IMPORTANT
If you are in any doubt about this prospectus, you should consult your stockbroker, bank manager, solicitor, professional accountant or other professional adviser.
HENDERSON CYBER LIMITED A1 * (Incorporated in the Cayman Islands with limited liability) INITIAL PUBLIC OFFERING AND LISTING ON THE GROWTH ENTERPRISE MARKET OF THE STOCK EXCHANGE OF HONG KONG LIMITED PLACING AND PUBLIC OFFER Number of Shares under : 750,000,000 Shares the Share Offer comprising: (subject to Over-allotment Option adjustment) Number of Placing Shares : 675,000,000 Shares (subject to reallocation) Number of Public Offer Shares : 75,000,000 Shares (subject to reallocation) Issue Price : Not more than HK$1.40 per Offer Share A15(3)(c) and not less than HK$1.20 per Offer Share (payable in full by applicants in the Public Offer subject to refund) Nominal Value : HK$0.10 each Stock Code : 8023 Sponsor HSBC HSBC Investment Bank Asia Limited
Joint Global Coordinators, Bookrunners and Lead Managers HSBC HSBC Investment Bank Asia Limited CLSA Limited
Co-Lead Managers BOCI Asia Limited ING Barings
Senior Co-Manager ABN AMRO Rothschild
Co-Managers ICEA Capital Limited KGI Asia Limited Tai Fook Securities Company Limited Vickers Ballas Capital Limited
The Stock Exchange of Hong Kong Limited and Hong Kong Securities Clearing Company Limited take no responsibility for the contents of this prospectus, 14.04 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 section headed “Documents delivered to the Registrar of Companies” in S342C(1)(2) Appendix 5 to this prospectus, has been registered by the Registrar of Companies in Hong Kong as required by Section 342C of the Companies Ordinance, Chapter 32 of the Laws of Hong Kong. The Registrar of Companies in Hong Kong and the Securities and Futures Commission of Hong Kong take no responsibility as to the contents of this prospectus or any other documents referred to above. The Issue Price is expected to be fixed by agreement between HSBC Investment Bank Asia, on behalf of the Underwriters, and the Company on the IPO Pricing Date. The IPO Pricing Date is expected to be on or about 7 July 2000 and in any event not later than 3 August 2000. The Issue Price will not be more than HK$1.40 per Offer Share and is expected to be not less than HK$1.20 per Offer Share, although HSBC Investment Bank Asia, on behalf of the Underwriters, may, with the consent of the Company, reduce such indicative Issue Price range at any time prior to the morning of the last day for lodging applications under the Public Offer. Applicants should note that in no circumstances can applications be withdrawn once submitted. If, for any reason, the Issue Price is not agreed between the Company and HSBC Investment Bank Asia, on behalf of the Underwriters, the Share Offer will not proceed. * For identification purposes only.
4 July 2000 IMPORTANT NOTICE
CHARACTERISTICS OF THE GROWTH ENTERPRISE MARKET (“GEM”) OF THE STOCK 14.05 EXCHANGE OF HONG KONG LIMITED
GEM has been established as a market designed to accommodate companies to which a high investment risk may be attached. In particular, companies may list on GEM with neither a track record of profitability nor any obligation to forecast future profitability. Furthermore, there may be risks arising out of the emerging nature of companies listed on GEM and the business sectors or countries in which the companies operate. Prospective investors should be aware of the potential risks of investing in such companies and should make the decision to invest only after due and careful consideration. The greater risk profile and other characteristics of GEM mean that it is a market more suited to professional and other sophisticated investors.
Given the emerging nature of companies listed on GEM, there is a risk that securities traded on GEM may be more susceptible to high market volatility than securities traded on the Main Board of the Stock Exchange 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. Listed companies are not generally required to issue paid announcements in gazetted newspapers. Accordingly, prospective investors should note that they need to have access to the GEM website in order to obtain up-to-date information on GEM-listed issuers.
i EXPECTED TIMETABLE
2000
Latest time to lodge WHITE and YELLOW application forms ...... 12:00 noon on 7 July
Application lists open (Note 1) ...... 11:45 a.m. on 7 July A15(3)(f) 3rdSch8
Application lists close ...... 12:00 noon on 7 July
Announcement of the Issue Price (Note 2) ...... 10July
Announcement of results of applications under the Public Offer, indication of level of interest in the Placing, basis of allocation of the Public Offer Shares and the number of Shares (if any) reallocated from the Placing to the Public Offer to be published on the GEM website, and in the South China Morning Post (in English) and the Hong Kong Economic Times (in Chinese) on or before ...... 11July
Despatch of share certificates and refund cheques in respect of wholly or partially unsuccessful applications and in respect of successful applications if the Issue Price is less than the price payable on application on or about (Note 3) ...... 12July
Dealings in the Shares on GEM to commence on ...... 14July A22
Notes:
1. If there is a “black” rainstorm warning or a tropical cyclone warning signal number 8 or above in force in Hong Kong at any time between 9:00 a.m. to 12:00 noon on 7 July 2000, the application lists will not open on that day. See the section headed “How to apply for the Public Offer Shares — Effect of bad weather on the opening of the application lists” in this prospectus.
2. The IPO Pricing Date (which is expected to be on 7 July 2000) will not in any event be later than 3 August 2000. If an Issue Price has not been fixed by such date the Company will publish an announcement to such effect.
3. If you are applying for 1,000,000 Shares or more and have indicated on your application form that you will collect your refund cheque(s) and share certificates (where applicable), you may collect them in person from Central Registration Hong Kong Limited at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong, between 9:00 a.m. and 1:00 p.m. on the date notified by the Company in the newspapers and the GEM website as the date of despatch of share certificates. This is expected to be on 12 July 2000. You must show your identification documents (or if a corporation your business registration certificate) to collect your refund cheque(s) and refund cheque(s) and share certificates. All such identification must be in a form acceptable to Central Registration Hong Kong Limited. If you do not collect your refund cheque(s) and share certificates, they will be sent to the address specified in 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 refund cheque(s) and share certificates, then your refund cheque(s) and share certificates will be sent to the address specified in your application form on the date of despatch, by ordinary post and at your own risk.
For details of the structure of the Share Offer, including conditions, see the section of this prospectus headed “Structure of the Share Offer”.
ii CONTENTS
You should rely only on the information contained in this prospectus and the application forms to make your investment decision.
The Company has not authorised any person to provide you with information that is different from what is contained in this prospectus.
Any information or representation not made in this prospectus must not be relied on by you as having been authorised by the Company, HSBC Investment Bank Asia, CLSA, the other Underwriters, any of their respective directors, or any other person or party involved in the Share Offer.
Page
Summary of this prospectus ...... 1
Definitions ...... 14
Glossary of technical terms ...... 20
Risk factors Risks relating to the Group ...... 26 Political and economic risks ...... 39 Risks relating to the Shares ...... 39 Issues to consider in relation to statements made in this prospectus ...... 41
Waivers from compliance with the GEM Listing Rules and the Companies Ordinance Waivers from compliance with the GEM Listing Rules ...... 42 Financial periods reported on ...... 47 Waivers from compliance with the Companies Ordinance ...... 48
Information about this prospectus and the Share Offer ...... 50
Directors ...... 54
Parties involved in the Share Offer ...... 55
Corporate information ...... 59
Industry overview ...... 60
Business History and development ...... 68 Corporate structure ...... 70 Internet services ...... 72 Data centres ...... 90 Local wireless fixed telecommunication network services ...... 95 Intelligent buildings ...... 104 IT investments ...... 108
iii CONTENTS
Page
Statement of active business pursuits Overview ...... 109 Active business pursuits ...... 109 Management’s discussion and analysis of financial condition and results of operations ...... 113
Financial information Indebtedness ...... 118 Liquidity, financial resources and capital expenditures ...... 118 Properties ...... 119 Dividends and working capital ...... 119 Distributable reserves ...... 120 Adjusted net tangible assets ...... 120 GEM Listing Rules 17.15 to 17.21 ...... 121 No material adverse change ...... 121
Statement of business objectives and strategies Business objectives ...... 122 Strengths ...... 122 Bases and assumptions ...... 123 Strategies ...... 123
Use of proceeds ...... 131
Year 2000 compliance ...... 132
Directors, management and staff Directors ...... 133 Compliance officer ...... 134 Qualified accountant ...... 134 Company secretary ...... 134 Senior management ...... 134 Management committee ...... 138 Audit committee ...... 138 Staff ...... 139
Relationship with Major Shareholders Significance of relationship with the Henderson Group and the Towngas Group . . 141 Potential competition with the Henderson Group and the Towngas Group ...... 141 Connected transactions ...... 141
Substantial, initial management and significant shareholders Substantial shareholders ...... 148 Initial management shareholders ...... 149 Significant shareholders ...... 150
Share capital ...... 151
iv CONTENTS
Page
Underwriting Underwriters ...... 152 Underwriting arrangements and expenses ...... 152
Structure of the Share Offer Price payable on application ...... 157 Determining the Issue Price ...... 157 The Share Offer ...... 158 Conditions of the Share Offer ...... 158 The Public Offer ...... 159 The Placing ...... 160 Placement to professional, institutional and other investors ...... 160 Offer mechanism — reallocation of the Offer Shares between the Public Offer and the Placing ...... 160 Over-allotment Option ...... 160 Stabilisation ...... 161
How to apply for the Public Offer Shares ...... 162
Appendix 1 — Accountants’ report ...... 171
Appendix 2 — Property valuation ...... 187
Appendix 3 — Summary of the constitution of the Company and Cayman Islands Company Law ...... 195
Appendix 4 — Statutory and general information ...... 217
Appendix 5 — Documents delivered and available for inspection ...... 256
v SUMMARY OF THIS PROSPECTUS
This summary aims to give you an overview of the information contained in this prospectus. Because this is a summary, it does not contain all the information that may be important to you. You should read the whole document in its entirety before you decide to invest in the Offer Shares. Capitalised terms not defined in this summary are defined in “Definitions” or “Glossary of technical terms” below.
There are risks associated with any investment. Some of the particular risks in investing in the Offer Shares are set out in the section headed “Risk factors”, which you should read carefully before you decide to invest in the Offer Shares.
BUSINESS
The Company is a member of the Henderson Land group of companies and undertakes A28(1) 3rd Sch1 the Henderson Group’s existing Internet, telecommunications and high technology services operations. The Company’s Internet, telecommunications and high technology services businesses originated from its Major Shareholders’ operations as property developer and public utility. Such businesses have been, or are in the process of being, developed as part of an integrated end-to-end Internet, telecommunications and high technology service for residential and commercial customers in Hong Kong.
The Group’s operations commenced in 1997, following the incorporation of Future Home in late 1996, providing high technology and infrastructure design services for the Henderson Group. This was followed by the incorporation of iCare, Eastar and HDC in November 1999, September 1999 and March 2000, respectively, to undertake the Group’s Internet, telecommunications and data centre services, respectively. Each of the Group’s business segments provides integrated end-to-end solutions. For example, iCare provides Set-top Boxes, ISP services and information and e-commerce services through its portal, and HDC intends to provide software solutions and ASP services to its customers as well as server co-location services. In addition, the services offered by the Group’s business segments are also intended to be integrated with each other. iCare or its content providers may co-locate their servers in HDC’s data centres, the iCare service or HDC’s ASP services may be transmitted through Eastar’s local wireless FTNS and then delivered to the end users through network systems designed by Future Home.
The Group’s business currently can be categorised into five associated and complementary business segments:
Internet services
The Group’s main Internet services are provided by iCare, which was incorporated on 10 November 1999 and is a wholly-owned subsidiary of the Company. The iCare portal is located at www.icare.com.hk and was launched in June 2000.
iCare has developed an integrated end-to-end Internet strategy, which provides families in Hong Kong with a combination of:
+ access to the Internet through a television Set-top Box or a PC;
+ free ISP services; and
1 SUMMARY OF THIS PROSPECTUS
+ an Internet portal including:
— e-shopping;
— information and entertainment;
— radio programmes on demand;
— a cooking channel;
— an electronic personal assistant; and
— banking and financial services.
Data centres
HDC was incorporated in March 2000 as the vehicle to operate the Group’s data centres. Currently three data centres are planned in Hong Kong with the launch of HDC’s first data centre at the Well Tech Centre in San Po Kong expected in the third quarter of 2000. Such data centres will provide a combination of server hosting, 24-hour facilities management and Internet connectivity and systems management, as well as a range of applications services and other IT consultancy services. These services are designed to provide enterprises with ‘mission-critical’ Internet operations with the security, high reliability, high performance, scalability and expertise necessary to optimise their Internet operations.
Local wireless fixed telecommunication network services
The Group’s local wireless FTNS operations are undertaken by Eastar, which was incorporated on 20 September 1999 and in which the Group holds a 92.2 per cent interest. Of the remaining 7.8 per cent, 5 per cent is held by Fiber Profits Limited which is an investment holding company incorporated in the British Virgin Islands and 2.8 per cent is held by Japan Asia Venture Fund which is a venture capital fund registered in the Netherlands. Both such entities are independent third parties.
Eastar was awarded a local wireless FTNS licence by OFTA in February 2000 to operate a LMDS-based broadband communications network. This network will be capable of delivering high quality broadband traffic via digital wireless point to multipoint technology to both commercial and residential customers in Hong Kong. Eastar is currently in the process of finalising the details for its network plan prior to installing the network, with a view to launching the service before March 2001.
By exploiting the local wireless FTNS technology, Eastar seeks to become a value added, solution based, economical provider of telecommunications services in Hong Kong that provides an attractive alternative service to local FTNS providers.
2 SUMMARY OF THIS PROSPECTUS
Intelligent buildings
Future Home was established in November 1996 as a wholly-owned subsidiary of Henderson Land. Future Home provides high technology and infrastructure design and consultancy services. To date such design and consultancy services have been provided solely to members of the Henderson Group. However, Future Home expects to explore business opportunities with other property developers, property owners, estate managers and owners corporations to upgrade existing IT infrastructure or to design new IT networks to enable broadband Intranet or Internet connectivity in residential and commercial buildings. The network infrastructure installed by Future Home is capable of delivering a range of Internet and telecommunications services, including those provided by iCare, HDC and Eastar.
IT investments
In addition to its principal operating companies, the Group has strategic investments in three IT companies, Adsale, Roctec and Cycom, which investments were made on 25 March 2000, 28 March 2000 and 15 May 2000, respectively.
Major business operations
The following chart sets out the current and proposed major business operations of the Group:
Henderson Cyber Limited
INTERNET DATA LOCAL INTELLIGENT IT INVESTMENTS SERVICES CENTRES WIRELESS FTNS BUILDINGS
iCare HDC Eastar Future Home Senway
Well Tech Centre Adsale
Big Star Centre Roctec
Wealth Centre Cycom
3 SUMMARY OF THIS PROSPECTUS
TRADING RECORD
The following table summarises the Group’s combined turnover and results for the A33 financial years ended 30 June 1998 and 30 June 1999 and the nine months ended 31 March 3rdSch27 2000, as if the current Group structure had been in existence throughout such periods. The full text of the Accountants’ Report for such periods is set out in Appendix 1 to this prospectus.
Nine months Year ended Year ended ended 30 June 30 June 31 March 1998 1999 2000 HK$’000 HK$’000 HK$’000
Turnover (Note 1) 466 1,965 3,417
Loss before taxation (18) (114) (4,732) Taxation — — —
Loss after taxation (18) (114) (4,732) Minority interests — — 21
Loss attributable to shareholders (18) (114) (4,711)
Loss per Share (cents) (Note 2) (0.0004) (0.0027) (0.11)
Notes:
1. Turnover represents consultancy service income earned by Future Home, all of which was derived from members of the Henderson Group, and interest income. See Section 6 to the Accountant’s Report set out in Appendix 1 to this prospectus.
2. Based on a total of 4,250,000,000 Shares in issue throughout each of the respective periods on the assumption that the Reorganisation had been effective as at, and the Capitalisation Issue had been made on, 1 July 1997.
3. According to paragraph 31 of the Third Schedule to the Companies Ordinance and Rules 7.03(1) and 11.10 of the GEM Listing Rules, the Company is required to include its financial results for each of the two years ended 30 June 2000 in the Accountants’ Report appended to this prospectus. As the financial year of the Group ends on 30 June and this prospectus includes the combined results of the Group covering the financial years ended 30 June 1998 and 30 June 1999 and the nine months ended 31 March 2000, the Directors consider full compliance with Rules 7.03(1) and 11.10 of the GEM Listing Rules and paragraph 31 of the Third Schedule of the Companies Ordinance respectively, in respect of the financial year immediately preceding the date of this prospectus ended 30 June 2000, to be unduly burdensome.
The Company has therefore applied for a waiver from strict compliance with such GEM Listing Rules from the Stock Exchange and for a waiver from strict compliance with such paragraph 31 from the SFC. The SFC and the Stock Exchange have granted waivers in relation to strict compliance with paragraph 31 of the Third Schedule to the Companies Ordinance and Rules 7.03(1) and 11.10 of the GEM Listing Rules such that the Accountants’ Report covers only the financial years ended 30 June 1998 and 30 June 1999 and the nine months ended 31 March 2000.
The Directors confirm that they have performed sufficient due diligence on the Group to ensure that, save as disclosed herein, up to the date of issue of this prospectus, there has been no material adverse change in the financial position of the Group since 1 April 2000, and there is no event which would materially affect the information shown in the Accountants’ Report set out in Appendix 1 to this prospectus.
4 SUMMARY OF THIS PROSPECTUS
BUSINESS OBJECTIVES
Overall business objectives
The Group’s overall business objective is to become a leading integrated Internet, telecommunications and high technology service provider in Hong Kong, offering end-to-end high technology solutions to commercial and residential customers. In seeking to achieve such objective, the Directors aim to establish each of the businesses of the Group as one of the leading service providers in its respective market segment and to leverage on the synergies of the businesses within the Group as well as the customer base, businesses and relationships of each of its Major Shareholders.
The Group seeks to differentiate itself from its competitors by providing customers with a wide selection of Internet, telecommunications and high technology services which are tailored to meet the specific requirements of such customers. From the provision of Internet portal services through iCare’s Set-top Boxes and ISP services, to the provision of voice telephony and data communications services through the Eastar network, to the provision of server co-location and ASP services through the HDC data centres and to the provision of IT infrastructure design and consultancy services by Future Home, customers will be able to take advantage of a comprehensive range of high technology services offered by the Group. Such services may also be bundled together in order to enable the Group to offer simplified, cost- effective and integrated solutions to its customers.
Once its existing operations are established in Hong Kong, the Group also intends to look for opportunities to develop the Group’s business operations in other markets in Asia.
STRENGTHS
The Directors believe that the Group has the following strengths:
+ the support of its Major Shareholders, namely the Henderson Group and the Towngas Group, each of which has substantial resources and an established reputation in Hong Kong, and is able to provide assistance, facilities and expertise to the Group;
+ access to the residents and tenants of the Henderson Group’s extensive residential, retail and commercial properties, as well as over 1.3 million households served by Towngas, amounting to in aggregate approximately 60 per cent of the population in Hong Kong;
+ a comprehensive range of complementary end-to-end Internet, telecommunications and high technology services, which provide opportunities for achieving synergies and bundling of services; and
+ a wide range of local, regional and international business relationships through its Major Shareholders that give the Group access to strategic alliances with companies such as Microsoft.
5 SUMMARY OF THIS PROSPECTUS
STRATEGIES
The Directors’ strategies to develop the Group’s Internet, telecommunications and high technology services businesses will focus on:
General
+ Seeking to integrate the Group’s existing businesses in order to become a total solution provider, providing products and services which are tailored to the requirements of the Group’s customers and fulfil a range of Internet, data and telecommunication needs.
+ Bundling the Group’s products and services in order to take advantage of synergies within the Group and in order to make such products and services more attractive to its customers.
iCare
+ Capitalising on its expected ‘first mover’ advantage in Hong Kong by further developing the Set-top Box technology in association with Microsoft and establishing the Set-top Box technology as the most popular means of accessing the Internet through direct marketing and providing a quality service that becomes part of people’s daily life.
+ Using the free ISP model and the additional services offered by iCare to become one of the leading ISPs in Hong Kong.
+ Exploiting a target market of lnternet users that has previously been untapped and establishing the iCare portal as the portal and e-shopping provider of choice by tailoring iCare’s services to the requirements of its target customers, including:
— identifying and forming alliances with a wide selection of quality content providers capable of providing exciting and interesting content that appeals to iCare’s target customer base;
— identifying and forming alliances with a wide selection of quality goods and services providers focused primarily on value for money, daily essentials and branded goods, in order to establish the portal as the most widely-used e-shopping mall and e-commerce portal in Hong Kong; and
— establishing a reliable ordering and delivery service as well as a reputation for quality and value for money through leveraging Towngas’ expertise in customer service, inventory control and logistics.
+ Once iCare has established its service in Hong Kong, it aims to expand the service into other locations in Asia, including Southern China subject to local regulatory requirements, where lifestyles and living standards are similar to Hong Kong.
6 SUMMARY OF THIS PROSPECTUS
HDC
+ Leveraging the Henderson Group’s access to property and expertise in construction and facilities management to roll-out the three data centres in Hong Kong in accordance with market demand.
+ Pricing the services of such data centres at a level that is competitive in the market.
+ Positioning the data centres as the best managed facilities in Hong Kong and also providing a comprehensive and integrated range of value added solutions and services for small to large enterprises including:
— web hosting;
— ASP services; and
— consultancy services.
+ Leveraging the Major Shareholders’ relationships and customer bases, as well as the Group’s other services, such as Eastar’s local wireless FTNS, to maximise the opportunities to rent space in the data centres.
+ Expanding its server co-location and other data centre services into other markets in Asia.
Eastar
+ Establishing Eastar’s local wireless FTNS network as one of the leading providers of integrated telecommunications services in Hong Kong by:
— building a technologically advanced, robust and wide-ranging network that has sufficient capacity and flexibility to meet customers’ needs;
— exploiting the lower infrastructure and operating costs and shorter service roll-out times of this new technology, in order to compete with the local FTNS operators;
— exploiting the existing and future customer base of the Major Shareholders and using innovative and focused marketing techniques to win new customers; and
— providing a high level of customer service.
7 SUMMARY OF THIS PROSPECTUS
+ Providing businesses and individuals with an increasingly comprehensive range of communications and information services and applications, in association with HDC and other established service providers or strategic partners, in order to increase demand for broadband communications capacity through the network by:
— bundling packages of services tailored to customers’ needs, in particular providing integrated solutions to customers seeking immediate, cost-effective and flexible solutions;
— leveraging the Group’s web hosting and data centre business to use the network to exploit the potential of the ASP market; and
— entering into strategic alliances with equipment vendors, infrastructure providers and third party service providers.
Future Home
+ Expanding its end-to-end design and consultancy services for high technology features and network infrastructure of residential and commercial buildings by Ieveraging on its relationship with the Henderson Group and developing relationships with other property developers, property owners, estate managers and owners corporations.
+ Designing and developing new application software, integrated systems and high technology services for residential and commercial developments, in order to provide a better environment and ‘intelligent communities’ for their occupants to meet the increasingly sophisticated technological requirements of the market.
SUMMARY OF RISK FACTORS
The Directors consider that there are certain risks involved in investing in the Company, which include those set out in the section headed “Risk factors” of this prospectus. These risks can be categorised into: (i) risks relating to the Group; (ii) political and economic risks; (iii) risks relating to the Shares; and (iv) issues to consider in relation to statements made in this prospectus, and are summarised as follows:
Risks relating to the Group
General financial risks
+ The Group has a limited operating history + The Group anticipates future losses + Significant future growth may place significant strain on the Group
8 SUMMARY OF THIS PROSPECTUS
Risks relating to the Major Shareholders
+ The Group is reliant on operating and financial resources provided by the Major Shareholders + The interests of the Major Shareholders may not always coincide with those of the Group, which could hamper the Group’s development
Risks relating to the Group’s current business operations
+ The Group depends on its key executives and personnel + The Group operates in markets subject to rapid technological change + The Group may not be able to develop its services sufficiently to meet customer requirements + The Group’s services are dependent on factors outside its control + The Group may be held liable for risks which may not be covered by, or may be in excess of, its insurance coverage + The Group is dependent on third party suppliers to provide goods and services, content, software and hardware + The Group’s businesses operate in an intensely competitive market + The Group will have to make a significant commitment in developing its brands + The Group may encounter difficulties with respect to its use of intellectual property rights
Risks relating to the Group’s Internet services businesses
+ The Group’s model to generate revenue from its Internet e-commerce services is not proven + The Group’s model to generate advertising revenue from its Internet services is not proven + The capacity of the Group’s Internet service may be less than its designed capacity and may be affected by operational difficulties + Government regulation and legal uncertainties could adversely affect the conduct of business on the Internet
Risks relating to the Group’s data centre business
+ The Group is subject to risks relating to the expansion of its data centre business
Risks relating to the Group’s local wireless FTNS business + Government regulation could adversely affect the Group’s local wireless FTNS + Local wireless FTNS licences have a finite term and are subject to restrictions + The Group’s local wireless FTNS business is subject to market acceptance and environmental considerations
9 SUMMARY OF THIS PROSPECTUS
Risks relating to the Group’s strategy and future operations
+ The Group may not be able to implement successfully its strategy for future growth
Political and economic risks
+ There are political and economic risks associated with doing business in Hong Kong
+ A change in currency exchange rates could increase costs relative to revenues of the Group
Risks relating to the Shares
+ An active trading market for the Shares may not develop and their market price may be subject to volatility
+ The shareholders’ interests in the Company may be diluted in the future
Issues to consider in relation to statements made in this prospectus
+ Certain statistics are derived from unofficial publications + Forward-looking statements contained in this prospectus may not be fulfilled
OFFER STATISTICS
Based on an Based on an Issue Price Issue Price of HK$1.20 of HK$1.40
Issue Price ...... 1.20 1.40
Market capitalisation ...... HK$6,000 million HK$7,000 million
Adjusted net tangible asset value A21 per Share (Note) ...... HK$0.198 HK$0.227
Note: The adjusted net tangible asset value per Share has been arrived at after the adjustments referred to in the paragraph headed “Adjusted net tangible assets” of the section headed “Financial information” of this prospectus and on the basis of a total of 5,000,000,000 Shares in issue and to be issued immediately following the completion of the Share Offer and the Capitalisation Issue but takes no account of any Shares which may be issued upon the exercise of the Over-allotment Option or of exercise of options granted under the Pre-IPO Option Plan or options that may be granted under the Share Option Scheme or which may fall to be issued or repurchased by the Company pursuant to the general mandates for the issue or repurchase of Shares granted to the Directors referred to in Appendix 4 to this prospectus.
10 SUMMARY OF THIS PROSPECTUS
USE OF PROCEEDS
Assuming an Issue Price of HK$1.30 (the mid-point of the range stated in this prospectus), the net proceeds from the Share Offer, after deducting related expenses, are estimated to be approximately HK$928 million (on the basis that the Over-allotment Option is not exercised). If the Over-allotment Option is exercised in full, the net proceeds will increase to approximately HK$1,070 million assuming an Issue Price of HK$1.30. The Directors intend to apply such net proceeds as follows:
+ approximately HK$250 million in aggregate will be used for the operations of iCare prior to the end of the first half of 2002, of which approximately HK$210 million will be used for the development and acquisition of hardware (the majority of which is expected to relate to the Set-top Boxes) and approximately HK$10 million will be used for the development and licensing of software and approximately HK$30 million will be used for advertising;
+ approximately HK$230 million in aggregate will be used to refurbish and/or equip the three HDC data centres, of which approximately HK$60 million is expected to be used by the second half of 2000, approximately HK$50 million is expected to be used by the first half of 2001 and approximately HK$120 million is expected to be used by the first half of 2002;
+ approximately HK$300 million in aggregate will be used for the Eastar local wireless FTNS prior to the end of the first half of 2002, of which approximately HK$180 million will be used for the acquisition of telecommunications network infrastructure, approximately HK$70 million will be used for the acquisition of distribution equipment and approximately HK$50 million will be used for block-wiring;
+ approximately HK$20 million will be used to fund the ongoing business operations of Future Home;
+ approximately HK$100 million will be allocated for future direct and indirect investments in high technology and Internet services businesses;
+ the balance of approximately HK$28 million will be used as working capital of the Group to support its ongoing operations and expansion; and
+ in the event that the Over-allotment Option is exercised in full, the additional net proceeds of approximately HK$142 million will be applied by the Company, as to approximately HK$36 million for the funding of iCare’s operations, approximately HK$43 million for the funding of HDC’s operations, approximately HK$28 million for the funding of Eastar’s operations and approximately HK$35 million as additional working capital of the Group to support its ongoing operations and expansion.
To the extent that the net proceeds of the Share Offer are not immediately required for the above purposes, it is the present intention of the Directors that such proceeds should be placed on short-term deposit with banks or financial institutions in Hong Kong. If for any reason the proceeds are not utilised as described above or are reallocated, the Company will issue an announcement in accordance with the GEM Listing Rules.
11 SUMMARY OF THIS PROSPECTUS
If the Issue Price is greater or less than HK$1.30, the net proceeds allocated in respect of working capital shall be increased or decreased accordingly and if the Over-allotment Option is not exercised in full the additional net proceeds will be allocated pro rata among the relevant subsidiaries on the basis stated above. REORGANISATION The Company’s reorganisation process is detailed in Appendix 4 to this prospectus. As a result of the Reorganisation, the Capitalisation Issue and the Distribution, the existing shareholders’ interests in the Company are summarised as follows:
Percentage Number of Shares shareholding held immediately immediately after the Share after the Share Offer, the Offer, the Capitalisation Capitalisation Name of Issue and the Issue and the Cost of investment Approximate total shareholder Distribution(8) Distribution(8) per Share cost of investment
Felix Technology 3,333,213,365 66.67 3.6 cents HK$118.7 million (Note 7) (Notes 1 to 6) (Notes 1 to 6)
Technology Capitalization 902,700,000 18.05 2.4 cents HK$21.2 million (Notes 1, 2 and 6) (Notes 1, 2 and 6)
Henderson Land 9,054,403 0.18 — — (Note 7) (Note 7) (Note 7)
Notes:
1. On 10 April 2000, Towngas IT Company Limited, the then sole shareholder of the Company, sold all the 78 Shares then held by it to Felix Technology and Technology Capitalization as to 39 Shares each at a consideration of HK$0.10 per Share.
2. On 28 June 2000, each of Felix Technology and Technology Capitalization subscribed for 26,549,961 Shares for cash at HK$0.80 each and part of the subscription moneys received by the Company was applied towards repayment of certain loans due by certain members of the Group to the Towngas Group and the Henderson Group.
3. On 28 June 2000, the loans in the aggregate amount of HK$43 million due by Data Tower Holdings Limited (“DTHL”) to Henderson Investment were capitalised by DTHL issuing 1 share to Henderson Investment credited as fully paid.
4. On 28 June 2000, the loans in the aggregate amount of HK$55 million due by Konet Investment Limited (“Konet”) to Henderson Investment were capitalised by Konet issuing 1 share to Henderson Investment credited as fully paid.
5. On 28 June 2000, Felix Technology was allotted and issued with a total of 71,900,000 Shares credited as fully paid as consideration for the acquisition by the Company from members of the Henderson Investment Group of its interest in the issued share capital of each of DTHL, Konet, Popular International Limited and Startech Investment Limited.
6. Felix Technology and Technology Capitalization will be issued and allotted with 3,248,850,000 Shares and 876,150,000 Shares respectively pursuant to the Capitalisation Issue.
7. Conditional on the Share Offer having become unconditional, Felix Technology will transfer a total of 14,086,635 Shares to Henderson Investment at 3.6 cents per Share which Shares will be made available
12 SUMMARY OF THIS PROSPECTUS
for distribution to the shareholders of Henderson Investment pursuant to the Distribution. Assuming that the total issued share capital of Henderson Investment and the shareholding of members of the Henderson Land Group in Henderson Investment as at the Record Date will be the same as that on the Latest Practicable Date and the Distribution is made, members of the Henderson Land Group will be entitled to receive 9,054,403 Shares under the Distribution. Assuming further that a maximum of 14,086,635 Shares are fully distributed under the Distribution, members of the Henderson Investment Group will not have any direct shareholding in the Company after the Distribution is made.
8. Assuming the Over-allotment Option is not exercised.
RESTRICTION ON DISPOSAL OF SHARES
Percentage Number of Shares shareholding held immediately immediately after the Share after the Share Offer, the Offer, the Capitalisation Capitalisation Issue and the Issue and the Lock up Initial Management Shareholders Distribution(3) Distribution(3) period(5)
Felix Technology(1) 3,333,213,365 66.67 1 year Technology Capitalization(2) 902,700,000 18.05 1 year Henderson Land 9,054,403(4) 0.18 1 year
Notes:
1. Felix Technology is a wholly-owned subsidiary of Best Selection Investments Limited, which in turn is a wholly-owned subsidiary of Henderson Investment which in turn is a subsidiary of Henderson Land, which in turn is a subsidiary of Henderson Development Limited (“HD”). Accordingly, each of Best Selection Investments Limited, Henderson Investment, Henderson Land and HD will have deemed interest in the 3,333,213,365 Shares held by Felix Technology under the SDI Ordinance.
2. Technology Capitalization is a wholly-owned subsidiary of Towngas Investment which in turn is a wholly-owned subsidiary of Towngas. Accordingly, each of Towngas Investment and Towngas will have deemed interest in the 902,700,000 Shares held by Technology Capitalization under the SDI Ordinance.
3. Assuming the Over-allotment Option is not exercised.
4. In addition to the deemed interest disclosed in note 1 above, Henderson Land will also have an interest in the 9,054,403 Shares to be distributed to members of the Henderson Land Group by Henderson Investment pursuant to the Distribution (assuming that the total issued share capital of Henderson Investment and the shareholding of members of the Henderson Land Group in Henderson Investment as at the Record Date will be the same as that on the Latest Practicable Date and the Distribution is made).
5. The Management Shareholders have undertaken to the Company and the Stock Exchange not to dispose of (or enter into any agreement to dispose of) or permit the registered holder to dispose of (or enter into any agreement to dispose of) any of their direct or indirect interest in these Shares (i) during the first six month period from the Listing Date and (ii) during the second six month period from the Listing Date so as to result in the Management Shareholders together ceasing to control less than 35 per cent of the issued share capital of the Company. See “Waivers from compliance with the GEM Listing Rules and the Companies Ordinance — Waiver relating to the Share lock-up”.
13 DEFINITIONS
In this prospectus, unless the context otherwise requires, the following expressions have the following meanings:
“Adsale” Adsale Broadnet Company Limited, a company incorporated on 8 February 2000 in Hong Kong with limited liability (whose business is described under “IT investments” in the section of this prospectus headed “Business”) and in which the Company held an indirect interest of approximately 11.54 per cent “associate(s)” has the meaning ascribed thereto in the GEM Listing Rules “BEA” The Bank of East Asia, Limited, a licensed bank incorporated in Hong Kong with limited liability, the shares of which are listed on the Main Board “Board” the board of Directors “business day” any day (other than a Saturday or Sunday) on which banks in Hong Kong are generally open for business “Capitalisation Issue” the capitalisation issue mentioned in item (d) of the paragraph headed “Resolutions passed by the shareholders of the Company on 28 June 2000” in Appendix 4 to this prospectus “C&W HKT” Cable & Wireless HKT, a telecommunications company incorporated in Hong Kong with limited liability, the shares of which are listed on the Main Board “CCASS” the Central Clearing and Settlement System established and operated by Hongkong Clearing “CLSA” CLSA Limited, a registered investment adviser and a registered dealer under the Securities Ordinance (Chapter 333 of the Laws of Hong Kong) “Companies Law” the Companies Law (Revised) of the Cayman Islands “Companies Ordinance” the Companies Ordinance (Chapter 32 of the Laws of Hong Kong) (as amended) “Company” Henderson Cyber Limited, formerly Gainfield Limited, a company incorporated on 10 January 2000 in the Cayman Islands with limited liability “Cycom” Cycom Technology Limited, a company incorporated in Hong Kong on 9 July 1996 with limited liability (whose business is described under “IT investments” in the section of this prospectus headed “Business”) and in which the Company holds an indirect interest of approximately 15.28 per cent “Director(s)” the director(s) of the Company “Distribution” the distribution of Shares by Henderson Investment to its shareholders referred to in note 8 under the paragraph headed “Substantial shareholders” in the section of this prospectus headed “Substantial, initial management and significant shareholders”
14 DEFINITIONS
“Eastar” Eastar Technology Limited, a company incorporated in Hong Kong with limited liability on 20 September 1999 (whose business is described under “Local wireless fixed telecommunications network services” in the section of this prospectus headed “Business”), in which the Company has an indirect 92.2 per cent interest “Felix Technology” Felix Technology Limited, an investment holding company incorporated in the British Virgin Islands with limited liability which is an indirect wholly-owned subsidiary of Henderson Investment “Future Home” Future Home Limited, formerly Power Sheen Development Limited, a company incorporated in Hong Kong with limited liability on 12 November 1996 (whose business is described under “Intelligent buildings” in the section of this prospectus headed “Business”), which is an indirect wholly-owned subsidiary of the Company “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 “GEM website” the website of GEM located at www.hkgem.com “Group” the Company and its subsidiaries or, where the context so requires, in respect of the period prior to the Company becoming the holding company of its present subsidiaries, the present subsidiaries of the Company “HDC” Henderson Data Centre Limited, formerly Silver Target International Limited, a company incorporated in Hong Kong with limited liability on 6 March 2000, which is an indirect wholly-owned subsidiary of the Company “Henderson Group” Henderson Land and its subsidiaries, but excluding the Group “Henderson Investment” Henderson Investment Limited, an investment holding company incorporated in Hong Kong with limited liability on 12 September 1972, the shares of which are listed on the Main Board, with an indirect interest of approximately 66.67 per cent in the Company held through Felix Technology immediately after completion of the Share Offer, the Capitalisation Issue and the Distribution (assuming the Over- allotment Option is not exercised) and with an interest of approximately 33.07 per cent in Towngas as at the Latest Practicable Date “Henderson Investment Henderson Investment and its subsidiaries, but excluding the Group” Group
15 DEFINITIONS
“Henderson Land” Henderson Land Development Company Limited, an investment holding company incorporated in Hong Kong with limited liability on 16 January 1976, the shares of which are listed on the Main Board and the controlling shareholder of the Company, whose interest in the Company is held through Henderson Investment in which Henderson Land had an interest of approximately 64.28 per cent as at the Latest Practicable Date “Henderson Land Group” Henderson Land and its subsidiaries, but excluding the Henderson Investment Group and the Group “HK$” and “cents” Hong Kong dollars and cents respectively, the lawful currency of Hong Kong “Hong Kong” the Hong Kong Special Administrative Region of the PRC “Hongkong Clearing” Hong Kong Securities Clearing Company Limited “HSBC Investment Bank HSBC Investment Bank Asia Limited, an exempt dealer under Asia” the Securities Ordinance (Chapter 333 of the Laws of Hong Kong) and a licensed bank under the Banking Ordinance (Chapter 155 of the Laws of Hong Kong) “iBrandDirect” iBrandDirect.com Limited, a company incorporated in Hong Kong with limited liability on 24 December 1999 (whose business is described under “Internet services” in the section of this prospectus headed “Business”), in which the Towngas Group had an indirect interest of 33.33 per cent as at the Latest Practicable Date “iCare” iCare.com Limited, a company incorporated in Hong Kong with limited liability on 10 November 1999 (whose business is described under “Internet services” in the section of this prospectus headed “Business”), which is an indirect wholly- owned subsidiary of the Company “IPO Pricing Date” the date on which the Issue Price is fixed for the purposes of the Share Offer, which is expected to be on or about 7 July 2000 and in any event will not be later than 3 August 2000 “Issue Price” the final price per Offer Share (exclusive of brokerage costs and Stock Exchange transaction levy) at which the Shares are to be subscribed and issued pursuant to the Share Offer, which will not be more than HK$1.40 per Offer Share and is expected to be not less than HK$1.20 per Offer Share and to be determined as described in the section headed “Structure of the Share Offer — Determining the Issue Price” “Latest Practicable Date” 23 June 2000, being the latest practicable date for ascertaining certain information in this prospectus prior to its publication “Legend” Legend Computer Systems Limited, a computer hardware manufacturer company incorporated in Hong Kong with limited liability and a wholly-owned subsidiary of Legend Holdings Limited, the shares of which are listed on the Main Board
16 DEFINITIONS
“Listing Date” the date trading in the Shares commences on GEM “Main Board” the stock market operated by the Stock Exchange prior to the establishment of GEM (excluding the options market) and which stock market continues to be operated by the Stock Exchange in parallel with GEM. For the avoidance of doubt, the Main Board excludes GEM “Major Shareholders” Henderson Investment, Towngas and, where the context so requires, Henderson Land “Management Shareholders” Henderson Land, Henderson Investment, Towngas, Best Selection Investments Limited, Towngas Investment, Technology Capitalization and Felix Technology, and “Management Shareholder” means any of them “Microsoft” Microsoft Corporation, a computer software manufacturer and consultant incorporated in the State of Washington with limited liability “Microsoft HK” Microsoft Hong Kong Limited, a computer software manufacturer and consultant incorporated in Hong Kong with limited liability which is an indirect wholly-owned subsidiary of Microsoft “Offer Shares” the Public Offer Shares and the Placing Shares “Over-allotment Option” the option granted by the Company to the Underwriters, exercisable by HSBC Investment Bank Asia (on behalf of the Placing Underwriters) pursuant to the Underwriting Agreement under which the Company may be required to issue up to 112,500,000 additional new Shares, representing 15 per cent of the Shares initially available under the Share Offer, to cover over-allocations in the Placing and/or over-subscriptions in the Public Offer “Placing” the conditional placing by the Placing Underwriters of the Placing Shares at the Issue Price with institutional and professional and other investors pursuant to an international placement as described in the section of this prospectus headed “Structure of the Share Offer” “Placing Shares” 675,000,000 new Shares (subject to reallocation) being offered under the Placing “Placing Underwriters” HSBC Investment Bank Asia, CLSA, BOCI Asia Limited, ING Barings Asia Limited as agent for ING Bank N.V., ABN AMRO Rothschild, ICEA Capital Limited, KGI Asia Limited, Tai Fook Securities Company Limited and Vickers Ballas Capital Limited “PRC” or “Mainland China” People’s Republic of China and for the purposes of this prospectus, excluding Hong Kong, Macau and Taiwan
17 DEFINITIONS
“Pre-IPO Share Option the share option plan, the principal terms of which are Plan” summarised in the paragraph headed “Share Options — Summary of terms of the Pre-IPO Share Option Plan” in Appendix 4 to this prospectus “Public Offer” the offer for subscription by the public of the Public Offer Shares at the Issue Price, on and subject to the terms and conditions stated in this prospectus and in the application forms relating thereto “Public Offer Shares” the 75,000,000 new Shares (subject to reallocation) being offered by the Company for subscription under the Public Offer “Public Offer HSBC Investment Bank Asia, CLSA, BOCI Asia Limited, ING Underwriters” Barings Asia Limited as agent for ING Bank N.V., ABN AMRO Asia Corporate Finance Limited, NM Rothschild & Sons (Hong Kong) Limited, ICEA Capital Limited, KGI Asia Limited, Tai Fook Securities Company Limited and Vickers Ballas Capital Limited “QIB” “qualified institutional buyer” within the meaning of Rule 144A “qualified purchasers” “qualified purchasers” within the meaning of the U.S. Investment Company Act of 1940 “Record Date” 11 July 2000, being the date for ascertaining entitlements to the Distribution “Regulation S” Regulation S under the US Securities Act “Reorganisation” the reorganisation of the Group in preparation for the listing of the Shares on GEM, details of which are set out in the section “Statutory and general information — Corporate reorganisation” in Appendix 4 to this prospectus “Roctec” Roctec Technology Limited, a company incorporated in Hong Kong on 24 November 1987 with limited liability (whose business is described under “IT investments” in the section of this prospectus headed “Business”) and in which the Company holds an indirect interest of approximately 4.76 per cent “Rule 144A” Rule 144A under the US Securities Act “SDI Ordinance” the Securities (Disclosure of Interests) Ordinance (Chapter 396 of the Laws of Hong Kong) (as amended) “SEC” the US Securities and Exchange Commission “Senway” Senway Technology Limited, formerly Sunway Technology Limited and Sanway Technology Limited, an investment holding company incorporated in the British Virgin Islands with limited liability on 21 February 2000, which is an indirect wholly-owned subsidiary of the Company “SFC” the Securities and Futures Commission
18 DEFINITIONS
“Share(s)” share(s) of HK$0.10 each in the share capital of the Company “Share Offer” the Public Offer and the Placing “Share Option Scheme” the share option scheme for employees and directors of members of the Group, the principal terms of which are summarised in the paragraph headed “Share Options — Summary of terms of the Share Option Scheme” in Appendix 4 to this prospectus “Stock Exchange” The Stock Exchange of Hong Kong Limited “Technology Technology Capitalization Limited, an investment holding Capitalization” company incorporated in the British Virgin Islands with limited liability on 10 January 2000, which is an indirect wholly-owned subsidiary of Towngas “Towngas” The Hong Kong and China Gas Company Limited, a gas utility incorporated in England with limited liability on 3 June 1862 and whose jurisdiction of incorporation was transferred to Hong Kong on 14 October 1982, the shares of which are listed on the Main Board, with an indirect interest of approximately 18.05 per cent in the Company held through Technology Capitalization immediately after completion of the Share Offer, the Capitalisation Issue and the Distribution (assuming the Over-allotment Option is not exercised) “Towngas Group” Towngas and its subsidiaries “Towngas Investment” Towngas Investment Company Limited, an investment holding company incorporated in Hong Kong with limited liability on 17 November 1999, which is a wholly-owned subsidiary of Towngas “Underwriters” the Public Offer Underwriters and the Placing Underwriters “Underwriting Agreement” the conditional placing and underwriting agreement relating to the Share Offer dated 3 July 2000 entered into between, inter alia, the Company and the Underwriters “US”, “USA” or “United the United States of America States” “US Securities Act” the US Securities Act of 1933, as amended “US$” United States dollars, the lawful currency of the US
All third party trade marks appearing in this prospectus are the property of their respective owners.
For the purposes of this prospectus, unless otherwise indicated, Hong Kong dollar amounts have been translated using the rate of US$1 : HK$7.80 for the purpose of illustration only. No representation is made that any amounts in US$ or HK$ could have been or could be converted at such rate or at any other rate or at all.
19 GLOSSARY OF TECHNICAL TERMS
The glossary contains explanations of certain terms and definitions used in this prospectus in connection with the Group and its business. The terms and their meanings may not correspond to standard industry meaning or usage of these terms.
“ASP” Application Services Provider, an entity which “hosts” software applications on its servers and deploys such applications across a network to its customers on a subscription basis. For example, a company’s workstations can be configured to access the ASP’s servers via the Internet to perform a range of business functions from accounts payable, bank reconciliation, general ledger and payroll, to sales order and purchase order processing, inventory management and e-commerce
“ATM” Asynchronous Transfer Mode, a high speed switching technology that may become pervasive across all communications networks. ATM is able to switch information streams at high speed (155.52 Mbps to 2.488 Gbps) due to its use of fixed-length 53 byte cells. However, of greater importance than outright speed is its ability to carry voice, data and video simultaneously with low latency and allocate network bandwidth dynamically
“backbone” a high speed series of connections that form a major pathway within a network. In the Internet, backbones link up all the ISPs. They can be global, national or restricted to a metropolitan area
“bandwidth” a measure of the information-carrying capacity of any medium, whether wired or wireless. The unit of measurement is hertz. The higher the bandwidth, the faster the transfer of data through a communications channel. However, the actual speed of data transfer or data rate (measured in bps) through a channel of a given bandwidth, is affected by the spectral efficiency of that particular medium, therefore bandwidth and data rate are not directly related
“broadband” telecommunications that provide multiple channels of data over a single communication medium
“CABD” Communal Aerial Broadcasting Distribution, the traditional means of receiving free-to-air television programming via a roof-top aerial
“CATV” Communal Aerial Television, the means of receiving television programmes broadcast by cable television operators via fibre optic and/or coaxial cabling
“Cat-5” Category 5 high quality copper cable, commonly used for LANs
20 GLOSSARY OF TECHNICAL TERMS
“CCTV” Closed Circuit Television System
“coaxial cable” an insulated copper wire surrounded by a grounded aluminium layer which acts as a shield against electrical and radio frequency interference, commonly used in cable television installations
“community” an interacting population of individual Internet users in a common location
“cpm” Cost Per Mille, the cost per thousand advertisement impressions
“domain name” the Internet name of a website which is registered with an approved domain name registrar, e.g. “iCare.com.hk”
“download” to copy files from one computer to another via a network or using a modem
“DSL” Digital Subscriber Line, a group of modulation and compression technologies for the support of higher data rates on traditional twisted copper pair telephone networks
“e-commerce” electronic commerce carried out through or facilitated by the Internet
“ethernet” a common networking protocol for connecting computers in order to form a small network of linked computers and other devices in which each device is located in close proximity to all the others
“ETS” External Telecommunication Services
“fibre optic cable” a cable containing a bundle of glass or plastic fibres which carry information encoded in pulses of light
“Frame Relay” an enhanced version packet-switching technology supporting data rates of up to 45Mbps. Frames are similar in concept to packets but they are generally larger. Both are of a variable length, which differentiates them from the fixed-length cells used by ATM. The variable length of Frame Relay’s frames makes the technology ideally suited to asynchronous data communications which is transmitted in bursts but less suitable for synchronous services such as voice and video, although Frame Relay is capable of supporting both of the latter
21 GLOSSARY OF TECHNICAL TERMS
“FTNS” Fixed Telecommunications Network Services, which involves the transmission of communications traffic from and to fixed points over a physical network, in contrast to wireless FTNS which involve transmission of communications traffic using microwaves
“Gpbs” gigabits per second, a measurement of speed for digital signal transmission expressed in thousands of millions of bits per second
“hit” a statistic used to measure website activity. One hit is counted each time a user accesses a different file on a website. Each page viewed on a website may contain many such files, so a single pageview or visit may account for multiple hits
“HTML” HyperText Markup Language, a coding language used to make hypertext documents for use on the web. HTML resembles old-fashioned typesetting code, where a block of text is surrounded by codes that indicate how it should appear. HTML allows text to be “linked” to another file on the Internet
“HTTP” HyperText Transfer Protocol, the data exchange protocol used for the world wide web. HTTP allows for the transfer of multimedia and hyperlinked data
“IBCCDS” In-Building Coaxial Cable Distribution Systems, coaxial cabling systems often used in buildings to distribute SMATV or cable television
“ICP” Internet Content Provider, a company that provides information, articles and other content over the Internet
“IDC” International Data Corporation, a company incorporated in Massachusetts, US, which provides information technology market research
“impression” an advertisement’s appearance on an accessed webpage. Advertisers use impressions to measure the number of views their advertisements receive and often buy advertising space according to a number of impressions. Impressions are tracked in a log maintained by a site server and are often sold on cpm basis
“Internet” a global network of interconnected, separately administered public and private computer networks
22 GLOSSARY OF TECHNICAL TERMS
“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 and is the basis of the public Internet and of intranets. Internet Protocol determines how to get data from the starting point to the destination by the breaking up of the data into packets, labelling those packets with details of contents, sender destination, then routing them to the destination
“Intranet” a network that connects a geographically distinct group of people, to be contrasted with the Internet which is a system of worldwide networks
“ISDN” Integrated Service Digital Network, a standard for an all- digital communications network that uses 64 Kbps channels and is able to carry voice, data or video signals. ISDN can support dial-up connections as well as permanent connections
“ISP” Internet Service Provider, a company that provides businesses and individuals with access to the Internet
“IT” Information Technology
“kHz” Kilohertz
“Kbps” Kilobits per second, a measurement of speed for digital signal transmission expressed in thousands of bits per second
“LAN” Local Area Network, a number of computers connected together over a relatively small geographical area, such as an office building or university campus
“link” or “hypertext link” a graphic image or line of text on a website which transports a user from one web page to another with a click of a mouse
“LMDS” Local Multipoint Distribution System, which involves two-way broadband wireless data transmission within a line-of-sight radius
“Mbps” megabits per second, a measurement of speed for digital signal transmission expressed in millions of bits per second
“MCIS” Microsoft Commercial Internet System
“OFTA” Office of Telecommunications Authority of Hong Kong
“on-line” being connected to the Internet
“on-line community” a collection of Internet users organised around topics in such a way that the user actively contributes to both the dialogue and content within the community
23 GLOSSARY OF TECHNICAL TERMS
“packet” a unit of information sent from one computer to another over a data network such as the Internet. Along with the actual data, a packet also contains the addresses of both its source and destination. Unlike cells, packets vary in length
“packet-switching” a type of switching system used in a telecommunications network that breaks information up into packets, attaches an address to each, then transmits them by diverse routes across a shared-access network. Packets are stored by buffers in the network then forwarded when capacity becomes available. This makes packet-switching more efficient than circuit- switching, but less suited to the carriage of time-sensitive traffic such as voice telephony since the use of temporary storage can create unacceptable delays. The Internet and other Internet Protocol networks use packet-switching
“pageviews” a statistic used to measure website activity. One pageview is recorded each time a single page on a website (which may count for several hits) is loaded on a web browser
“PC” Personal Computer
“PC penetration” number of PCs divided by the subject population
“PNETS” Public Non-Exclusive Telecommunications Service, a general telecommunications licence issued by OFTA with general and specific conditions tailored to the licencee
“portal” a website that attracts visitors by offering information or services which is updated on an ongoing basis, but also acts as an entry point and gateway to other web-related services and links
“PSTN” Public Switched Telephone Network, the national telecommunications network used for the carriage of normal voice traffic and the support of dial-up connections to data networks such as the Internet
“server” a computer that provides services for users of a computer network such as file server, print server or database server
“Set-top Box” a device which supports access by a television to additional services, such as subscription or pay TV, digital broadcasting, datacasting, interactive services or the Internet. In relation to the iCare Set-top Boxes, they are the television Set-top Boxes developed with Microsoft, using Microsoft TV and MCIS, as adapted to support simplified Chinese and traditional Chinese characters as well as narrowband and broadband signals
24 GLOSSARY OF TECHNICAL TERMS
“SMATV” Satellite Master Antenna Television System, the means of receiving satellite television programmes via a roof-top receiving dish
“SMEs” Small and Medium-sized Enterprises
“switch” a node in a telephony or computer network in which circuits are connected automatically in response to signals generated by subscribers’ telephone sets or computer
“traffic” the volume of web users visiting a website
“visit” a statistic used to measure website activity. A visit is generally recorded only once each time a user accesses a website, although, if a user is inactive for a period of time while accessing a website (i.e., the user is not recording additional hits and pageviews) an additional visit could be recorded when the user becomes active again
“web” or “world wide web” a worldwide network of servers that support hypertext connections and other links using HTML and HTTP and which permits the communication of text, graphics, video, sound and other data over the Internet
“web browser” or software which provides a graphic interface through which an “browser” Internet user can navigate to various websites and other Internet content, and which integrates various tools which perform Internet-related functions for users, such as transferring files and reading e-mail
“web page” a single file that can be displayed on the web
“website” a collection of web pages which are linked together by a website operator
25 RISK FACTORS
14.22 An investment in the Offer Shares involves a high degree of risk and is speculative. Potential investors should carefully consider all of the information set out in this prospectus and, in particular, should consider the following risks and special considerations associated with an investment in the Group before making any investment decision in relation to the Group. Additional risks and uncertainties not presently known to the Group or that the Group currently deems immaterial could also harm the business, financial condition and operating results of the Group.
This prospectus contains certain forward looking statements relating to the Group’s plans, objectives, expectations and intentions. The cautionary statements in this prospectus should be read as applicable to all forward looking statements herein. The Group’s future financial results or operations could differ materially from those discussed in this prospectus. Factors that could cause or contribute to such differences include those discussed below, as well as those discussed elsewhere in this prospectus.
RISKS RELATING TO THE GROUP
General financial risks
The Group has a limited operating history
The Group in its current form has a limited operating history. The Group’s operations commenced in 1997 following the incorporation of Future Home, as a subsidiary of Henderson Land, in late 1996. In the second half of 1999, the Group commenced the development of a number of associated businesses, namely the iCare Internet service, the HDC data centre facilities and the Eastar local wireless FTNS. As a result, the Group has a limited operating history on which to base an evaluation of its business and prospects. The Group’s prospects must be considered in the light of the risks and uncertainties frequently encountered by companies in their early stages of development and in particular new companies in the new and rapidly developing Internet, telecommunications and high technology services markets. Such risks and uncertainties include those risk factors disclosed below.
The Group anticipates future losses
Future Home’s operations have incurred losses in the past. The Group incurred a net loss of approximately HK$0.02 million in the year ended 30 June 1998, HK$0.1 million in the year ended 30 June 1999 and HK$4.7 million in the nine months ended 31 March 2000. The losses incurred in each such period arose as the Group’s turnover was not sufficient to cover its costs (see Note 3 of the Accountants’ Report in Appendix 1 to this prospectus). The Directors anticipate that the Group will continue to incur operating losses at a greater level than this for the foreseeable future due to a high level of planned operating and capital expenditures, potential acquisitions, increased sales and marketing costs, additional personnel hires, greater levels of product development and the Group’s general growth objectives. In particular, iCare’s Internet services, HDC’s data centre operations and Eastar’s local wireless FTNS will require significant capital investment.
Whilst Future Home commenced operations as a subsidiary of Henderson Land in 1997, a number of significant new subsidiaries of the Group, which commenced operations during 1999 and 2000 or will commence operations in 2000, have been added to form the Group.
26 RISK FACTORS
Therefore, an analysis of the combined historical financial statements in relation to the Group should not be relied on as an indication of future performance. In addition, as a result of the rapidly evolving nature of the Group’s business and its limited operating history in its current form, it is extremely difficult to forecast future revenues and earnings and the Group believes that period-to-period comparisons of its operating results may not be meaningful and should not be relied on as an indication of future performance. See “Statement of active business pursuits — Management’s discussion and analysis of financial condition and results of operations”.
Significant future growth may place significant strain on the Group
The Group is currently experiencing a period of significant expansion in terms of its headcount, facilities and infrastructure and the Directors anticipate that further expansion will be required to address potential growth in its businesses. Such expansion may place a significant strain on the Group’s management, operational and financial resources. The Group’s ability to manage future growth, should it occur, will depend upon its ability to monitor operations, control costs, maintain effective quality controls and significantly expand the Group’s internal management, technical and accounting systems. Any failure to expand these areas and to implement and improve such systems, procedures and controls in an efficient manner at a pace consistent with the growth of the Group’s business could have a material adverse effect on the Group’s business, results of operations and financial condition.
The Group expects to continue to recruit additional personnel to assist in achieving its planned growth. However, competition for employees with the necessary experience in the Internet, telecommunications and high technology service industries is intense and is expected to increase. As a result of such competition, the Group may not be able to retain existing employees or identify or recruit new employees on reasonable terms, if at all. The failure of the Group to retain or recruit the necessary personnel could have a material adverse effect on the Group’s business, results of operations and financial condition.
Furthermore, the Group may merge, acquire or enter into relationships with strategic partners or other third parties in order to expand the Group’s business. In such event, there can be no assurance that the Group’s current and planned personnel, systems, procedures and controls will be adequate to support the Group’s future operations, that management will be able to hire, train, retain, motivate and manage required personnel or that the Group’s management will be able to identify, manage and exploit existing and potential strategic relationships and market opportunities. The failure of the Group to manage such growth effectively could have a material adverse effect on the Group’s business, results of operations and financial condition.
Risks relating to the Major Shareholders
The Group is reliant on operating and financial resources provided by the Major Shareholders
During their operating history, the Group’s businesses have been operated as subsidiaries of either the Henderson Group or the Towngas Group. The Major Shareholders
27 RISK FACTORS have only recently reorganised such businesses under the Group for the purposes of the Share Offer. As a result, the combined financial statements included in this prospectus do not necessarily reflect the financial condition of the Group as though the Group had been a stand-alone entity throughout the relevant periods.
Historically, the Group’s revenues have been generated solely by Future Home whose business has been entirely dependent on the Henderson Group. Although following the Share Offer the Group will operate as an independent entity, the Directors do, in certain respects, expect to continue to rely on the Major Shareholders. In particular:
+ iCare expects to rely on the Towngas Group in respect of its customer base and in relation to warehousing, inventory control, call centres and customer service pursuant to the Supporting Services Arrangements;
+ HDC expects to rely on the Henderson Group in respect of its access to property for use as data centres and expertise in project management and facilities management; and
+ although Future Home expects to provide its services to independent third parties in the future, it still expects to derive a substantial proportion of its revenues from the Henderson Group.
For a description of the above see “Connected transactions” as set out under the heading “Relationship with Major Shareholders”.
Prior to the Reorganisation, the Group’s businesses have also relied on the Major Shareholders for substantially all of their resources and funding. The balances of capital provided by the Major Shareholders to the Group were nil, HK$0.1 million and HK$57.4 million as at 30 June 1998, 30 June 1999 and 31 March 2000, respectively. Whilst the Company and the other members of the Group will remain subsidiaries or affiliates of the Major Shareholders following the Reorganisation, as a result of the listing of the Offer Shares on GEM, the Group will become subject to the provisions governing connected transactions in the GEM Listing Rules. As a result, certain transactions may require approval by the independent shareholders of the Company, which may limit the ability of the Group to rely on the Major Shareholders as a source of capital in the future.
The interests of the Major Shareholders may not always coincide with those of the Group, which could hamper the Group’s development
Immediately after the Share Offer, the Capitalisation Issue and the Distribution, the Towngas Group and the Henderson Group will in aggregate indirectly control approximately 85 per cent of the issued Shares (assuming the Over-allotment Option is not exercised). Therefore, the Towngas Group and the Henderson Investment Group will control the Board and accordingly will exercise substantial influence over the Group’s operations and business strategies. Such voting control will permit the Towngas Group and the Henderson Investment Group to procure that special resolutions of shareholders are passed or certain types of transactions are blocked (unless it is prevented from voting due to conflicts of interest), including those involving an actual or potential change of control of the Group. In the event that there is a divergence of the Group’s strategic and other interests from those of the Towngas
28 RISK FACTORS
Group and the Henderson Investment Group in the future, there can be no assurance that the Towngas Group and the Henderson Investment Group will use their influence over the affairs of the Group in a manner which is in the best interests of the Group. See “Relationship with Major Shareholders”.
In addition, although the Directors believe that the Major Shareholders have no current intention to engage in competing activities, they are under no contractual restriction that they will not do so in the future.
Risks relating to the Group’s current business operations
The Group depends on its key executives and personnel
The Group’s performance depends to a significant extent on the continued services and performance of its Directors and senior management. In addition, the successful implementation of the Group’s strategy for growth will rely on the commitment and ability of the Directors and senior management to execute such strategy. The Group’s employees include a number of key managerial, marketing, planning, technical and operations personnel who have only recently been recruited, including the Company’s Chief Executive Officer. The Group’s performance also depends on its ability to retain and motivate its officers and key employees. The Group does not have employment agreements in excess of three years with any of its key personnel and maintains no “key person” life insurance policies. The failure to retain, or the loss of the services of, any of its key personnel, could have a material adverse effect on the Group’s business, results of operations and financial condition.
The Group operates in markets subject to rapid technological change
All of the markets in which the Group operates, and in particular the Internet, telecommunications and high technology services markets, are characterised by rapidly changing technology, evolving industry standards, frequent new service and product announcements, introductions and enhancements and changing customer demands. These market characteristics are exacerbated by the emerging nature of the Internet. Accordingly, the Group’s future success will depend on its ability to adapt to rapidly changing technologies, to adapt its services to evolving industry standards and continually to improve the performance, features and reliability of its services in response to competitive service and product offerings and evolving demands of the market place. The failure of the Group to adapt to such changes could have a material adverse effect on the Group’s business, results of operations and financial condition.
In particular, the widespread adoption of new Set-top Box, Internet, networking or telecommunications technologies, standards or other technological changes could require substantial expenditures by the Group to modify or adapt its services or infrastructure, which could have a material adverse effect on the Group’s business, results of operations and financial condition.
The Group may not be able to develop its services sufficiently to meet customer requirements
The success of the Group’s services will depend upon the capacity, scalability and reliability of the Group’s IT systems and networks. As the Group’s revenues are dependent,
29 RISK FACTORS inter alia, on the number of subscribers using, the number of transactions made through and the volume of traffic passing through, its Internet, data centre and telecommunications services, the Group seeks to generate a high volume of traffic and transactions. Therefore, any system failure or inadequacy that causes interruptions in the availability of the services of the Group, or increases the response time of services of the Group, could reduce user satisfaction, future traffic and the attractiveness of the Group’s services to its customers.
Any substantial increase in the volume of traffic or transactions using the Group’s Internet, data centre or telecommunications services will require the Group to expand and upgrade its technology, transaction processing systems, warehousing, inventory, despatch and delivery systems, data centre facilities and network infrastructure. The expansion and adaptation of the Group’s Internet, data centre and telecommunications infrastructure and warehousing, despatch and delivery services will require substantial financial, operational and management resources. Due to the limited deployment, if at all, of the Group’s services to date, the ability of the Group’s services and network to connect, service and manage a substantially larger number of customers and transactions at high volumes and transmission speeds is as yet unknown.
There can be no assurance that the Group will be able to project accurately the rate or timing of increases, if any, in the use of its Internet, data centre or telecommunications services or expand and upgrade its Internet, data centre and telecommunications systems and infrastructure to accommodate such increases in a timely manner and at a commercially reasonable cost, or at all. In addition, as the traffic and number of transactions increase, there can be no assurance that the Group will be able to scale its systems proportionately. Any failure to expand or upgrade its Internet, data centre and telecommunications systems and infrastructure could have a material adverse effect on the Group’s business, results of operations and financial condition.
The Group’s services are dependent on factors outside its control
The Group’s services are dependent upon a reliable Internet and telecommunications network infrastructure, in terms of both its own networks and third party networks which it is connected to, to support the efficient transmission of voice and data traffic and provide adequate security. In particular, the Group is dependent on C&W HKT and certain other telecommunications carriers for their network capacity and is therefore dependent on such companies to maintain the operational integrity of and sufficient capacity within such networks. Users of the Group’s services may in the future experience difficulties due to network failures unrelated to the systems and services of the Group which could adversely affect the Group’s reputation for reliability. In addition, any increase in the rates or access fees charged by such third parties could have a material adverse effect on the Group’s business, results of operations and financial condition.
In the event of damage from fire, floods, typhoons, earthquakes, power loss, telecommunications failures, break-ins, vandalism, human error and similar events, the Group could experience a complete shut-down of its networks or third party networks on which it is reliant. Insurance coverage of the Group may not be adequate to compensate the Group for all losses that may occur in these circumstances.
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Inappropriate use of the Group’s Internet services, data centre facilities or telecommunications network could jeopardise the security of confidential information (such as credit card numbers) stored on the Group’s computer systems (or those of its customers) or passing through its telecommunications network, which may cause losses to the Group or its customers. Such inappropriate use includes attempting to gain unauthorised access to data or systems, commonly known as “cracking” or “hacking”, or infecting the Group’s software with computer viruses. Although the Group has implemented security measures to protect its facilities and networks, it is impossible to eliminate this risk completely. Alleviating problems caused by security breaches or computer viruses or other inappropriate uses may also lead to interruptions, delays or cessation in the Group’s services. The Group does not carry insurance covering losses or liabilities caused by computer viruses or security breaches.
The Group may be held liable for risks which may not be covered by, or may be in excess of, its insurance coverage
Since the Group’s services can be used to download and distribute information to others and distribute products or services on behalf of third parties, there is a risk that claims may be made against the Group for defamation, negligence, copyright or trade mark infringement or other claims based on the nature and content of such material. In addition, the Group’s Internet services and e-commerce activities present new risks which the Group may not be able to insure on commercially reasonable terms, if at all.
In particular, whilst it is intended that customers should be responsible for damage or loss with respect to their own hardware, data or software located in the Group’s data centres, should the Group incur liability in connection with system downtime or should damage be caused to the hardware, data or software of any of its customers, there can be no assurance that the Group’s liability insurance would be adequate to cover such damage.
In addition, no assurance can be given that products delivered by iCare will be free from contaminants or defects. If any products sold by iCare cause harm to any of its customers, it could become subject to lawsuits for product liability. If iCare is found liable under any such claim or is required to defend itself under any such claim, its reputation could suffer and the volume of orders made could be affected.
Any imposition of liability that is not covered by the Group’s insurance policies or is in excess of the Group’s insurance coverage could have a material adverse effect on the Group’s business, results of operations and financial condition.
The Group is dependent on third party suppliers to provide goods and services, content, software and hardware
The Group’s services are dependent on third party suppliers and licensors of goods and services, content, software and hardware. The failure of the Group’s suppliers and licensors to (a) meet their commitments or (b) meet increases in demand or (c) make such licences available on commercially reasonable terms, if at all, and the Group’s inability to develop alternative sources for such goods and services, content, software and hardware could delay and/or increase the cost of expanding its Internet, telecommunications and high technology services and could have a material adverse effect on the Group’s business, results of operations and financial condition.
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Particular examples include:
+ iCare’s dependence on its relationship with Microsoft regarding the development of the Set-top Boxes and the licensing, maintenance and support of the Microsoft TV and MCIS software;
+ iCare’s dependence on Legend to manufacture the Set-top Boxes. Although the terms of the Legend MOU give iCare flexibility as to its commitment to order the Set-top Boxes and Legend will incur financial penalties if it fails to meet its commitments, there can be no assurance that Legend will be able to deliver such hardware in sufficient quantities to meet demand, if at all;
+ iCare’s dependence on Uni-World (iCare’s distribution agent) with respect to the distribution of products sold through its service;
+ Eastar’s dependence on its international technology partners (Nortel and Datacraft) for the network infrastructure of the local wireless FTNS. There is no internationally accepted standard for the LMDS technology, so Eastar will be required to make a commitment in the medium term to its technology partners with respect to the parts of the network supplied by such providers, although other technology partners may be used for new parts of the network.
The Group’s businesses operate in an intensely competitive market
The market for Internet, data centre and telecommunications services is rapidly evolving and intensely competitive and the Group expects competition to intensify further in the future. Some of the existing competitors of the Group, as well as a number of potential new international competitors, have longer operating histories in the relevant markets, greater name recognition, larger customer bases and databases, more established strategic relationships and significantly greater financial, technical and marketing resources than the Group. As a result, certain of these competitors may be able to develop and expand their services more quickly, adapt to new or emerging technologies and changes in customer requirements more quickly, take advantage of acquisition and other opportunities more readily, devote greater resources to the marketing and sale of their products and adopt more aggressive pricing policies than the Group.
The Group competes in the ISP, portal and e-commerce, data centre and telecommunications markets on the basis of price, number of subscribers, traffic volume, ease of use and functionality. However, any of the present or future competitors of the Group may provide products or services that provide significant performance, price, creativity, functionality or other advantages over those offered by the Group. Competitive pressures created by any of the Group’s competitors, individually or collectively, could have a material adverse effect on the Group’s business, results of operations and financial condition. Furthermore, as a strategic response to changes in the competitive environment, the Group may, from time to time, make certain pricing, service or marketing decisions or acquisitions that could have a material adverse effect on its business, results of operations and financial condition.
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In particular, in relation to:
+ the ISP market, there are over 178 licensed ISPs in Hong Kong, although only about five ISPs control the majority of the dial up ISP market;
+ the Set-top Box market, currently no Set-top Box supplier bundles such product with ISP services, installation and e-commerce portal services. However, a number of other companies are developing similar technology and there can be no assurance that Microsoft will not develop a broadband Set-top Box or other mode of accessing the Internet with competitors of the Group;
+ the portal and e-commerce markets, barriers to entry are relatively low and current and new competitors can launch new websites or portals at a relatively low cost using commercially-available software. However, significant investment is needed in order to establish reliable warehousing, ordering and delivery systems for e-commerce websites;
+ the data centre market, there are a number of other operators that have introduced their services prior to those of the Group and may introduce a greater volume of space available for rent which could create a downward pressure on prices; and
+ the telecommunications market, the Hong Kong Government is pursuing a policy of deregulation, which has had the effect of introducing a wide range of telecommunications providers as well as competing telecommunications technologies. Such competition is expected to result in pressure to discount services and increase marketing efforts in order to establish a sustainable market share and to reduce ‘churn’ rates.
The Group will have to make a significant commitment in developing its brands
The Group believes that strengthening the brands of its Internet, data centre and telecommunications services is critical to achieving widespread acceptance of such services and customer loyalty. The number of Internet websites and portals, data centres and telecommunications carriers (both local wireless FTNS and local FTNS), that offer services in competition with those of the Group increases the importance of establishing and maintaining recognition of the Group’s brand names. Promoting and positioning its brand will depend largely on the success of the Group’s marketing efforts and the ability of the Group to provide high quality services. In order to promote its brand, the Group may need to increase its marketing budget and otherwise increase its financial commitment to create and maintain brand loyalty among users. There can be no assurance that such activities will yield increased revenues or that any such revenues would offset the expenses incurred by the Group in building its brand.
The Group may encounter difficulties with respect to its use of intellectual property rights
The Group currently owns certain intellectual property rights and uses technology licensed to it by third parties. Also, as the Group continues to introduce new services or new technology it may develop new intellectual property rights and technology or may need to obtain licences to use additional third party intellectual property.
33 RISK FACTORS
The Group regards its intellectual property, which include licences and rights to licences, copyright, domain names and trade marks, as critical to establishing its business. It is possible that the Group may inadvertently infringe the intellectual property rights of others and face liability for such infringements or find that third parties are infringing the Group’s intellectual property rights. Therefore, the Group may have to litigate or take other action to enforce or protect the intellectual property rights of the Group, or to determine the validity and scope of the proprietary rights of others, which could result in substantial costs and diversion of the Group’s resources. In particular, the Directors are currently aware that the ‘icare’ name (or a similar form of it) is used by third parties. The Directors believe that iCare’s business is distinguishable from that of such third parties, although there can be no assurance that such third parties may not claim to have proprietary rights in respect of such name. If the Group is unable to establish or protect its intellectual property rights in the domestic and international markets in which the Group operates, its competitors may be able to compete against the Group in such markets or the Group’s business may be compromised. This could have a material adverse effect on the business, results of operations and financial condition of the Group.
Applications have been made by the Group for registration of the trade marks referred to in the section headed “Intellectual property” in Appendix 4 to this prospectus. In addition, as some members of the Group are in the process of designing trade marks, they have not yet submitted applications for registration. There can be no assurance that any of these applications will proceed to registration or that they will not be opposed by third parties who claim to have proprietary rights to identical or similar trade marks.
Risks relating to the Group’s Internet services businesses
The Group’s model to generate revenue from its Internet e-commerce services is not proven
The financial prospects of the Group’s Internet services are, in part, dependent on the anticipated expansion of e-commerce on the Internet and the revenues generated by such transactions. The Group’s plan to generate revenues from the evolving e-commerce market is an unproven business model. In particular, iCare has specifically targeted a segment of the Hong Kong population that have not previously been regular Internet users and has tailored its products and services to what it considers such users will want to use. The ability of the Group to generate and maintain significant e-commerce revenues not only depends on its ability to establish its Set-top Box as a popular mode of entry to the Internet and to attract a critical mass of users to its portal, but also on e-commerce gaining public acceptance as a reliable, safe and cost-effective medium through which to conduct transactions.
The Internet may not prove to be a viable mass commercial marketplace for a number of reasons, including public distrust due to the lack, or perceived lack, of acceptable security technologies for credit card payments, concerns over privacy, legal, regulatory and taxation issues, inconsistent quality of service and inadequate despatch and delivery systems. In addition, in Hong Kong shopping is perceived as a leisure pursuit and shopping centres a pleasant alternative to the confines of a small apartment. There can be no assurance that the Group will be able to successfully establish an e-commerce model that will be accepted by the public in Hong Kong as a medium through which to make purchases. Failure to establish such a model could have a material adverse effect on the Group’s business, results of operations and financial condition.
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The Group’s model to generate advertising revenue from its Internet services is not proven
The Group’s business model for its Internet services is primarily based on revenues derived from e-commerce. However, the Group does expect to be able to generate some revenues from on-line advertising. As the development of on-line advertising is in its early stages, revenues generated from on-line advertising are currently unpredictable. The ability of the Group to generate and maintain significant advertising revenue will depend on, among other things, advertisers’ acceptance of the Internet as an effective and sustainable advertising medium and the development of a critical mass of users of the Group’s Internet services possessing demographic characteristics attractive to advertisers. Furthermore, the Directors believe that it is likely that the Group will face increasing competition from the growing number of Internet companies seeking web-based advertising revenue, which is expected to result in increased pricing pressures on the Group’s advertising rates.
The development of web software that blocks certain forms of Internet advertisements before they appear on a user’s screen may also hinder the growth of on-line advertising. Such software would prevent an advertisement being downloaded from the Group’s server, which would decrease the Group’s advertising revenue and adversely affect the Internet as a medium for advertising.
The capacity of the Group’s Internet service may be less than its designed capacity and may be affected by operational difficulties.
iCare has only been delivering products to customers commercially since June 2000 and the average daily volume to date has been significantly below the designed capacity of the warehouse and despatch and delivery systems and the levels required to achieve profitability. There can be no assurance when such systems will operate at their designed capacity.
iCare’s Internet service is new and unproven. The service has not yet been tested at high capacity and may in the future experience operational “bugs” resulting in errors or delays. If iCare is unable to meet customer demand or service expectations as a result of operational difficulties, iCare’s reputation could suffer and the volume of orders made could be affected.
Government regulation and legal uncertainties could adversely affect the conduct of business on the Internet
The application of existing laws to the Internet and Internet-related applications is uncertain and as a result is being clarified and refined around the world. The vast majority of relevant laws were adopted prior to the advent of the Internet and related technologies and, as a result, do not contemplate or address the unique issues presented by the Internet and related technologies. Such laws relate to issues such as freedom of expression, pricing, content and quality of products and services, property ownership, copyright and other intellectual property issues, taxation, libel, obscenity, information, security and personal privacy. In addition, in many jurisdictions a number of new legislative and regulatory proposals applicable to the Internet are under consideration.
The adoption of laws or regulations in relation to any such issues could decrease the rate of growth of Internet use, which in turn could decrease the demand for the Group’s services
35 RISK FACTORS or increase the cost of doing business. There can be no assurance that any state or country will not introduce legislation or regulations in the future in relation to these or other issues, in such a way that would not have a material adverse effect on the Group’s business, results of operations and financial condition.
Risks relating to the Group’s data centre business
The Group is subject to risks relating to the expansion of its data centre business
A key element of the Group’s business strategy is to establish a network of data centres through the opening of data centres in a number of locations. There can be no assurance that the Group will be able successfully to establish such a network in a timely manner, at a reasonable cost or on terms and conditions acceptable to the Group. The Group’s ability to manage this expansion effectively will also require it to continue to implement and improve its operational and financial systems and to expand, train and manage its employee base. The Group’s inability to establish its data centres or manage effectively their expansion, could have a material adverse effect upon the Group’s business, results of operations and financial condition.
The establishment of the data centres or future data centres will require the Group to expend substantial resources in relation to the selection and acquisition or lease of the appropriate properties, construction of the necessary facilities, installation of equipment and telecommunications infrastructure and hiring the necessary operations and sales personnel. Moreover, the Group expects to make investments in sales and marketing and the development of new services as part of its expansion strategy.
Capital expenditures for the Group’s data centres will be funded primarily through the proceeds of the Share Offer and internally generated funds. However, there can be no assurance that the Group will be successful in generating sufficient cash from sales of services or in raising capital in sufficient amounts on terms acceptable to it. If the Group is unable to generate sufficient cash or raise sufficient capital, the Group may have to delay or abandon some or all of its development and expansion plans or otherwise forego market opportunities, which may make it difficult for the Group to respond to competitive pressures, any of which could have a material adverse effect on the Group’s business, results of operations and financial condition.
In addition, expenditures relating to the Group’s data centres are incurred before the centres open and it typically takes an extended period to approach break-even capacity utilisation at each site once opened. As a result, the Group expects that each of its data centres will generally experience losses for in excess of one year from the time such centre is opened. There can be no assurance that the Group has been able to anticipate accurately the customer demand for such data centres or that the Group will be able to attract a sufficient number of customers to such facilities. The Group’s inability to attract customers to its data centres in a timely manner, or at all, would have a material adverse effect on the Group’s business, results of operations and financial condition.
Risks relating to the Group’s local wireless FTNS business
Government regulation could adversely affect the Group’s local wireless FTNS
Under the terms of its OFTA licence for the provision of a local wireless FTNS, the Group will be subject to regulation by OFTA in relation to the provision of its telecommunications
36 RISK FACTORS services to the public in Hong Kong, and in particular the pricing of such service. Local wireless FTNS operators are required to obtain OFTA approval to change tariffs and to provide notice to customers of the rates and terms and conditions of their services. OFTA also has authority to regulate other aspects of Eastar’s business by, among other things, controlling the use and allocation of the radio spectrum and imposing regulations that may have implications for the siting of LMDS hubs and receiving stations.
OFTA’s regulatory powers also permit it to require a local wireless FTNS licensee to cease using the spectrum assigned to it by notice in writing if OFTA considers that the licensee is not making efficient use of the channel, or require the licensee to vary the purposes for which and the conditions under which the channels are to be used, or to switch channels.
The regulatory environment may be subject to change as a result of new legislation or regulations adopted from time to time by OFTA. The Group’s competitive position will be directly affected by the regulatory environment in Hong Kong, in terms of the services it is able to offer, the rates, terms and conditions of those services and the rates, terms and conditions necessary for the underlying services it must secure from other telecommunications providers. The Group is not able to predict the extent to which current laws and regulations or any changes thereto may affect its business and there can be no assurance that legislation or regulations will not be introduced, which would have a material adverse effect on the Group’s business, results of operations and financial condition.
Local wireless FTNS licences have a finite term and are subject to restrictions
The Group’s local wireless FTNS licence has been granted for a term of 15 years, and currently the Group has no reason to believe that such licence will not be renewed. Such belief is based upon OFTA practice establishing a presumption in favour of licencees that have complied with their regulatory obligations during the initial licence period. However, there can be no assurance that the Group’s local wireless FTNS licence will be renewed upon expiration of its initial term. The failure of the Group to obtain a renewal of its local wireless FTNS licence would result in the Group having to cease transmission of voice and data through its network. In addition, if certain milestones as to the roll-out of the Group’s local wireless FTNS are not met, the Group will be required to make a payment to OFTA pursuant to its performance bond.
The local wireless FTNS licence is an integral asset of the Group, the value of which will depend significantly upon the performance of the Group’s operations and the future potential of the local wireless FTNS market. The value of licences to provide local wireless FTNS also may be affected by fluctuations in the level of supply and demand for such licences and by valuations placed on such licences. Any assignment of a licence or transfer of control by an entity holding a licence is subject to certain limitations relating to the identity and qualifications of the transferee and requires prior OFTA approval.
The Group’s local wireless FTNS business is subject to market acceptance and environmental considerations
The provision of local wireless FTNS is an emerging sector of the telecommunications industry and the demand for and acceptance of such services are as yet not certain. The acceptance of the service may be affected by preconceptions as to the unreliability and lack
37 RISK FACTORS of security of the service that relate to older microwave radio technologies. There can be no assurance that substantial markets will develop for such services or that, even if such markets develop, the Group will be able to succeed in positioning itself as a significant provider of such services or provide such services profitably.
In order to provide quality transmission, local wireless FTNS require an unobstructed line of sight between two transceivers comprising a link, with a maximum distance between any two corresponding transceivers of one to two kilometres. The establishment of local wireless FTNS may require repeating stations to triangulate around obstacles (such as buildings). In addition, there are a number of environmental factors in Hong Kong that create technical challenges for LMDS technology, including extreme weather conditions, widely varying building heights, interference from other networks, a limited frequency spectrum and the topography. Although particular care will be taken by Eastar with the engineering of such system to ensure that connections are robust and stable even in adverse weather conditions, there can be no assurance that the services provided by the Group will not be adversely affected by such factors.
The Group must obtain rights of access to roofs for the location of the hubs and remote stations of the system and rights to use block wiring or IBCCDs in such buildings. However, there can be no assurance that the Group will be successful in obtaining such rights sufficient to provide services to its customers at reasonable cost and on favourable terms.
Risks relating to the Group’s strategy and future operations
The Group may not be able to implement successfully its strategy for future growth
As most of the Group’s subsidiaries have a limited operating history and do not expect to earn profits in the foreseeable future, a significant portion of the value of the Offer Shares in the future will depend on the Group’s success in implementing its long-term strategy and there can be no assurance that such strategy will be successful.
In order to finance such strategy or in the event that operating losses are greater than anticipated, the Group may have to seek additional financing by issuing further shares (which should only be effected six months after the Listing Date in accordance with the GEM Listing Rules) (see “Risks relating to the Shares — The Shareholders’ interests may be diluted in the future”) or by way of bank borrowings. There can be no assurance that additional financing will be available on terms favourable to the Group or at all. If adequate funds are not available or are not available on acceptable terms, the Group may not be able to fund its expansion, take advantage of unanticipated acquisition opportunities, develop or enhance services or products or respond to competitive pressures. Such inability could have a material adverse effect on the Group’s business, results of operations and financial condition.
The Group has commenced expanding its operations in Hong Kong in order to enhance the Group’s revenue growth, operations and profitability. Such expansion may result in significant capital expenditures by the Group and amortisation expenses related to goodwill and other intangible assets, each of which could have a material adverse effect on the Group’s business, results of operation and financial condition. Acquisitions involve numerous risks, including difficulties in integrating and assimilating the operations, technologies, products and personnel of the acquired business, the diversion of management’s attention from other business concerns and the potential loss of key employees of any acquired business.
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POLITICAL AND ECONOMIC RISKS
There are political and economic risks associated with doing business in Hong Kong
Most of the facilities and operations of the Group are currently located in Hong Kong. Hong Kong is a Special Administrative Region of the PRC with its own government and legislature. Under the Basic Law, Hong Kong is entitled to a high degree of autonomy from the PRC under the principle of “one country, two systems”. However, there can be no assurance that Hong Kong will continue to enjoy its current level of autonomy from the PRC, and if it does not, this could have a material adverse effect on the Group’s business, results of operations and financial condition.
The US Dollar : Hong Kong dollar exchange rate has remained stable since 1983 due to the currency board system, which pegs the Hong Kong dollar to the US dollar and is known as the ‘US dollar peg’. As a result of the Asian crisis in mid 1997, interest rates in Hong Kong rose significantly, real estate values and retail sales declined and the Hong Kong economy went into recession until the second quarter of 1999. The Hong Kong economy has continued to suffer deflation during 2000. The Hong Kong dollar was subject to currency speculation in 1998 and the Hong Kong government supported the market for the Hong Kong dollar, both directly and indirectly through the purchase of securities listed on the Stock Exchange, in 1998. There can be no assurance that such economic factors will not recur or that the US dollar peg will be maintained. Recurrence of recession in Hong Kong, deflation or the discontinuation of the US dollar peg could have a material adverse effect on the business, financial condition and results of operations of the Group.
A change in currency exchange rates could increase costs relative to revenues of the Group
Historically, substantially all revenues, expenses and liabilities of the Group have been denominated in HK dollars and US dollars. In the future, the Group may conduct business in additional jurisdictions which could generate revenues, expenses and liabilities in other currencies and the Group may therefore be subject to the effects of exchange rate fluctuations with respect to any of these currencies. The Group has not entered into agreements or purchased instruments to hedge the Group’s exchange rate risks although the Group may do so in the future. As a result, future exchange rate fluctuations could have a material adverse effect on the business, financial condition and results of operations of the Group.
RISKS RELATING TO THE SHARES
An active trading market for the Shares may not develop and their market price may be subject to volatility
An active trading market for the Shares may not develop and the trading price for Shares may fluctuate significantly. Prior to the Share Offer, there has been no public market for any of the Shares. The Issue Price for the Offer Shares will be determined by negotiation between the Group and the Underwriters. This price may not be indicative of the price at which Shares will trade following the completion of the Share Offer. In addition, there can be no guarantee that an active trading market for Shares will develop, or, if it does develop, that it will be sustained following the completion of the Share Offer, or that the market price of the Shares will not decline below the Issue Price.
39 RISK FACTORS
The trading price of the Shares could also be subject to significant volatility in response to, among other factors:
+ investor perceptions of the Group and the Group’s plans for its e-commerce businesses, data centre facilities, local wireless FTNS and intelligent building services;
+ developments in the Internet, telecommunications and high technology service industries;
+ variations in operating results of the Group and the Major Shareholders;
+ announcements of new products or services;
+ technological innovations;
+ changes in pricing made by the Group, the Group’s competitors or providers of alternative services;
+ changes to senior management;
+ changes in share prices of other companies in the high technology, telecommunications and Internet sector or movements in other stock indices such as NASDAQ;
+ the depth and liquidity of the market for the Shares and the development of GEM as a stock market; and
+ general economic and other factors.
The shareholders’ interests in the Company may be diluted in the future
The Group may need to raise additional funds in the future to finance expansion of, or new developments relating to, its existing operations or new acquisitions. The Group may also enter into equity swaps relating to acquisitions or strategic alliances. If such additional funds are raised or such acquisitions are made, through the issuance of new equity or equity-linked securities of the Company, other than on a pro rata basis to existing shareholders, the percentage ownership of the shareholders of the Company may be reduced, shareholders may experience dilution and/or such securities may have rights, preferences and privileges senior to those of the Company’s Shares. Furthermore, subject to relevant legal and regulatory obligations (including the GEM Listing Rules), the Company may consider listing the Shares or the shares of one or more of its subsidiaries or ‘spin-off’ assets for the purposes of obtaining a listing on another stock exchange, if an appropriate opportunity arises and the Directors consider such future listing and/or ‘spin-off’ are in the best interests of the Group.
Without the approval of the Stock Exchange, no further shares or securities convertible into equity securities of the Company may be issued or form the subject of any agreement to issue within the first six months of the Listing Date, pursuant to Rule 17.29 of the GEM Listing Rules. For the avoidance of doubt, no such waiver has been granted as at the Latest Practicable Date.
40 RISK FACTORS
ISSUES TO CONSIDER IN RELATION TO STATEMENTS MADE IN THIS PROSPECTUS
Certain statistics are derived from unofficial publications
Certain statistics in this prospectus relating to the Internet industry, such as statistics relating to current and projected numbers of installed PCs, Internet usage and e-commerce revenues in various jurisdictions, as well as statistics regarding consumer preferences, are derived from various unofficial publications, in particular, those produced by IDC. Such information has not been independently verified by the Group and may not be accurate, complete or up-to-date. The Group makes no representation as to the correctness or accuracy of such statements and, accordingly, such information should not be unduly relied upon.
Forward-looking statements contained in this prospectus may not be fulfilled
Included in this prospectus are various forward-looking statements which can be identified by the use of forward-looking terminology such as “may”, “will”, “expect”, “anticipate”, “estimate”, “continue”, “believe” and other similar words. The Group and its Directors have made forward-looking statements with respect to the following, among other things:
+ the Group’s objectives and strategies to achieve such objectives;
+ the importance and expected growth of Internet, telecommunications and high technology services;
+ the importance and expected growth of e-commerce and broadband Internet access;
+ the pace of change in the Internet, telecommunications and high technology services markets;
+ the demand for Internet, telecommunications and high technology services; and
+ the expectation of advertising revenues.
Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Group, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding the Group’s present and future business strategies and the environment in which the Group will operate in the future. Important factors that could cause the Group’s actual results, performance or achievements to differ materially from those in the forward-looking statements include, among others, the loss of key personnel of the Group, changes relating to the Asian and global Internet industry and changes in general economic and business conditions. Additional factors that could cause actual results, performance or achievements to differ materially include, but are not limited to, those discussed above in this section. These forward-looking statements speak only as of the Latest Practicable Date.
41 WAIVERS FROM COMPLIANCE WITH THE GEM LISTING RULES AND THE COMPANIES ORDINANCE
WAIVERS FROM COMPLIANCE WITH THE GEM LISTING RULES
For the purpose of the listing of the Shares on the GEM, the Company has sought a number of waivers from the GEM Listing Division in relation to certain requirements under the GEM Listing Rules. Details of such waivers are described below.
Waiver relating to the Share lock-up
Share lock-up period
Pursuant to Rule 13.16 of the GEM Listing Rules, the Company shall procure that every Management Shareholder (i) places in escrow, with an escrow agent acceptable to the Stock Exchange, its relevant securities for a period of two years from the Listing Date, on terms acceptable to the Stock Exchange; and (ii) undertakes to the Company and the Stock Exchange that, for a period of two years from the Listing Date, it will not, save as under certain specified circumstances set out in Rule 13.17 of the GEM Listing Rules, dispose of (or enter into any agreement to dispose of) or permit the registered holder to dispose of (or enter into any agreement to dispose of) any of its direct or indirect interest in the relevant securities (as defined in the GEM Listing Rules).
The Company has applied to the Stock Exchange for a waiver from strict compliance with the share lock-up requirements under Rule 13.16 of the GEM Listing Rules on the following basis:
(a) each Management Shareholder will give an undertaking to the Company and the Stock Exchange not to dispose of (nor enter into any agreement to dispose of) nor permit the registered holder to dispose of (or to enter into any agreement to dispose of) any of its direct or indirect interest in the relevant securities of the Company (i) during the period of six months from the Listing Date (the “First Lock-up Period”); and (ii) during the period of six months from the expiry of the First Lock-Up Period (the “Second Lock-up Period”) so as to result in the Management Shareholders together ceasing to control less than 35 per cent of the issued share capital of the Company;
(b) in addition to the disposal restrictions mentioned in (a) above, the Management Shareholders will place the relevant securities of the Company in escrow with an escrow agent acceptable to the Stock Exchange during the First Lock-up Period and the Second Lock-up Period.
The Stock Exchange has granted such waiver on the basis mentioned above.
Stock borrowing arrangements
HSBC Investment Bank Asia, Technology Capitalization and Felix Technology entered into a stock borrowing agreement (the “Stock Borrowing Agreement”) on 3 July 2000, pursuant to which Technology Capitalization and Felix Technology shall upon request by HSBC Investment Bank Asia lend up to 112,500,000 Shares to HSBC Investment Bank Asia. Such
42 WAIVERS FROM COMPLIANCE WITH THE GEM LISTING RULES AND THE COMPANIES ORDINANCE stock borrowing arrangement is to facilitate settlement of over-allocations in connection with the Placing and/or over subscriptions in the Public Offer, pending exercise of the Over- allotment Option and/or acquisition of the Shares. The stock borrowing arrangements would result in non-compliance with Rule 13.16 of the GEM Listing Rules.
The Company has applied to the Stock Exchange for a waiver from strict compliance with Rule 13.16 of the GEM Listing Rules to permit the disposal of Shares held by Technology Capitalization and Felix Technology pursuant to the Stock Borrowing Agreement. The Stock Exchange has granted such waiver on condition that:
(a) such stock borrowing arrangement will only be effected by HSBC Investment Bank Asia for settlement of over-allocations in connection with the Placing or over- subscriptions in the Public Offer;
(b) the maximum number of Shares which may be borrowed from Felix Technology and Technology Capitalization will be limited to the maximum number of Shares which may be issued upon exercise of the Over-allotment Option;
(c) the same number of Shares will be returned to Technology Capitalization and Felix Technology or their nominee(s) (as the case may be) no later than three business days following the earlier of (i) the day on which the Over-allotment Option is exercised in full, and (ii) the last day for the exercise of the Over-allotment Option; and
(d) the returned Shares will be placed in escrow with the escrow agent as soon as practicable.
Waiver relating to the Share Option Scheme
Under Rule 23.03(2) of the GEM Listing Rules, the total number of Shares subject to the Share Option Scheme and any other schemes must not, in aggregate exceed 10 per cent of the issued share capital of the Company from time to time (the “General Mandate Limit”).
Pursuant to an application made by the Company, the Stock Exchange has granted waiver from strict compliance with Rule 23.03(2) of the GEM Listing Rules. As a result, so long as the total number of Shares subject to the Share Option Scheme and any other schemes, including the Pre-IPO Share Option Plan, does not in aggregate exceed 30 per cent of the issued share capital of the Company from time to time, the Company may seek approval from shareholders in general meetings from time to time (i) to refresh the General Mandate Limit and (ii) to grant options beyond the General Mandate Limit (provided that the options in excess of the General Mandate Limit are granted to participants specifically identified by the Company before such approval).
Such waiver is granted on the condition that:
(a) if options are granted to a connected person (as such term is defined in the GEM Listing Rules) of the Company, the granting of such option will be subject to the approval of all independent non-executive Directors;
43 WAIVERS FROM COMPLIANCE WITH THE GEM LISTING RULES AND THE COMPANIES ORDINANCE
(b) where options are proposed to be granted to a connected person of the Company who is also a substantial shareholder (as such term is defined in the GEM Listing Rules) of the Company or any of his or her associates, and the proposed grant of options, when aggregated with the options already granted to that connected person in the past 12 month period, would entitle him/her to receive more than 0.1 per cent of the total issued Shares for the time being and the value of which is in excess of HK$5 million, the granting of such option will be subject to approval of the independent shareholders of the Company;
(c) in seeking the approval of the shareholders of the Company referred to in (b) above, the Company shall send a circular to its shareholders and the circular must contain a generic description of the specified participants who will be granted options beyond the General Mandate Limit, the number and terms of the options to be granted and the recommendation from the independent Directors on whether or not to vote in favour of the proposed grant; and
(d) details of the options granted to the directors of the Company and its subsidiaries and other employees specified in Rule 23.08 and a summary of the major terms of each share option scheme adopted by the Company shall be disclosed in the Company’s interim reports as well as annual reports.
Application for waiver in respect of continuing connected transactions
The continuing connected transactions entered into by members of the Group and members of the Henderson Land Group, the Henderson Investment Group and/or the Towngas Group and in respect of which the Company has applied for waiver from the announcement and shareholders’ approval requirement as required under Rule 20.35 and Rule 20.36 of the GEM Listing Rules are the:
+ Lease Arrangements;
+ Intelligent Building Services and FTNS Arrangements;
+ Licence Arrangements;
+ Property Management Arrangements;
+ Supporting Services Arrangements;
+ Data Centre Services Arrangements;
+ Marketing Arrangements; and
+ System Support Arrangements
(each as defined and detailed under “Connected transactions” in the section of this prospectus headed “Relationship with Major Shareholders” and together, the “Connected Transactions”).
44 WAIVERS FROM COMPLIANCE WITH THE GEM LISTING RULES AND THE COMPANIES ORDINANCE
Since the Connected Transactions are expected to continue in future after the listing of the Shares, each Connected Transaction constitutes a non-exempted continuing connected transaction under Rule 20.26 of the GEM Listing Rules. Under the GEM Listing Rules, such transactions are normally subject to the reporting and announcement requirements set out in Rule 20.34 and Rule 20.35 of the GEM Listing Rules respectively and the shareholders’ approval requirement set out in Rule 20.36 of the GEM Listing Rules.
However, as the Connected Transactions will be conducted in the normal course of business of the relevant members of the Group and will occur on a regular basis, the Directors consider that it would not be practical to make ongoing disclosure of such transactions. The Company has therefore made an application to the Stock Exchange for a waiver from the announcement and shareholders’ approval requirement for a maximum period of three years from the Listing Date (or such longer period as described below) as required under Rule 20.35 and Rule 20.36 of the GEM Listing Rules for each of the Connected Transactions and the Stock Exchange has indicated that such waiver will be granted on condition that:
(a) in any financial year:
(i) the aggregate amount relating to the Lease Arrangements does not exceed HK$31 million;
(ii) the aggregate amount relating to the Intelligent Building Services and FTNS Arrangements does not exceed HK$5 million and HK$3.4 million, respectively;
(iii) the aggregate amount relating to the Licence Arrangements does not exceed HK$20 million;
(iv) the aggregate amount relating to the Property Management Arrangements does not exceed HK$1.4 million;
(v) the aggregate amount relating to the Supporting Services Arrangements does not exceed HK$33 million;
(vi) the aggregate amount relating to the Data Centre Services Arrangements does not exceed HK$38 million;
(vii) the aggregate amount relating to the Marketing Arrangements does not exceed HK$20 million; and
(viii) the aggregate amount relating to the System Support Arrangements does not exceed HK$5 million;
(b) details of the Connected Transactions will be disclosed in the Company’s annual report as described in Rule 20.34(1) to (5) of the GEM Listing Rules;
45 WAIVERS FROM COMPLIANCE WITH THE GEM LISTING RULES AND THE COMPANIES ORDINANCE
(c) the independent non-executive Directors shall review the Connected Transactions annually and confirm in the Company’s next annual report and accounts that the relevant Connected Transactions have been entered into:
(i) in the ordinary and usual course of business of the Group;
(ii) on normal commercial terms or, if there are not sufficient comparable transactions to judge whether they are on normal commercial terms, on terms no less favourable to the Group than terms available to or from (as appropriate) independent third parties; and
(iii) in accordance with the relevant agreement governing them, on terms that are fair and reasonable and in the interests of the shareholders of the Company as a whole;
(d) each year the auditors of the Company shall provide a letter to the Board (with a copy to the Stock Exchange) confirming that each relevant continuing Connected Transaction:
(i) has received the approval of the Board;
(ii) is in accordance with the pricing policies of the Company;
(iii) has been entered into in accordance with the terms of the relevant agreement governing such transaction; and
(iv) has not exceeded the relevant cap amount set out in paragraph (a) above;
(e) the Company shall promptly notify the Stock Exchange if it knows or has reason to believe that the independent non-executive Directors and/or the auditors will not be able to confirm the matters set out in Rule 20.27 and/or Rule 20.28 of the GEM Listing Rules respectively and the Company may have to re-comply with Rules 20.26(3) and (4) of the GEM Listing Rules and any other conditions the Stock Exchange considers appropriate; and
(f) the Company shall comply with all disclosure and shareholders’ approval requirements of the GEM Listing Rules after the expiration of the relevant term of the agreements governing such Connected Transactions set out above, unless further waiver has been granted by the Stock Exchange.
The Directors (including the independent non-executive Directors) are of the view that each of the Connected Transactions has been and will be entered into on normal commercial terms, in the ordinary course of business of the Group and the transactions are and will be fair and reasonable to the Company and its shareholders taken as a whole. Relying upon such confirmation by the Directors and based on the documents and information provided by the Company, HSBC Investment Bank Asia is of the view that the Connected Transactions have been entered into on normal commercial terms, in the ordinary and usual course of business of the Group, are fair and reasonable as far as the Company’s shareholders as a whole are concerned and are in the interests of the Group.
46 WAIVERS FROM COMPLIANCE WITH THE GEM LISTING RULES AND THE COMPANIES ORDINANCE
In the event that any of the relevant caps are exceeded or if any member of the Group enters into any new transactions or agreements with any connected persons (within the meaning of the GEM Listing Rules) in the future, the Company will comply with the provisions of Chapter 20 of the GEM Listing Rules dealing with connected transactions, unless it applies for, and obtains, a separate waiver from the Stock Exchange. In addition, if any of the non-exempt continuing connected transactions shall continue after the expiry of the current waiver, the Group will comply with the provisions of Chapter 20 of the GEM Listing Rules in relation to such non-exempt continuing connected transactions, unless the Group obtains another waiver from the Stock Exchange in relation thereto.
Both the proposed lease in respect of the Lease Arrangements and the agreement relating to the Licence Arrangements are for period of more than three years.
In respect of the Lease Arrangements, as a result of the fact that significant amounts will have to be spent by the Group to equip the Wealth Centre as a server co-location centre, it would not be economically viable or in the interests of the shareholders of the Company to enter into a lease with a term of less than three years. It is the intention of the Company that the Lease Arrangements will be for a period of five years with two options to renew for five years each.
In respect of the Licence Arrangements, as a result of the fact that substantial amount will be spent by Eastar on installation of equipment on buildings as well as the potential difficulty of obtaining licences from owners of other suitable buildings, it would not be in the interest of the shareholders of the Company to enter into a licence with a term of less than three years. It is the intention of the Company that the said agreement relating to the Licence Arrangements will be for a term of five years.
As such, the Company has made an application to the Stock Exchange for a waiver from strict compliance with the requirement that the Lease Arrangements and the Licence Arrangements should not exceed three years, and the Stock Exchange has indicated that such waiver will be granted in respect of the first five year term of the agreements governing such arrangements. If the relevant agreements are renewed, the Company shall comply with all disclosure and shareholders’ approval requirements of the GEM Listing Rules then applicable to such arrangements unless further waiver has been granted by the Stock Exchange.
FINANCIAL PERIODS REPORTED ON
According to paragraph 31 of the Third Schedule to the Companies Ordinance and Rules 7.03(1) and 11.10 of the GEM Listing Rules, the Company is required to include its financial results for each of the two years ended 30 June 2000 in the Accountants’ Report appended to this prospectus. As the financial year of the Group ends on 30 June and this prospectus includes the combined results of the Group covering the financial years ended 30 June 1998 and 30 June 1999 and the nine months ended 31 March 2000, the Directors consider full compliance with Rules 7.03(1) and 11.10 of the GEM Listing Rules and paragraph 31 of the Third Schedule of the Companies Ordinance respectively, in respect of the financial year immediately preceding the date of this prospectus ended 30 June 2000, to be unduly burdensome.
47 WAIVERS FROM COMPLIANCE WITH THE GEM LISTING RULES AND THE COMPANIES ORDINANCE
The Company has therefore applied for a waiver from strict compliance with such GEM Listing Rules from the Stock Exchange and for a waiver from strict compliance with such paragraph 31 from the SFC. The SFC and the Stock Exchange have granted waivers in relation to strict compliance with paragraph 31 of the Third Schedule to the Companies Ordinance and Rules 7.03(1) and 11.10 of the GEM Listing Rules such that the Accountants’ Report covers only the financial years ended 30 June 1998 and 30 June 1999 and the nine months ended 31 March 2000.
The Directors confirm that they have performed sufficient due diligence on the Group to ensure that, save as disclosed herein, up to the date of issue of this prospectus, there has been no material adverse change in the financial position of the Group since 1 April 2000, and there is no event which would materially affect the information shown in the Accountants’ Report set out in Appendix 1 to this prospectus.
WAIVERS FROM COMPLIANCE WITH THE COMPANIES ORDINANCE
For the purpose of the listing of the Shares on GEM, the Company has sought a number of waivers from the SFC in relation to certain requirements under the Companies Ordinance. Details of these waivers are described below.
Pre-IPO Share Option Plan
As at the date of this prospectus, the Company has conditionally granted options to 75 persons to subscribe for a total of 32,000,000 Shares (representing approximately 0.64 per cent of the total issued share capital of the Company immediately after completion of the Share Offer and the Capitalisation Issue, assuming the Over-allotment Option is not exercised) under the Pre-IPO Share Option Plan and on the terms set out in the paragraph headed “Share Options — Summary of terms of the Pre-IPO Share Option Plan” and the paragraph headed “Share Options — Outstanding options granted under the Pre-IPO Share Option Plan” in Appendix 4 to this prospectus.
Under paragraph 10 of the Third Schedule to the Companies Ordinance, this prospectus is required to include the number, description and amount of any Shares which any person has, or is entitled to be given, an option to subscribe for, together with certain particulars of each option, namely the period during which it is exercisable, the price to be paid for the Shares subscribed for under it, the consideration (if any) given or to be given for it and the name and address of the person to whom it was given.
The Company has applied for a waiver from the SFC from full compliance with the disclosure requirements of paragraph 10(d) of the Third Schedule to the Companies Ordinance, which requires disclosure of the names and addresses of the persons to whom an option to subscribe for Shares was granted, in relation to those grantees who have been conditionally granted options under the Pre-IPO Share Option Plan to subscribe for 400,000 Shares or less on the ground that full compliance with these requirements would be unduly
48 WAIVERS FROM COMPLIANCE WITH THE GEM LISTING RULES AND THE COMPANIES ORDINANCE burdensome for the Company. The SFC has granted such a waiver to the Company pursuant to Section 342A of the Companies Ordinance on the conditions that:
(a) full details of all such options conditionally granted to the Directors and senior management staff of the Group who have been granted options entitling them to acquire 600,000 Shares or more, including the details in respect of each option required under paragraph 10 of the Third Schedule to the Companies Ordinance, are disclosed in this prospectus; and
(b) a full list of all grantees including the persons referred to in paragraph (a) containing all the details in respect of each option required under paragraph 10 of the Third Schedule to the Companies Ordinance is available for inspection in accordance with the paragraph headed “Documents available for inspection” in Appendix 5 to this prospectus.
Please refer to the paragraph headed “Share Options — Summary of terms of the Pre-IPO Share Option Plan” and the paragraph headed “Share Options — Outstanding options granted under the Pre-IPO Share Option Plan” in Appendix 4 to this prospectus for further details about the options referred to above.
49 INFORMATION ABOUT THIS PROSPECTUS AND THE SHARE OFFER
DIRECTORS’ RESPONSIBILITY FOR THE CONTENTS OF THIS PROSPECTUS A2 14.23 This prospectus, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the GEM Listing Rules for the purpose of giving information with regard to the Group. The Directors, having made all reasonable enquiries, confirm that, to the best of their knowledge and belief:
(a) the information contained in this prospectus is accurate and complete in all material respects and not misleading;
(b) there are no other matters the omission of which would make any statement in this prospectus misleading; and
(c) all opinions expressed in this prospectus have been arrived at after due and careful consideration and are founded on bases and assumptions that are fair and reasonable.
FULLY UNDERWRITTEN
This prospectus is published solely in connection with the Share Offer. The Share Offer comprises the Public Offer of initially 75,000,000 new Shares and the Placing of initially 675,000,000 new Shares (subject, in each case, to re-allocation on the basis described under “Structure of the Share Offer”), in each case, at the Issue Price. For applicants under the Public Offer, this prospectus and the WHITE and YELLOW application forms set out the terms and the conditions of the Public Offer.
The Share Offer is sponsored by HSBC Investment Bank Asia and is fully underwritten by A15(3)(h) 3rd Sch7 the Underwriters pursuant to the Underwriting Agreement. For further information about the Underwriters and the Underwriting Agreement, see the section of this prospectus headed “Underwriting”.
FIXING OF THE ISSUE PRICE
The Offer Shares are being offered at the Issue Price which will be determined by HSBC Investment Bank Asia, on behalf of the Underwriters, and the Company on or about 7 July 2000 and in any event will not be later than 3 August 2000. If HSBC Investment Bank Asia, on behalf of the Underwriters, and the Company are unable to reach agreement on the Issue Price, the Share Offer will not proceed.
PUBLIC OFFER SHARES ARE TO BE OFFERED IN HONG KONG ONLY
No action has been taken in any jurisdiction to permit the offering of the Offer Shares or the distribution of this prospectus other than to permit the offering of the Public Offer Shares in Hong Kong. Accordingly, this prospectus may not be used for the purpose of, and does not constitute, an offer or invitation in any other jurisdiction in any circumstances in which such offer or invitation is not authorised or to any person to whom it is unlawful to make an unauthorised offer or invitation.
The Public Offer Shares are offered solely on the basis of the information contained and representations made in this prospectus and the related application forms. The Company has
50 INFORMATION ABOUT THIS PROSPECTUS AND THE SHARE OFFER not authorised anyone to provide any information or to make any representation not contained in this prospectus and the related application forms, and any information or representation not contained herein and the related application forms must not be relied upon as having been authorised by the Company, HSBC Investment Bank Asia, CLSA, the other Underwriters, any of their respective directors, or any other person involved in the Share Offer.
United States
The Offer Shares have not been and will not be registered under the US Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of, US persons (as defined in Regulation S) except in certain transactions exempt from the registration requirements of the US Securities Act. Each of the Placing Underwriters has agreed that, except as permitted by the Underwriting Agreement, it will not offer or sell the Offer Shares (i) as part of their distribution at any time or (ii) otherwise until 40 days after the latest of the commencement of the Placing, the commencement of the Public Offer and the closing date, within the United States or to, or for the account or benefit of, US persons and it will have sent to each dealer to which it sells Offer Shares during the distribution compliance period a confirmation or other notice setting forth restrictions on offers and sales of the Offer Shares within the United States or to, or for the account or benefit of, US persons. The Offer Shares are being offered and sold outside the United States to non-US persons in reliance on Regulation S. The Underwriting Agreement provides that certain Placing Underwriters approved by HSBC Investment Bank Asia or CLSA may, through US broker-dealers, arrange for the offer and sale of Offer Shares in the United States only to QIBs that are qualified purchasers in reliance upon an exemption from the registration requirements of the US Securities Act. Terms used in this paragraph have the same meanings given to them by Regulation S.
In addition, until 40 days after the commencement of the Share Offer, an offer or sale of the Shares within the United States by any dealer, whether or not participating in the Share Offer, may violate the registration requirements of the US Securities Act if such offer or sale is made otherwise than in accordance with an exemption from the registration requirements of the US Securities Act, including without limitation the exemption provided by Rule 144A.
United Kingdom
This prospectus has not been approved by an authorised person in the United Kingdom and has not been registered with the Registrar of Companies in the United Kingdom. The Offer Shares may not be offered or sold in the United Kingdom and any other announcement or document in connection with the Share Offer may not be published or distributed in the United Kingdom except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments, shares or bonds (as principal or agent) for the purpose of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995, as amended. In addition, no person may issue or pass on to any person in the United Kingdom any document received by it in connection with the issue of the Offer Shares unless that person is of a kind described in Article 11(3) of the Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1996 or is a person to whom such document may otherwise lawfully be issued or passed on.
51 INFORMATION ABOUT THIS PROSPECTUS AND THE SHARE OFFER
Singapore
This prospectus has not been and will not be registered with the Registrar of Companies and Businesses in Singapore and the Offer Shares will be offered in Singapore pursuant to Section 106C of the Companies Act, Chapter 50 of Singapore (the “Singapore Companies Act”). Accordingly, this prospectus and any other document or materials in connection with the offer of the Offer Shares may not be issued, circulated or distributed in Singapore nor may any of the Offer Shares be offered for subscription or sold, directly or indirectly, nor may an invitation or offer to subscribe for or purchase any Offer Shares be made, directly or indirectly, to persons in Singapore other than under circumstances in which such offer or sale does not constitute an offer or sale to the public in Singapore; or to the public or any member of the public in Singapore other than to persons specified in Section 106C of the Singapore Companies Act; or otherwise pursuant to, and in accordance with the conditions of, any other applicable exemption under Division 5A of Part IV of the Singapore Companies Act. The Registrar of Companies and Businesses in Singapore takes no responsibility as to the contents of this prospectus.
Japan
The Share Offer has not been and will not be registered under the Securities and Exchange Law of Japan. The Offer Shares may not be offered or sold, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan, except pursuant to an applicable exemption from the registration requirements of the Securities and Exchange Law of Japan and any other applicable Japanese law.
Cayman Islands
No offer of Shares may be made to the public in the Cayman Islands.
Each person acquiring the Offer Shares will be required to, or is deemed by his acquisition of the Offer Shares to, confirm that he is aware of the restrictions on offers of the Offer Shares described in this prospectus.
APPLICATION FOR LISTING ON GEM
The Company has applied to the GEM Listing Committee for listing of and permission to A14(1) deal in its existing issued Shares, the Offer Shares and any Shares which may be issued pursuant to the exercise of the Over-allotment Option, the exercise of options which have been conditionally granted under the Pre-IPO Share Option Plan and the exercise of options that may be granted under the Share Option Scheme.
No part of the Company’s share or loan capital is listed or dealt in on any other stock A11 exchange. At present, the Company is not seeking or proposing to seek listing or permission to deal on any other stock exchange.
Pursuant to Rule 11.23(1) of the GEM Listing Rules at the time of listing and at all times thereafter, the Company must maintain the “minimum prescribed percentage” of 15 per cent of the issued share capital of the Company in the hands of the public.
52 INFORMATION ABOUT THIS PROSPECTUS AND THE SHARE OFFER
HONG KONG BRANCH REGISTER 24.05(3)
All Shares to be issued pursuant to applications made in the Share Offer will be registered on the Company’s branch register of members to be maintained by Central Registration Hong Kong Limited in Hong Kong. The Company’s principal register of members is maintained by Bank of Butterfield International (Cayman) Ltd. in the Cayman Islands.
PROFESSIONAL TAX ADVICE RECOMMENDED
If you are unsure about the taxation implications of subscribing for the Offer Shares, or about purchasing, holding, disposing or dealing in, or the exercise of any rights in relation to, the Offer Shares, you should consult an expert.
None of the Company, HSBC Investment Bank Asia, their respective directors and any other person involved in the Share Offer accepts responsibility for tax effects on, or liability of, any person resulting from subscribing for, or purchasing, holding, disposing, dealing or the exercise of any rights in relation to the Offer Shares.
STAMP DUTY
Dealings in the Shares registered on the Company’s Hong Kong branch register of members 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 the Public Offer Shares” and on the relevant application forms.
STRUCTURE OF THE SHARE OFFER
Details of the structure of the Share Offer, including conditions, are set out in the section headed “Structure of the Share Offer”.
53 DIRECTORS
Name Address Nationality
Executive Directors
Dr. LEE Shau Kee 22nd Floor British A41 3rd Sch 6 (Chairman) 36 MacDonnell Road Hong Kong
CHAN Wing Kin, Alfred No. 20, 15th Street British Hong Lok Yuen Tai Po New Territories Hong Kong
LAM Ko Yin, Colin Flat 10D Chinese 64 MacDonnell Road (Hong Kong) Hong Kong
LEE Ka Kit 22nd Floor British 36 MacDonnell Road Hong Kong
LEE Ka Shing 22nd Floor British 36 MacDonnell Road Hong Kong
YIP Ying Chee, John Flat A - 401, Villa Verde British 4/F, 18 Guildford Road The Peak Hong Kong
Independent Non-executive Directors
Dr. The Hon. LI Kwok Po, David Penthouse, Flat A British Tower 2, Dynasty Court 23 Old Peak Road Hong Kong
Professor KO Ping Keung 10A, Tower 5 American Senior Staff Quarters The Hong Kong University of Science and Technology Clearwater Bay New Territories Hong Kong
54 PARTIES INVOLVED IN THE SHARE OFFER
Sponsor HSBC Investment Bank Asia Limited A3 Level 15 1 Queen’s Road Central Hong Kong
Joint Global Coordinators, HSBC Investment Bank Asia Limited Bookrunners and Level 15 Lead Managers 1 Queen’s Road Central Hong Kong
CLSA Limited 33rd Floor, Tower II, Lippo Centre 89 Queensway Hong Kong
Placing Underwriters HSBC Investment Bank Asia Limited Level 15 1 Queen’s Road Central Hong Kong
CLSA Limited 33rd Floor, Tower II, Lippo Centre 89 Queensway Hong Kong
BOCI Asia Limited 35th Floor, Bank of China Tower 1 Garden Road Hong Kong
ING Barings Asia Limited as agent for ING Bank N.V. 39th Floor, One International Finance Centre 1 Harbour View Street Central Hong Kong
ABN AMRO Rothschild 30th Floor, Edinburgh Tower The Landmark Central Hong Kong
55 PARTIES INVOLVED IN THE SHARE OFFER
ICEA Capital Limited 42nd Floor, Jardine House 1 Connaught Place Central Hong Kong
KGI Asia Limited 27th Floor, Asia Pacific Finance Tower Citibank Plaza 3 Garden Road Central Hong Kong
Tai Fook Securities Company Limited 25th Floor, New World Tower I 16-18 Queen’s Road Central Hong Kong
Vickers Ballas Capital Limited 19th Floor, Far East Finance Centre 16 Harcourt Road Admiralty Hong Kong
Public Offer Underwriters HSBC Investment Bank Asia Limited Level 15 1 Queen’s Road Central Hong Kong
CLSA Limited 33rd Floor, Tower II, Lippo Centre 89 Queensway Hong Kong
BOCI Asia Limited 35th Floor Bank of China Tower 1 Garden Road Hong Kong
ING Barings Asia Limited as agent for ING Bank N.V. 39th Floor, One International Finance Centre 1 Harbour View Street Central Hong Kong
56 PARTIES INVOLVED IN THE SHARE OFFER
ABN AMRO Asia Corporate Finance Limited 30th Floor, Edinburgh Tower The Landmark Central Hong Kong
NM Rothschild & Sons (Hong Kong) Limited 16th Floor, Alexandra House Central Hong Kong
ICEA Capital Limited 42nd Floor, Jardine House 1 Connaught Place Central Hong Kong
KGI Asia Limited 27th Floor, Asia Pacific Finance Tower Citibank Plaza 3 Garden Road Central Hong Kong
Tai Fook Securities Company Limited 25th Floor, New World Tower I 16-18 Queen’s Road Central Hong Kong
Vickers Ballas Capital Limited 19th Floor, Far East Finance Centre 16 Harcourt Road Admiralty Hong Kong
Legal advisers to the Company As to Hong Kong Law: A3 Woo Kwan Lee & Lo 27th Floor, Jardine House 1 Connaught Place Central Hong Kong
57 PARTIES INVOLVED IN THE SHARE OFFER
As to Cayman Islands Law: Conyers Dill & Pearman, Cayman Zephyr House Mary Street George Town Grand Cayman British West Indies
Legal advisers to the Sponsor, As to Hong Kong Law and US Law: A3 Global Coordinators and Linklaters the Underwriters 10th Floor, Alexandra House Chater Road Hong Kong
Auditors and KPMG A4 3rd Sch18 reporting accountants 8th Floor, Prince’s Building 10 Chater Road Central Hong Kong
Property valuer DTZ Debenham Tie Leung Limited 10th Floor, Jardine House 1 Connaught Place Central Hong Kong
Receiving banker The Hongkong and Shanghai Banking A15(3)(f) 3rd Sch8 Corporation Limited 1 Queen’s Road Central Hong Kong
58 CORPORATE INFORMATION
Registered office Huntlaw Building A43 P.O. Box 2804 George Town Grand Cayman Cayman Islands
Head office and 6th Floor, World-wide House A43 S342 principal place of business 19 Des Voeux Road Central S342(1)(a)(v) Hong Kong S342(c)(3)(ii)
Company secretary Yip Ying Chee, John LL.B., F.C.I.S. A42
Authorised representatives Lam Ko Yin, Colin and A3 Yip Ying Chee, John
Compliance officer Yip Ying Chee, John A42
Qualified accountant Wong Sau Yan M.B.A., F.C.C.A., F.H.K.S.A. A42
Audit Committee Dr. The Hon. Li Kwok Po, David Prof. Ko Ping Keung
Principal bankers The Hongkong and Shanghai Banking A3 Corporation Limited 1 Queen’s Road Central Hong Kong
Hang Seng Bank Limited 83 Des Voeux Road Central Hong Kong
The Bank of East Asia, Limited 10 Des Voeux Road Central Hong Kong
Principal share registrar Bank of Butterfield International (Cayman) Ltd. A3 and transfer office Butterfield House Fort Street P.O. Box 705 George Town Grand Cayman Cayman Islands
Hong Kong branch share registrar Central Registration Hong Kong Limited A3 A43 and transfer office Shops 1712-1716 25.05(3) 17th Floor, Hopewell Centre 11.08 183 Queen’s Road East Hong Kong
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The information provided in this section is derived from various private and/or government publications such as the IDC. This information has not been prepared or independently verified by the Company, the Sponsor, the Underwriters or their respective advisers.
Overview of the Internet
The Internet is a global network of interconnected computer networks that has emerged as a mass communications and commerce medium, enabling millions of people world-wide to share information, create communities among individuals with similar interests and conduct business electronically. Internet technologies are establishing a ‘networked economy’, which by its nature is global, dynamic and characterised by webs of relationships between companies, their suppliers, partners and customers. As such, Internet technology is changing the way business is done, creating new markets, causing existing markets to converge or causing old markets to adapt or disappear.
IDC estimates that the number of Internet users world-wide will grow from approximately 155.6 million at the end of 1998 to approximately 525.7 million by the end of 2003. Asian Internet growth is also expected to be strong. IDC forecasts that the number of Asia-Pacific (excluding Japan) Internet users will increase from approximately 12.9 million to approximately 77.24 million during the same period, a compound annual growth rate of approximately 43.0 per cent. The rapid growth in the popularity of the Internet to date is due in large part to increasing PC and modem penetration, development of the world wide web, the introduction of easy-to-use navigational tools and utilities and the growth in the number of information, entertainment and commercial applications available on the Internet.
The growth of the Internet to date has been based largely on narrowband dial-up modem-based Internet access. However, the development of more widespread use of broadband Internet access is expected to increase the growth in Internet usage further as the applications and content available through the Internet become more attractive. Indeed, technological advances relating to the Internet have occurred and continue to occur rapidly, resulting in faster, more robust and lower cost infrastructures, improved security, more value-added services and a wider range of, as well as better quality, content. Growth in client/server computing, multimedia PC and on-line computing services and the proliferation of networking technologies have resulted in a large and growing group of people who are accustomed to using networked computers for a variety of purposes, including e-mail, electronic file transfers, on-line computing and e-commerce. These trends have led businesses increasingly to explore opportunities for providing Internet-based applications and related services within their organisations and externally to customers and business partners.
World wide web
An important factor in the widespread adoption of the Internet has been the emergence of a network of servers and information called the ‘world wide web’. The web is a network medium which offers content, activities and services. Examples of content available on the web include magazines, news feeds, radio broadcasts, and corporate, product, educational, research and political information; activities include chat-rooms and web communities; and customer services include shopping, auctions, ticketing and reservations, banking and information services.
60 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. Companies from many industries are publishing products and corporate information or advertising materials through the web and collecting customer feedback and demographic information through the participation of visitors to their web sites. The structure of web documents also allows an organisation to publish significant quantities of information while simultaneously allowing each user to view selected information that is of particular interest in a cost effective and timely fashion.
The Internet market in Hong Kong and Asia
The recent economic downturn in the Asia-Pacific region has not significantly slowed the rate of Internet penetration in many individual Asia-Pacific markets, as consumers and corporate customers have discovered that Internet applications, such as e-mail and website advertising, represent lower-cost substitutes for comparable non-Internet products and services. In addition, the recent volatility in Asia-Pacific financial markets has increased the demand for reliable, around-the-clock news and information on local, regional and global events, which is often readily available only through the Internet.
IDC has projected high levels of growth in both Internet usage and PC installations, important indicators for Internet accessibility in Hong Kong and Asia. The following table summarises key historical and projected growth rates of Internet useage in these markets:
Projected compound annual December December growth rate 1998 2003 1998-2003 (in millions except penetration and growth rates)
Hong Kong Number of Internet users(1) 0.7 2.3 26.9% Number of PCs installed(1) 1.6 2.7 11.0% Internet penetration rate(2) 10.4% 31.9% 25.1% PC penetration rate(3) 23.9% 37.5% 9.4% Population(4) 6.7 7.3 1.4%
Asia Pacific (excluding Japan)(5) Number of Internet users(1) 12.9 77.2 43.0% Number of PCs installed(1) 37.9 104.6 22.5% Internet penetration rate(2) 0.5% 2.6% 39.0% PC penetration rate(3) 1.4% 3.5% 20.0% Population(4) 2,761.1 2,992.7 1.6%
Notes: 1. IDC, November 1999. 2. Calculated by dividing number of Internet users by country population. 3. Calculated by dividing the number of PCs installed by country population. 4. Economist Intelligence Unit, January 2000. 5. Sum of the PRC, Hong Kong, Taiwan, Australia, New Zealand, Singapore, Malaysia, Thailand, the Philippines, Indonesia, India, South Korea and Vietnam.
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Hong Kong
According to IDC, the number of Internet users in Hong Kong is expected to increase to 2.3 million by the end of 2003 from 0.7 million at the end of 1998, representing a compound annual growth rate of 26.9 per cent. As at December 1998, given a population of approximately 6.7 million, most of whom reside in urban areas, Hong Kong had an Internet penetration rate of approximately 10.4 per cent. Hong Kong is relatively technologically advanced, having been one of the first cities in the world to have a fully digitised telecommunications network. The Hong Kong Government is also currently encouraging telecommunications operators to establish broadband Internet access networks in order to meet expected demand. IDC also forecasts that e-commerce revenues generated by users in Hong Kong will increase from US$60.8 million as at the end of 1998 to US$3.2 billion by the end of 2003.
Key Internet business opportunities
The substantial increase in the number of Internet users and websites and the development of existing and new Internet technologies are fuelling the expansion of many Internet business applications. Of these, three key business areas are on-line advertising, e-commerce and IT infrastructure provision.
Advertising
Advertisers have identified the Internet as a means for mass communication of their messages, similar in many respects to the use of advertising in traditional media such as television and radio broadcasting and print publishing. The Directors believe that advertisers have also recognised that web-based advertising may be more effective in a number of respects than traditional media advertising, in that the Internet allows advertisers to present messages to specific, targeted audiences and enables users to interact with advertising information presented in web pages. The nature of the Internet permits advertisers to measure the number of impressions, or times that an advertisement is downloaded by users, as well as “click-throughs” or user requests for additional information made by clicking on the advertiser’s banner linking the user to the advertiser’s web site. Advertisers can therefore measure the effectiveness of their advertising.
E-commerce
The Internet is also affecting the methods by which consumers and businesses are evaluating and buying goods and services. The Internet provides on-line merchants the ability to reach a global audience and to operate with minimal infrastructure, reduced overheads and greater economies of scale than traditional means, while providing customers with a broader selection of products, increased pricing power and in many cases greater convenience compared to traditional shopping methods. As a result, the volume of business transacted on the Internet is anticipated to grow significantly. IDC estimates that world-wide e-commerce revenues will grow from US$48.4 billion as at the end of 1998 to US$1,303.0 billion by the end of 2003. IDC predicts that Asia-Pacific (excluding Japan) on-line spending will increase from US$722.7 million to US$51.3 billion during the same period.
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IT infrastructure provision
As use of the Internet has grown, the IT infrastructure required for Internet operations has become ‘mission-critical’ for virtually all Internet-based businesses and is becoming increasingly ‘mission-critical’ for many mainstream enterprises. Any ‘downtime’ of ‘mission- critical’ Internet sites as a result of technical problems is likely to result in losses in revenue and impairment of customer goodwill.
In order to ensure the reliability of their ‘mission-critical’ Internet operations, enterprises need to ensure that these operations perform 24 hours-a-day, seven days-a-week and are secure, scalable and expertly managed. However, setting up such an operation in-house often will require a longer lead-in time and may not be as cost effective and flexible as using a server co-location facility. Such facilities can offer enterprises geographically distributed, state-of- the-art operations, application hosting and content delivery services that are monitored and managed by experts in Internet technology, that can be upgraded to reflect changing technologies and that can be scaled as the needs of enterprises evolve. IDC predicts that world-wide revenues for website hosting services provided by US-based companies will grow from US$822.7 million in 1998 to US$18.9 billion in 2003, representing a compound annual growth rate of 87.2 per cent.
The Hong Kong telecommunications market
Telecommunications regulation
Under the Telecommunication Ordinance (Chapter 106 of the Laws of Hong Kong) (the “Telecommunication Ordinance”), companies which establish or maintain any means of telecommunication or possess or use any apparatus for radio communication or that generate and emit radio waves in Hong Kong are required to be licensed. For example, local telecommunications carriers are required to obtain a FTNS licence from OFTA and ISPs that provide Internet access or e-mail to the public are required to obtain a PNETS licence from OFTA. OFTA’s primary responsibility is to regulate the telecommunications industry in Hong Kong and ensure that the widest range of telecommunications services are available at reasonable cost. OFTA formulates and implements policies relating to the telecommunications industry in Hong Kong and issues licences to companies providing telecommunications services in Hong Kong. OFTA also acts as the body responsible for enforcement of the Telecommunication Ordinance and the regulations made under it, so it has, for example, power to direct a licencee to demonstrate that the licencee’s services comply with any technical requirements imposed by relevant legislation or any other directions which may be issued by OFTA.
As a telecommunications carrier, each of the local wireless FTNS operators are subject to government regulation regarding the pricing of certain of their services and their general availability to the public. The local FTNS operators are required to make regular filings with OFTA and to provide notice to customers of the rates and the terms and conditions of services. In general, these regulations require such companies to offer their services in a non- discriminatory manner at just and reasonable prices.
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Liberalisation of the telecommunications industry
The telecommunications market in Hong Kong has undergone rapid deregulation over the last five years. The following summarises the key milestones in the deregulation process:
July 1995 - Local Fixed Lines - Previously a monopoly environment, the local fixed line market was opened up on 1 July 1995 through the issuance by OFTA of three additional fixed telecommunications network services licences to New World Telephone, New T&T and Hutchison Telecommunications.
July 1996 - Cellular Communications - In July 1996, six new cellular communication licences were awarded in addition to the four already in existence. Competition in the sector was further enhanced by the introduction of mobile number portability in March 1999.
January 1999 - International Services - On 1 January 1999, the external telecommunications services (“ETS”) market was opened up to competition with the introduction of voice international simple resale. As at 31 March 2000, 153 operators had been licensed as ETS providers.
January-February 2000 - Local Wireless and External Facilities Licences - During January and February 2000, the Telecommunications Authority (“TA”) announced that it had issued five licences for local wireless FTNS, twelve licences for satellite-based external fixed telecommunications network services (“EFTNS”) facilities and letters of intent to thirteen applicants for licences for cable-based EFTNS facilities. Also, the TA announced that it had awarded a licence to Hong Kong Cable TV to provide telecommunications services over its hybrid fibre coaxial cable network.
Local wireless FTNS
Local telecommunications services historically have been carried by incumbent local providers over their legacy networks, although this sector has been deregulated in Hong Kong since 1995. The portion of these networks that is ultimately connected to customer buildings, called the ‘last mile’ is typically copper wire. Without enhancements, copper wire is poorly suited to support high-bandwidth services. The prospect of rapid growth of bandwidth- intensive communications services, such as Internet access, data transport, audio and video streaming and e-commerce applications, is expected to create an increasing demand for transmission capacity across the last mile. According to the Internet Report of the Electrical Applicance Survey 1999, the number of home users accessing the Internet via broadband connections in Hong Kong was approximately 105,000 as at 31 December 1999. However, this is expected to increase as the variety of broadband content grows and the cost of broadband Internet access declines.
The local wireless FTNS provides an alternative solution for delivering broadband capacity across the last mile which has not to date been offered in Hong Kong on a commercial basis. In contrast to fibre optic cables, the majority of the cost associated with establishing a local wireless FTNS relates to technology and equipment rather than labour and the cost of such technology has tended to decrease over time as it develops and becomes more widely used. As a result, customer buildings can be connected at a cost which is expected to be less
64 INDUSTRY OVERVIEW than that incurred in a fibre-build strategy. This cost advantage is expected to enable local wireless FTNS operators to deliver broadband capacity, services and applications more economically and more quickly to a larger market than would otherwise be possible with fibre or other facilities-based broadband alternatives.
LMDS technology can provide customers with up to an OC-3 of transmission capacity (155.52 Mbps) over a single wireless link, which is more than 2,000 times faster than the fastest dial-up service currently in general use. The capacity of these wireless links has risen dramatically in recent years and it is expected that their capacity will continue to expand as wireless technology advances.
Licensing process
In accordance with the policy objectives of the Hong Kong Government to liberalise progressively the telecommunications market in Hong Kong, the TA invited applications for local fixed wireless FTNS licences and applications for satellite-based EFTNS licences. By 30 September 1999, the TA had received 14 applications for local wireless FTNS licences and 20 applications for satellite-based EFTNS licences.
Two working groups, comprising members from OFTA and the Information Technology and Broadcasting Bureau, with the Independent Commission Against Corruption as an observer, were formed to evaluate the applications and to make recommendations to the TA. The applications were assessed in accordance with the respective sets of criteria laid down in the Guidance Notes for invitation of applications the TA issued in July 1999. The TA offered licences to the five applicants that attained the highest scores against the evaluation criteria laid down in the Guidance Notes. Only five local wireless FTNS licences were granted due to the limited radio spectrum available and physical constraints relating to the number of available buildings. In order to give the five local wireless FTNS operators adequate bandwidth upon service launch and to allow sufficient reserve bandwidth for future growth in customers and services an initial spectrum width of 300 MHz was allotted and a further 300 MHz reserved for each licensee.
Internet Service Providers — narrowband and broadband
ISPs are required to hold a PNETS licence which is usually valid for a period of 12 months and is renewable at the discretion of OFTA and on payment of a prescribed fee. Under the Telecommunication Ordinance, a licence may be cancelled or withdrawn at any time by the issuing authority or be suspended for a period not exceeding 12 months in the event of (a) any contravention by the licence holder of the Telecommunication Ordinance or (b) the regulations made under it or (c) any condition attached to a licence to which such licence holder is subject or (d) at any time by the Chief Executive of Hong Kong if he or she considers it to be in the public interest to do so. A PNETS licence holder is also prohibited from entering into any agreement or arrangement which will in any way prevent or restrict competition in relation to the operation of its services or any other telecommunications services licensed by OFTA. If a PNETS licence is revoked for any reason, the relevant licence holder will no longer be able lawfully to continue to provide its telecommunications services in Hong Kong to its customers.
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As at 31 March 2000, there were 178 licensed ISPs in Hong Kong (many of which are not active) with approximately 2 million registered customer accounts. Hong Kong’s Internet monthly traffic volume (via PSTN) has increased from approximately 292 million minutes in January 1998 to approximately 1,123 million minutes in December 1999.
Dial-up modems are the predominant means of accessing the Internet in Hong Kong. Apart from broadband services, all the ISPs using dial-up access offer similar services to their customers. In general, competition among ISPs in Hong Kong is strong. Most of the ISPs charge a monthly tariff of approximately HK$100 and offer unlimited access to the Internet (excluding PNETS charge) and free e-mail accounts. Telecommunications companies with both mobile telephone and Internet services also offer a bundled service at a lower monthly fee.
The data transfer rate of 56Kbps of existing narrowband modems constrains the services that can be offered over the Internet. Broadband networks, with data transfer rates of up to 10Mbps, means that complex e-commerce transactions, on-line banking, video conferencing, video-on-demand systems, lecture-on-demand for distant learning and other multimedia applications will be possible. At present C&W HKT and Hong Kong Cable Television Limited are the only operators offering broadband services in Hong Kong. Services currently offered under C&W HKT’s broadband network include interactive television (iTV) and broadband Internet access (Netvigator 1.5M).
Other legislation
Personal Data Ordinance. The Personal Data (Privacy) Ordinance (Chapter 486 of the Laws of Hong Kong) (the “Personal Data Ordinance”) applies to “data users” in Hong Kong. An Internet service which collects personal information from users, such as their name or birth date, will be a data user. In addition, the Personal Data Ordinance may apply to a company depending on how ‘clicktrails’ information (i.e. information regarding an Internet users’ pattern of Internet use) is used.
In relation to clicktrails information, the Privacy Commissioner has indicated that customer site-to-site activity stored on a server’s log is personal data if it is possible to associate such clicktrails with an individual customer. Analysis of clicktrails information will enable the development of a profile of the user’s interests which could be sold or transmitted to third parties for direct marketing purposes. The Privacy Commissioner has stated that a company should not perform such analysis if the user has not provided the data for such use.
Control of Obscene and Indecent Articles Ordinance. Under the Control of Obscene and Indecent Articles Ordinance (Chapter 390 of the Laws of Hong Kong) any person who publishes, possesses for the purpose of publication or imports for the purpose of the publication any obscene article, whether or not the person knows that it is an obscene article, commits an offence and is liable for a fine of up to HK$1 million and imprisonment for up to three years. It is also an offence to publish any indecent article to a person who is a juvenile, whether it is known that it is an indecent article or that such person is a juvenile. Such an offence may give rise to a fine of up to HK$400,000 and/or imprisonment for up to 12 months. A subsequent conviction may give rise to a fine of up to HK$800,000. Presently, it is unclear as to whether portal operators in Hong Kong such as the Group would be liable under such Ordinance for obscene or indecent material distributed over their portal.
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Copyright Ordinance. The Copyright Ordinance (Chapter 528 of the Laws of Hong Kong) provides protection for recognised categories of literary, dramatic, musical and artistic works, as well as films, television broadcasts and cable diffusion, and works made available to the public on the Internet. A copyright owner can take legal action against any person who infringes copyright in respect of a work. The owner of a copyright generally has the exclusive right to copy a work and distribute it to the public.
Copyright may subsist in the materials and information supplied by an ICP or included in the pages relating to trading on the Internet. An ICP may have the right to reproduce and disseminate information in connection with its business either by creating the content itself or through agreements with companies that provide it with content. An ICP’s web site may also include hypertext links to third party websites. A third party name, logo or other graphic representation, statement, phrase or heading, which may be used as a hypertext link, may also be protected by copyright.
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HISTORY AND DEVELOPMENT
The Company is a member of the Henderson Land group of companies and undertakes A28(1) 3rd Sch1 the Henderson Group’s existing Internet, telecommunications and high technology services operations. The Company’s Internet, telecommunications and high technology services businesses originated from its Major Shareholders’ operations as property developer and public utility. Such businesses have been, or are in the process of being, developed as part of an integrated end-to-end Internet, telecommunications and high technology services for residential and commercial customers in Hong Kong.
The Group’s high technology operations commenced in 1997, following the incorporation of Future Home in late 1996, providing design and consultancy services for the Henderson Group, including advising on the design, tendering and installation of ‘intelligent’ network infrastructure and software applications in the Henderson Group’s residential and commercial buildings. Such network infrastructure involves the design of a range of sophisticated features, including broadband networks, which will allow the Group’s other services, such as local wireless FTNS and iCare’s ISP and Internet portal services, to be provided to residential and commercial customers.
The Group’s consumer e-commerce business was conceived as a result of the ‘Towngas Business Process Reengineering’ (the “BPR”) project in 1996. The BPR project involved a strategic review of Towngas’ existing business processes, structures and opportunities and resulted in Towngas considering using its existing customer base and operating infrastructure to extend its services into new areas. To evaluate the potential of the Internet, Towngas launched its own website www.towngas.com in December 1996 and a ‘Virtual Customer Centre’ in February 1999, which allows customers to purchase gas appliances, book maintenance and installation appointments and search for customer service information through the Internet.
Following the success of the Virtual Customer Centre, Towngas conducted detailed market research among its customers in July 1999, in order to assist in the formation of an Internet and e-commerce strategy. This resulted in the formation of the iCare concept in October 1999 and the incorporation of iCare in November 1999. The Group signed an agreement with Microsoft in December 1999, relating to the development of the Set-top Box hardware and software required to support narrowband and broadband access to the Internet through televisions. In order to assist with the development of iCare, Towngas also issued its co-branded credit card with BEA in December 1999.
The Hong Kong Government announced in May 1999 its intention to deregulate the Hong Kong telecommunications market further by issuing local wireless FTNS licences. Eastar was incorporated in September 1999 for the purpose of submitting an application for a local wireless FTNS licence. Eastar was awarded a local wireless FTNS licence by OFTA in February 2000 to operate a LMDS based broadband communications network in Hong Kong. Eastar is currently in the process of finalising the development of its network plan, with a view to launching the service prior to March 2001.
In early 2000, the Group began the design of the Well Tech Centre, the first of its three proposed data centres, which is expected to commence operations in the third quarter of 2000. Such data centres will provide a combination of server hosting, 24-hour facilities management, Internet connectivity and systems management as well as a range of applications services and other IT consultancy services.
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The Group also has strategic investments in three IT companies, Adsale, Roctec and Cycom, which were made between March 2000 and May 2000.
In summary, the Group’s operations have developed into five associated and complementary business segments:
+ Internet services operated through iCare;
+ data centres operated through HDC;
+ local wireless FTNS operated through Eastar;
+ intelligent buildings operated through Future Home; and
+ strategic investments in IT companies held through Senway.
Each of the Group’s business segments provides integrated end-to-end solutions. For example, iCare provides Set-top Boxes, ISP services and information and e-commerce services through its portal, and HDC intends to provide software solutions and ASP services to its customers as well as server co-location services. In addition, the services offered by the Group’s business segments are also intended to be integrated with each other. iCare or its content providers may co-locate their servers in HDC’s data centres, the iCare service or HDC’s ASP services may be transmitted through Eastar’s local wireless FTNS and then delivered to the end users through network systems designed by Future Home.
The following chart sets out the current and proposed major business operations of the A28(2) Group:
Henderson Cyber Limited
INTERNET DATA LOCAL INTELLIGENT IT INVESTMENTS SERVICES CENTRES WIRELESS FTNS BUILDINGS
iCare HDC Eastar Future Home Senway
Well Tech Centre Adsale
Big Star Centre Roctec
Wealth Centre Cycom
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CORPORATE STRUCTURE
The Company was incorporated in the Cayman Islands on 10 January 2000. On 11 Para 21 3rd Sched. February 2000, the Company became a wholly-owned subsidiary of Towngas IT Company Limited, a 50:50 joint venture between Felix Technology and Technology Capitalization. On 10 April 2000, Towngas IT Company Limited transferred half of its Shares to Felix Technology and the remaining half to Technology Capitalization.
Initially, the Company’s sole subsidiary was iCare. However, prior to the date of this prospectus, in preparation for the listing of the Shares on GEM, the other companies now comprising the Group were incorporated by the Company or transferred to the Company pursuant to the Reorganisation. The objective of the Reorganisation was to establish the Company as the holding company for all of the existing Internet, telecommunications and high technology service businesses of the Henderson Group.
Under the Reorganisation: A15(3)(c) 3rd Sch2
(a) the loans in the aggregate amount of HK$43 million due by Data Tower Holdings Limited (“DTHL”) to Henderson Investment were capitalised by DTHL issuing 1 share to Henderson Investment credited as fully paid;
(b) the loans in the aggregate amount of HK$55 million due by Konet Investment Limited (“Konet”) to Henderson Investment were capitalised by Konet issuing 1 share to Henderson Investment credited as fully paid;
(c) the Company allotted and issued 26,549,961 Shares to each of Felix Technology and Technology Capitalization for cash at HK$0.80 each; and
(d) the Company allotted and issued a further 71,900,000 Shares to Felix Technology credited as fully paid as consideration for the acquisition by the Company from members of the Henderson Investment Group of the entire issued share capital of each of DTHL, Konet, Popular International Limited and Startech Investment Limited.
Conditional on the Share Offer having become unconditional, Felix Technology will transfer to Henderson Investment 14,086,635 Shares at 3.6 cents per Share, which Shares will be made available for distribution to shareholders of Henderson Investment pursuant to the Distribution.
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The following chart sets out the corporate structure of the Company, its Major Shareholders and its major subsidiaries immediately following completion of the Share Offer, the Capitalisation Issue and the Distribution (assuming the Over-allotment Option is not exercised):
Henderson Land Development Company Limited Hong Kong 64.28% Henderson Investment Limited Hong Kong
33.07% The Hong Kong and China Gas Company Limited Hong Kong
0.18% 100% 100% (Note 1) Towngas Investment Best Selection Co., Ltd. Investments Limited Hong Kong British Virgin Islands
100% 100% Technology Felix Technology Limited Capitalization Limited British Virgin Islands British Virgin Islands
18.05% (Note 2) 66.67% (Note 2)
Henderson Cyber Limited Public Cayman Islands 15.10% (Note 2)
100% 100% 100% 100% 100% Hansom Technology Data Tower Holdings Startech Investment Popular International Konet Investment Limited Limited Limited Limited Limited British Virgin Islands British Virgin Islands British Virgin Islands British Virgin Islands British Virgin Islands
92.2% Cotech Investment Limited British Virgin Islands
100% 100% 100% 100% 100%
Henderson Data Eastar Technology Senway Technology iCare.com Limited Future Home Limited Centre Limited Limited Limited Hong Kong Hong Kong Hong Kong Hong Kong British Virgin Islands 100%
Rena Limited Dowell Limited 11.54% 15.28% 4.76% British Virgin Islands British Virgin Islands Adsale Broadnet Roctec 100% 100% Company Limited Technology Limited Victory City Hong Kong Hong Kong Mingsway Limited Enterprises Limited Hong Kong Hong Kong Cycom Technology Limited Hong Kong 16-19/F Well 3/F Big Star Tech Centre Centre
Notes: 1. Conditional on the Share Offer having become unconditional, Felix Technology will transfer a total of 14,086,635 Shares to Henderson Investment at 3.6 cents per Share, which Shares will be made available for distribution to the shareholders of Henderson Investment pursuant to the Distribution. Assuming that the total issued share capital of Henderson Investment and the shareholding of members of the
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Henderson Land Group in Henderson Investment as at the Record Date will be the same as that on the Latest Practicable Date and the Distribution is made, members of the Henderson Land Group will be entitled to receive 9,054,403 Shares under the Distribution. Assuming further that a maximum of 14,086,635 Shares are fully distributed under the Distribution, Henderson Investment will not have any direct shareholding in the Company after the Distribution.
2. If the Over-allotment Option is exercised in full, the direct percentage shareholding of Technology Capitalization, Felix Technology, Henderson Land and the public will be approximately 17.66 per cent, 65.20 per cent, 0.18 per cent and 16.96 per cent, respectively, of the issued share capital of the Company.
INTERNET SERVICES
Introduction
The Group’s main Internet services are provided by iCare, which was incorporated on 10 November 1999 and is a wholly-owned subsidiary of the Company. The iCare portal is located at www.icare.com.hk and was launched in June 2000.
iCare has developed an integrated end-to-end Internet strategy, which provides families in Hong Kong with a combination of:
+ access to the Internet through a television Set-top Box or a PC;
+ free ISP services; and
+ an Internet portal including:
— e-shopping;
— information and entertainment;
— radio programmes on demand;
— a cooking channel;
— an electronic personal assistant; and
— banking and financial services.
Internet strategy
In forming its Internet strategy iCare carefully considered its target market, which is families, and in particular housewives, in Hong Kong. The conclusion of such studies was that many people within this market segment do not own a PC or regularly use the Internet. In fact, a Towngas survey in July 1999 showed that only approximately 33 per cent of Towngas households owned a PC. Whilst such studies indicate that there is market potential for Internet services within this market segment, iCare decided that an alternative method of accessing the Internet was required in order to achieve a greater penetration of their proposed service than through PCs.
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As a result, iCare formulated a strategy to market television Set-top Boxes to the public, and in particular Towngas customers, giving them access to information, services and e-shopping through their televisions. This strategy is designed to help customers who are not accustomed to using computers to access the Internet with minimum effort and cost and through a medium with which they are generally more familiar.
The iCare service will be introduced in three phases. The first phase involved the testing of the PC website service by offering it to Towngas employees. This phase was launched in May 2000 and was intended to be a period in which the service was tested and operational problems resolved in order to ensure a smooth public launch. The second phase involved the launch of the PC website service to the public in June 2000 and the PC ISP service to selected Towngas customers in early July 2000. The third phase will involve the public launch of the Set-top Box service, which is currently expected to be in the third quarter of 2000.
Television Set-top Boxes
Microsoft was appointed as iCare’s strategic technology partner for the development of both the Set-top Box, the ISP platform and the ‘back end’ of the iCare web site in December 1999. Under a heads of agreement dated 10 December 1999 (the “Development Agreement”), Microsoft agreed to collaborate with iCare to develop the hardware and software required to support delivery of Internet services through television sets. Under the Development Agreement, Microsoft agreed to assist iCare in the:
+ development of the specifications for the Set-top Box and process of ensuring that the Set-top Boxes delivered meet such specifications;
+ selection of the manufacturer of the Set-top Box;
+ development of a prototype for testing; and
+ development of the scheduling of the production of and marketing plans for the Set-top Boxes.
The Set-top Box technology is a joint development between Microsoft and iCare, using Microsoft TV version 1.0 (including Windows CE version 2.11) software as basis, but modified for the Hong Kong market. The Microsoft TV technology was selected as Towngas considered it was one of the most advanced Set-top Box solutions available in the market. However, the software needed to be adapted to support both simplified Chinese and traditional Chinese characters, both narrowband and broadband Internet access and to be reformatted to provide better resolution for television screens. Also, certain additional features have been added, such as call waiting, which informs users if a telephone call comes through while the same telephone line is being used to access the service, and ‘picture in picture’, which allows users to view television programmes and the Internet browser on the screen at the same time.
Microsoft Licensing, Inc. entered into a non-exclusive (except as stated below) licensing agreement dated 23 June 2000 to license Microsoft TV to iCare on the basis of a monthly royalty per unit (subject to a minimum commitment) until 30 September 2002. In addition, Microsoft entered into a non-exclusive licensing agreement dated 28 May 2000 to license
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MCIS to iCare on an active user basis (subject to a minimum commitment) until 31 May 2002. Such licences include issuances of upgrades (but not new versions) to Microsoft TV and MCIS without charge. iCare is also in the process of negotiating with Microsoft for the provision of software support services with respect to such software.
Pursuant to the Development Agreement, Microsoft has also agreed that it will not co-brand the physical Set-top Boxes under the “Microsoft” name with any other third party in Hong Kong for the Hong Kong market from the effective date of the Development Agreement to 12 months from the date of first delivery of the Set-top Boxes. Such exclusivity may be extended with the agreement of the parties.
In addition, an enhanced version of the Set-top Box is currently under development by A28(5) iCare, Microsoft and Legend and is expected to include features such as video conferencing, an enhanced ‘picture in picture’ function, smart card log-on and other security features, a games port and video on demand or pay television. An interactive television feature is also expected to permit users to click embedded links in television adverts, instantly taking the user to the webpage of the advertiser. The Directors are currently in discussions with Microsoft regarding the future design and licensing of the software for such Set-top Boxes, which if successful may result in such Set-top Boxes being available by early 2001.
Legend, a company based in Mainland China, which currently manufactures hardware for Microsoft, has been selected as the manufacturer of the Set-top Boxes. iCare signed a memorandum of understanding with Legend on 7 March 2000 (the “Legend MOU”). Pursuant to the Legend MOU, iCare has no absolute commitment to purchase the Set-top Boxes, although if it takes delivery of less than 40,000 Set-top Boxes in the 12 months following the first shipment of Set-top Boxes, iCare is required to make a payment to Legend equivalent to US$15 for each Set-top Box purchased during such period. The first order for a shipment of 10,000 Set-top Boxes has been made and delivery is expected in August 2000.
iCare will be responsible for the installation of Set-top Boxes which will be undertaken on its behalf by Towngas’ contractors and technicians pursuant to the Supporting Services Arrangements (see “Relationship with Major Shareholders — Connected transactions”). Installation of the Set-top Boxes does not require any adjustments to be made to the television (other than tuning) or telephone lines. In addition, on installation, customers will be given a simple training session on how to operate the Set-top Box and access the Internet. The system is operated through a remote control and has a user-friendly interface designed for users who have never used the Internet before. A remote keyboard can be attached to the system if required.
Customers will have the choice of using the service through either their own PC or through their television and the Set-top Box, although currently only the PC version is available. Customers can choose either to rent the Set-top Box for a monthly fee which is expected to be less than HK$100 or to buy the Set-top Box. The cost of production and installation of the Set-top Boxes are expected to be covered by the monthly rental or the purchase price. The Set-top Box monthly rental payments will be made either using on-line credit card payment or if the subscriber is a Towngas customer such charges may be added to their gas bill.
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Pursuant to the Legend MOU, for 12 months after delivery Legend will provide repair and maintenance services to the Set-top Boxes without charge. If a Set-top Box needs to be repaired, it will be collected and replaced by an iCare representative and the broken Set-top Box will be returned to Legend for repair. After the 12 month guarantee expires, iCare will be required to pay Legend a fee for the repair of rented Set-top Boxes.
Internet Service Provider
Customers at present can only access iCare’s ISP services using a PC. iCare has been distributing CD-ROMS free of charge to Towngas employees since May 2000 and will extend this to Towngas customers in July 2000 as a means of soft launching such services prior to the launch of the Set-top Boxes. The CD-ROMS provide the applications required to format and gain access to the iCare ISP. Once customers are registered and have subscribed for the ISP service using the CD-ROM, they will be automatically connected to the iCare portal’s home page whenever they access the Internet. Customers using the Set-top Boxes, which will be launched in the third quarter of 2000, will also be connected directly to the iCare portal’s home page through the iCare ISP whenever they access the Internet.
There is no monthly charge to customers for the ISP service, although a mandatory PNETS charge is payable which is based on connection time. Initially, the service is being targeted at the 1.3 million Towngas households and 55,000 residential units owned or managed by members of the Henderson Group, together representing over 60 per cent of the population in Hong Kong. Payment of the PNETS charges for the ISP service may be made either using on-line credit card payment or if the subscriber is a Towngas customer such charges can be added to such subscriber’s gas bill.
The ISP platform uses the MCIS technology provided by Microsoft on an active user licence basis. iCare at present locates its servers at the Towngas offices pursuant to the Supporting Services Arrangements, which may at a later stage be moved to the Group’s own data centres.
Network architecture
Microsoft HK is providing consultation and development services for the whole iCare portal infrastructure pursuant to a consultancy agreement dated 3 February 2000. Under this agreement, Microsoft HK provides services in relation to the architecture of the project, including formation of the data centre, system design for the portal and certain functions of the portal such as the e-assistant, content management system, customer service system, billing system and bonus systems.
The basic configuration of the network architecture consists of three sub-networks isolated by firewalls: (i) an access network; (ii) a service network; and (iii) an internal network. It is estimated that the total investment in the hardware, software and system configuration for such networks to 31 December 2000 will be approximately HK$33 million. The suppliers of computer hardware for the network infrastructure are DataCraft Hong Kong Limited, Compaq Computer Corporation and Dell Computer Corporation.
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Access network. The core of the access network is two Cisco 7513 routers. These routers handle network traffic to and from the Internet as well as connections to the local and international networks. Dial-up access is provided by the New T&T Hong Kong Limited network which provides 5,000 dial-up connections. The Internet access service is outsourced as it provides iCare with a cost effective service that is scaleable.
Local network connections to the Hong Kong Internet Exchange are made through an ATM link and modem pool leased from C&W HKT. For international Internet connections two ATM links are also leased from C&W HKT. iCare will regularly review the capacity of and upgrade such connections in order to ensure sufficient bandwidth is available for its service.
Service network. The service network provides a number of services including e-mail, Internet news and Internet access and also hosts the domain name service visible to subscribers and the outside world. This network is supported by over 50 servers supplied by Compaq Computer Corporation and Dell Computer Corporation.
Internal network. The internal network is where the core operations of the ISP occur, including authentication, billing and network management services. A firewall system manufactured by Sun Microsystems, Inc. and Cisco Systems, lnc. has been installed between the service network and the internal network for its protection, as this network contains the ISP’s ‘mission critical’ data.
Software
Although the construction of the iCare portal is a joint development involving iCare, Microsoft, iMerchants Limited and DBZ Limited (the latter three companies being independent third parties), iCare employees have undertaken the overall project management, design and architecture of the portal.
The ‘back end’ of the portal is powered by the MCIS software licensed from Microsoft, as described under “Internet services — Television Set-top Boxes”.
The ‘middle end’ of the portal utilises software applications designed by a number of companies including Microsoft and iMerchants Limited, a software solution provider listed on GEM. The iCare e-shopping site is powered by software specially developed and customised for iCare by iMerchants. iMerchants is also providing on-going consultation services to design, develop and implement the e-shopping site.
DBZ Limited, an interactive communications consultancy, is responsible for the creative design of the ‘front end’ of the portal. This involves creating a clear, user-friendly and appealing look for the Website, whilst ensuring acceptable download speeds.
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The following is the home page of the iCare portal:
The iCare portal is designed to aggregate information and services in an appealing and convenient way for families in Hong Kong. The service is, in particular, designed for housewives giving them access to e-shopping for daily consumables and necessities as well as branded goods, information and services, cooking tips and recipes, radio programmes, an electronic personal assistant and banking and finance services. The Directors believe that accessing even a small proportion of the family budget controlled by housewives in Hong Kong through such e-commerce activities has considerable potential.
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Products
The iCare e-shopping mall provides services and on-line sales of various daily consumables and household necessities, and currently carries over 1,000 different products supplied by more than 15 suppliers. iCare aims to have over 3,000 products listed on the site by the end of 2001. The categories of products and services and some of the major suppliers contracted to date are set out below:
Product held in stock Supplier
Drinks + Swire (Coca Cola) HK Limited (soft drinks) + Kampery Development Limited (coffee and soya milk)
Consumables + Shun Sang (H.K.) Company Limited — a supplier of Procter & Gamble products (consumables such as babies’ nappies, ladies’ hygiene products, shampoos, conditioners, body soaps, skin care, tissues, detergents and fabric softeners)
Homeware + Citistore Limited (bedding, luggage and cookware)
Clothing + Bossini Enterprises Limited
Books + Ming Pao Publications Limited + SunYa Publications (HK) Limited
Health and medical + Jacobson Medical (Hong Kong) Limited products (medical equipment) + Kampery Development Limited (health foods) + Health Plus (health supplements)
Novelty products from + Robotic pets, handicrafts, mobile phone Japan and Europe accessories, gifts and souvenirs
Products not held in stock and services Supplier
Food and drink + Wellcome Delivers (groceries) + Maxims Caterers Ltd. (cakes and seasonal foods) + Regal Hotels International Limited (cakes and seasonal foods) + J.L.C. Fine Wines Limited (wine and champagne)
Books and magazines + Commercial Press (HK) Cyberbooks Limited + SCMP Magazine Publishing Limited (magazine ordering)
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Products not held in stock and services Supplier
Beauty products + Looks.com Limited (perfume, lipsticks, lotions, creams and make-up)
Health checks + Shatin International Medical Centre Union Hospital
Insurance packages for + Towngas — an agent for Blue Cross insurance the household and domestic helpers
Laundry services + Tai Pan Laundry & Dry Cleaning Services Limited + Martinizing Dry Cleaning
Home repair services + Towngas contractors
Learning packages for + Vtech Computer Systems Ltd. primary and secondary students
Travel packages + Miramar Hotel & Investment (Express) Ltd.
The above goods and services have been chosen on the basis of market research with focus groups, size (taking into consideration storage and delivery costs) and potential sales margins and volumes.
Products held in stock by iCare and sold through the e-shopping service, are purchased on one of two bases:
+ regularly featured items are acquired on a consignment basis pursuant to supply agreements with third party suppliers. Under such agreements payment is usually settled within 30 days of receipt of the monthly statement. Suppliers are responsible for product quality assurance; or
+ iCare will take a position in certain ‘one-off’ items, if iCare believes there is sufficient demand for such goods and the potential margin is sufficiently attractive.
In respect of products not held in stock (such as wines and food), or services, iCare receives a referral commission in respect of the sale from the supplier.
Warehousing
The iCare warehouse is located at Fo Tan in the New Territories and has a gross floor area of approximately 10,000 sq. ft. with ceilings approximately 25 ft. high. The refitting of the warehouse was completed in May 2000. The maximum capacity of the warehouse is estimated to be approximately 1,100 orders per day. The warehouse currently employs eight people who work in two shifts and the warehouse operates from 7:00 a.m. to 11:00 p.m. each day. The
79 BUSINESS warehouse, its inventory control systems and its employees are provided by Towngas pursuant מ to the Supporting Services Arrangements (see “Relationship with Major Shareholders Connected transactions”).
Quality control procedures
iCare’s merchants are responsible for auditing the quality of the goods sold. However, when goods are delivered to the iCare warehouse, a quality inspector also conducts a sample check to ensure the quality of goods received meets the required standards. The inspection of the goods is made using the international standard ABC-STD 105. In a given lot or consignment of each product, an Acceptable Quality Level is specified for the purposes of sampling inspection. The products are classified as follows:
Class A: No quality audit required - Branded goods supplied by local agent e.g. Procter & Gamble, clothes and books.
Class B: Sampling inspection once per month - Recurring products and direct orders from manufacturers e.g. kitchenware and health products.
Class C: Sampling inspection for each delivery - New or infrequently ordered items e.g. fashionable items. Inventory
On delivery the goods are entered into the warehouse’s Systems Applications Products in Data Processing R/3 inventory control system licensed by Towngas from SAP A.G. of Germany. This system has been used for two years by Towngas in its warehouses to control inventory for spare parts and gas appliances. The inventory controller receives daily reports regarding the current status of the inventory of goods and the inventory system automatically reorders goods from the suppliers when stocks fall to a pre-set level.
Despatch and delivery
Once a set number of orders have been received, a ‘picking list’ is generated and one of the employees gathers the relevant items and places them in separate bins for packing and despatch. Goods are despatched twice each day, once in the morning and once in the afternoon. The afternoon delivery ensures that orders received before 11:00 a.m. can be delivered the same day.
Quick and accurate delivery of the products sold is important to the reputation and success of the iCare service. To achieve this, the delivery services have been contracted out by iCare to Uni-World Transportation Limited (“Uni-World”), an independent third party, which has initially committed five vans to the service. Customers are not charged for delivery unless their order size is less than HK$200, in which case a charge of HK$30 is made.
The contract with Uni-World guarantees service standards, including deliveries seven days a week in most parts of Hong Kong. The target service performance is delivery within 24-hours of an order being made (unless the order is made before 11:00 a.m., in which case delivery is made on the same day). The delivery services are provided from 10:00 a.m. to 10:00 p.m. within two hour appointment time slots, or six time slots per day. This allows customers to specify their preferred appointment time. The Uni-World vans and staff uniforms carry the
80 BUSINESS iCare logo. Uni-World is also responsible for the collection of cash and cheque payments, for which it charges a 0.5 per cent fee. The contract with Uni-World has no fixed term, but may be terminated by iCare in the event of material breach by Uni-World or Uni-World’s failure to provide a satisfactory service.
The ability of the delivery services to meet iCare’s delivery commitments is also important to the reputation and success of the service. Therefore, arrangements have been made to cater for increased demand and seasonal fluctuations. Although Uni-World is not obliged under their contract to increase their commitment to the delivery services, an agreement in principle has been reached with Uni-World, under which Uni-World will commit up to 21 vans to the extent demand for the iCare service requires. In addition, Towngas has agreed to provide back-up delivery services using Towngas employees if Uni-World’s capacity is fully utilised. Such delivery services will be provided to iCare by Towngas pursuant to the Supporting Services Arrangements.
Some products which are not held in stock (such as wines and food) or services, are delivered or supplied by the suppliers themselves. The contracts with such suppliers require them to meet certain standards and such standards are monitored.
Pricing and payment
Generally, iCare aims to price its goods at the same level as its major competitors in the market, whilst ensuring satisfactory quality and a high level of customer service.
Customers can choose to settle their on-line purchases either by credit card or cash or cheque on delivery. The iCare payment gateway is operated by BEA, which uses encryption software produced by PrivyLink Pte Limited, an independent third party, in order to maintain the confidentiality of credit card information. In addition, there is a dedicated secure payment link between BEA and iCare, which further improves the security of credit card transactions. BEA can process transactions made on any credit card issued by MasterCard International, Inc. or Visa International.
In addition, Towngas and BEA have launched a co-branded credit card as a ‘virtual’ credit card with a lower credit limit, which can be used for payments over the Internet. This card is intended to help address security concerns customers have about payments over the Internet.
Call Centre
iCare offers a call centre service 24 hours a day, seven days a week to ensure that customers receive sufficient support and responses to questions and enquiries they may have. This service, which is contracted out to Towngas pursuant to the Supporting Services Arrangements, uses the Towngas call centre. The call centre is able to handle customer enquiries including questions about:
+ the installation, maintenance and operation of the Set-top Boxes (when the Set-top Box is launched);
+ ISP charges and Internet access; and
+ products and services provided by iCare.
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The Directors believe that a high level of customer support, which is made through actually speaking to a company representative rather than through e-mail or a recorded message system, is a key element of the strategy to deliver quality services and products to its customers. As a utility, Towngas has operated a call centre for many years and therefore not only has considerable experience of providing such a service, but already has the required infrastructure in place which can be used by iCare. iBrandDirect
iBrandDirect provides one of the key services featured as a section of the iCare portal. iBrandDirect was incorporated on 24 December 1999 and is a joint venture between a wholly-owned subsidiary of Towngas, a subsidiary of Harmony Asset Limited (an investment company incorporated in the Cayman Islands, which is an independent third party and the shares of which are listed on the Main Board) and a subsidiary of BEA, each party holding an equal interest.
iBrandDirect is not a member of the Group, but its services are provided to iCare pursuant to a website collaboration agreement dated 26 June 2000 (the “iBrandDirect Website Collaboration Agreement”). iBrandDirect operates its own website, www.ibranddirect.com, but the products listed and the payment systems for such products are hyperlinked to the iCare portal, so all purchases are made within iCare. Under the iBrandDirect Website Collaboration Agreement, iCare receives a percentage of iBrandDirect’s gross sales revenues in return for a designated section being made available to iBrandDirect. In addition, iBrandDirect is committed to using iCare’s payment, warehousing and delivery services which are charged to it at cost.
The Company has the right to purchase Towngas’ interest in iBrandDirect in certain circumstances pursuant to an option described under “iBrandDirect Option Agreement” in the section of the prospectus headed “Relationship with Major Shareholders”.
Products
iBrandDirect offers branded goods for sale in part of the iCare e-shopping mall. Such goods are sourced direct from factories in Hong Kong and Mainland China and other countries including the United States. iBrandDirect either purchases such goods on a consignment basis or it takes a position in a particular item. In addition, iBrandDirect is seeking to become the distribution agent for certain branded goods in Hong Kong. The goods are often surplus stock, a previous year’s model or are not distributed in Hong Kong. Therefore, iBrandDirect’s prices are generally lower than those in the market.
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The product categories and brand names offered by iBrandDirect, currently include the following:
Category Product and supplier
Home + Electrical appliances and white goods - Hitachi, Rowenta, Sanyo, Pensonic and Firmstar + Cutlery - Victorinox + Household utensils - Tefal and Buffalo pans, Thermos cooking utensils, Giabo + Bedding - Casablanca, A-Fontane and Disney + Hair accessories - Vidal Sassoon + Shavers - Braun + Computers - various suppliers
Office + Office furniture - Lamex SOHO furniture
Personal + Watches - Casio + Pens and knives - Victorinox
Entertainment + Audio visual - Pioneer and Sharp + Audio - Samsung and Aiwa + Cameras - Olympus
As at 31 May 2000, iBrandDirect had relationships with over 35 suppliers. iBrandDirect provides a seven day money back guarantee to customers and suppliers are required to give the usual 12 month guarantee.
Payment and delivery
iBrandDirect makes use of iCare’s warehousing, inventory, despatch and delivery systems pursuant to the iBrandDirect Website Collaboration Agreement which is charged for at cost. In addition, payment for goods purchased through the service can be made through BEA payment gateway or by cheque or cash on delivery. As a result, customers effectively receive a service that is uniform with that of iCare. However, iBrandDirect has its own dedicated sales and marketing division, which separately markets its services to the public.
Content providers
iCare has a dedicated team that constantly seeks interesting and quality content providers for the portal. In addition, such team considers such content in the context of e-commerce cross-selling opportunities it may provide. In terms of content provision, iCare focuses on providing the key e-commerce element of its Internet service, although it also sources some content from within the Towngas Group such as recipes for the Cyber Cooking Club. All other content is provided by third parties on any one of the following bases:
+ acquiring the content at no cost;
+ acquiring the content at no cost, but sharing advertising revenues generated by the designated section; or
+ acquiring the content for a monthly fee.
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The Directors believe that the reputation of the Group’s services will depend on the quality, reliability, performance and reputation of its content and its goods and services providers. As such, iCare aims to deal only with partners which are expected to satisfy such criteria. Generally, under the terms of the contracts with the content and goods and services providers, any dissatisfaction with their service is required to be remedied. If they fail to do so, iCare has the right to terminate their services immediately.
All content provided to iCare is screened by its staff before it is displayed on the portal. For information that is updated daily by content providers, iCare has staff assigned to monitor the quality and integrity of the content to ensure it complies with the portal’s standards. In addition, where possible, third party content is ‘re-framed’ in order to attach the iCare brand to such content and to give users the impression that they are still within the iCare portal.
Infotainment
iCare provides information and entertainment services that are also focused on catering for the interests of its target market. Arrangements have been entered into with content providers including the following:
Content Provider
News, including + Wisers entertainment and sports news
Weather forecasts + Internet Resources Centre
Transport information + Internet Resources Centre
Cultural activities + Internet Resources Centre + eTomorrow Limited
Dining Plaza + Easy Group Holdings Limited (Foodeasy.com dining guide) + Miramar Hotel & Investment (Express) Limited and Regal Hotels (banqueting promotions) + Kampery Development Limited (coffee culture) + J.L.C. Fine Wines Limited (wine information)
Dining tips + Ms. Doreen Leung (a well-known cooking and dining expert)
Entertainment + comiccinema.com (comedy) + eTomorrow Limited (movie information)
Education + Vtech Learning Web (English tutorial) + Organic Garden (plant information) + eTomorrow Limited (training courses)
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Content Provider
Beauty advice + Looks.com Limited
Health advice + Health4ever.com Limited and Town Health IT Resources Limited
Child care + Breakthrough + eTomorrow Limited
Pet Care + Society for the Protection of Animals
Home care advice + Mr. Tsang Kan Wing (a well-known home care expert) + www.safety-home.com
Legal advice + Terence Cheung, Au Yeung, Lo & Chung Solicitors and Chan, Lau & Wai Solicitors
Car information + eTomorrow Limited
Cyber Radio
The Cyber Radio is organised by Mr. Lee Luen Fai, who has over 15 years experience in radio programming, radio station management and is a popular radio show host in Hong Kong. It is a radio on demand service, the first series of which includes the following:
+ Channel 1: ‘Island Leisure’ (hosted by Ms. Lau Sin Yee) which has 10 chapters including stories, songs, psychology and interviews with people discussing their life experiences;
+ Channel 2: ‘Family Man’ (hosted by Mr. Yeung Ying Wai) which has 10 chapters providing advice on family life and how to be a good father;
+ Channel 3: ‘Dancing with the Kids’ (hosted by Ms. Lee Pik Sum) which has 10 chapters discussing child psychology, including interviews and songs; and
+ Channel 4: ‘Dining Music Box’ (hosted by Mr. Joe Chan) which has 10 chapters providing dining tips and including songs.
The second series is in the process of being developed and will add further channels on new topics such as home care, beauty, health and travel tips.
Cyber Cooking Club
The Cyber Cooking Club has more than 1,000 recipes available to housewives or domestic helpers. The recipes are provided by Towngas and the World Publishing Company. This area of the service also includes a search engine so users can find their favourite types of cuisine or dishes. Also, daily set menus are suggested as chef’s recommendations to provide inspiration and the best mix of foods for the season.
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Electronic Personal Assistant
The electronic personal assistant section of the iCare portal provides customers with the following applications:
+ daily scheduler;
+ reminders, such as birthdays and anniversaries;
+ e-mail;
+ electronic fax;
+ phone book; and
+ fortune telling and horoscopes.
Cyber banking and finance
The on-line banking services of BEA and the on-line stock dealing services of East Asia Securities Company Ltd. are linked to this section of the iCare portal by a hyperlink. In addition, it is currently proposed that this section will include currency exchange rate and deposit rate information provided by BEA and real time stock quotes provided by Finet Holdings Limited.
The hyperlink to the on-line banking services will be provided without charge. However, iCare expects after an initial trial period to share commissions for on-line stock dealing with East Asia Securities Company Ltd. and plans to enter into an advertising sharing agreement with Finet Holdings Limited (an independent third party) in relation to the real time stock quotes.
Marketing
iCare plans to undertake marketing efforts for all its operations, including the Set-top Boxes, ISP services and the iCare portal. To date marketing efforts have been limited whilst the operations of the iCare service are being established. However, iCare plans to launch a comprehensive multimedia marketing campaign once the Set-top Boxes are available in the third quarter of 2000 in order to increase the penetration of the service. iCare’s marketing budget for the calendar year to 31 December 2000 is approximately HK$16 million.
Ogilvy & Mather Advertising have been appointed as advertising agents and key sales and marketing staff have been recruited. There are at present 16 full-time staff in the Sales and Marketing Team. They are responsible for the development, planning and execution of iCare’s sales and marketing strategy, recruiting new subscribers for the ISP service, as well as the sales of Set-top Boxes and advertising.
The iCare service will be marketed and new customers will be sought through the following means:
+ Advertising - television and radio commercials, newspaper and magazine advertisements and bill board advertising in MTR stations and bus shelters.
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+ Other outlets - the network of Towngas customer centres which will have a section dedicated to iCare, outdoor sales counters and cooking centres and shopping centres managed by the Henderson Group will also be used to promote the service. Trade shows and exhibitions will also be used to raise the profile of the service with the support of content providers.
+ Special promotions - initially free shopping dollars, voucher incentives and extra rewards points will be offered to newly registered users in order to encourage them to use the service and explore its different areas. From time to time, roadshows at shopping centres will be held and celebrities will be engaged to promote the iCare service.
+ Mailshots - leaflets and e-shopping catalogues will be included with Towngas bills and distributed in Henderson Group residential developments. Direct mailshots and catalogue sales will also be used to promote the service.
+ Direct sales - telephone cold calling and door to door sales will also be used to market the service to potential customers.
Besides marketing the services to customers, on the basis of convenience, good quality merchandise, competitive prices and reliability, iCare has designed a rewards programme with a points system to encourage purchases and customer loyalty. Such ‘iFun’ points can be redeemed against future purchases of goods or services offered by the portal.
Also, iCare is considering the introduction of a referral marketing concept to encourage customer referrals. The target customer group is predominantly housewives aged between 25 and 45 who are family guardians and want to be seen as money-wise and astute. Usually, such consumers have strong peer influence, and therefore it is expected that if such service is perceived to be value for money, convenient and reliable, those with the service may influence others to obtain it.
A database system has been established to capture relevant information such as customers’ buying and browsing behaviour as well as their payment preferences, which can provide iCare with information that may assist in future marketing efforts.
Competition
iCare capitalises on the position of the Major Shareholders, giving iCare competitive advantages which include:
+ the ability to access a customer base of over 1.3 million households through Towngas and 55,000 residential units owned or managed by members of the Henderson Group, together representing over 60 per cent of the population in Hong Kong;
+ Towngas has established a reputation for honesty, quality and efficiency with the public, as it has operated as a utility in Hong Kong for over 138 years and has over 12 million face-to-face contacts with its customers each year. The nature of the Internet means that customers are initially more comfortable buying products from a well known and trusted company than a new operator on the Internet;
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+ the ability to access quality suppliers and content through the reputation and relationships of its Major Shareholders;
+ the partnership with Microsoft gives iCare access to one of the world’s leading television Set-top Box technologies and what is expected to be a ‘first mover’ advantage in the Set-top Box market;
+ greater potential for penetration of the service, as no PC is required and the Set-top Boxes provide a convenient and low cost entry to the Internet that are bundled with free ISP services. The Set-top Boxes also fix the iCare portal as the default screen through which the Internet is always accessed, in contrast with many other portal operators which require users to select its portal as the portal of choice;
+ the technology, products and services provided are all focused on housewives, decision-makers that control a significant proportion of the family budget, rather than many e-commerce portals that are aimed at the Hong Kong public in general, at teenagers or regular PC users;
+ the convenience of a 24 hour service, home delivery, value for money products and diverse range of quality ‘daily essential’ products and other services; and
+ through its Major Shareholders and the Supporting Services Arrangements, iCare has immediate access to established systems infrastructure and marketing channels, including a customer service hotline centre, customer centres, information technology, billing and inventory control systems, warehousing, installation technicians and maintenance technicians.
No other operator in the Hong Kong Internet market currently provides a similar Set-top Box end-to-end integrated solution. Therefore, there is no one competitor that iCare faces, but iCare does have competitors in each of the different areas in which it operates. iCare’s current competitors in each of the elements of its business currently include:
+ Set-top Boxes: Currently, no Set-top Boxes sold in Hong Kong are bundled with installation, ISP and e-commerce portal services, although a number of companies have announced that they intend to develop a broadband multimedia service that can be accessed through PCs or television sets;
+ ISP competitors: There are over 178 ISPs in Hong Kong, of these those with the largest customer base and providing other services such as telephony and pay-TV, include C&W HKT, City Telecom (Hong Kong) Limited and iSmart.net Limited. Most of these ISPs charge a monthly access fee rather than using the free access ISP model;
+ Portal competitors (horizontal aggregators): C&W HKT: www.netvigator.com, Sina.com: www.sina.com.hk and Hutchison Global Crossing Limited: www.hutchcity.com; and
+ Portal competitors (e-shopping): AD Marketing Ltd.: www.admart.com.hk.
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One of the key barriers to entry to this market is access to the Set-top Box technology and the investment required to develop such technology and establish the warehousing, ordering and delivery systems. The agreement iCare has signed with Microsoft gives iCare exclusivity to the Microsoft TV narrowband Set-top Box technology in Hong Kong for twelve months after delivery of the first Set-top Boxes. This is expected to give iCare a ‘first mover’ advantage given that currently more than 90 per cent of Internet users access the Internet via narrowband and once customers have the service, the Directors believe they are unlikely to switch to a new provider if the existing service is provided to their satisfaction. In addition, it is the intention of the Directors that iCare will continue to develop and roll-out the broadband version of the Set-top Box and to add the features and functions required to stay ahead of the market. Introduction of the broadband version of the Set-top Box will also provide opportunities for cross-marketing and bundling of the iCare service with Eastar’s local wireless FTNS.
The Directors intend to continue to seek relationships with major software, applications software and content providers, in order to develop the technology that supports the iCare Internet service, as well as enriching its content and functionality.
Licences
iCare’s application for a PNETS licence to provide ISP services in Hong Kong was approved by OFTA on 23 June 2000, the PNETS licence is expected to be issued in July 2000.
Insurance
iCare carries insurance for risks including general public liability (HK$10 million per occurrence and unlimited in aggregate), product liability (HK$10 million per occurrence and in aggregate) and property and equipment (HK$17 million, including HK$8 million for stock and HK$9 million for data centre equipment, PCs and accessories).
Intellectual property
iCare is the registrant of the domain names icare.com.cn, . , . and . . The registrant of the domain name icare.com.hk (an indirect wholly-owned subsidiary of Towngas) has licensed the right to use such domain name to iCare pursuant to a licence agreement described in paragraph (f) under “Summary of material contracts” in Appendix 4 to this prospectus. Applications to register iCare’s trade marks in Taiwan, Macau and the PRC were made on 10 February 2000, 1 March 2000 and 6 March 2000, respectively. Applications to register the trade marks “ICARE”, “iCare”, “ ” (in series), “ ” and “ ” in Hong Kong were made between October 1999 and May 2000 in the name of Towngas. The Company has obtained an exclusive licence to use the trade marks of “ICARE”, “iCare”, “ ” (in series) and “ ” and a non-exclusive licence to use the trade mark “ ” from Towngas pursuant to a licence agreement described in paragraph (o) referred to in the paragraph headed “Summary of material contracts” in Appendix 4 to this prospectus. According to the terms of this licence, the Company may grant sub-licences to other members of the Group. Other than such domain names, trade marks, its copyright in respect of the design of the ‘front end’ of the portal and the software licences referred to above, iCare does not currently hold or have licensed to it, or by it, any intellectual property rights that are material to its operations.
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DATA CENTRES
Introduction
HDC was incorporated in March 2000 as the vehicle to operate the Group’s data centres. Currently three data centres are planned in Hong Kong with the launch of HDC’s first data centre at the Well Tech Centre in San Po Kong expected in the third quarter of 2000. Such data centres will provide a combination of server hosting, 24-hour facilities management and Internet connectivity and systems management, as well as a range of applications services and other IT consultancy services. These services are designed to provide enterprises with ‘mission-critical’ Internet operations with the security, high reliability, high performance, scalability and expertise necessary to optimise their Internet operations.
The data centres
Two of the data centres will be situated in floors of buildings that have been acquired from Henderson Investment for HK$43 million in aggregate (see Appendix 2 — “Property valuation”) and are to be retrofitted for the purpose; namely four floors of the Well Tech Centre in San Po Kong and one floor of the Big Star Centre in Kowloon Bay. In addition, the Group will lease from Henderson Land a data centre to be named the Wealth Centre located in Kwun Tong, which is currently under construction and has been specifically designed for the purpose.
The following table sets out certain data in respect of each of the proposed centres:
Well Tech Centre Big Star Centre Wealth Centre
Gross floor area 25,624 sq.ft. 21,853 sq.ft. 228,600 sq.ft. Approximate number of racks 668 630 7,500 Height of racks 8 ft. 6 ft. 8 ft. Proposed launch date Third quarter 2000 First half 2001 First Half 2002 Estimated retrofitting costs HK$60 million HK$50 million HK$350 million
HDC signed a turnkey contract with Roctec dated 27 April 2000 pursuant to which Roctec has been engaged as a consultant to assist in the design and installation of the first three floors of the Group’s first data centre for HK$43 million. Retrofitting of the Well Tech Centre commenced in April 2000. The Group expects to commence the second phase of the Well Tech Centre which will involve retrofitting the 19th Floor of the Well Tech Centre in the third quarter of 2000. The Group acquired a 4.76 per cent equity interest in Roctec in March 2000. See “IT investments” below.
Server hosting and facilities management
Whilst many companies have in the past set up their own data centres, the server co-location centre concept provides distinct advantages as compared with in-house operations. In particular, the concept offers a technologically sophisticated, stable and secure environment and high capacity bandwidth and connectivity to the Internet. Although the initial capital costs of the plant and equipment required for such centres are relatively high, due to economies of scale such centres can generally provide such services more cheaply than in-house solutions. In addition, the lead in time for companies requiring the use of such centres is far less than constructing such a data room in-house.
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The plant and equipment installed in the first data centre at Well Tech Centre will include the following (the plant and equipment in the other data centres is expected to be broadly similar):
Power supply. Servers require a stable and uninterrupted power supply and in order to provide this the data centre will have its own direct-connection power feeders linked to the China Light & Power Company Limited grid. In addition, the data centre will have two back-up power systems: a Powertronix ‘Uninterruptible Power Supply System’ and two standby diesel generators connected to a fuel tank in a storage room on the first floor of the building. Such systems ensure that the data centre can operate for a significant period of time if the main power fails.
Environmental control systems. The environment in a data centre must be as dry, clean and dust free as possible and the servers cannot be exposed to extremes of temperature and humidity. Therefore, a filtered, recirculating air conditioning system is required, in order to provide a clean and stable environment in which air temperature, humidity, filtration and distribution is controlled. The air conditioning system will be configured with a back-up system as temperature and humidity control is required 24 hours a day, seven days a week. In addition, the data centre will have raised floors for easy access to services, a central vacuum cleaning system for the extraction of dust and a water leakage detection system, which uses linear sensors to detect and alert the control room of the presence of any water in the computer room.
Fire systems. The data centre will also have advanced fire suppression systems. The primary system will be the FM 200 Fire Suppression System, which emits non-toxic gas to suppress fires, whilst avoiding excessive damage to the hardware in the computer room.
Security. The data centre’s security systems involve two elements, systems security and site security. The systems security will include anti-hacker firewall technology using software designed by Check Point Software Technologies Limited (an international software solution provider) and a regularly updated anti-virus programme from Computer Associates International, Inc. (an international software solution provider) to limit the spread of a virus from within the network. In addition, each server rack will have a door with a lock and will be continuously monitored by a CCTV surveillance system. There will also be security access controls on entry to the computer room and 24-hour security guards will patrol the premises.
Control rooms. A control room at the data centre will monitor both the operational status of the facilities, including the power, environmental control, fire and security systems, and the operational status of the network, including connectivity and the flow of traffic to ensure that response times are minimised, on a 24 hours a day, seven days a week basis. Trained teams of employees working in shifts will staff the data centre.
Workshop area and meeting rooms. The data centre will also have workshop areas for customers to use whilst servicing their hardware and software. This service will be available for use without charge at any time of the day or night. Meeting rooms will also be available for use by customers as well as services such as secretarial services, enabling clients to use the data centre as a ‘virtual office’.
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System architecture and Internet connectivity
One of HDC’s main objectives will be to ensure that its customers’ connections to the Internet perform effectively and reliably. Therefore, the operations of the data centres will be designed to be available at all times, with redundancy features to cater for unexpected problems. In addition, the facilities will be designed to be flexible and scaleable, ensuring a consistently high level of performance, even if the volume of traffic to the servers in the data centres increases.
The proposed network architecture for the first data centre at Well Tech Centre is expected to have the following components (the overall design of the network architecture in the other data centres is expected to be broadly similar):
External connections. The data centre is expected to have two ATM Internet connections to two different Internet exchange companies, in order to provide high reliability and redundancy services to customers. Two Cisco 12008 ATM routers and two FORE ASX-1200 ATM switches will be used for the external connections of the data centre, in order to provide high performance and sufficient capacity for future expansion. Also, to protect the integrity and security of data within the data centre from incursions from outside, a Check Point Firewall-1 will be used.
Backbone layer. The internal network of the data centre will be connected to the external FTNS operators (or Eastar’s local wireless FTNS) through the centre’s backbone of fibre optic cables and enhanced Cat-5 wiring. This backbone ensures continuous, high speed connections to the Internet. The backbone layer of the data centre will also comprise the FORE ASX-1200 ATM switches and the Cisco 12008 ATM routers. The switches interface with the edge layer and the routers perform the external routing functions.
Edge layer. The edge layer will utilise FORE ESX-2400 switches, which provide the interface between the backbone layer and the user layer.
User layer. The user layer will utilise FORE ES-1000 Ethernet switches, which provide a Local Area Network connection for user racks.
The purpose of the switches at each of the three layers is to ensure the most efficient use of the network, so that the capacity of the network is evenly spread and there is adequate redundancy built into the network if one part of it fails.
Systems management and Internet technology services
As part of its server co-location service, HDC intends to offer a range of value added systems management services which will include the following:
+ bandwidth management, ensuring that there is sufficient bandwidth to meet a server’s demand;
+ security management, including data encryption, firewall management and an application monitoring service, designed to detect intrusions;
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+ system/hardware administration, including system recovery, disaster recovery, server load balancing, job scheduling and web traffic reports to assist operators in analysing the performance of their sites; and
+ data back-up, 24-hour back-up services and mass storage back-up services in different data centres.
In addition, as part of its broader data centre services HDC expects to offer a range of other value added services including:
+ ASP services, providing SMEs with a choice of software applications for a subscription fee, lowering the costs incurred by such companies in maintaining, supporting and upgrading such applications;
+ security services, providing solutions relating to data encryption and systems security;
+ web design and hosting services, involving the design of a website’s web pages and providing a location for such web pages on a server; and
+ consultancy services, offering a ‘one stop’ solution to start-up enterprises, integrating software, hardware and peripherals.
Some of HDC’s value added services in relation to its co-location service are expected to be undertaken by its in-house technology team. However, other of its services may also be provided in association with a third party solution provider. The Directors intend to seek relationships with major software, applications software and IT consultants in order to develop the technology that supports HDC’s services and also adds to the applications and services that it can offer.
Customers and marketing
HDC’s services will be targeted at SMEs and Internet start-ups, multi-national corporations, ISPs, ICPs, web design and host providers, e-commerce services and multimedia companies. In addition, due to the deregulation of the telecommunications industry in Hong Kong, telecommunications service providers, such as external telecommunications service providers and LMDS operators, are expected to require a significant amount of space to store servers and gateway management systems.
HDC will have a dedicated sales and marketing team. Initially, HDC’s target customers will include tenants of Henderson Group commercial buildings and members of the Henderson Group and Towngas Group, which are expected to take up a substantial proportion of the space in the first data centre. In addition, it is expected that the Group’s Internet services businesses will use HDC’s facilities.
In addition to direct sales, marketing efforts will focus on increasing public awareness of the service through advertising in newspapers, magazines and other media.
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Charges
HDC’s basic charges will relate to the rack space rented by the customer, which will generally be rented on a quarter rack, half rack or full rack basis. The Directors expect that the monthly rental charge for the rack space will be priced competitively in the market and in addition an initial set-up charge will also be made. The monthly charge will be paid in advance and will include the costs of all HDC’s basic facility services. HDC will charge separately for its value added services, the pricing for such services has not yet been fixed.
Competition
Currently, HDC’s main competitors are C&W HKT, iAdvantage Limited and iLink.net Limited. In addition, the Directors believe that a number of potential competitors may have the intention or are in the process of entering the data centre market. HDC also has to compete with potential customers who opt to locate their servers in their own premises. However, the Directors believe that HDC has the following competitive strengths:
+ The size and nature of its facilities as compared with in-house solutions allows customers to benefit from:
— cost savings due to economies of scale and connectivity among other servers co-located in the same data centre;
— better performance due to the network architecture and internal connectivity;
— professional infrastructure, hardware and technical support; and
— an immediate solution as compared with the lead-in time for in-house solutions.
+ As compared with other data centre operators the Group’s competitive strengths include:
— access to a range of commercial properties in Hong Kong and regarding retrofitting of such sites access to the Henderson Group’s considerable experience in project management;
— the Group’s relationship with the Henderson Group also gives it access to the experience and reputation in facilities management of the Henderson Group and their commercial tenants as potential customers; and
— access to Eastar’s local wireless FTNS, which is expected to provide HDC with additional competitively priced bandwidth as well as a further network to add to the redundancy features of its service. In addition, HDC’s relationship with Eastar gives it the opportunity to cross-sell and bundle its services with those of Eastar.
The Directors believe that there are a number of barriers to entry to other operators, including the cost of acquisition and development of a data centre site and the expertise
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OFTA licence
On 5 May 1999, the Hong Kong Government announced that licences would be issued for the provision of local FTNS using networks based on wireless access technology and applications for such licences were invited in July 1999. Eastar submitted an application for a licence on behalf of the Henderson Group on 30 September 1999. Of the 14 applicants, OFTA awarded local wireless FTNS licences to five operators, including Eastar, in January 2000.
Eastar was issued its local wireless FTNS licence on 16 February 2000 with an initial term of 15 years (subject to extension for up to a further 15 years with the approval of OFTA), which specifies that Eastar is to:
+ provide fixed telecommunications network services to the public in Hong Kong;
+ establish, own, operate and maintain a local wireless FTNS network to provide such services; and
+ process and use the following frequency spectrum for its services: 24699.5MHz to 24846.5MHz for transmitting from the hubs and 25707.5MHz to 25854.5MHz for receiving at the hubs.
In addition, OFTA has given Eastar a priority on a per-building basis to use the allocated frequencies in IBCCDS (downstream channel D2 at 336MHz to 342MHz and upstream channel U10 at 32.2MHz to 33.8MHz). On grant of its local wireless FTNS licence, Eastar was required to pay the first basic annual licence fee of HK$1.0 million and the first radio spectrum fee of HK$294,000 (HK$1 per kHz) to OFTA. In addition, on each anniversary of the grant of the licence Eastar is required to pay a fee of HK$700 for every 100 customers connected to the network, as well as the basic annual licence fee and the radio spectrum fee.
As a term of its licence, Eastar is required to provide OFTA through its surety, Kincheng Banking Corporation, a performance bond in respect of certain milestone targets over the next three years, including launch of the service by March 2001. A predetermined portion of the performance bond is payable if each milestone is not achieved and the aggregate outstanding amount of the performance bond is reduced to the extent each milestone is achieved.
The amount of the bond is HK$40 million and the milestone targets, which constitute the minimum levels of service Eastar is required to achieve, are as follows:
By By By 16 February 16 February 16 February 2001 2002 2003
Cumulative buildings served 67 145 368 Cumulative network hub sites 6 16 26 Cumulative capital expenditure HK$50 million HK$123 million HK$219 million
Tariffs will be fixed at competitive rates by reference to the market and may only be revised with the written approval of OFTA. See “Industry overview — Telecommunications regulation”.
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LMDS technology
LMDS uses microwave technology to transmit two-way broadband signals at a frequency of 26GHz from one point to multiple points bypassing the majority of the local fixed line telecommunication networks. This technology enables the cost effective delivery of data, Internet, voice, video and multimedia services to commercial and residential properties.
Data transfer rates over LMDS significantly exceed those currently provided by dial up modem lines. LMDS also provides a high capacity and cost effective alternative to methods of fixed-line broadband transmission such as optical fibre or DSL. The key advantages of LMDS, as compared to existing methods of fixed-line broadband transmission, are that it is simpler, quicker and less expensive to deploy and such deployment causes minimum disruption to local communities. In addition, it is flexible and scaleable in that additional equipment can be deployed quickly or existing equipment moved elsewhere if demand requires.
There are a number of environmental factors in Hong Kong that create technical challenges for LMDS technology, including extreme weather conditions such as heavy rainfall, widely varying building heights, interference from other networks, limited frequency spectrum and topography. However, a number of telecommunications operators have undertaken trials of the LMDS technology in Hong Kong by using equipment supplied by Newbridge Networks Corporation and Nortel Networks Corporation, as well as in various cities in North America, Europe and Japan. In such trials each of the relevant environmental factors present in Hong Kong has been satisfactorily tested.
Also, particular care will be taken by Eastar to engineer the system to ensure that A28(5) connections are robust and stable even in adverse weather conditions. For example, detailed rain fade analysis has been conducted and hubs will be located at an optimal distance from the remote sites to ensure a stable connection even in severe weather conditions. In addition, ongoing monitoring of each component of the network will be undertaken to maintain and improve system availability.
Network architecture
The three levels of the basic network architecture for the local wireless FTNS are as follows:
LMDS remote stations - Building level
The remote stations will be located on the rooftops of customer buildings and will consist of an outdoor unit and a digital microwave antenna which will be directed at the local hub. The voice, data and video communications traffic will travel from the customer’s premises through the building’s internal wiring to the indoor unit of the LMDS remote station within the customer’s building. This traffic can be connected through the building’s internal block-wiring using DSL technology or IBCCDS. DSL technology allows the building’s common voice grade copper wire to be used to carry broadband traffic. An alternative approach is to use the existing IBCCDS, which is a coaxial cable network built for SMATV, CATV or CCTV applications. OFTA has allocated a pair of IBCCDS frequency channels (designated as D2/U10) for use by Eastar. Once the outbound broadband traffic reaches the indoor unit of the LMDS remote station, it will be transmitted to the hub through the outdoor unit and antenna of the remote station.
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Hubs - District level
Each hub will be the central aggregation point for the distribution and reception of the customers’ communications traffic in each cell. The hubs will be located on the top of tall buildings within line of sight of all the remote stations. Buildings that are not within line of sight can be connected by repeater stations. Hub sites will be located to maximise the number of potential buildings from which such hubs can receive and distribute broadband traffic. The distance between a hub and the remote stations ranges typically between one and two kilometres. The outdoor unit located at the hubs will be light-weight and compact, housed inside a prefabricated module for protection against extreme weather conditions and tampering.
The point-to-multipoint technology is employed at the hubs which allows simultaneous transmissions between a hub and multiple remote stations. This technology allows the cost of a hub to be allocated over all customer building sites in each cell and reduces the capital expenditures necessary to bring broadband services to a particular customer building. In addition, the use of point-to-multipoint technology permits network capacity to be allocated and shared on an as-needed basis, so Eastar can better supply customers with bandwidth- on-demand as their capacity needs change.
Core network - City level
Broadband traffic, that is distributed to and received from each hub, will travel through fibre optic cable leased from the local FTNS operators in Hong Kong. These fibre optic connections will link each of the hubs with Eastar’s digital exchanges located in the network operations centre.
The digital exchanges are the core of the network and will provide the connections to the hub sites, local FTNS operators and international telecommunications carriers. The digital exchanges will utilise multiservice ATM switches, which perform switching functions for the network, connecting voice, data, video and Internet traffic to the relevant parties.
Implementation
According to the current plan, the network will be rolled out in four phases:
Planning and design + network planning and design + network operations consultancy
Roll-out + network implementation and integration + network operations development
Operation support + technical support + network maintenance + knowledge transfer
Consultancy on further + network evolution services development + network enhancement
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Eastar is currently finalising the details for network design and site preparation in association with Eastar’s technology partner Nortel Networks (Asia) Limited (“Nortel”). Equipment ordering and shipment will take place within two months, with installation and commissioning expected to be completed during the fourth quarter of 2000.
Eastar signed a network provision agreement on 22 June 2000 with Nortel (the “Nortel Agreement”). Nortel is a subsidiary of Nortel Networks Corporation, an international telecommunications technology provider that has deployed LMDS in North America, South America, Europe and Japan. Under the Nortel Agreement, Nortel will supply and install Eastar’s LMDS software and Reunion network equipment, including ATM switches, hubs, remote stations and customer premises equipment. In addition, Nortel will test such network in accordance with objective criteria and maintain it for 12 months following acceptance of the network by Eastar.
Eastar also signed a network provision agreement on 22 June 2000 with Datacraft (Hong Kong) Limited (“Datacraft”) (the “Datacraft Agreement”). Datacraft is a Cisco Systems, Inc. ‘Golden Certified Partner’ for the supply, installation, systems integration and support of Cisco’s network routers and network equipment in Hong Kong. Under the Datacraft Agreement, Datacraft will supply and install the routers and network equipment for Eastar. In addition, Datacraft will test such routers and network equipment in accordance with objective criteria and maintain such hardware for 12 months following acceptance by Eastar.
In the first twelve months of operations, the proposed roll-out for the various districts in Hong Kong will include the Central & Western and Eastern districts on Hong Kong Island, as well as selected new towns in the New Territories. The Directors expect that by the fourth year of operation hubs will be established in all 18 districts of Hong Kong.
A key part of the implementation process will be the identification and lease of sites for locating hubs and remote stations. The local wireless FTNS operators have the statutory right of access to the common areas of buildings without being charged. However, if the building is owned by a private party, such operators will need to negotiate the commercial terms for lease of space to locate any of their network infrastructure or to use the building’s block-wiring or IBCCDS.
Eastar has entered into an agreement dated 19 June 2000 with AlphaNet Pty Ltd (an independent third party incorporated in Australia) (“AlphaNet”) to blockwire buildings within Eastar’s network coverage area. Under this agreement AlphaNet and Eastar may agree to blockwire buildings, the cost of which will be borne by AlphaNet in return for a commitment from Eastar to lease a proportion of the blockwiring system for three years.
Services
In order to serve customers’ developing needs, Eastar will offer a broad, integrated package of communications products.
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Voice services
Eastar’s broadband network and high speed digital switches allow it to customise network configurations and solutions to meet the individual telecommunications needs of its customers. The voice services that are expected to be offered by Eastar include:
+ Local voice services;
+ Long distance services;
+ Virtual private networks;
+ Dedicated lines; and
+ Enhanced features including call waiting, call forwarding, caller identity, call barring, conference calls and voice mail, as well as operator and directory assistance services.
Internet and data transport services
In addition to providing standard ATM, Frame Relay, Internet and data transport services, Eastar will also offer customers high speed, Internet access either on an always-on or dial-up basis. As a network provider for Internet traffic, Eastar will enter into “peering” relationships with other Internet network providers to ensure the efficient exchange of Internet traffic between networks.
ASP, web hosting and server management services
As well as voice and data services, Eastar expects to offer ASP, web hosting services and server management services to its commercial customers. Eastar will provide such services in association with HDC. These services are expected to be bundled and sold as tailored packages to customers in order to provide them with cost-effective total solutions.
An ASP hosts software applications on servers located in its data centres and deploys these applications across a network to its customers. Users access applications via the network as needed on a subscription basis so they no longer need to purchase, own, install or maintain such applications themselves. In order to provide target customers with a comprehensive set of ASP services on-line, Eastar plans to enter into strategic alliances with selected applications vendors in the market. The software and applications required for such services will be located in HDC’s data centres.
On-line business content and applications
The Directors believe that there is increasing demand among business customers for the type of business-to-business content and applications that can only be delivered efficiently through broadband connections. Furthermore, the Directors believe that telecommunications providers that package broadband access with such value added services will establish a strategic advantage in the market. Therefore, Eastar plans to develop business content and
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One such application service is expected to be the “Internet Business Centre” which will be a website that offers a comprehensive on-line resource for SMEs. The Internet Business Centre concept is designed to improve business productivity by providing a broad range of business tools and information, as well as essential services connected with administrative and professional functions in areas ranging from finance and marketing to technology and human resources management. Users will also have access to e-commerce platforms connecting them with providers of services and suppliers of products as well as connecting links to on-line communities. The Internet Business Centre is expected to derive its revenues from a combination of monthly service provision and pay-per-view subscription charges, banner advertisements and commissions earned on e-commerce activities. Furthermore, it is envisaged that as demand for such services grow in the future from both subscribers as well as customers from other networks, this website will focus on companies operating in specific industries, such as manufacturers and exporters.
Network management and customer support
The network will be monitored 24 hours a day, seven days a week, through the network operations centre, which is expected to be located at HDC’s Well Tech Centre in San Po Kong, Hong Kong. The operations centre will monitor and maintain the performance of the network and will include:
+ a service desk, receiving calls about problems with the network and despatching the appropriate group to resolve such problems;
+ a network surveillance and control group, performing real time diagnostics, monitoring of network events and restoration of the network and services within target times; and
+ a network and service analysis group, analysing traffic, faults and customer problems and making recommendations to improve the service.
In relation to maintenance of the network equipment, Nortel and Datacraft have warranted that the network equipment will achieve certain service levels in the first year of network operations. In addition, Eastar intends to enter into a network maintenance agreement with its technology partners or another equipment vendor following such period.
Eastar will also provide a customer call centre. The facility will serve customers 24 hours a day, seven days a week. By centralising customer service operations, the call centre will enhance customer care efforts. The functions of the customer call centre will include:
+ directory enquiries;
+ billing enquiries;
+ service difficulties; and
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+ sales enquiries.
Eastar is currently considering consolidating its billing and customer call centre with those of other members of the Henderson Group in order to lower costs and benefit from their expertise. Customer billing details will be stored centrally at the billing centre. Customers will be able to access their bills through the Internet as well as receiving monthly statements in the post. The billing cycle will be monthly and itemised billing will be provided to all customers.
Customers and marketing
Eastar aims to offer its services to both commercial and residential customers. Eastar is currently considering its branding strategy, which may entail its services being marketed under a different name. During the first stage of the roll out of the service in 2001, services will be targeted at occupants of buildings owned or managed by the Henderson Group and at a later stage, the services will be offered generally in Hong Kong. Eastar intends to sell its telecommunications services primarily through three dedicated sales forces: one focused on SMEs, one focused on larger accounts and the other focused on residential customers. Eastar will use independent agents to supplement its direct sales efforts and in particular to cover potential residential customers.
Marketing efforts will be focused primarily in three areas: marketing campaigns focused on particular buildings, seminars and targeted mass media advertising. Where possible Eastar will capitalise on opportunities to cross-sell or bundle its services with those of other members of the Group.
Focused marketing campaigns. Marketing campaigns will focus primarily on prospective customers located in buildings covered by the network and where sales are potentially the most profitable. This will be accomplished primarily through a marketing programme which is expected to involve:
+ staged promotions which feature a different service during each phase; and
+ fixed amounts of featured services that are promoted as “free” and which are provided to customers when they enter into long-term contracts for purchases of bundled services.
Seminars. Eastar intends to offer promotional seminars to senior personnel in property companies and telecommunications service decision makers working in buildings covered by the network. These seminars are expected to focus on educating potential customers about the service and its benefits and advantages, such as high speed always-on Internet access and ASP services.
Mass media advertising. Eastar intends to target its mass media advertising on demographic groups containing communications service decision makers to help create awareness of Eastar’s brand name and value added products such the Internet Business Centre.
Competition
Demand for local wireless FTNS is expected to be driven by a number of factors including:
+ price;
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+ content;
+ a desire to receive better service than historically provided by the incumbent local FTNS carriers;
+ the efficiencies of a ‘one-stop shop’ for the range of services offered;
+ a desire for substantial bandwidth and the most advanced technologies;
+ speed and flexibility of deployment of services;
+ bundled products and services and technical expertise in choosing and using products and services; and/or
+ a need to diversify communications providers to prevent outages in ‘mission critical’ areas.
There are five FTNS operators, namely C&W HKT, Hutchison Global Crossing Limited, New T&T Hong Kong Limited, New World Telephone Limited and Hong Kong Cable Television Limited. In addition, there are five wireless FTNS operators, namely Eastar, SmarTone Broadband Services Limited, Hong Kong Broadband Network Limited, PSINet Hong Kong Limited and HKNet-Teligent Co., Limited.
The Directors believe that Eastar has the following competitive strengths:
+ as compared to the local FTNS operators providing PSTN and broadband services:
— time to market - the LMDS technology allows Eastar to roll out broadband services quickly to its customers with the minimum of disruption to the local community;
— low capital costs and flexibility of network - in comparison to the costs and difficulties of building a cable based network, LMDS offers a cost effective alternative. In addition, the technology is more flexible in that it can be moved or additional capacity can be added in a short period of time if capacity requirements increase; and
— low costs to the consumer - the lower capital cost and maintenance costs of the network and the absence of a PNETS charge is expected to make the service more cost- effective than local FTNS broadband services.
+ as compared to the other local wireless FTNS operators:
— knowledge of the property industry - it is important in constructing an LMDS network to have timely access to buildings to place the hubs and remote stations. Through the Henderson Group and the relationships that the Henderson Group has with other developers and property management companies, Eastar expects to be able to achieve an efficient and cost effective deployment of the network;
103
BUSINESS prospectus headed “Relationship with Major Shareholders”). However, Future Home expects to explore business opportunities with other property developers, property owners, estate managers and owners corporations to upgrade existing IT infrastructure or to design new IT networks to enable broadband Intranet or Internet connectivity in residential and commercial buildings. The network infrastructure installed by Future Home is capable of delivering a range of Internet and telecommunications services, including those provided by iCare, HDC and Eastar.
Service
Future Home provides an end-to-end design and consultancy service in respect of the high technology features and network infrastructure of residential and commercial buildings. Future Home also develops applications software and provides system integration services. Future Home provides the design, determines the basic requirements for the high technology features and network infrastructure, oversees the tendering process and supervises installation for which it charges a fee. Except in respect of members of the Henderson Group, none of the Directors, their associates or the shareholders of the Company owns any interest in Future Home’s five largest suppliers or five largest customers.
High technology features and network infrastructure
Cabling networks
Future Home’s business involves the design of cabling networks for residential and commercial properties. Future Home uses coaxial, fibre optic and Cat-5 (or more advanced) cabling in its designs. Such cabling networks form a “backbone” within buildings and are used to deliver data, voice and television services to occupants of Henderson Group properties. Such networks can support Intranets and can increase Internet access speeds by up to 1,000 times compared with a traditional 56 Kbps Internet modem. The large bandwidth of such networks also allows high quality resolution television and video images to be transmitted and allows users to interact with such images.
In addition, Future Home supports the design of television networks including SMATV and CABD systems. SMATV involves the use of a satellite dish to receive satellite television and CABD uses a rooftop aerial to receive free-to-air television broadcasts. Both such systems use coaxial cable to transmit the television programmes to the end users. The SMATV systems should be able in the future to be adapted to carry LMDS services, such as those provided by Eastar.
Application services
Future Home uses broadband networks to deliver Intranet and Internet application services designed by it. These services include search engines, e-shopping sites, e-mail accounts, estate and clubhouse facilities booking systems, electronic bulletin boards and video links to common areas such as the clubhouse and landscape deck so that parents can monitor their children. Future Home also designs and develops the software for interactive touch screen multimedia directories which deliver graphics, animation, MIDI (Musical Instrument Digital Interface) music and sound effects. When users search for tenants, the tenants are displayed with highlighted location and floor plan.
105 BUSINESS
Building Automation System
Future Home supports the design and advises on the installation of a system called the Building Automation System (“BAS”). BAS is a computer based system installed to control and monitor the ventilation and air-conditioning, security, fire, electrical, lighting and plumbing systems in office buildings. The BAS not only gives occupants better control of their office environment, but also contributes to the energy efficiency of the building.
Home Automation System
Future Home has assisted in the design of the Home Automation System, which allows both on-site and off-site control of air-conditioning systems, security systems and voice mail. This system can also be used as an in-house public address system and to activate an alarm for elderly residents who need assistance. Sensors are also used in some parts of the houses such as staircases to switch lights on and off and thereby save electricity.
Security systems
Future Home designs security systems, which include smart card systems for building access control and patrol management systems to allow security guards to log areas that have been checked in a central computer. Future Home also designs security systems which include magnetic door contacts, panic alarm boxes, alarm bells, video door phone systems, outdoor infra-red movement detectors and CCTV systems. Remote monitoring and control systems through Internet are also being developed, for example to allow users to monitor security systems or cameras from remote locations. The remote monitoring and control systems may be used for both property management and resident services and enable remote users to access live video images with zoom in, zoom out, pan and tilt control functions.
Completed and current projects
Since 1997, Future Home has completed the design of high technology features and network infrastructure systems in AIA Tower and Casa Marina I.
As at 31 March 2000, Future Home was engaged in current projects for residential developments at Tai Po Town Lot No. 118 (Casa Marina II), Kowloon Inland Lot No. 11063 (King’s Park Rise), 2 Bowen Road, Tai Po Town Lot No. 161 and 201 Tai Kok Tsui Road. Future Home is also involved in the planning and design of cabling and security systems at HDC’s data centres located at Big Star Centre and Wealth Centre.
Future Home is the nominated consultant for the Henderson Group for high technology features and network infrastructure design. To date the Henderson Group has been Future Home’s only client and fees paid by the Henderson Group constitute 100 per cent of Future Home’s turnover.
106 BUSINESS
AIA Tower - 183 Electric Road, North Point
AIA Tower is a 43-storey office building completed in 1998 incorporating a range of high technology features and network infrastructure. Future Home supported the design of the following systems and networks in 1997 for AIA Tower:
+ a fibre-optic backbone for transmission of data, video and telecommunication services;
+ a BAS ensuring the smooth and efficient control and monitoring of the building’s facilities;
+ a comprehensive CCTV system with a recording facility to provide 24-hours surveillance of all access points;
+ an ‘Uninterruptible Power Supply’ which is designed solely to support the tenants’ computer systems during a power failure;
+ an independent computer earthing system is provided on each floor to provide a clear and dedicated earthing system for all computers;
+ a raised floor system in office areas to allow tenants maximum flexibility in the installation of their power, telephone and data communication systems;
+ SMATV system; and
+ an Intranet-based multimedia directory system and its network infrastructure.
Casa MarinaI-TaiPoTownLotNo.117
The design of the high technology features and network infrastructure at Casa Marina I was commenced in 1997. This development includes some of the most advanced high technology features completed to date by the Henderson Group. Future Home completed the feasibility study in 1998, having engaged in extensive research for the most suitable technologies to use in the development.
Casa Marina I includes network infrastructure that uses both fibre optic and Cat-5 cabling forming an Intranet and supporting broadband Internet access. Future Home designed a number of applications at Casa Marina I, namely the Clubhouse Facilities Booking System, the Remote Monitoring System, a Private Internet Message Board and Electronic Notice Board, as well as the security systems for the development. In addition, Future Home assisted in the design of the Home Automation System.
Future Home is currently designing similar features for the Casa Marina II development at Tai Po Town Lot No.118.
107 BUSINESS
IT INVESTMENTS
As part of the Group’s strategy to expand its Internet service, telecommunications and high technology businesses, the Group plans to make direct and indirect investments in Internet, telecommunications and high technology-related businesses. The Directors’ current intention is that such investments may provide future strategic benefits to the Group in terms of accelerated access to new technologies, business models, consultancy services and technical support. As at the Latest Practicable Date, the Group had made strategic investments totalling HK$55 million, in the equity of Adsale, Roctec and Cycom.
On 25 March 2000, Senway subscribed for 150 new ordinary shares of HK$1.00 par value each in Adsale (representing approximately 11.54 per cent of its issued share capital), for a total consideration of approximately HK$30 million. Adsale is a company providing information and Internet services on television systems for hotels (including pay movie channels), offices, residential buildings, convention centres and airports.
On 28 March 2000, Senway subscribed for 525 new ordinary shares of HK$1.00 par value each in Roctec (representing approximately 4.76 per cent of its issued share capital), for a total consideration of approximately HK$20 million. Roctec is a systems integration company with over 15 years of networking experience, which provides services such as data network solutions, data security solutions and multimedia display systems to government organisations and large corporations including universities, utilities, telecommunications, transportation and medicare businesses. Previous projects completed by Roctec include information systems for the Hong Kong MTRC. Roctec is currently engaged as a consultant in relation to the design of the Well Tech Centre, the Group’s first data centre.
On 15 May 2000, Senway subscribed for 16,681 new ordinary shares and purchased 5,861 existing ordinary shares, all of HK$1.00 par value each in Cycom (representing approximately 15.28 per cent of its issued share capital), for a total consideration of approximately HK$5 million. Cycom is an e-consultant and Internet solutions provider, which offers a comprehensive range of portal solutions, multi-media solutions, e-business solutions and Internet security consultancy services to business customers, government sectors and educational institutions.
108 STATEMENT OF ACTIVE BUSINESS PURSUITS
OVERVIEW 11.12 14.15-18
The Company was formed on 10 January 2000 as a joint venture between the Henderson Group and the Towngas Group and to be the holding company for certain of their businesses relating to Internet, telecommunications and high technology services. The Group engages in these businesses through the Company’s wholly-owned subsidiaries. See “The business — Corporate structure”.
The Group’s high technology and infrastructure design and consultancy services have been operated by Future Home since 1997. Such services have been provided to date solely to members of the Henderson Group. However, Future Home expects to explore business opportunities with other property developers, property owners, estate managers and owners corporations to upgrade existing IT infrastructure or to design new IT networks to enable broadband Intranet or Internet connectivity.
The Group’s Internet services are operated by iCare, which has recently launched the PC version of its Internet portal, to be followed shortly by the launch of its PC ISP service and Set-top Box service.
The Group’s data centre businesses are operated by HDC, which owns two properties in Hong Kong which will be converted into server co-location facilities. A third data centre is also under construction and will be leased by HDC from the Henderson Group. Such data centres will provide a combination of server hosting, 24-hour facilities management, Internet connectivity and systems management, as well as a range of applications services and IT consultancy services.
The Group’s telecommunications business is operated by Eastar, which was awarded a local wireless FTNS licence in February 2000. Eastar is currently in the process of finalising its network plan to roll-out a LMDS-based broadband communications network in Hong Kong that will be able to deliver high quality digital data, voice and video traffic. The service is expected to be launched prior to March 2001.
ACTIVE BUSINESS PURSUITS
Year ended 30 June 1998
Strategy. The business strategy of the Group during this period was to service the design requirements for high technology and network infrastructure of the Henderson Group and to develop and incorporate new and more sophisticated services for the Henderson Group’s residential and commercial developments.
Significant events. The Group’s major achievements during this period included:
+ Completing the feasibility study for Casa Marina I and II.
+ Carrying out the preliminary design of the high technology and network infrastructure features for Casa Marina I.
109 STATEMENT OF ACTIVE BUSINESS PURSUITS
+ Commencing the feasibility study for installation of a home appliance control and security system, which has since been developed into the Building Automation System, Home Automation System and Security System.
+ Developing and installing the Remote Monitoring System for the Henderson Group’s residential properties, as well as sub-sales offices.
+ Developing and implementing the Clubhouse Facilities Booking System, used in Casa Marina I, comprising a server-based application consisting of active server page controls written in Delphi.
Financing. The major sources of financing for the Group’s business during this period were shareholders’ loans extended by its Major Shareholders, internal resources and revenue generated from operations.
Year ended 30 June 1999
Strategy. The business strategy of the Group during this period was to continue to service the design requirements for high technology and network infrastructure of the Henderson Group and to develop and incorporate new and more sophisticated services for the Henderson Group’s residential and commercial developments.
Significant events. The Group’s major achievements during this period included:
+ Completing the design of the high technology features and network infrastructure for Casa Marina I and putting such work out to tender.
+ Designing and developing a Multimedia Directory System for the Henderson Group’s commercial properties and overseeing the completion and installation of the Multimedia Directory System in AIA Tower comprising one server and eleven kiosks connected by ethernet.
+ Enhancing the Clubhouse Facilities Booking System during this period so as to allow the booking status of facilities in the clubhouse to be displayed through television sets, for those clubhouse facility users without a computer.
Financing. The major sources of financing for the Group’s business during this period were shareholders’ loans extended by its Major Shareholders, internal resources and revenue generated from operations.
110 STATEMENT OF ACTIVE BUSINESS PURSUITS
Nine months ended 31 March 2000
Strategy. The strategy of the Group during this period was to continue to service the design requirements for high technology and network infrastructure of the Henderson Group and to develop and incorporate new and more sophisticated services for the Henderson Group’s residential and commercial developments. In addition, the Group began to develop a range of other businesses with the aim of entering the ISP, Internet service, data centre and local wireless telecommunications markets.
Significant events. The Group’s major achievements during this period included:
+ Conducting market research about Internet usage and initiating the iCare concept on the basis of such research.
+ Incorporating iCare in November 1999.
+ Signing the Microsoft Development Agreement, consultancy agreement with Microsoft HK, the iBrandDirect Website Collaboration Agreement and the Legend MOU.
+ Preparing the business plan for the data centres.
+ Incorporating Eastar and submitting to OFTA an application for a local wireless FTNS licence and being awarded such licence.
+ Conducting initial searches and making contact with international technology providers, equipment vendors and service providers.
+ Commencing the design for the retrofitting of the first data centre.
+ Undertaking the preliminary design for the network architecture and planning the products to be offered by Eastar.
+ Commencing the design of high technology features and network infrastructure at King’s Park Rise and Tai Po Town Lot No. 118.
+ Overseeing the installation of the high technology features and network infrastructure for Casa Marina I.
+ Completing two major upgrades to the Remote Monitoring System increasing the efficiency of such system.
+ Enhancing the features of the Multimedia Directory System in AIA Tower by including a detailed map showing the locations of shops together with shopfront photographs and increasing the processing speed of the system.
+ Purchasing a 11.54 per cent interest in Adsale and a 4.76 per cent interest in Roctec.
Financing. The major sources of financing for the Group’s business during this period were shareholders’ loans extended by its Major Shareholders, internal resources and revenue generated from operations.
111 STATEMENT OF ACTIVE BUSINESS PURSUITS
From 1 April 2000 to the Latest Practicable Date
Strategy. The strategy of the Group during this period was to establish, develop and prepare for launch its Internet service, data centre and local wireless FTNS business. In addition, the Group aimed to develop its high technology and network infrastructure business.
Significant events. The Group’s major achievements during this period included:
+ Acquiring the hardware for the network infrastructure and establishing the iCare data centre.
+ Completing the software system design and portal design of the ISP and portal elements of the iCare service.
+ Signing website collaboration agreements with a range of suppliers of products and content providers for the iCare portal and signing licensing agreements with Microsoft for MCIS and with Microsoft Licensing, Inc. for Microsoft TV.
+ Completing the design of the Set-top Box in association with Legend and Microsoft and ordering the first 10,000 Set-top Boxes in preparation for launch of the service.
+ Completing in association with Towngas the retrofitting of the warehouse and the inventory, despatch, payment and delivery systems for iCare.
+ Launching the PC version of the iCare portal with Towngas employees in May 2000.
+ Signing the turnkey contract with Roctec and commencing the retrofitting of the Well Tech Centre.
+ Finalising the details of the network design of the local wireless FTNS.
+ Signing a Network Provision Agreement with each of Datacraft and Nortel.
+ Obtaining approval from OFTA for PNETS licences for ISP services and External Telecommunication Services.
+ Purchasing a 15.28 per cent interest in Cycom.
Financing. The major sources of financing for the Group’s business during this period were shareholders’ loans extended by its Major Shareholders, internal resources and revenue generated from operations.
112 STATEMENT OF ACTIVE BUSINESS PURSUITS
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the combined financial statements and related notes and the other financial data that appear elsewhere in this prospectus.
The Group’s business models for its current and future businesses are still at an emerging stage and turnover and income potential from many of the Group’s businesses is unproven. The Group’s lack of operating history for material segments of its business means that an analysis of the combined historic financial statements in relation to the Group is not meaningful. As a result, the Group’s past results of operations do not reflect its future prospects and period-to-period comparisons of its operating results should not be relied on as an indication of future performance.
Overview of turnover and expenses
iCare. iCare expects to derive turnover from (i) sales of goods or commissions on sales of goods and services by third parties, (ii) Set-top Box rental and sales and (iii) advertising generated through its service.
iCare’s cost of services rendered is expected to consist of the acquisition cost of goods sold by it, the cost of the Set-top Boxes, licence fees to software providers, salaries, depreciation, costs relating to the lease of office premises, marketing costs (primarily advertising), fees paid to technical consultants, outsourcing fees including warehousing, distribution, call centre and Set-top Box installation costs, and the cost of maintaining and operating its Internet service (including data centre costs and connectivity costs charged by bandwidth providers).
HDC. HDC is expected to derive turnover from (i) initial set-up charges (which may be waived in relation to promotional activities) and rental fees for space leased in its data centres (the rental fee includes the cost of connectivity to the Internet) and (ii) charges for a variety of value-added services, such as bandwidth management, security management, additional bandwidth, server operations support, web design and web hosting, systems integration and consulting services, as well as fees charged for its ASP services.
HDC’s cost of services rendered is expected to consist primarily of the cost of maintaining and operating the data centre facilities, which is expected to include (i) salaries and related costs for personnel directly involved in maintaining such facilities and providing services, (ii) amortisation and depreciation of equipment and premises, (iii) connectivity costs charged by bandwidth providers, (iv) consultancy fees paid to technology consultants, (v) rent for the Wealth Centre and (vi) advertising and marketing costs.
HDC’s business will require significant initial capital expenditures, including the retrofit of data centres, the installation of the network infrastructure, such as fibre optic and cable networks for connections among servers and to the Internet backbone, power supplies, air conditioning, fire and security systems and servers and related equipment. All such expenditures are expected to be capitalised as fixed assets (see note 2(a) to the Accountants’ Report set out in Appendix 1 to this prospectus).
113 STATEMENT OF ACTIVE BUSINESS PURSUITS
Eastar. Eastar is expected to derive turnover from (i) basic subscriber usage charges for local and long distance voice services and data communication services, (ii) internet connectivity on a per-minute usage or flat monthly fee basis, (iii) enhanced features, such as call waiting, caller identity, conference calls and voice mail, (iv) ASP, web hosting and on-line business content and applications and (v) installation charges.
Eastar’s cost of services rendered is expected to consist primarily of the cost of maintaining and operating the local wireless FTNS network, which is expected to include (i) salaries, (ii) amortisation and depreciation of equipment, (iii) connectivity costs charged by other telecommunications providers, (iv) consultancy and licensing fees paid to its technology partners, (v) advertising and marketing costs and (vi) licence fees paid to OFTA.
Eastar’s business will require significant initial capital expenditures, including the acquisition and installation of the infrastructure of the local wireless FTNS network. All such capital expenditures are expected to be capitalised as fixed assets (see note 2(a) to the Accountants’ Report set out in Appendix 1 to this prospectus).
Future Home. Future Home derives turnover from (i) consultancy fees relating to high technology and infrastructure design in property developments and (ii) fees for maintaining such high technology and infrastructure systems.
Future Home’s cost of services rendered consists primarily of management fees paid to an affiliated company (see “Connected transactions” under the section headed “Relationship with Major Shareholders”) and salaries.
Combined financial results
The Group’s current corporate structure resulted from the Reorganisation undertaken by the Major Shareholders on 28 June 2000 to consolidate their Internet services, telecommunications and high technology businesses under the Group. Prior to the Reorganisation, the Group companies did not produce combined financial results. The combined financial results included in this prospectus present combined financial results of the Group companies for the fiscal years ended 30 June 1998 and 30 June 1999 and the nine months ended 31 March 2000 as if the current Group structure had been in existence throughout such periods. Because most of the Group companies described in this prospectus commenced operations only recently, the Group’s combined financial results for the years ended 30 June 1998 and 1999 consist entirely of the financial results of Future Home. As noted in the Accountants’ Report no audited financial statements have been prepared for the companies comprising the Group other than for Future Home, although all relevant transactions of the companies comprising the Group have been reviewed by the auditors for the purposes of such report.
The results of operations of the Group companies, other than Future Home, included in the combined financial statements for these periods are immaterial. As a result, the Group’s combined results for these periods do not reflect what the Group’s results will be in the future as its existing businesses develop and new businesses are introduced. Consequently, such historic combined operating results should not be used as a basis to predict future performance.
114 STATEMENT OF ACTIVE BUSINESS PURSUITS
Trading record
The table below sets out a summary of the combined results of the Group for each of the A33 3rd Sch27 two years ended 30 June 1998 and 30 June 1999 (“fiscal 1998” and “fiscal 1999”, respectively) and the nine months ended 31 March 2000, based on the information included in the Accountants’ Report as set out in Appendix 1 to this prospectus:
Nine months Year ended Year ended ended 30 June 30 June 31 March 1998 1999 2000 HK$’000 HK$’000 HK$’000
Turnover (Note 1) 466 1,965 3,417 Cost of services rendered (466) (2,015) (3,483)
Gross loss — (50) (66) Administrative expenses (18) (64) (4,307) Other operating expenses — — (359)
Loss before taxation (18) (114) (4,732) Taxation — — —
Loss after taxation (18) (114) (4,732) Minority interests — — 21
Loss attributable to shareholders (18) (114) (4,711)
Loss per Share (cents) (Note 2) (0.0004) (0.0027) (0.11) Dividend — — —
Notes:
1. Substantially all the Group’s turnover during such periods was derived from consultancy service income provided to members of the Henderson Group. See Section 6 to the Accountants’ Report set out in Appendix 1 to this prospectus.
2. Based on a total of 4,250,000,000 Shares in issue throughout each of the respective periods on the assumption that the Reorganisation had been effective as at, and the Capitalisation Issue had been made on, 1 July 1997.
3. According to paragraph 31 of the Third Schedule to the Companies Ordinance and Rules 7.03(1) and 11.10 of the GEM Listing Rules, the Company is required to include its financial results for each of the two years ended 30 June 2000 in the Accountants’ Report appended to this prospectus. As the financial year of the Group ends on 30 June and this prospectus includes the combined results of the Group covering the financial years ended 30 June 1998 and 30 June 1999 and the nine months ended 31 March 2000, the Directors consider full compliance with Rules 7.03(1) and 11.10 of the GEM Listing Rules and paragraph 31 of the Third Schedule of the Companies Ordinance respectively, in respect of the financial year immediately preceding the date of this prospectus ended 30 June 2000, to be unduly burdensome.
The Company has therefore applied for a waiver from strict compliance with such GEM Listing Rules from the Stock Exchange and for a waiver from strict compliance with such paragraph 31 from the SFC. The SFC and the Stock Exchange have granted waivers in relation to strict compliance with paragraph 31 of the Third Schedule to the Companies Ordinance and Rules 7.03(1) and 11.10 of the GEM Listing Rules such that the Accountants’ Report covers only the financial years ended 30 June 1998 and 30 June 1999 and the nine months ended 31 March 2000.
The Directors confirm that they have performed sufficient due diligence on the Group to ensure that, save as disclosed herein, up to the date of issue of this prospectus, there has been no material adverse change in the financial position of the Group since 1 April 2000, and there is no event which would materially affect the information shown in the Accountants’ Report set out in Appendix 1 to this prospectus.
115 STATEMENT OF ACTIVE BUSINESS PURSUITS
Results of operations
Nine months ended 31 March 2000
There are no comparative combined financial statements available for the nine months ended 31 March 1999. However, in the following discussion figures for fiscal 1999 are included for comparative purposes. Adjustments should be made to account for the different lengths of these periods. The results of operations for the nine months ended 31 March 2000 are not necessarily indicative of the results of operations for the year ending 30 June 2000.
Turnover. On a combined basis, the Group recorded turnover of HK$3.4 million in the nine months ended 31 March 2000 (compared with HK$2.0 million in fiscal 1999) as a result of an increase in fee income of Future Home derived from high technology and infrastructure design and consultancy services.
Cost of services rendered. The Group’s cost of services rendered was HK$3.5 million in the nine months ended 31 March 2000 (compared with HK$2.0 million in fiscal 1999) as a result of the increase in the management fees payable to its affiliate.
Gross loss. The Group’s gross loss was HK$0.07 million (compared with HK$0.05 million in fiscal 1999).
Expenses. Administrative expenses in this period were HK$4.3 million (compared to HK$0.06 million in fiscal 1999) of which HK$4.2 million was attributable to iCare for staffing and other administrative expenses. Other operating expenses in this period were HK$0.4 million (compared to nil in fiscal 1999), HK$0.2 million of which was attributable to Eastar for the fees paid to OFTA in respect of its local wireless FTNS licence and radio spectrum charges, the balance of which was attributable to iCare.
Loss before taxation. The Group incurred a loss from ordinary activities before taxation of HK$4.7 million in the nine months ended 31 March 2000 (compared with a loss of HK$0.1 million in fiscal 1999) as a result of the increase in cost of services rendered, administrative expenses and other operating expenses.
Taxation. No provision for Hong Kong profits tax was made in the nine months ended 31 March 2000 as the Group had no assessable profits in such period.
Loss after taxation. As a result of the foregoing and after a deduction of HK$0.02 million for minority interests in respect of Eastar, the Group’s net loss from operations attributable to shareholders in the nine months ended 31 March 2000 was HK$4.7 million (compared with a loss of HK$0.1 million in fiscal 1999).
Years ended 30 June 1999 and 30 June 1998
Turnover. On a combined basis, the Group recorded turnover of HK$2.0 million in fiscal 1999, an increase of approximately three times from turnover of HK$0.5 million in fiscal 1998. The increase in turnover resulted from a greater amount of design work undertaken by Future Home in fiscal 1999.
116 STATEMENT OF ACTIVE BUSINESS PURSUITS
Cost of services rendered. The Group’s cost of services rendered increased approximately three times from HK$0.5 million in fiscal 1998 to HK$2.0 million in fiscal 1999 as a result of the increase in the management fees payable to its affiliate.
Gross loss. The Group’s gross loss increased to HK$0.05 million in fiscal 1999 from nil in fiscal 1998.
Expenses. Administrative expenses increased approximately two times to HK$0.06 million in fiscal 1999 from HK$0.02 million in fiscal 1998 as a result of the increase in the provision for depreciation of equipment of Future Home.
Loss before taxation. The Group incurred a loss from ordinary activities before taxation of HK$0.1 million in fiscal 1999 compared with a loss from ordinary activities before taxation of HK$0.02 million in fiscal 1998.
Taxation. No provision for Hong Kong profits tax was made in fiscal 1999 or fiscal 1998 as the Group had no assessible profits in such period.
Loss after taxation. As a result of the foregoing, the Group’s net loss from operations attributable to shareholders in fiscal 1999 was HK$0.1 million compared to a net loss from operations attributable to shareholders of HK$0.02 million in fiscal 1998.
As at 31 March 2000, the Group had no indebtedness except indebtedness due to members of the Henderson Group and the Towngas Group. For a discussion of the Group’s liquidity and financial resources, see “Financial information — Indebtedness” and “Financial information — Liquidity, financial resources and capital expenditures”.
117 FINANCIAL INFORMATION
INDEBTEDNESS
Borrowings
As at 30 April 2000, being the latest practicable date for the indebtedness statement prior A32(2) 14.09 to the publication date of this prospectus, the Group had an amount due to the Henderson 3rd Sch 3 Group and Towngas Group of approximately HK$66.6 million. In addition, on 15 May 2000 the Group invested in Cycom for a total consideration of HK$5 million and on 28 June 2000, the Group acquired two properties from subsidiaries of Henderson Investment for a total consideration of HK$43.0 million. On 28 June 2000, save in respect of HK$98.0 million of the indebtedness due to Henderson Investment which was capitalised, all the other amounts due to the Henderson Investment Group and the Towngas Group were repaid by utilising part of the subscription moneys received by the Company pursuant to the subscription of Shares by Felix Technology and Technology Capitalization on 28 June 2000.
Contingent liabilities
As at 30 April 2000, there were contingent liabilities in respect of performance bond guaranteed by a bank on behalf of a subsidiary of the Group amounting to HK$40 million. The performance bond was provided in accordance with the terms of the fixed telecommunication network services licence granted on 16 February 2000.
Disclaimer
Save as aforesaid and apart from intra-group liabilities, the Group did not as at 30 April A32(2) 3rd Sch 23 2000, have any mortgages, charges, debentures, loan capital, bank overdrafts, loans, debt A32(1) A32(3) securities, liabilities under acceptances (other than normal trade bills), acceptance credits or 3rd Sch24 other similar indebtedness or any hire purchase commitments, finance lease commitments or 3rd Sch25 any guarantees or other material contingent liabilities.
Save as aforesaid, the Directors have confirmed that there have been no material changes in the indebtedness or contingent liabilities of the Group since 30 April 2000.
Foreign exchange liabilities
As at the date hereof, the Company did not have any significant liabilities denominated in a currency other than Hong Kong dollars.
LIQUIDITY, FINANCIAL RESOURCES AND CAPITAL EXPENDITURES
Net liabilities
As at 30 April 2000, the Group had net liabilities of approximately HK$6.8 million. Current A32(5)(a) liabilities comprised amounts due to companies in the Henderson Group and the Towngas Group of approximately HK$66.6 million and accounts payable of approximately HK$1.2 million. Current assets comprised debtors and prepayment, stock and cash at bank of approximately HK$1.1 million, HK$0.1 million and HK$6.7 million, respectively. Non-current assets comprised fixed assets and investment securities of approximately HK$3.9 million and HK$50 million, respectively. Minority interest as at 30 April 2000 amounted to approximately HK$0.8 million.
118 FINANCIAL INFORMATION
Borrowings and banking facilities
As at 30 April 2000, the Group did not have any available banking facilities and its only A32(2) 3rd Sch23 outstanding indebtedness was the amount due to the Henderson Group and the Towngas Group of approximately HK$66.6 million.
Capital commitments
The Group is in the early stages of developing its Internet, telecommunications and high A32(5)(b) technology service businesses and is therefore in the process of incurring significant development costs. The Group incurred a net loss from ordinary activities before taxation on a combined basis of HK$4.7 million in the nine months ended 31 March 2000. The Directors expect net losses to increase as its business expands and new businesses are launched. The capital expenditure commitments of the Group as at 30 April 2000 authorised by the relevant boards of directors, but not contracted for, and contracted for, but not provided for in the financial statements amounted to approximately HK$1.6 million and approximately HK$120.1 million, respectively. These commitments are in respect of the acquisition of fixed assets, primarily for construction of data centres, computer hardware and software. The Group’s commitments are expected to be funded in part by part of the net proceeds of the Share Offer. See “Use of Proceeds”.
Financial resources
Prior to the completion of the Share Offer, the Group’s operations and investments will be financed principally by its holding companies and fellow subsidiaries. It is expected that the net proceeds raised by the Share Offer will be sufficient to meet the future operating and capital expenditure cashflow requirements until the Group’s operations become mature and are capable of generating positive cashflows. It is also expected that the Group may raise additional bank borrowings should the need arise.
PROPERTIES
Details of the properties owned, leased or contracted to be leased by the Group are set out in Appendix 2 to this prospectus.
Property valuation
DTZ Debenham Tie Leung Limited, an independent property valuer, has valued the property interests of the Group as at 31 May 2000. Details of the valuation and the text of letter, summary of values and the valuation certificates from DTZ Debenham Tie Leung Limited are set out in Appendix 2 to this prospectus.
DIVIDENDS AND WORKING CAPITAL
Dividends
The Directors currently do not expect to recommend payment of any dividends for the foreseeable future. Should dividends be paid in the future, the Company will probably pay such
119 FINANCIAL INFORMATION dividends in April and December respectively of each year. The declaration of, payment and amount of dividends will be subject to the discretion of the Directors and will be dependent upon the Company’s future operations and earnings, financial condition, cash requirements and availability and other factors as may be deemed relevant at such time by the Directors.
Working capital
As at 30 April 2000, the Group had net current liabilities of approximately HK$59.9 million. A36 Taking into account the estimated net proceeds of the Share Offer, the Directors believe that the Group has sufficient working capital for its present requirements.
DISTRIBUTABLE RESERVES
The Company was incorporated on 10 January 2000. As such, there was no reserve available for distribution to the shareholders of the Company as at 31 March 2000.
ADJUSTED NET TANGIBLE ASSETS
The following statement of adjusted net tangible assets of the Group is based on the combined net liabilities of the Group as at 31 March 2000 derived from the Accountants’ Report, the text of which is set out in Appendix 1 to this prospectus, and adjusted as described below:
Based on an Based on an Issue Price Issue Price of HK$1.20 of HK$1.40 HK$’000 HK$’000
Audited combined net liabilities of the Group as at 31 March 2000 (4,655) (4,655)
Unaudited loss attributable to shareholders for the one month ended 30 April 2000 (2,145) (2,145)
Issue of additional Shares (Note 1) 42,480 42,480
Capitalisation of amounts due to Henderson Investment Group companies as additional investment in the Group (Note 1) 98,000 98,000
Estimated net proceeds of the Share Offer (Note 2) 855,000 1,001,000
Adjusted net tangible assets 988,680 1,134,680
Adjusted net tangible asset value per Share (Note 3) (based on 5,000,000,000 Shares in issue and to be issued as mentioned herein) HK$0.198 HK$0.227
120 FINANCIAL INFORMATION
Notes:
1. Details are set out in Notes 9(c) and 9(d) to the Accountants’ Report in Appendix 1 to this prospectus.
2. The estimated net proceeds of the Share Offer takes no account of any Shares which may be issued upon the exercise of the Over-allotment Option.
3. The adjusted net tangible asset value per Share is arrived at after the adjustments referred to in this section, but it takes no account of any Shares which may be issued upon the exercise of the Over-allotment Option or of any options which have been granted under the Pre-IPO Share Option Plan or which may be granted under the Share Option Scheme or which may be allotted and issued or repurchased by the Company pursuant to the general mandates for the allotment and issue or repurchase of Shares described in the paragraph headed “Resolutions passed by the shareholders of the Company on 28 June 2000” in Appendix 4 to this prospectus.
GEM LISTING RULES 17.15 TO 17.21
The Directors have confirmed that, as at the Latest Practicable Date, the Group was not A34(2) aware of any circumstances which would give rise to a disclosure requirement under Rules 17.15 to 17.21 of the GEM Listing Rules.
NO MATERIAL ADVERSE CHANGE
The Directors are not aware of any material adverse change in the financial or trading A38 position of the Group since 31 March 2000 (being the date to which the latest combined financial results of the Group were prepared as set out in the Accountants’ Report in Appendix 1 to this prospectus).
For a discussion of the Group’s financial condition and results of operation, see “Statement of active business pursuits — Management’s discussion and analysis of financial condition and results of operations.”
121 STATEMENT OF BUSINESS OBJECTIVES AND STRATEGIES
BUSINESS OBJECTIVES
The Group’s overall business objective is to become a leading integrated Internet, 11.15 telecommunications and high technology service provider in Hong Kong, offering end-to-end high technology solutions to commercial and residential customers. In seeking to achieve such objective, the Directors aim to establish each of the businesses of the Group as one of the leading service providers in its respective market segment and to leverage on the synergies of the businesses within the Group as well as the customer base, businesses and relationships of each of its Major Shareholders.
The Group seeks to differentiate itself from its competitors by providing customers with a wide selection of Internet, telecommunications and high technology services which are tailored to meet the specific requirements of such customers. From the provision of Internet portal services through iCare’s Set-top Boxes and ISP services, to the provision of voice telephony and data communications services through the Eastar network, to the provision of server co-location and ASP services through the HDC data centres and to the provision of IT infrastructure and consultancy services by Future Home, customers will be able to take advantage of a comprehensive range of high technology services offered by the Group. Such services may also be bundled together in order to enable the Group to offer simplified, cost- effective and integrated solutions to its customers.
Once its existing operations are established in Hong Kong, the Group also intends to look for opportunities to develop the Group’s business operations in other markets in Asia.
STRENGTHS
The Directors believe that the Group has the following strengths:
+ the support of its Major Shareholders, namely the Henderson Group and the Towngas Group, each of which has substantial resources and an established reputation in Hong Kong, and is able to provide assistance, facilities and expertise to the Group;
+ access to the residents and tenants of the Henderson Group’s extensive residential, retail and commercial properties, as well as over 1.3 million households served by Towngas, amounting to in aggregate approximately 60 per cent of the population in Hong Kong;
+ a comprehensive range of complementary end-to-end Internet, telecommunication and high technology services, which provide opportunities for achieving synergies and bundling of services; and
+ a wide range of local, regional and international business relationships through its Major Shareholders that give the Group access to strategic alliances with companies such as Microsoft.
122 STATEMENT OF BUSINESS OBJECTIVES AND STRATEGIES
BASES AND ASSUMPTIONS
The Directors have assessed the potential of the markets in which its businesses operate and evaluated the Group’s existing market position and strengths on the basis of past industry trends as well as future growth and expected demand, in order to formulate the following strategies to achieve the Group’s business objectives. The Group’s strategies have also been formulated on the assumption that none of the risks that the Group faces as described in “Risk factors” occurs or, to the extent any such risk does occur, its effect is mitigated and does not have a material adverse effect on the Group.
STRATEGIES
The Directors’ strategies to develop the Group’s Internet, telecommunications and high technology services businesses will focus on:
General
+ Seeking to integrate the Group’s existing businesses in order to become a total solution provider, providing products and services which are tailored to the requirements of the Group’s customers and fulfil a range of Internet, data and telecommunication needs.
+ Bundling the Group’s products and services in order to take advantage of synergies within the Group and in order to make such products and services more attractive to its customers.
iCare
+ Capitalising on its expected ‘first mover’ advantage in Hong Kong by further developing the Set-top Box technology in association with Microsoft and establishing the Set-top Box technology as the most popular means of accessing the Internet through direct marketing and providing a quality service that becomes part of people’s daily life.
+ Using the free ISP model and the additional services offered by iCare to become one of the leading ISPs in Hong Kong.
+ Exploiting a target market of Internet users that has previously been untapped and establishing the iCare portal as the portal and e-shopping provider of choice by tailoring iCare’s services to the requirements of its target customers, including:
— identifying and forming alliances with a wide selection of quality content providers capable of providing exciting and interesting content that appeals to iCare’s target customer base;
— identifying and forming alliances with a wide selection of quality goods and services providers focused primarily on value for money, daily essentials and branded goods, in order to establish the portal as the most widely-used e-shopping mall and e-commerce portal in Hong Kong; and
123 STATEMENT OF BUSINESS OBJECTIVES AND STRATEGIES
— establishing a reliable ordering and delivery service as well as a reputation for quality and value for money through leveraging Towngas’ expertise in customer service, inventory control and logistics.
+ Once iCare has established its service in Hong Kong, it aims to expand the service into other locations in Asia, including Southern China subject to local regulatory requirements, where lifestyles and living standards are similar to Hong Kong.
HDC
+ Leveraging the Henderson Group’s access to property and expertise in construction and facilities management to roll-out the three data centres in Hong Kong in accordance with market demand.
+ Pricing the services of such data centres at a level that is competitive in the market.
+ Positioning the data centres as the best managed facilities in Hong Kong, and also providing a comprehensive and integrated range of value added solutions and services for small to large enterprises including:
— web hosting;
— ASP services; and
— consultancy services.
+ Leveraging the Major Shareholders’ relationships and customer bases, as well as the Group’s other services, such as Eastar’s local wireless FTNS, to maximise the opportunities to rent space in the data centres.
+ Expanding its server co-location and other data centre services into other markets in Asia.
Eastar
+ Establishing Eastar’s local wireless FTNS network as one of the leading providers of integrated telecommunications services in Hong Kong by:
— building a technologically advanced, robust and wide-ranging network that has sufficient capacity and flexibility to meet customers’ needs;
— exploiting the lower infrastructure and operating costs and shorter service roll-out times of this new technology, in order to compete with the local FTNS operators;
— exploiting the existing and future customer base of the Major Shareholders and using innovative and focused marketing techniques to win new customers; and
— providing a high level of customer service.
124 STATEMENT OF BUSINESS OBJECTIVES AND STRATEGIES
+ Providing businesses and individuals with an increasingly comprehensive range of communications and information services and applications, in association with HDC and other established service providers or strategic partners, in order to increase demand for broadband communications capacity through the network by:
— bundling packages of services tailored to customers’ needs, in particular providing integrated solutions to customers seeking immediate, cost-effective and flexible solutions;
— leveraging the Group’s web hosting and data centre business to use the network to exploit the potential of the ASP market; and
— entering into strategic alliances with equipment vendors, infrastructure providers and third party service providers.
Future Home
+ Expanding its end-to-end design and consultancy services for high technology features and network infrastructure of residential and commercial buildings by Ieveraging on its relationship with the Henderson Group and developing relationships with other property developers, property owners, estate managers and owners corporations.
+ Designing and developing new application software, integrated systems and high technology services for residential and commercial developments, in order to provide a better environment and ‘intelligent communities’ for their occupants and to meet the increasingly sophisticated technological requirements of the market.
Implementation schedule
As part of its plan to implement such strategies, the Group intends to undertake the following action within the time periods specified. However, it should be noted that the Directors believe that the Internet, telecommunication and high technology industries are dynamic, fast changing and often difficult to predict. The implementation schedule set out below therefore only reflects the Directors’ present intentions. The Directors expect the Group to try to anticipate future changes in the Internet, telecommunication and high technology industries and therefore expect to take steps to remain flexible and versatile in order that the Group may successfully respond to such changes. Subject to such proviso and on the bases and assumptions set out above, the Directors expect to implement the following:
Period from Latest Practicable Date to 31 December 2000
iCare
+ Launch the Set-top Boxes in August 2000 with a major marketing campaign aimed at Towngas customers. Given the nature of this new product, television and print advertising will be used as the main media to generate immediate awareness of the service, with a range of other marketing methods used as well.
125 STATEMENT OF BUSINESS OBJECTIVES AND STRATEGIES
+ Sales activities will be carried out through Towngas Customer Centres, outdoor sales teams and trade shows, as well as exhibitions in large shopping malls. iCare expects to increase the number of customers viewing the portals services and the volume of purchases made through special promotions such as free shopping dollars, extra rewards programme points and frequent visits bonuses.
+ iCare expects to enhance the content of its portal service by adding new features such as a second series of radio programmes.
+ iCare expects to offer over 1,000 items supplied by more than 20 business partners, with the delivery fleet expanding to 10 vans, by the end of the period.
+ The total number of full-time staff supporting iCare (including those Towngas employees engaged pursuant to the Supporting Service Arrangements) is expected to reach approximately 100 by the end of this period.
HDC
+ Complete retrofitting and undertake the soft launch of operations of the three floors of the first data centre at the Well Tech Centre, San Po Kong in the second half of 2000, with the official launch being undertaken before the end of such period. In addition, award contract and commence retrofitting of the fourth floor at Well Tech Centre. The aggregate capital cost of retrofitting the Well Tech Centre is expected to be approximately HK$60 million.
+ Undertake a comprehensive marketing programme to attract new customers to the first data centre including promotions and advertisements in newspapers.
+ Invite, close the tender invitation and award retrofitting contract of the second data centre at the Big Star Centre, Kowloon Bay. The capital cost for refurbishment and retrofit of this project is estimated to be approximately HK$50 million.
+ It is expected that the foundation work will be completed and construction will be commenced at the third data centre, the Wealth Centre at Kwun Tong. The capital cost of this project is expected to be approximately HK$350 million.
Eastar
+ Set up sales and marketing offices and customer service centre at the Company’s head office and central equipment centre in San Po Kong.
+ Complete the design and testing of the system in association with Nortel and Datacraft by the end of the period ready for the roll-out of the broadband network and services. This will involve:
— taking delivery of network equipment;
— rolling out the core network comprising the ATM based central switching office, optical fibre transport network and the ISP centre;
126 STATEMENT OF BUSINESS OBJECTIVES AND STRATEGIES
— building at least five LMDS hub sites in Island Central, Eastern and Western districts plus some new towns in the New Territories;
— complete wiring of at least 50 buildings by the end of this period in order to be ready to launch services to target accounts;
— complete the network management centre, Internet service access centre and billing and customer service centre; and
— interconnections and peering arrangements with other local FTNS operators will also be completed by the end of this period.
+ Total capital expenditure for this period is expected to exceed HK$100 million.
Future Home
+ Future Home will seek design contracts from the Henderson Group to upgrade progressively and broadband enable the network infrastructure of some properties developed, owned or managed by the Henderson Group.
+ Future Home will continue to develop, improve and enhance its services and to find new applications and high technology features for its network infrastructure.
Period from 1 January 2001 to 30 June 2001 iCare
+ During this period, marketing of the iCare service will be extended to the general public in Hong Kong in addition to Towngas customers.
+ During this period, the enhanced version of the Set-top Box will be available with new features such as interactive television, smart cards and video conferencing. Marketing of the enhanced version of the Set-top Box will involve a new television advertising campaign with print advertising as well to create a second wave of interest.
+ The content of the iCare portal is also expected to commence migrating towards a more audio-oriented format of presentation with fewer words to read and celebrities providing voiceovers.
+ iCare portal is expected to offer over 2,000 items by the end of this period.
+ In order to handle the expected increase in Internet shopping over this period, the delivery fleet size is expected to increase to approximately 15 vans.
HDC
+ Complete retrofitting and start operation of the second data centre at the Big Star Centre, Kowloon Bay during this period.
127 STATEMENT OF BUSINESS OBJECTIVES AND STRATEGIES
+ Undertake a comprehensive marketing programme to attract new customers to the second data centre including promotions and advertisements in newspapers.
+ Complete the rental of the majority of the racks at the first data centre at the Well Tech Centre, San Po Kong.
+ Prepare a business plan to evaluate the opportunities for expansion of the HDC service in Hong Kong and Asia.
Eastar
+ Continue to expand the local wireless FTNS network to other districts of Hong Kong with the objective of having installed at least five new LMDS hub sites by the end of the period.
+ A trained sales and marketing force will have been formed by the beginning of this period and will commence wide ranging marketing activities.
+ Eastar will continue to develop and launch new value added services to the existing services by tracking market and technological changes, listening to customer feedback and monitoring the activities of the competition.
+ In order to differentiate itself from those service providers who aim to lead solely on cost, Eastar expects to continue to invest in people and make capital expenditures to strengthen its market position as a service provider that delivers a quality service and a high level of customer care.
+ Total capital expenditure required during this period is expected to be more than HK$80 million.
Future Home
+ Future Home intends to explore business opportunities with developers, property owners and estate managers and owners’ corporations concerning the upgrading of existing IT infrastructure or the laying of fibre optic or Cat-5 cabling necessary for broadband Internet or Intranet connectivity.
+ Services will be extended to customers outside the Henderson Group, including property developers, property owners, estate managers and owners corporations.
Period from 1 July 2001 to 31 December 2001 iCare
+ In order to cater for the increasing popularity of broadband Internet access that is expected in this period, iCare expects to begin to explore means of providing more three-dimensional and video oriented content.
+ In addition, iCare expects to continue to add new content services to its portal as well as enhancing existing content and services. The iCare portal is expected to offer over 3,000 items by the end of this period.
128 STATEMENT OF BUSINESS OBJECTIVES AND STRATEGIES
HDC
+ According to the current construction schedules, the construction of the third data centre is expected to be completed by the end of this period.
+ The tender will be awarded for the retrofit of the third data centre at Kwun Tong for a total capital cost of about HK$350 million.
+ HDC also expects to undertake a comprehensive marketing programme to attract new customers to the third data centre, including offering discounted rates and special promotions and advertisements.
Eastar
+ Eastar expects to continue to expand the districts covered by the service and to expand the range of value added services. The target is to install at least five new LMDS hub sites during this period.
+ Total capital expenditure required during this period is expected to be at least HK$80 million.
Future Home
+ Future Home will continue to market its high technology and network infrastructure design services to developers, property owners and estate management companies.
+ Future Home will continue to develop, improve and enhance its services and to find new applications and high technology features for its network infrastructure.
Period from 1 January 2002 to 30 June 2002 iCare
+ Subject to the success of the iCare service in Hong Kong and subject to legal restrictions and regulatory approvals, iCare expects to commence its service in the most populated areas of Southern China during this period. This will involve identifying delivery agents as well as setting up a warehouse operation in Mainland China.
HDC
+ The retrofitting of the third data centre is expected to be completed and operations are expected to commence during this period.
+ HDC also expects to undertake a comprehensive marketing programme to attract new customers to the third data centre including promotions and advertisements in newspapers.
129 STATEMENT OF BUSINESS OBJECTIVES AND STRATEGIES
Eastar
+ Eastar’s target is to install at least five new LMDS hub sites during this period.
+ Total capital expenditure required during this period is expected to be at least HK$80 million.
Future Home
+ Future Home will continue to market its high technology and network infrastructure design services to developers, property owners and estate management companies.
+ Future Home will continue to develop, improve and enhance its services and to find new applications and high technology features for its network infrastructure.
130 USE OF PROCEEDS
Assuming an Issue Price of HK$1.30 (the mid-point of the range stated in this A17 A48 prospectus), the net proceeds from the Share Offer, after deducting related expenses, are 3rd Sch33 estimated to be approximately HK$928 million (on the basis that the Over-allotment Option is not exercised). If the Over-allotment Option is exercised in full, the net proceeds will increase to approximately HK$1,070 million assuming an Issue Price of HK$1.30. The Directors intend to apply such net proceeds as follows:
+ approximately HK$250 million in aggregate will be used for the operations of iCare prior to the end of the first half of 2002, of which approximately HK$210 million will be used for the development and acquisition of hardware (the majority of which is expected to relate to the Set-top Boxes) and approximately HK$10 million will be used for the development and licensing of software and approximately HK$30 million will be used for advertising;
+ approximately HK$230 million in aggregate will be used to refurbish and/or equip the three HDC data centres, of which approximately HK$60 million is expected to be used by the second half of 2000, approximately HK$50 million is expected to be used by the first half of 2001 and approximately HK$120 million is expected to be used by the first half of 2002;
+ approximately HK$300 million in aggregate will be used for the Eastar local wireless FTNS prior to the end of the first half of 2002, of which approximately HK$180 million will be used for the acquisition of telecommunications network infrastructure, approximately HK$70 million will be used for the acquisition of distribution equipment and approximately HK$50 million will be used for block-wiring;
+ approximately HK$20 million will be used to fund the ongoing business operations of Future Home;
+ approximately HK$100 million will be allocated for future direct and indirect investments in high technology and Internet services businesses;
+ the balance of approximately HK$28 million will be used as working capital of the Group to support its ongoing operations and expansion; and
+ in the event that the Over-allotment Option is exercised in full, the additional net proceeds of approximately HK$142 million will be applied by the Company, as to approximately HK$36 million for the funding of iCare’s operations, approximately HK$43 million for the funding of HDC’s operations, approximately HK$28 million for the funding of Eastar’s operations and approximately HK$35 million as additional working capital of the Group to support its ongoing operations and expansion.
To the extent that the net proceeds of the Share Offer are not immediately required for the above purposes, it is the present intention of the Directors that such proceeds should be placed on short-term deposit with banks or financial institutions in Hong Kong. If for any reason the proceeds are not utilised as described above or are reallocated, the Company will issue an announcement in accordance with the GEM Listing Rules.
If the Issue Price is greater or less than HK$1.30, the net proceeds allocated in respect of working capital shall be increased or decreased accordingly and if the Over-allotment Option is not exercised in full the additional net proceeds will be allocated pro rata among the relevant subsidiaries on the basis stated above.
131 YEAR 2000 COMPLIANCE
The Group has identified two areas for year 2000 review, the Group’s internal systems PN1 and operations, and external systems and services. As a relatively young business, the Group does not have internal legacy systems that are not year 2000 compatible and to date has not encountered any material disruption to its operations as a result of the ‘year 2000 problem’. However, certain problems could arise during this year and future periods which have yet to become apparent. The Group has purchased its network systems with specifications and warranties that all systems must be year 2000 compatible. The Group has contacted its external suppliers, vendors and providers to obtain information about their year 2000 readiness. Based on that information the Group is satisfied that these external systems (including embedded technology) are not likely to have a material adverse effect on its operations.
132 DIRECTORS, MANAGEMENT AND STAFF
DIRECTORS
Executive Directors
Dr. LEE Shau Kee, D.B.A.(Hon.), D.S.Sc. (Hon.), LL.D.(Hon.), aged 72, father of Mr. Lee A41 3rd Sch 6 Ka Kit and Mr. Lee Ka Shing. Dr. Lee has been the Chairman of Henderson Land since 1976 and the Chairman of Henderson Investment since 1975. He was appointed a Director of the Company in April 2000. He is also the Chairman of Towngas and the Vice Chairman of Sun Hung Kai Properties Limited as well as a director of Hong Kong Ferry (Holdings) Company Limited, BEA and Miramar Hotel and Investment Company, Limited.
CHAN Wing Kin, Alfred, B.Sc. (Eng), M.Sc. (Eng), aged 49. Mr. Chan joined Towngas in 1992 as General Manager — Marketing and was appointed as General Manager — Marketing & Customer Service in 1995. He was appointed to the Board of Directors of Towngas in January 1997 and as Managing Director in May 1997. He is also a director of Towngas Investment and Technology Capitalization. He was appointed a Director of the Company in January 2000. Mr. Chan has more than 25 years of experience in marketing, business development, manufacturing, engineering and administration.
LAM Ko Yin, Colin, B.Sc., A.C.I.B., M.B.I.M., F.C.I.T., aged 49. Mr. Lam joined Henderson Land in 1982 and has been an Executive Director since 1985 and Vice Chairman since 1993. He has also been an Executive Director of Henderson Investment since 1988 and Vice Chairman since 1993. He was appointed a Director of the Company in April 2000 and has been involved in the business of the Group since early 1998. He holds a B.Sc. (Honours) degree from the University of Hong Kong and has over 27 years’ experience in banking and property development. He is also the Chairman of Hong Kong Ferry (Holdings) Company Limited and a director of Towngas, Miramar Hotel and Investment Company, Limited, Felix Technology and Best Selection Investments Limited.
LEE Ka Kit, National Committee Member of the Political Consultative Conference, PRC, aged 37, son of Dr. Lee Shau Kee and brother of Mr. Lee Ka Shing. Mr. Lee has been an Executive Director of Henderson Land since 1985 and Vice Chairman since 1993. He has also been an Executive Director and Vice Chairman of Henderson Investment since 1993. He was appointed a Director of the Company in April 2000. Educated in the United Kingdom, Mr. Lee is also the Chairman of Henderson China Holdings Limited as well as a director of Towngas.
LEE Ka Shing, aged 29, son of Dr. Lee Shau Kee and brother of Mr. Lee Ka Kit. Mr. Lee has been an Executive Director of Henderson Land and Henderson Investment since 1993. He was educated in Canada. He is also a director of Towngas, Felix Technology and Best Selection Investments Limited. He was appointed a Director of the Company in April 2000.
YIP Ying Chee, John, LL.B., F.C.I.S., aged 51. Mr. Yip joined Henderson Land as Group Company Secretary in 1996 and has been an Executive Director of Henderson Land since 1997. He was appointed a Director of the Company in April 2000 and has been involved in the business of the Group since early 1998. He graduated from the University of Hong Kong and the London School of Economics and is a solicitor and a certified public accountant. He has over 21 years’ experience in corporate finance, and corporate and investment management.
133 DIRECTORS, MANAGEMENT AND STAFF
Independent Non-executive Directors 5.05
Dr. The Hon. Ll Kwok Po, David, O.B.E., M.A., Hon. LL.D. (Cantab), Hon. D.Soc.Sc., F.C.A., F.H.K.S.A., F.C.I.B., F.H.K.I.B., F.B.C.S., F.C.I.Arb., J.P., aged 61. Dr. Li was appointed to the Board of Directors of Towngas in 1984. He was appointed a Director of the Company in April 2000. He is the Chairman & Chief Executive of BEA, Chairman of The Chinese Banks’ Association, Limited, Chairman of the Hong Kong Management Association, and Deputy Chairman of C&W HKT. Dr. Li is also a director of New World Infrastructure Limited, San Miguel Brewery Hong Kong Limited, South China Morning Post (Holdings) Limited and The Hongkong and Shanghai Hotels, Limited. He is currently a member of the Banking Advisory Committee, the Exchange Fund Advisory Committee and the Land Fund Advisory Committee, a director of the Mandatory Provident Fund Schemes Authority and the International Chamber of Commerce — Hong Kong, China Business Council and a member of the Legislative Council of the Hong Kong Special Administrative Region.
Prof. KO Ping Keung, Ph.D., F.I.E.E.E., F.H.K.I.E., J.P., aged 49. Professor Ko holds a Bachelor of Science (Honours) degree from the University of Hong Kong, a Doctor of Philosophy degree and a Master of Science degree from the University of California at Berkeley. He is the Dean of the School of Engineering and Professor of Electrical & Electronic Engineering of The Hong Kong University of Science and Technology, and an Adjunct Professor of University of California at Berkeley and Beijing University. He was the Vice Chairman of Electrical Engineering and Computer Science Department of the University of California at Berkeley in 1991-1993 and a member of Technical staff, Bell Labs, Holmdel, in 1982-1984. He was appointed a Director of the Company in April 2000. Professor Ko is also a director of Cycom.
COMPLIANCE OFFICER
YIP Ying Chee, John, LL.B., F.C.I.S. 5.14 A42(1)(c) 3rd Sch 6 QUALIFIED ACCOUNTANT
WONG Sau Yan, M.B.A., F.C.C.A., F.H.K.S.A., aged 40. Ms. Wong joined the Henderson 5.10 Group in 1988 and is presently the accounting manager of the Group. She is a qualified accountant and has over 15 years’ working experience in the accounting field. Ms. Wong joined the Group in April 2000.
COMPANY SECRETARY 5.09
YIP Ying Chee, John, LL.B., F.C.I.S. A42 3rd Sch 6
SENIOR MANAGEMENT
The senior management of the Company comprises:
Douglas H. MOORE, LL.B., aged 42, Chief Executive Officer of the Company. Prior to joining the Company in April 2000, Mr. Moore was a director of Credit Suisse Investment Advisory (Hong Kong) Limited, a subsidiary of Credit Suisse Group-Zurich where he worked for six years as head of the Hong Kong market. Mr. Moore is a director of First E-Com.com, Inc.
134 DIRECTORS, MANAGEMENT AND STAFF which provides electronic processing solutions for financial institutions and merchants worldwide. He practised international taxation law for 10 years before joining Credit Suisse and has extensive experience in finance, management, high technology and strategic planning.
LEE Wai Kwong, Sunny, M.Sc., M.Eng., M.B.C.S., C.Eng., M.H.K.C.S., aged 40, Chief Executive Officer and Director of iCare. Mr. Lee holds a Bachelor and Master Degree in Operations Research and Industrial Engineering from Cornell University, USA. Prior to joining Towngas in 1996, Mr. Lee was the Vice President and Systems Director of Bank of America in Hong Kong, where he played a key role in building the IT capabilities to support the expansion of the bank’s retail banking business in Asia. Before returning to Hong Kong in 1990, Mr. Lee held various key positions in financial, management consulting and manufacturing companies in the USA. He has extensive experience in IT transformation, business process re- engineering, organisation change management, product marketing and management consulting. Mr. Lee was recognised as one of Hong Kong’s “Ten Outstanding Young Digi Persons” in 1999. He joined iCare in December 1999.
WONG Chi Cheong, Michael, aged 42, General Manager of Eastar. Mr. Wong holds a Bachelor Degree in Electronics and Business Management from the Chinese University of Hong Kong and a Master Degree in Electrical and Electronics Engineering from the University of Hong Kong. He is a Chartered Engineer (UK) and a Corporate Member of the Institution of Electrical Engineers (UK). Mr. Wong has 20 years’ experience in the telecommunication and information technology industry. Prior to joining the Henderson Group in January 1998, Mr. Wong held various senior management positions with Nortel Networks, Digital Equipment Limited, the Philips China Hong Kong Group and C&W HKT. Mr. Wong has worked for Eastar since September 1999 and was appointed General Manager in March 2000.
KWAN Wing Hung, aged 42, Senior Manager Access Networks of Eastar. Mr. Kwan received his Bachelor Degree in Electronics and Computer Science from the Chinese University of Hong Kong. He is a Chartered Engineer (UK and Australia) and Corporate Member of the Institution of Electrical Engineers (UK), and Corporate Member of the Institution of Engineers, Australia. Mr. Kwan has 17 years’ experience in the telecommunication industry specialising in railway communication engineering, emergency call-dispatching system, microwave transmission and cellular network implementation. Before joining Eastar in March 2000, Mr. Kwan worked for C&W HKT and the Star Telecom Group.
KWAN Chi Tong, Kenny, aged 40, Senior Manager Transport Networks of Eastar. Mr. Kwan holds a Bachelor Degree in Engineering Physics from the University of Hong Kong Polytechnic and has 22 years’ experience in the telecommunications industry, specialising in optical and microwave transmission systems. Prior to joining Eastar in April 2000, Mr. Kwan worked with C&W HKT, Wharf Cable and New World Telephone.
SHEA Tat On, Jonathan, aged 40, Chief Information Officer of Eastar. Mr. Shea holds a first class honours Bachelor Degree in Electronics Engineering from the University of Hong Kong and a Master Degree in Information Technology from the Royal Melbourne Institute of Technology. He is a Chartered Engineer and a Corporate Member of the Institution of Electrical Engineers (UK) and a Member of the Hong Kong Computer Society. Mr. Shea has 18 years’ experience in the telecommunications and information technology industry and has previously held senior positions in New World Telephone, Telstra (Australia) and C&W HKT.
135 DIRECTORS, MANAGEMENT AND STAFF
HO Chung Choi, Brian, aged 39, Chief Technology Officer of Eastar. Mr. Ho holds a first class honours Bachelor Degree in Computer Studies from the City Polytechnic of Hong Kong and Masters Degree in Satellite Communication Engineering from the University of Surrey. He is a Chartered Engineer and a Corporate Member of the Institution of Electrical Engineers (UK), Institution of Engineers, Australia and Hong Kong Institution of Engineers and a Member of British Computer Society. Mr. Ho has 16 years’ experience in the telecommunication industry and has previously held senior positions in SmarTone Mobile Communication, New World Telephone, Wharf Communication, Telecom CSL, Stratus Computer and C&W HKT.
YIP Hong Ngai, Philip, aged 36, Technology and Operations Manager of iCare. Mr. Yip holds a Bachelor Degree in Computer Science from the University of Windsor in Canada. He has 14 years’ experience in the IT industry of telecommunications and Internet sector specialising in multimedia development, telecommunications and system infrastructure. Mr. Yip joined iCare in March 2000.
FUNG Man Kit, Daniel, B.Sc., M. Sc., aged 36, Chief Business Strategist of iCare. Mr. Fung obtained his B.Sc. degree in Engineering from the University of Hong Kong in 1987 and M.Sc. degree in Information Systems from the Hong Kong Polytechnic University in 1999. He joined Towngas in 1987 and was previously the Business Analysis Manager, looking after business performance, potential business developments and improvements on organisational effectiveness. Mr. Fung has worked for the Group since March 2000.
LAI Man Kwong, Patrick, aged 37, Manager of Future Home. Mr. Lai graduated from the Lingnan College and possesses an Honour Diploma of Computer Studies. He has 13 years’ experience in Management Information Systems and the IT industry. Mr. Lai joined the Henderson Group in 1989 and has been actively involved in the development of web applications and the design of network infrastructure. He was appointed Manager of Future Home in March 2000.
KUM Tak Cheung, Bassanio, aged 36, Deputy Manager of Future Home. Mr. Kum holds an Advanced Diploma in Computer Studies and International Higher Diploma in Computer Studies. He has 16 years’ experience in software development and system integration, specialising in security control, multimedia, telecommunications and web application. He joined the Henderson Group in 1994. He was appointed Deputy Manager of Future Home in March 2000.
AU Tit Ying, B.Sc., aged 50. Mr. Au holds a Bachelor of Science in Pure Mathematics and a Graduate Diploma in Information Systems and has 28 years’ IT experience. He started his career with Cathay Pacific Airways for five years, followed by eight years with Cable & Wireless HKT, where he led the Engineering Computer Application Group. He joined the Hong Kong Jockey Club in 1994 as Micro Processor Systems Manager and joined the Henderson Group in 1996 as EDP Manager. He was appointed a Director of Future Home in April 2000.
TAM Ka Wa, Kelvin, B.Sc., (Eng.), M.B.A., C. Eng., C.P. Eng., R.P.E., F.I.E.E., F.C.I.B.S.E., F.H.K.I.E., F.I.E. Aust., aged 52. Mr. Tam has over 30 years of practical experience in electrical and mechanical engineering. Prior to joining the Henderson Group in 1999, he held senior executive positions in various organisations including Group Chief
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Engineer of Miramar Hotel and Investment Co. Ltd., Managing Director of Kelvin Tam & Associates Ltd., director of Bylander Meinhardt Partnership Consulting Engineers, as well as senior posts in Ryoden Engineering Co. Ltd., Associated Consulting Engineers and China Light & Power Co. Ltd. Mr. Tam was appointed a Director of HDC in April 2000.
FOK Man Kin, Simon, B.A.A.S.(Hons)(HK), B.Arch.(HK)., H.K.I.A., R.I.B.A., Registered Architect, aged 39, Director of HDC. After graduation from the University of Hong Kong with a Bachelor’s degree in Architecture in 1985, Mr. Fok worked in private architectural practice as an architect. He joined Henderson Land in 1992, where he has held the positions of Architect and Deputy General Manager of the Project Management Department. He has extensive experience in managing property development and is currently leading the fitting out works for the data centres at Well Tech Centre and Big Star Centre. Mr. Fok was appointed a Director of HDC in April 2000.
CHUNG Wing Ki, B.A.(A.S.)(Hon.), B.Arch., M.Sc.(RED), H.K.I.A., R.I.B.A., aged 35, Director of HDC. Ms. Chung joined Henderson Land in 1995 as a Project Manager and has been the Assistant General Manager of the Project Management Department since 1998. She holds a B.A. (Architectural Studies) (Honours) degree, a Bachelor of Architecture degree and a Master of Science (Real Estate Development) degree from the University of Hong Kong. She has over 10 years’ experience in property development and was appointed a Director of HDC in April 2000.
CHAN Tat Hung, Ronald, F.C.C.A., F.C.M.A., F.C.P.A., F.C.I.S., F.H.K.S.A., M.H.K.S.I., aged 56. Mr. Chan joined Towngas as Chief Accountant in 1973. He was promoted to Financial Controller and Company Secretary in 1980 and was appointed to the Board of Directors of Towngas as Finance Director in 1988 and as Executive Director of Towngas in 1995. He has more than 30 years’ experience in the utilities businesses and finance in Hong Kong and was appointed a Director of iCare in November 1999.
KWAN Yuk Choi, James, B.Sc.(Eng), M.B.A., M.B.I.M., C.Eng., F.I.GasE., F.H.K.I.E., M.C.I.B.S.E., M.I.Mech.E., aged 49, Director of iCare. Mr. Kwan joined the Engineering Division of Towngas in 1975 and was appointed to the Board of Directors of Towngas in January 1997. He has been involved in setting up the marketing and customer service departments of iCare and was appointed a Director of iCare in November 1999. Mr. Kwan was elected the President of the Institution of Gas Engineers, UK, in May 2000.
KWOK Ping Ho, Patrick, B.Sc., M.Sc., A.C.I.B., aged 48. Mr. Kwok has been an Executive Director of Henderson Land and Henderson Investment since 1993 and 1988, respectively. He is an Associate Member of the Chartered Institute of Bankers and has previously worked in the banking industry for more than 11 years with postings in the United Kingdom, the United States of America, Malaysia, Singapore as well as in Hong Kong. He was appointed a Director of Eastar in April 2000.
CHU Wing Yee, Wendy, B.Sc., M.B.A., aged 35, Chief Marketing Officer of iCare. Ms. Chu obtained her first degree in Industrial Engineering from the University of Hong Kong and a Master of Business Administration from the Chinese University of Hong Kong. Ms. Chu has 10 years of marketing experience in consumer products. Prior to joining iCare, she was an Associate Director of Procter & Gamble Asia Pacific Limited. Ms. Chu joined iCare in March 2000.
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SHEN Shuk Ching, Susanna, aged 36, Chief Operating Officer of iCare. Ms. Shen is a graduate of the Hong Kong Polytechnic University in Computing Studies and a full Member of the British Computer Society. She has 15 years’ experience in the Information Technology industry. She joined Towngas in January 1988 and has held various management positions in Towngas. Previously she worked for Cincom Systems as a Technical Consultant. Ms. Shen joined iCare in December 1999.
PAN Suk Ying, Vivian, B.A., aged 33, Chief Content Officer of iCare. Ms. Pan holds a Bachelor of Arts Degree in Sociology from the University of British Columbia and diplomas in Internet Publishing and Marketing and Desktop Publishing and Graphic Design. Prior to joining iCare, Ms. Pan was the Chief Content Officer of OneAsia.com from June 1999 to March 2000. Prior to this, she operated her own consulting practice providing professional marketing and web management consulting services and was the Executive Director of the Hong Kong- Canada Business Association where she was actively involved in the areas of marketing and promotions, business management, event coordination and publishing. Ms. Pan joined iCare in March 2000.
MANAGEMENT COMMITTEE
The Management Committee of the Company comprises:
Chan Wing Kin, Alfred Chan Tat Hung, Ronald Fok Man Kin, Simon Kwok Ping Ho, Patrick Lai Man Kwong, Patrick Lam Ko Yin, Colin Lee Ka Kit Lee Ka Shing Lee Wai Kwong, Sunny Moore, Douglas H. Wong Chi Cheong, Michael
The purpose of the Management Committee is to oversee the financial, administrative and operational functions of the Group on a day to day basis. In addition, the Management Committee formulates recommendations for submission to the Board including those in relation to the Group’s strategy, as well as considering opportunities for synergies, bundling and cross-marketing of the Group’s different services.
AUDIT COMMITTEE
The Company established an audit committee on 25 May 2000 with written terms of 5.23 A43 reference based on the guidelines set out in “A Guide for the Formation of an Audit Committee” of the Hong Kong Society of Accountants. The primary duties of the audit committee are to review the Company’s annual report and accounts, half-yearly reports and quarterly reports and to provide advice and comments thereon to the Board. The audit committee will also be responsible for reviewing and supervising the financial reporting process and internal control procedures of the Group. The members of the audit committee comprise two non-executive Directors, namely Dr. The Hon. Li Kwok Po, David and Professor Ko Ping Keung.
138 DIRECTORS, MANAGEMENT AND STAFF
STAFF A28(7)
Apart from the Directors and senior management of the Group as mentioned above, as at the Latest Practicable Date, the Group employed a total of 60 full-time employees, all of whom were based in Hong Kong. The following sets out a breakdown of employees by function:
Management 3 Business development 4 IT and technical 24 Finance, accounts and administration 5 Sales and marketing 16 Content 8
Total 60
The Group offers a remuneration package and range of additional benefits to its employees, including performance bonus, medical scheme and a defined contribution provident fund. In order to attract, retain and motivate quality employees, the Group will review the remuneration package from time to time. It also provides a comprehensive in-house training programme and sponsorship scheme for its employees. The range of courses include management, technical skills and customer service training and are organised regularly for each staff member.
The total remuneration of the Group’s employees for the financial years ended 30 June 1998 and 30 June 1999 and the nine months ended 31 March 2000 were as follows:
Nine months Year ended Year ended ended 30 June 30 June 31 March 1998 1999 2000 HK$’000 HK$’000 HK$’000
Salaries — — 1,617 Retirement costs — — 228 Bonus — — 138
Total — — 1,983
No salaries were paid by the Group during the financial years ended 30 June 1998 and 30 June 1999, as the staff costs of the Group were incurred by an affiliated company of the Group and recharged to the Group in the form of management fees (see Section 6 of the Accountants’ Report set out in Appendix 1 to this prospectus).
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The five highest paid individuals
No emoluments were paid by the Group to any of the Directors for the financial years ended 30 June 1998 and 30 June 1999 or the nine months ended 31 March 2000. The A33(3) emoluments of the five highest paid individuals within the Group are set out as follows:
Nine months Year ended Year ended ended 30 June 30 June 31 March 1998 1999 2000 HK$’000 HK$’000 HK$’000
Total remuneration (basic salaries, allowances and other benefits) — — 1,134 Amount paid to pension fund in connection with retirement — — 166 Total discretionary bonuses received or due and receivable — — —
Total — — 1,300
There were no amounts paid to or receivable by the employees for the financial years ended 30 June 1998 and 30 June 1999 or the nine months ended 31 March 2000 as an inducement to join or upon joining the Group or upon termination of employment.
Directors’ remuneration
No emoluments were paid to any of the Directors for the financial years ended 30 June A33(2)(a) (b)(c)(d) 1998 and 30 June 1999 or the nine months ended 31 March 2000.
There were no amounts paid to or receivable by the Directors for the financial years A33(2)(e) (f) ended 30 June 1998 and 30 June 1999 or the nine months ended 31 March 2000 as an inducement to join or upon joining the Group or upon termination of employment.
Share options
Pursuant to the Pre-IPO Share Option Plan, the Directors and certain employees of members of the Group, the Henderson Group and the Towngas Group have been granted options to acquire Shares. In addition, the Company has conditionally adopted the Share Option Scheme for the benefit of the employees and executive Directors of members of the Group. Details of the Pre-IPO Share Option Plan and the Share Option Scheme are set out in the section headed “Statutory and general information — Share options” in Appendix 4 to this prospectus. The Directors believe that the Pre-IPO Share Option Plan and the Share Option Scheme will assist in the recruitment and retention of high calibre executives and employees.
140 RELATIONSHIP WITH MAJOR SHAREHOLDERS
SIGNIFICANCE OF RELATIONSHIP WITH THE HENDERSON GROUP AND THE TOWNGAS GROUP
The relationship between the Group and the Major Shareholders is of considerable significance to the business of the Group. The relationship gives members of the Group the opportunity to leverage the customer base of the Major Shareholders, as well as benefit from their resources and expertise, enhancing the Group’s operational efficiency and potential market share. For example, the relationship gives the Group access to Towngas’ resources pursuant to the Supporting Services Arrangements (as defined under the paragraph headed “Provision of supporting services by Towngas to the Group” in this section below), access to the property portfolio of the Henderson Group and access to the Hong Kong and Mainland China business community with which Henderson Group has well-established relationships. The respective boards of directors of the Company, Henderson Land, Henderson Investment and Towngas believe that the separate listing of the Company will allow the Company to achieve its valuation potential which, in turn, will be beneficial to the respective shareholders of Henderson Land, Henderson Investment and Towngas.
The existing Connected Transactions between members of the Group and members of the Henderson Group and the Towngas Group are set out below. However, while the Company will have to comply with the GEM Listing Rules as to connected transactions when dealing with members of the Henderson Group or the Towngas Group, there are no arrangements in place or proposed, save as disclosed in this prospectus, which would require members of the Henderson Group or the Towngas Group to maintain the relationship, with respect to both business and share ownership, with the Company in its current form.
Certain members of the Board serve on the boards of the Major Shareholders. In addition, a number of the Group’s senior management work part-time for the Group with their remaining time spent working for the Major Shareholders or their respective subsidiaries. The Directors believe that such arrangements give the Group access to experience, skills and relationships that it might not otherwise have.
POTENTIAL COMPETITION WITH THE HENDERSON GROUP AND THE TOWNGAS GROUP
As at the date of this prospectus, the Directors believe that no member of the Henderson Group or the Towngas Group carries on any business activity that competes with those activities of the Group. Although the Directors believe that the Major Shareholders are not engaged in competing activities, they are under no contractual restriction not to do so in the future.
CONNECTED TRANSACTIONS A56
Connected transactions in respect of which waivers have been granted
The following are connected transactions entered into by members of the Group and members of the Henderson Land Group, the Henderson Investment Group and/or the Towngas Group and in respect of which the Company has applied for waiver from the announcement and shareholders’ approval requirement as required under Rule 20.35 and Rule 20.36 of the GEM
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Listing Rules (for further details regarding such waivers see “Application for waiver in respect of continuing connected transactions” under the section of this prospectus headed “Waivers from compliance with the GEM Listing Rules and the Companies Ordinance”):
Lease arrangements between a member of the Group and a member of the Henderson Land Group
HDC, a subsidiary of the Company has entered into a binding agreement for lease with a member of the Henderson Land Group to rent premises in Hong Kong for use as one of the Group’s data centres (the “Lease Arrangements”), particulars of which are as follows:
Agreement for lease in respect of the entire building to be erected on the site located at 165-167 Wai Yip Street and 66 How Ming Street, Kwun Tong, Kowloon, Hong Kong (“Wealth Centre”):
Landlord: Landrise Development Limited
Tenant: HDC
Term: Five years commencing from the seventh day after notice by the landlord that possession of the building is ready for delivery (which is expected to be in the first half of 2002) and the formal lease is ready for execution (the “Commencement Date”) with two renewal options for a term of five years each. For each of the five year terms (including the two option terms), the tenant may terminate at any time after two and a half years from the commencement of each such term by giving six months’ prior notice in writing
Rental: HK$11 per sq. ft. per month for the initial five year period commencing on the Commencement Date
For the second five year period, based on the rental for the initial five year term and adjusted based on the inflation/deflation rate by reference to the Consumer Price Index published by the Government of Hong Kong at the expiration of the initial five year term
For the third five year period, at the then prevailing market rate
All payments of rent are exclusive of management fees, government rent, government rates and air-conditioning charges
Management: The tenant is responsible to employ at its own expenses persons approved by the landlord for the management and maintenance of the property
Rent free period: Six months from the Commencement Date
142 RELATIONSHIP WITH MAJOR SHAREHOLDERS
The above Lease Arrangements are binding on the parties and will continue to have effect after the listing of the Shares.
It is expected that the aggregate consideration payable by the Group under the Lease Arrangements for any financial year within the initial five year term will not exceed HK$31 million. This cap amount is determined on the basis of the monthly rental for the initial five year term and an estimated gross floor area of 230,000 sq.ft.
DTZ Debenham Tie Leung Limited, an independent property valuer, has confirmed that the rent payable under the Lease Arrangements is fair and reasonable and the terms of the Lease Arrangements are at arm’s length and on normal commercial terms.
Provision of high technology infrastructure design and consultancy services and local wireless FTNS to the Henderson Group
Future Home currently provides high technology infrastructure design and consultancy services including the design of cabling system, Intranets, advanced security systems and home automation systems for residential and/or commercial properties developed, owned and/or managed by the Henderson Group. Eastar has been awarded a licence to operate a local FTNS using networks based on wireless technology in Hong Kong. It is envisaged that the Henderson Group will continue to, or will, engage the services of members of the Group, including Future Home and Eastar, for the provision of such high technology infrastructure design and consultancy services and local wireless FTNS in connection with properties developed, owned and/or managed by it (the “Intelligent Building Services and FTNS Arrangements”) at a fee calculated by reference to fees charged by the relevant member of the Group to other unrelated customers of the Group. Henderson Land, Henderson Investment and the Company entered into an agreement on 28 June 2000 pursuant to which the Company will procure the relevant members of the Group to provide services to members of the Henderson Group with respect to the Intelligent Building Services and FTNS Arrangements for a period of three years from the date of the agreement.
It is expected that the fees derived from the Intelligent Building Services and FTNS Arrangements will not exceed HK$5 million and HK$3.4 million respectively per annum for the first three years. The cap amount in respect of the Intelligent Building Services is determined on the basis of the number of projects expected to be completed each year during the three year term and by reference to the estimated average market price for such service in respect of each project. The cap amount for the FTNS Arrangements is determined on the assumption that all telecommunication services currently provided by unrelated parties to the Henderson Group could eventually be provided by the relevant members of the Group and on the basis of the estimated expenses of the Henderson Group in respect of telecommunication services during the three year period.
Licences to use premises for installation of local wireless FTNS hubs and remote stations
For the purposes of operating the local wireless FTNS, the Group needs to instal hubs, repeater stations and remote stations on buildings, including buildings developed, owned and/or managed by the Henderson Group. Accordingly, Henderson Land, Henderson Investment and the Company entered into an agreement on 28 June 2000 pursuant to which Henderson Land and Henderson Investment will procure that their respective relevant
143 RELATIONSHIP WITH MAJOR SHAREHOLDERS members will grant licences/tenancies to the relevant members of the Group to instal such hubs, repeater stations and remote stations and other equipment relating to the provision of local wireless FTNS in buildings developed, owned and/or managed by the Henderson Group for a period of five years from the date of the agreement (the “Licence Arrangements”) at a fee calculated by reference to fees charged by the relevant member of the Henderson Group to other unrelated customers or, if there is no such references available, at a fee no less favourable than fees at which the Group may obtain from other unrelated parties.
It is expected that the fees payable by the Group under the Licence Arrangements for any financial year will not exceed HK$20 million. The cap amount is determined on the basis of the estimated number of properties owned and/or managed by the Henderson Group in which the Group will have installed equipment relating to the provision of local wireless FTNS by the end of the three year term and by reference to the level of fees charged by unrelated property owners to other telecommunication operators.
Provision of property management services by Henderson Land to the Group
The Group’s properties located at Well Tech Centre and Big Star Centre respectively are managed by subsidiaries of Henderson Land. Upon completion of the construction of the Wealth Centre, it will also be managed by a subsidiary of Henderson Land. It is intended that such subsidiaries of Henderson Land will continue to, or will, provide such property management services to the Group after the listing of the Shares (the “Property Management Arrangements”).
Pursuant to a letter dated 28 June 2000, HDC has agreed to appoint a subsidiary of Henderson Land as the building manager for the Wealth Centre, for a term of three years from the commencement date of the Wealth Centre lease.
It is expected that the aggregate fees payable by the Group under the Property Management Arrangements for any financial year will not exceed HK$1.4 million. The cap amount is determined by reference to the current level of management fees charged by unrelated providers of property management services in respect of property of similar standard.
Provision of supporting services by Towngas to the Group
Pursuant to an agreement dated 23 June 2000 between the Company and Towngas (the “Supporting Services Arrangements”), Towngas has agreed to provide to the Company and members of the Group with certain supporting services including billing and collection of monthly PNETS charges and Set-top Boxes rental charges, installation of Set-top Boxes, call centres, IT support, warehousing, supplies and warehouse management, marketing and sales and back-up delivery services, at reimbursement costs for a term of three years from the date of the agreement, with the option for the Company to terminate at any time prior to the said three year period with three months’ notice in writing.
It is expected that the aggregate fees payable by the Group under such Supporting Services Arrangements for any financial year will not exceed HK$33 million. The cap amount is determined on the basis of the estimated costs for Towngas to provide the Supporting Services Arrangements to the Group.
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Provision of data centre services by the Group to the Henderson Group
It is envisaged that members of the Henderson Group will use the services provided by the Group at its data centres after opening of such data centres (the “Data Centre Services Arrangements”). On 28 June 2000, Henderson Land, Henderson Investment and the Company entered into an agreement pursuant to which the Company will procure the relevant members of the Group to provide members of the Henderson Group the services available at the data centres of the Group as such members of the Henderson Group may request from time to time for a period of two years from the date of opening of the relevant data centre at a fee calculated by reference to fees charged by the relevant members of the Group to other unrelated customers.
It is expected that the aggregate consideration derived by the Group from the Data Centre Services Arrangements for any financial year will not exceed HK$38 million. The cap amount is determined on the basis of the estimated number of racks in and the amount of value added services offered at the Group’s data centres which will be leased/used by members of the Henderson Group during the said two year period and by reference to the estimated market fees chargeable in respect of the provision of such data centre services.
Provision of marketing services by the Henderson Group to the Group
Pursuant to an agreement dated 28 June 2000 between Henderson Land and the Company, Henderson Land agreed to procure that relevant members of the Henderson Group would provide marketing support to the Group in connection with the Group’s local wireless FTNS operations and the leasing of the racks in, and marketing of the services offered at, the Group’s data centres (the “Marketing Arrangements”) for a term of three years from the date of agreement. The rates of commission offered to members of the Henderson Group under the Marketing Arrangements will be at the same level as rates offered by the Group to other unrelated providers of such marketing services.
It is expected that the aggregate consideration payable by the Group to the Henderson Group in respect of the Marketing Arrangements for any financial year will not exceed HK$20 million. The cap amount is determined on the basis of the estimated percentage of additional revenues of the Group’s local wireless FTNS operations derived from introductions by the Henderson Group’s sales and marketing force as well as the estimated number of racks and value added services marketed by members of the Henderson Group and in each case by reference to the estimated market rates of commission payable in respect of the provision of such marketing services.
Provision of software systems by the Group to Henderson Group buildings
Pursuant to an agreement dated 28 June 2000 between the Company and Henderson Land, the Company agreed to procure that the relevant members of the Group would provide software system support to the Henderson Group for its properties and properties managed by it (the “System Support Arrangements”) for a period of three years from the date of agreement, at a fee calculated by reference to fees at which the relevant members of the Group offer such services to other unrelated customers.
It is expected that the aggregate consideration derived by the Group in respect of the System Support Arrangements for any financial year will not exceed HK$5 million. The cap
145 RELATIONSHIP WITH MAJOR SHAREHOLDERS amount is determined on the basis of the estimated number of properties developed and/or managed by the Henderson Group and in respect of which the Group will provide software system support and by reference to the estimated market fees chargeable in respect of the provision of such services.
Exempted connected transactions
Services Agreement
By an agreement dated 28 June 2000 entered into between the Company and Henderson Land (the “Services Agreement”), Henderson Land has agreed to supply, inter alia, legal, secretarial, accounting, computer and other related services and the use of office equipment to the Group at reimbursement costs which is expected to be not exceeding HK$10,000,000 per year for a period of three years commencing from the date of the agreement.
Under Rule 20.25(2) of the GEM Listing Rules, the sharing of administrative services between a listed issuer and a connected person on a cost basis will normally be exempted from all the reporting, announcement and shareholders’ approval requirements contained in Chapter 20 of the GEM Listing Rules. As the transactions contemplated under the Services Agreement constitute the sharing of administrative services between the Company and its connected person, Henderson Land, they are exempted connected transactions under Rule 20.25(2) of the GEM Listing Rules.
Web Content Provision Arrangements, trade mark and domain name licences
Members of the Henderson Investment Group and the Towngas Group currently provide content to the iCare portal relating to information including cyber radio, travel and banqueting promotions, cooking recipes, cooking class information and insurance packages. It is envisaged that after the Listing, members of the Henderson Investment Group and the Towngas Group will continue to provide content to the iCare portal (“Web Content Provision Arrangements”). Such Web Content Provision Arrangements have been and will be conducted on normal commercial terms and in the ordinary course of business of the Group. Based on the current level of fees payable by the Group to other unrelated web content providers it is expected that the aggregate consideration payable by the Group in respect of the Web Content Provision Arrangements for any financial year will not exceed HK$1 million.
Towngas and the Company have also entered into a licence agreement relating to the use of certain trade marks (being material contract (o) shown in Appendix 4 to this prospectus) at a consideration of HK$1. Smoothing Investment Limited, an indirect wholly-owned subsidiary of Towngas, and iCare have also entered into a licence agreement relating to the use of the domain name icare.com.hk (being material contract (f) shown in Appendix 4 to this prospectus) at a consideration of HK$1. Each such licence agreement has no fixed term and may be terminated by a party if the other is in default.
Under Rule 20.25(3) of the GEM Listing Rules, a continuing connected transaction on normal commercial terms where the annual total consideration or value is less than HK$1,000,000 will normally be exempted from all the reporting, announcement and shareholders’ approval requirements contained in Chapter 20 of the GEM Listing Rules. As the annual consideration payable under each of the licence agreements mentioned above is nominal and the consideration payable pursuant to the Web Content Provision Arrangements
146 RELATIONSHIP WITH MAJOR SHAREHOLDERS is not expected to exceed HK$1,000,000, they are exempted connected transactions under Rule 20.25(3). Should the amount of consideration payable by the Group in respect of the Web Content Provision Arrangements for any financial year exceed the higher of HK$1,000,000 or 0.03 per cent of the net tangible assets of the Company, the Web Content Provision Arrangements will be subject to the applicable reporting, announcement and shareholders’ approval requirements contained in Chapter 20 of the GEM Listing Rules. iBrandDirect Option Agreement
In order to give the Company the opportunity to invest in iBrandDirect (which provides an e-commerce service as part of the iCare portal) at a later stage, the Company and Towngas have entered into an option agreement dated 23 June 2000 (the “Option Agreement”) (being material contract (q) in Appendix 4 to this prospectus). Under the Option Agreement Towngas has granted an option as described below to the Company at a consideration of HK$10 (the “iBrandDirect Option Arrangements”). For a description of the operations of iBrandDirect see “iCare — iBrandDirect” under the section of this prospectus headed “Business”.
Pursuant to the Option Agreement, Towngas has granted an option to the Company to purchase all the interests (direct or indirect) of Towngas in iBrandDirect (currently 331⁄3 per cent) if the shares of iBrandDirect or its holding company or a company which holds (directly or indirectly) substantially all the assets, liabilities and businesses of iBrandDirect (“Listco”) shall be listed on the Stock Exchange or The London Stock Exchange Limited or the New York Stock Exchange or NASDAQ or the Singapore Stock Exchange or such other stock exchange of similar international standing as may be decided on by the Company (the “iBrandDirect Share Offer”). The purchase price payable by the Company for such interests shall be equivalent to the market capitalisation of Listco immediately after the iBrandDirect Share Offer multiplied by (a) a percentage representing the attributable interest beneficially owned by Towngas directly or indirectly in Listco; and (b) a percentage representing the value of iBrandDirect as compared to the aggregate value of Listco at the time of the iBrandDirect Share Offer to be agreed by Towngas and the Company or, failing which, to be certified by an independent merchant bank to be agreed by Towngas and the Company or, failing which, to be certified by the sponsor/merchant bank acting for Listco in the iBrandDirect Share Offer.
The exercise of the option is subject to all applicable laws, rules and regulations including but not limited to the GEM Listing Rules. The option is exercisable by the Company at any time from the earliest date after the iBrandDirect Share Offer has become unconditional and on which the transfer of shares pursuant to the exercise of the option is permissible under all applicable laws, rules and regulations, until 270 days after the date on which dealings in the shares of Listco first commence. The Directors believe that iBrandDirect currently has no plan to list Listco on any Stock Exchange in the immediate future.
Under Rule 20.23(2) of the GEM Listing Rules, a connected transaction on normal commercial terms where the total consideraton or value is less than HK$1,000,000 will normally be exempted from all reporting, announcement and shareholders’ approval requirements contained in Chapter 20 of the GEM Listing Rules. As the consideration payable under the Option Agreement does not exceed HK$1,000,000, it is exempted connected transaction under Rule 20.23(2).
147 SUBSTANTIAL, INITIAL MANAGEMENT AND SIGNIFICANT SHAREHOLDERS
SUBSTANTIAL SHAREHOLDERS
So far as the Directors are aware, immediately following the completion of the Share A45(1)(2)(3) 3rd Sch 30 Offer, the Capitalisation Issue and the Distribution (but without taking into consideration the Shares which may be taken up pursuant to the Public Offer and the Placing or by shareholders of Henderson Investment under the Distribution other than members of the Henderson Group), the following persons, other than a Director or a chief executive of the Company, will be directly or indirectly interested in 10 per cent or more of the Shares then in issue (assuming the Over-allotment Option is not exercised):
Approximate percentage Name Number of Shares of holding (per cent)
Felix Technology 3,333,213,365 66.67 (Note 9) Technology Capitalization 902,700,000 18.05 (Note10) Best Selection Investments Limited (Note 1) 3,333,213,365 66.67 (Note 9) Henderson Investment (Notes 1, 2 and 8) 3,333,213,365 66.67 (Note 9) Henderson Land (Notes 1, 2, 3 and 8) 3,342,267,768 66.85 (Note11) Towngas Investment (Note 4) 902,700,000 18.05 (Note10) Towngas (Notes 4 and 5) 902,700,000 18.05 (Note10) Henderson Development Limited (Notes 1, 2, 3 and 6) 3,342,267,768 66.85 (Note11) Rimmer (Cayman) Limited (Note 7) 3,342,295,843 66.85 (Note11) Hopkins (Cayman) Limited (Note 7) 3,342,295,843 66.85 (Note11)
Notes:
1. As Felix Technology is a wholly-owned subsidiary of Best Selection Investments Limited, Best Selection Investments Limited will have a deemed interest in the 3,333,213,365 Shares held by Felix Technology under the SDI Ordinance.
2. As Best Selection Investments Limited is a wholly-owned subsidiary of Henderson Investment, Henderson Investment will have a deemed interest in the 3,333,213,365 Shares held by Felix Technology under the SDI Ordinance.
3. Of these Shares, 3,333,213,365 are duplicated in the interest described in 1 and 2, as Henderson Investment is a subsidiary of Henderson Land, Henderson Land will have a deemed interest in the 3,333,213,365 Shares held by Felix Technology under the SDI Ordinance in addition to its interest in the Shares to be distributed to members of the Henderson Land Group referred to in Note 8 below.
4. As Technology Capitalization is a wholly-owned subsidiary of Towngas Investment, Towngas Investment will have a deemed interest in the 902,700,000 Shares held by Technology Capitalization under the SDI Ordinance.
5. As Towngas Investment is a wholly-owned subsidiary of Towngas, Towngas will have a deemed interest in the 902,700,000 Shares held by Technology Capitalization under the SDI Ordinance.
6. As Henderson Land is a subsidiary of Henderson Development Limited (“HD”), HD will have a deemed interest in the 3,342,267,768 Shares in which HD is deemed to have an interest under the SDI Ordinance.
7. Of these Shares, 3,333,213,365 are duplicated in the interest described in Note 6. Rimmer (Cayman) Limited was the trustee of a discretionary trust which held the majority of units in a unit trust (“Unit Trust”).
148 SUBSTANTIAL, INITIAL MANAGEMENT AND SIGNIFICANT SHAREHOLDERS
Hopkins (Cayman) Limited as trustee of the Unit Trust beneficially owned all the issued ordinary shares which carry the voting rights in the share capital of HD and also all the issued ordinary shares in Fu Sang Company Limited (“FS”) which held 5,615,148 Shares in Henderson Investment. Accordingly, each of Rimmer (Cayman) Limited and Hopkins (Cayman) Limited will have a deemed interest in the 3,342,267,768 Shares by virtue of their interest in the discretionary trust, the Unit Trust and HD under the SDI Ordinance in addition to its interest in the Shares to be distributed to FS referred to in Note 8 below. The beneficiaries of the discretionary trust referred to herein are certain members of Dr. Lee Shau Kee’s family.
8. Conditional upon the Share Offer having become unconditional, Felix Technology transferred a total of 14,086,635 Shares to Henderson Investment at 3.6 cents per Share. Henderson Investment has declared a special dividend to be satisfied by a distribution in specie of Shares to its shareholders whose names appear on the register of members of Henderson Investment on the Record Date on the basis of every 200 shares of HK$0.20 par value each in Henderson Investment then held for 1 Share, conditional upon the Share Offer becoming unconditional. Assuming that the total issued share capital of Henderson Investment and the shareholding of members of the Henderson Land Group in Henderson Investment as at the Record Date will be the same as that on the Latest Practicable Date and the Distribution is made, members of the Henderson Land Group will be entitled to receive 9,054,403 Shares under the Distribution. Assuming further that a maximum of 14,086,635 Shares are fully distributed under the Distribution, Henderson Investment will not have any direct shareholding in the Company after the Distribution is made.
9. If the Over-allotment Option is exercised in full, the percentage holding will be reduced to approximately 65.20 per cent.
10. If the Over-allotment Option is exercised in full, the percentage of holding will be reduced to approximately 17.66 per cent.
11. If the Over-allotment Option is exercised in full, the percentage holdings will be reduced to approximately 65.37 per cent.
Save as disclosed herein, but taking no account of any Shares which may be taken up under the Share Offer or the Distribution (except in respect of members of the Henderson Group), the Directors are not aware of any person who will immediately following completion of the Share Offer, the Capitalisation Issue and the Distribution be directly or indirectly interested in 10 per cent or more of the Shares then in issue or equity interest in any member of the Group representing 10 per cent or more of the equity interest in such company.
INITIAL MANAGEMENT SHAREHOLDERS
So far as the Directors are aware, immediately following the completion of the Share Offer, the Capitalisation Issue and the Distribution (assuming the Over-allotment Option is not exercised and taking no account of the Shares which may be taken up under the Public Offer and the Placing or by shareholders of Henderson Investment under the Distribution other than members of the Henderson Group), other than Felix Technology, Technology Capitalization, Best Selection Investments Limited, Henderson Investment, Henderson Land, Towngas Investment and Towngas disclosed above there are no persons who will be directly or indirectly interested in five per cent or more of the Shares then in issue and who are able, as a practical matter, to direct or influence the management of the Company.
Undertakings
Each of the Management Shareholders has jointly and severally given certain undertakings to the Company and HSBC Investment Bank Asia. Details of the undertakings are set out in “Underwriting — Undertakings”. In addition, a waiver has been obtained with respect to the Share lock-up which are set out in “Waivers from compliance with the GEM Listing Rules
149 SUBSTANTIAL, INITIAL MANAGEMENT AND SIGNIFICANT SHAREHOLDERS and the Companies Ordinance — Waivers relating to the Share lock-up”. As a result of such waiver, each Management Shareholder has undertaken with the Company and the Stock Exchange not to dispose of (nor enter into any agreement to dispose of) nor permit the registered holder to dispose of (or to enter into any agreement to dispose of) any of its direct or indirect interest in the relevant securities of the Company (i) during the period of the first six months from the Listing Date; and (ii) during the second six month period from the Listing Date, so as to result in the Management Shareholders together ceasing to control less than 35 per cent of the issued share capital of the Company.
Escrow arrangements
Each of the Management Shareholders has undertaken to the Company and the Stock 11.22 Exchange to comply with the requirements of Rules 13.16 and 13.20 of the GEM Listing Rules (as amended by the joint press announcement issued by the Stock Exchange and SFC dated 11 March 2000). Those rules require that from the Listing Date up to and including the end of the Second Lock-up Period:
(a) each of the Management Shareholders places in escrow, with an escrow agent acceptable to the Stock Exchange, its relevant securities (as such term is defined in Rule 13.15(4) of the GEM Listing Rules) (the “Securities”) on terms acceptable to the Stock Exchange;
(b) the Management Shareholders do not, save as provided in Rule 13.17 of the GEM Listing Rules or as referred to under the heading “Waivers relating to the share lock-up” in the section of this prospectus headed “Waivers from compliance with the GEM Listing Rules and Companies Ordinance”, dispose of (or enter into any agreement to dispose of) or permit the registered holder to dispose of (or to enter into any agreement to dispose of) any of its direct or indirect interest in the Securities;
(c) in the event that the Management Shareholders pledge or charge any direct or indirect interest in the Securities under Rule 13.17(2) of the GEM Listing Rules or pursuant to any right or waiver granted by the Stock Exchange pursuant to Rule 13.17(5) of the GEM Listing Rules, they must inform the Company immediately thereafter, disclosing certain prescribed details; and
(d) having pledged or charged any of their interest in the Securities under sub- paragraph (c) above, the Management Shareholders must inform the Company immediately in the event that they become aware that the pledgee or chargee has disposed of or intends to dispose of such interest and of the number of the Securities affected.
SIGNIFICANT SHAREHOLDERS
So far as the Directors are aware, immediately following the completion of the Share Offer, the Capitalisation Issue and the Distribution (assuming the Over-allotment Option is not exercised and taking no account of the Shares which may be taken up under the Public Offer and the Placing or by shareholders of Henderson Investment under the Distribution other than members of the Henderson Group), apart from the substantial shareholders disclosed above, there are no other persons who will be directly or indirectly interested in five per cent or more of the Shares then in issue.
150 SHARE CAPITAL
The authorised and issued share capital of the Company are as follows:
Authorised share capital: HK$ A23(1) 3rd Sch2 10,000,000,000 Shares 1,000,000,000
Issued Shares:
125,000,000 Shares in issue at the date of this prospectus 12,500,000 A15(1) 3rd Sch2 A26 Shares to be issued: 3rd Sch 11
4,125,000,000 Shares to be issued under the Capitalisation 412,500,000 Issue 675,000,000 Shares to be issued under the Placing 67,500,000 75,000,000 Shares to be issued under the Public Offer 7,500,000
Total:
5,000,000,000 Shares (excluding any Shares which may be 500,000,000 issued under the Over-allotment Option)
Pursuant to Rule 11.23(1) of the GEM Listing Rules, at the time of listing and at all times 11.23 thereafter, the Company must maintain the “minimum prescribed percentage” of 15 per cent of the issued share capital of the Company in the hands of the public.
Assumptions
The table above assumes the Share Offer and the Capitalisation Issue become unconditional. It takes no account of (a) any of the new Shares which may be issued upon the exercise of the Over-allotment Option or (b) any options which have been granted under the Pre-IPO Share Option Plan or which may be granted under the Share Option Scheme (see Appendix 4) or (c) any Shares which may be issued under the general mandate given to the Directors for the issue and allotment of Shares (see Appendix 4) or (d) any Shares which may be bought back by the Company pursuant to the general mandate given to the Directors for the repurchase of Shares (see Appendix 4).
Ranking
The Offer Shares will rank equally with all of the Shares now in issue, and will qualify for all dividends or other distributions declared, made or paid on the Shares after the date of this prospectus, except that they will not qualify for the Shares to be issued under the Capitalisation Issue.
Share options
The Group has conditionally adopted and/or approved the Pre-IPO Share Option Plan and A18(1) 3rd Sch 10 the Share Option Scheme. Summaries of the main terms of such plan and scheme are set out A44 in the section headed “Statutory and general information — Share options” in Appendix 4 to this prospectus.
151 UNDERWRITING
UNDERWRITERS
Placing Underwriters A15(3)(h) 3rd Sch 7
HSBC Investment Bank Asia CLSA BOCI Asia Limited ING Barings Asia Limited as agent for ING Bank N.V. ABN AMRO Rothschild ICEA Capital Limited KGI Asia Limited Tai Fook Securities Company Limited Vickers Ballas Capital Limited
Public Offer Underwriters
HSBC Investment Bank Asia CLSA BOCI Asia Limited ING Barings Asia Limited as agent for ING Bank N.V. ABN AMRO Asia Corporate Finance Limited NM Rothschild & Sons (Hong Kong) Limited ICEA Capital Limited KGI Asia Limited Tai Fook Securities Company Limited Vickers Ballas Capital Limited
UNDERWRITING ARRANGEMENTS AND EXPENSES
Underwriting Agreement
The Company is offering (a) the Public Offer Shares for subscription on and subject to the terms and conditions of this prospectus and the application forms relating thereto, and (b) the Placing Shares for subscription by way of the Placing.
Subject to the GEM Listing Committee granting listing of, and permission to deal in, the A15(3)(i) Shares (subject only to allotment) and to certain other conditions set out in the Underwriting Agreement being satisfied not later than 3 August 2000, (a) the Public Offer Underwriters have severally agreed to apply or procure applications, on the terms and conditions of this prospectus and the application forms relating thereto, for the Public Offer Shares now being offered and which are not taken up under the Public Offer; and (b) the Placing Underwriters have severally agreed to apply or procure applications or placees for the Placing Shares which have not been subscribed for or placed pursuant to the Placing.
152 UNDERWRITING
Grounds for termination
The obligations of the Underwriters to subscribe or purchase or procure subscribers or purchasers for the Offer Shares are subject to termination and HSBC Investment Bank Asia (on behalf of the Underwriters) has the absolute right upon giving notice to the Company to terminate the Underwriting Agreement if certain events, including but not limited to the following, shall occur at any time prior to 6:00 p.m. on the date immediately preceding the Listing Date:
(a) any breach, reasonably considered by HSBC Investment Bank Asia to be material in the overall context of the Share Offer, of any of the warranties or any other provision of the Underwriting Agreement;
(b) any matter which, had it arisen immediately before the date of this prospectus and not having been disclosed in this prospectus, would have constituted an omission reasonably considered by HSBC Investment Bank Asia to be material in the overall context of the Share Offer;
(c) any statement contained in the prospectus considered to be material by HSBC Investment Bank Asia is discovered to be or becomes untrue, incorrect or misleading in any respect considered in the reasonable opinion of HSBC Investment Bank Asia to be material in the overall context of the Share Offer;
(d) any event, act or omission which gives or is likely to give rise to any material liability of the Company pursuant to the indemnities contained in the Underwriting Agreement;
(e) any adverse change in the business or the financial or trading position or prospects of any member of the Group which is considered in the reasonable opinion of HSBC Investment Bank Asia to be material in the overall context of the Share Offer;
(f) any litigation or claim of material importance of any third party being threatened or instigated against any member of the Group;
(g) any event or series of events, matters or circumstances concerning or relating to, or any change in:—
(i) local, national or financial, political, economic, military, industrial, fiscal, regulatory or stock market conditions or sentiments in Hong Kong, the Cayman Islands, the US or the PRC or any other relevant jurisdiction; or
(ii) any new law or change in existing laws or any change in the interpretation or application thereof by any court or other competent authority in Hong Kong, the Cayman Islands, the US, the PRC or any other relevant jurisdiction; or
(iii) any event of force majeure affecting Hong Kong, the US, the Cayman Islands the PRC or any other relevant jurisdiction including, without limiting the generality thereof, any act of God, war, riot, public disorder, civil commotion, economic sanctions, fire, flood, explosion, epidemic, terrorism, strike or lock-out; or
153 UNDERWRITING
(iv) the conditions or sentiments of the Hong Kong or the US equity securities or other financial markets; or
(v) the imposition of any moratorium, suspension or restriction on trading in securities generally on the Stock Exchange or the New York Stock Exchange due to exceptional financial circumstances or otherwise; or
(vi) the imposition of economic sanctions or withdrawal of trading privileges, in whatever form, by the United States or by the European Union (or any member thereof) on Hong Kong or the PRC; or
(vii) a prospective change in taxation or exchange control (or the implementation of any exchange control) in Hong Kong, the Cayman Islands, the US, the PRC or any other jurisdiction relevant to the Group or affecting an investment in the Shares or the transfer or dividend payment in respect thereof; or
(viii) any other change whether or not ejusdem generis with any of the foregoing;
which, in the sole opinion of HSBC Investment Bank Asia:
(a) is or will be, or is likely to be, materially adverse to the business, financial or other condition or prospects of the Group taken as a whole; or
(b) makes it inadvisable or inexpedient to proceed with the Share Offer.
Undertakings
Each of the Management Shareholders undertakes with the Company and HSBC A55 Investment Bank Asia that it will not and will procure that none of its associates or companies controlled by it will (unless with the prior written consent of HSBC Investment Bank Asia and unless in compliance with the GEM Listing Rules) dispose of (or enter into any agreement to dispose of) any of the Shares or any interests therein, or any shares held directly or indirectly by it or its associates in any company which is the beneficial owner of any of such Shares or interests as at the Listing Date together with Shares allotted pursuant to any capitalisation issue effected after the Listing Date or pursuant to any exercise of options, subscription or conversion rights held immediately prior to the Listing Date but excluding Shares allotted by way of scrip dividend (the “Relevant Securities”) nor permit the registered holder to dispose of (or to enter into any agreement to dispose of) any of its direct or indirect interest in the Relevant Securities within six months (or any such shorter period stipulated from time to time in Rule 13.16 of the GEM Listing Rules as shall apply to the Management Shareholders) from the Listing Date, except:
(a) as permitted under the GEM Listing Rules; or
(b) pursuant to the Stock Borrowing Agreement.
Technology Capitalization and Felix Technology further undertake with the Company and HSBC Investment Bank Asia that they shall, and Henderson Land, Henderson Investment, Towngas, Towngas Investment and Best Selection Investments Limited further undertake with the Company and HSBC Investment Bank Asia that they shall procure Technology
154 UNDERWRITING
Capitalization and Felix Technology to, place their Relevant Securities in the Company for a period of six months (or any such shorter period stipulated from time to time in Rule 13.16 of the GEM Listing Rules as shall apply to the Management Shareholders) from the Listing Date in escrow on terms acceptable to the Stock Exchange with an escrow agent acceptable to the Stock Exchange with the right of Technology Capitalization and Felix Technology to withdraw their Relevant Securities during the second six month period from the Listing Date provided that such withdrawal shall not result in the number of the Relevant Securities placed with such escrow agent being less than 35 per cent of the issued share capital of the Company. See “Substantial, initial management and significant shareholders — Escrow arrangements”.
Furthermore, each of the Management Shareholders undertakes to the Company and HSBC Investment Bank Asia to comply with the following requirements:
(a) in the event that it pledges or charges any direct or indirect interest in any of the Relevant Securities under Rule 13.17(2) of the GEM Listing Rules or pursuant to any right or waiver granted by the Stock Exchange pursuant to Rule 13.17(5) of the GEM Listing Rules, at any time during the period of two years (or any such shorter period stipulated from time to time in Rule 13.20 of the GEM Listing Rules as shall apply to the Management Shareholders) from the Listing Date, it must inform the Company immediately thereafter, disclosing the details as required by the GEM Listing Rules; and
(b) to inform the Company immediately in the event that it becomes aware that the pledgee or chargee has disposed of or intends to dispose of any such interest in the Relevant Securities and of the number of the Relevant Securities affected.
Each of the above undertakings by Management Shareholders also applies in respect of any Shares returned pursuant to the Stock Borrowing Agreement.
The Company undertakes with HSBC Investment Bank Asia that it will not, and each of the Management Shareholders severally undertakes with HSBC Investment Bank Asia to procure that the Company will not, without the prior written consent of HSBC Investment Bank Asia and unless in compliance with the GEM Listing Rules, issue or agree to issue or grant or agree to grant any options or warrants or other rights in or carrying the right to subscribe for Shares or other securities (including securities convertible into or exchangeable for Shares) of the Company or any interest therein or announce any intention to do so within six months from the Listing Date, except pursuant to an issue of Shares upon the exercise of the Over- allotment Option and of options which may be granted under the Share Option Scheme;
Commission and expenses
The Underwriters will receive a total commission of 2.75 per cent of the Issue Price of all A13 3rd Sch 14 the Offer Shares (out of which each Underwriter will pay its own sub-underwriting commissions A20 and selling concessions). In addition, HSBC Investment Bank Asia will receive an advisory and 3rd Sch 15 documentation fee in relation to the Share Offer and for acting as the sponsor to the Share Offer, to be paid by the Company. Such fees and commission, together with the Stock Exchange listing fees, legal and other professional fees, printing and other expenses relating to the Share Offer, which are currently estimated to amount in aggregate to approximately HK$46.9 million (based on an Issue Price of HK$1.30 and assuming the Over-allotment Option is not exercised) will be payable by the Company.
155 UNDERWRITING
Underwriters’ interest in the Company
Save for its obligations under the Underwriting Agreement, none of the Underwriters has any shareholding interests in any member of the Group or any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.
Sponsor’s agreement
Under a sponsor’s agreement dated 3 July 2000 and made between HSBC Investment 6.01 11.09 Bank Asia and the Company (the “Sponsor’s Agreement”), the Company appoints HSBC Investment Bank Asia and HSBC Investment Bank Asia agrees to act as a sponsor to the Company for the purpose of the GEM Listing Rules for a fee from the date the Shares are listed on GEM until 30 June 2002 or until the Sponsor’s Agreement is terminated upon the terms and conditions set out therein.
Sponsor’s interest in the Company A54
Save for its obligations under the Underwriting Agreement and interests in securities that may be subscribed for or purchased pursuant to the Share Offer, neither HSBC Investment Bank Asia nor its associates have or may, as a result of the Share Offer, have 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 HSBC Investment Bank Asia who is involved in providing advice to the Company has or may, as a result of the Share Offer, have 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 but, for the avoidance of doubt, excluding interests in securities that may be subscribed for or purchased by any such director or employee pursuant to the Share Offer).
No director or employee of HSBC Investment Bank Asia has a directorship in the Company or any other company in the Group.
156 STRUCTURE OF THE SHARE OFFER
PRICE PAYABLE ON APPLICATION
The Issue Price will not be more than HK$1.40 and is expected to be not less than HK$1.20. Applicants under the Public Offer should pay, on application, the maximum price of HK$1.40 per Share plus one per cent brokerage and 0.01 per cent Stock Exchange transaction levy amounting to a total of HK$2,828.28 per board lot of 2,000 Shares.
If the Issue Price, as finally determined in the manner described below, is lower than the maximum price of HK$1.40, appropriate refund payments will be made. Further details are set out in the section headed “How to apply for the Public Offer Shares” in this prospectus.
DETERMINING THE ISSUE PRICE
The Issue Price is expected to be fixed on or about 7 July 2000 (and will not in any event be later than 3 August 2000) by agreement between HSBC Investment Bank Asia (on behalf of the Underwriters) and the Company with reference to market demand for the Shares. Prospective investors should be aware that the Issue Price to be determined on the IPO Pricing Date may be, but is not expected to be, lower than the indicative Issue Price range stated in this prospectus. An announcement is expected to be made on or about 10 July 2000 after determination of the Issue Price to inform the public of such determination.
Prospective investors should also be aware that the indicative Issue Price range may be reduced below that stated in this prospectus at any time prior to the IPO Pricing Date. In such a case, the Company will, as soon as practicable following the decision to make such reduction, and in any event not later than the morning of the day which is the latest day for lodging application, under the Public Offer, cause to be published on the GEM website and in the South China Morning Post and the Hong Kong Economic Times notice of the reduction of the Issue Price range. Applicants should have regard to the possibility that any announcement of a reduction in the indicative Issue Price range may not be made until the morning of 7 July 2000, the last day for lodging applications under the Public Offer. Such notice will also include confirmation or revision, as appropriate, of the working capital position of the Company, the offer statistics as currently set out in the section headed “Summary of this prospectus” and any other financial information which may change as a result of any such reduction. Applicants under the Public Offer should note that in no circumstances can applications be withdrawn once submitted, even if the Issue Price range is so reduced.
If HSBC Investment Bank Asia (on behalf of the Underwriters) and the Company are unable to reach agreement on the Issue Price, the Share Offer will not become unconditional and will lapse.
An announcement will be made as soon as practicable after determination of the Issue Price to inform the public of such determination. If for any reason the IPO Pricing Date is changed, the Company will as soon as practicable cause to be published on the GEM Website and in the South China Morning Post and the Hong Kong Economic Times notice of the change and, if applicable, the revised date.
157 STRUCTURE OF THE SHARE OFFER
THE SHARE OFFER
The Share Offer is sponsored by HSBC Investment Bank Asia.
The Share Offer comprises the Public Offer and the Placing. A total of 750,000,000 A15(3)(a)(b) 3rd Sch 7 Shares will initially be made available under the Share Offer. 75,000,000 Shares, representing 10 per cent of the total number of Shares initially available under the Share Offer, will initially be offered for subscription under the Public Offer, and the remaining 675,000,000 Shares will initially be offered for subscription under the Placing.
Investors may apply for Shares under the Public Offer or indicate an interest for Shares under the Placing, but may not do both. The Public Offer is open to members of the public in Hong Kong as well as to institutional and professional investors. The Placing will involve selective marketing of Shares to institutional and professional investors and other investors expected to have a sizeable demand for the Shares pursuant to an international placement. Professional investors generally include brokers, dealers, companies (including fund managers) whose ordinary business involves dealing in shares and other securities and corporate entities which regularly invest in shares and other securities.
Assuming the Over-allotment Option is not exercised, the Offer Shares will represent 15 per cent of the Company’s enlarged issued share capital immediately after completion of the Share Offer and the Capitalisation Issue.
If the Over-allotment Option is exercised in full, the Shares comprised in the Share Offer will represent approximately 16.87 per cent of the enlarged issued share capital of the Company immediately after completion of the Share Offer, the Capitalisation Issue and the exercise of the Over-allotment Option.
The Public Offer is fully underwritten by the Public Offer Underwriters and the Placing is fully underwritten by the Placing Underwriters, in each case on a several basis, each being subject to the conditions set out in the section headed “Underwriting — Underwriting arrangements and expenses” in this prospectus.
CONDITIONS OF THE SHARE OFFER
Acceptance of all applications for the Offer Shares is conditional on:
(a) the GEM Listing Committee of the Stock Exchange granting listing of, and permission to deal in, the Shares in issue and the Shares to be issued as mentioned herein; and
(b) the obligations of the Underwriters under the Underwriting Agreement becoming unconditional (including, if relevant, as a result of the waiver of any conditions by HSBC Investment Bank Asia 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 not later than 3 August 2000, being the date which is 30 days after the date of this prospectus.
158 STRUCTURE OF THE SHARE OFFER
If such conditions have not been fulfilled or waived on or before 3 August 2000, the Share Offer will lapse and the Stock Exchange will be notified immediately. Notice of the lapse of the Share Offer will be caused to be published by the Company on the GEM website and in the South China Morning Post and the Hong Kong Economic Times on the next day following such lapse.
In the above eventuality, all application monies will be returned to the applicants, without interest and on the terms set out under the section headed “Refund of your money” in the application forms. In the meantime, application monies will be held in a separate bank account or separate bank accounts with the receiving banker or other bank(s) licensed under the Banking Ordinance (Chapter 155 of the Laws of Hong Kong).
Share certificates for the Offer Shares will be issued on or about 12 July 2000 and will become valid certificates of title at 6:00 p.m. on 13 July 2000, provided that (i) the Share Offer has become unconditional and (ii) the right of termination as described under “Underwriting — Grounds for termination” has not been exercised prior thereto.
THE PUBLIC OFFER
The Public Offer is a fully underwritten public offer (subject to the conditions described in A15(2) the section headed “Conditions of the Share Offer”) for subscription in Hong Kong of, 75,000,000 Shares (representing 10 per cent of the total number of Shares initially available under the Share Offer) at the Issue Price. Subject to the reallocation of Offer Shares between the Placing and the Public Offer, the Public Offer Shares will represent 1.5 per cent of the Company’s enlarged issued share capital immediately after completion of the Share Offer and the Capitalisation Issue, assuming that the Over-allotment Option is not exercised.
The Public Offer is underwritten by the Public Offer Underwriters. Applicants under the Public Offer are required to pay, on application, the maximum price of HK$1.40 per Share in addition to one per cent brokerage and 0.01 per cent Stock Exchange transaction levy thereon. If the Issue Price, as finally determined in the manner described above, is less than the maximum price of HK$1.40, appropriate refund payments (including the brokerage and the Stock Exchange transaction levy attributable to the surplus application monies) will be made, without interest. Further details are set out below in the section headed “How to apply for the Public Offer Shares” in this prospectus.
Allocation of Public Offer Shares will be based solely on the level of valid applications received. When there is over-subscription in the Public Offer, the basis of allocation may vary depending on the number of Public Offer Shares validly applied for by each applicant, but will otherwise be made on a strictly pro-rata basis. In addition, the allocation of Public Offer Shares in such circumstances may involve balloting, which would mean that some applicants may be allotted more Public Offer Shares than others who have applied for the same number of Public Offer Shares and that applicants who are not successful in the ballot may not receive any Public Offer Shares.
159 STRUCTURE OF THE SHARE OFFER
THE PLACING
The Company is initially offering 675,000,000 Shares for subscription by way of Placing. Subject to the reallocation of Offer Shares between the Placing and the Public Offer in the event that the Public Offer is not fully subscribed, the Placing Shares will represent 13.5 per cent of the Company’s enlarged issued share capital immediately after completion of the Share Offer and the Capitalisation Issue, assuming that the Over-allotment Option is not exercised.
PLACEMENT TO PROFESSIONAL, INSTITUTIONAL AND OTHER INVESTORS
The Placing Shares will be conditionally placed on behalf of the Company pursuant to an international placement by the Placing Underwriters or through selling agents appointed by them at the Issue Price. Shares will be placed with certain professional and institutional investors and other investors expected to have a sizeable demand for the Shares in Hong Kong, Europe and other jurisdictions outside the United States (other than the PRC) in offshore transactions in reliance on Regulation S and in the United States with qualified institutional buyers who are ‘qualified purchasers’ in reliance on an exemption from the registration requirements of the US Securities Act, including the exemption provided by Rule 144A.
OFFER MECHANISM — REALLOCATION OF THE OFFER SHARES BETWEEN THE PUBLIC OFFER AND THE PLACING
The allocation of the Offer Shares between the Placing and the Public Offer is subject to reallocation. If the number of Shares validly applied for in the Public Offer represents more than 10 times but less than 20 times the number of Shares initially available for subscription under the Public Offer, then 75,000,000 Placing Shares will be reallocated to the Public Offer from the Placing, so that an aggregate of 150,000,000 Public Offer Shares will be available under the Public Offer, representing 20 per cent of the Offer Shares initially available under the Share Offer (assuming that the Over-allotment Option is not exercised). If the number of Shares validly applied for in the Public Offer represents 20 times or more of the number of Shares initially available for subscription under the Public Offer, then 150,000,000 Placing Shares will be reallocated to the Public Offer from the Placing, so that an aggregate of 225,000,000 Public Offer Shares will be available under the Public Offer, representing 30 per cent of the Offer Shares initially available under the Share Offer (assuming that the Over-allotment Option is not exercised). The number of Shares in each case available under the Placing will be correspondingly reduced as a result of such reallocation.
In addition, if the Public Offer is not fully subscribed, HSBC Investment Bank Asia 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 HSBC Investment Bank Asia considers appropriate.
OVER-ALLOTMENT OPTION
In connection with the Share Offer, the Company has granted to the Placing Underwriters the Over-allotment Option which is exercisable by HSBC Investment Bank Asia (after consultation with CLSA) on behalf of the Placing Underwriters at any time on or before 5:00 p.m. on 2 August 2000. Pursuant to the Over-allotment Option, the Company may be required to issue and allot at the Issue Price up to an aggregate of 112,500,000 additional Shares,
160 STRUCTURE OF THE SHARE OFFER representing 15 per cent of the Shares initially available under the Share Offer, to cover over-allocations in the Placing and/or over-subscriptions in the Public Offer, if any. In order to facilitate settlement of over-allocations in the Placing and/or over subscriptions in the Public Offer, the Stock Borrowing Agreement has also been entered into among HSBC Investment Bank Asia, Technology Capitalization and Felix Technology. Pursuant to this arrangement, Technology Capitalization and Felix Technology have agreed that, if so requested by HSBC Investment Bank Asia, Technology Capitalization and Felix Technology will lend to HSBC Investment Bank Asia up to 112,500,000 Shares. Such stock borrowing arrangements would result in non-compliance with Rule 13.16 of the GEM Listing Rules and therefore the Company has applied to the Stock Exchange for and been granted a waiver therefrom, as set out in the paragraph headed “Stock borrowing arrangements” in the section headed “Waivers from compliance with the GEM Listing Rules and the Companies Ordinance” in this prospectus.
HSBC Investment Bank Asia may also cover such over-allocations by, among other means, purchasing Shares in the secondary market or by a combination of purchases in the secondary market and exercise of the Over-allotment Option. Any such secondary market purchases will be made in compliance with all applicable laws, rules and regulations. If the Over-allotment Option is exercised in full, the Offer Shares will represent 16.87 per cent of the enlarged issued share capital of the Company immediately after completion of the Share Offer, the Capitalisation Issue and the exercise of the Over-allotment Option. In the event that the Over-allotment Option is exercised, an announcement will be made on the GEM website, and in the South China Morning Post in English and the Hong Kong Economic Times in Chinese.
STABILISATION
In connection with the Share Offer, HSBC Investment Bank Asia (after consultation with CLSA), on behalf of the Underwriters, may over-allocate and/or effect transactions which stabilise or maintain the market price of the Shares at levels other than those which might otherwise prevail. The number of Shares that may be over-allocated will be no greater than the number of Shares that may be issued under the Over-allotment Option. Such transactions may be effected in all jurisdictions where it is permissible to do so, in each case in compliance with all applicable laws and regulatory requirements. Such stabilisation, if commenced, may be discontinued at any time.
Stabilisation is a practice used by underwriters in some markets to facilitate the distribution of securities. To stabilise, the underwriters may bid for or purchase the newly issued securities in the secondary market, during a specified period of time, to retard and, if possible, prevent a decline in the initial issue price of the securities. The stabilisation price will not be higher than the Issue Price.
Should stabilising transactions be effected in connection with the distribution of the Shares, they will be done at the direction, and in the absolute discretion, of HSBC Investment Bank Asia. In Hong Kong, such stabilisation activities are restricted to cases where underwriters genuinely purchase shares in the secondary market effected solely for the purpose of covering over-allocations in the offering. The price paid in the secondary market for Shares to cover over-allocations will not be higher than the Issue Price. The relevant provisions of the Securities Ordinance (Cap 333 of the Laws of Hong Kong) prohibit market manipulation in the form of pegging or stabilising the price of securities in certain circumstances.
161 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 issued in your own name.
Use a YELLOW application form if you want the Public Offer Shares issued in the name of HKSCC Nominees Limited and deposited directly into CCASS for credit to your investor participant stock account or your designated CCASS participant’s stock account.
Note: The Offer Shares are not available to the Directors or chief executive of the Company or existing beneficial owners of Shares, or any of their respective associates (as “associate” is defined in the GEM Listing Rules).
WHERE TO COLLECT WHITE AND YELLOW APPLICATION FORMS
You can collect a WHITE application form and a prospectus from:
Any participant of The Stock Exchange of Hong Kong Limited
HSBC Investment Bank Asia Limited CLSA Limited Level 15 33rd Floor, Tower II, Lippo Centre 1 Queen’s Road Central 89 Queensway Hong Kong Hong Kong
BOCI Asia Limited ING Barings Asia Limited 35th Floor as agent for ING Bank N.V. Bank of China Building 39th Floor, One International Finance Centre 1 Garden Road 1 Harbour View Street Hong Kong Central Hong Kong
ABN AMRO Rothschild 30th Floor, Edinburgh Tower The Landmark Central Hong Kong
ICEA Capital Limited KGI Asia Limited 42nd Floor Asia Pacific Finance Tower Jardine House 27th Floor, Citibank Plaza 1 Connaught Place 3 Garden Road Central Central Hong Kong Hong Kong
Tai Fook Securities Company Limited Vickers Ballas Capital Limited 25th Floor, New World Tower I 19th Floor, Far East Finance Centre 16-18 Queen’s Road Central 16 Harcourt Road Hong Kong Admiralty Hong Kong
162 HOW TO APPLY FOR THE PUBLIC OFFER SHARES or any of the following branches of The Hongkong and Shanghai Banking Corporation Limited:
Hong Kong Island: Hong Kong Office Level 3, 1 Queen’s Road Central Central Branch 29 Queen’s Road Central Cityplaza Branch Unit 065, Cityplaza 1, Taikoo Shing Des Voeux Road Central Branch 141 Des Voeux Road Central Des Voeux Road West Branch 40-50 Des Voeux Road West Harcourt Road Branch G/F, Hutchison House, 10 Harcourt Road Hay Wah Building Branch G/F, Hay Wah Building, 71-85B Hennessy Road, Wanchai Hopewell Centre Branch Shops 1-2, G/F, Hopewell Centre, 183 Queen’s Road East, Wanchai North Point Branch 306-316 King’s Road, North Point
Kowloon: Festival Walk Branch Shops LG1-37, Festival Walk, 80 Tat Chee Avenue, Kowloon Tong Kwun Tong Branch 1 Yue Man Square, Kwun Tong Mongkok Branch 673 Nathan Road, Mongkok Tai Yau Street Branch 26-28, Tai Yau Street, San Po Kong Telford Gardens Branch Unit P16, Blk G, Telford Plaza I, Kowloon Bay Tsim Sha Tsui Branch 82-84 Nathan Road, Tsimshatsui Union Park Centre Branch Shops 4-7, G/F, Union Park Centre, 771-775 Nathan Road Waterloo Road Branch 71 Waterloo Road, Homantin
New Territories: City Landmark Branch Shops 117-131, 1/F, City Landmark I, 68 Chung On Street, Tsuen Wan Shatin City One Branch Shops 138-140, 1/F, City One Plaza, Shatin Yuen Long Branch G/F, HSBC Building Yuen Long, 150-160 Castle Peak Road, Yuen Long
You can collect a YELLOW application form and a prospectus from:
(a) the Service Counter of Hongkong Clearing at 2nd Floor, Vicwood Plaza, 199 Des Voeux Road Central, Hong Kong; or
(b) the Investor Service Centre of Hongkong Clearing at Room 1901, Chinachem Exchange Square, 1 Hoi Wan Street, Quarry Bay, Hong Kong.
163 HOW TO APPLY FOR THE PUBLIC OFFER SHARES
HOW TO COMPLETE THE APPLICATION FORM
There are detailed instructions on each application form. You should read these instructions carefully. If you do not follow the instructions your application may be rejected and returned by ordinary post together with the accompanying cheque(s) or banker’s cashier order(s) to you (or the first-named applicant in the case of joint applicants) at your own risk at the address stated in the application form.
If your application is made through a duly authorised attorney, the Company and HSBC Investment Bank Asia, as agent for the Company, may accept it at their discretion, and subject to any conditions they think fit, including evidence of the authority of your attorney.
In order for the YELLOW application forms to be valid:
(a) If the application is made through a designated CCASS participant (other than an investor participant):
(i) the designated CCASS participant or its authorised signatories must sign in the appropriate box; and
(ii) the designated CCASS participant must endorse the form with its company chop (bearing its company name) and insert its participant I.D. in the appropriate box.
(b) If the application is made by an individual investor participant:
(i) the application form must contain the investor participant’s name and Hong Kong Identity Card number; and
(ii) the investor participant should insert its participant I.D. and sign in the appropriate box in the application form.
(c) If the application is made by a joint individual investor participant:
(i) the application form must contain all joint investor participants’ names and the Hong Kong Identity Card number of all of the joint investor participants; and
(ii) the participant I.D. should be inserted and the authorised signatory(ies) of the investor participant’s stock account should sign in the appropriate box in the application form.
(d) If the application is made by a corporate investor participant:
(i) the application form must contain the investor participant’s company name and Hong Kong Business Registration number; and
(ii) the participant I.D. and company chop (bearing the applicant’s company name) endorsed by its authorised signatures should be inserted in the appropriate box in the application form.
164 HOW TO APPLY FOR THE PUBLIC OFFER SHARES
(e) Signature(s), number of signatories and form of chop, where appropriate, should match with the records kept by Hongkong Clearing. Incorrect or incomplete details of the CCASS participant or the omission or inadequacy of authorised signatory(ies) (if applicable), CCASS participant I.D. or other similar matters may render the application invalid.
Nominees who wish to submit separate applications in their names on behalf of different owners are requested to designate on each application form in the box marked “For nominees” account numbers or other identification codes for each beneficial owner or, in the case of joint beneficial owners, for each such joint beneficial owner.
Each WHITE or YELLOW application form must be accompanied by either one cheque A15(3)(d) 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 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. Any such cheque or banker’s cashier order must be made payable as set out in the application form and crossed “Account Payee Only”.
HOW MANY APPLICATIONS MAY YOU MAKE
There is only one situation where you may make more than one application for the 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 the application form marked “For nominees” you must include:
+ an account number; or
+ some other identification code for each beneficial owner. If you do not include this information, the application will be treated as being for your benefit.
Otherwise, multiple applications for Public Offer Shares are not allowed.
All of your applications for Public Offer Shares will be rejected as multiple applications if you, or you and your joint applicants together:
+ make more than one application on a WHITE or YELLOW application form; or
+ apply on one WHITE or YELLOW application form for more than 100 per cent of the Public Offer Shares initially being offered under the Public Offer; or
All of your applications for Public Offer Shares will also be rejected as multiple applications if more than one application for Public Offer Shares is made for your benefit.If an application is made by an unlisted company and
165 HOW TO APPLY FOR THE PUBLIC OFFER SHARES
+ the only business of that company is dealing in securities; and
+ you exercise statutory control over that company then the application will be treated as being for your benefit.
Unlisted company means a company with no equity securities listed on the Stock Exchange.
Statutory control means you:
+ control the composition of the board of directors of the company; or
+ control more than half of the voting power of the company; or
+ hold more than half of the issued share capital of the company (not counting any part of it which carries no right to participate beyond a specified amount in a distribution of either profits or capital).
HOW MUCH ARE THE PUBLIC OFFER SHARES
You must pay the price of HK$1.40 per Share together with brokerage of one per cent and A15(3)(c) 3rd Sch9 the Stock Exchange transaction levy of 0.01 per cent in full when you apply for the Offer Shares. This means that for every 2,000 Shares you will have to pay HK$2,828.28. Your payment must be made by one cheque or one banker’s cashier order. The application forms have tables showing the exact amount payable for certain multiples of Public Offer Shares.
If your application is successful, brokerage is paid to participants of the Stock Exchange and the transaction levy is paid to the Stock Exchange.
If the Issue Price as finally determined is less than HK$1.40 per Share, appropriate refund payments (including the brokerage and the Stock Exchange transaction levy attributable to the surplus application monies) will be made to successful applicants without interest.
TIME FOR APPLYING FOR THE PUBLIC OFFER SHARES A15(3)(f) 3rd Sch 8
Completed WHITE or YELLOW application forms, with payment attached, must be lodged by 12:00 noon on 7 July 2000, or, if the application lists are not open on that day, then by 12:00 noon on the next business day when the lists are open.
Your completed application form, with payment attached, should be deposited in the special collection boxes provided at any of the branches of The Hongkong and Shanghai Banking Corporation Limited listed on page 163 of this prospectus at the following times:
4 July 2000 — 9:00 a.m. to 4:00 p.m. 5 July 2000 — 9:00 a.m. to 4:00 p.m. 6 July 2000 — 9:00 a.m. to 4:00 p.m. 7 July 2000 — 9:00 a.m. to 12:00 noon
The application lists will be open from 11:45 a.m. to 12:00 noon on 7 July 2000.
166 HOW TO APPLY FOR THE PUBLIC OFFER SHARES
No proceedings will be taken on applications for the Public Offer Shares and no allotment of any such Public Offer Shares will be made until the closing of the application lists. No allotment of any of the Public Offer Shares will be made later than 3 August 2000.
EFFECT OF BAD WEATHER ON THE OPENING OF THE APPLICATION LISTS
The application lists will not open if there is:
+ a tropical cyclone warning signal number 8 or above, or
+ a “black” rainstorm warning signal in force in Hong Kong at any time between 9:00 a.m. and 12:00 noon on 7 July 2000. Instead they will open between 11:45 a.m. and 12:00 noon on the next business day which does not have either of those warning signals in force in Hong Kong at any time between 9:00 a.m. and 12:00 noon.
Business day means a day that is not a Saturday, Sunday or public holiday in Hong Kong.
CIRCUMSTANCES IN WHICH YOU WILL NOT BE ALLOTTED OFFER SHARES
Full details of the circumstances in which you will not be allotted the Offer Shares are set out in the notes attached to the application forms, which you should read carefully. You should note in particular the following situations in which the Offer Shares will not be allotted to you:
+ If at the discretion of the Company or its agent, your application is rejected:
The Company and HSBC Investment Bank Asia (on behalf of the Underwriters) as agent for the Company, have full discretion to reject or accept any application, or to accept only part of any application.
The Company and HSBC Investment Bank Asia, as agent for the Company, do not have to give any reason for any rejection or acceptance.
+ On the occurence of circumstances resulting in your application being rejected:
Your application will be rejected if:
+ it is a multiple application;
+ your application form is not filled in correctly;
+ you or the person for whose benefit you are applying have been allotted Placing Shares;
+ your payment is not in the 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.
167 HOW TO APPLY FOR THE PUBLIC OFFER SHARES
+ 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.
+ If your application is revoked:
By completing an application form you agree that you cannot revoke your application before the end of the fifth day after the time of opening of the application lists (excluding for this purpose any day which is a Saturday, Sunday or public holiday in Hong Kong), being 14 July 2000. This agreement will take effect as a collateral contract with the Company, and will become binding when you lodge your application form. This collateral contract will be in consideration of the Company agreeing that it will not offer any Offer Shares to any person before 14 July 2000 except by means of one of the procedures referred to in this prospectus. For this purpose, acceptance of applications which are not rejected will be constituted by notification in the press of the results of allocation, and where such basis of allocation is subject to certain conditions or provides for allocation by ballot, such acceptance will be subject to the satisfaction of such conditions or results of the ballot respectively.
You may only revoke your application earlier than the end of the fifth day after the time of opening of the application list (excluding for this purpose any day which is a Saturday, Sunday or public holiday in Hong Kong) being 14 July 2000 if a person responsible for this prospectus under Section 40 of the Companies Ordinance gives a public notice under that section which excludes or limits the responsibility of that person for this prospectus.
If your application has been accepted, it cannot be revoked.
+ If the allotment of the Offer Shares is void:
Your allotment of the Offer Shares will be void if the GEM Listing Committee of the Stock Exchange does not grant permission to list the Offer Shares either:
+ within three weeks from the closing of the applications lists; or
+ within a longer period of up to six weeks if the GEM Listing Committee of the Stock Exchange notifies the Company of that longer period within three weeks of the closing of the application lists.
You should also note that you may apply for Offer Shares under the Public Offer or indicate an interest for Offer Shares under the Placing, but may not do both.
COMMENCEMENT OF DEALINGS IN THE SHARES
Dealings in the Shares are expected to commence on 14 July 2000. A22
The Shares will be traded in board lots of 2,000 each.
168 HOW TO APPLY FOR THE PUBLIC OFFER SHARES
SHARES WILL BE ELIGIBLE FOR CCASS
If the Stock Exchange grants the listing of, and permission to deal in, the Shares on GEM A14(3) and the Company complies with the stock admission requirements of Hongkong Clearing, the Shares will be accepted as eligible securities by Hongkong Clearing for deposit, clearance and settlement in CCASS with effect from the date of commencement of dealings in the Shares on GEM or such other date determined by Hongkong Clearing. Settlement of transactions between participants of the Stock Exchange is required to take place in CCASS on the second business day after any trading day.
All activities under CCASS are subject to the General Rules of CCASS and CCASS Operational Procedures in effect from time to time. Investors should seek the advice of their stockbroker or other professional adviser for details of those settlement arrangements and how such arrangements will affect their rights and interests.
All necessary arrangements have been made for the Shares to be admitted into CCASS. A14(2)
If you apply for the Public Offer Shares using a YELLOW application form and your application is wholly or partially successful, your share certificates will be issued in the name of HKSCC Nominees Limited and deposited into CCASS for credit to your investor participant stock account or the stock account of your designated CCASS participant (as instructed by you) at the close of business on 12 July 2000, or in the event of a contingency any other date as shall be determined by Hongkong Clearing or HKSCC Nominees Limited.
If you are applying through a designated CCASS participant (other than an investor participant):
+ for the Public Offer Shares credited to the stock account of your designated CCASS participant (other than an investor participant), you can check the number of the Public Offer Shares allotted to you with that CCASS participant.
If you are applying as an investor participant:
+ the Company expects to publish the results of investor participants’ applications A15(3)(k) together with the results of the Public Offer in the newspapers and GEM website on 11 July 2000. You should check against the announcement published by the Company and report any discrepancies to Hongkong Clearing before 12:00 noon on 12 July 2000 or such other date as shall be determined by Hongkong Clearing or HKSCC Nominees Limited. On 13 July 2000, (the day following the credit of the Public Offer Shares to your stock account) you can check your new account balance via the CCASS Phone System (under the procedures contained in Hongkong Clearing’s “An Operating Guide for Investor Participants” in effect from time to time). Hongkong Clearing will also mail to you an Activity Statement showing the number of the Public Offer Shares credited to your stock account.
DESPATCH/COLLECTION OF SHARE CERTIFICATES AND REFUND CHEQUES
If an application is rejected, not accepted or accepted in part only and/or the Issue Price is less than HK$1.40, or if the conditions of the Share Offer described under “Structure of the Share Offer — Conditions of the Share Offer” are not fulfilled in accordance with their terms
169 HOW TO APPLY FOR THE PUBLIC OFFER SHARES or if any application is revoked or any allotment pursuant thereto has become void, the application monies, or the appropriate portion thereof, together with the related brokerage and Stock Exchange transaction levy, will be refunded, without interest. It is intended that special efforts will be made to avoid any undue delay in refunding application monies where appropriate.
No temporary document of title will be issued in respect of the Offer Shares. No receipt A15(3)(g) will be issued for sums paid on application but, subject as mentioned below, in due course there will be sent to you (or, in the case of joint applicants, to the first-named applicant) by ordinary post, at your own risk, to the address specified on the application form:
(a) for applicants applying on WHITE application forms (i) share certificate(s) for all the Offer Shares applied for, if the application is wholly successful; or (ii) share certificate(s) for the number of the Offer Shares successfully applied for, if the application is partially successful (except for wholly successful and partially successful applicants on YELLOW application forms whose share certificates will be deposited into CCASS as described above); and/or
(b) for applicants applying on WHITE and YELLOW application forms a refund cheque or refund cheques crossed “Account Payee Only” in favour of the applicant (or, in the case of joint applicants, the first-named applicant) for (i) the surplus application monies for the Offer Shares unsuccessfully applied for, if the application is partially unsuccessful; (ii) all the application monies, if the application is wholly unsuccessful, in each case including brokerage at the rate of one per cent and a Stock Exchange transaction levy of 0.01 per cent but without interest.
Subject as mentioned below, refund cheques and share certificates as described above A15(3)(g) are expected to be posted on or about 12 July 2000. The right is reserved to retain any share certificates and any surplus application monies pending clearance of cheque(s).
If you have applied for 1,000,000 Shares or more and have indicated your intention in your application form to collect refund cheque(s) and share certificates (where applicable) from the Company’s Hong Kong branch share registrar, Central Registration Hong Kong Limited, Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Hong Kong, and have provided all information required by your application form, you may collect (where applicable) your refund cheque(s) and (where applicable) share certificate(s) from 9:00 a.m. to 1:00 p.m. on 12 July 2000. If you are an individual who opts for personal collection, you must not authorise any other person to make collection on your behalf. If you are a corporate applicant which opts for personal collection, you must attend by your authorised representative bearing a letter of authorisation from your corporation stamped with your company’s chop. Both individuals and authorised representatives (if applicable) must produce, at the time of collection, evidence of identity acceptable to Central Registration Hong Kong Limited. If you do not collect your refund cheque(s) and share certificate(s), they will be despatched shortly after the date of despatch stated above, to you by ordinary post to the address as specified in your application form at your own risk. The Company intends to make special efforts to avoid delays in refunding money.
170 APPENDIX 1 ACCOUNTANTS’ REPORT
The following is the text of a report, prepared for the purposes of incorporation in this A9(3) A35 prospectus, from the auditors and reporting accountants of the Company, KPMG, Certified A37 3rdSch31 Public Accountants. 14.09 3rd Sch 3 3rd Sch 43 11.10 8th Floor 7.03 Prince’s Building 10 Chater Road Hong Kong
4 July 2000
The Directors Henderson Cyber Limited HSBC Investment Bank Asia Limited
Dear Sirs,
We set out below our report on the financial information relating to Henderson Cyber Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”) for each of the two years ended 30 June 1999 and the nine months ended 31 March 2000 (the “relevant period”) for inclusion in the prospectus of the Company dated 4 July 2000 (the “Prospectus”).
The Company was incorporated in the Cayman Islands on 10 January 2000 as an exempted company with limited liability under the Companies Law (1998 Revision) of the Cayman Islands, for the purpose of acting as the holding company of the subsidiaries listed in section 1 below. The Company has not carried out any business since the date of its incorporation save for the acquisition of the subsidiaries as detailed in the subsection headed “Corporate Reorganisation” in Appendix 4 to the Prospectus.
We have examined the audited financial statements or unaudited management accounts of companies comprising the Group for the relevant period (or where the companies were incorporated at a date later than 1 July 1997, for the period from their respective dates of incorporation to 31 March 2000) in accordance with the Auditing Guideline “Prospectus and the Reporting Accountant” issued by the Hong Kong Society of Accountants.
We have acted as auditors of the companies comprising the Group for the relevant period or since their respective dates of incorporation or acquisition. No audited financial statements have been prepared for the companies comprising the Group except for Future Home Limited since their incorporation. We have, however, reviewed all relevant transactions of these companies from their respective dates of incorporation to 31 March 2000 for the purpose of this report. We have not audited any financial statements of the companies comprising the Group in respect of any period subsequent to 31 March 2000.
The directors of the respective companies of the Group are responsible for preparing financial statements which give a true and fair view. In preparing these financial statements it is fundamental that appropriate accounting policies are selected and applied consistently.
171 APPENDIX 1 ACCOUNTANTS’ REPORT
The summaries of the combined results of the Group for the relevant period and the combined net liabilities of the Group as at 31 March 2000 (the “Summaries”) set out below are based on the audited financial statements or, where appropriate, the unaudited management accounts of the companies comprising the Group on the basis set out in section 1 below.
The directors are responsible for the preparation of the Summaries. It is our responsibilities to form an independent opinion on the Summaries.
In our opinion, on the basis of presentation set out in section 1 below, the Summaries together with the notes thereon, for the purpose of this report, give a true and fair view of the A35 combined results of the Group for each of the two years ended 30 June 1999 and the nine months ended 31 March 2000 and of the combined net liabilities of the Group as at 31 March 2000 and have been properly prepared in accordance with accounting principles generally accepted in Hong Kong.
1. BASIS OF PRESENTATION
The summary of the combined results of the Group for the relevant period includes the 3rd Sch42 results of the companies comprising the Group (for the period from 1 July 1997 or the date of incorporation, if later, to 31 March 2000) as if the current group structure had been in existence and remained unchanged throughout the entire relevant period. The summary of the combined net liabilities of the Group as at 31 March 2000 has been prepared to present the assets and liabilities of the Group at that date as if the current group structure had been in existence then.
All material intra-group transactions and balances have been eliminated on combination.
The financial information has been prepared on the basis that the Group will continue to operate as a going concern because the ultimate holding company has agreed to provide continuous financial support to the Group to meet its liabilities as they fall due.
Set out below are particulars of the Company’s subsidiaries, all of which are private companies, as at the date of this report:
Place and Issued and date of Attributable fully paid Principal Name of company incorporation equity interest % capital activities Direct Indirect
Hansom Technology The British Virgin 100 — US$1 Investment A1A 29(1) A29(1) Limited Islands holding (the “BVI”) 10 March 2000
iCare.com Limited Hong Kong — 100 HK$2 Internet Service 10 November Provider, Internet 1999 Content Provider and provision of e-commerce services
172 APPENDIX 1 ACCOUNTANTS’ REPORT
Place and Issued and date of Attributable fully paid Principal Name of company incorporation equity interest % capital activities Direct Indirect
Popular International The BVI 100 — US$1 Investment Limited 29 February 2000 holding
Future Home Limited Hong Kong — 100 HK$2 Provision of high (formerly known as 12 November technology and Power Sheen 1996 infrastructure Development design and Limited) consultancy services
Startech Investment The BVI 100 — US$1 Investment Limited 6 September 1999 holding
Cotech Investment The BVI — 92.2 HK$10,500,000 Investment Limited 7 July 1999 holding
Eastar Technology Hong Kong — 92.2 HK$10,000,000 Provision of local Limited 20 September wireless fixed 1999 telecom- munications network services
Konet Investment The BVI 100 — US$2 Investment Limited 15 March 2000 holding
Senway Technology The BVI — 100 US$1 Manages Limited (formerly 21 February 2000 strategic known as Sanway investments Technology Limited and Sunway Technology Limited)
Data Tower Holdings The BVI 100 — US$2 Investment Limited (formerly 25 February 2000 holding known as Tradelink Investment Limited)
Rena Limited The BVI — 100 US$1 Investment 4 January 2000 holding
Dowell Limited The BVI — 100 US$1 Investment 15 March 2000 holding
173 APPENDIX 1 ACCOUNTANTS’ REPORT
Place and Issued and date of Attributable fully paid Principal Name of company incorporation equity interest % capital activities Direct Indirect
Mingsway Limited Hong Kong — 100 HK$2 Property 22 March 2000 investment
Victory City Hong Kong — 100 HK$2 Property Enterprises Limited 22 March 2000 investment
Henderson Data Hong Kong — 100 HK$2 Provision of Centre Limited 6 March 2000 internet server (formerly known as co-location Silver Target centres and International Limited) system management
2. PRINCIPAL ACCOUNTING POLICIES 7.03(7)
The principal accounting policies adopted by the Group in arriving at the financial information set out in this report, which conform with accounting principles generally accepted in Hong Kong, are set out below.
(a) Fixed assets and depreciation
(i) Valuation
Fixed assets are stated at cost less accumulated depreciation. The carrying amount of fixed assets is reviewed periodically in order to assess whether the recoverable amount has declined below the carrying amount. When such a decline has occurred, the carrying amount is reduced to the recoverable amount. The amount of the reduction is recognised as an expense in the profit and loss account. In determining the recoverable amount, expected future cash flows generated by the fixed assets are discounted to their present values.
When the circumstances and events that led to the write-down or write-off cease to exist, any subsequent increase in the recoverable amount of an asset is written back to the profit and loss account. The amount written back is reduced by the amount that would have been recognised as depreciation had the write-down or write-off not occurred.
Subsequent expenditure relating to a fixed asset that has already been recognised is added to the carrying amount of the asset when it is probable that future economic benefits, in excess of the originally assessed standard of performance of the existing asset, will flow to the Group. All other subsequent expenditure is recognised as an expense in the period in which it is incurred.
174 APPENDIX 1 ACCOUNTANTS’ REPORT
(ii) Depreciation
Depreciation is calculated to write off the cost of fixed assets on a straight-line basis over the estimated useful lives at the following rates:
Land Over unexpired terms of the leases Buildings Over the shorter of the unexpired terms of the leases or 40 years Leasehold improvements Over the shorter of the periods of the respective leases or 5 years Computer equipment and software 3 to 5 years Set-top boxes 3 years Telecommunication/network 5 to 7 years equipment Furniture, fixtures and office 5 years equipment Motor vehicles 5 years
(iii) Disposals
Gains or losses arising from the retirement or disposal of a fixed asset are determined as the difference between the estimated net disposal proceeds and the carrying amount of the asset and are recognised in the profit and loss account on the date of retirement or disposal.
(b) Other investments in securities
The Group’s policies for investments in securities other than investments in subsidiaries are as follows:
(i) Investments held on a continuing basis for an identified long-term purpose are classified as “investment securities”. Investment securities are stated in the balance sheet at cost less any provisions for diminution in value. Provisions are made when the fair values have declined below the carrying amounts, unless there is evidence that the decline is temporary, and are recognised as an expense in the profit and loss account, such provisions being determined for each investment individually.
(ii) Profits or losses on disposal of investments in securities are determined as the difference between the estimated net disposal proceeds and the carrying amount of the investments and are accounted for in the profit and loss account as they arise.
(c) Inventories
Inventories are carried at the lower of cost and net realisable value.
Cost is calculated using the weighted average cost formula and comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.
175 APPENDIX 1 ACCOUNTANTS’ REPORT
Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.
When inventories are sold, the carrying amount of those inventories is recognised as an expense in the period in which the related revenue is recognised. The amount of any write-down of inventories to net realisable value and all losses of inventories are recognised as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of inventories, arising from an increase in net realisable value, is recognised as a reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs.
(d) Recognition of income
Provided it is probable that the economic benefits will flow to the Group and the revenue and costs, if applicable, can be measured reliably, revenue is recognised in the profit and loss account as follows:
(i) Rental income
Rental income arising from customer use of server co-location services is recognised as income on a straight-line basis over the terms of the respective leases.
Rental income arising from set-top box hiring is recognised when the relevant right to receive payment is established.
(ii) Sale of goods
Revenue from sale of goods is recognised when the goods are delivered at the customers’ premises which is taken to be the point in time when the customer has accepted the goods and the related risks and rewards of ownership. Revenue is stated after deduction of any trade discounts.
(iii) Advertising revenue
Advertising revenue is derived principally from short term advertising contracts pursuant to which the Group may guarantee a minimum number of impressions to advertisers over a specific period of time for a fixed fee. Revenue from advertising is recognised ratably in the period in which the advertisement is displayed, provided that no significant Group obligations remain, at the lesser of the ratio of impressions delivered over total guaranteed impressions or the straight-line basis over the term of contract, and collection of the resulting receivable is probable.
(iv) Consultancy service income
Consultancy service income is derived from the provision of high technology and infrastructure design and consultancy services and is recognised when the services are rendered.
176 APPENDIX 1 ACCOUNTANTS’ REPORT
(v) Telecommunications revenue
Telecommunications revenue charged based on usage of the Group’s network and facilities is recognised when the services are rendered. Telecommunications revenue for services provided for fixed periods is recognised on a straight-line basis over the respective periods.
(vi) Other service revenue
Other service revenue is recognised when the services are rendered.
(vii) Interest income
Interest income is accrued on a time-apportioned basis on the principal outstanding and at the interest rates applicable.
(viii) Dividends
Dividend income from unlisted investments is recognised when the shareholder’s right to receive payment is established.
Dividend from subsidiaries is recognised when the dividend income is either received or receivable, providing the dividend is in respect of a period ending on or before that of the Company and the Company’s right to receive the dividend is established before the financial statements of the Company are approved by the directors.
(e) Research and development costs
Research and development costs including website/portal development costs are charged to the profit and loss account as incurred, except insofar as those product development costs which relate to a clearly defined project and the future benefits therefrom are reasonably assured.
Development costs recognised as an asset are amortised on a straight-line basis over the expected period of return of the related project. The unamortised balance of development costs is reviewed at the end of each period and is written off to the extent that the unamortised balance, taken together with further development and directly related costs, is no longer likely to be recovered. Development costs written off, less attributable amortisation, are written back when the circumstances and events that led to the write off cease to exist and there is persuasive evidence that the new circumstances and events will persist for the foreseeable future.
177 APPENDIX 1 ACCOUNTANTS’ REPORT
(f) Advertising and promotion costs
Advertising and promotion costs are charged to the profit and loss account as incurred.
(g) Operating leases
Rental payable under operating leases is accounted for on a straight-line basis over the periods of the respective leases.
(h) Retirement cost
Contributions to retirement benefit schemes are charged to the profit and loss account as and when incurred.
(i) Pre-operating expenses
Pre-operating expenses comprise expenses incurred by the Group during its preliminary set up period prior to its commencement of business. The pre-operating expenses are written off as incurred.
(j) Deferred taxation
Deferred taxation is provided using the liability method in respect of the taxation effect arising from all material timing differences between the accounting and tax treatment of income and expenditure, which are expected with reasonable probability to crystallise in the foreseeable future.
Future deferred tax benefits are not recognised unless their realisation is assured beyond reasonable doubt.
(k) Translation of foreign currencies
Foreign currency transactions during the relevant period are translated into Hong Kong dollars at the rates of exchange ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated into Hong Kong dollars at the exchange rates ruling at the balance sheet date. Differences on foreign currency translation are dealt with in the profit and loss account.
(l) Related parties
For the purposes of this report, parties are considered to be related to the Group if the Group has the ability, directly or indirectly, to control the party or exercise significant influence over the party in making financial and operating decisions, or vice versa, or where the Group and the party are subject to common control or common significant influence. Related parties may be individuals or other entities.
178 APPENDIX 1 ACCOUNTANTS’ REPORT
3. COMBINED RESULTS 7.04 7.08
The following is a summary of the combined results of the Group for the relevant period prepared on the basis set out in section 1 above:
Nine months Year ended Year ended ended 30 June 30 June 31 March 1998 1999 2000 Notes HK$’000 HK$’000 HK$’000
Turnover (a) 466 1,965 3,417 Cost of services rendered (466) (2,015) (3,483)
Gross loss — (50) (66) Administrative expenses (18) (64) (4,307) Other operating expenses — — (359)
Loss before taxation (b) (18) (114) (4,732) Taxation (c) — — —
Loss after taxation (18) (114) (4,732) Minority interests — — 21
Loss attributable to shareholders (18) (114) (4,711)
Notes:
(a) Turnover
Nine months Year ended Year ended ended 30 June 30 June 31 March 1998 1999 2000 HK$’000 HK$’000 HK$’000
Consultancy service income 466 1,965 3,415 Interest income — — 2
466 1,965 3,417
179 APPENDIX 1 ACCOUNTANTS’ REPORT
(b) Loss before taxation
Loss before taxation is arrived at after charging the following:
Nine months Year ended Year ended ended 30 June 30 June 31 March 1998 1999 2000 HK$’000 HK$’000 HK$’000
Other items Staff costs — — 1,755 Staff retirement costs — — 228 Research and development costs — — 1,158 Less: amount capitalised under fixed assets as computer equipment and software — — 1,122 ——36 Auditors’ remuneration 10 9 — Depreciation of fixed assets — 52 39 Pre-operating expenses written off 4 — 14
(c) Taxation
No provision for Hong Kong Profits Tax has been made for the relevant period as the Group does not have assessable profits subject to Hong Kong Profits Tax during the relevant period.
No provision for deferred taxation has been made as the effect of all timing differences is immaterial. Future deferred tax benefits are not recognised as their realisation cannot be assured beyond reasonable doubt.
(d) Directors’ remuneration
Details of directors’ emoluments are as follows:
Nine months Year ended Year ended ended 30 June 30 June 31 March 1998 1999 2000 HK$’000 HK$’000 HK$’000
Total remuneration — fee — — — — basic salary, allowances, and other benefits — — — — pension fund — — —
———
Number of directors 4 4 4
No directors’ remuneration has been paid by the Group during the relevant period and there were no amounts paid during the relevant period to former directors in connection with their retirement from employment with the Group. There was no arrangement under which a director waived or agreed to waive any remuneration during the relevant period.
180 APPENDIX 1 ACCOUNTANTS’ REPORT
(e) Senior management remuneration
The emoluments of the five highest paid individuals are set out below:
Nine months Year ended Year ended ended 30 June 30 June 31 March 1998 1999 2000 HK$’000 HK$’000 HK$’000
Total remuneration (Notes) — basic salary, allowances, and other benefits — — 1,134 — staff retirement costs — — 166
— — 1,300
Notes:
(i) During the relevant period, the staff costs relating to the provision of high technology and infrastructure design and consultancy services were incurred by an affiliated company and recharged to the Group in form of management fee (see note 6(b) below).
(ii) The five highest paid individuals for the nine months ended 31 March 2000 are all senior management of the Group and their emoluments are within the band of nil to HK$1,000,000. During the relevant period, no emoluments were paid to the five highest paid individuals (including directors and other employees) as an inducement to join or upon joining the Group or as compensation for loss of office.
(f) Dividends
No dividend has been paid or declared by the Company or its subsidiaries since the respective dates of their incorporation.
(g) Loss per share
No loss per share is presented as its inclusion, for the purpose of this report, is not considered 7.03(5) meaningful.
(h) Retirement benefits scheme
The Group’s employees, except for those employed by iCare.com Limited, participate in the Henderson A33(4) Staff Provident Fund (the “Fund”), a defined contribution provident scheme as defined in the Occupational Retirement Schemes Ordinance (Chapter 426 of the Laws of Hong Kong). Contributions to the Fund are made by both the employer and employees at rates ranging from 4 per cent to 6 per cent and 2 per cent of the employees’ basic monthly salaries respectively. According to the terms of the Fund, when an employee leaves the Fund prior to his/her interest in the Group employer contributions vesting fully, the forfeited employer’s contributions shall not be used to reduce the future contributions of the employer. iCare.com Limited will participate in a Mandatory Provident Fund (“MPF”) operated by an approved MPF trustee. All eligible staff and the employer will make mandatory contributions which comply with the minimum requirement of the Mandatory Provident Fund Schemes Ordinance.
181 APPENDIX 1 ACCOUNTANTS’ REPORT
4. NET LIABILITIES
The following is a summary of the combined net liabilities of the Group as at 31 March 2000, prepared on the basis set out in section 1 above:
Notes HK$’000
Non-current assets Fixed assets (a) 1,933 Investment securities (b) 50,000
51,933 ------Current assets Prepayments 1,132 Cash at bank 430
1,562
Current liabilities Amounts due to group companies (c) (57,352)
Net current liabilities (55,790) ------Non-current liability Minority interest (798) ------
Net liabilities (4,655)
Notes:
(a) Fixed assets
Accumulated Cost depreciation Net book value HK$’000 HK$’000 HK$’000
Computer equipment and software 2,024 91 1,933
182 APPENDIX 1 ACCOUNTANTS’ REPORT
(b) Investment securities
HK$’000
Unlisted shares, at cost 50,000
Investment securities comprise the following:
Adsale Broadnet Company Limited (“Adsale”) was incorporated in Hong Kong and principally engages in the provision of information and Internet services on television systems. In March 2000, the Group subscribed for 150 new ordinary shares of HK$1 par value each for a total subscription price of HK$30 million. As at 31 March 2000, the Group’s interest in Adsale was approximately 11.54 per cent.
Roctec Technology Limited (“Roctec”) was incorporated in Hong Kong and principally engages in the provision of services such as data network solutions, data security solutions and multimedia display systems. In March 2000, the Group subscribed for 525 new ordinary shares of HK$1 par value each for a total subscription price of HK$20 million. As at 31 March 2000, the Group’s interest in Roctec was approximately 4.76 per cent.
(c) Amounts due to group companies
At 31 March 2000, amounts due to group companies are as follows:
HK$’000
Henderson Land Development Company Limited 413 Henderson Investment Limited (“Henderson Investment”) 52,900 The Hong Kong and China Gas Company Limited (“Towngas”) 4,039
57,352
The amounts are unsecured, interest-free and have no fixed terms of repayment. Advances were provided to finance the Group’s operations. HK$50 million has been capitalised subsequent to the period end (see Note 9(c) below) and the remaining balance was repaid prior to the listing of the Company’s shares on The Growth Enterprise Market of The Stock Exchange of Hong Kong Limited (“GEM”).
(d) Distributable reserves
The Company was newly incorporated on 10 January 2000 and hence there was no reserve available for distribution as at 31 March 2000.
(e) Net tangible assets of the Company
The Company was incorporated on 10 January 2000. On the basis of preparation set out in section 1 above, the net tangible assets of the Company at 31 March 2000 amounted to HK$40 and were represented by its interests in subsidiaries.
183 APPENDIX 1 ACCOUNTANTS’ REPORT
5. COMMITMENTS AND CONTINGENCIES
(a) Capital Commitments
At 31 March 2000, the group had capital commitments in respect of:
HK$’000 Website development costs — authorised and contracted for 4,117
Acquisition of telecommunication/network equipment — authorised and contracted for 2,553 — authorised but not contracted for 441
Set-top box development costs — authorised and contracted for 65,520
Acquisition of fixed assets — authorised and contracted for 6,732 — authorised but not contracted for 1,518
80,881
(b) Contingent liabilities
As at 31 March 2000, there were contingent liabilities in respect of performance bond guaranteed by a bank on behalf of a subsidiary of the Group amounting to HK$40 million. The performance bond was provided in accordance with the terms of the fixed telecommunication network services licence granted to the Group on 16 February 2000.
Save as disclosed above, the Group and the Company had no other material capital commitments or contingent liabilities as at 31 March 2000.
184 APPENDIX 1 ACCOUNTANTS’ REPORT
6. RELATED PARTY TRANSACTIONS
Nine months Year ended Year ended ended 30 June 30 June 31 March 1998 1999 2000 Notes HK$’000 HK$’000 HK$’000
Continuing transactions
Consultancy service income (a) 466 1,965 3,415 Management fees (b) 466 2,015 3,483
Notes:
(a) Consultancy service income was earned for the provision of high technology and infrastructure design and consultancy services to certain affiliated and related companies.
(b) Management fees were paid to an affiliated company for the provision to the Group of the services of certain IT engineers in relation to the Group’s high technology and infrastructure design and consultancy business determined on a cost reimbursement basis.
The directors of the Company are of the opinion that the above related party transactions were conducted on normal commercial terms and in the ordinary course of business and have confirmed that the above transactions will continue in the future after the listing of the Company’s shares on the GEM.
7. DIRECTORS’ REMUNERATION
Save as disclosed in section 3(d) above, no remuneration has been paid or is payable in respect of the relevant period by the Company or any of its subsidiaries to directors of the Company.
8. ULTIMATE HOLDING COMPANY
The directors consider the ultimate holding company as at 31 March 2000 to be Henderson Development Limited, which is incorporated in Hong Kong.
185 APPENDIX 1 ACCOUNTANTS’ REPORT
9. SUBSEQUENT EVENTS
The following events have occurred subsequent to 31 March 2000 and up to the date of this report:
(a) On 28 June 2000, certain subsidiaries of the Group acquired from the Henderson Investment group two properties for a total consideration of HK$43 million determined based on a valuation of such properties as at 31 May 2000 performed by DTZ Debenham Tie Leung Limited. Details of which are set out in Appendix 2 of the Prospectus.
(b) The Group invested HK$5 million in Cycom Technology Limited (“Cycom”) on 15 May 2000. The Group’s interest in Cycom was approximately 15.28 per cent. Details of investment securities are set out in the “Business” section of the Prospectus.
(c) On 28 June 2000, advances provided by Henderson Investment in the amounts of HK$43 million (see Note 9(a) above), HK$5 million (see Note 9(b) above) and HK$50 million (see Note 4(c) above) were capitalised. Details of which are set out in the subsection headed “Corporate Reorganisation” of Appendix 4 to the Prospectus.
(d) On 28 June 2000, the Company allotted and issued 26,549,961 Shares to each of Felix Technology Limited and Technology Capitalization Limited for cash at HK$0.80 each, amounting in aggregate to HK$42.5 million. Details of which are set out in the subsection headed “Resolutions passed by the shareholders of the Company on 28 June 2000” in Appendix 4 to the Prospectus.
(e) The Company and Towngas have entered into an option agreement relating to the granting of an option by Towngas to the Company at a consideration of HK$10. Details of which are set out in the “Relationship with major shareholders” section of the Prospectus.
(f) The Group completed a reorganisation in preparation for the listing of shares of the Company on the GEM, details of which are set out in the subsection headed “Corporate Reorganisation” of Appendix 4 to the Prospectus.
(g) Movements of share capital of the Company approved by the shareholders on 28 June 2000 are set out in the subsection headed “Resolutions passed by the shareholders of the Company on 28 June 2000” in Appendix 4 to the Prospectus.
10. SUBSEQUENT FINANCIAL STATEMENTS
No audited financial statements have been prepared by the Company or any of the companies now comprising the Group in respect of any period subsequent to 31 March 2000.
Yours faithfully KPMG Certified Public Accountants Hong Kong
186 APPENDIX 2 PROPERTY VALUATION
The following is the text of a letter, summary of valuation and valuation certificate, A9(3) A39 prepared for the purpose of incorporation in this prospectus by DTZ Debenham Tie Leung 3rdSch34 Limited, an independent valuer, in connection with their valuations as at 31 May 2000 of the property interests of the Group.
DTZ Debenham Tie Leung International Property Advisers
Formerly C Y Leung & Company
The Directors Henderson Cyber Limited 6th Floor, World-wide House 19 Des Voeux Road Central Hong Kong
4 July 2000
Dear Sirs,
In accordance with your instructions for us to value the property interests held by Henderson Cyber Limited (the “Company”) or its subsidiaries (together referred to as the “Group”) in Hong Kong, we confirm that we have carried out inspections, made relevant enquiries and searches and obtained such further information as we consider necessary for the purpose of providing you with our opinion of the values of the property interests as at 31 May 2000 (the “date of valuation”).
Our valuation of each of the property interests represents its open market value which we A39 3rd Sch 34 would define as intended to mean “an opinion of the best price at which the sale of an interest in property would have been completed unconditionally for cash consideration on the date of 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 of the interest, for the agreement of the price and terms and for the completion of the sale;
(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.”
187 APPENDIX 2 PROPERTY VALUATION
Our valuations have been made on the assumption that the Group sells the property interests on the open market without the benefit of deferred term contracts, leasebacks, joint ventures, management agreements or any similar arrangements which could serve to affect the values of the property interests.
In valuing the property interests the Government Leases of which expired before 30 June 1997, we have taken into account that under the provisions contained in Annex III of the Joint Declaration of the Government of the United Kingdom and the Government of the People’s Republic of China on the Question of Hong Kong as well as in the New Territories Leases (Extension) Ordinance such leases have been extended without premium until 30 June 2047 and that rents of three per cent of the rateable value are charged per annum from the date of extension.
We have relied to a very considerable extent on the information given by the Group and have accepted advice given to us on such matters as planning approvals, statutory notices, easements, tenure, particulars of occupancy, site plans and areas, floor plans and areas, development proposals and all other relevant matters. Dimensions and measurements are based on the copies of documents or other information provided to us by the Group and are therefore only approximations. No on-site measurement has been carried out.
We have generally valued the property interests in Group I, which are held by the Group in Hong Kong, by direct comparison approach and making reference to comparable sales transactions.
Property interests in Group II and III, which are rented and contracted to be rented by the Group respectively in Hong Kong, are considered to have no commercial value due to the prohibition against assignment of the interest or otherwise due to the lack of substantial profit rent.
We have not been provided with copies of the title documents relating to the properties, but have caused searches to be made at the Urban Land Registry. However, we have not searched the original documents to verify ownership or to ascertain any amendments. All documents have been used for reference only and all dimensions, measurements and areas are approximate.
We have inspected the exterior and, where possible, the interior of the properties. However, no structural survey has been made, but in the course of our inspections, we did not note any serious defects. We are not, however, able to report whether the properties are free of rot, infestation or any other structural defects. No tests were carried out on any of the services.
188 APPENDIX 2 PROPERTY VALUATION
No allowance has been made in our valuations for any charges, mortgages or amounts owing on the property interests nor any expenses or taxation which may be incurred in effecting a sale. Unless otherwise stated, it is assumed that the property interests are free from encumbrances, restrictions and outgoings of any onerous nature which could affect their values.
We enclose herewith our summary of valuations and valuation certificates.
Yours faithfully, for and on behalf of DTZ Debenham Tie Leung Limited K.B. Wong Registered Professional Surveyor A.H.K.I.S., A.R.I.C.S. Director
Note: Mr. K.B. Wong is a chartered surveyor who has extensive experience in the valuation of properties in Hong Kong.
189 APPENDIX 2 PROPERTY VALUATION
SUMMARY OF VALUATIONS Capital value in existing state as at Property 31 May 2000 HK$
Property interests held by the Group in Hong Kong Group I
1. Units 1, 2, 3, 4 and 5 on 33,000,000 16th, 17th, 18th and 19th Floors, Well Tech Centre, 9 Pat Tat Street, San Po Kong, Kowloon, Hong Kong
2. Workshop on 10,000,000 3rd Floor, Big Star Centre, 8 Wang Kwong Road, Kowloon Bay, Kowloon, Hong Kong
Sub-total: 43,000,000
Property interest rented by the Group in Hong Kong Group II
3. Room Nos. 1110-11 on No commercial value 11th Floor, Stanhope House, 734-738 King’s Road, Quarry Bay, Hong Kong
Sub-total: No commercial value
Property interest contracted to be rented by the Group in Hong Kong Group III
4. The entire building to be erected No commercial value on the site at 165-167 Wai Yip Street and 66 How Ming Street, Kwun Tong, Kowloon, Hong Kong
Sub-total: No commercial value
Grand-total: 43,000,000
190 APPENDIX 2 PROPERTY VALUATION
VALUATION CERTIFICATE
Group I — Property interests held by the Group in Hong Kong
Capital value in Particulars of existing state as at Property Description and tenure occupancy 31 May 2000
1. Units 1, 2, 3, 4 and 5 The property comprises four The property is currently HK$33,000,000 on 16th, 17th, 18th industrial/office floors on the vacant. and 19th Floors, 16th, 17th, 18th and 19th Well Tech Centre, floors of a 30-storey 9 Pat Tat Street, industrial/office building San Po Kong, completed in 1997. Kowloon, Hong Kong The property has a gross floor area of approximately 6,664/48,400th parts or 2,380.53 sq.m. (25,624 shares of and in New sq.ft.). Kowloon Inland Lot No. 4489 The property is held from the Government for a term of 99 years from 1 July 1898 less the last three days thereof, which has been statutorily extended to 30 June 2047. The current government rent payable for the property is an amount equal to 3 per cent of the rateable value for the time being of the property per annum.
Note: The registered owner of the property is Mingsway Limited.
191 APPENDIX 2 PROPERTY VALUATION
Capital value in Particulars of existing state as at Property Description and tenure occupancy 31 May 2000
2. Workshop on The property comprises the The property is currently HK$10,000,000 3rd Floor, workshop space on the 3rd vacant. Big Star Centre, floor of a 10-storey 8 Wang Kwong Road, (including a basement) Kowloon Bay, industrial building completed Kowloon, in 1988. Hong Kong The property has a gross 1,173/12,000th parts or floor area of approximately shares of and in New 2,030.19 sq.m. (21,853 Kowloon Inland Lot No. sq.ft.). 5866 The property is held from the Government for a term of 99 years from 1 July 1898 less the last three days thereof which has been statutorily extended to 30 June 2047. The current government rent payable for the property is an amount equal to 3 per cent of the rateable value for the time being of the property per annum.
Note: The registered owner of the property is Victory City Enterprises Limited.
192 APPENDIX 2 PROPERTY VALUATION
Group II — Property interest rented by the Group in Hong Kong
Capital value in existing state as at Property Description and tenancy particulars 31 May 2000
3. Room Nos. 1110-11 on The property comprises two office units on the No commercial value 11th Floor, 11th floor of a 20-storey over basement Stanhope House, commercial building completed in 1965. 734-738 King’s Road, Quarry Bay, The property has a saleable area of approximately Hong Kong 122.63 sq.m. (1,320 sq.ft.). It is currently vacant and is intended to be occupied by the Group as an office.
The property is currently leased to the Group for a term of two years commencing from 1 June 2000 to 31 May 2002 at a monthly rent of HK$19,561.50, exclusive of rates and management expenses. The Group is entitled to a rent-free period of 75 days commencing from 1 June 2000 but shall be responsible to pay rates and management expenses.
193 APPENDIX 2 PROPERTY VALUATION
Group III — Property interest contracted to be rented by the Group in Hong Kong
Capital value in existing state as at Property Description and tenancy particulars 31 May 2000
4. The entire building to be The property comprises a development site with a No commercial value erected on the site registered site area of approximately 1,769.79 at 165-167 Wai Yip Street sq.m. (19,050 sq.ft.). and 66 How Ming Street, Kwun Tong, The property is planned to be developed into an Kowloon, industrial building with a total gross floor area of Hong Kong approximately 21,237.46 sq.m. (228,600 sq.ft.).
The Group has agreed to lease the property for a term of five years commencing from the seventh day after notice by the landlord that possession of the building is ready for delivery and the formal lease is ready for execution. The monthly rental of the property will be HK$11 per sq.ft. in terms of gross floor area, exclusive of management fee, air- conditioning charges, government rent, government rates and all outgoings. The Group will be entitled to a rent-free period of six months from the commencement of the lease.
There will be two options to renew each for a further term of five years at a monthly rent based on rental for the initial five-year term and to be adjusted to account for the inflation/deflation rate at the time of renewal for the first renewal period and at the then prevailing market rent for the second renewal period.
For each of the five-year terms (including the two option terms), the Group will be entitled to terminate at any time after two and a half years from the commencement of each such term by giving six months’ prior notice in writing.
194 APPENDIX 3 SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS COMPANY LAW
Set out below is a summary of certain provisions of the existing memorandum and articles 24.09(2)(3) of association (the “Memorandum and Articles of Association”) of the Company and of certain aspects of Cayman Islands company law.
The Company was incorporated in the Cayman Islands as an exempted company with limited liability on 10 January 2000 under the Companies Law (Revised) of the Cayman Islands (the “Companies Law”). The Memorandum of Association (the “Memorandum”) and the Articles S342(a) (i)(ii)(iv) of Association (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 or body corporate, irrespective of any question of corporate benefit, in doing in any part of the world whether as principal, agent, contractor or otherwise whatever may be considered by it necessary for the attainment of its objects, 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 28 June 2000. 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.
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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.
(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
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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.
A Director shall not vote (nor be counted in the quorum) on any resolution of the A7(1) 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;
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(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 five per cent 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.
(vi) Remuneration
The ordinary remuneration of the Directors shall from time to time be A7(2) A46(4) determined by the Company in general meeting, such sum (unless otherwise 3rd Sch 5 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
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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.
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 A7(4) 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 A7(5) 3rd Sch 5 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.
The office of 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;
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(bb) 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 A7(3) 3rd Sch 22 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.
(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.
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(b) Alterations to constitutional documents
The Articles may be rescinded, altered or amended by the Company in general A7(3) 3rd Sch22 meeting by special resolution. The Articles state that a special resolution shall be required to alter the provisions of the Memorandum, to confirm any amendment to the Articles or to change the name of the Company.
(c) Alteration of capital
The Company may from time to time by ordinary resolution in accordance with the A7(6) 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;
(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.
(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 A25(3) 3rd Sch 20 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-quarters 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
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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.
(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-quarters 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 A25(1) 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), 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 recognised clearing house is a member of the Company it may authorise such person or persons (or its nominee) 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 recognised clearing house (or its nominee) which he represents as that clearing house (or its nominee) could exercise if it were an individual member of the Company.
(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 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.
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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.
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.
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.
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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 A7(8)
All transfers of shares may be effected by an instrument of transfer in the usual or common form 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 nominees(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 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.
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The board may, in its absolute discretion, and without assigning any reason, refuse A7(9) 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 recognise 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.
(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.
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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 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 A7(7) 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.
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(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 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 between 10:00 a.m. and 12:00 noon on every business day by members without charge, or by any other person upon a maximum payment of HK$2.50 dollars, 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$10.00, 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 4(e) 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.
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
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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.
(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.
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3. CAYMAN ISLANDS COMPANY LAW
The Company is incorporated in the Cayman Islands subject to the Companies Law (Revised) of the Cayman Islands 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.
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.
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(c) Financial assistance to purchase shares of a company or its holding company
Subject to all applicable laws, the Company may give financial assistance to Directors and employees of the Company, its subsidiaries 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 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.
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(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 class action against or derivative actions in the name of the company to challenge (a) an act which is ultra vires the company or illegal, (b) an act which constitutes a fraud against the minority 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.
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, although it specifically requires that 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.
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(i) Exchange control
There are no exchange control regulations or currency restrictions in the Cayman A31(1) Islands.
(j) Taxation
Pursuant to section 6 of the Tax Concessions Law (1995 Revision) of the Cayman Islands, the Company has obtained an undertaking from the Governor-in-Council:
(1) that no law which is enacted in the Cayman Islands imposing any tax to be levied on profits or income or gains or appreciation shall apply to the Company or its operations; and
(2) 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 for the Company is for a period of twenty years from 25 January 2000.
The Cayman Islands currently levy no taxes on individuals or corporations based upon profits, income, gains or appreciations and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to the Company levied by the Government of the Cayman Islands save certain stamp duties which may be applicable, from time to time, on certain instruments executed in or brought within the jurisdiction of the Cayman Islands. The Cayman Islands are not party to any double tax treaties.
(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.
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,
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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 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 liquidators; 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
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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.
(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 (Revised) , is available for inspection as referred to in the paragraph headed “Documents available for inspection” in Appendix 5. 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.
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FURTHER INFORMATION ABOUT THE COMPANY
Incorporation
The Company was incorporated in the Cayman Islands under the Companies Law as an A5 A6 exempted company with limited liability on 10 January 2000. The Company has established a S342 S342(1)(a) place of business in Hong Kong at 6th Floor, World-wide House, 19 Des Voeux Road, Central, (ii)(iv)(v) 24.05(2) Hong Kong and is registered in Hong Kong under Part XI of the Companies Ordinance, with 11.05 Mr. Yip Ying Chee, John appointed as the agent of the Company for the acceptance of service of process and notices on behalf of the Company in Hong Kong. As the Company was incorporated in the Cayman Islands, it operates subject to the Companies Law and to its constitution which comprises a memorandum of association and articles of association. A summary of various parts of its constitution and relevant aspects of the Companies Law is set out in Appendix 3 to this prospectus.
Changes in share capital
As at the date of incorporation of the Company, its authorised share capital was A23(1) 3rd Sch2 US$50,000 divided into 50,000 Shares. On 10 January 2000, one share of US$1 in the A26(1) Company was allotted and issued to the initial subscriber and such share was then transferred 3rd Sch 11 to Towngas IT Company Limited (“Towngas IT”) on 11 February 2000.
On 23 March 2000, the Company re-denominated its authorised share capital from US$50,000 divided into US$1 each to HK$390,000 divided into 50,000 shares of HK$7.8 each and then subdivided every issued and unissued share of HK$7.8 into 78 Shares such that the Company had an authorised share capital of HK$390,000 divided into 3,900,000 Shares and an issued share capital of HK$7.8 divided into 78 Shares.
On 28 June 2000, the Company increased its authorised share capital from HK$390,000 A15(3)(c) 3rd Sch2 to HK$1,000,000,000 by the creation of an additional 9,996,100,000 Shares and allotted and issued 26,549,961 Shares to each of Felix Technology and Technology Capitalization for cash at HK$0.80 each. On the same day, the Company allotted and issued a further 71,900,000 Shares to Felix Technology credited as fully paid as consideration for the acquisition by the Company from members of the Henderson Investment Group of the entire issued share capital of each of Data Tower Holdings Limited (“DTHL”), Konet Investment Limited (“Konet”), Popular International Limited (“Popular”) and Startech Investment Limited (“Startech”).
Assuming that the Share Offer becomes unconditional and the issue of the Offer Shares and the Capitalisation Issue mentioned herein are made, but taking no account of any Shares which may be issued upon the exercise of the Over-allotment Option or the options which have been conditionally granted under the Pre-IPO Share Option Plan, the authorised share capital of the Company will be HK$1,000,000,000 divided into 10,000,000,000 Shares and the issued share capital of the Company will be HK$500,000,000 divided into 5,000,000,000 Shares fully paid or credited as fully paid, with 5,000,000,000 Shares remaining unissued. Other than pursuant to the exercise of any options which have been conditionally granted under the Pre-IPO Share Option Plan, and any options which may be granted under the Share Option Scheme or pursuant to the exercise of the Over-allotment Option, there is no present intention to issue any part of the authorised but unissued share capital of the Company and, without the prior approval of the shareholders of the Company in general meeting, no issue of Shares will be made which would effectively alter the control of the Company.
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Save as aforesaid, there has been no alteration in the share capital of the Company since the date of its incorporation.
Resolutions passed by the shareholders of the Company on 28 June 2000
On 28 June 2000, resolutions of the shareholders of the Company were passed pursuant to which, inter alia:
(a) the authorised share capital of the Company was increased from HK$390,000 to HK$1,000,000,000 by the creation of an additional 9,996,100,000 Shares;
(b) the Directors were authorised to allot and issue (i) 26,549,961 Shares to each of Felix Technology and Technology Capitalization for cash at HK$0.80 each and (ii) 71,900,000 Shares to Felix Technology credited as fully paid as consideration for the acquisition by the Company from members of the Henderson Investment Group of the entire issued share capital of each of DTHL, Konet, Popular and Startech;
(c) conditional on (i) the GEM Listing Committee granting listing of, and permission to deal in, the Shares in issue and the Shares to be issued as mentioned herein (including any Shares which may be made available pursuant to the exercise of the Over-allotment Option), 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 HSBC Investment Bank Asia, on behalf of the Underwriters) and not being terminated in accordance with the terms of such agreement or otherwise, in each case, on or before 3 August 2000 (the date being 30 days after the date of this prospectus), the Share Offer and the Over-allotment Option were approved and the Directors were authorised to allot and issue the Offer Shares and the Shares which may be required to be issued if the Over-allotment Option is exercised;
(d) conditional on the share premium account of the Company being credited as a result of the Share Offer, the sum of HK$412,500,000 standing to the credit of such account was directed to be capitalised and applied in paying up in full at par as to 4,125,000,000 Shares for allotment and issue to holders of Shares on the register of members of the Company at the close of business on 28 June 2000 (or as such holders may direct) in proportion (as nearly as possible without having fractions) to their then respective shareholdings in the Company;
(e) conditional on (i) the GEM Listing Committee granting listing of, and permission to deal in, any Shares which may fall to be issued pursuant to the exercise of any option under the Share Option Scheme, (ii) the Share Option Scheme being approved by the shareholders of Henderson Land and the shareholders of Henderson Investment in general meeting of Henderson Land and Henderson Investment respectively, and (iii) on the obligations of the Underwriters under the Underwriting Agreement becoming unconditional (including, if relevant, as a result of the waiver of any condition(s) by HSBC Investment Bank Asia, on behalf of the Underwriters) and not being terminated in accordance with the terms of such agreement or otherwise, the rules of the Share Option Scheme were approved and the Directors were authorised, at their absolute discretion, to grant options to subscribe for Shares thereunder and
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to allot, issue and deal with Shares pursuant to the exercise of subscription rights under any options which may be granted under the Share Option Scheme and to take all such steps as they consider necessary or desirable to implement the Share Option Scheme;
(f) conditional on (i) the GEM Listing Committee granting listing of, and permission to deal in, any Shares which may fall to be issued pursuant to the exercise of any options under the Pre-IPO Share Option Plan, (ii) the Pre-IPO Share Option Plan being approved by the shareholders of Henderson Land and the shareholders of Henderson Investment in general meeting of Henderson Land and Henderson Investment respectively, and (iii) on the obligations of the Underwriters under the Underwriting Agreement becoming unconditional (including, if relevant, as a result of the waiver of any condition(s) by HSBC Investment Bank Asia, on behalf of the Underwriters) and not being terminated in accordance with the terms of such agreement or otherwise, the rules of the Pre-IPO Share Option Plan were approved and the Directors were authorised, at their absolute discretion, to grant options to subscribe for Shares thereunder and to allot, issue and deal with Shares pursuant to the exercise of subscription rights under any options which may be granted under the Pre-IPO Share Option Plan and to take all such steps as they consider necessary or desirable to implement the Pre-IPO Share Option Plan;
(g) a general unconditional mandate was given to the Directors to exercise all the powers of the Company to allot, issue and deal with, otherwise than by way of rights or an issue of shares upon the exercise of any subscription rights attached to any warrants of the Company or pursuant to the exercise of any options which may be granted under the Share Option Scheme or the Pre-IPO Share Option Plan or any other option scheme or similar arrangement for the time being adopted for the grant or issue to officers and/or employees of the Company and/or any of its subsidiaries of shares or rights to acquire shares or any scrip dividend schemes or similar arrangements providing for the allotment and issue of shares of the Company 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, Shares with a total nominal value not exceeding 20 per cent of (i) the aggregate of the total nominal value of the share capital of the Company in issue immediately following completion of the Share Offer and the Capitalisation Issue and (ii) the total nominal value of share capital of the Company which may be issued pursuant to the Over-allotment Option, such mandate to remain in effect until whichever is the earliest of:—
(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 laws to be held; or
(iii) the passing of an ordinary resolution of the shareholders of the Company in general meeting revoking, varying or renewing such mandate;
219 APPENDIX 4 STATUTORY AND GENERAL INFORMATION
(h) a general unconditional mandate was given to the Directors authorising them to exercise all powers of the Company to repurchase on the GEM or on any other stock exchange on which the securities of the Company may be listed and which is recognised by the SFC and the Stock Exchange for this purpose such number of Shares as will represent up to 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 the Capitalisation Issue and (ii) the total nominal value of share capital of the Company which may be issued pursuant to the Over-allotment Option, such mandate to remain in effect until whichever is the earliest of:—
(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 laws to be held; or
(iii) the passing of an ordinary resolution of the shareholders of the Company in general meeting revoking, varying or renewing such mandate; and
(i) the general unconditional mandate mentioned in paragraph (g) above was extended by the addition to the aggregate nominal value of the share capital of the Company which may be allotted or agreed conditionally or unconditionally to be allotted by the Directors pursuant to such general mandate of an amount representing the aggregate nominal value of the share capital of the Company repurchased by the Company pursuant to the mandate to repurchase Shares referred to in paragraph (h) above provided that such extended amount shall not exceed 10 per cent of (i) the aggregate of the total nominal amount of the share capital of the Company in issue immediately following completion of the Share Offer and the Capitalisation Issue and (ii) the total nominal value of share capital of the Company which may be issued pursuant to the Over-allotment Option.
Corporate Reorganisation
The companies comprising the Group underwent a reorganisation to rationalise the A25 3rd Sch 11 Group’s structure in preparation for the listing of the Shares on GEM. The Company became the ultimate holding company of the Group. The Reorganisation involved the following:
(a) On 10 April 2000, Towngas IT sold 78 Shares, representing the then entire issued share capital of the Company, as to 39 Shares to Technology Capitalization and as to 39 Shares to Felix Technology at a consideration of HK$0.10 per Share;
(b) On 31 May 2000, Konet acquired the entire issued share capital of Senway from Startech for cash at US$1;
(c) On 19 June 2000, 2 shares of HK$1 each in iCare, representing its entire issued share capital, were transferred from the Company and its nominee to Hansom Technology Limited and its nominee for a total cash consideration of HK$2;
220 APPENDIX 4 STATUTORY AND GENERAL INFORMATION
(d) On 23 June 2000, DTHL acquired the entire issued share capital of each of Rena Limited (“Rena”), Dowell Limited (“Dowell”) and HDC from I-System Technology Limited for cash at US$1, US$1 and HK$2, respectively;
(e) On 28 June 2000, all the loans in the aggregate amount of HK$43 million due by DTHL to Henderson Investment were capitalised by DTHL allotting and issuing to Henderson Investment 1 share of US$1 in DTHL credited as fully paid;
(f) On 28 June 2000, all the loans in the aggregate amount of HK$55 million due by Konet to Henderson Investment were capitalised by Konet allotting and issuing to Henderson Investment 1 share of US$1 in Konet credited as fully paid;
(g) On 28 June 2000, each of Felix Technology and Technology Capitalization subscribed for 26,549,961 Shares for cash at HK$0.80 each; and
(h) On 28 June 2000, the Company acquired the entire issued share capital of each of DTHL, Konet, Popular and Startech from Henderson Investment or its subsidiaries (as the case may be) in consideration of the allotment and issue by the Company of a total of 71,900,000 Shares to Felix Technology credited as fully paid.
Changes in the share capital of subsidiaries
The Company’s subsidiaries are referred to in the accountants’ report, the text of which A26 3rd Sch 11 is set out in Appendix 1 to this prospectus.
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) following its incorporation on 10 November 1999, iCare allotted and issued for cash at par 2 shares of HK$1 each to its susbscribers which then transferred these shares to Towngas Investment and its nominee on 9 December 1999 and the Company acquired these shares on 1 March 2000 for cash at HK$2;
(b) following its incorporation on 6 September 1999, Startech allotted and issued on 29 September 1999 for cash at par 1 share of US$1 to Henderson Land which then transferred such share to Henderson Investment on 27 October 1999;
(c) (i) following its incorporation on 7 July 1999, Cotech Investment Limited (“Cotech”) allotted and issued for cash at par 1 share of US$1 to Startech on 29 September 1999;
(ii) on 30 December 1999, Cotech allotted and issued for cash at par 94 shares of US$1 each to Startech and 5 shares of US$1 each to Fiber Profits Limited;
(iii) on 12 January 2000, the authorised share capital of Cotech was re- denominated from US$50,000 divided into US$1 each to HK$390,000 divided into 50,000 shares of HK$7.8 each, all the shares of HK$7.8 each were sub-divided into shares of HK$1 each and the authorised share capital of
221 APPENDIX 4 STATUTORY AND GENERAL INFORMATION
HK$390,000 was divided into 390,000 shares of HK$1 each. On the same date, the authorised share capital of Cotech was increased from HK$390,000 to HK$20,000,000 by the creation of 19,610,000 additional shares of HK$1 each;
(iv) on 21 February 2000, Cotech allotted and issued for cash at par 9,499,259 shares of HK$1 each to Startech and 499,961 shares of HK$1 each to Fiber Profits Limited; and
(v) on 12 May 2000, Cotech allotted and issued for cash at par 294,000 shares of HK$1 each to Japan Asia Venture Fund, 25,000 shares of HK$1 each to Fiber Profits Limited and 181,000 shares of HK$1 each to Startech;
(d) (i) following its incorporation on 20 September 1999, Eastar allotted and issued for cash at par 2 shares of HK$1 each to its subscribers which then transferred these shares to Cotech and its nominee on 4 October 1999;
(ii) on 5 January 2000, the authorised share capital of Eastar was increased from HK$10,000 to HK$20,000,000 by the creation of 19,990,000 additional shares of HK$1 each; and
(iii) on 21 February 2000, Eastar allotted and issued for cash at par 9,999,998 shares of HK$1 each to Cotech;
(e) following its incorporation on 10 March 2000, Hansom Technology Limited allotted and issued for cash at par 1 share of US$1 to the Company on 17 April 2000;
(f) (i) following its incorporation on 15 March 2000, Konet allotted and issued for cash at par 1 share of US$1 to Translink Technology Limited (a wholly-owned subsidiary of Henderson Investment) on 13 April 2000; and
(ii) on 28 June 2000, Konet allotted and issued 1 share of US$1 to Henderson Investment credited as fully paid by capitalising all the loans in the aggregate amount of HK$55 million due by Konet to Henderson Investment;
(g) (i) following its incorporation on 25 February 2000, DTHL allotted and issued on 17 April 2000 for cash at par 1 share of US$1 to the Company which then transferred such share to I-System Technology Limited on 20 June 2000; and
(ii) on 28 June 2000, DTHL allotted and issued 1 share of US$1 to Henderson Investment credited as fully paid by capitalising all the loans in the aggregate amount of HK$43 million due by DTHL to Henderson Investment;
(h) following its incorporation on 4 January 2000, Rena allotted and issued for cash at par 1 share of US$1 to I-System Technology Limited on 13 April 2000;
(i) following its incorporation on 15 March 2000, Dowell allotted and issued for cash at par 1 share of US$1 to I-System Technology Limited on 13 April 2000;
222 APPENDIX 4 STATUTORY AND GENERAL INFORMATION
(j) following its incorporation on 22 March 2000, Mingsway Limited (“Mingsway”) allotted and issued for cash at par 2 shares of HK$1 each to its subscribers which then transferred these shares to Rena and its nominee on 13 April 2000;
(k) following its incorporation on 22 March 2000, Victory City Enterprises Limited (“Victory City”) allotted and issued for cash at par 2 shares of HK$1 each to its subscribers which then transferred these shares to Dowell and its nominee on 13 April 2000;
(l) following its incorporation on 6 March 2000, HDC allotted and issued for cash at par 2 shares of HK$1 each to its subscribers which then transferred these shares to I-System Technology Limited and its nominee on 13 April 2000 and DTHL acquired these shares on 23 June 2000;
(m) following its incorporation on 29 February 2000, Popular allotted and issued for cash at par 1 share of US$1 to Jetstar Technology Limited (a wholly-owned subsidiary of Henderson Investment) on 31 March 2000; and
(n) following its incorporation on 21 February 2000, Senway allotted and issued on 10 March 2000 for cash at par 1 share of US$1 to Startech which then transferred such share to Konet on 31 May 2000.
Save as aforesaid, there has been no alteration in the share capital of the subsidiaries of the Company within the two years preceding the date of this prospectus.
Repurchase by the Company of its own securities
This section includes the information required by the Stock Exchange to be included in this prospectus concerning the repurchase by the Company of its own securities.
(a) Regulations of the GEM Listing Rules
The GEM Listing Rules permit companies whose primary listing is on GEM to repurchase their securities on GEM subject to certain restrictions, the most important of which are summarised below:—
(i) Shareholders’ approval
All 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 resolution of the shareholders of the Company passed on 28 June 2000, a general unconditional mandate (the “Buyback Mandate”) was given to the Directors authorising any repurchase by the Company of Shares as described above in paragraph (g) of “Resolutions passed by the shareholders of the Company on 28 June 2000”
(ii) Source of funds
Any repurchases must be financed out of funds legally available for the purpose 13.08(3) in accordance with the memorandum and articles of association and the applicable laws of the Cayman Islands.
223 APPENDIX 4 STATUTORY AND GENERAL INFORMATION
(iii) Trading restrictions
A company is authorised to repurchase on GEM or on any other stock exchange recognised by the SFC and the Stock Exchange the total number of shares which represent up to a maximum of 10 per cent of the aggregate nominal value of the existing issued share capital of that company at the date of the passing of the relevant resolution granting the repurchase mandate. A company may not issue or announce an issue of new securities of the type that have been repurchased for a period of 30 days immediately following a repurchase of securities whether on GEM or otherwise (except pursuant to the exercise of warrants, share options or similar instruments requiring the company to issue securities which were outstanding prior to the repurchase) without the prior approval of the Stock Exchange. A company is also prohibited from making securities repurchases on GEM if the result of the repurchases would be that the number of the listed securities in public hands would be below the relevant prescribed minimum percentage for that company as determined by the Stock Exchange.
(iv) Status of repurchased securities
The listing of all repurchased securities (whether on GEM or otherwise) is automatically cancelled and the relative certificates must be cancelled and destroyed. Under Cayman Islands law, a company’s repurchased shares shall be treated as cancelled and the amount of the company’s issued share capital shall be reduced by the aggregate nominal value of the repurchased shares accordingly although the authorised share capital of the company will not be reduced.
(v) Suspension of repurchase
Any securities repurchase programme is required to be suspended after a price-sensitive development has occurred or has been the subject of directors’ decision until the price-sensitive information is made publicly available. In particular, during the period of one month immediately preceding either the preliminary announcement of a company’s annual results or the publication of the company’s half-year report or a quarterly report, a company may not purchase its securities on GEM unless the circumstances are exceptional. In addition, the Stock Exchange may prohibit repurchases of securities on GEM if a company has breached the GEM Listing Rules.
(vi) Reporting requirements
Repurchases of securities on GEM or otherwise must be reported to the Stock Exchange not later than 9:30 a.m. (Hong Kong time) on the following business day. In addition, a company’s annual report and accounts are required to include a monthly breakdown of securities repurchases made during the financial year under review, showing the number of securities repurchased each month (whether on GEM or otherwise), the purchase price per share or the highest and lowest prices paid for all such repurchases and the total prices paid. The directors’ report is also required to contain reference to the purchases made during the year and the directors’ reasons for making such purchases. The company shall make arrangements with its broker who effects the purchase to provide the company in a timely fashion the necessary information in relation to the purchase made on behalf of the company to enable the company to report to the Stock Exchange.
224 APPENDIX 4 STATUTORY AND GENERAL INFORMATION
(vii) Connected parties
Under the GEM Listing Rules, a company shall not knowingly repurchase shares from a connected person (as defined in the GEM Listing Rules) and a connected person shall not knowingly sell his shares to the company. As at the 13.08(5) 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.
(b) Exercise of the Buyback Mandate
Exercise in full of the Buyback Mandate, on the basis of 5,000,000,000 Shares in 13.08(1) issue immediately after listing of the Shares and taking no account of any Shares which may be allotted pursuant to the Over-allotment Option or any options which have been granted under the Pre-IPO Share Option Plan, could accordingly result in up to 500,000,000 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 other applicable laws to be held; or (iii) the revocation, variation or renewal of the repurchase mandate by ordinary resolution of the shareholders of the Company in general meeting, whichever occurs first.
(c) Reasons for repurchases 13.08(2)
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 of the Company and/or its earnings per Share.
(d) Funding of repurchases
In repurchasing Shares, the Company may only apply funds legally available for 13.08(3) such purpose in accordance with its memorandum and articles of association and the applicable laws and regulations of the Cayman Islands. The Company may not purchase 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 13.08(4) 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.
The Directors have undertaken to the Stock Exchange that, so far as the same may 13.08(6) be applicable, they will exercise the Buyback Mandate in accordance with the GEM Listing Rules, the memorandum and articles of association of the Company and the applicable laws of the Cayman Islands.
225 APPENDIX 4 STATUTORY AND GENERAL INFORMATION
No connected person (as defined in the GEM Listing Rules) of the Company has 13.08(9) notified the Company that it or he or she has a present intention to sell Shares to the Company or has undertaken not to do so.
If as a result of a repurchase of Shares, a shareholder’s proportionate interest in the 13.08(7) voting rights of the Company increases, such increase will be treated as an acquisition for the purpose of the Hong Kong Code on Takeovers and Mergers (the “Code”). As a result, a shareholder, or a group of shareholders acting in concert, depending on the level of increase in the shareholder’s interests, could obtain or consolidate control of the Company and become(s) obliged to make a mandatory offer in accordance with Rule 26 of the Code.
FURTHER INFORMATION ABOUT THE BUSINESS
Summary of material contracts
The following contracts (not being contracts in the ordinary course of business) have A51 3rd Sch 17 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) an agreement for lease dated 28 June 2000 between Landrise Development Limited (“Landrise”) and HDC whereby Landrise agreed to lease to HDC the entire building to be purposely built for the Group on the site located at 165-167 Wai Yip Street and 66 How Ming Street, Kwun Tong, Kowloon, Hong Kong (“Wealth Centre”) for a term of five years with two renewal options for a term of five years each at a monthly rental (exclusive of rates, management fees and other outgoings) of HK$11 per sq.ft. for the initial five year period and to be adjusted to account for inflation/deflation by reference to the Consumer Price Index published by the Hong Kong Government at the expiration of the initial five year period and at the then prevailing market rent for the third five year period;
(b) a memorandum for sale and purchase dated 28 June 2000 between Fordwise Development Limited (“Fordwise”) and Victory City whereby Fordwise agreed to sell to Victory City the property being 3rd Floor, Big Star Centre, 8 Wang Kwong Road, Kowloon Bay, Kowloon, Hong Kong (“Big Star Centre”) for a total consideration of HK$10,000,000;
(c) an assignment dated 28 June 2000 between Fordwise and Victory City whereby Fordwise assigned Big Star Centre to Victory City for a total consideration of HK$10,000,000;
(d) a memorandum for sale and purchase dated 28 June 2000 between Faith Limited (“Faith”) and Mingsway whereby Faith agreed to sell to Mingsway the property being Units 1, 2, 3, 4 and 5 on 16th, 17th, 18th and 19th Floors, Well Tech Centre, 9 Pat Tat Street, San Po Kong, Kowloon, Hong Kong (“Well Tech Centre”) for a total consideration of HK$33,000,000;
(e) an assignment dated 28 June 2000 between Faith and Mingsway whereby Faith assigned Well Tech Centre to Mingsway for a total consideration of HK$33,000,000;
226 APPENDIX 4 STATUTORY AND GENERAL INFORMATION
(f) a licence agreement dated 12 June 2000 between Smoothing Investment Limited and iCare whereby Smoothing Investment Limited granted to iCare an exclusive right to use the domain name icare.com.hk registered in its name at a nominal consideration of HK$1, such agreement is of no fixed term;
(g) an agreement dated 28 June 2000 between the Company and Henderson Land whereby Henderson Land agreed to supply to the Group, inter alia, legal, secretarial, accounting, computer and other related services and to provide the Group with the use of office equipment at reimbursement costs;
(h) an agreement dated 23 June 2000 between the Company and Towngas relating to the Supporting Services Arrangements between the Company and Towngas detailed in the section headed “Relationship with Major Shareholders”;
(i) an agreement dated 28 June 2000 between the Company and Henderson Land relating to the System Support Arrangements detailed in the section headed “Relationship with Major Shareholders”;
(j) an agreement dated 28 June 2000 between the Company, Henderson Investment and Henderson Land relating to the Data Centre Services Arrangements detailed in the section headed “Relationship with Major Shareholders”;
(k) a letter dated 28 June 2000 from Henderson Land to HDC relating to the Property Management Arrangements in respect of Wealth Centre detailed in the section headed “Relationship with Major Shareholders”;
(l) an agreement dated 28 June 2000 between the Company, Henderson Investment and Henderson Land relating to the Intelligent Building Services and FTNS Arrangements detailed in the section headed “Relationship with Major Shareholders”;
(m) an agreement dated 28 June 2000 between Henderson Land and the Company relating to the Marketing Arrangements detailed in the section headed “Relationship with Major Shareholders”;
(n) an agreement dated 28 June 2000 between the Company, Henderson Investment and Henderson Land relating to the Licence Arrangements detailed in the section headed “Relationship with Major Shareholders”;
(o) a licence agreement dated 12 June 2000 between Towngas and the Company whereby Towngas granted to the Group the right to use the marks owned by it and which are more specifically described in the paragraph headed “Intellectual Property” in this Appendix at a nominal consideration of HK$1, such agreement is of no fixed term;
(p) an agreement dated 28 June 2000 between the Company and Henderson Investment whereby Henderson Investment sold or procured its relevant subsidiaries to sell to the Company the entire issued share capital of each of Konet, Popular, Startech and DTHL in consideration of the Company allotting and issuing to Felix Technology 71,900,000 Shares credited as fully paid;
227
APPENDIX 4 STATUTORY AND GENERAL INFORMATION
Name of Country of applicant Mark Class Registration Application no. Date of application
Towngas iCare 36 Hong Kong 99 16046 5 November 1999
Towngas iCare 37 Hong Kong 99 16047 5 November 1999
Towngas iCare 38 Hong Kong 99 16048 5 November 1999
Towngas iCare 41 Hong Kong 99 16045 5 November 1999
Towngas iCare 42 Hong Kong 99 15837 3 November 1999
Towngas 11 Hong Kong 99 18354 13 December 1999
Towngas 35 Hong Kong 99 18355 13 December 1999
Towngas 36 Hong Kong 99 18356 13 December 1999
Towngas 37 Hong Kong 99 18357 13 December 1999
Towngas 38 Hong Kong 99 18358 13 December 1999
Towngas 41 Hong Kong 99 18359 13 December 1999
Towngas 42 Hong Kong 99 18360 13 December 1999
Towngas * 11 Hong Kong 2000 11094 19 May 2000
Towngas * 35 Hong Kong 2000 11095 19 May 2000
Towngas * 36 Hong Kong 2000 11096 19 May 2000
Towngas * 37 Hong Kong 2000 11097 19 May 2000
Towngas * 38 Hong Kong 2000 11098 19 May 2000
231 APPENDIX 4 STATUTORY AND GENERAL INFORMATION
Name of Country of applicant Mark Class Registration Application no. Date of application
Towngas * 41 Hong Kong 2000 11099 19 May 2000
Towngas * 42 Hong Kong 2000 11100 19 May 2000
* The application to register has been filed in respect of a series of eight marks for each such class.
Towngas 11 Hong Kong 99 16049 5 November 1999
Towngas 35 Hong Kong 99 16050 5 November 1999
Towngas 36 Hong Kong 99 15359 27 October 1999
Towngas 37 Hong Kong 99 16051 5 November 1999
Towngas 38 Hong Kong 99 16052 5 November 1999
Towngas 41 Hong Kong 99 16053 5 November 1999
Towngas 42 Hong Kong 99 16054 5 November 1999
The Company has obtained an exclusive licence to use the marks “ICARE”, “iCare”, “ ” and “ ” (in series) and a non-exclusive licence to use the mark “ ” with the right to grant sub-licences of these marks to other members of the Group pursuant to material contract (o) referred in the paragraph “Further information about the business — Summary of material contracts” in this Appendix.
232 APPENDIX 4 STATUTORY AND GENERAL INFORMATION
The domain names specified below are registered in the names of or licensed to members of the Group:—
Registrant Domain name Registration date Expiration date
Company hendersoncyber.com 7 June 2000 7 June 2002
Company hendersoncyber.net 9 June 2000 9 June 2002
Company Hendersoncyber.org 9 June 2000 9 June 2002
Company ihenderson.com 23 February 2000 23 February 2002
Smoothing Investment Limited (Note) icare.com.hk 27 October 1999 Not applicable
iCare icare.com.cn 6 April 2000 5 April 2001
iCare . 1 February 2000 31 January 2002
iCare . 20 February 2000 20 February 2002
iCare . 20 February 2000 20 February 2002
HDC datatower.net 27 March 2000 27 March 2002
HDC hendersoncyber.com.hk 12 June 2000 Not applicable
Eastar eastar-technology.net 21 June 2000 21 June 2002
Eastar eastar-tech.net 21 June 2000 21 June 2002
Eastar estl.net 21 June 2000 21 June 2002
Future Home ifuturehome.com 11 April 2000 11 April 2002
Future Home ifuturehome.com.hk 20 April 2000 Not applicable
Note: Pursuant to material contract (f) referred to the paragraph headed “Further information about the business — Summary of material contracts” in this Appendix, Smoothing Investment Limited, an indirect wholly-owned subsidiary of Towngas, has licensed the right to use this domain name to iCare.
233 APPENDIX 4 STATUTORY AND GENERAL INFORMATION
FURTHER INFORMATION ABOUT DIRECTORS, SENIOR MANAGEMENT AND STAFF
Directors A45(2)
Disclosure of Interests A47(1) 3rd Sch 19 (a) The interests of each of the Directors in the equity securities of the Company and the associated corporations (within the meaning of the SDI Ordinance) of the Company which will have to be notified to the Company and the Stock Exchange pursuant to section 28 of the SDI Ordinance (including interests which they are taken or deemed to have taken under section 31 of, or Part 1 of the Schedule to, the SDI Ordinance) once the Shares are listed, 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 transactions by Directors to be notified to the Company and the Stock Exchange once the Shares are listed, will be as follows (assuming that their interest will remain unchanged after the Latest Practicable Date):—
Ordinary shares (unless otherwise specified)
Name of Personal Family Corporate Other Name of company Director Interests Interests Interests Interests Total
The Company Lee Shau Kee 173,898 — — 4,244,995,843 4,245,169,741 (Note 15)
Lam Ko Yin, 55 — — — 55 Colin
Henderson Land Lee Shau Kee — — — 1,118,914,300 1,118,914,300 (Note 1)
Henderson Investment Lee Shau Kee 34,779,936 — — 1,816,496,007 1,851,275,943 (Note 6)
Lam Ko Yin, 11,000 — — — 11,000 Colin
Henderson China Holdings Lee Shau Kee — — — 286,374,477 286,374,477 Limited (Note 13)
Hong Kong Ferry Lee Shau Kee 7,799,220 — — 108,588,090 116,387,310 (Holdings) Company (Note 7) Limited
Lam Ko Yin, 150,000 — — — 150,000 Colin
Towngas Lee Shau Kee 2,666,260 — — 1,782,659,328 1,785,325,588 (Note 8)
Li Kwok Po, 9,061,226 — — — 9,061,226 David
Chan Wing Kin, 92,510 — — — 92,510 Alfred (Note 5)
Miramar Hotel and Lee Shau Kee — — — 201,884,250 201,884,250 Investment Company, (Note 11) Limited
234 APPENDIX 4 STATUTORY AND GENERAL INFORMATION
Name of Personal Family Corporate Other Name of company Director Interests Interests Interests Interests Total
Henderson Development Lee Shau Kee — — — 8,190 8,190 Limited (Ordinary A (Ordinary A shares) shares) (Note 2)
Lee Shau Kee 35,000,000 — — 15,000,000 50,000,000 (Non-voting (Non-voting (Non-voting deferred deferred shares) deferred shares) (Note 3) shares)
Lee Shau Kee — — — 3,510 3,510 (Non-voting B (Non-voting B shares) shares) (Note 14)
Lee Ka Kit — — — 8,190 8,190 (Ordinary A (Ordinary A shares) shares) (Note 4)
Lee Ka Shing — — — 8,190 8,190 (Ordinary A (Ordinary A shares) shares) (Note 10)
Angelfield Investment Lam Ko Yin, —— 1 —1 Limited Colin (Note 9)
Henfield Properties Limited Lee Ka Kit — — 4,000 — 4,000 (Note 9)
Shellson International Lee Ka Kit — — 25 —25 Limited (Note 9)
Feswin Investment Limited Lee Ka Kit — — 5,000 — 5,000 (Note 9)
Perlin Development Limited Lee Ka Kit — — 5 —5 (Note 9)
Quickcentre Properties Lee Ka Kit — — 1 —1 Limited (Note 9)
Techno Factor Lee Ka Kit 2,575,000 — — — 2,575,000 (Development) Limited
Amanwana Limited Lee Ka Kit 5 — — — 5
Maxfine Development Lee Ka Kit — — 1,525 — 1,525 Limited (Note 9)
Shanghai Henfield Lee Ka Kit — — (see — (see Properties Co., Ltd. Note 12) Note 12)
Notes: 1. Dr. Lee Shau Kee owned beneficially all the issued share capital of Rimmer (Cayman) Limited which was the trustee of a discretionary trust which held the majority of units in a unit trust (“Unit Trust”) and Hopkins (Cayman) Limited which was the trustee of the Unit Trust which beneficially owned all the issued ordinary shares which carry the voting rights in the share capitals of Henderson Development Limited (“HD”) and Fu Sang Company Limited (“FS” and which beneficially owned 192,500 of these shares). HD and its subsidiaries owned 1,113,119,200 of these shares. In addition, 5,602,600 of these shares were beneficially owned by a subsidiary of Towngas. Dr. Lee Shau Kee was taken to be interested in Towngas as set out in Note 8 by virtue of the SDI Ordinance.
235 APPENDIX 4 STATUTORY AND GENERAL INFORMATION
2. Dr. Lee Shau Kee was taken to be interested in HD through the Unit Trust, Hopkins (Cayman) Limited and Rimmer (Cayman) Limited as set out in Note 1 by virtue of the SDI Ordinance.
3. These shares were beneficially owned by FS. Dr. Lee Shau Kee was taken to be interested in FS through the Unit Trust, Hopkins (Cayman) Limited and Rimmer (Cayman) Limited as set out in Note 1 by virtue of the SDI Ordinance.
4. These shares were beneficially owned by the Unit Trust. The units of the Unit Trust were owned by two discretionary trusts in which Mr. Lee Ka Kit was one of the discretionary beneficiaries.
5. These shares were jointly held by Mr. Chan Wing Kin, Alfred and his spouse.
6. These shares were beneficially owned by FS and certain subsidiaries of Henderson Land. Dr. Lee Shau Kee was taken to be interested in FS and Henderson Land as set out in Note 1 by virtue of the SDI Ordinance.
7. These shares were beneficially owned by certain subsidiaries of Henderson Investment. Dr. Lee Shau Kee was taken to be interested in Henderson Investment through FS and Henderson Land as set out in Note 1 and Note 6 by virtue of the SDI Ordinance.
8. These shares were beneficially owned by certain subsidiaries of Henderson Investment, FS and a subsidiary of HD. Dr. Lee Shau Kee was taken to be interested in Henderson Investment, FS and HD as set out in Note 1 and Note 6 by virtue of the SDI Ordinance.
9. These shares were beneficially owned by a company in which the relevant director is entitled to exercise or control the exercise of one-third or more of the voting power at its general meetings.
10. These shares were beneficially owned by the Unit Trust. The units of the Unit Trust were owned by two discretionary trusts in which Mr. Lee Ka Shing was one of the discretionary beneficiaries.
11. These shares were beneficially owned by certain subsidiaries of Henderson Investment. Dr. Lee Shau Kee was taken to be interested in Henderson Investment through FS and Henderson Land as set out in Note 1 and Note 6 by virtue of the SDI Ordinance.
12. Shanghai Henfield Properties Co., Ltd. was an equity joint venture company in the PRC of which the registered capital was US$27,000,000. Henfield Properties Limited (“Henfield”) (owned as to 40 per cent by a company controlled by Mr. Lee Ka Kit) and the PRC partner to the joint venture had entered into a joint venture contract under which Henfield and the PRC partner agreed to make contributions to the total amount of investment in the proportion of 99 per cent and 1 per cent respectively and to share the profits of the joint venture company in accordance with their equity interest in the joint venture company.
13. These shares were beneficially owned by certain subsidiaries of Henderson Land. Dr. Lee Shau Kee was taken to be interested in Henderson Land as set out in Note 1 by virtue of the SDI Ordinance.
14. These shares were beneficially owned by Hopkins (Cayman) Limited as trustee of the Unit Trust. Dr. Lee Shau Kee was taken to be interested in HD through the Unit Trust, Hopkins (Cayman) Limited and Rimmer (Cayman) Limited as set out in Note 1 by virtue of the SDI Ordinance.
15. These shares were beneficially owned by a subsidiary of Henderson Investment, FS, certain subsidiaries of Henderson Land and a subsidiary of Towngas. Dr. Lee Shau Kee was taken to be interested in Henderson Investment, FS, Henderson Land and Towngas as set out in Note 1, Note 6 and Note 8 by virtue of the SDI Ordinance.
(b) The Directors have been conditionally granted options in respect of Shares under the Pre-IPO Share Option Plan described in the section headed “Share Options” below. The options conditionally granted under the Pre-IPO Share Option Plan, including the options conditionally granted to Directors, are set out in the paragraph headed “Share Options — Outstanding options granted under the Pre-IPO Share Option Plan” of this Appendix.
236 APPENDIX 4 STATUTORY AND GENERAL INFORMATION
Particulars of service agreements A46(1) 3rd Sch19
(a) Each of Chan Wing Kin, Alfred, Lam Ko Yin, Colin and Yip Ying Chee, John has entered into a service agreement with the Company. Particulars of these contracts, except as indicated, are in all material respects identical and are set out below:—
(i) each service contract is of an initial term of three years commencing on 1 April 2000 and shall continue thereafter until terminated by either party giving to the other not less than two months’ prior written notice;
(ii) subject to shareholder’s approval, the director fee for each of the above Directors for any financial year during the initial three-year term shall be HK$20,000 per annum;
(iii) each of the above Directors is entitled to such management bonus as the Board may approve without limitation; and
(iv) each such Director shall abstain from voting and not be counted in the quorum in respect of any resolution of the board of Directors regarding the amount of management bonus payable to himself.
(b) Save as disclosed herein, none of the Directors has entered into any service agreements 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).
Directors’ remuneration
(a) The Company’s policies concerning remuneration of executive Directors are:— A7(2) A46(4) 3rd Sch 19 (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 under their remuneration package; and
(iii) the executive Directors may be granted, at the discretion of the board of Directors, options pursuant to the Pre-IPO Share Option Plan and/or the Share Option Scheme, as part of their remuneration package.
(b) No remuneration is expected to be paid to the Directors by the Group in respect of the A46(3) 3rd Sch19 year ending 30 June 2000 pursuant to the present arrangement.
(c) None of the Directors or any past directors of any member of the Group has been paid any A33.2 sum of money in each of the two years ended 30 June 1999 and the nine months ended 31 March 2000 (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 notice in connection with the management of the affairs of any member of the Group.
237 APPENDIX 4 STATUTORY AND GENERAL INFORMATION
(d) There has been no arrangement under which a Director has waived or agreed to waive A33.2(g) any emoluments in each of the two years ended 30 June 1999 and the nine months ended 31 March 2000.
(e) The non-executive Directors have been appointed for a term expiring on 31 December 2001 and thereafter are eligible for re-election. Save for directors’ fees, none of the non-executive Directors is expected to receive any other remuneration for holding their office as a non-executive Director.
(f) No Director received any remuneration or benefits in kind from the Group for the year A46(2) ended 30 June 1999. Particulars of emoluments paid to the five persons who received the highest emoluments from the Group for the nine months ended 31 March 2000 are set out in note (e) to the section headed “Combined Results” of the accountants’ report set out in Appendix 1 to this prospectus.
Agency fees or commissions received
The Underwriters will receive an underwriting commission of 2.75 per cent of the aggregate Issue Price of the Offer Shares, out of which they will pay any sub-underwriting commissions as mentioned in the paragraph headed “Commission and expenses” under the section headed “Underwriting” of this prospectus.
Related party transactions
The Group entered into the related party transactions within the two years immediately preceding the date of this prospectus as mentioned in paragraph 6 of the accountants’ report set out in Appendix 1, the sections headed “Waivers from compliance with the GEM Listing Rules and the Companies Ordinance” and “Relationship with Major Shareholders”, respectively of this prospectus.
Disclaimers
Save as disclosed herein:—
(a) none of the Directors or chief executives has for the purposes of section 28 of the A45(1) 3rd Sch 30 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 A1A 15(3)(j) 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 GEM;
(b) none of the Directors nor any of the persons whose names are listed in the A47(1) 3rd Sch 19 paragraph headed “Consent of experts” under the section headed “Other Information” 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;
238 APPENDIX 4 STATUTORY AND GENERAL INFORMATION
(c) none of the Directors nor any of the persons whose names are listed in the A47(2) 3rd Sch 19 paragraph headed “Consents 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 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;
(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 A8(2) 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; and
(g) so far as is known to the Directors, none of the Directors, their respective Associates or shareholders of the Company who are interested in more than 5 per cent of the issued share capital of the Company have any interests in the five largest customers or the five largest suppliers of the Group.
SHARE OPTIONS
Summary of terms of the Share Option Scheme 3rd Sch 10
The following is a summary of the principal terms of the Share Option Scheme A27 A44 conditionally approved by resolutions of the shareholders of the Company on 28 June 2000: 3rd Sch 10
(a) Who may join
The board of Directors or a duly authorised committee thereof which shall include the A18(3) 3rd Sch 10 independent non-executive Directors (and in so far as may be required by the GEM Listing Rules, the independent non-executive directors of any holding company of the Company which is also listed on GEM or the Main Board) (the “Board”) may, at its discretion, invite (i) any executive directors of the members of the Group and (ii) any full time employees of the Group (together “Employees”), to take up options at HK$1.00 per option to subscribe for Shares at a price calculated in accordance with sub-paragraph (d) below.
(b) Grant of Option
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
239 APPENDIX 4 STATUTORY AND GENERAL INFORMATION
the GEM Listing Rules. In particular, during the period of one month immediately preceding the preliminary announcement of annual results or the publication of interim results, no option should be granted until such information has been announced pursuant to the requirements of Chapter 16 of the GEM Listing Rules.
(c) Payment on acceptance of option offer
HK$1.00 is payable by the Employee to the Company on acceptance of the option 23.03(5) offer.
(d) Price of Shares
The subscription price for Shares under the Share Option Scheme will be a price 23.03(6) A18(3) determined by the Board and notified to each grantee and will be the highest of (i) the 3rd Sch 10 closing price of the Shares as stated in the Stock Exchange’s daily quotations sheet on A23.04(2) the date of offer, 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 offer; and (iii) the nominal value of a Share.
(e) Maximum number of Shares A18(1) 3rd Sch 10
(i) The Company may seek approval of its shareholders in general meetings to authorise Directors to grant options under the Share Option Scheme and any other share option schemes of the Company (including the Pre-IPO Share Option Plan) entitling the grantees to exercise up to an aggregate of 10 per cent of the total number of Shares in issue from time to time (excluding (1) any Shares issued pursuant to the Share Option Scheme and any other share option schemes of the Company; and (2) any pro rata entitlements to further Shares issued in respect of those Shares mentioned in (1)) unless the Company obtains a fresh approval from its shareholders pursuant to (ii) below.
(ii) The Company may seek approval of its shareholders in general meeting to renew the 10 per cent limit such that the total number of Shares in respect of which options may be granted under the Share Option Scheme and any other share option schemes of the Company in issue shall not exceed 10 per cent of the issued share capital of the Company at the date of approval to renew such limit.
(iii) The Company may grant options to specified Employee(s) beyond the 10 per cent limit if the grant of such options is specifically approved by the shareholders of the Company in general meeting.
Notwithstanding the above, the maximum number of Shares in respect of which options may be granted under the Share Option Scheme and any other share option schemes of the Company (including the Pre-IPO Share Option Plan) shall not exceed 30 per cent of the total number of Shares in issue from time to time (excluding (i) any Shares issued pursuant to the Share Option Scheme and any other share option schemes of the Company (including the Pre-IPO Share Option Plan); and (ii) any pro rata entitlements to further Shares issued in respect of those Shares mentioned in (i)).
240 APPENDIX 4 STATUTORY AND GENERAL INFORMATION
Immediately after completion of the Share Offer and taking no account of Shares which may be issued pursuant to the Over-allotment Option, the total number of Shares which will be subject to the Share Option Scheme will be 468,000,000 Shares which together with the 32,000,000 Shares subject to the options conditionally granted under the Pre-IPO Share Option Plan represents 10 per cent of the issued share capital of the Company at that time.
No Employee shall be granted an option which, if exercised in full, would result in such Employee becoming entitled to subscribe for such number of Shares as, when aggregated with the total number of Shares already issued under all the options previously granted to him or her which have been exercised, and, issuable under all the options previously granted to him or her which are for the time being subsisting and unexercised, would exceed 25 per cent of the aggregate number of Shares for the time being issued and issuable under the Share Option Scheme.
(f) Requirements on granting options to connected persons
Any grant of options to an Employee who is a connected person (as such term is defined in the GEM Listing Rules) of the Company must be approved by the independent non-executive directors of the Company.
Where the Board proposes to grant any option to an Employee who is a substantial shareholder (as defined in the GEM Listing Rules) or an associate of any substantial shareholder (as so defined) of the Company and such option which if exercised in full, would result in such Employee becoming entitled to subscribe for such number of Shares, when aggregated with the total number of Shares already issued, and issuable, to him or her pursuant to all the options granted to him or her in the 12 month period up to and including the date on which such proposal is made by the Board (the “Relevant Date”):
(i) representing in aggregate more than 0.1 per cent of the total number of Shares in issue at the Relevant Date; and
(ii) having a value, based on the closing price of the Shares as stated in the Stock Exchange’s daily quotations sheet on the Relevant Date and if the Relevant Date is not a trading day, the trading day immediately preceding the Relevant Date, in excess of HK$5,000,000
such proposed grant of options must be approved by the shareholders of the Company in general meeting with the Employee concerned and all other connected persons (as defined in the GEM Rules) of the Company abstaining from voting (except where any connected person (as so defined) intends to vote against such proposed grant.)
(g) Time of exercise of option
An option may be exercised in accordance with the terms of the Share Option A18(2) 3rd Sch 10 Scheme at any time during a period of not less than three years and not more than 10 years to be notified by the Board to each grantee which period of time shall commence on the date of grant of the option and expire on the last day of such period as determined by the Board.
241 APPENDIX 4 STATUTORY AND GENERAL INFORMATION
(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
If the grantee of an option ceases to be an Employee for any reason other than death, misconduct or certain other grounds (including bankruptcy, insolvency or a conviction of a criminal offence), the grantee may exercise the option up to the grantee’s entitlement at the date of cessation (to the extent which has become exercisable and not already exercised) within the period of one month following the date of such cessation, which date shall be the last actual working day with the relevant company in the Group whether salary is paid in lieu of notice or not or such longer period as the Board may determine, failing which the option will lapse.
(j) Rights on death
If the grantee of an option dies before exercising the option in full and none of certain events which would be a ground for termination of his or her employment arises, his or her personal representative(s) may exercise the option in full (to the extent which has become exercisable and not already exercised) within a period of 12 months from the date of death, failing which the option will lapse.
(k) Effects of alterations to capital
In the event of an alteration in the capital structure of the Company whilst any option remains exercisable, such corresponding alterations (if any) certified by the auditors for the time being of the Company as fair and reasonable will be made in the subject matter of the option so far as unexercised the subscription price and/or the method of the exercise of the option, provided that no such alteration shall be made so that a Share would be issued at less than its nominal value or which would give a grantee a different proportion of the issued share capital of the Company as that to which he or she was previously entitled and no alteration shall be made if any alteration in the capital structure of the Company is the result of an issue of Shares in the capital of the Company as consideration in a transaction.
(l) Rights on take-over
If a general offer by way of take-over is made to all the holders of Shares (or all such holders other than the offeror and/or any person controlled by the offeror and/or any person acting in association or concert with the offeror) with the terms of the offer having been approved by the holders of not less than nine-tenths in value of the Shares comprised in the offer within four months from the date of the offer and the offeror thereafter gives a notice to acquire the remaining Shares, the grantee (or his or her personal representative(s)) may by notice in writing to the Company within 21 days of such notice exercise the option (to the extent which has become exercisable and not already exercised) to its full extent or to the extent specified in such notice.
242 APPENDIX 4 STATUTORY AND GENERAL INFORMATION
(m) Rights on a compromise or arrangement
If 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 date 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 (or his or her personal representative(s)) may until the expiry of the period commencing with such date and ending with the earlier of the date two months thereafter and the date on which such compromise or arrangement is sanctioned by the court exercise any of his or her options whether in full or in part, but the exercise of an option as aforesaid shall be conditional upon such compromise or arrangement being sanctioned by the court and becoming effective. Upon such compromise or arrangement becoming effective, all options shall lapse except insofar as previously exercised under the Share Option Scheme. The Company may require the grantee (or his or her personal representative(s)) to transfer or otherwise deal with the Shares issued as a result of the exercise of options in these circumstances so as to place the grantee in the same position as nearly as would have been the case had such Shares been subject to such compromise or arrangement.
(n) 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 sub-paragraph (i), (j) or (l) respectively;
(iii) subject to the compromise or arrangement becoming effective, the expiry of the period referred to in sub-paragraph (m);
(iv) the date on which the grantee of an option ceases to be an Employee by reason of the termination of his or her employment on grounds including, but not limited to, misconduct, bankruptcy, insolvency and conviction of any criminal offence;
(v) the date of the commencement of the winding-up of the Company; or
(vi) the date on which the grantee sell, transfer, charge, mortgage, encumber or create any interest in favour of any third party over or in relation to any option in breach of the Share Option Scheme.
(o) Ranking of Shares
The Shares to be allotted 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.
243 APPENDIX 4 STATUTORY AND GENERAL INFORMATION
Unless the context otherwise requires, references to “Shares” in the 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.
(p) Cancellation of Options granted
Any cancellation of options granted but not exercised must be approved by shareholders of the Company (and also by shareholders of any holding company of the Company which is listed on the GEM or the main board of the Stock Exchange) in general meeting, with participants and their associates abstaining from voting. Any vote taken at the meeting to approve such cancellation must be taken by poll.
(q) Period of Share Option Scheme
The Share Option Scheme will remain valid for a period of 10 years commencing on 28 June 2000.
(r) Alteration to Share Option Scheme
The Share Option Scheme may be altered in any respect by resolution of the Board except that the provisions of the scheme relating to matters contained in Rule 23.03 of the GEM Listing Rules shall not be altered to extend the class of persons eligible for the grant of options or to the advantage of grantees or prospective grantees except with the prior approval of the shareholders of the Company in general meeting (with participants and their associates abstaining from voting). No such alteration shall operate to affect adversely the terms of issue of any option granted or agreed to be granted prior to such alteration except with the consent or sanction of such majority of the grantees as would be required of the Company’s shareholders under the Company’s articles of association for the time being for a variation of the rights attached to the Shares.
Any alteration to the terms and conditions of the Share Option Scheme, which are of a material nature, must be approved by the Stock Exchange, except where the alterations take effect automatically under the existing terms of the Share Option Scheme.
(s) Conditions of the Share Option Scheme
The Share Option Scheme is conditional on (a) the GEM Listing Committee granting the listing of, and permission to deal in, the Shares in issue and to be issued as mentioned herein and granting listing of, and permission to deal in, any Shares which may be issued pursuant to the exercise of options granted under the Share Option Scheme, (b) the Share Option Scheme being approved by the shareholders of Henderson Land and shareholders of Henderson Investment in general meeting of Henderson Land and Henderson Investment respectively, and (c) the obligations of the Underwriters under the Underwriting Agreement becoming unconditional (including, if relevant, as a result of the waiver of any such condition(s) by HSBC Investment Bank Asia on behalf of the Underwriters) and not being terminated in accordance with the terms of that agreement or otherwise.
244 APPENDIX 4 STATUTORY AND GENERAL INFORMATION
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 Share Option Scheme.
As at the date of this prospectus, no option has been granted or agreed to be granted by the Company under the Share Option Scheme.
Summary of terms of the Pre-IPO Share Option Plan
The purpose of the Pre-IPO Share Option Plan is to recognise the contribution of certain directors and employees of members of the Group, members of the Towngas Group and members of the Henderson Group to the growth of the Group and/or to the listing of the Shares on GEM. The principal terms of the Pre-IPO Share Option Plan, conditionally approved by a written resolutions of the shareholders of the Company dated 28 June 2000 (which is still subject to certain conditions as referred to in paragraph (s) of the paragraph headed “Share Options — Summary of terms of the Share Option Scheme” above), are substantially the same as the terms of the Share Option Scheme except that:—
(a) the subscription price for Shares is the Issue Price;
(b) the total number of Shares subject to the Pre-IPO Share Option Plan is 32,000,000 and there are no similar requirements on granting options to connected persons as summarised in paragraph (f) of the paragraph headed “Share Options — Summary of terms of the Share Option Scheme” above);
(c) the definition of “Employee” includes any employee and any director of the Company, Towngas or Henderson Land or their respective subsidiaries; and
(d) save for the options which have been conditionally granted (see below) no further options will be offered or granted, as the right to do so will end upon the listing of the Shares on GEM.
Each of the grantees to whom options have been conditionally granted under the Pre-IPO Share Option Plan will be entitled to exercise (i) thirty per cent of the options so granted to him/her (rounded down to the nearest whole number) at any time after the expiry of 12 months from the Listing Date, (ii) a further thirty per cent of the options so granted to him/her (rounded down to the nearest whole number) at any time after the expiry of 24 months from the Listing Date; and (iii) the remaining options at any time after the expiry of 36 months from the Listing Date and, in each case, not later than four years from the Listing Date.
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 Pre-IPO Share Option Plan.
245 APPENDIX 4 STATUTORY AND GENERAL INFORMATION
Outstanding options granted under the Pre-IPO Share Option Plan
As at the date of this prospectus, options to subscribe for an aggregate of 32,000,000 11.04 Shares (representing approximately 0.64 per cent. of the total issued share capital of the Company immediately after completion of the Share Offer and the Capitalisation Issue, assuming the Over-allotment Option is not exercised) have been conditionally granted by the Company under the Pre-IPO Share Option Plan. Particulars of the outstanding options conditionally granted under the Pre-IPO Share Option Plan to the 8 Directors and 18 senior management staff of members of the Group who have been conditionally granted options to subscribe for 600,000 Shares or more are set out below:
Number of Shares subject to the Name of grantee Address options A18(3) 3rd Sch10 Directors
Dr. Lee Shau Kee 22nd Floor 2,400,000 36 MacDonnell Road Hong Kong
Chan Wing Kin, Alfred No. 20, 15th Street 1,200,000 Hong Lok Yuen Tai Po New Territories Hong Kong
Lam Ko Yin, Colin Flat 10D 1,200,000 64 MacDonnell Road Hong Kong
Lee Ka Kit 22nd Floor 1,200,000 36 MacDonnell Road Hong Kong
Lee Ka Shing 22nd Floor 1,200,000 36 MacDonnell Road Hong Kong
Yip Ying Chee, John Flat A - 401, Villa Verde 1,200,000 4/F, 18 Guildford Road The Peak Hong Kong
Dr. The Hon. Li Kwok Po, Penthouse, Flat A 1,200,000 David Tower 2, Dynasty Court 23 Old Peak Road Hong Kong
246 APPENDIX 4 STATUTORY AND GENERAL INFORMATION
Number of Shares subject to the Name of grantee Address options A18(3) 3rd Sch10 Professor Ko Ping Keung 10A, Tower 5 1,200,000 Senior Staff Quarters The Hong Kong University of Science and Technology Clearwater Bay New Territories Hong Kong
Senior Management Staff
Douglas H. Moore House 2B, Evergreen Garden 1,200,000 18 Shouson Hill Road Hong Kong
Lee Wai Kwong, Sunny Flat A, 6/F, Evelyn Towers 1,200,000 38 Cloudview Road North Point Hong Kong
Wong Chi Cheong, Michael Flat 11D, Malibu Garden 1,200,000 3 Tsui Man Street Happy Valley Hong Kong
Wong Sau Yan 18D, Tower 3 600,000 Bayshore Tower Ma On Shan Kowloon
Chan Tat Hung, Ronald Block C1 600,000 10/F Winfield Building 5 Ventris Road Hong Kong
Kwan Yuk Choi, James Unit A, 18/F 600,000 Block 3 Flora Garden 7 Chun Fai Road Hong Kong
Chu Wing Yee, Wendy Flat 5B, Dragonview Court 600,000 5-7 Kotewall Road Hong Kong
247 APPENDIX 4 STATUTORY AND GENERAL INFORMATION
Number of Shares subject to the Name of grantee Address options A18(3) 3rd Sch10 Shen Shuk Ching, Susanna Unit 308, 3/F, Block F 600,000 Kornhill Quarry Bay Hong Kong
Pan Suk Ying, Vivian Room 1906 600,000 Harbour Plaza Hotel 665 King’s Road North Point Hong Kong
Fung Man Kit, Daniel Flat F, 3/F Parkford Garden 600,000 6 Chi Fuk Circuit Pak Fuk Tsuen Fanling New Territories
Kwok Ping Ho, Patrick House 15 600,000 45 Island Road Deep Water Bay Hong Kong
Tam Ka Wa, Kelvin Flat A 600,000 5/F Tower 14 Parc Oasis Tat Chee Avenue Yau Yat Chuen Kowloon
Fok Man Kin, Simon Flat D 600,000 11/F Wiseman Building 11-17 Fort Street Hong Kong
Chung Wing Ki Flat A, 5/F 600,000 41 Blue Pool Road Happy Valley Hong Kong
Kwan Wing Hung 17H, Block 1 600,000 Kwai Fong Terrace Kwai Yi Road Kwai Chung New Territories
248 APPENDIX 4 STATUTORY AND GENERAL INFORMATION
Number of Shares subject to the Name of grantee Address options A18(3) 3rd Sch10 Au Tit Ying Flat F 600,000 20/F Excelsior Court 83 Robinson Road Hong Kong
Lai Man Kwong, Patrick Flat F, 12/F 600,000 Block 1, Villa Esplanada Tsing Yi New Territories
Kum Tak Cheung, Bassanio Flat B, 9/F Block 34 600,000 Laguna City Kwun Tong Kowloon
Other
49 other employees of 8,600,000 members of the Group, the Henderson Group and the Towngas Group (each holding options to subscribe for 400,000 Shares or less)
Total 32,000,000
A full list of all the 75 grantees (including the Directors and the senior management staff mentioned above), containing all the details in respect of each option required under paragraph 10 of the Third Schedule to the Companies Ordinance is available for inspection in accordance with the paragraph headed “Documents Available for Inspection” in Appendix 5 to this prospectus.
OTHER INFORMATION
Estate duty and tax indemnity A10
Felix Technology and Henderson Investment on the one hand and Technology Capitalization and Towngas on the other hand have pursuant to a deed of indemnity referred to in the sub-section headed “Summary of material contracts” under the section headed “Further Information about the Business” in this Appendix, given indemnities in connection with among others (a) any liability for Hong Kong estate duty which might be payable by any member of the Group by reason of any transfer of property (within the meaning of section 35 of the Estate Duty Ordinance (Chapter 111 of the Laws of Hong Kong)) to any member of the Group on or before the date on which the Share Offer becomes unconditional; and (b) any taxation which might be payable by any member of the Group in respect of any income, profits
249 APPENDIX 4 STATUTORY AND GENERAL INFORMATION or gains earned, accrued or received or alleged to have been earned, accrued or received on or before the date on which the Share Offer becomes unconditional other than any taxation chargeable in respect of profits or gains made in the ordinary course of business of members of the Group after 31 March 2000. The liabilities of Felix Technology and Henderson Investment on the one hand and Technology Capitalization and Towngas on the other hand under the deed of indemnity shall be several (not joint or joint and several) and on the basis of 78.76 per cent and 21.24 per cent, respectively.
Felix Technology, Henderson Investment, Technology Capitalization and Towngas (together the “Indemnifying Parties”) will however, not be liable under the deed of indemnity for taxation where (a) provision or allowance has been made for such taxation in the audited combined accounts of the Group for the two years ended 30 June 1999 and the nine months ended 31 March 2000 (the “Accounts”); (b) the taxation arises or is incurred as a result of a retrospective change in law or a retrospective increase in tax rates coming into force after the date of the deed of indemnity; (c) the taxation or liability would not have arisen but for any act, transaction, omission or delay by any member of the Group voluntarily effected after the date of the deed of indemnity (other than pursuant to a legally binding commitment created on or before the date of the deed of indemnity) without the prior acquescience of one or more of the Indemnifying Parties, and otherwise than in the ordinary course of business, and (d) provision or reserve made for such taxation in the Accounts is established to be an over-provision or an excessive reserve.
The Directors have been advised that no material liability for estate duty is likely to fall on the Company or any of its subsidiaries in the Cayman Islands or the British Virgin Islands, being jurisdictions in which one or more of the companies comprising the Group are incorporated.
Litigation
No member of the Group is engaged in any litigation or arbitration of material importance A40 and no litigation or claim of material importance is known to the Directors to be pending or threatened against any member of the Group.
Address for service of process and notices
Mr. Yip Ying Chee, John, has been nominated as the authorised person to accept service of process and notices of the Company. The address for service of process and notices is 6th Floor, World-wide House, 19 Des Voeux Road Central, Hong Kong.
Sponsor
HSBC Investment Bank Asia has made an application on behalf of the Company to the GEM Listing Committee for listing of, and permission to deal in, the Shares in issue and to be issued as mentioned herein and any Shares falling to be issued pursuant to the exercise of options granted under the Pre-IPO Share Option Plan and the Share Option Scheme respectively.
250 APPENDIX 4 STATUTORY AND GENERAL INFORMATION
Preliminary expenses
The preliminary expenses of the Company are approximately HK$50,000 and will be paid A20 3rd Sch 15 by the Company.
Promoter
The promoters of the Company are Henderson Investment and Towngas. Particulars of A8(1)(2) 3rd Sch 16 the promoters are set out below:
Henderson Investment
As at the Latest Practicable Date, the issued share capital of Henderson Investment was HK$563,466,000 divided into 2,817,327,395 shares of HK$0.2 each which are fully paid or credited as fully paid. Henderson Investment’s current directors, principal bankers and auditors are as follows:
Directors
Dr. LEE Shau Kee Chairman and Managing Director & D.B.A. (Hon.), D.S.Sc. (Hon.), LL.D. (Hon.) Executive Director
LEE Ka Kit Vice Chairman & Executive Director
LAM Ko Yin, Colin Vice Chairman & Executive Director B.Sc., A.C.I.B., M.B.I.M., F.C.I.T.
Sir Po-Shing WOO Independent Non-Executive Director Hon. LL.D., F.C.I. Arb., F.I.Mgt, F.Inst.D
LEUNG Hay Man Independent Non-Executive Director F.R.I.C.S., F.C.I.Arb., F.H.K.I.S.
YUEN Pak Yiu, Philip Independent Non-Executive Director
LEE Tat Man Non-Executive Director
LEE King Yue Executive Director
LAU Yum Chuen, Eddie Executive Director
LI Ning Executive Director B.Sc., M.B.A.
LEE Ka Shing Executive Director
KWOK Ping Ho, Patrick Executive Director B.Sc., M.Sc., A.C.I.B.
HO Wing Fun Executive Director
251 APPENDIX 4 STATUTORY AND GENERAL INFORMATION
LAU Chi Keung Executive Director F.R.I.C.S., F.H.K.I.S., A.C.I.Arb.
CHEUNG Ping Keung, Donald Executive Director B.A., F.R.I.C.S., A.A.C.I., F.H.K.I.S., A.C.I.Arb., M.H.I.R.E.A., R.P.S.
WONG HO MING, Augustine Executive Director F.H.K.I.S., A.R.I.C.S., A.C.I.Arb., R.P.S.(G.P.)
SUEN Kwok Lam Executive Director H.I.R.E.A. Principal bankers
— The Hongkong and Shanghai Banking Corporation Limited
— Hang Seng Bank Limited
— Bank of China
— Kincheng Banking Corporation
— BEA
— The Chase Manhattan Bank
Auditors
Deloitte Touche Tohmatsu
Towngas
As at the Latest Practicable Date, the issued share capital of Towngas was HK$1,294,828,538.75 divided into 5,179,314,155 shares of HK$0.25 each which are fully paid or credited as fully paid. Towngas’s current directors, principal bankers and auditors are as follows:
Directors
Dr. LEE Shau Kee Chairman and Non-executive Director D.B.A. (Hon.), D.S.Sc. (Hon.), LL.D. (Hon.)
LIU Lit Man Independent Non-executive Director F.I.B.A., J.P.
LEUNG Hay Man Non-executive Director F.R.I.C.S., F.C.I.Arb., F.H.K.I.S.
Dr. LEE Hon Chiu Independent Non-executive Director D.B.A. (Hon.), LL.D. (Hon.), J.P.
252 APPENDIX 4 STATUTORY AND GENERAL INFORMATION
LAM Ko Yin, Colin Non-executive Director B.Sc., A.C.I.B., M.B.I.M., F.C.I.T.
Dr. The Hon. LI Kwok Po, David Independent Non-executive Director O.B.E., M.A., Hon. LL.D (Cantab), Hon. D.Soc.Sc., F.C.A., F.H.K.S.A., F.C.I.B., F.H.K.I.B., F.B.C.S., F.C.I.Arb., J.P.
LEE Ka Kit Non-executive Director
LEE Ka Shing Non-executive Director
CHAN Wing Kin, Alfred Managing Director B.Sc. (ENG), M.Sc. (ENG)
CHAN Tat Hung, Ronald Executive Director and Company Secretary F.C.C.A., F.C.M.A, F.C.P.A, F.C.I.S., F.H.K.S.A., M.H.K.S.I.
KWAN Yuk Choi, James Director and General Manager-Marketing B.Sc. (ENG), M.B.A., and Customer Service M.B.I.M., C.Eng., F.I.GasE., F.H.K.I.E., M.C.I.B.S.E., M.I.Mech.E.
Principal bankers
— The Hongkong and Shanghai Banking Corporation Limited
— BEA
Auditors
PricewaterhouseCoopers
Save as disclosed in this prospectus, within the two years preceding the date of this prospectus, no amount or benefit has been paid or given to the promoters in connection with the Share Offer or the related transactions described in this prospectus.
253 APPENDIX 4 STATUTORY AND GENERAL INFORMATION
Qualifications
The following are the qualifications of the experts who have given opinion or advice which A4 A9(1) are contained in this prospectus:
Name Qualification
HSBC Investment Bank Asia An exempt dealer under the Securities Ordinance (Chapter 333 of the Laws of Hong Kong) and a licensed bank under the Banking Ordinance (Chapter 155 of the Laws of Hong Kong)
KPMG Certified public accountants
DTZ Debenham Tie Leung Limited Property valuers
Conyers Dill & Pearman, Cayman Cayman Islands attorneys-at-law
Consents A9(2)(3) S342B(1)(a) S342C(3) Each of HSBC Investment Bank Asia, KPMG, DTZ Debenham Tie Leung Limited and Conyers Dill & Pearman, Cayman has given and has not withdrawn its written consent to the issue of this prospectus with the inclusion of its report and/or letter and/or valuation certificate and/or the references to its name included herein in the form and context in which they are respectively included.
Binding effect
This prospectus shall have the effect if an application is made in pursuance hereof, of rendering all persons concerned bound by all of the provisions (other than the penal provisions) of sections 44A and 44B of the Companies Ordinance insofar as applicable.
Miscellaneous
(a) Save as disclosed in this prospectus: A26(1)
(i) within the two years preceding the date of this prospectus, no share or loan capital of the Company or any of its subsidiaries has been issued or agreed to be issued fully or partly paid either for cash or for a consideration other than cash;
(ii) no share or loan capital of the Company or any of its subsidiaries is under option or A27 3rd Sch 10 is agreed conditionally or unconditionally to be put under option;
(iii) there has been no material adverse change in the financial or trading position or A38 prospects of the Group since 31 March 2000 (being the date to which the latest audited financial statements of the Group were made);
(iv) no founders, management or deferred shares of the Company or any of its A24 3rd Sch 4 subsidiaries have been issued or agreed to be issued; and
254 APPENDIX 4 STATUTORY AND GENERAL INFORMATION
(v) within the two years preceding the date of this prospectus, no commissions, A13 3rd Sch 14 discounts, brokerages or other special terms have been granted in connection with the issue or sale of any capital of the Company or any of its subsidiaries.
(b) None of HSBC Investment Bank Asia, KPMG, DTZ Debenham Tie Leung Limited and Conyers Dill & Pearman, Cayman:
(i) is interested beneficially or non-beneficially in any shares in any member of the Group; or
(ii) has any right or option (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for any shares in any member of the Group.
(c) No company within the Group is presently listed on any stock exchange or traded on any trading system.
(d) All necessary arrangements have been made to enable the Shares to be admitted into A14(2) CCASS for clearing and settlement.
255 APPENDIX 5 DOCUMENTS DELIVERED AND AVAILABLE FOR INSPECTION S342C(2)
DOCUMENTS DELIVERED TO THE REGISTRAR OF COMPANIES S342C(3)(a) (b) The documents attached to the copy of this prospectus registered by the Registrar of Companies in Hong Kong were copies of the WHITE and YELLOW application forms, the written consents referred to in the section headed “Other Information — Consents of experts” in Appendix 4 to this prospectus, and copies of the material contracts referred to in the section headed “Further Information About the Business — Summary of material contracts” in Appendix 4 to this prospectus.
DOCUMENTS AVAILABLE FOR INSPECTION S342(1)(a)(iii)
Copies of the following documents will be available for inspection at the office of Woo Kwan Lee & Lo, 27th Floor, Jardine House, 1 Connaught Place, Central, Hong Kong during normal business hours up to and including 18 July 2000:
(a) the memorandum and articles of association of the Company; A52(1)
(b) audited accounts of Future Home Limited for each of the two years ended 30 June A52(5) 1999;
(c) the accountants’ report prepared by KPMG, the text of which is set out in Appendix A52(3)(4) 1 to this prospectus;
(d) the letter, summary of valuations and valuation certificate relating to the property A52(3) interests of the Group prepared by DTZ Debenham Tie Leung Limited, the text of which is set out in Appendix 2 to this prospectus;
(e) the rules of the Share Option Scheme;
(f) the rules of the Pre-IPO Share Option Plan and a list of all the grantees to whom options have been conditionally granted under the Pre-IPO Share Option Plan containing all the relevant details required under paragraph 10 of the Third Schedule to the Companies Ordinance;
(g) the Companies Law; 24.09(6)
(h) the letter prepared by Conyers Dill & Pearman, Cayman referred to in Appendix 3 to this prospectus summarising certain aspects of Cayman Islands law;
(i) the service agreements referred to in the section headed “Further information about Directors, senior management and staff — Directors” in Appendix 4 to this prospectus;
(j) the material contracts referred to in the section headed “Summary of material A52(2) contracts” under the section headed “Further information about the business” in Appendix 4 to this prospectus; and
(k) the written consents referred to in the section headed “Consents of experts” under S342C(3) the section headed “Other information” in Appendix 4 to this prospectus.
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