Share or loan capital of the Company or any of its subsidiaries is under option or is agreed conditionally or unconditionally to be put under option;

(d) all necessary arrangements have been made to enable the Shares to be admitted into CCASS for clearing and settlement;

(e) the Group has no present intention to change the nature of its businesses in the near future;

(f) no company within the Group is presently listed on any stock exchange or traded on any trading system;

(g) 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; and

(h) save as disclosed herein, there has been no material adverse change in the financial position or prospects of the Group since 31st December, 2001.

– 301 – APPENDIX VI 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 and the application forms delivered to the Registrar of Companies in Hong Kong for registration were the written consents referred to in the paragraph headed “Consents and qualifications of experts” in Appendix V and copies of the material contracts referred to in the paragraph headed “Summary of material contracts” in Appendix V.

DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection at the offices of 25th floor, 663 King’s Road, North Point, Hong Kong during normal business hours up to and including 14th August, 2002:

– the memorandum of association of the Company and the Articles;

– the accountants’ report prepared by Deloitte Touche Tohmatsu, the text of which is set out in Appendix I;

– the audited financial statements as have been prepared for the companies comprising the Group for each of the two years ended 31st December, 2001 or the period since their respective dates of incorporation, where this is a shorter period;

– the letter, summary of value and valuation certificate prepared by Sallmanns (Far Fast) Limited relating to the property interest of the Group, the texts of which are set out in Appendix III;

– the rules of the Pre-IPO Share Option Scheme and the rules of the Post-IPO Share Option Scheme;

– a list of all options granted by the Company under the Pre-IPO Share Option Scheme;

– the Companies Law;

– the letter of advice issued by Conyers Dill & Pearman, Cayman summarizing certain aspects of Cayman Islands company law as referred to in the paragraph headed “General” in Appendix IV;

– the service agreements referred to in the paragraph headed “Particulars of service agreements” in Appendix V;

– 302 – APPENDIX VI DOCUMENTS DELIVERED TO THE REGISTRAR OF COMPANIES AND AVAILABLE FOR INSPECTION

– the material contracts referred to in the paragraph headed “Summary of material contracts” in Appendix V; and

– the written consents referred to in the paragraph headed “Consents and qualifications of experts” in Appendix V.

– 303 –